UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended ~~June~~September 30, 2019

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File number 0-54433

MARIMED INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		27-4672745
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

10 Oceana Way

Norwood, MA 02062

(Address of Principal Executive Offices)

617-795-5140

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class		Ticker symbol(s)		Name of each exchange on which registered
Not Applicable.		Not Applicable.		Not Applicable.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer [ ]	Accelerated filer [X]
Non-accelerated filer [ ]	Smaller reporting company [X]
	Emerging growth company [X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of ~~August 9,~~November 27, 2019, ~~218,045,067~~219,238,047 shares of the Issuer’s Common Stock were outstanding.

MariMed Inc.

Table of Contents

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2019 (Unaudited) and December 31, 2018	3

	Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018 (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2933

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	3943

Item 4.	Controls and Procedures	3943

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4044

Item 1A.	Risk Factors	4044

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4044

Item 3.	Defaults Upon Senior Securities	4044

Item 4.	Mine Safety Disclosures	4044

Item 5.	Other Information	4044

Signatures		4145

MariMed Inc.

Condensed Consolidated Balance Sheets

	June 30,			December 31,
	2019			2018			September 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	3,530,213		$	4,104,315		$	136,682		$	4,104,315
Accounts receivable, net		8,662,045			5,376,966			10,170,631			5,376,966
Accounts receivable from related party, net		25,177,845			-			33,200,000			-
Deferred rents receivable								2,042,923			2,096,384
Due from third parties		2,862,681			3,860,377			3,178,980			3,860,377
Deferred rents receivable		2,047,914			2,096,384
Notes receivable, current portion		821,524			51,462			1,321,284			51,462
Inventory		4,783,596			90,460			1,462,149			-
Other current assets		170,189			128,552			211,858			219,012
Total current assets		48,056,007			15,708,516			51,724,507			15,708,516

Property and equipment, net		37,603,881			34,099,864			40,158,470			34,099,864
Intangibles		3,423,751			185,000
Intangibles, net								3,592,302			185,000
Investments		35,662,106			1,672,163			32,728,854			1,672,163
Notes receivable, less current portion		2,470,867			1,092,376			2,471,595			1,092,376
Debentures receivable		-			30,000,000			-			30,000,000
Right-of-use assets under operating leases		6,042,970			-			5,915,004			-
Right-of-use assets under finance leases		70,989			-			119,274			-
Due from related parties		-			119,781			-			119,781
Other assets		345,905			82,924			345,905			82,924
Total assets	$	133,676,476		$	82,960,624		$	137,055,911		$	82,960,624

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,169,363		$	3,915,430		$	3,387,205		$	3,915,430
Accrued expenses		3,920,742			1,588,368			5,185,029			1,588,368
Deferred rents payable		-			105,901			-			105,901
Notes payable		20,844,176			3,877,701			21,073,459			3,877,701
Mortgages payable, current portion		238,386			188,231			220,256			188,231
Operating lease liabilities, current portion		647,379			-			807,757			-
Finance lease liabilities, current portion		23,112			-			38,411			-
Due to related parties		77,157			276,311			415,713			276,311
Unearned revenue from related party		3,162,967			-			4,170,750			-
Other current liabilities								197,943			-
Total current liabilities		31,083,282			9,951,942			35,496,523			9,951,942

Mortgages payable, less current portion		7,219,413			7,348,581			7,174,385			7,348,581
Debentures payable		6,736,429			3,557,440			5,877,556			3,557,440
Operating lease liabilities, less current portion		5,662,845			-			5,531,376			-
Finance lease liabilities, less current portion		48,874			-			82,790			-
Other liabilities		100,200			338,200			100,200			338,200
Total liabilities		50,851,043			21,196,163			54,262,830			21,196,163

Stockholders’ equity:
Series A convertible preferred stock, $0.001 par value; 50,000,000 shares authorized at June 30, 2019 and December 31, 2018; no shares issued or outstanding at June 30, 2019 and December 31, 2018		-			-
Common stock, $0.001 par value; 500,000,000 shares authorized at June 30, 2019 and December 31, 2018; 215,591,103 and 211,013,043 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		215,591			211,013
Common stock subscribed but not issued; 752,260 and 97,136 shares at June 30, 2019 and December 31, 2018, respectively		2,080,000			169,123
Series A convertible preferred stock, $0.001 par value; 50,000,000 shares authorized at September 30, 2019 and December 31, 2018; no shares issued or outstanding at September 30, 2019 and December 31, 2018								-			-
Common stock, $0.001 par value; 500,000,000 shares authorized at September 30, 2019 and December 31, 2018; 218,213,973 and 211,013,043 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively								218,214			211,013
Common stock subscribed but not issued; 6,603,532 and 97,136 shares at September 30, 2019 and December 31, 2018, respectively								4,958,332			169,123
Additional paid-in capital		100,621,830			87,180,165			105,087,809			87,180,165
Accumulated deficit		(20,921,933	)		(25,575,808	)		(28,320,616	)		(25,575,808	)
Noncontrolling interests		829,945			(220,032	)		849,342			(220,032	)
Total stockholders’ equity		82,825,433			61,764,461			82,793,081			61,764,461
Total liabilities and stockholders’ equity	$	133,676,476		$	82,960,624		$	137,055,911		$	82,960,624

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018

Revenues	$	3,657,798		$	2,937,325		$	7,173,614		$	5,020,275		$	4,209,328		$	3,391,582		$	11,382,942		$	8,411,858
Revenues from related party		22,014,878			-			22,014,878			-			7,014,371			-			29,029,249			-
Total revenues		25,672,676			2,937,325			29,188,492			5,020,275			11,223,699			3,391,582			40,412,191			8,411,858

Cost of revenues		16,745,553			913,357			18,000,343			1,802,226			6,523,283			1,521,783			24,523,626			3,324,009

Gross profit		8,927,123			2,023,968			11,188,149			3,218,049			4,700,416			1,869,799			15,888,565			5,087,849

Operating expenses:
Personnel		825,130			284,886			1,498,504			469,557			1,241,535			352,257			2,740,039			821,815
Marketing and promotion		76,060			77,943			194,959			129,704			91,562			37,202			286,521			166,906
General and administrative		2,676,454			1,220,103			4,357,476			2,486,798			2,394,692			2,029,333			6,752,168			4,516,132
Total operating expenses		3,577,644			1,582,932			6,050,939			3,086,059			3,727,789			2,418,792			9,778,728			5,504,853

Operating income (loss)		5,349,479			441,036			5,137,210			131,990			972,627			(548,993	)		6,109,837			(417,004	)

Non-operating income (expenses):
Interest expense		(2,619,460	)		(286,258	)		(4,560,007	)		(602,519	)		(4,516,576	)		(478,118	)		(9,076,583	)		(1,080,637	)
Interest income		64,345			19,072			346,754			38,906			79,016			23,270			425,770			62,176
Loss on debt settlements		-			(563,119	)		-			(1,776,960	)		-			(2,407,671	)		-			(4,184,631	)
Equity in earnings of investments		(45,465	)		-			1,912,942			-
Equity in losses of investments														(2,933,252	)		-			(1,020,310	)		-
Other		2,948,917			(3,600	)		2,948,917			(3,600	)		-			-			2,948,917			(3,600	)
Total non-operating income (expenses)		348,337			(833,905	)		648,606			(2,344,173	)
Total non-operating expenses														(7,370,812	)		(2,862,519	)		(6,722,206	)		(5,206,692	)

Income (loss) before income taxes		5,697,816			(392,869	)		5,785,816			(2,212,183	)
Loss before income taxes														(6,398,185	)		(3,411,512	)		(612,369	)		(5,623,696	)
Provision for income taxes		974,584			(189	)		984,595			12,407			901,477			-			1,886,072			12,407
Net income (loss)	$	4,723,232		$	(392,680	)	$	4,801,221		$	(2,224,590	)
Net loss													$	(7,299,662	)	$	(3,411,512	)	$	(2,498,441	)	$	(5,636,103	)

Net income (loss) attributable to noncontrolling interests		46,147			69,287			147,346			132,520		$	99,021		$	91,362		$	246,367		$	223,882
Net income (loss) attributable to MariMed Inc.	$	4,677,085		$	(461,967	)	$	4,653,875		$	(2,357,110	)	$	(7,398,683	)	$	(3,502,874	)	$	(2,744,808	)	$	(5,859,985	)

Net income (loss) per share
Basic	$	0.022		$	(0.002	)	$	0.022		$	(0.013	)
Diluted	$	0.020		$	(0.002	)	$	0.020		$	(0.013	)

Net loss per share													$	(0.034	)	$	(0.018	)	$	(0.013	)	$	(0.031	)
Weighted average common shares outstanding														217,417,326			196,415,503			214,274,342			186,952,362
Basic		213,319,149			186,645,833			211,510,986			182,746,858
Diluted		232,828,964			186,645,833			231,020,801			182,746,858

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Series A Convertible Preferred Stock Subscribed But Not Issued						Common Stock				Common Stock Subscribed But Not Issued						Additional Paid-In		Accumulated			Non-Controlling			Total Stockholders’			Series A Convertible Preferred Stock				Series A Convertible Preferred Stock Subscribed But Not Issued						Common Stock				Common Stock Subscribed But Not Issued						Additional Paid-In			Accumulated			Non-Controlling			Total Stockholders’
	Shares			Amount			Shares		Par Value		Shares			Amount			Capital		Deficit			Interests			Equity			Shares		Par Value		Shares			Amount			Shares		Par Value		Shares			Amount			Capital			Deficit			Interests			Equity
Balances at December 31, 2017		500,000		$	500			176,850,331	$	176,850		1,000,000		$	370,000		$	22,256,060	$	(11,971,740	)	$	175,490		$	11,007,160			-	$	-		500,000		$	500			176,850,331	$	176,850		1,000,000		$	370,000		$	22,256,060		$	(11,971,740	)	$	175,490		$	11,007,160
Sales of common stock		-			-			10,111,578		10,112		-			-			8,450,891		-			-			8,461,003													14,189,738		14,190								16,881,810									16,896,000
Conversion of Series A preferred stock		(500,000	)		(500	)		970,988		971		-			-			33,573		-			-			34,044							(500,000	)		(500	)		970,988		971								33,573									34,044
Issuance of subscribed shares		-			-			1,000,000		1,000		(1,000,000	)		(370,000	)		369,000		-			-			-													1,000,000		1,000		(1,000,000	)		(370,000	)		369,000									-
iRollie acquisition		-			-			-		-		264,317			600,000			-		-			-			600,000																	264,317			600,000												600,000
Settlement of obligations		-			-			1,313,901		1,314		2,010,922			1,971,600			1,471,846		-			-			3,444,760													3,367,632		3,368		2,894			10,000			3,627,253									3,640,621
Conversion of membership interest																																							222,222		222								(222	)								-
Exercise of options		-			-			300,000		300		-			-			38,700		-			-			39,000													602,000		602								38,398									39,000
Exercise of warrants		-			-			1,235,768		1,236		32,083			12,833			105,383		-			-			119,452													1,899,934		1,900								210,384									212,284
Amortization of option and warrant issuances		-			-			-		-		-			-			6,863,609		-			-			6,863,609
Amortization of option grants																																																	1,023,300									4,084,658
Amortization of stand-alone warrant issuances																																																	1,351,762
Warrant discount on promissory notes																																																	1,709,596
Retirement of promissory notes		-			-			1,679,486		1,679		-			-			2,091,524		-			-			2,093,203													4,018,534		4,019		1,231,060			3,250,000			8,474,786									11,728,805
Distributions		-			-			-		-		-			-			-		-			(325,824	)		(325,824	)																												(507,453	)		(507,453	)
Net income (loss)		-			-			-		-		-			-			-		(2,357,110	)		132,520			(2,224,590	)																									(5,859,985	)		223,882			(5,636,103	)
Balances at June 30, 2018		-		$	-			193,462,052	$	193,462		2,307,322		$	2,584,433		$	41,680,586	$	(14,328,850	)	$	(17,814	)	$	30,111,815
Balances at September 30, 2018																													-	$	-		-		$	-			203,121,379	$	203,122		1,498,271		$	3,860,000		$	55,975,700		$	(17,831,725	)	$	(108,081	)	$	42,099,016

Series A Convertible Preferred Stock Subscribed
But Not Issued Common Stock Common Stock Subscribed
But Not Issued Additional Paid-In Accumulated Non-Controlling Total Stockholders’
Shares Amount Shares Par Value Shares Amount Capital Deficit Interests Equity
Balances at December 31, 2018 - $ - 211,013,043 $ 211,013 97,136 $ 169,123 $ 87,180,165 $ (25,575,808 ) $ (220,032 ) $ 61,764,461
Sales of common stock - - 799,995 800 - - 2,599,200 - - 2,600,000
Issuance of subscribed shares - - 97,136 97 (97,136 ) (169,123 ) 169,026 - - -
MediTaurus acquisition - - - - 752,260 2,080,000 - - 1,200,000 3,280,000
Terrace investment - - 500,000 500 - - 1,589,500 - - 1,590,000
Harvest payment - - 1,000,000 1,000 - - (1,000 ) - - -
Exercise of options - - 358,446 359 - - 12,641 - - 13,000
Exercise of warrants - - 666,104 666 - - 601,776 - - 602,442
Amortization of option and warrant issuances - - - - - - 2,458,941 - - 2,458,941
Beneficial conversion feature on debentures - - - - - - 3,384,980 - - 3,384,980
Conversion of debentures payable - - 1,156,379 1,156 - - 2,626,601 - - 2,627,754
Distributions - - - - - - - - (297,369 ) (297,369 )
Net income (loss) - - - - - - - 4,653,875 147,346 4,801,221
Balances at June 30, 2019 - $ - 215,591,103 $ 215,591 752,260 $ 2,080,000 $ 100,621,830 $ (20,921,933 ) $ 829,945 $
82,825,433

	Series A Convertible Preferred Stock				Series A Convertible Preferred Stock Subscribed But Not Issued				Common Stock				Common Stock Subscribed But Not Issued						Additional Paid-In			Accumulated			Non-Controlling			Total Stockholders’
	Shares		Par Value		Shares		Amount		Shares		Par Value		Shares			Amount			Capital			Deficit			Interests			Equity
Balances at December 31, 2018		-	$	-		-	$	-		211,013,043	$	211,013		97,136		$	169,123		$	87,180,165		$	(25,575,808	)	$	(220,032	)	$	61,764,461
Sales of common stock										799,995		800								2,599,200									2,600,000
Issuance of subscribed shares										97,136		97		(97,136	)		(169,123	)		169,026									-
MediTaurus acquisition														752,260			2,080,000									1,200,000			3,280,000
Terrace investment										500,000		500								1,589,500									1,590,000
Harvest payments										1,000,000		1,000								(1,000	)								-
Exercise of options										417,352		417		2,644,456			413,894			11,189									425,500
Exercise of warrants										686,104		686								611,756									612,442
Amortization of stock grants										108,820		109								193,601									193,710
Amortization of option grants																				1,219,958									1,219,958
Amortization of stand-alone warrant issuances																				139,015									139,015
Warrant discount on promissory notes																				600,621									600,621
Warrant discount on debentures payable																				1,148,056									1,148,056
Beneficial conversion feature on debentures payable																				4,235,469									4,235,469
Conversion of debentures payable										3,591,523		3,592		3,206,816			2,464,438			5,391,253									7,859,283
Distributions																										(376,993	)		(376,993	)
Net income (loss)																							(2,744,808	)		246,367			(2,498,441
Balances at September 30, 2019		-	$	-		-	$	-		218,213,973	$	218,214		6,603,532		$	4,958,332		$	105,087,809		$	(28,320,616	)	$	849,342		$	82,793,081

The above statements do not show a column for Series A convertible preferred stock

as the balances ~~are~~were zero and there iswas no activity in the periods presented.

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2019			2018

Cash flows from operating activities:
Net income (loss) attributable to MariMed Inc.	$	(2,744,808	)	$	(5,859,985	)
Net income (loss) attributable to noncontrolling interests		246,367			223,882
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		697,946			253,713
Amortization of intangibles		154,167			-
Amortization of stock grants		193,710			-
Amortization of option grants		1,219,958			1,023,300
Amortization of warrant issuances		1,975,908			1,609,095
Amortization of beneficial conversion feature on debentures payable		4,646,070			-
Amortization of original issue discount		107,256			-
Equity issued to settle obligations		-			3,640,621
Loss on preferred stock conversions		-			34,044
Loss on debt settlements		-			3,210,472
Equity in losses of investments		1,020,310			-
Changes in operating assets and liabilities:		-			-
Accounts receivable, net		(4,788,303	)		(2,566,254	)
Accounts receivable from related party, net		(33,200,000	)		-
Deferred rents receivable		53,461			(1,096,908	)
Due from third parties		(174,516	)		(1,925,735	)
Inventory		(942,399	)		-
Other current assets		7,154			(100,684	)
Other assets		(262,981	)		29,731
Accounts payable		(178,223	)		(198,836	)
Accrued expenses		3,339,325			129,689
Deferred rents payable		(105,901	)		-
Operating lease payments		424,129			-
Finance lease interest payments		(1,824	)		-
Unearned revenue		4,170,750			-
Other current liabilities		197,943			-
Other liabilities		(238,000	)		53,755
Net cash used in operating activities		(24,182,501	)		(1,540,100	)

Cash flows from investing activities:
Purchase of property and equipment		(6,741,632	)		(7,259,413	)
Purchase of cannabis licenses		(150,000	)		-
MediTaurus acquisition		(655,804	)		-
Investment in Sprout		-			(100,000	)
Investment in convertible debentures		-			(6,750,000	)
Investment in notes receivable		(2,030,000	)		(300,000	)
Interest on notes receivable		175,509			-
Due from related parties		119,781			29,087
Net cash used in investing activities		(9,282,146	)		(14,380,326	)

Cash flows from financing activities:
Proceeds from subscribed common stock
Issuance of common stock		2,600,000			16,896,000
Issuance of promissory notes		17,000,000			3,000,000
Payments on promissory notes		-			(700,000	)
Proceeds from issuance of debentures		9,600,000			-
Proceeds from mortgages		-			1,998,360
Payments on mortgages		(142,170	)		(84,952	)
Exercise of stock options		75,500			39,000
Exercise of warrants		612,442			212,284
Due to related parties		139,402			(196,000	)
Finance lease principal payments		(11,167	)		-
Distributions		(376,993	)		(507,453	)
Net cash provided by financing activities		29,497,014			20,657,239

Net change to cash and cash equivalents		(3,967,633	)		4,736,813
Cash and cash equivalents at beginning of period		4,104,315			1,290,231
Cash and cash equivalents at end of period	$	136,682		$	6,027,044

Supplemental disclosure of cash flow information:
Cash paid for interest	$	699,582		$	931,195
Cash paid for taxes	$	88,150		$	12,021

Non-cash activities:
Conversion of debentures receivable	$	30,000,000		$	-
Operating lease right-of-use assets and liabilities	$	7,142,150		$	-
Finance lease right-of-use assets and liabilities	$	134,193		$	-
Conversions of debentures payable	$	7,859,283		$	-
Beneficial conversion feature on debentures payable	$	4,235,469		$	-
Discount on debentures payable	$	1,148,056		$	-
Discount on promissory notes	$	600,621		$	-
MediTaurus acquisition	$	2,500,000		$	-
Terrace investment	$	1,590,000		$	-
Harvest payment	$	1,000		$	-
Conversion of notes receivable to investment	$	257,687		$	-
Issuance of common stock associated with subscriptions	$	169,123		$	-
Conversion of advances to notes receivable	$	855,913		$	-
Exercise of options via the reduction of an obligation	$	350,000		$
Cashless exercise of stock options	$	1,762		$	-
Reclass of accrued interest from notes payable	$	127,450		$	-
Reclass of accrued interest from debentures payable	$	62,748		$	-
Equity issued to settle debt	$	-		$	8,425,000
iRollie acquisition	$	-		$	600,000

Six Months Ended June 30,
2019 2018
Cash flows from operating activities:
Net income (loss) attributable to MariMed Inc. $ 4,653,875 $ (2,357,110 )
Net income (loss) attributable to noncontrolling interests 147,346 132,520
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation 171,125 253,713
Amortization of intangibles 107,917 -
Amortization of stock option and warrant issuances 1,943,976 977,808
Amortization of beneficial conversion feature 2,281,687 -
Amortization of original issue discount 28,920 -
Equity issued to settle obligations - 3,444,760
Loss on preferred stock conversions - 34,044
Loss on debt settlements - 818,204
Equity in earnings of investments (1,912,941 ) -
Changes in operating assets and liabilities:
Accounts receivable, net (3,279,717 ) (1,666,587 )
Accounts receivable from related party, net (25,177,845 ) -
Due from third parties 141,783 (1,177,734 )
Deferred rents receivable 48,470 (496,908 )
Inventory (4,173,386 ) -
Other current assets (41,637 ) (44,870 )
Other assets (262,981 ) 22,139
Accounts payable (1,746,067 ) 2,029
Accrued expenses 1,652,508 246,810
Deferred rents payable (105,901 ) -
Operating lease payments 267,253 -
Finance lease interest payments (1,824 ) -
Unearned revenue from related party 3,162,967 -
Other liabilities (238,000 ) -
Net cash provided by (used in) operating activities (22,332,472 ) 188,818

Cash flows from investing activities:
Purchase of property and equipment (3,668,398 ) (5,663,585 )
MediTaurus acquisition (171,003 ) -
Investment in notes receivable (1,550,000 ) (100,000 )
Interest on notes receivable 117,006 22,125
Due from related parties 119,781 -
Net cash used in investing activities (5,152,614 ) (5,741,460 )

Cash flows from financing activities:
Issuance of common stock 2,600,000 8,461,003
Issuance of promissory notes 17,000,000 -
Payments on promissory notes - (700,000 )
Proceeds from issuance of debentures 7,275,000 -
Proceeds from mortgages - 1,998,360
Payments on mortgages (79,012 ) (56,452 )
Exercise of stock options 13,000 39,000
Exercise of warrants 602,442 119,451
Due to related parties (199,154 ) (196,000 )
Finance lease principal payments (3,923 )
Distributions (297,369 ) (325,825 )
Net cash provided by financing activities 26,910,984 9,339,537

Net change to cash and cash equivalents (574,102 ) 3,786,895
Cash and cash equivalents at beginning of period 4,104,315 1,290,231
Cash and cash equivalents at end of period $ 3,530,213 $ 5,077,126

Supplemental disclosure of cash flow information:
Cash paid for interest $ 787,028 $ 553,206
Cash paid for taxes $ 10,011 $ 12,596

Non-cash activities:
Conversion of debentures receivable $ 30,000,000 $ -
Operating lease right-of-use assets and liabilities $ 6,981,772 $ -
Finance lease right-of-use assets and liabilities $ 77,773 $ -
Conversions of debentures payable $ 2,626,759 $ -
Beneficial conversion feature on debentures payable $ 3,384,980 $ -
Discount on debentures payable $ 928,724 $ -
Discount on promissory notes $ 600,621 $ -
MediTaurus acquisition $ 2,500,000 $ -
Terrace investment $ 1,590,000 $ -
Harvest payment $ 1,000 $ -
Conversion of notes receivable to investment $ 257,687 $ -
Issuance of common stock associated with subscriptions $ 169,123 $ -
Conversion of advances to notes receivable $ 855,913 $ -
Equity issued to settle debt $ - $ 1,275,000

See accompanying notes to condensed consolidated financial statements.

MariMed Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

MariMed Inc. (the “Company”), a Delaware corporation, is a multi-state organization in the emerging legal cannabis and hemp industries. During 2018, the Company made a strategic decision to transition from a management and advisory firm that provides cannabis licensing, operational consulting and real estate services, to a direct owner of cannabis licenses and ~~operator~~seed-to-sale operations, dedicated to improving health and wellness through the use of ~~seed-to-sale operations.~~ cannabinoids and cannabis products.

Further, with the enactment of the 2018 U.S. Farm Bill and in recognition of the growing demand for hemp-derived cannabidiol (“CBD”), the Company made a strategic investment during 2018 in Kentucky-based GenCanna Global Inc., ~~one~~an international cultivator, producer, and distributor of ~~the largest industrial~~ hemp ~~growers in the United States.~~and GMP-quality CBD oils and isolates (“GenCanna”).

To date, the Company’s cannabis business has secured, on behalf of itself and its clients, 12 cannabis licenses across six states—two in Delaware, two in Illinois, one in Nevada, one in Rhode Island, three in Maryland and three in Massachusetts. The Company has developed in excess of 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing of legal cannabis and cannabis-infused products, located in all of the aforementioned states, except Rhode Island. Along with operational oversight of these facilities, the Company provides its clients with license procurement, business development, human resources, accounting, and other corporate and administrative services.

The Company’s strategic plan is ~~to seek to acquire the ownership~~primarily comprised of ~~all of~~acquiring its ~~cannabis~~cannabis-licensed clients who currently lease the ~~majority of the~~ Company’s facilities, and ultimately ~~consolidate~~consolidating these entities under the MariMed banner. ~~The~~To date, the Company has ~~started~~completed the ~~consolidation process which is at~~acquisition of its clients in Massachusetts and Illinois, with the remaining clients under contract or in various stages of ~~completion. For example, in Massachusetts, the Company successfully converted its cannabis-licensed client from a non-profit entity to a for-profit corporation with the Company~~negotiation, as ~~the sole shareholder, as described in further detail~~discussed below. ~~In every state, the Company’s~~Each acquisition ~~efforts will be~~is subject to ~~that particular~~the respective state’s approval under its laws governing ~~cannabis license~~the ownership and ~~accordingly,~~transfer of cannabis licenses. Accordingly, there is no assurance that the Company will be successful in fully implementing its plan.

Additionally, the Company licenses its own brands of precision-dosed, cannabis- and hemp-infused products to treat specific medical conditions or to achieve a certain effect. These products are licensed under the brand names Kalm Fusion™, Nature’s Heritage™, Betty’s Eddies™, and Florance™. The Company also has exclusive sublicensing rights in certain states to distribute Lucid Mood™ vaporizer pens, DabTabs™ vaporization tablets infused with cannabis concentrates, the Binske^®line of cannabis products made from premium artisan ingredients, and the clinically tested medicinal cannabis strains developed in Israel by Tikun Olam™.

Leveraging its cannabis platform and product experience, as well as its strategic relationship with GenCanna, the Company has recently developed and is marketing a portfolio of hemp-based CBD brands to multiple retailers and direct to consumers both domestically and internationally.

The Company’s stock is quoted on the ~~OTCQB~~OTCQX market under the ticker symbol MRMD.

The Company was incorporated in January 2011 under the name Worlds Online Inc. Initially, the Company developed and managed online virtual worlds. By early 2014, this line of business effectively ceased operating and the Company pivoted into the legal cannabis industry.

~~Summary~~ RecentTransaction ~~Timeline~~Summary

The following is a chronological summary of the major transactions undertaken by the ~~Company.~~

Company over the past two years to achieve its strategic plan to transition into a multistate cannabis licensee and seed-to-sale cannabis operator. These transactions are disclosed in further detail inNote 3–Acquisitions, inNote 4–Investments,~~and~~Note 8– Notes Receivable, and.Note 11– Debt.

May 2014 – The Company, through its subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC, a company operating in the medical cannabis industry. This transaction was accounted for as a purchase acquisition where the Company was both the legal and accounting acquirer.

October 2017 – The Company acquired the intellectual property, formulations, recipes, proprietary equipment, knowhow, and other certain assets of Betty’s Eddies™, a brand of cannabis-infused fruit chews.

April 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.

August 2018 – The Company exchanged cash and stock to acquire a 23% ownership interest in an entity that developed Sprout, a customer relationship management and marketing platform for companies in the cannabis industry.

August to October 2018 – The Company loaned $300,000 to Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned cannabis practitioner. In 2019, the Company loaned Healer an additional $500,000.

October 2018 – The Company entered into a purchase agreement to acquire its two cannabis-licensed clients, KPG of Anna LLC and KPG of Harrisburg LLC, currently operating medical marijuana dispensaries in the state of Illinois. ~~The~~In October 2019, the Company ~~has not yet~~ received legislative approval ~~– required~~ for ~~all ownership changes of cannabis licensees –~~the transaction. Accordingly, the transaction was consummated and ~~therefore~~ these entities ~~were not~~became wholly-owned subsidiaries which will be consolidated into the Company’s financial statements ~~as of June 30, 2019. The Company anticipates approval will be obtained, and~~starting in the ~~transaction consummated, by the end~~fourth quarter of 2019.

October 2018 – The Company’s cannabis-licensed client with cultivation and dispensary operations in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation, with the Company as the sole shareholder of the for-profit corporation. On November 30, 2018, the conversion plan was approved by the Massachusetts Secretary of State, and effective December 1, 2018, ARL was consolidated into the Company as a wholly-owned subsidiary.

November 2018 – The Company issued a letter of intent to acquire The Harvest Foundation LLC, its cannabis-licensed client with cultivation operations in the state of Nevada. The parties entered into a purchase agreement governing the transaction in August 2019. The Company has not yet received state approval for the acquisition and therefore this ~~entity was not consolidated into the Company’s financial statements as of June 30, 2019.~~acquisition is still pending. The Company anticipates approval will be obtained, and the transaction ~~consummated,~~completed, by the end of ~~2019.~~this year.

December 2018 – The Company entered into a memorandum of understanding (“MOU”) to acquire Kind Therapeutics USA ~~LLC,~~Inc. (“Kind”), its ~~cannabis-licensed~~ client in the state of ~~Maryland.~~Maryland that holds licenses for the cultivation, production, and dispensing of medical cannabis. The ~~parties expect~~MOU provides for a total purchase price of $6.3 million in cash, 2,500,000 shares of the ~~merger agreement~~Company’s common stock, and other consideration. The acquisition is subject to ~~be finalized, and~~ the ~~transaction approved~~approval by the ~~state~~Maryland Medical Cannabis Commission, which approval was not expected prior to October 2020. Recently, the sellers of Kind have attempted to renegotiate the terms of the MOU. Even though the MOU contains all the definitive material terms with respect to the acquisition transaction and confirms certain management and lease agreements, the selling parties now allege that the MOU is not an enforceable agreement. The Company engaged with the sellers in good faith in an attempt to reach updated terms acceptable to both parties, however the ~~early part of 2020.~~sellers failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings. For further information, see Part II, Item 1.Legal Proceedings in this report.

January 2019 – The Company entered into an agreement with Maryland Health & Wellness Center Inc. (“MHWC”), an entity that has been pre-approved for a cannabis dispensing license, to provide MHWC with a $300,000 construction loan in connection with the buildout of MHWC’s proposed dispensary. Upon the two-year anniversary of final state approval of MHWC’s dispensing license, the Company shall have the right, subject to state approval, to convert the promissory note underlying the construction loan into a 20% ownership interest of MHWC.

January 2019 – The Company converted a $250,000 note receivable from Chooze Corp., an entity that develops environmentally conscious CBD- and THC-infused products, into a 2.7% ownership interest in the entity.

January 2019 – The Company established MariMed Hemp Inc., a wholly-owned subsidiary, to develop, market, and distribute hemp-based CBD brands and products, and to provide hemp producers with bulk quantities of hemp genetics and biomass (“MariMed Hemp”). During the quarter ended September 30, 2019, MariMed Hemp launched Hemp Engine™, a store-within-a-store turnkey distribution platform of CBD-based products for retailers.

February 2019 – The Company converted its $30 million ~~purchase of~~investment in subordinated secured convertible debentures of GenCanna ~~Global Inc., a producer and distributor of industrial hemp, CBD formulations, hemp genetics, and hemp products (“GenCanna”),~~ into a 33.5% ownership interest in GenCanna.

May 2019 – The Company ~~extended loans totaling~~loaned an aggregate of $750,000 to Atalo Holdings Inc. (“Atalo”), an agriculture and biotechnology firm specializing in research, development, and production of industrial hemp and hemp-based CBD products. In July 2019, the Company extended an additional loan of $230,000 to Atalo.

May 2019 – The Company issued 500,000 shares of its common stock ~~to purchase~~in exchange for an 8.95% interest in Terrace Inc., a Canadian entity that develops and acquires international cannabis assets.

June 2019 – the Company entered into a purchase agreement to acquire MediTaurus LLC, a company established by ~~Dr.~~ Jokubas Ziburkas PhD, a ~~PhD in neuroscience~~neuroscientist and a leading authority on hemp-based CBD and the endocannabinoid system. ~~Meditaurus~~MediTaurus operates in the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand.

July 2019 – The Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven eastern states of the Binske^® portfolio of products, a brand known for utilizing best-in-class proprietary strains and craft ingredients in its edibles, concentrates, vaporizers, and topicals.

August 2019 – The Company loaned $250,000 to High Fidelity Inc., a company that owns and operates two seed-to sale medical marijuana facilities in the state of Vermont, and produces its own line of CBD products.

October 2019 – The Company closed on the purchase of a 9,000 square foot building in Annapolis, MD which it intends to develop into a medical marijuana dispensary to be leased to Kind.

Significant Transactions in the Current Period

During the ~~quarter~~nine months ended ~~June~~September 30, 2019, the Company entered into several hemp seed sale transactions with GenCanna whereby the Company acquired large quantities of top-grade feminized hemp seeds with proven genetics at volume discounts that it sold to GenCanna at market rates. The seeds met the U.S. government’s definition of federally legal industrial hemp, which was descheduled as a controlled substance and classified as an agricultural commodity upon the signing of the 2018 U.S. Farm Bill.

The Company purchased ~~approximately $3.3~~$20.75 million of hemp seed inventory induring the ~~quarter~~nine months ended ~~March 31, 2019, and an additional $16.7 million in the quarter ended June~~September 30, 2019, which the Company sold and delivered to GenCanna for ~~approximately $25.2~~$33.2 million. The ~~seeds are to be harvested in the fall of 2019, and accordingly the~~ Company provided GenCanna with extended payment terms ~~with full payments to be made by~~through December 2019, ~~after~~to coincide with the ~~crop is harvested. The payments~~completion of the seeds’ harvest, although the payment by GenCanna ~~are~~is not contingent upon the ~~harvest.~~success of such harvest or its yield.

As required by the relevant accounting guidance, the Company has classified the ~~$25.2~~$33.2 million due from GenCanna as a receivable from a related party, with ~~$22,0~~approximately $29.0 million recognized as revenue from a related party for the ~~six~~nine months ended ~~June~~September 30, 2019, and ~~$3.2~~approximately $4.2 million recorded underUnearned Revenue From Related Party on the balance sheet. ~~When~~Upon payment of the receivable balance by GenCanna, ~~makes its payments to the Company in December 2019,~~ the amount inUnearned Revenue From Related Party will be recognized as revenue. This deferral of revenue represents the Company’s 33.5% ownership portion of the profit on these ~~transactions of 33.5% (the percentage of GenCanna that the Company currently owns).~~transactions.

To partially fund the seed purchases, the Company borrowed ~~$17.0M,~~$17.0 million, which is ~~included~~reflected inNotes Payable on the balance sheet as of ~~June~~September 30, 2019 and further discussed inNote 11– Debt.

Towards the end of the second quarter of 2019, and in early third quarter of 2019, the Company purchased approximately $5.0 million of additional hemp seed inventory which it sold and delivered to GenCanna for approximately $8 million in the third quarter of 2019. The Company continues to explore opportunities to continue such seed sale transactions in the ~~future.~~future, however there is no assurance that such transactions will materialize.

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 most recent audited annual financial statements and accompanying notes for the year ended December 31, 2018.

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 the following majority-owned subsidiaries:

Subsidiary:	Percentage Owned
MariMed Advisors Inc.		100.0	%
Mia Development LLC		89.5	%
Mari Holdings IL LLC		60.0	%
Mari Holdings MD LLC		97.4	%
Mari Holdings NV LLC		100.0	%
Hartwell Realty Holdings LLC		100.0	%
iRollie LLC		100.0	%
ARL Healthcare Inc.		100.0	%
MariMed Hemp Inc.		100.0	%
MediTaurus LLC		70.0	%

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.

The Company’s cash and cash equivalents are maintained with recognized financial institutions located in the United States. In the normal course of business, the Company may carry balances with certain financial institutions that exceed federally insured limits. The Company has not experienced losses on balances in excess of such limits and management believes the Company is not exposed to significant risks in that regard.

Accounts Receivable

Accounts receivable consist of trade receivables and are carried at their estimated collectible amounts.

The Company provides credit to its clients in the form of payment terms. The Company limits its credit risk by performing credit evaluations of its clients and maintaining a reserve, if deemed necessary, for potential credit losses. Such evaluations include the review of a client’s outstanding balances with consideration towards such client’s historical collection experience, as well as prevailing economic and market conditions and other factors. Based on such evaluations, the Company recorded a reserve of $250,000 and $150,000 at ~~June~~September 30, 2019 and December 31, 2018, respectively.

Inventory

Inventory is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis. The Company periodically reviews physical inventory and will record a reserve for excess and/or obsolete inventory if necessary. As of the date of this report, no reserve was deemed necessary.

Investments

The Company classifies its investments as available-for-sale-investments. Investments are comprised of equity holding of private companies. These investments are recorded at fair value on the Company’s consolidated balance sheet, with changes to fair value, if any, included in comprehensive income. Investments are evaluated for other-than-temporary impairment and are written down if such impairments are deemed to have occurred.

Revenue Recognition

On January 1, 2018, the Company adopted the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 606,Revenue from Contract with Customers,as amended by subsequently issued Accounting Standards Updates. This revenue standard requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined by performing the following consecutive steps:

	●	Identify the contract(s) with a customer;
	●	Identify the performance obligations in the contract(s);
	●	Determine the transaction price;
	●	Allocate the transaction price to the performance obligations in the contract(s); and
	●	Recognize revenue as the performance obligation is satisfied.

Additionally, when another party is involved in providing goods or services to the Company’s clients, a determination is made as to who—the Company or the other party—is acting in the capacity as the principal in the sale transaction, and who is merely the agent arranging for goods or services to be provided by the other party.

The Company is typically considered the principal if it controls the specified good or service before such good or service is transferred to its client. The Company may also be deemed to be the principal even if it engages another party (an agent) to satisfy some of the performance obligations on its behalf, provided the Company (i) takes on certain responsibilities, obligations and risks, (ii) possesses certain abilities and discretion, or (iii) other relevant indicators of the sale. If deemed an agent, the Company would not recognize revenue for the performance obligations it does not satisfy.

The adoption of this standard did not have a significant impact on the Company’s consolidated operating results, and accordingly no restatement has been made to prior period reported amounts.

The Company’s main sources of revenue are comprised of the following:

	●	Real Estate – rental income and additional rental fees from leasing of the Company’s regulatory-compliant legal cannabis facilities to its clients, which are cannabis-licensed operating companies. Rental income is generally a fixed amount per month that escalates over the respective lease terms, while additional rental fees are based on a percentage of tenant revenues that exceed a specified amount.

	●	Management – fees for providing the Company’s cannabis clients with corporate services and operational oversight of their cannabis cultivation, production, and dispensary operations. These fees are based on a percentage of such clients’ revenue, and are recognized after services have been performed.

	●	Supply Procurement – the Company maintains volume discounts with top national vendors of cultivation and production resources, supplies, and equipment, which the Company acquires and resells to its clients or third parties within the cannabis industry. The Company recognizes this revenue after the delivery and acceptance of goods by the purchaser.

	●	Licensing – revenue from the sale of precision-dosed, cannabis-infused products, such as Kalm Fusion™ and Betty’s Eddies™, to legal dispensaries throughout the United States. The recognition of this revenue occurs when the products are delivered.

	●	Consulting – fees from third-parties parties where the Company provides assistance in securing cannabis licenses, and advisory services in the areas of facility design and development, and cultivation and dispensing best practices. These fees are recognized as the services are performed.

	●	Product Sales – direct sales of cannabis, hemp, and products derived from these plants. ~~During the quarter ended June 30,2019,~~This year, the Company commenced the direct sale of acquired hemp seed inventory. As the Company continues to explore opportunities to continue such sales, significant product sales are expected to be generated from (i) the distribution of the Company’s acquired and developing hemp-derived CBD product lines, ~~and~~ (ii) the dispensary and wholesale operations of ARL in Massachusetts and ofthe KPGs in Illinois, and (iii) the Company’s planned cannabis-licensee acquisitions in ~~Illinois,~~ Maryland and Nevada. This revenue will be recognized when products are delivered or at retail points-of-sale.

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~~recoverable from the ~~carrying amount of an asset exceeds the aggregate projected~~undiscounted future cash flows of such asset over the anticipated holding ~~period on an undiscounted basis.~~period. An impairment loss is measured ~~based on~~by the excess of the asset’s carrying amount over its estimated fair value.

Impairment analyses are based on management’s current plans, ~~intended~~asset holding periods, and currently available market ~~information at the time the analyses are prepared.~~information. 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~~nine months ended ~~June~~September 30, 2019 and 2018, based on ~~its~~the results of management’s impairment analyses, ~~the Company did not have any~~there were no impairment losses.

Leases

The consolidated financial statements reflect the Company’s adoption of ASC 842,Leases, as amended by subsequent accounting standards updates, utilizing the modified retrospective transition approach which calls for applying the new standard to all of the Company’s leases effective January 1, 2019, which is the effective date of adoption.

ASC 842 is intended to improve financial reporting of leasing transactions. The most prominent change from previous accounting guidance is the requirement to recognize right-of-use assets and lease liabilities ~~for~~on the consolidated balance sheet representing the rights and obligations created by operating leases that extend more than twelve months in which the Company is the ~~lessee that extend more than twelve months on the balance sheet.~~lessee. The Company elected the package of practical expedients permitted under ASC 842. Accordingly, the Company accounted for its existing operating leases that commenced before the effective date as operating leases under the new guidance without reassessing (i) whether the contracts contain a lease, (ii) the classification of the leases (iii) the accounting for indirect costs as defined in ASC 842.

The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Non-lease components within lease agreements are accounted for separately. Right-of-use assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term, utilizing the Company’s incremental borrowing rate. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its fixed assets and other assets in accordance with 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 using the Black-Scholes pricing model and employing several inputs such as the expected life of instrument, the exercise price, the expected risk-free interest rate, the expected dividend yield, the value of the Company’s common stock on issuance date, and the expected volatility of such common stock. The following table summarizes the range of inputs used by the Company during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:

Six Months Ended June 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Life of instrument

3.0 years

2.8to 5.0 years

2.3 to 3.0 years

0.5 to 5.0 years

Volatility factors

1.059 to 1.106

1.020to 2.086

1.059 to 1.106

1.020 to 2.086

Risk-free interest rates

1.76% to 2.28%

1.92% to 2.94%

1.42% to 2.28%

1.92% to 2.99%

Dividend yield

The expected life of an instrument is calculated using the simplified method pursuant to Staff Accounting Bulletin Topic 14,Share-Based Payment, which allows for using the mid-point between the vesting date and expiration date. The volatility factors are based on the historical two-year movement of the Company’s common stock prior to an instrument’s issuance date. The risk-free interest rate is based on U.S. Treasury rates with maturity periods similar to the expected instruments life on the issuance date.

The Company amortizes the fair value of option and warrant issuances on a straight-line basis over the requisite service period of each instrument.

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~~nine months ended ~~June~~September 30, 2019 and 2018.

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~~September 30, 2019 and 2018, there were ~~18,655,107~~16,815,107 and ~~12,508,932,~~15,497,823, respectively, of potentially dilutive securities in the form of outstanding options and warrants. ~~Also as~~As of ~~such dates,~~September 30, 2019, there were $350,000 ~~and $250,000, respectively,~~ of convertible promissory notes and ~~$13.75~~$11.1 million ~~and zero, respectively,~~ of convertible debentures payable outstanding, 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. ~~Utilizing~~No such debt instruments existed as of September 30, 2018.

For the ~~June~~nine months ended September 30, 2019 ~~closing stock price of the Company’s common stock,~~and 2018, all ~~such~~potentially dilutive securities ~~were convertible into 19,509,815 shares of common stock. Such~~had an anti-dilutive effect on earnings per share, ~~amount was included in the number of weighted average common shares outstanding on a diluted basis,~~ and in accordance with ASC 260, were excluded from the ~~calculation of~~diluted net income per share calculations, resulting in identical basic and fully diluted net income per share for ~~the three and six months ended June 30, 2019, as shown~~these periods. The potentially dilutive securities may dilute earnings per share in the ~~statement of operations.~~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 evaluates the perceived merits of such proceedings or claims, and 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 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, 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.

Beneficial Conversion Features on Convertible Debt

Convertible instruments that are not bifurcated as a derivative pursuant to ASC 815,Derivatives and Hedging, and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine whether their conversion prices create an embedded beneficial conversion feature at inception, or may become beneficial in the future due to potential adjustments.

A beneficial conversion feature is a nondetachable conversion feature that is “in-the-money” at the commitment date. The in-the-money portion, also known as the intrinsic value of the option, is recorded in equity, with an offsetting discount to the carrying amount of convertible debt to which it is attached. The discount is amortized to interest expense over the life of the debt with adjustments to amortization upon full or partial conversions of the debt.

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 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 was adopted effective January 1, 2019 with no impact to the Company’s financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07,Compensation - Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based Payment Accounting,which is part of the FASB’s simplification initiative to maintain or improve the usefulness of the information provided to the users of financial statements while reducing cost and complexity in financial reporting. This update, which provides consistency in the accounting for share-based payments to nonemployees with that of employees, was adopted effective January 1, 2019 with no material impact to the Company’s financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04,Intangibles - Goodwill and Other (Topic 350) which simplifies goodwill impairment testing by requiring that such periodic testing be performed by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures, which is effective for fiscal years, including interim periods, beginning after December 15, 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

~~Sigal Consulting LLC~~

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, expiring in September 2019 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 acquired by the Company in exchange for an aggregate 75 million shares of common stock issued to the Sigal Ownership Group.~~

~~Betty’s Eddies™~~

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, from Icky Enterprises LLC, a company partially owned by an officer of the company (“Icky”). The purchase price was $140,000 plus 1,000,000 shares of the Company’s common stock valued at $370,000 based on the price of the common stock on the date of the agreement.

~~The acquisition was accounted for in accordance with ASC 10,~~~~Business Combinations~~~~. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired on the acquisition date:~~

Inventory $ 46,544
Machinery and equipment 130,255
Goodwill 333,201
Total fair value of consideration $ 510,000
~~The goodwill balance of approximately $333,000 was written off in 2018.~~
As part of the agreement between the parties, Icky is entitled to 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, 2019 and 2018, such royalties approximated $85,000 and $14,000, respectively.
iRollie LLC

Effective April 2018, the Company entered into a purchase agreement whereby 264,317 shares of the Company’s common stock were exchanged for 100% of the ownership interests of iRollie LLC, a manufacturer of branded cannabis products and accessories for consumers, and custom product and packaging for companies in the cannabis industry. The Company acquired, among other assets, iRollie’s entire product line, service offerings, client list, and intellectual property, and hired its two co-founders.

The acquisition was accounted for in accordance with ASC 10. The shares of Company common stock, valued at approximately $280,000, were issued to iRollie’s former owners in December 2018, at which time the Company adjusted the total goodwill generated by the transaction. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired:

Cash and cash equivalents $ 13,494
Goodwill 266,682
Total fair value of consideration $ 280,176

Prior to the acquisition, iRollie had not been generating positive cash flow as a stand-alone entity, and in conformity with relevant accounting guidance, the goodwill was written off.
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ARL Healthcare Inc.

In October 2018, the Company’s cannabis-licensed client in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation, with the Company as the sole shareholder of the for-profit corporation. ARL holds three cannabis licenses from the state of Massachusetts for the cultivation, production and dispensing of cannabis.

On November 30, 2018, the conversion plan was approved by the Massachusetts Secretary of State, and effective December 1, 2018, ARL was consolidated into the Company as a wholly-owned subsidiary.

The acquisition was accounted for in accordance with ASC 10,Business Combinations. The following table summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed on the acquisition date:

Equipment $ 21,000
Cannabis licenses 185,000
Accounts payable (120,689 )
Due to related parties (92,765 )
Total identifiable net assets (7,454 )
Goodwill 731,902
Total fair value of consideration $ 724,448

The total consideration paid by the Company was equal to the forgiveness of amounts owed to the Company by ARL. Accordingly, the transaction gave rise to goodwill of approximately $732,000, which the Company wrote off. The cannabis licenses acquired was included in the balance ofIntangibleswithin the asset section of the Company’s balance sheet at December 31, 2018. This intangible asset is being amortized over its estimated useful life, and at ~~June~~September 30, 2019, the carrying value less amortization was approximately ~~$77,000.~~$31,000.

KPG of Anna LLC and KPG of Harrisburg LLC

In October 2018, the Company entered into a purchase agreement to acquire 100% of the ownership interests of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”), from the current ownership group of the KPGs (the “Sellers”). As part of this transaction, the Company ~~will~~ also ~~acquire~~acquired the Sellers’ ownership interests of Mari Holdings IL LLC, the Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located (“Mari-IL”).

~~The purchase price~~In October 2019, the transaction was approved by the Illinois Department of Financial & Professional Regulation, and 1,000,000 shares of the Company’s common stock, ~~shall be~~representing the entire purchase price, were issued to the Sellers upon the closing of the transaction, which is dependent upon, among other closing conditions, the approval by the Illinois Department of Financial and Professional Regulation. Such approval is expected to be received by the end of 2019. After the transaction is effectuated,Sellers. Effective October 1, 2019, the KPGs and Mari-IL ~~will be~~are wholly-owned subsidiaries of the ~~Company.~~
AsCompany with 100% of ~~June 30, 2019, the Company had not yet received the state approval for the transaction, and therefore~~ the operations of ~~the KPGs were not~~these entities to be consolidated into the Company’s financial statements ~~at such~~as of that date. The Company anticipates that approval will be obtained, and the transaction consummated, by the end of 2019. When that occurs, the Company will consolidate the acquired entities in accordance with ASC 10.

The Harvest Foundation LLC

In November 2018, the Company issued a letter of intent to acquire 100% of the ownership interests of The Harvest Foundation LLC, the Company’s cannabis-licensed client in the state of Nevada (“Harvest”). In August 2019, the parties entered into a purchase agreement governing the transaction. The acquisition is conditioned upon the appropriate legislative approval of the transaction, which is expected to occur by the end of 2019. ~~Accordingly,~~Upon consummation, the operations of Harvest ~~have not been~~will be consolidated ~~for~~into the ~~six months ended June 30, 2019.~~Company’s financial statements.

The purchase price is comprised of the issuance of (i) 1,000,000 shares of the Company’s common stock, in the aggregate, to two owners of Harvest, as a good faith deposit upon execution of the purchase agreement, (ii) $1.2 million of the Company’s common stock at closing, based on the closing price of the common stock on the day prior to ~~state~~legislative approval of the transaction, and (iii) warrants to purchase 400,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on the day prior to ~~state~~legislative approval of the ~~transaction, In June 2019, the~~transaction. The Company issued ~~the aggregate~~ 1,000,000 shares of common stock to the two owners of Harvest as a good faith deposit. These shares are restricted and will be returned to the Company in the event the transaction does not close by a certain date. As the transaction has not been consummated, the issued shares were recorded at par value within theStockholders’ Equitysection of the balance sheet at ~~June~~September 30, 2019.

Kind Therapeutics USA ~~LLC~~Inc.

In December 2018, the Company entered into a memorandum of understanding (“MOU”) to ~~merge with~~acquire Kind Therapeutics USA Inc. (“Kind”), its ~~cannabis-licensed~~ client in Maryland ~~Kind Therapeutics USA LLC. A merger agreement~~that holds licenses for the cultivation, production, and dispensing of medical cannabis. The MOU provides for a total purchase price of $6.3 million in cash, 2,500,000 shares of the Company’s common stock, and other consideration. The acquisition is ~~currently being drafted for this transaction, which is intended~~subject to ~~qualify as a tax-deferred reorganization under~~ the ~~Internal Revenue Code. The parties expect the merger agreement to be finalized, and the transaction approved~~approval by the ~~state legislature in~~Maryland Medical Cannabis Commission, which approval was not expected prior to October 2020.

Also in December 2018, MariMed Advisors Inc, the Company’s wholly owned subsidiary, and Kind entered into a management agreement pursuant to which the Company provides comprehensive management services in connection with the business and operations of Kind, and Mari Holdings MD LLC, the Company’s majority-owned subsidiary, entered into a 20-year lease with Kind for its utilization of the Company’s 180,000 square foot cultivation and production facility in Hagerstown, MD. Additionally, in October 2019, Mari Holdings MD LLC purchased a 9,000 square foot building in Anne Arundel County, MD for the development of a dispensary which would be leased to Kind, as further disclosed in Note 19 –Subsequent Events.
Recently, the sellers of Kind have attempted to renegotiate the terms of the MOU. Even though the MOU contains all the definitive material terms with respect to the acquisition transaction and confirms the management and lease agreements, the selling parties now allege that the MOU is not an enforceable agreement. The Company engaged with the sellers in good faith in an attempt to reach updated terms acceptable to both parties, however the sellers failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings. For further information, see Part II, Item 1.Legal Proceedings in this report.
MediTaurus LLC

In May 2019, the Company entered into a purchase agreement to acquire ~~Meditaurus~~MediTaurus LLC (“MediTaurus”), a company established by ~~Dr.~~ Jokubas Ziburkas PhD, a ~~PhD in neuroscience~~neuroscientist and a leading authority on CBD and its interactions with the brain and endocannabinoid system. ~~Meditaurus~~MediTaurus currently operates in the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand.

Pursuant to the purchase agreement, the Company acquired 70% of MediTaurus on June 1, 2019, and will acquire the remaining 30% of MediTaurus on June 1, 2020. The purchase price for the initial 70% was $2.8 million, comprised of cash payments totaling $720,000 and 752,260 shares of the Company’s common stock valued at $2,080,000. The purchase price of the remaining 30%, payable in cash or stock at the Company’s option, shall be equal to a defined percentage of the Company’s receipts from the licensing of certain MediTaurus technology and products that existing on June 1, 2019 (all such technology and products, the “MT Property”). For a period of ten years following June 1, 2020, certain former members of MediTaurus shall be paid a royalty on the Company’s receipts from the licensing of MT Property, with the royalty percentage commencing at 10% and decreasing to 2% over time.
16

The acquisition was accounted for in accordance with ASC 10. The following table summarizes the allocation, adjusted in September 2019, of the purchase price to the fair value of the assets acquired and liabilities assumed on the acquisition date:

Cash and cash equivalents $ 128,997 $ 64,196
Accounts receivable 5,362 5,362
Inventory 519,750 519,750
Tradename and customer lists 3,346,668 3,411,469
Accounts payable (777 ) (777 )
Total value of MediTaurus 4,000,000 4,000,000
Noncontrolling interests in MediTaurus
(1,200,000
) (1,200,000 )
Total fair value of consideration $ 2,800,000 $ 2,800,000

The tradename and customer lists acquired were included the balance ofIntangibles within the asset section of the Company’s balance sheet at ~~June~~September 30, 2019. A valuation of MediTaurus is currently pending; the useful lives of the intangible assets will be disclosed in future reports after the valuation is completed

As part of the transaction, the Company hired Dr. Ziburkas as the Company’s Chief Innovation Officer, as well as other members of the MediTaurus executive team.

AgriMed Industries of PA LLC

In July 2018, the Company entered into a purchase agreement to acquire 100% of the ownership interests of AgriMed Industries of PA LLC (“AgriMed”), an entity that holds a license from the state of Pennsylvania for the cultivation of cannabis. The purchase price was comprised of $8 million, payable in stock and cash, and the assumption of certain liabilities of AgriMed. In February 2019, the Company commenced legal proceedings against AgriMed seeking specific performance of the purchase agreement.

In May 2019, the dispute between the parties was resolved through the cash payment to the Company of $3.1 million and other good and valuable consideration, in exchange for the Company relinquishing its rights under the purchase agreement and releasing its claims against AgriMed. The net amount of approximately $2,949,000, representing the cash payment less legal fees and writeoffs of assets and supplies, was recorded inOther Non-Operating Income in the Company’s consolidated statement of operations for the ~~six~~nine months ended ~~June~~September 30, 2019.
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NOTE 4 – INVESTMENTS

At ~~June~~September 30, 2019 and December 31, 2018, the Company’s investments were comprised of the following:

June 30,
2019 December 31,
2018 September 30, 2019 December 31, 2018
GenCanna Global Inc. $ 32,234,403 $ - $ 29,301,151 $ -
Terrace Inc. 1,590,000 - 1,590,000 -
CVP Worldwide LLC 1,080,016 1,172,163 1,080,016 1,172,163
Iconic Ventures Inc. 500,000 500,000 500,000 500,000
Chooze Corp. 257,687 - 257,687 -
Total investments $ 35,662,106 $ 1,672,163 $
32,728,854
$ 1,672,163

GenCanna Global Inc.

During 2018, in a series of transactions, the Company purchased $30 million of subordinated secured convertible debentures (the “GC Debentures”) of GenCanna. In February 2019, the Company converted the GC Debentures, plus unpaid accrued interest of approximately $229,000 through the conversion date, into common stock of GenCanna equal to a 33.5% ownership interest in GenCanna on a fully diluted basis.

The investment has been accounted for under the equity method. Accordingly, the Company recorded ~~equity in earnings of approximately $2.0 million based on~~ its ~~percentage~~ equity ~~interest~~ in GenCanna’s net ~~income~~loss from the date of conversion through ~~June~~September 30, ~~2019.~~2019, which resulted in a non-cash, non-operating loss to the Company of approximately $928,000.

Among other provisions of the subscription agreement governing the GC Debentures, ~~the Company agreed to fund a $10 million employee bonus pool should GenCanna meet certain 2019 operating targets, and~~(i) the Company’s CEO was appointed to GenCanna’s ~~board.~~board, and (ii) the Company agreed to fund a $10.0 million employee bonus pool in the event GenCanna meets certain 2019 operating targets. The Company’s funding obligation will be determined following the audit of GenCanna’s 2019 financial statements. Additionally, pursuant to a rights agreement, the Company was granted certain rights, including the rights of inspection, financial information, and participation in future security offerings of GenCanna.

Terrace Inc.

In May 2019, the Company issued 500,000 shares of its common stock, valued at $1.59 million on the date of issuance, to purchase an 8.95% interest in Terrace Inc., a Canadian entity that develops and acquires international cannabis assets. The Company was not given a board seat, nor does it have the ability to exert operational or financial control over the entity. In accordance with ASC 321,Investments – Equity Securities, the Company elected the measurement alternative to value this equity investment without a readily determinable fair value. Under this alternative measurement election, the investment is recorded at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment in Terrace. Following the Company’s purchase, there has been no impairment to this investment, nor any observable price declines toin investments in Terrace. Accordingly, this investment was carried at its cost of $1.59 million at ~~June~~September 30, 2019.

The Company will continue to apply the alternative measurement guidance until this investment does not qualify to be so measured. The Company may subsequently elect to measure this investment at fair value, and if so, shall measure all identical or similar investments in Terrace at fair value. Any subsequent changes in fair value shall be recognized in net income.

CVP Worldwide LLC

In August 2018, the Company invested $300,000, of a total contracted cash investment of $500,000, and issued 378,259 shares of its common stock, valued at approximately $915,000, in exchange for a 23% ownership in CVP Worldwide LLC (“CVP”). CVP has developed a customer relationship management and marketing platform, branded under the name Sprout, which is specifically designed for companies in the cannabis industry.

The investment has been accounted for under the equity method. Accordingly, the Company recorded its equity in CVP’s net loss for the nine months ended September 30, 2019, which resulted in a non-cash, non-operating loss to the Company of approximately $92,000
The Company shall assist in the ongoing development and design of Sprout, and in marketing Sprout to companies within the cannabis industry. The Company shall earn a percentage share of Sprout’s revenues generated from sales (i) to the Company’s clients, and (ii) by the Company to third parties. As of ~~June~~September 30, 2019, no revenue was earned by the Company.

18
The investment has been accounted under the equity method. In 2018, the Company recorded a charge to net income of approximately $43,000 based on its equity in CVP’s net loss during the period of the Company’s ownership. Such amount reduced the carrying value of the investment to approximately $1,172,000 at December 31, 2018. For the ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded a charge of approximately $92,000 representing the Company’s equity in CVP’s net loss during this period, further reducing the carrying value of the investment to approximately $1,080,000 at ~~June~~September 30, 2019.

Iconic Ventures Inc.

In December 2018, the Company purchased 2,500,000 shares of common stock of Iconic Ventures Inc. (“Iconic”) for an aggregate ~~price~~cash payment of $500,000. Iconic has developed DabTabs™, a unique solution for cannabinoid vaporization via a convenient portable tablet that provides precisely measured dosing and acts as a storage system for full spectrum extracts, concentrates and distillates.

The Company’s investment equates to a current ownership ~~percentage~~interest in Iconic of approximately 10%. The Company was not given a board seat, nor does it have the ability to exert operational or financial control over the entity. In accordance with ASC 321, the Company elected the measurement alternative to value this equity investment without a readily determinable fair value. Following the Company’s purchase, there has been no impairment to this investment, nor any observable price changes to investments in Iconic. Accordingly, this investment was carried at $500,000 at ~~June~~September 30, 2019 and December 31, 2018.

The Company will continue to apply the alternative measurement guidance until this investment does not qualify to be so measured. The Company may subsequently elect to measure this investment at fair value, and if so, shall measure all identical or similar investments in Iconic at fair value. Any subsequent changes in fair value shall be recognized in net income.

Chooze Corp.

In January 2019, the entire principal and accrued interest balance of a note receivable from Chooze Corp. of approximately $258,000 was converted into a 2.7% equity interest in Chooze. In accordance with ASC 321, the Company elected the measurement alternative to value this equity investment without a readily determinable fair value. Following the Company’s purchase, there has been no impairment to this investment, nor any observable price changes to investments in the entity. Accordingly, this investment was carried at approximately $258,000 at ~~June~~September 30, 2019.

The Company will continue to apply the alternative measurement guidance until this investment does not qualify to be so measured. The Company may subsequently elect to measure this investment at fair value, and if so, shall measure all identical or similar investments in Chooze at fair value. Any subsequent changes in fair value shall be recognized in net income.

Binske^®

In July 2019, the Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven eastern U.S. states of the Binske^® portfolio of products, a brand known for utilizing best-in-class proprietary strains and craft ingredients in its edibles, concentrates, vaporizers, and topicals. In consideration for the license and other rights, the Company ~~shall~~agreed to pay a royalty of 10.0% to 12.5% of gross revenue, as defined, derived from the sale of Binske^®products, subject to an annual minimum royalty. No such gross revenue was generated as of ~~June~~September 30, 2019.

Vitiprints

In August 2019, the Company terminated the license agreement it had entered into in August 2018 for the use of a patented technology to produce and distribute cannabis products with precise dosing and at increased economies (“Vitiprints”). The licensing agreement had an initial term of five years, and required the Company to make a non-refundable payment of $250,000 which the Company charged toCost of Revenuesin August 2018. ~~No royalties were payable from the Vitiprints license agreement as of June 30, 2019.~~
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NOTE 5 – DEFERRED RENTS RECEIVABLE

The Company is the lessor under several operating leases which contain rent holidays, escalating rents over time, options to renew, requirements to pay property taxes, insurance and/or maintenance costs, and contingent rental payments based on a percentage of monthly tenant revenues. The Company is not the lessor to any finance leases.

The Company recognizes fixed rental receipts from such lease agreements on a straight-line basis over the expected lease term. Differences between amounts received and amounts recognized are recorded underDeferred Rents Receivable on the balance sheet. Contingent rentals are recognized only after tenants’ revenues are finalized and if such revenues exceed certain minimum levels.

The Company leases the following owned properties:

● Delaware – a 45,000 square foot facility purchased in September 2016 and ~~built~~developed into a cannabis cultivation, processing, and dispensary facility which is leased to a cannabis-licensed client occupying 100% of the space under a 20-year triple net lease expiring in 2035.

● Illinois – two 3,400 square foot free-standing retail dispensaries in the cities of Anna and Harrisburg and leased to ~~two licensed cannabis dispensary clients~~the KPGs each under a 20-year lease expiring in 2036. With the acquisition of the KPGs approved in October 2019, as disclosed in Note 3 –Acquisitions, this lease will be eliminated upon the consolidation of the KPGs starting in the fourth quarter of calendar 2018. Accordingly, the rental receipts on such leases have been removed from the table of future minimum rental receipts below.

● Maryland – a 180,000 square foot former manufacturing facility purchased in January 2017 and ~~rehabilitated~~developed by the Company into a cultivation and processing facility which is leased to a licensed cannabis client under a ~~20-year~~ triple net lease ~~that started~~expiring in ~~January 2018.~~2037.

● Massachusetts – a 138,000 square foot industrial property of which approximately half of the available square footage is leased to a non-cannabis manufacturing company under a ~~five-year lease.~~lease expiring in 2022.

The Company subleases the following property:

● Delaware – 4,000 square feet of retail space in a multi-use building space which the Company developed into a cannabis dispensary which is subleased to its cannabis-licensed client under a under a ~~five-year~~ triple net lease expiring in 2021 with a five-year option to extend.

As of ~~June~~September 30, 2019 and December 31, 2018, cumulative fixed rental receipts under such leases approximated ~~$7.5~~$8.5 million and $5.4 million, respectively, compared to revenue recognized on a straight-line basis of approximately ~~$9.5~~$10.5 million and $7.5 million. Accordingly, the deferred rents receivable balances at ~~June~~September 30, 2019 and December 31, 2018 approximated $2.0 million and $2.1 million, respectively.

Future minimum rental receipts for non-cancelable leases and subleases as of ~~June~~September 30, 2019 were:

2019 $ 2,071,161 $ 956,492
2020 4,222,040 3,896,550
2021 4,368,640 4,036,550
2022 4,293,999 3,959,709
2023 3,997,651 3,661,820
Thereafter 48,942,935 44,121,550
Total $
67,896,427
$ 60,632,671

NOTE 6 – DUE FROM THIRD PARTIES

At ~~June~~September 30, 2019 and December 31, 2018, the following amounts were advanced by the Company to its cannabis-licensed clients primarily for working capital purposes:

June 30,
2019
December 31,
2018 September 30, 2019 December 31, 2018
Kind Therapeutics USA Inc. (Maryland licensee) $ 1,590,016 $ 2,679,496 $ 1,367,385 $ 2,679,496
KPG of Anna LLC (Illinois licensee) 81,066 482,700 73,211 482,700
KPG of Harrisburg LLC (Illinois licensee) 46,516 449,385 79,295 449,385
Harvest Foundation LLC (Nevada licensee) 1,145,083 248,796 1,659,089 248,796
Total due from third parties $ 2,862,681 $ 3,860,377 $
3,178,980
$ 3,860,377

When a client is able to organically fund its ongoing operations, such client will issue a promissory note to the Company for the cumulative advances made up to that point, which will then be paid down monthly over a specified period of time. The Company has successfully employed this strategy in the past, and accordingly, in January 2019, KPG of Anna LLC and KPG of Harrisburg LLC issued promissory notes to the Company as further described inNote 7 –Notes Receivable.
20
NOTE 7 – NOTES RECEIVABLE

At ~~June~~September 30, 2019 and December 31, 2018, notes receivable were comprised of the following:

June 30,
2019 December 31,
2018 September 30, 2019 December 31, 2018
First State Compassion Center $ 553,791 $ 578,723 $ 540,732 $ 578,722
Healer LLC 822,015 307,429 834,407 307,429
Atalo Holdings Inc. 755,113 - 999,948 -
KPG of Anna LLC 447,712 - 446,248 -
KPG of Harrisburg LLC 402,878 - 401,560 -
Maryland Health & Wellness Center Inc. 310,882 - 317,141 -
High Fidelity Inc. 252,843 -
Chooze Corp. - 257,687 - 257,687
Total notes receivable 3,292,391 1,143,839 3,792,879 1,143,838
Notes receivable, current portion 821,524 51,462 1,321,284 51,462
Notes receivable, less current portion $ 2,470,867 $ 1,092,377 $ 2,471,595 $ 1,092,376

The Company loaned approximately $700,000 to First State Compassion Center, its Delaware cannabis-licensee client, during the period offrom October 2015 to April 2016. In May 2016, this client issued a 10-year promissory note, as subsequently amended, to the Company bearing interest at a ~~compounded~~ rate of 12.5% per annum. The monthly payments of approximately $10,100 will continue through April 2026, at which time the note will ~~be fully paid down.~~become due. At ~~June~~September 30, 2019 and December 31, 2018, the current portion of this note was approximately ~~$55,000~~$56,000 and $51,000, respectively, and is included in~~Note~~Notes Receivable, Current Portionon the respective balance sheets.

During the period from August to October 2018, the Company loaned $300,000 to Healer LLC (“Healer”), an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned cannabis practitioner. In 2019, the Company loaned Healer an additional $500,000. The loans bear interest at 6% per annum, with principal and interest payable on the maturity dates which are three years from the respective loan dates.
In May 2019, the Company ~~loaned~~extended loans aggregating $750,000 to Atalo Holdings Inc. (“Atalo”), an agriculture and biotechnology firm specializing in research, development, and production of industrial hemp and hemp-based CBD ~~products (“Atalo”).~~products. The loans bear interest at 6% per annum, with principal and interest payable on the earlier of April 3, 2020 or the date on which the Company acquires at least 25% of Atalo’s outstanding capital stock, in which case the principal and interest due shall be credited toward Company’s purchase price for such capital stock. In July 2019, the Company loaned an additional $230,000 to Atalo under the same terms as the initial loans.

During the period August to October 2018, the Company loaned $300,000 to Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned cannabis practitioner. In 2019, the Company loaned Healer an additional $500,000. The loans bear interest at 6% per annum, with principal and interest payable on the maturity dates which are three years from the loan date.
In January 2019, KPG of Anna LLC and KPG of Harrisburg LLC each issued a promissory note to the Company in the approximate amount of ~~approximately~~ $451,000 and $405,000, respectively, representing the advances made by the Company to these entities through December 31, 2018. The notes bear interest at 12% per annum, with monthly principal and interest payments due through December 2038. At ~~June~~September 30, 2019, the current portion of these notes approximated $12,000 in the aggregate.

In January 2019, the Company entered into an agreement with Maryland Health & Wellness Center Inc. (“MHWC”), an entity that has been pre-approved by the state of Maryland for a cannabis dispensing license, to provide MHWC with a $300,000 construction loan in connection with the buildout of MHWC’s proposed dispensary. The Company also entered into a consulting services agreement to provide MHWC with advisory and oversight services over a three-year period relating to the development, administration, operation, and management of MHWC’s proposed dispensary in Maryland. The construction loan bears interest at 8% per annum, with principal and interest payable in January 2020, provided however, upon the two-year anniversary of final state approval of MHWC’s dispensing license, the Company shall have the right, subject to state approval, to convert the promissory note underlying the construction loan into a 20% ownership interest of MHWC. This conversion right of the Company shall ~~be terminated~~terminate if the consulting services agreement is terminated.
21
In August 2019, The Company loaned $250,000 to High Fidelity Inc., a company that owns and operates two seed-to sale medical marijuana facilities in the state of Vermont, and produces its own line of CBD products. The loan bears interest at a rate of 10% per annum, with interest-only monthly payments through its maturity in February 2020.

During the period from May to October 2018, the Company loaned $250,000 to Chooze Corp. bearing interest at 8% per annum and maturing in 2021. In January 2019, the entire principal and accrued interest balance of approximately $258,000 was converted into a 2.7% ownership interest in Chooze.

NOTE 8 – INVENTORY/UNEARNED REVENUE FROM RELATED PARTY

During the ~~six~~nine months ended ~~June~~September 30, 2019, MariMed Hemp purchased ~~$20~~$21.6 million of hemp seeds for its wholesale hemp distribution business and to develop hemp-derived CBD products. The seeds meet the U.S. government’s definition of federally legal industrial hemp, which was descheduled as a controlled substance and classified as an agricultural commodity upon the signing of the 2018 U.S. Farm Bill. As previously disclosed inNote 1– Organization and Description of Business, Asas of ~~June~~September 30, 2019, MariMed Hemp sold ~~approximately $15.7 million~~a majority of these seeds to GenCanna, a related party, at market value which generated ~~approximately $25.2~~$33.2 million of receipts. The ~~seeds are to be harvested by October 2019, and accordingly the~~ Company provided GenCanna with extended payment terms ~~allowing full payments~~through December 2019, to ~~be made~~coincide with the completion of the seeds’ harvest, although the payment by ~~December 2019.~~GenCanna is not contingent upon the success of such harvest or its yield.
As required by the relevant accounting guidance, the Company classified the ~~$25.2~~$33.2 million of billings to GenCanna as a receivable from a related party, with ~~$22,0~~approximately $29,0 million recognized as revenue from a related party for the ~~six~~nine months ended ~~June~~September 30, 2019, and ~~$3.2~~approximately $4.2 million recorded underUnearned Revenue From Related Party on the balance sheet. ~~When~~Upon payment of the receivable balance by GenCanna, ~~makes its payments to the Company in December 2019,~~ the amount inUnearned Revenue From Related Partywill be recognized as revenue.

At ~~June~~September 30, 2019, inventory was comprised of ~~approximately $4.3 million~~$850,000 of hemp seeds, and approximately ~~$520,000~~$681,000 of hemp oil extract and ~~products acquired in the MediTaurus transaction disclosed in~~~~Note 3 – Acquisitions~~.CBD products. At December 31, 2018, inventory was comprised of product packaging and other collateral.

NOTE 9 – DEBENTURES RECEIVABLE

As detailed inNote 4 –Investments, the Company converted the GC Debentures into a 33.5% ownership interest in GenCanna in February 2019. Prior to conversion, the GC Debentures bore interest at a ~~compounded~~ rate of 9% per annum and had an original maturity date of three years from issuance. For the year ended December 31, 2018, the Company earned and received interest income of approximately $502,000 on the GC Debentures.

NOTE 10 – PROPERTY AND EQUIPMENT

At ~~June~~September 30, 2019 and December 31, 2018, property and equipment consisted of the following:

June 30,
2019
December 31,
2018
September 30, 2019 December 31, 2018
Land $ 3,392,710 $ 3,392,710 $ 3,392,710 $ 3,392,710
Buildings and building improvements 14,513,538 13,566,144 15,265,983 13,566,144
Tenant improvements 5,625,882 5,348,882 5,798,164 5,348,882
Furniture and fixtures 143,237 114,160 177,505 114,160
Machinery and equipment 2,057,059 1,632,351 2,544,346 1,632,351
Construction in progress 14,473,474 12,205,447 15,822,615 12,205,447
40,205,900 36,259,694 43,001,323 36,259,694
Less: accumulated depreciation (2,602,019 ) (2,159,830 ) (2,842,853 ) (2,159,830 )
Property and equipment, net $ 37,603,881 $ 34,099,864 $ 40,158,470 $ 34,099,864

During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, additions to property and equipment were approximately ~~$3.9~~$6.7 million and $5.7 million, respectively.

The 2018 additions were primarily comprised of (i) the buildout of properties in Hagerstown, MD, New Bedford, MA, and Middleborough, MA, and (ii) improvements to the Lewes, DE facility. The 2019 additions consisted primarily of (i) the commencement of construction in Milford, DE, (ii) the continued buildout of properties in Hagerstown, MD, New Bedford, MA, and Middleborough, MA, and ~~(iii)~~(ii) improvements to the Wilmington, DE and Las Vegas, NV properties.

The December 31, 2018 construction in progress balance of approximately $12.2 million was primarily comprised of (i) New Bedford, MA building, improvements and machinery of approximately $9.8 million and (ii) Middleborough, MA building, improvements and fixtures of approximately $2.4 million. The additions to construction in progress during the ~~six~~nine months ended ~~June~~September 30, 2019 of approximately ~~$2.3~~$3.6 million consisted of the continuing buildout and machinery for the New Bedford, MA and Middleborough, MA properties, and the commencement of construction in Milford, DE.

Depreciation expense for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was approximately ~~$471,000~~$698,000 and $254,000, respectively.
NOTE 11 – DEBT

Mortgages Payable

At ~~June~~September 30, 2019 and December 31, 2018, mortgage balances, including accrued but unpaid interest, were comprised of the following:

June 30,
2019 December 31,
2018 September 30, 2019 December 31, 2018
Bank of New England – Massachusetts property $ 4,877,624 $ 4,895,000 $ 4,851,665 $ 4,895,000
Bank of New England – Delaware property 1,742,619 1,791,736 1,707,942 1,791,736
DuQuoin State Bank – Illinois properties 837,556 850,076 835,035 850,076
Total mortgages payable 7,457,799 7,536,812 7,394,642 7,536,812
Mortgages payable, current portion (238,386 ) (188,231 ) (220,257 ) (188,231 )
Mortgages payable, less current portion $ 7,219,413 $ 7,348,581 $ 7,174,385 $ 7,348,581

In November 2017, the Company entered into a 10-year mortgage agreement with Bank of New England for the purchase of a 138,000 square foot industrial property in New Bedford, Massachusetts, within which the Company has built a 70,000 square foot cannabis cultivation and processing facility that is leased to ARL. This mortgage was personally guaranteed by the Company’s CEO and CFO. From the ~~start of the~~ mortgage date through May 2019, the Company was required to make monthly payments of interest-only at a rate equal to the prime rate plus 2%, with a floor of 6.25% per annum. From May 2019 to May 2024, the Company ~~shall~~is required to make principal and interest payments at a rate equal to the prime rate on May 2, 2019 plus 2%, with a floor of 6.25% per annum. Principal and interest payments shall continue from May 2024 through the end of the lease at a rate equal to the prime rate on May 2, 2024 plus 2%, with a floor of 6.25% per annum. The outstanding principal balance on this mortgage was approximately ~~$4,877,000~~$4,852,000 and $4,895,000 on ~~June~~September 30, 2019 and December 31, 2018, respectively, of which approximately ~~$110,000~~$93,000 and $63,000, respectively, was current.

The Company maintains a second mortgage with Bank of New England, also personally guaranteed by the Company’s CEO and CFO, for the 2016 purchase of a 45,070 square foot building in Wilmington, Delaware which was developed into a cannabis seed-to-sale facility and is currently leased to the Company’s cannabis-licensed client in ~~the~~that state. The mortgage matures in 2031 with monthly principal and interest payments at a rate of 5.25% per annum through September 2021, and thereafter the rate adjusting every five years to the then prime rate plus 1.5% with a floor of 5.25% per annum. At ~~June~~September 30, 2019 and December 31, 2018, the outstanding principal balance on this mortgage was approximately ~~$1,743,000~~$1,708,000 and $1,792,000, respectively, of which approximately $105,000 and ~~$102,000,~~$104,000, respectively, was current.

In May 2016, the Company entered into a mortgage agreement with DuQuoin State Bank (“DSB”) for the purchase of two properties which the Company developed into two 3,400 square foot free-standing retail dispensaries that are currently leased to the KPGs. On May 5^th5th of each year, this mortgage is due to be repaid unless it is renewed for another year at a rate determined at the discretion of DSB’s executive committee. The mortgage was renewed in May 2019 at a rate of 8.5% per annum. At ~~June~~September 30, 2019 and December 31, 2018, the outstanding principal balance on this mortgage was approximately ~~$838,000~~$835,000 and $850,000, respectively, of which approximately $23,000 and $24,000, respectively, was ~~current in both periods.~~current.

Notes Payable

In June 2019, MariMed Hemp issued a $10 million secured promissory note to an unaffiliated party (the “$10M Note”). On the maturity date in January 2020, or earlier at MariMed Hemp’s discretion, the principal balance shall be repaid plus a payment of $1.5 million. At ~~June~~September 30, 2019, the pro-rata portion of such payment, based on the term of the ~~note, of such payment~~$10M Note, approximated ~~$162,000~~$573,000 and was charged to interest expense. The $10M Note is secured by the Company’s right, title, and interest in certain property relative to the seed sale transactions with GenCanna, previously disclosed inNote 1– Organization and Description of Business. The $10M Note imposes certain covenants on the borrower, all of which were complied with as of ~~June~~September 30, 2019.

As part of the $10M Note transaction, the Company issued three-year warrants to purchase 375,000 shares of common stock at an exercise price of $4.50 per share to the holder of the $10M Note. The fair value of these warrants on the issuance date of approximately $601,000 was recorded as a discount to the $10M Note. Approximately ~~$65,000~~$294,000 of the warrant discount was amortized to interest expense ~~in June 2018.~~through September 30, 2019. Accordingly, the carrying value of the $10M Note approximated ~~$9.46~~$9.69 million at ~~June~~September 30, 2019.

In April 2019, MariMed Hemp issued a $1 million secured promissory note to an unaffiliated party maturing in December 2019. The note is secured by the collateral assignment of certain receivables from GenCanna (the “Secured Receivables”) and certain obligations of GenCanna to MariMed Hemp arising from the seed sale transactions previously disclosed inNote 1– Organization and Description of Business. The principal balance plus a payment of $180,000 shall be due in full on the earlier of the maturity date or three business days after MariMed Hemp’s receipt of payment by GenCanna of the Secured Receivables. Such payment date can be extended by the noteholder for an additional three months with proper ~~notice;~~notice, and if extended, the noteholder shall receive an additional payment of $30,000. At ~~June~~September 30, 2019, the pro-rata portion, based on the term of the note, of the $180,000 payment approximated ~~$52,000~~$64,000 and was charged to interest expense. MariMed Hemp can elect to repay the note in whole or in part without penalty, provided the noteholder is given proper notice and MariMed Hemp is not in default of the note agreement. Upon such election, the entire payment of $180,000 shall be deemed earned by and due to the noteholder.
In March 2019, the Company raised $6 million ~~from~~through the issuance of a secured promissory note to an unaffiliated party maturing in December 2019 and bearing interest at the rate of 13% per annum ~~with interest payable monthly.~~(the “$6M Note”). Such note is secured by the collateral assignment of certain receivables from and obligations of GenCanna to MariMed Hemp arising from the seed sale transactions previously disclosed inNote 1– Organization and Description of ~~Business~~Business. The Company may elect to prepay the note in whole or part without penalty upon three business days’ notice and with payment of all interest through the maturity date. The Company may extend the maturity date by up to three months upon thirty days’ notice prior to the maturity date with an extension fee payment to the note holder of $300,000. At ~~June~~September 30, 2019, ~~the carrying value of~~ this note ~~was~~has a principal balance of $6 ~~million.~~million and accrued interest of approximately $424,000.

In September 2018, the Company raised $3 million from the issuance of a secured promissory note to the same unaffiliated party of the $6M Note bearing interest at the rate of 10% per annum, with interest payable ~~monthly.~~monthly through maturity in March 2020. The ~~note is due and payable in September 2019, however the~~ Company may elect to prepay the note in whole or part at any time after December 17, 2018 without premium or ~~penalty.~~penalty provided the noteholder is given proper notice and the Company is not in default of the note agreement. The note can be extended for an additional six months with proper notice, with the interest rate increasing to 12% per annum during the extension period. The note is secured by the Company’s property in Maryland. The Company issued three-year warrants, which were attached to this promissory note, to the lender’s designees to purchase 750,000 shares of the Company’s common stock at an exercise price of $1.80 per share. The Company recorded a discount on the note of approximately $1,511,000 from the allocation of note proceeds to the warrants based on the fair value of such warrants on the issuance date. Approximately $882,000 of the warrant discount was amortized to interest expense during 2018, and the remaining $629,000 was amortized during 2019. The carrying value of this note was $3 million at ~~June~~September 30, 2019 and approximately $2.37 million, net of remaining warrant discount of $629,000, at December 31, 2018.

During 2018, holders of previously issued promissory notes with principal balances of $1,075,000 converted such promissory notes into 1,568,375 shares of common stock at conversion prices ranging from $0.65 to $0.90 per share. The conversions resulted in the recording of non-cash losses of approximately $829,000 in the aggregate, based on the market value of the common stock on the conversion dates. No conversions occurred during the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2019.

During 2018, the Company issued 2,596,313 shares of its common stock and subscriptions on ~~79,136~~1,310,196 shares of its common stock to retire promissory notes with principal balances of $7,495,000 and approximately $95,000 of accrued interest. The Company recorded non-cash losses of approximately $2.5 million based on the fair value of the common stock on the retirement dates. No retirements were made during the ~~six~~nine months ended ~~June~~September 30, 2019.

During 2018, the Company repaid $700,000 of promissory notes. No repayments of promissory notes occurred during the ~~six~~nine months ended ~~June~~September 30, 2019.

The aggregate scheduled maturities of the Company’s total debt outstanding, inclusive of the promissory notes and mortgages described within thisNote 1211 –Debt, and the convertible debentures described in the followingNote 12–Debentures Payable,, as of ~~June~~September 30, 2019 were:

2019 $ 8,439,091
2020 14,343,484
2021 10,262,710
2022 280,830
2023 300,248
Thereafter 6,248,279
Total 39,874,642
Less discounts (5,528,985 )
$ 34,345,657
2019 $ 10,496,536
2020 16,495,007
2021 7,762,293
2022 280,348
2023 299,689
Thereafter 6,262,463
Total 41,596,336
Less discounts (6,557,932 )
$ 35,038,404
24
NOTE 12 – DEBENTURES PAYABLE

In October and November 2018, pursuant to a securities purchase agreement (the “SPA”), the Company sold an aggregate of $10,000,000 of convertible debentures bearing interest at the rate of 6% per annum that mature two years from issuance, with a 1% issue discount, to an accredited investor, resulting in net proceeds to the Company of $9,900,000 (the “$10M Debentures”).

The holder of the $10M Debentures (the “Holder”) has the right at any time to convert all or a portion of the $10M Debenture, along with accrued and unpaid interest, into the Company’s common stock at conversion prices equal to 80% of a calculated average, as determined in accordance with the terms of the $10M Debentures, of the daily volume-weighted price during the ten consecutive trading days preceding the date of conversion. Notwithstanding this conversion right, the Holder shall limit conversions in any given month to certain agreed-upon values based on the conversion price, and the Holder shall also be limited from beneficially owning more than 4.99% of the Company’s outstanding common stock (potentially further limiting the Holder’s conversion right).

The Company shall have the right to redeem all or a portion of the $10M Debentures, along with accrued and unpaid interest, at a 10% premium, provided however that the Company first provide advance written notice to the Holder of its intention to make a redemption, with the Holder allowed to affect certain conversions of the $10M Debentures during such notice period.

Upon a change in control transaction, as defined in the $10M Debentures, the Holder may require the Company to redeem all or a portion of the $10M Debentures at a price equal to 110% of the outstanding principal amount of the $10M Debentures, plus all accrued and unpaid interest thereon. So long as the $10M Debentures are outstanding, in the event the Company enters into a Variable Rate Transaction (“VRT”), as defined in the SPA, the Holder may cause the Company to revise the terms of the $10M Debentures to match the terms of the convertible security ofissued in such VRT.

~~As part of~~In conjunction with the issuance of the $10M Debentures, the Company issued ~~three-year~~two warrants to the Holder to purchase ~~324,675~~142,857 and 181,818 shares of ~~its~~the Company’s common stock at exercise prices of $3.50 and $5.50 per share, respectively, and expiring three years from issuance (the “Initial Warrants”). The fair value of the Initial Warrants of approximately $1,057,000 was recorded as a discount to the carrying amount of the $10M Debentures.

Pursuant to the terms of a registration rights agreement with the Holder, entered into concurrently with the SPA and the $10M Debentures, the Company agreed to provide the Holder with ~~customary~~certain registration rights with respect to any potential shares issued pursuant to the terms of the SPA, the $10M Debentures, and the Warrants.

Subsequent to ~~the consummation of~~entering into the SPA and related agreements, the Company and the Holder executed an addendum to the SPA whereby the Holder agreed to that it would not undertake a conversion of all or a portion of the $10M Debentures that would require the Company to issue more shares than the amount of available authorized shares at the time of conversion, which amount of authorized shares shall not be less than the current authorized number of 500 million shares of common stock. Such addendum eliminated the requirement to bifurcate and account for the conversion feature of the $10M Debentures as a derivative.

Based on the conversion prices of the $10M Debentures in relation to the market value of the Company’s common stock, the $10M Debentures provided the Holder with a beneficial conversion feature, as the embedded conversion option was in-the-money on the commitment date. The intrinsic value of the beneficial conversion feature of approximately $5,570,000 was recorded as a discount to the carrying amount of the $10M Debentures, with an offset to additional paid-in-capital.

In May 2019, the Company sold to the Holder an additional $5,000,000 of convertible debentures bearing interest at the rate of 6% per annum that mature two years from issuance, with a 1% issue discount, resulting in net proceeds to the Company of $4,950,000, and (the “$5M Debentures”). In each of June and August 2019, the Company sold to the Holder an additional $2,500,000 of convertible debentures, totaling $5,000,000, that mature two years from issuance, with a 7% issue discount, resulting in aggregate net proceeds to the Company of ~~$2,350,000~~$4,650,000 (the ~~“$2.5M~~“Two $2.5M Debentures,” and together with the $5M Debentures, the ~~“$7.5M~~“Additional $10M Debentures”).

The ~~$7.5M Debentures were sold to the Holder of the $10M Debentures. The~~ terms of the ~~$7.5M~~Additional $10M Debentures are consistent with the terms of the $10M Debentures, except that (i) no interest shall accrue on the Two $2.5M Debentures, (ii) the issue discount on the Two $2.5M Debentures is 7%, compared to 1% on the $10M Debentures and the $5M Debentures, and (iii) other small variations, most notably a cap on the conversion price. The SPA, registration rights agreement, and addendum to the SPA were all amended and restated to incorporate the ~~$7.5M~~Additional $10M Debentures.

As part of issuance of the ~~$7.5M~~Additional $10M Debentures, the Company issued three-year warrants to the Holder to purchase 550,000 and 300,000 shares of common stock an exercise ~~price~~prices of $3.00 and $5.00 per share, respectively (the “Additional Warrants”). The fair value of the Additional Warrants of approximately ~~$929,000~~$1,148,000 was recorded as a discount to the carrying amount of the ~~$7.5M~~Additional $10M Debentures.

Based on the conversion prices of the ~~$7.5M~~Additional $10M Debentures in relation to the market value of the Company’s common stock, the ~~$7.5M~~Additional $10M Debentures provided the Holder with a beneficial conversion feature, as the embedded conversion option was in-the-money on the commitment date. The aggregate intrinsic value of the beneficial conversion feature of approximately ~~$3,385,000~~$4,235,000 was recorded as a discount to the carrying amount of the ~~$7.5M~~Additional $10M Debentures, with an offset to additional paid-in-capital.

In November and December 2018, the Holder converted, in two separate transactions, an aggregate of $1,400,000 of principal and approximately $36,000 of accrued interest into 524,360 shares of common stock at conversion prices of $2.23 and $3.04 per share. In January 2019, the Holder converted, in three separate transactions, an aggregate of $600,000 of principal and approximately $97,000 of accrued interest into 233,194 shares of common stock at conversion prices ranging from $2.90 to $3.06 per share. In April and June 2019, the Holder converted, in four separate transactions, an aggregate of $1,750,000 of principal and approximately $181,000 of accrued interest into 923,185 shares of common stock at conversion prices ranging from $1.74 to $2.74 per share.In July, the Holder converted, in two separate transactions, an aggregate of $2,750,000 of principal and approximately $17,000 of accrued interest into 2,435,144 shares of common stock at conversion prices of $1.08 and $1.70 per share. In September 2019, the Holder converted $2,400,000 of principal and approximately $64,000 of accrued interest into subscriptions on 3,206,816 shares of common stock at a conversion price of $0.77 per share.

During the ~~six~~nine months ended ~~June~~September 30, 2019, amortization of the beneficial conversion features, after adjustment for the conversions, approximated ~~$2,282,000;~~$4,646,000; amortization of the discounts from the Initial Warrants and Additional Warrants (together, the “Total Warrants”) approximated ~~$320,000;~~$913,000; and the amortization of original issue discounts approximated ~~$29,000.~~$107,000. This amortization was charged to interest expense. Additionally, accrued interest expense for such period approximated ~~$280,000.~~$421,000.

At ~~June~~September 30, 2019, the aggregate outstanding principal balance on the $10M Debentures and the ~~$7.5M~~Additional $10M Debentures (together, the “$~~17.5M~~20M Debentures”) was ~~$13,750,000.~~$11,100,000. Also on such date, the unamortized balances of the beneficial conversion feature, the Total Warrants discount, and original issue discounts were approximately ~~$5,152,000, $1,575,000,~~$3,637,000, $1,201,000, and ~~$287,000,~~$66,000, respectively. Accordingly, at ~~June~~September 30, 2019, the carrying value of the ~~$17.5M~~$20M Debentures was approximately ~~$6,736,000.~~$5,878,000.

At December 31, 2018, the outstanding principal balance on the $10M Debentures was $8,600,000. Also on such date, the unamortized balances of the beneficial conversion feature, Initial Warrants discount, and original issue discounts were approximately $4,048,000, $966,000, and $91,000, respectively, and accrued and unpaid interest was approximately $62,000. Accordingly, at December 31, 2018, the carrying value of the $10M Debentures was approximately ~~$3.6 million.~~$3,557,000.
25
NOTE 13 – EQUITY

Preferred Stock

In January 2018, all 500,000 shares of subscribed Series A convertible preferred stock then outstanding were converted into 970,988 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.

The Series A convertible preferred stock accrues an annual dividend of 6% until conversion. The preferred stock 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 has 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

During the ~~six~~nine months ended ~~June~~September 30, 2019, the Company sold 799,995 shares of common stock at a price of $3.25 per share, resulting in total proceeds of $2.6 million. During the same period in 2018, the Company sold 10,111,578 shares of common stock, at prices ranging from $0.50 to $1.30 per share, resulting in total proceeds of approximately $8.5 million.

During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, the Company issued 97,136 and 1,000,000 common shares, respectively, associated with previously issued subscriptions on common stock with a value of approximately $169,000 and $370,000, respectively.

During the ~~six~~nine months ended ~~June~~September 30, 2018, the Company issued 1,313,901 common 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 dates of issuance, the Company recorded non-cash losses on these settlements of approximately $959,000. Also during such period, the Company issued 1,679,486 common shares to retire $1,175,000 of promissory notes. Based on the market value of the stock on the retirement dates, the Company recorded non-cash losses of approximately $918,000. No common shares were issued during the same period in 2019 to settle obligations or retire promissory notes.
In August 2019, the Company granted 108,820 shares of common stock to employees at weighted average price of $1.78, or an aggregate value of approximately $194,000.
As previously disclosed inNote 3– Acquisitions, the Company issued 1,000,000 shares of common stock to the owners of Harvest.

As previously disclosed inNote 4– Investments, the Company issued 500,000 shares of common stock to purchase a minority interest in Terrace.

As previously disclosed inNote 12 –Debentures Payable, during the ~~six~~nine months ended ~~June~~September 30, 2019, the holder of the ~~$17.5M~~$20M Debentures converted ~~$2,350,000~~$7,500,000 of principal and approximately ~~$278,000~~$359,000 of accrued interest into ~~1,156,379~~3,591,523 shares of common stock and subscriptions on 3,206,816 shares of common stock.

As further disclosed inNote 14– Stock Options, during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, ~~358,446~~417,352 and ~~300,000~~602,000 shares of common stock, respectively, were issued in connection with the exercise of stock options.

As further disclosed inNote 15– Warrants, during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, warrants to purchase ~~666,104~~686,104 and ~~1,235,768~~2,057,462 shares of common stock were exercised.

Common Stock Issuance Obligations

At ~~June~~September 30, 2019, the Company was obligated to issue (i) 2,644,456 shares of common stock, valued at approximately $414,000, in connection with the exercise of stock options, (ii) 3,206,816 shares of common stock, valued at approximately $2,464,000, with respect to the September 2019 conversion of a portion of the $20M Debentures, as previously disclosed in Note 12– Debentures Payable, and (iii) 752,260 shares of common stock, valued at $2,080,000, as part of the purchase price ~~for~~of MediTaurus, as previously disclosed inNote 3– Acquisitions. These shares ~~will~~are expected to be ~~subsequently~~ issued in the ~~third~~fourth quarter of 2019.

At December 31, 2018, the Company was obligated to issue: (a) 79,136 shares of common stock, valued at approximately $95,000, related to the settlement of a previously issued promissory note with a principal balance of $50,000 and accrued interest of $1,454; and (b) 18,000 shares of common stock, valued at approximately $74,000, for the payment of rent for a leased property in Massachusetts for the months of September 2018 through January 2019. Such shares were subsequently issued in the first quarter of 2019.

~~At June 30,~~Amended and Restated 2018 Stock Award and Incentive Plan
In August 2019, the Company’s board of directors approved the Amended and Restated 2018 Stock Award and Incentive Plan (the “Incentive Plan”), based on the board’s belief that awards authorized under the Incentive Plan provide incentives for the achievement of important performance objectives and promote the long-term success of the Company. In September 2019, the Incentive Plan was approved by the stockholders at the Company’s annual stock-holders meeting.
The 2018 Plan is an omnibus plan, authorizing a variety of equity award types as well as cash and long-term incentive awards. The Incentive Plan amends and restates the Company’s 2018 Stock Award and Incentive Plan (the “Original Plan”), which was approved by the board of directors in July 2018 but never presented to stockholders for approval. Any grants made under the Original Plan prior to the approval date of the Incentive Plan shall continue to be governed by the terms of the Original Plan.
The Incentive Plan authorizes a broad range of awards, including stock options, stock appreciation rights, restricted stock, deferred stock, dividend equivalents, performance shares, cash-based performance awards, and other stock-based awards. Such awards can be granted to employees, non-employee directors and other persons who provide substantial services to the Company ~~was obligated~~and its affiliates. Nothing in the Incentive Plan precludes the payment of other compensation to ~~issue: (a) 264,317~~officers and employees, including bonuses based upon performance, outside of the Incentive Plan.
An aggregate of 40,000,000 shares are reserved for delivery to participants, and may be used for any type of ~~common stock to~~award under the Incentive Plan. Shares actually delivered in connection with an award will be counted against such number of reserved shares. Shares will remain available for new awards if an award under the ~~acquisition~~Incentive Plan expires, is forfeited, canceled, or otherwise terminated without delivery of ~~iRollie LLC, as disclosed~~shares or is settled in~~Note 3 – Acquisitions; (b) 32,083 shares of common stock in connection with~~ cash. Each award under the exercise of a warrant, (c) 2,001,641 shares of common stock to settle $1,951,600 of vendor invoices; and (d) 9,281 shares of common stock, valued at approximately $20,000, for the payment of rent on a leased property in Massachusetts for the months of May and June 2018. All such shares were issued subsequentIncentive Plan is subject to the ~~June 30, 2018 quarter end.~~Company’s claw back policy in effect at the time of grant of the award.
The board of directors may amend, suspend, discontinue, or terminate the Incentive Plan or the authority to grant awards thereunder without stockholder approval, except as required by law or regulation or under rules of the stock exchange, if any, on which the Company’s stock may then be listed. Unless earlier terminated, grants under the Incentive Plan will terminate ten years after stockholder approval of the Incentive Plan, and the Incentive Plan will terminate when no shares remain available and the Company has no further obligation with respect to any outstanding award.
27
NOTE 14 – STOCK OPTIONS

~~In January 2018,~~During the nine months ended September 30, 2019, the Company granted options to purchase ~~1.45 million~~900,000 shares of common stock, ~~to the Company’s board members at~~expiring four and five years from their grant dates, with exercise prices ranging from ~~$0.14~~$0.99 to ~~$0.77, vesting over a six-month~~$1.95 per share.During the same period and expiring between December 2020 and December 2022. The fair value of these options on grant date of approximately $458,000 was fully amortized by June 30, 2018. No stock options were granted to board members during the six months ended June 30, 2019.
~~In May~~in 2018, the Company granted five-year options to purchase ~~200,000~~2,300,000 shares of common stock at exercise prices ranging from $0.14 to ~~an employee with an exercise price of $0.90~~$2.65 per share.As of June 30, 2018, the Company amortized approximately $28,000 of the total adjusted fair value of this grant of approximately $208,000. In December 2018, 150,000 of these options were forfeited prior to their vesting dates. Approximately $50,000 of the fair value had been amortized through the forfeiture date, and as a result, approximately $158,000 will not be amortized. No options were granted to employees during the six months ended June 30, 2019.

~~During~~The fair values of the ~~six months ended June~~aforementioned options granted in 2019 and 2018 of approximately $876,000 and $2,102,000, respectively, are being amortized over their vesting periods, of which approximately $101,000 and $1,743,000 was amortized at September 30, 2019 and 2018, respectively.
During the nine months ended September 30, 2019, options to purchase ~~520,000 and 700,000~~3,585,000 shares of common stock ~~respectively,~~ were exercised at exercise prices ranging from $0.08 to $0.77 per ~~share~~share. At September 30, 2019 , 2,644,456 shares of common stock related to these exercises had yet to be issued by the Company as previously disclosed in Note 13– Equity under the section entitledCommon Stock Issuance Obligations.Accordingly, such shares were reflected withinCommon Stock Subscribed But Not Issued on the September 30, 2019 ~~and $0.08 to $0.63 per share in 2018.~~balance sheet. Of the options exercised in 2019, ~~350,000~~2,285,000 were exercised on a cashless basis ~~by two board members~~ with the exercise prices paid via the surrender of ~~139,985~~523,192 shares of common stock.
During the nine months ended September 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. Of the options exercised in 2018, 400,000 were exercised ~~by a board member~~ on a cashless basis with the exercise price paid via the surrender of 98,000 shares of common stock.

During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, options to purchase 80,000 and 300,000, respectively, were forfeited, resulting in a reduction of ~~which 200,000 had been owned by two board members. There were no forfeitures~~amortization of approximately $170,000 in 2019, and zero in 2018.

Stock options outstanding and exercisable as of ~~June~~September 30, 2019 were:

Exercise Price Exercise Price Shares Under Option Remaining Exercise Price Shares Under Option Remaining
per Share per Share Outstanding Exercisable Life in Years per Share Outstanding Exercisable Life in Years
$ 0.080 100,000 100,000 0.47 0.080 100,000 100,000 0.22
$ 0.130 200,000 200,000 1.00 0.130 200,000 200,000 0.75
$ 0.140 100,000 100,000 0.50 0.140 100,000 100,000 0.25
$ 0.140 550,000 550,000 1.51 0.140 550,000 550,000 1.25
$ 0.150 1,000,000 1,000,000 0.25 0.330 50,000 50,000 1.44
$ 0.250 1,000,000 1,000,000 0.25 0.450 125,000 125,000 2.01
$ 0.330 50,000 50,000 1.69 0.630 300,000 300,000 2.25
$ 0.350 1,000,000 1,000,000 0.25 0.770 200,000 200,000 3.25
$ 0.450 190,000 190,000 2.26 0.900 50,000 50,000 3.62
$ 0.630 300,000 300,000 2.51 0.950 50,000 10,000 3.25
$ 0.770 200,000 200,000 3.51
0.992

300,000
-
4.99

$ 0.900 50,000 50,000 3.87 1.350 100,000 - 3.83
$ 0.950 50,000 10,000 3.51 1.950 500,000 - 3.75
$ 2.320 300,000 60,000 4.20 2.320 220,000 100,000 3.95
$ 2.450 2,000,000 2,000,000 3.48 2.450 2,000,000 2,000,000 3.23
$ 2.500 100,000 25,000 4.16 2.500 100,000 50,000 3.91
$ 2.650 200,000 100,000 4.24 2.650 200,000 150,000 3.99
$ 2.850 75,000 - 3.45 2.850 75,000 18,750 3.20
$ 2.850 100,000 - 4.45 2.850 100,000 25,000 4.20
$ 3.000 25,000 - 4.47 3.000 25,000 12,500 4.21
$ 3.725 200,000 - 4.45 3.725 200,000 50,000 4.19
7,790,000 6,935,000 5,545,000 4,091,250
28
NOTE 15 – WARRANTS

During the ~~six~~nine months ended ~~June~~September 30, 2019, in conjunction with the ~~$7.5M~~Additional $10M Debentures previously disclosed inNote 12– Debentures Payable, the Company issued three-year warrants to purchase 550,000 and 300,000 shares of its common stock at an exercise ~~price~~prices of $3.00 and $5.00 per ~~share.~~share, respectively. The fair value of these warrants at issuance approximated ~~$929,000,~~$1,148,000, with approximately ~~$57,000~~$187,000 of this amount amortized to interest expense during the period and the remainder to be amortized over the two-year term of the ~~$7.5M~~Additional $10M Debentures.
Also during this period, the Company issued three-year warrants to purchase 375,000 shares of common stock at an exercise price of $4.50 per share as part of the $10M Note transaction previously disclosed inNote 11– Debt. The fair value of these warrants at issuance approximated $601,000, with approximately ~~$65,000~~$294,000 of this amount amortized to interest expense during the period and the remainder to be amortized by the January 2020 maturity date of the $10M Note.

In July 2018, the Company issued stand-alone warrants to purchase 125,000 shares of common that expire three years from issuance. The warrants have an exercise price of $1.71 per share, and a fair value of approximately $139,000 which was charged to expense on the issuance date.
During the ~~six~~nine months ended ~~June~~September 30, 2018, the Company issued warrants to purchase ~~4,239,000~~7,209,974 shares of common stock at exercise prices ranging from ~~$0.30~~$0.20 to ~~$2.25~~$4.30 per share. Of these warrants, (i) ~~470,000~~1,000,000 warrants were issued in exchange for services previously rendered to the Company, with expiration dates of three and five years from issuance, at a fair value of approximately ~~$433,000~~$1,354,000 which was charged to compensation expense during the period, (ii) ~~237,500~~987,500 three-year warrants were issued in conjunction with a promissory ~~note, expiring in April 2021,~~notes, at a fair value of approximately ~~$198,200~~$1,710,000 which was charged to interest expense during the period, and (iii) ~~3,531,500 three-year~~5,222,474 warrants were issued as part of the sale of common stock, expiring three and five years from issuance, at a fair value of at issuance of approximately ~~$4.5~~$8.4 million ~~that~~which was charged to ~~additional paid-in capital.~~Additional Paid-In Capital.

During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, warrants to purchase ~~666,104~~686,104 and ~~1,425,379~~2,057,462 shares of common stock, respectively, were exercised at exercise prices ranging from $0.12 to $1.75 per share in 2019 and $0.10 to $0.50 per share in 2018.

At ~~June~~September 30, 2019 and 2018, warrants to purchase ~~10,865,107~~11,270,107 and ~~7,058,932~~9,397,823 shares of common stock, respectively, were outstanding at exercise prices ranging from $0.15 to $5.50 per share in 2019 and ~~$0.10~~$0.12 to ~~$2.25~~$4.30 per share in 2018.

NOTE 16 – REVENUES

For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, the Company’s revenues were comprised of the following major categories:

Six months ended June 30, Nine months ended September 30,
2019 2018 2019 2018
Real estate $ 3,442,024 $ 2,731,364 $ 5,250,084 $ 4,570,194
Management 1,194,791 754,038 1,963,205 1,156,547
Supply procurement 1,906,399 1,241,834 2,830,555 2,045,467
Licensing 568,127 281,557 1,230,366 529,268
Product sales
1,880
- 60,839 -
Product sales from related party
22,014,879

-

Product sales to related party 29,029,249 -
Other 60,392 11,482 47,893 110,382
Total revenues $ 29,188,492 $ 5,020,275 $ 40,412,191 $ 8,411,858

For the ~~six~~nine months ended ~~June~~September 30, 2019, revenue from three clients represented 95% of total revenues. One of these clients was GenCanna, a related party, with whom the Company conducted the seed sale transactions previously disclosed inNote 1– Organization and Description of Business. The amount underProduct Sales ~~From~~To Related Party shown in the table above represents the total revenues from these transactions with GenCanna through ~~June~~September 30, 2019. Excluding the revenues from GenCanna, two clients represented 82% of revenues during this period.

For the ~~six~~nine months ended ~~June~~September 30, 2018, ~~revenue from~~these same two clients comprised ~~75%~~72% of total revenues.
29
NOTE 17 – RELATED PARTY TRANSACTIONS

During the ~~quarter~~nine months ended ~~June~~September 30, 2019, the Company entered into several hemp seed sale transactions with GenCanna, a related party, whereby the Company acquired large quantities of top-grade feminized hemp seeds with proven genetics at volume discounts that it sold to GenCanna at market rates. As previously disclosed inNote 1– Organization and Description of Business, the Company classified the ~~$25.2~~$33.2 million due from GenCanna as a receivable from a related party, with ~~$22,0~~approximately $29.0 million recognized as revenue from a related party for the ~~six~~nine months ended ~~June~~September 30, 2019, and ~~$3.2M~~approximately $4.2M recorded underUnearned Revenue From Related Partyon the balance sheet. ~~When~~Upon payment of the receivable balance by GenCanna, ~~makes its payments to the Company in December 2019,~~ the amount inUnearned Revenue From Related Partywill be recognized as revenue.

~~As disclosed in~~~~Note 3~~ –~~Acquisitions~~, the current CEO and CFO of the Company were part of the ownership group from whom Sigal Consulting LLC was acquired in May 2014. The 49% ownership in the Company’s subsidiary, MariMed Advisors Inc., which this ownership group acquired as part of the purchase price, was acquired by the Company from this ownership group in June 2017 in exchange for 75 million shares of the Company’s common stock.
~~In October 2017, the Company acquired certain assets of the Betty’s Eddies™ brand of cannabis-infused products, as disclosed in~~~~Note 3~~ –~~Acquisitions~~~~, from a company that was minority-owned by the Company’s chief operating officer.~~
As disclosed inNote 11– Debt, the Company’s two mortgages with Bank of New England are personally guaranteed by the Company’s CEO and CFO.

In September 2019, the Company granted five-year options to purchase 100,000 shares of common stock to each of the Company’s three independent board members at an exercise price of $0.99. The aggregate fair value of these options of approximately $191,000 is being amortized over the six-month vesting period, of which approximately $92,000 was amortized at September 30, 2019.
In January 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 and expiring between December 2020 and December 2022. ~~Also during this month,~~The aggregate fair value of these options ~~to purchase 200,000 were forfeited~~of approximately $480,000 was fully amortized by ~~board members.~~ June 30, 2018.
During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, options to purchase 350,000 and 400,000 shares of common stock, respectively, were exercised by board members on a cashless basis with the exercise prices paid via the surrender of 139,985 shares of common stock in 2019 and 98,000 shares of common stock in 2018. ~~All~~
In January 2018, options to purchase 200,000 shares of ~~the option transactions referred to~~common stock were forfeited by two board members. No options were forfeited by board members in ~~this paragraph have been previously disclosed in~~~~Note 14 – Stock Options~~.2019.

The Company’s current corporate offices are leased from a company owned by a related party under a 10-year lease that commenced August 2018 and contains a five-year extension option. Previous to this lease, the Company’s former corporate offices were also leased from a company owned by a related party. For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, expenses incurred under these leases approximated ~~$34,000~~$117,000 and ~~$6,000,~~$16,000, respectively.

The outstandingDue To Related Partiesbalances at ~~June~~September 30, 2019 and December 31, 2018 of approximately ~~$77,000~~$416,000 and $276,000, respectively, were comprised of amounts owed of approximately (i) ~~zero~~$100,000 and $81,000, in respectively, to the Company’s CEO and CFO, (ii) ~~$17,000~~$256,000 and $135,000, respectively, to two companies partially owned by these officers, and (iii) $60,000 in both periods to two ~~shareholders~~stockholders of the Company. Such amounts owed are not subject to repayment ~~schedules and are expected to be repaid during 2019.~~schedules.

The outstandingDue From Related Partiesbalance at December 31, 2018 of approximately $120,000 was comprised of an advance to a company partially owned by the Company’s CEO and CFO. This amount was entirely offset by advances from such related parties. At ~~June~~September 30, 2019, there were no amounts due from related parties.
30
NOTE 18 –COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company is the lessee under five operating leases and ~~three~~four finance leases. These leases contain rent holidays and customary escalations of lease payments for the type of facilities being leased. The Company recognizes rent expense on a straight-line basis over the expected lease term, including cancelable option periods which the Company fully expects to exercise. Certain leases require the payment of property taxes, insurance and/or maintenance costs in addition to the rent payments.

The details of the Company’s operating lease agreements are as follows:

● Delaware – 4,000 square feet of retail space in a multi-use building under a five-year lease that commenced in October 2016 and contains a five-year option to extend the term. The Company developed the space into a cannabis dispensary which is subleased to its cannabis-licensed client.

● Delaware – a 100,000 square foot warehouse leased in March 2019 that the Company intends to construct into a cultivation and processing facility to be subleased to the same Delaware client. The lease term is 10 years, with an option to extend the term for three additional five-year periods.

● Nevada – 10,000 square feet of an industrial building that the Company has built-out into a cannabis cultivation facility and plans to rent to its cannabis-licensed client under a sub-lease which will be coterminous with this lease expiring in 2024.

● Massachusetts – 10,000 square feet of office space which the Company utilizes as its corporate offices under a 10-year lease with a related party expiring in 2028, ~~which contain a 5-year extension option.~~with an option to extend the term for an additional five-year period.

● Maryland – a 2,700 square foot 2-unit apartment under a lease that expires in July 2020 with an option to renew for a two-year term.

The Company leases machinery and office equipment under finance leases that expire in February 2022 through June 2024 with such terms being a major part of the economic useful life of the leased property.

The components of lease expense for the ~~six~~nine months ended ~~June~~September 30, 2019 were as follows:

Operating lease cost $ 339,478 $ 585,940
Finance lease cost:
Amortization of right-of-use assets $ 6,744 $ 14,914
Interest on lease liabilities 1,824 4,188
Total finance lease cost $ 8,568 $ 19,102

The weighted average remaining lease term for operating leases is ~~9.7~~9.5 years, and for the finance lease is 3.9 years. The weighted average discount rate used to determine the right-of-use assets and lease liabilities was 7.5% for all leases.

Future minimum lease payments as of ~~June~~September 30, 2019 under all non-cancelable operating leases having an initial or remaining term of more than one year were:

Operating
Leases

Finance
Lease

Operating
Leases

Finance
Lease

2019 $ 230,744 $ 11,556 $ 141,156 $ 9,603
2020 917,444 23,112 917,444 38,412
2021 1,008,227 23,112 1,008,227 38,412
2022 949,535 11,823 949,535 27,123
2023 910,166 10,451 910,166 23,201
Thereafter 5,139,851 3,229 5,139,851 3,229
Total lease payments 9,155,967 $ 83,282 9,066,379 $ 139,980
Less: imputed interest (2,845,742 ) (11,296 ) (2,727,246 ) (18,778 )
$ 6,310,224 $ 71,986 $ 6,339,133 $ 121,202

Terminated Employment Agreement

An employment agreement which commenced in 2012 with Thomas Kidrin, the former CEO of the Company, that provided Mr. Kidrin with salary, car allowances, stock options, life insurance, and other employee benefits, was terminated by the Company in 2017. ~~The~~At September 30, 2019 and December 31, 2018, the Company maintained an accrual of approximately $1,043,000 ~~at June 30, 2019 and December 31, 2018~~ for any amounts that may be owed under this agreement, although the Company contends that such agreement is not ~~valid.~~valid and no amount is due.

In July 2019, Mr. Kidrin, also a former director of the Company, filed a complaint in the Massachusetts Superior Court, ~~alleging~~ that alleges the Company ~~breached the employment agreement and~~ failed to pay all wages owed to him and ~~requesting compensatory~~breached the employment agreement, and requests multiple damages, attorney fees, costs, and interest. ~~To date,~~The Company has moved to dismiss certain counts of the complaint and has asserted counterclaims against Mr. Kidrin ~~has not served the complaint upon the Company.~~alleging breach of contract, breach of fiduciary duty, money had and received, and unjust enrichment. The Company believes that the allegations in the complaint are without merit and ~~will~~intends to vigorously defend this matter ~~when Mr. Kidrin makes service upon it.~~and prosecute its counterclaims.
Maryland Acquisition
As previously disclosed in Note 3– Acquisitions, the sellers of Kind have attempted to renegotiate the terms of the MOU, alleging that the MOU is not an enforceable agreement, despite the MOU containing all the definitive material terms with respect to the acquisition transaction and confirming the management and lease agreements. The Company engaged with the sellers in a good faith attempt to reach updated terms acceptable to both parties, but the non-reciprocation of the sellers resulted in an impasse. Additionally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings. For further information, see Note 19– Subsequent Events.
31
NOTE 19 – SUBSEQUENT EVENTS

~~Seed Transactions~~
~~In July~~On October 1, 2019, the ~~Company delivered~~Illinois Department of Financial & Professional Regulation approved the Company’s acquisition of the KPGs and ~~billed GenCanna an additional $8.0 million for hemp seeds that were purchased by~~Mari-IL. Effective on such date, (i) the purchase price of 1,000,000 shares of the Company’s common stock was paid to the selling parties, and (ii) the KPGs and Mari-IL became wholly-owned subsidiaries of the Company ~~for approximately $5.0 million. The seeds are~~ to be ~~harvested in~~consolidated into the fall of 2019, and accordingly, the Company provided GenCanna with extended payment terms, with the full payment to be made in December 2019 after the crop is harvested. The accounting treatment of these sales were consistent with that of the original seed sale transactions as previously disclosed in~~Note – 1 Organization and Description of Business~~.
~~Licensing Agreement~~
~~In July 2019, as previously disclosed in~~~~Note 4 – Investments~~~~, the Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven eastern states of the Binske~~^® ~~portfolio of products, a brand known for utilizing best-in-class proprietary strains and craft ingredients in its edibles, concentrates, vaporizers, and topicals.~~Company’s financial statements.

~~Debentures Payable~~
~~In July 2019,~~During the ~~Holder~~month of the $17.5M Debentures converted, in two separate transactions, an aggregate of $2,750,000 of principal and approximately $17,000 of accrued interest into 2,435,144 shares of common stock at conversion prices of $1.08 and $1.70 per share.
~~Note Receivable~~
In July 2019, the Company loaned an additional $230,000 to Atalo, pursuant a promissory note to the Company that bears interest at 6% per annum, with principal and interest payable on the earlier of April 3, 2020 or the date on which the Company acquires at least 25% of Atalo’s outstanding capital stock, in which case the principal and interest due shall be credited toward Company’s purchase price for such capital stock.
~~Equity~~
~~In July~~October 2019, the Company issued three-year warrants to purchase ~~125,000~~300,000 shares of common stock at an exercise price of ~~$1.71~~$1.37 per ~~share.~~share for services rendered. Also during this month, the Company ~~issued options~~granted to ~~purchase 100,000~~employees for services (i) 24,074 shares of common stock, and (ii) five-year options to ~~an employee~~purchase 500,000 shares of common stock at an exercise price of ~~$1.34~~$0.71 per ~~share, expiring five years~~share.
In October 2019, the Company closed on the purchase of a 9,000 square foot building in Annapolis, MD. The purchase price of approximately $1.7 million was paid with the proceeds from ~~issuance date.~~a $2.0 million promissory note issued by the Company to an unaffiliated third party and secured by the property. The note, which matures in January 2020, provides the payee with origination fees aggregating 5% of the principal, and bears interest at the rate of 2% per month commencing 90 days from the start of the note. The Company intends to develop the property into a medical marijuana dispensary to be leased to Kind.
On November 13, 2019, Kind commenced an action in the Circuit Court for Washington County, MD against the Company alleging, inter alia, breach of contract, breach of fiduciary duty and unjust enrichment, and seeking a declaratory judgment, injunctive relief, an accounting and damages in excess of $75,000. On November 15, 2019, the Company filed counterclaims against Kind and, as plaintiffs, the Company commenced an action against the Kind sellers alleging breach of contract with respect to the MOU and the management agreement, unjust enrichment, promissory estoppel/detrimental reliance, and fraud in the inducement. The Company seeks a declaratory judgement that the MOU is an enforceable contract, specific performance of such contact, and the establishment of a constructive trust for the Company’s benefit.

Both parties brought motions for a temporary restraining order and a preliminary injunction. On November 21, 2019, the Court denied both parties’ motion for a temporary restraining order. In ~~July~~its opinion, the Court specifically noted that, contrary to Kind’s allegations, the management agreement and ~~August,~~lease “appear to be independent, valid and enforceable contracts.” Currently, each party’s preliminary injunction motion is pending before the Court. The Company believes that its claims for breach of contract with respect to the MOU and the management agreement, unjust enrichment, promissory estoppel/detrimental reliance, and fraud in the inducement are meritorious and that Kind’s claims against the Company ~~issued an aggregate of 18,820 shares of common stock~~are without merit. The Company intends to ~~two employees.~~aggressively prosecute and defend the action.
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Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

When used in this form 10-Q and in future filings by the Company with the Commission, the words or phrases such as “anticipate,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which we operate; changes to laws and regulations that pertain to our products and operations; and increased competition.

The following discussion should be read in conjunction with the unaudited financial statements and related notes which are included under Item 1.1 of this report.

We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.

Overview

General

MariMed Inc. (“we”, “our”, “us”, “MariMed” or the “Company”) is a leader in the legal cannabis and hemp industries. The Company’s stock is quoted on the ~~OTCQB~~OTCQX market under the ticker symbol, MRMD.

We are industry experts in the development, operation, management and optimization of cannabis cultivation, production and dispensing facilities. These facilities, located in multiple states, are leased to our clients who are entities that have been awarded legal and medical marijuana licenses by multiple states.

Since entering the cannabis industry, ~~the Company has~~we have demonstrated an excellent track record in managing state-of-the-art, regulatory-compliant facilities for the cultivation, production, and dispensing of legal cannabis and cannabis-infused products. We provide industry-leading expertise and consultative services in all aspects of cannabis licensing procurement, including ongoing management oversight or real estate services to five independent operations in five states – Delaware, Illinois, Maryland, Nevada and Massachusetts.

We acquire land and/or real estate for the purpose of developing state-of-the-art, regulatory-compliant legal cannabis facilities. These facilities are designed to be models of excellence in horticultural principals, cannabis production, product development and dispensary operations. Along with operational oversight, we provide our clients with legal, accounting, human resources, and other corporate and administrative services.

~~The Company has~~We have secured, on behalf of ~~its~~our clients, 12 cannabis licenses across six states — two in Delaware, two in Illinois, one in Nevada, one in Rhode Island, three in Maryland and three in Massachusetts. We have client operating facilities that are opened or under development in the cities of Wilmington, Lewes, and Milford in Delaware; the cities of Anna and Harrisburg in Illinois; Clark county in Nevada; Arundel county and the city of Hagerstown in Maryland; and the cities of New Bedford and Middleborough in Massachusetts. In total, we have developed in excess of 300,000 square feet of seed-to-sale cannabis facilities.
In 2018, we began a transition from being a management and advisory firm that provides cannabis licensing, operational consulting and real estate services, to being primarily a direct owner of cannabis licenses and operator of seed-to-sale ~~operations. In Massachusetts, we successfully converted a cannabis-licensed client from a non-profit entity~~operations, dedicated to ~~a for-profit corporation with~~ the ~~Company as~~improvement of health and wellness through the ~~sole shareholder. This is described in further detail below.~~
~~The Company has~~use of cannabinoids and cannabis products. We have implemented a plan to consolidate the ownership of ~~the five remaining~~our client operating entities under the MariMed banner. ~~The consolidation process is at~~
To date, the acquisitions of clients in Massachusetts and Illinois have been completed, with the remaining clients under contract and in various stages of completion, ~~due~~as discussed below. Our acquisition efforts are subject to ~~the respective state~~each particular state’s laws governing cannabis license ~~ownership.~~ownership, and accordingly, there is no assurance that we will be successful in fully implementing our plan. Once the consolidation is completed, we will own, manage and operate cultivation, manufacturing and retail dispensary operations in six states. Moreover, we plan to leverage our success in providing management oversight in these markets to expand into other states, while focusing on regulatory compliance, efficiency and product performance.

Over our short history, we have developed an excellent reputation for strong management in the cannabis industry. As a management company, MariMed’s clients have thrived and succeeded in their respective markets. Our goal is to continue this success as we transition from a manager and advisor to an owner of cannabis licenses and operator of cannabis businesses.
Recognizing the emergence of the global hemp market following the enactment of the 2018 U.S. Farm Bill, in late 2018 we purchased $30 million of subordinated secured convertible debentures (the “GC Debentures”) from GenCanna Global USA, Inc., a leading producer and distributor of industrial hemp, CBD formulations, and hemp genetics (“GenCanna”). In February 2019, we converted the GC Debentures, plus accrued interest, into a 33.5% ownership interest in GenCanna on a fully diluted basis. Additionally, the Company established a wholly owned subsidiary, MariMed Hemp Inc., in January 2019 to market and distribute hemp-derived CBD products across several vertical markets.

We have also developed precision-dosed cannabis- and hemp-infused products designed for specific medical conditions and related symptoms. These products are licensed under Company-owned brands such as Kalm Fusion™, Betty’s Eddies™, Nature’s Heritage™ and Florance™, in the form of dissolvable strips, tablets, powders, microwaveable popcorn, fruit chews, and with more varieties in development. The Company also sublicenses several top brands including Lucid Mood™ disposable vape pens, , and DabTabs™ revolutionary vaporization tablets infused with cannabis concentrates, the ~~Binske~~^®Binske® line of cannabis products made from premium artisan ingredients, and the clinically tested medicinal cannabis strains developed in Israel by Tikun Olam™. We plan to continue licensing the best brands and products in the industry for distribution through our owned and client owned dispensaries across the country.

Over ~~its~~our short history, ~~the Company has~~we have developed an excellent reputation for strong management in the cannabis industry. As a management company, ~~MariMed’s~~our clients have thrived and succeeded in their respective markets. ~~The Company’s~~Our goal is to continue this success as ~~it transitions~~we transition from a manager and advisor to an owner of cannabis licenses and an operator of cannabis businesses. ~~The Company’s~~Our strengths can be summarized as follows:

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Professional Management

We have had considerable success writing award-winning applications for clients applying for licenses in new and established legal cannabis states; creating and developing defined business, operating and security plans; sourcing real estate for cannabis facilities in receptive municipalities; and raising capital to purchase and develop facilities. These skills are important as ~~the Company expands its~~we expand our footprint into new states on a direct ownership basis.

Development of State-of-the-Art Cannabis Facilities and Operations

We have constructed numerous cannabis cultivation, production, and dispensary facilities in several states utilizing and developing industry “best practices” in all of our facilities, and our clients’ seed-to-sale operations in multiple states are examples of operational excellence under our proven management processes and practices.

Cannabis Brand Creation

We have developed unique brands of precision-dosed cannabis-infused products which are currently licensed and distributed in cannabis-legal states. Going forward, ~~the Company intends~~we intend to continue expanding both ~~its~~our brand portfolio and the licensing of ~~its~~our branded products into additional cannabis-legal states.

Investment in Hemp Production, Branding, and Distribution

Our direct ownership in GenCanna, which we believe will become one of the largest hemp producers in the United States by the year 2020, will help ensure ~~the Company has~~we have access to a safe and reliable source of hemp-based CBD. The market for hemp-based CBD products is expected to grow significantly over the next several years.

With the creation of the wholly-owned subsidiary MariMed Hemp in early 2019, ~~the Company has~~we have started to make inroads into the branding and distribution of hemp-derived CBD products. With ~~its~~our acquisition in February 2019 of MediTaurus and its Florance™ brand, ~~the Company is~~we are starting to leverage the GenCanna relationship and grow the revenue base for hemp-derived CBD products.

Technological and Scientific Innovation

We are diligent in identifying and reviewing the latest sciences and processes applicable to the cultivation, distillation, production, packaging, securing, and distribution of cannabis and cannabis-infused products. We have obtained the highest quality cannabis strains and genetics. We are at the leading edge of patient education and physician outreach for cannabis, and we seek strategic relationships with companies that are at the forefront of extraction and distillation.

Consolidation Plans

~~The Company’s strategic shift~~Ourstrategic plan involves the acquisition of the business operations and licenses of entities to which ~~the Company provides~~we provide advisory and real estate services. The following is an overview of the consolidation process:

Massachusetts

~~The Company successfully~~
Wesuccessfully converted ARL Healthcare Inc. (“ARL”), ~~its~~our cannabis-licensed client, from a non-profit entity to a for-profit corporation ~~with the Company as~~of which we are the sole shareholder. ~~The Company~~We now ~~owns~~own ARL and its cannabis licenses for cannabis cultivation, production and dispensing, ~~with rights for up~~and as a licensee, we will have priority to ~~nine statewide locations in both~~obtain incremental licenses as they are made available by the ~~medical and adult-use programs. The Company has recently~~state.
Werecently completed construction of a 70,000 square foot state-of-the-art cultivation and production facility for ARL in New Bedford within ~~the Company’s~~our 138,000 square foot facility purchased in 2017. ~~ARL’s manufactured cannabis products will be sold to licensed dispensaries throughout the state serving both the medical and adult-use markets.~~
~~The Company~~We also ~~owns~~own a 22,700 square foot building in Middleborough in which we developed a 10,000 square foot ~~dispensary is planned to be open for business in~~dispensary. Both locations have been approved by the ~~end of~~state to commence full operations in December 2019. Furthermore, ~~the Company intends~~subject to regulatory approval, we intend to open two more dispensaries in the Boston area ~~also~~ by the end of ~~2019.~~2020.
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Maryland

In December 2018, ~~the Company~~we entered into a memorandum of understanding (“MOU”) to acquire Kind Therapeutics USA Inc. (“Kind”), ~~its~~our cannabis-licensed client that holds licenses for the cultivation, production, and dispensing of medical cannabis. The ~~parties are finalizing~~MOU provides for a ~~merger document~~total purchase price of $6.3 million in cash, 2,500,000 shares of our common stock, and other consideration. The acquisition is subject to ~~effectuate the transaction which is conditioned on~~ the approval by the Maryland Medical Cannabis Commission, which isapproval was not expected prior to ~~occur~~October 2020.
Also in ~~2020. Until then,~~December 2018, MariMed Advisors Inc, our wholly owned subsidiary, and Kind entered into a management agreement pursuant to which we provide Kind with comprehensive management services in connection with the ~~Company will continue to provide management~~business and ~~operational advisory services to~~operations of Kind, ~~whose operations are conducted within~~and Mari Holdings MD LLC, our majority-owned subsidiary, entered into a ~~100,000~~20-year lease with Kind for its utilization of the Company’s 180,000 square foot cultivation and ~~manufacturing~~production facility ~~within a Company-owed 180,000 square foot industrial building~~ in Hagerstown. The large production capacity of this facility will enable the Company to take full advantage of a robust Maryland market consisting of over 100 planned dispensaries, most of which are not attached to a specific cultivator.Hagerstown, MD. Additionally, ~~the Company has contracted to purchase~~in October 2019, we purchased a 9,000 square foot building in Anne Arundel County for the development of a dispensary ~~currently scheduled~~which would be leased to ~~open~~Kind.
Recently, the sellers of Kind have attempted to renegotiate the terms of the MOU. Even though the MOU contains all the definitive material terms with respect to the acquisition transaction and confirms the management and lease agreements, the selling parties now allege that the MOU is not an enforceable agreement. We engaged with the sellers in ~~late 2020.~~good faith in an attempt to reach updated terms acceptable to both parties, however the sellers failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings. For further information, see Part II, Item 1.Legal Proceedings in this report.

Illinois

InIn October ~~2018,~~2019, the ~~Company entered into a purchase agreement to acquire~~Illinois Department of Financial & Professional Regulation approved our acquisition of the ownership interests of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate Company-built and owned medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”)~~, from the current ownership group of the KPGs.~~. As part of this transaction, we also acquired the ~~Company will also acquire this ownership group’s~~selling parties’ interests in Mari Holdings IL LLC, ~~the Company’s~~our subsidiary which owns the real estate in which the KPGs’ dispensaries are located. ~~The Company is currently awaiting approval for this transaction from~~Effective October 1, 2019, 100% of the ~~state, which is expected to~~operations of these entities will be ~~received in the near future.~~consolidated into our financial statements. Additionally, the state is in the process of legalizing adult-use cannabis ~~and~~which we believe will permit ~~the Company~~us to expand into two additional locations when such legalization occurs.

Nevada

In November 2018, ~~the Company~~we issued a letter of intent to acquire 100% of the ownership interests of The Harvest Foundation LLC, ~~the Company’s~~our cannabis-licensed client in the state of Nevada (“Harvest”). In August 2019, the parties entered into a purchase agreement governing the transaction. The acquisition is conditioned upon the approval of the state cannabis commission which is ~~in process.~~pending. Harvest holds both medical and adult-use cannabis licenses, and operates in approximately 10,000 square feet of an industrial building that ~~the Company leases~~we lease and ~~has~~have built out into a cannabis cultivation facility. We are currently awaiting state approval of the transaction which we expect to receive by the end of the year.

Delaware

Delaware currently is a not-for-profit state with regard to the ownership of cannabis licenses. ~~The Company provides~~We provide comprehensive management and real estate services to First State Compassion Center (“FSCC”), ~~the Company’s~~our cannabis-licensed client which was awarded Delaware’s first ever seed-to-sale medical cannabis license and owns two out of the four statewide licenses.

FSCC operates out of ~~a Company-owned~~our 47,000 square foot seed-to-sale facility in Wilmington, and a ~~Company-leased~~ 4,000 square foot retail location in ~~Lewes. The Company~~Lewes that we lease. We has recently signed a lease with an option to purchase a 100,000 square foot building in Milford, with plans to build another cultivation and production facility to serve the state’s growing patient count.

The state is expected to allow “for-profit” ownership of cannabis licenses in the near future, at which time ~~the Company~~we will ~~look~~seek to acquire FSCC and obtain ownership of the licenses and ~~operations~~operations.

Rhode Island

Rhode Island currently is a not-for-profit state with regard to the ownership of cannabis licenses. ~~The Company is~~We are in continuing negotiations to purchase the real estate which is leased to ~~its~~our cannabis-licensed client, the Thomas C. Slater Compassion Center (“Slater”), and to acquire, subject to state approval, the management company that oversees Slater’s operations. ~~After~~The entity that owns the real estate and the management company are both partially owned by the Company’s CEO and CFO. If these transactions are completed, ~~the Company~~we will generate real estate and management fees until the state allows “for-profit” ownership, which is expected to occur in 2020. At that time, ~~the Company~~we will seek to acquire Slater’s cannabis licenses and operations.
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New Operations – Completed Transactions & Current Activities

GenCanna Global Inc.

In late 2018, ~~the Company~~we purchased the GC Debentures from GenCanna. In February 2019, ~~the Company~~we converted the GC Debentures plus accrued interest through the conversion date into common shares of GenCanna representing a 33.5% ownership interest in GenCanna on a fully diluted basis, and our CEO, Robert Fireman, was appointed to GenCanna’s board of directors.

In December 2018, the 2018 U.S. Farm Bill (the “Farm Bill”) became law in the United States. Under the Farm Bill, industrial and commercial hemp is no longer classified as a Schedule I controlled substance, and explicitly allows interstate hemp commerce which will enable its legal transport and delivery across state lines.

GenCanna, based in Winchester, Kentucky, focuses on growing hemp with superior genetics and creating hemp-based products in accordance with the highest quality standards such as GMP (Good Manufacturing Practices) to ensure that wholesalers and consumers receive a consistent high-quality product to meet their wellness needs. GenCanna has also become a thought leader in the hemp industry, working closely with federal and local governmental regulatory authorities.

In 2019 GenCanna has expanded acreage of hemp farming and production of compliant CBD oils, isolates, and infused products, making it one of the largest producers of these products in the country.

MariMed Hemp

To leverage its investment in GenCanna, ~~the Company~~we established MariMed Hemp Inc. in January 2019, a wholly-owned subsidiary to develop, market, and distribute hemp-based CBD brands and products to different classes of retailers and direct to consumers. In addition, ~~this company~~MariMed Hemp will be developing and acquiring top quality genetics and biomass to resell to growers and processors.

The rapid growth of legal cannabis and hemp-derived CBD markets presents a global paradigm shift and challenges to medical professionals and consumers who seek scientific knowledge and research regarding medical cannabis and hemp. Accordingly, in addition to the aforementioned objectives, one of MariMed Hemp’s priorities will be to provide credible research-based information about the health benefits of cannabis and hemp to medical providers and their patients, many of whom express a strong and growing appetite for knowledge on this topic. Armed with this knowledge, such healthcare professionals and consumers will be able to effectively and safely choose from a broad, and potentially confusing, range of cannabis products.

As part of ~~its~~our education initiative, ~~the Company is~~we are assembling a Scientific Advisory Board (the “SAB”), that includes some of the world’s leading scientists and researchers focused on the scientific application of cannabis and hemp for health and wellness. The SAB’s goals will include the development of strategies to address the most widespread and debilitating medical and dietary conditions through the utilization of cannabis- and hemp-based therapies.

MediTaurus

To facilitate our drive for greater science and education, ~~the Company~~we acquired ~~Meditaurus~~MediTaurus LLC in June 2019. ~~Meditaurus~~MediTaurus was established by Dr. Jokubas Ziburkas a leading authority on hemp-based CBD and the endocannabinoid system. Dr. Ziburkas holds a PhD in Neuroscience, and currently serves as Associate Professor of Neuroscience at the University of Houston, where his research is focused on cannabinoid actions in the brain and novel treatments for neurological disorders. He has published over 20 peer-reviewed articles and book chapters, and is regarded as a thought leader in the global cannabis industry.

~~Meditaurus~~ MediTaurushas developed proprietary formulations for hemp-derived CBD, and currently operates in Lithuania and Texas. Its Florance™ brand, recently launched in Germany, is marketed globally ~~on their~~through the MediTaurus website. ~~This transaction includes the commitment of~~Additionally, Dr. Ziburkas ~~to become~~has been named the Chief Innovation Officer of MariMed, and towill assist MariMed Hemp ~~Inc.~~ in the marketing and distribution of Florance™ and newly-developed products throughout the United States and Europe.

Pipeline Transactions

MariMed is actively pursuing other growth opportunities to expand its asset portfolio in the hemp and cannabis industries. ~~While~~At this time, there is no assurance ~~can be given~~ that any of these opportunities will ~~materialize, the Company is currently in various stages of dialog to invest in or acquire several domestic and foreign entities, along with such entities’ licenses, brands and operations.~~materialize.
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Corporate History

The Company was originally incorporated in the state of Delaware in January 2011 as a wholly-owned subsidiary of Worlds Inc. (formerly Worlds.com Inc.) under the name Worlds Online Inc. In May 2011, Worlds Inc. spun-off of the Company to its stockholders. At its inception, the Company operated online virtual environments which did not gain traction with users.

In early 2014, the Company transitioned its operational focus to the emerging cannabis ~~industry. In order to quickly gain traction into this new space, in May 2014, the Company, through~~industry and made its ~~wholly-owned subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC (“Sigal”),~~first acquisition of a ~~company operating in the~~ cannabis ~~industry.~~
The purchase price paid to the former owners of Sigal consisted of (i) an aggregate amount of the Company’s common stock equal to 50% of the outstanding shares on the closing date of September 29, 2014, (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 MariMed Advisors Inc.business.

During the first half of calendar 2017, the Company changed its name to MariMed Inc. and its ticker symbol to MRMD. Also during this period, the number of authorized shares of the Company’s common and preferred stock were increased to 500 million and 50 million, ~~respectively, and the Company purchased the remaining 49% interest in MariMed Advisors Inc. in exchange for 75 million shares of common stock.~~respectively.

In July 2017, Robert Fireman was named as the Company’s CEO and President, and Jon R. Levine as the CFO, Treasurer, and Secretary.

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.

In ~~May~~April 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.

In July 2018, the Company entered into a purchase agreement to acquire AgriMed Industries of PA LLC (“AgriMed”), an entity that holds a Pennsylvania license for the cultivation of cannabis and cannabis products that can be wholesaled to medical marijuana dispensaries within the state. In February 2019, the Company filed a complaint against AgriMed for specific performance of their obligations under the purchase agreement. The parties are currently in discussions to resolve this matter.
In August 2018, the Company purchased a 23% ownership interest in CVP Worldwide LLC d/b/a Sprout, an entity that provides a customer relationship management and marketing platform, branded under the name Sprout, specifically designed for companies in the cannabis industry.
During the period from August to October 2018, the Company loaned $300,000 to Healer LLC, an entity that provides cannabis education, dosage programs, and products developed by Dr. Dustin Sulak, an integrative medicine physician and nationally renowned cannabis practitioner. In 2019, the Company loaned Healer an additional $500,000.
During the period September 2018 to November 2018, in a series of investments, the Company purchased an aggregate of $30 million of subordinated secured convertible debentures of GenCanna. In February 2019, the Company converted the debentures plus accrued interest through the conversion date into a 33.5% equity interest on a fully diluted basis.

In October 2018, the Company entered into a purchase agreement to acquire KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”)~~. As part of this transaction,~~, and the ~~Company will also acquire the remaining minority~~KPGs’ owners’ interests ofin Mari Holdings IL LLC, the Company’s subsidiary that owns the real estate where the KPGs’ two dispensaries are ~~located, from~~located. On October 1, 2019, the ~~KPGs’ current ownership group. The parties are currently awaiting state approval~~Illinois Department of Financial & Professional Regulation approved the Company’s acquisition of the ~~transaction which is expected to be received in April 2019.~~KPGs and Mari-IL. As of such date, the KPGs and Mari-IL are wholly-owned subsidiaries of the Company.

In October 2018, the Company’s cannabis-licensed client in Massachusetts, ARL Healthcare Inc. (“ARL”), filed a plan of entity conversion with the state to convert from a non-profit entity to a for-profit corporation, with the Company as the sole shareholder of the for-profit corporation. ARL holds three cannabis licenses from the state of Massachusetts for the cultivation, production and dispensing of cannabis. In November 2018, the Company received written confirmation of state approval of the conversion plan from the state, making ARL a wholly-owned subsidiary of the Company.

In November 2018, the Company issued a letter of intent to acquire The Harvest Foundation LLC, the Company’s client awarded a cannabis license for cultivation in the state of Nevada. In August 2019, the parties entered into a purchase agreement governing the transaction. The acquisition is conditional upon state approval, which is expected to occur by the end of ~~2019.~~the year.

In December 2018, the Company made a $500,000 investment in Iconic Ventures Inc. which has developed DabTabs™, a revolutionary product that consists of a convenient portable tablet that delivers precise dosing and acts as a storage system for full spectrum cannabinoid vaporization. Additionally, the Company secured the exclusive distribution rights for six states and is in the process of beginning distribution in the state of Maryland.

In December 2018, the Company executed a memorandum of understanding (“MOU”) to ~~merge with~~acquire Kind Therapeutics USA Inc. (“Kind”), its ~~cannabis-licensed~~ client in the state of Maryland ~~Kind Therapeutics LLC. A merger agreement~~that holds licenses for the cultivation, production, and dispensing of medical cannabis. The MOU provides for a total purchase price of $6.3 million in cash, 2,500,000 shares of the Company’s common stock, and other consideration. The transaction is ~~currently being drafted for this transaction, which is intended~~subject to ~~qualify as a tax-deferred reorganization under~~ the ~~Internal Revenue Code. The parties expect the merger agreement to be finalized, and the transaction approved~~approval by the ~~state legislature~~Maryland Medical Cannabis Commission, which approval was not expected prior to October 2020. Recently, the sellers of Kind have attempted to renegotiate the terms of the MOU. Even though the MOU contains all the definitive material terms with respect to the acquisition transaction and confirms certain management and lease agreements, the selling parties now allege that the MOU is not an enforceable agreement. The Company engaged with the sellers in ~~2019.~~good faith in an attempt to reach updated terms acceptable to both parties, however the sellers failed to reciprocate in good faith, resulting in an impasse. Incrementally, both parties through counsel further sought to resolve the impasse, however such initiative resulted in both parties commencing legal proceedings. For further information, see Part II, Item 1.Legal Proceedings in this report.

In January 2019, the Company entered into an agreement with Maryland Health & Wellness Center Inc. (“MHWC”), an entity that has been pre-approved for a cannabis dispensing license, to provide MHWC with a $300,000 construction loan in connection with the buildout of MHWC’s proposed dispensary location. Upon the two-year anniversary of final state approval of MHWC’s dispensing license, the Company shall have the right, subject to state approval, to convert the promissory note underlying the construction loan into 20% ownership of MHWC. The Company also entered into a consulting services agreement to provide MHWC with advisory and oversight services over a three-year period relating to the development, administration, operation, and management of MHWC’s proposed dispensary in Maryland.

In January 2019, the Company converted a $250,000 note receivable from Chooze Corp., an entity that develops CBD- and THC-infused products without debilitating side effects, into a 2.7% ownership interest in the entity.

In January 2019, the Company established MariMed Hemp Inc., a wholly-owned subsidiary to develop, market, and distribute hemp-based CBD brands and products, and to provide hemp producers with bulk quantities of hemp genetics and biomass. During the quarter ended September 30, 2019, MariMed Hemp launched Hemp Engine™, a store-within-a-store turnkey distribution platform of CBD-based products for retailers.

~~In February 2019, the Company converted its $30 million purchase of subordinated secured convertible debentures of GenCanna into a 33.5% ownership interest.~~
In May 2019, the Company extended loans totaling $750,000 to Atalo Holdings Inc., an agriculture and biotechnology firm specializing in research, development, and production of industrial hemp and hemp-based CBD products.In July 2019, the Company extended an additional loan of $230,000 to Atalo.

In May 2019, the Company issued 500,000 shares of its common stock ~~to purchase~~in exchange for an 8.95% interest in Terrace Inc., a Canadian entity that develops and acquires international cannabis assets.

In June 2019, the Company executed a purchase agreement to acquire MediTaurus LLC, a company established by ~~Dr.~~ Jokubas Ziburkas PhD, a ~~PhD in neuroscience~~neuroscientist and a leading authority on hemp-based CBD and the endocannabinoid system. MediTaurus operates in the United States and Europe and has developed proprietary CBD formulations sold under its Florance™ brand.

In July 2019, the Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven eastern states of the ~~Binske~~^®Binske® portfolio of products, a brand known for utilizing best-in-class proprietary strains and craft ingredients in its edibles, concentrates, vaporizers, and topicals.
In August 2019, the Company extended a loan of $250,000 to High Fidelity Inc., a company that owns and operates two seed-to sale medical marijuana facilities in the state of Vermont, and produces its own line of CBD products.
In October 2019, the Company closed on the purchase of a 9,000 square foot building in Annapolis, MD which it intends to develop into a medical marijuana dispensary to be leased to Kind.
39
Significant Transactions in the Current Period

During the ~~quarter~~nine months ended ~~June~~September 30, 2019, the Company entered into several hemp seed sale transactions with GenCanna whereby the Company acquired large quantities of top-grade feminized hemp seeds with proven genetics at volume discounts that it sold to GenCanna at market rates. The seeds met the U.S. government’s definition of federally legal industrial hemp, which was descheduled as a controlled substance and classified as an agricultural commodity upon the signing of the 2018 U.S. Farm Bill.

The Company purchased ~~approximately $3.3~~$20.75 million of hemp seed inventory induring the ~~quarter~~nine months ended ~~March 31, 2019, and an additional $16.7 million in the quarter ended June~~September 30, 2019, which the Company sold and delivered to GenCanna for ~~approximately $25.2~~$33.2 million.The ~~seeds are to be harvested in the fall of 2019, and accordingly the~~ Company provided GenCanna with extended payment terms ~~with full payments to be made by~~through December 2019, ~~after~~to coincide with the ~~crop~~completion of the seeds’ harvest, although the payment by GenCanna is ~~harvested.~~not contingent upon the success of such harvest or its yield.

As required by the relevant accounting guidance, the Company has classified the ~~$25.2~~$33.2 million due from GenCanna as a receivable from a related party, with ~~$22,0~~approximately $29,0 million recognized as revenue from a related party for the ~~six~~nine months ended ~~June~~September 30, 2019, and ~~$3.2~~approximately $4.2 million recorded underUnearned Revenue From Related Party on the balance sheet. ~~When~~Upon payment of the receivable balance by GenCanna, ~~makes its payments to the Company in December 2019,~~ the amount inUnearned Revenue From Related Partywill be recognized as revenue.

To partially fund the seed purchases, the Company borrowed ~~$17.0M,~~$17.0 million, which is included inNotes Payableon the balance sheet as of ~~June~~September 30, 2019 and further discussed inNote 11– Debt.

Towards the end of the second quarter of 2019, and in early third quarter of 2019, the Company purchased approximately $5.0 million of additional hemp seed inventory which it sold and delivered to GenCanna for approximately $8 million in the third quarter of 2019. The Company continues to explore opportunities to continue such seed sale transactions in the ~~future.~~future, however there is no assurance that such transactions will materialize.

Revenues

Our revenues are currently comprised of the following primary categories:

Management – We receive fees for providing comprehensive oversight of our clients’ entire cannabis cultivation, production, and dispensary operations. Along with this oversight, we provide human resources, legal, accounting, sales, marketing, and reporting services.

Real Estate – Our state-of-the-art, regulatory-compliant legal cannabis facilities are leased to our cannabis-licensed clients over 20-year lease terms. We generate rental income from occupancy, tenant improvements, equipment rentals, and additional rental income based on the success of the cannabis licensees.

Licensing – We derive licensing revenue from the sale by the licensees of our branded precision-dosed cannabis-infused products, such as Kalm Fusion™ and Betty’s Eddies™, to legal dispensaries throughout the country.

Consulting – We assist third parties in securing cannabis licenses, and provide advisory services in the areas of facility design and development, and cultivation and dispensing best practices

Supply Procurement – We have established large volume discounts with top national vendors of cultivation and production supplies and equipment, which we acquire and resell at competitive prices to our cannabis-licensed clients with a reasonable markup.

Product Sales – Our direct sales of cannabis, hemp, and products derived from these plants will be classified under this revenue category. ~~During the quarter ended June 30, 2019,~~This year, we commenced the direct sale of acquired hemp seed inventory. As the Company continues to explore opportunities to continue such sales, significant product sales are expected to be generated from (i) the distribution of the Company’s acquired and developing hemp-derived CBD product lines, ~~and~~ (ii) the dispensary and wholesale operations of ARL in Massachusetts and ofthe KPGs in Illinois, and (iii) the Company’s planned cannabis-licensee acquisitions in ~~Illinois,~~ Maryland and Nevada.

Expenses

We classify our expenses into three broad categories:

● cost of revenues, which includes the direct costs associated with the generation of our revenues;

● operating expenses, which include the sub-categories of personnel, marketing and promotion, and general and administrative; and

● non-operating income and expenses, which include the sub-categories of interest expense, interest income, non-cash losses on debt settlements ~~and~~ equity in earnings of our non-consolidated investments, and other one-one gains or losses.

Liquidity and Capital Resources

During the ~~six~~nine months ended ~~June~~September 30, 2019, we raised $2.6 million from the issuance of common stock, $17.0 million from the issuance of promissory notes, and ~~approximately $7.3~~$9.6 million from the issuance of convertible debentures. Please refer to the notes accompanying our condensed consolidated financial statements at ~~June~~September 30, 2019 for further discussion on these transactions.

These funds will be used to execute on our strategy to become a direct cultivator, producer, and dispenser of cannabis and cannabis-related products, continue the development of our facilities, and expand our hemp seed wholesale operations and branded licensing business. We continue to require and negotiate for additional sources of capital, although there can be no assurance that any such capital will be available on terms that are acceptable to us.
40
RESULTS OF OPERATIONS

Three months ended ~~June~~September 30, 2019 compared to three months ended ~~June~~September 30, 2018

Total revenues for the three months ended ~~June~~September 30, 2019 ~~climbed~~increased to approximately ~~$25.7~~$11.2 million from approximately ~~$2.9~~$3.4 million for the same period in 2018, a ~~year-over-year~~more than three-fold increase of approximately ~~$22.8~~$7.8 million. This substantial ~~increase~~growth was primarily due to the hemp seed sale transactions with GenCanna, a related party, whereby the Company acquired large quantities of top-grade feminized hemp seeds with proven genetics at volume discounts that it sold to GenCanna at market rates (the “Seed Transactions”). The Seed Transactions have been discussed in further detail inNote 1– Organization of Description of Business of the Company’s financial statements included in Part I of this ~~filing. Revenue generated from the Seed Transactions commenced in the second quarter~~report. The higher level of ~~2019 and approximated $22.0 million during this period. The increase in~~ revenues was also attributable to a ~~lesser degree, attributable to~~167% increase in licensing revenue associated with the ~~growth of~~Company’s branded products, and a 91% increase in management fees ~~and supplemental rents, both of which are~~ earned ~~by the Company based on~~from a percentage of revenue generated by the Company’s cannabis-licensed clients ~~increased supply procurement services provided to the Company’s cannabis-licensee client in Marylandin 2019, and the expansion of licensing revenue associated with the Company’s branded products.~~.

Cost of revenues rose in line with the ~~aforementioned~~ increase toin revenues, from approximately ~~$913,000 for the three months ended June 30, 2018 to approximately $16.7~~$1.5 million for the three months ended ~~June~~September 30, 2018 to approximately $6.5 million for the three months ended September 30, 2019. This increase was primarily due to the cost of hemp seeds incurred by the Company of approximately $5.0 million as part of the Seed ~~Transactions which approximated $15.7 million.~~Transactions. As a percentage of ~~revenue,~~revenues, cost of revenues in the current quarter associated with the Seed Transactions was 71%, higher than the contracted cost ratio of ~~60%~~62.5%, due to the deferral of profits required by the accounting guidance and effected ~~via~~by an approximate ~~$3.2~~$1.0 million reduction of the recognized revenue, such reduction based on the Company’s ownership percentage of GenCanna. Apart from the Seed transactions, cost of revenues as a percentage of revenue decreased from ~~31%~~45% in 2018 to ~~28%~~36% in 2019, demonstrating the Company’s continued leveraging of its infrastructure to generate higher margins in its core business.

As a result of the foregoing, gross profit expanded from approximately ~~$2.0~~$1.9 million in 2018 to approximately ~~$8.9~~$4.7 million in 2019, ~~a three-fold increase.~~an increase of 151%. Although gross profit as a percentage of revenue declined from ~~69%~~55% to ~~35%~~42%, this was expected based on the ~~30%~~37.5% contracted margin and the required accounting treatment of the Seed Transactions discussed above. Looking at the recurring business on ~~its own,~~a stand-alone basis, gross profit as a percentage of revenues increased from ~~69%~~55% to ~~72%~~64%.

Personnel expense increased to approximately ~~$825,000~~$1,242,000 for the three months ended ~~June~~September 30, 2019 from approximately ~~$285,000~~$352,000 for the same period a year ago. The increase was primarily the result of the hiring of additional staff to support (i) higher levels of revenue and (ii) our expansion into a direct owner of cannabis licenses and operator of seed-to-sale operations.

Marketing and promotion costs ~~decreased slightly~~increased to approximately ~~$76,000~~$92,000 for the three months ended ~~June~~September 30, 2019 from approximately ~~$78,000~~$37,000 for the same period a year ago. ~~The minimal change reflects the Company’s decision to curb public relations and related~~As a percentage of revenues, however, these costs ~~after a significant increase~~remained steady at approximately 1% of ~~such costs in the first quarter of 2019.~~revenues.

General and administrative costs increased to approximately to ~~$2.7~~$2.4 million for the three months ended ~~June~~September 30, 2019 from approximately ~~$1.2~~$2.0 million for the same period a year ago. The year over year increase is primarily due to ~~a higher level of legal~~(i) additional leasing costs and ~~travel expenses~~utilities of a property in Milford, DE which the ~~current quarter associated with the consolidation of our cannabis-licensee clients, settlement of the AgriMed matter, Terrace investment, acquisition of MediTaurus,~~Company is developing into an additional cultivation and other merger activity which has yet to close. The increase is also the result of (i) higher utilities, real estate taxes, security, and other costs from operating an increased number of active facilities,production facility for its client in that state, and (ii) ~~non-cash~~ increases in ~~a receivable allowance~~corporate insurance and ~~in depreciation and amortization.~~professional fees.

As a result of the above, the Company generated operating income of approximately ~~$5.3 million~~$973,000 for the three months ended ~~June~~September 30, 2019, compared with an operating loss of approximately ~~$441,000~~$549,000 for the same period in ~~2018.~~2018, a positive period-over-period change of approximately $1,522,000.

~~Non-operating income and~~Net non-operating expenses ~~improved~~increased to approximately $7.4 million from ~~a net negative balance of~~ approximately ~~$834,000~~$2.9 million for the three months ended ~~June~~September 30, 2019 and 2018, ~~to a net positive balance of approximately $348,000 for the three months ended June 30, 2019.~~respectively. This ~~favorable swing~~increase was primarily due to ~~the net settlement proceeds from the AgriMed matter as disclosed in~~~~Note 3 – Acquisitions,~~~~offset by~~ (i) ~~increases to interest expense from the additional promissory notes issued during the quarter, such notes being issued to finance the seed transactions with GenCanna as disclosed in~~~~Note 1 – Organization and Description~~approximately $3.2 million of ~~Business,~~~~(ii) non-cash amortization of warrant issuances, and (iii)~~ non-cash amortization of the beneficial conversion feature on the ~~$7.5M~~$20M Debentures, ~~as disclosed~~and of warrants issued together with the issuance of debt (such amortization reflected withinInterest Expense), (ii) the Company’s non-cash equity in~~Note 12 – Debentures Payable~~. the net loss of GenCanna of approximately $2.9 million, and (iii) approximately $852,000 of interest expense from the issuance of debentures and promissory notes to finance working capital and the Seed Transactions, offset by a reduction of approximately $2.4 million of losses incurred in the prior period from the extinguishment of debt. Additionally, the Company recorded a provision for income taxes of approximately $901,000 for the three months ended September 30, 2019. No provision was recorded in the same period in 2018.

As a result of the foregoing, the Company ~~generated~~incurred net ~~income~~losses of approximately ~~$4.7~~$7.3 million and $3.4 million for the three months ended ~~June~~September 30, 2019 ~~compared with a net loss of approximately $393,000 for the same period in 2018.~~and 2018, respectively.

~~Six~~Nine months ended ~~June~~September 30, 2019 compared to ~~six~~nine months ended ~~June~~September 30, 2018

Total revenues for the ~~six~~nine months ended ~~June~~September 30, 2019 ~~expanded~~increased to approximately ~~$29.2~~$40.4 million compared with ~~$5.0~~$8.4 million from the same period in 2018, a ~~year ago, a year-over-year~~nearly five-fold increase of approximately ~~$24.2~~$32.0 million. This considerable ~~increase~~growth was principally due to the hemp seed sale transactions with GenCanna, a related party, whereby the Company acquired large quantities of top-grade feminized hemp seeds with proven genetics at volume discounts that it sold to GenCanna at market rates (the “Seed Transactions”). The Seed Transactions ~~have been~~ discussed in further detail inNote 1– Organization of Description of Businessof the Company’s financial statements included in Part I of this filing. Revenue generated from the Seed Transactions commenced in the second quarter of 2019 and approximated ~~$22.0~~$29.0 million through ~~June~~September 30, 2019. The increase in revenues was also ~~to a lesser degree,~~ attributable to (i) ~~higher rental income~~a 106% increase in licensing revenue associated with the Company’s branded products, (ii) a 105% increase in management fees earned from ~~our Maryland facility, (ii) increased~~the Company’s cannabis-licensed clients, and (iii) an 85% increase in supply procurement ~~services provided to cannabis licensees and third parties, (iii) expanded supplemental rents from our Delaware facility, and (iv) additional management fees~~revenue, primarily from Kind in Maryland.

Cost of revenues increased ~~in line with the aforementioned growth in revenues,~~ from approximately ~~$1.8~~$3.3 million for the ~~six~~nine months ended ~~June~~September 30, 2018 to approximately ~~$18.0~~$24.5 million for the ~~six~~nine months ended ~~June~~September 30, 2019. This increase was primarily due to the cost of hemp seeds incurred by the Company of approximately $20.8 million as part of the Seed ~~Transactions which approximated $15.7 million.~~Transactions. As a percentage of ~~revenue,~~revenues, cost of revenues associated with the Seed Transactions was 71%, higher than the contracted cost of ~~60%~~62.5%, due to the deferral of profits required by the accounting guidance and effected via an approximate ~~$3.2~~$4.2 million reduction of the recognized revenue, such reduction based on the Company’s ownership percentage of GenCanna. Apart from the Seed transactions, cost of revenues as a percentage of revenue decreased from ~~36%~~40% in 2018 to ~~32%~~33% in 2019, as the Company continued to leverage its infrastructure to generate higher margins in its recurring business.

~~Accordingly,~~As a result of the foregoing, gross profit increased from approximately ~~$3.2~~$5.1 million in 2018 to approximately ~~$11.2~~$15.9 million in 2019. Although gross profit as a percentage of revenue declined from ~~64%~~61% to ~~38.3%~~39%, this was expected based on the ~~30%~~37.5% contracted margin and the required accounting treatment of the Seed Transactions discussed above. Looking at the core business on its own, gross profit as a percentage of revenues ~~64%~~increased from 61% to ~~68%~~67%.

Personnel expense increased to approximately ~~$1.5~~$2.7 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~$470,000~~$822,000 for the same period a year ago. The increase was primarily the result of the hiring of additional staff to support (i) higher levels of revenue and (ii) our expansion into direct cannabis and hemp operations.

Marketing and promotion costs increased from approximately ~~$130,000~~$167,000 for the ~~six~~nine months ended ~~June~~September 30, 2018 to approximately ~~$195,000~~$287,000 for the ~~six~~nine months ended ~~June~~September 30, 2019. Despite the increase, these costs ~~were maintained by the Company at~~decreased as a ~~consistent 3%~~percentage of revenues from 2% in ~~both periods.~~2018 to 1% in 2019.

General and administrative costs increased to approximately ~~$4.4~~$6.8 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from approximately ~~$2.5~~$4.5 million for the same period a year ago. The year over year increase is primarily due to a (i) higher level of legal costs and travel expenses in the current period associated with the consolidation of our cannabis-licensee clients, settlement of the AgriMed matter, Terrace investment, acquisition of MediTaurus, and other merger activity which has yet to ~~close. The increase~~close, (ii) additional leasing costs and utilities of a property in Milford, DE which the Company is ~~also the result of (i) higher utilities, real estate taxes, security,~~developing into an additional cultivation and ~~other costs from operating an increased number of active facilities,~~production facility for its client in that state, (iii) increases in corporate insurance, and (ii) non-cash increases in depreciation and amortization.

~~Non-operating~~As a result of the above, the Company generated operating income ~~and expenses improved from a net negative balance~~ of approximately ~~$2.3~~$6.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019, compared with an operating loss of approximately $417,000 for the same period in 2018.
Net non-operating expenses increased from approximately $5.2 million for the nine months ended September 30, 2018 to ~~a net positive balance of~~ approximately ~~$649,000~~$6.7 million for the ~~six~~nine months ended ~~June~~September 30, 2019. This ~~favorable swing~~increase was primarily due to (i) ~~the net settlement proceeds from the AgriMed matter as disclosed in~~~~Note 3 – Acquisitions~~~~and (ii) the Company’s equity in earnings~~approximately $6.5 million of ~~GenCanna as disclosed in~~~~Note 4 – Investments~~~~, offset by (x) increases to interest expense from additional promissory notes issued during the period, primarily to fund the seed transactions with GenCanna as disclosed in~~~~Note 1 – Organization and Description of Business~~~~, (y) non-cash amortization of warrant issuances, and (z)~~ non-cash amortization of the beneficial conversion feature on the ~~$7.5M~~$20M Debentures, ~~as disclosed~~and of warrants issued together with the issuance of debt (such amortization reflected withinInterest Expense), (ii) interest expense of approximately $1.5 million primarily from the issuance of promissory notes to fund the Seed Transactions, and (iii) the Company’s non-cash equity in~~Note 12 – Debentures Payable~~. the loss of GenCanna of approximately $928,000, offset by (a) a reduction of approximately $4.2 million of losses incurred in the prior period from the extinguishment of debt, and (b) the net settlement proceeds of $2.9 million from the AgriMed matter. Additionally, the Company recorded a provision for income taxes of approximately $1.9 million and $12,000 for the nine months ended September 30, 2019 and 2018, respectively.

As a result of the foregoing, the Company ~~generated~~incurred a net ~~income~~loss of approximately ~~$4.8~~$2.5 million ~~incurred~~ during the ~~six~~nine months ended ~~June~~September 30, 2019 compared with a net loss of approximately ~~$2.2~~$5.6 million ~~incurred~~ during the ~~six months ended June 30, 2018.~~same period 2018, a positive period-over-period change in excess of $3.0 million.
41
Subsequent Events

~~Seed Transactions~~
~~In July~~On October 1, 2019, the ~~Company delivered~~Illinois Department of Financial & Professional Regulation approved the Company’s acquisition of the KPGs and ~~billed GenCanna an additional $8.0 million for hemp seeds that were purchased by~~Mari-IL. Effective on such date, (i) the purchase price of 1,000,000 shares of the Company’s common stock was paid to the selling parties, and the KPGs and Mari-IL became wholly-owned subsidiaries of the Company ~~for approximately $5.0 million. The seeds are~~ to be ~~harvested in~~consolidated into the fall of 2019, and accordingly, the Company provided GenCanna with extended payment terms, with the full payment to be made in December 2019 after the crop is harvested. The accounting treatment of these sales were consistent with that of the original seed sale transactions as previously disclosed in~~Note – 1 Organization and Description of Business~~.
~~Licensing Agreement~~Company’s financial statements.

~~In July 2019, as previously disclosed in~~~~Note 4 – Investments~~,
During the ~~Company entered into a licensing agreement for the exclusive manufacturing and distribution in seven eastern states~~month of ~~the Binske~~^® ~~portfolio of products, a brand known for utilizing best-in-class proprietary strains and craft ingredients in its edibles, concentrates, vaporizers, and topicals.~~
~~Debentures Payable~~
In July 2019, the Holder of the $17.5M Debentures converted, in two separate transactions, an aggregate of $2,750,000 of principal and approximately $17,000 of accrued interest into 2,435,144 shares of common stock at conversion prices of $1.08 and $1.70 per share.
~~Note Receivable~~
In July 2019, the Company loaned an additional $230,000 to Atalo, pursuant a promissory note to the Company that bears interest at 6% per annum, with principal and interest payable on the earlier of April 3, 2020 or the date on which the Company acquires at least 25% of Atalo’s outstanding capital stock, in which case the principal and interest due shall be credited toward Company’s purchase price for such capital stock.
~~Equity~~
~~In July~~October 2019, the Company issued three-year warrants to purchase ~~125,000~~300,000 shares of common stock at an exercise price of ~~$1.71~~$1.37 per ~~share.~~share for services rendered. Also during this month, the Company ~~issued options~~granted to ~~purchase 100,000~~employees for services (i) 24,074 shares of common stock, and (ii) five-year options to ~~an employee~~purchase 500,000 shares of common stock at an exercise price of ~~$1.34~~$0.71 per ~~share, expiring five years from issuance date.~~share.

In ~~July and August,~~October 2019, the Company closed on the purchase of a 9,000 square foot building in Annapolis, MD. The purchase price of approximately $1.7 million was paid with the proceeds from a $2.0 million promissory note issued by the Company to an ~~aggregate~~unaffiliated third party and secured by the property. The note, which matures in January 2020, provides the payee with origination fees aggregating 5% of ~~18,820 shares~~the principal, and bears interest at the rate of ~~common stock~~2% per month commencing 90 days from the start of the note. The Company intends to ~~two employees.~~develop the property into a medical marijuana dispensary to be leased to Kind.
42

Item 3. Quantitative and Qualitative Disclosure About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Management’s Evaluation of Our Disclosure Controls and Procedures

~~Under the supervision and~~Our management, with the participation of our ~~management, our principal~~chief executive officer and ~~our principal~~chief financial officer, ~~we are responsible for conducting an evaluation of~~evaluated the effectiveness ~~of the design and operation~~ of our disclosure controls and procedures as(as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”),~~Act) as of ~~June~~September 30, ~~2019. Disclosure~~2019 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures ~~means~~are effective to ensure that ~~the material~~ information required to be ~~included~~disclosed by us in ~~our SEC~~the reports isthat we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported, within the time periods specified in ~~SEC~~the SEC’s rules and forms ~~relating~~and (ii) are accumulated and communicated to our ~~company,~~management, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, and in light of the weaknesses in our ~~internal control over financial reporting described below, our principal~~chief executive officer and ~~principal~~chief financial officer, ~~concluded that our disclosure controls and procedures were not effective~~ as ~~of June 30, 2019.~~appropriate to allow timely decisions regarding required disclosure.

~~The~~During the quarter ended September 30, 2019 and year to date, we implemented significant measures to remediate previously disclosed ineffectiveness of our internal control over financial reporting ~~(as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) was due to an~~including insufficient degree of segregation of duties amongst our accounting and financial reporting personnel, and the lack of a formalized and complete set of policy and procedure documentation evidencing our system of internal controls over financial reporting. These factors lead to certain adjustments which had been reflected in our audited financial statements as of December 31, 2018. These weaknesses are not uncommon in a company of our size due to personnel and financial limitations.
~~During 2019, we have started to work to remediate the material weaknesses identified above, which has~~This included the hiring of an accounting and financial professional with experience in the implementation of GAAP and SEC reporting requirements, and discussion with several independent accounting and auditing firms regarding the retention of such a firm to review, document, and test for effectiveness our internal controls over financial reporting.
~~Additionally, we expect to continue remediation efforts throughout 2019 by the~~ engagement of accounting consultants as needed to provide expertise on specific areas of the accounting guidance, the continued hiring of individuals with appropriate experience in internal controls over financial reporting, and the modification to our accounting processes and enhancement to our financial controls including the ongoing testing of such controls. ~~Our financial position will determine~~Further, during the ~~extent~~quarter ended September 30, 2019, we expanded our board of directors to ~~which such efforts can be made.~~
~~Our management will continue to monitor~~include a majority of independent disinterested directors and ~~evaluate~~we established an audit, compensation and nominating, and corporate governance committee of the ~~effectiveness~~board of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements. All internal control systems, no matter how well designed, have inherent limitations which may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurancedirectors. During the quarter, the board of directors also adopted a formal policy with respect to ~~financial statement preparation and presentation.~~related party transactions.

Changes in Internal Control Over Financial Reporting

Other than as described above, there ~~has been~~was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the ~~period to which this report relates~~fiscal quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
43
PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

In July 2019, Thomas Kidrin, the former chief executive officer and a former director of the Company, filed a complaint in the Massachusetts Superior Court, Suffolk County, captioned Thomas Kidrin v. MariMed Inc., et. al., Civil Action No. 19-2173D. In the complaint, Mr. Kidrin alleges that the Company failed to pay all wages owed to him and breached his employment agreement, dated August 30, 2012, and requests ~~compensatory~~multiple damages, attorney fees, costs, and interest. ~~To date,~~The Company has moved to dismiss certain counts of the complaint and has asserted counterclaims against Mr. Kidrin ~~has not served the complaint upon the Company.~~alleging breach of contract, breach of fiduciary duty, money had and received, and unjust enrichment. The Company believes that the allegations in the complaint are without merit and ~~will~~intends to vigorously defend this matter ~~when Mr. Kidrin makes service upon it.~~and prosecute its counterclaims.
On November 13, 2019, Kind Therapeutics USA Inc. (“Kind”) commenced an action in the Circuit Court for Washington County, MD captioned Kind Therapeutics USA, Inc. vs. MariMed, Inc., MariMed Holdings MD, LLC and MariMed Advisors, Inc. (Case No. C-21-CV-19-000670) alleging, inter alia, breach of contract, breach of fiduciary duty and unjust enrichment, and seeking a declaratory judgment, injunctive relief, an accounting and damages in excess of $75,000. On November 15, 2019, the Company filed counterclaims against Kind and, as plaintiffs, the Company commenced an action against each of Jennifer DiPietro, Susan Zimmerman, Sophia Leonard-Burns (the Kind sellers) and William Tham, alleging breach of contract with respect to each of the MOU and the management agreement, unjust enrichment, promissory estoppel/detrimental reliance, and fraud in the inducement, and seeking a declaratory judgement that the MOU is an enforceable contract, specific performance of such contact, and the establishment of a constructive trust for the Company’s benefit. Both parties, MariMed (including MariMed Holdings MD, LLC and MariMed Advisors, Inc.) and Kind, brought motions for a temporary restraining order and a preliminary injunction. By Opinion and Order entered on November 21, 2019, the Court denied both parties motions for a temporary restraining order. In its opinion, the Court specifically noted that, contrary to Kind’s allegations, the Management Agreement and Lease “appear to be independent, valid and enforceable contracts.” Each party’s preliminary injunction motion is currently pending before the Court. The Company believes that its claims for breach of contract with respect to each of the MOU and the management agreement, unjust enrichment, promissory estoppel/detrimental reliance, and fraud in the inducement are meritorious and that Kind’s claims against the Company are without merit. The Company intends to aggressively prosecute and defend the action.

Item 1A. Risk Factors

As a smaller reporting company, we are not required to provide the information required by this Item. However, limited information regarding our risk factors appears inPart I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the captionForward-Looking Statements contained in this Quarterly Report on Form 10-Q and inItem 1A. RISK FACTORSof our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes from the risk factors previously disclosed in such Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~During the six months ended June 30,~~In January 2019, the Company sold 799,995 shares of common stock at a price of $3.25 per share, resulting in total proceeds of $2.6 million. These funds will be used to fund the Company’s operations, continue the development of its facilities, and expand its hemp seed wholesale operations and branded licensing business.

In June 2019, the Company issued an aggregate of 1,000,000 shares of common stock to two owners of Harvest.

~~In July~~During the nine months ended September 30, 2019, the Company issued three-year warrants to purchase ~~125,000~~1,350,000 shares of common stock at an exercise ~~price of~~prices ranging from $1.71 to $5.00 per share. Also during this ~~month,~~period, the Company ~~issued options to purchase 100,000~~granted (i) 108,820 shares of common stock to ~~an employee at an exercise price of $1.34 per share, expiring five years from issuance date.~~
~~In July~~employees, and ~~August, the Company issued an aggregate of18,820~~(ii) options to purchase 900,000 shares of common stock to ~~two employees.~~employees and independent directors, at exercise prices ranging from $0.99 to $1.95 per share, expiring four and five years from grant date.

~~The securities described above were issued to accredited investors in private transactions not involving a public offering or the payment of commissions.~~
The sales of the securities described above were deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Sections 4(a)(2) ~~and~~and/or 4(a)(5) of the Securities Act and Regulation D promulgated thereunder. A legend restricting the sale, transfer, or other disposition of these securities other than in compliance with the Securities Act was placed on the securities issued in the foregoing transactions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No. Description

3.1 Certificate of Incorporation of the Registrant. (Incorporated herein by reference ~~from~~to the Company’s Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)

3.1.1 Amended Certificate of Incorporation of the Registrant. (Incorporated herein by reference ~~from~~to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on April 17, 2017.)

3.2 Bylaws – Restated as Amended. (Incorporated herein by reference ~~from~~to the Company’s Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)

~~31.1~~10.1 ~~Rule 13a-14(a)/15d-14(a) Certifications~~Amended and Restated 2018 Stock Award and Incentive Plan. (Incorporated herein by reference to Appendix A of ~~Chief Executive Officer. (Filed herewith.~~the Company’s Definitive Proxy Statement on Schedule 14A, filed on August 26, 2019.)

~~31.2~~10.2 ~~Rule 13a-14(a)/15d-14(a) Certifications~~Form of ~~Chief Financial Officer.~~Stock Option Agreement, dated September 27, 2019, with each of David R. Allen, Eva Selhub, M.D. and Edward J. Gildea. (Filed herewith.)
~~32.1~~ ~~Section 1350 Certifications of Chief Executive Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)~~
~~32.2~~ ~~Section 1350 Certifications of Chief Financial Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)~~
~~101.INS XBRL~~ ~~Instance Document (Filed herewith.)~~
~~101.SCH XBRL~~ ~~Taxonomy Extension Schema (Filed herewith.)~~
~~101.CAL XBRL~~ ~~Taxonomy Extension Calculation Linkbase (Filed herewith.)~~
~~101.DEF XBRL~~ ~~Taxonomy Extension Definition Linkbase (Filed herewith.)~~
~~101.LAB XBRL~~ ~~Taxonomy Extension Label Linkbase (Filed herewith.)~~
~~101.PRE XBRL~~ ~~Taxonomy Extension Presentation Linkbase (Filed herewith.)~~
40
~~SIGNATURES~~
~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.~~
~~Date: August 9, 2019~~
~~MARIMED INC.~~
~~By:~~ ~~/s/ Robert Fireman~~
~~Robert Fireman~~
~~President and Chief Executive Officer~~
~~(Principal Executive Officer)~~
~~By:~~ ~~/s/ Jon R. Levine~~
~~Jon R. Levine~~
~~Chief Financial Officer~~
~~(Principal Financial Officer)~~
~~INDEX TO EXHIBITS~~
~~Exhibit No.~~ ~~Description~~
~~3.1~~ ~~Certificate of Incorporation of the Registrant. (Incorporated by reference from Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)~~
~~3.1.1~~ ~~Amended Certificate of Incorporation of the Registrant. (Incorporated by reference from Annual Report on Form 10-K filed on April 17, 2017.)~~
~~3.2~~ ~~Bylaws – Restated as Amended. (Incorporated by reference from Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.~~)

31.1 Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer. (Filed herewith.)

31.2 Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer. (Filed herewith.)

32.1 Section 1350 Certifications of Chief Executive Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)

32.2 Section 1350 Certifications of Chief Financial Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)

101.INS XBRL Instance Document (Filed herewith.)

101.SCH XBRL Taxonomy Extension Schema (Filed herewith.)

101.CAL XBRL Taxonomy Extension Calculation Linkbase (Filed herewith.)

101.DEF XBRL Taxonomy Extension Definition Linkbase (Filed herewith.)

101.LAB XBRL Taxonomy Extension Label Linkbase (Filed herewith.)

101.PRE XBRL Taxonomy Extension Presentation Linkbase (Filed herewith.)
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
Date: November 27, 2019
MARIMED INC.
By: /s/ Robert Fireman
Robert Fireman
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jon R. Levine
Jon R. Levine
Chief Financial Officer
(Principal Financial Officer)
45
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Certificate of Incorporation of the Registrant. (Incorporated herein by reference to the Company’s Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)
3.1.1 Amended Certificate of Incorporation of the Registrant. (Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on April 17, 2017.)
3.2
Bylaws – Restated as Amended. (Incorporated by reference herein to the Company’s Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)
10.1 Amended and Restated 2018 Stock Award and Incentive Plan. (Incorporated herein by reference to Appendix A of the Company’s Definitive Proxy Statement on Schedule 14A, filed on August 26, 2019.)
10.2 Form of Stock Option Agreement, dated September 27, 2019, with each of David R. Allen, Eva Selhub, M.D. and Edward J. Gildea. (Filed herewith.)
31.1 Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer. (Filed herewith.)
31.2 Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer. (Filed herewith.)
32.1 Section 1350 Certifications of Chief Executive Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)
32.2 Section 1350 Certifications of Chief Financial Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)
101.INS XBRL Instance Document (Filed herewith.)
101.SCH XBRL Taxonomy Extension Schema (Filed herewith.)
101.CAL XBRL Taxonomy Extension Calculation Linkbase (Filed herewith.)
101.DEF XBRL Taxonomy Extension Definition Linkbase (Filed herewith.)
101.LAB XBRL Taxonomy Extension Label Linkbase (Filed herewith.)
101.PRE XBRL Taxonomy Extension Presentation Linkbase (Filed herewith.)
46

Inventory	$	46,544
Machinery and equipment		130,255
Goodwill		333,201
Total fair value of consideration	$	510,000

Cash and cash equivalents	$	13,494
Goodwill		266,682
Total fair value of consideration	$	280,176

Equipment	$	21,000
Cannabis licenses		185,000
Accounts payable		(120,689	)
Due to related parties		(92,765	)
Total identifiable net assets		(7,454	)
Goodwill		731,902
Total fair value of consideration	$	724,448

Cash and cash equivalents	$	128,997		$	64,196
Accounts receivable		5,362			5,362
Inventory		519,750			519,750
Tradename and customer lists		3,346,668			3,411,469
Accounts payable		(777	)		(777	)
Total value of MediTaurus		4,000,000			4,000,000
Noncontrolling interests in MediTaurus		(1,200,000	)		(1,200,000	)
Total fair value of consideration	$	2,800,000		$	2,800,000

	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
GenCanna Global Inc.	$	32,234,403	$	-	$	29,301,151	$	-
Terrace Inc.		1,590,000		-		1,590,000		-
CVP Worldwide LLC		1,080,016		1,172,163		1,080,016		1,172,163
Iconic Ventures Inc.		500,000		500,000		500,000		500,000
Chooze Corp.		257,687		-		257,687		-
Total investments	$	35,662,106	$	1,672,163	$	32,728,854	$	1,672,163

	●	Delaware – a 45,000 square foot facility purchased in September 2016 and ~~built~~developed into a cannabis cultivation, processing, and dispensary facility which is leased to a cannabis-licensed client occupying 100% of the space under a 20-year triple net lease expiring in 2035.

	●	Illinois – two 3,400 square foot free-standing retail dispensaries in the cities of Anna and Harrisburg and leased to ~~two licensed cannabis dispensary clients~~the KPGs each under a 20-year lease expiring in 2036. With the acquisition of the KPGs approved in October 2019, as disclosed in Note 3 –Acquisitions, this lease will be eliminated upon the consolidation of the KPGs starting in the fourth quarter of calendar 2018. Accordingly, the rental receipts on such leases have been removed from the table of future minimum rental receipts below.

	●	Maryland – a 180,000 square foot former manufacturing facility purchased in January 2017 and ~~rehabilitated~~developed by the Company into a cultivation and processing facility which is leased to a licensed cannabis client under a ~~20-year~~ triple net lease ~~that started~~expiring in ~~January 2018.~~2037.

	●	Massachusetts – a 138,000 square foot industrial property of which approximately half of the available square footage is leased to a non-cannabis manufacturing company under a ~~five-year lease.~~lease expiring in 2022.

2019	$	2,071,161	$	956,492
2020		4,222,040		3,896,550
2021		4,368,640		4,036,550
2022		4,293,999		3,959,709
2023		3,997,651		3,661,820
Thereafter		48,942,935		44,121,550
Total	$	67,896,427	$	60,632,671

2019	$	8,439,091
2020		14,343,484
2021		10,262,710
2022		280,830
2023		300,248
Thereafter		6,248,279
Total		39,874,642
Less discounts		(5,528,985	)
	$	34,345,657

2019	$	10,496,536
2020		16,495,007
2021		7,762,293
2022		280,348
2023		299,689
Thereafter		6,262,463
Total		41,596,336
Less discounts		(6,557,932	)
	$	35,038,404

Exercise Price	Exercise Price	Shares Under Option				Remaining		Exercise Price	Shares Under Option				Remaining
per Share	per Share	Outstanding		Exercisable		Life in Years		per Share	Outstanding		Exercisable		Life in Years
$	0.080		100,000		100,000		0.47	0.080		100,000		100,000		0.22
$	0.130		200,000		200,000		1.00	0.130		200,000		200,000		0.75
$	0.140		100,000		100,000		0.50	0.140		100,000		100,000		0.25
$	0.140		550,000		550,000		1.51	0.140		550,000		550,000		1.25
$	0.150		1,000,000		1,000,000		0.25	0.330		50,000		50,000		1.44
$	0.250		1,000,000		1,000,000		0.25	0.450		125,000		125,000		2.01
$	0.330		50,000		50,000		1.69	0.630		300,000		300,000		2.25
$	0.350		1,000,000		1,000,000		0.25	0.770		200,000		200,000		3.25
$	0.450		190,000		190,000		2.26	0.900		50,000		50,000		3.62
$	0.630		300,000		300,000		2.51	0.950		50,000		10,000		3.25
$	0.770		200,000		200,000		3.51	0.992		300,000		-		4.99
$	0.900		50,000		50,000		3.87	1.350		100,000		-		3.83
$	0.950		50,000		10,000		3.51	1.950		500,000		-		3.75
$	2.320		300,000		60,000		4.20	2.320		220,000		100,000		3.95
$	2.450		2,000,000		2,000,000		3.48	2.450		2,000,000		2,000,000		3.23
$	2.500		100,000		25,000		4.16	2.500		100,000		50,000		3.91
$	2.650		200,000		100,000		4.24	2.650		200,000		150,000		3.99
$	2.850		75,000		-		3.45	2.850		75,000		18,750		3.20
$	2.850		100,000		-		4.45	2.850		100,000		25,000		4.20
$	3.000		25,000		-		4.47	3.000		25,000		12,500		4.21
$	3.725		200,000		-		4.45	3.725		200,000		50,000		4.19
			7,790,000		6,935,000					5,545,000		4,091,250

	●	Delaware – 4,000 square feet of retail space in a multi-use building under a five-year lease that commenced in October 2016 and contains a five-year option to extend the term. The Company developed the space into a cannabis dispensary which is subleased to its cannabis-licensed client.

	●	Delaware – a 100,000 square foot warehouse leased in March 2019 that the Company intends to construct into a cultivation and processing facility to be subleased to the same Delaware client. The lease term is 10 years, with an option to extend the term for three additional five-year periods.

	●	Nevada – 10,000 square feet of an industrial building that the Company has built-out into a cannabis cultivation facility and plans to rent to its cannabis-licensed client under a sub-lease which will be coterminous with this lease expiring in 2024.

	●	Massachusetts – 10,000 square feet of office space which the Company utilizes as its corporate offices under a 10-year lease with a related party expiring in 2028, ~~which contain a 5-year extension option.~~with an option to extend the term for an additional five-year period.

	●	Maryland – a 2,700 square foot 2-unit apartment under a lease that expires in July 2020 with an option to renew for a two-year term.

Operating lease cost	$	339,478	$	585,940
Finance lease cost:
Amortization of right-of-use assets	$	6,744	$	14,914
Interest on lease liabilities		1,824		4,188
Total finance lease cost	$	8,568	$	19,102

	Operating Leases			Finance Lease			Operating Leases			Finance Lease
2019	$	230,744		$	11,556		$	141,156		$	9,603
2020		917,444			23,112			917,444			38,412
2021		1,008,227			23,112			1,008,227			38,412
2022		949,535			11,823			949,535			27,123
2023		910,166			10,451			910,166			23,201
Thereafter		5,139,851			3,229			5,139,851			3,229
Total lease payments		9,155,967		$	83,282			9,066,379		$	139,980
Less: imputed interest		(2,845,742	)		(11,296	)		(2,727,246	)		(18,778	)
	$	6,310,224		$	71,986		$	6,339,133		$	121,202

	●	cost of revenues, which includes the direct costs associated with the generation of our revenues;

	●	operating expenses, which include the sub-categories of personnel, marketing and promotion, and general and administrative; and

	●	non-operating income and expenses, which include the sub-categories of interest expense, interest income, non-cash losses on debt settlements ~~and~~ equity in earnings of our non-consolidated investments, and other one-one gains or losses.

Exhibit No.		Description

3.1		Certificate of Incorporation of the Registrant. (Incorporated herein by reference ~~from~~to the Company’s Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)

3.1.1		Amended Certificate of Incorporation of the Registrant. (Incorporated herein by reference ~~from~~to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on April 17, 2017.)

3.2		Bylaws – Restated as Amended. (Incorporated herein by reference ~~from~~to the Company’s Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)

~~31.1~~10.1		~~Rule 13a-14(a)/15d-14(a) Certifications~~Amended and Restated 2018 Stock Award and Incentive Plan. (Incorporated herein by reference to Appendix A of ~~Chief Executive Officer. (Filed herewith.~~the Company’s Definitive Proxy Statement on Schedule 14A, filed on August 26, 2019.)

~~31.2~~10.2		~~Rule 13a-14(a)/15d-14(a) Certifications~~Form of ~~Chief Financial Officer.~~Stock Option Agreement, dated September 27, 2019, with each of David R. Allen, Eva Selhub, M.D. and Edward J. Gildea. (Filed herewith.)

~~32.1~~		~~Section 1350 Certifications of Chief Executive Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)~~

~~32.2~~		~~Section 1350 Certifications of Chief Financial Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)~~

~~101.INS XBRL~~		~~Instance Document (Filed herewith.)~~

~~101.SCH XBRL~~		~~Taxonomy Extension Schema (Filed herewith.)~~

~~101.CAL XBRL~~		~~Taxonomy Extension Calculation Linkbase (Filed herewith.)~~

~~101.DEF XBRL~~		~~Taxonomy Extension Definition Linkbase (Filed herewith.)~~

~~101.LAB XBRL~~		~~Taxonomy Extension Label Linkbase (Filed herewith.)~~

~~101.PRE XBRL~~		~~Taxonomy Extension Presentation Linkbase (Filed herewith.)~~

~~MARIMED INC.~~

~~By:~~	~~/s/ Robert Fireman~~
	~~Robert Fireman~~
	~~President and Chief Executive Officer~~ ~~(Principal Executive Officer)~~

~~By:~~	~~/s/ Jon R. Levine~~
	~~Jon R. Levine~~
	~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~

~~Exhibit No.~~		~~Description~~

~~3.1~~		~~Certificate of Incorporation of the Registrant. (Incorporated by reference from Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.)~~

~~3.1.1~~		~~Amended Certificate of Incorporation of the Registrant. (Incorporated by reference from Annual Report on Form 10-K filed on April 17, 2017.)~~

~~3.2~~		~~Bylaws – Restated as Amended. (Incorporated by reference from Registration Statement on Form 10-12G (File No. 000-54433) filed on June 9, 2011.~~)

31.1		Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer. (Filed herewith.)

31.2		Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer. (Filed herewith.)

32.1		Section 1350 Certifications of Chief Executive Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)

32.2		Section 1350 Certifications of Chief Financial Officer (Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.)

101.INS XBRL		Instance Document (Filed herewith.)

101.SCH XBRL		Taxonomy Extension Schema (Filed herewith.)

101.CAL XBRL		Taxonomy Extension Calculation Linkbase (Filed herewith.)

101.DEF XBRL		Taxonomy Extension Definition Linkbase (Filed herewith.)

101.LAB XBRL		Taxonomy Extension Label Linkbase (Filed herewith.)

101.PRE XBRL		Taxonomy Extension Presentation Linkbase (Filed herewith.)

MARIMED INC.

By:	/s/ Robert Fireman
	Robert Fireman
	President and Chief Executive Officer (Principal Executive Officer)

By:	/s/ Jon R. Levine
	Jon R. Levine
	Chief Financial Officer (Principal Financial Officer)