|12 Months Ended|
Dec. 31, 2019
|Subsequent Events [Abstract]|
NOTE 21 – SUBSEQUENT EVENTS
GenCanna Bankruptcy Filing
In February 2020, GenCanna filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Eastern District of Kentucky. The filing is intended to permit GenCanna to operate its business while working through a reorganization plan that could include refinancing of its existing indebtedness, or an alternative restructuring transaction such as a sale.
Consequently, as of December 31, 2019, the Company wrote off the outstanding receivable balance from GenCanna of approximately $29.0 million and the related balance of unearned revenue of approximately $4.2 million as previously discussed in Note 1 – Organization and Description of Business.
Additionally, the Company recorded a charge to net income of approximately $30.2 million, classified under Loss on Equity Investments on the statement of operations for the year ended December 31, 2019, which reduced to zero the carrying value of the Company’s previous investment in GenCanna as previously discussed in Note 4 – Investments.
In February 2020, the Company entered into an exchange agreement with two institutional shareholders (the “TIS”) whereby the TIS loaned the Company an aggregate of $4,417,500. In return for the loans, and the Company (i) issued promissory notes to the TIS for the aggregate amount, bearing interest at 16.5% per annum and maturing in August 2021, with a right to extend the maturity date through February 2022 upon payment of an extension fee. and (ii) exchanged 4,903,333 shares of the Company’s common stock previously acquired by the TIS, for an equal number of shares of newly designated Series B convertible preferred stock.
In connection with the exchange agreement, the Company filed (i) a certificate of designation to designate the rights and preferences of the Series B convertible preferred stock, and (ii) a certificate of elimination to return all shares of the Series A convertible preferred stock, of which no shares were issued or outstanding at the time of filing, to the status of authorized and unissued shares of undesignated preferred stock.
Issuance of Additional Debenture
In February 2020, the Company sold to the Holder of the $20M Debentures an additional convertible debenture in the principal amount of $1,000,000 bearing interest at a rate of 6.5% per annum that matures one year from issuance, with a 6.5% issuance discount, resulting in net proceeds to the Company of $935,000 (the “$1M Debenture”).
The terms of the $1M Debenture are consistent with the terms of the $20M Debentures. The SPA, registration rights agreement, and addendum to the SPA were all amended and restated to incorporate the $1M Debenture. As part of issuance of the $1M Debenture, the Company issued three-year warrants to the Holder to purchase 180,000 shares of common stock at an exercise prices of $0.75 per share.
Promissory Note Extensions
As previously discussed in Note 11 – Debt, the Company and MariMed Hemp issued the $11.5M Note in February 2020 which amended and restated the previously issued $10M Note. The $11.5M Note bears interest at a rate of 15% per annum and matures on June 15, 2020, with monthly interest payments and minimum amortization payments of $3,000,000 in the aggregate due on or before April 30, 2020, of which the Company has already paid $2.3 million. The $11.5M Note is secured by a first priority security interest in the assets of certain of the Company’s subsidiaries and brands, and a pledge of the Company’s ownership interest in certain of its subsidiaries. The $11.5M Note imposes certain covenants on the borrowers effective on the date of the amendment agreement.
The Company also extended the maturity dates of another $9.4 million of promissory notes, and is in the process of finalizing the paperwork to extend another $3.0 million of promissory notes, as a result of which the Company will not be in default on any of its debt servicing payments.
In February, the Company received a commitment from an accredited investor for a $12.0 million loan, secured by the Company’s real estate, at a rate of 10% per annum with a one-year term, and an option to extend for an additional year. The loan contains an origination fee of four points and a prepayment penalty of two months interest. This transactions is expected to close upon the lender’s completion of its due diligence, which is in its final stages, although there is no assurance that it will close in the foreseeable future or at all.
Conversion of Debentures Payable
In January 2020, the holder of the $20M Debentures converted $1,000,000 of principal and approximately $205,000 of accrued interest into 3,555,859 shares of common stock at a conversion price of $0.34 per share.
Promissory Note Paydown
In February, the Company paid cash to retire a promissory note in the principal amount of $100,000 which matured during that month.
In the first quarter of 2020, the Company issued 3,236,857 shares of common stock associated with the subscriptions on common stock outstanding at December 31, 2019 and previously disclosed in Note 13 – Equity. These subscriptions were comprised of (i) 32,726 shares in connection with common stock granted in 2019; (ii) 3,004,131 shares with respect to the December 2019 conversion of a portion of the $20M Debentures, and (iii) 200,000 shares associated with exercise of stock options by the Company’s CEO.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef