|3 Months Ended|
Mar. 31, 2021
|Subsequent Events [Abstract]|
NOTE 20 – SUBSEQUENT EVENTS
Amended Note Agreement
In April 2021, the Company entered into a third amendment agreement with the Noteholder referred to in Note 10 – Debt whereby the Company and MMH issued a third amended and restated promissory note in the principal amount of approximately $3.2 million (the “$3.2M Note”), comprised of the remaining principal balance on the $8.8M Note.
The $3.2M Note bears interest at a rate of 0.12% per annum and matures in April 2023. The Noteholder has the option to convert, subject to certain conversion limitations, all or a portion of the $3.2M Note into shares of the Company’s common stock at a conversion price of $ per share, subject to adjustment from certain transactions by the Company.
On or after the one-year anniversary of the $3.2M Note, upon twenty days prior written notice to the Noteholder, the Company can prepay all of the outstanding principal and unpaid interest of the $3.2M Note, along with a prepayment premium equal to 10% of the principal amount being prepaid. The Noteholder shall remain entitled to convert the $3.2M Note during such notice period. On or after the one-year anniversary of the $3.2M Note, the Noteholder has the right to require the redemption in cash of up to $125,000 of principal and unpaid interest thereon per calendar month.
In April 2021, the Company issued shares of common stock previously subscribed in connection with the stock grant to an employee previously disclosed in Note 14 – Stockholders’ Equity. Also during this period, (i) the Company granted -year options to purchase up to shares of common stock to employees at an exercise price of $ per share, (ii) options to purchase shares of common stock were exercised at an exercise price of $per share, (iii) options to purchase shares of common stock were exercised on a cashless basis, with the exercise price of $per share paid by the surrender of shares of common stock, (iv) warrants to purchase 200,000 shares of common stock were exercised on a cashless basis, with the exercise price of $0.45 per share paid by the surrender of shares of common stock, and (v) the Company issued shares of common stock to satisfy a $21,000 obligation.
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 of this report.
We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.
MariMed Inc. (the “Company”) is a multi-state operator in the United States cannabis industry. The Company develops, operates, manages, and optimizes over 300,000 square feet of state-of-the-art, regulatory-compliant facilities for the cultivation, production and dispensing of medicinal and recreational cannabis. The Company also licenses its proprietary brands of cannabis and hemp-infused products, along with other top brands, in several domestic markets and overseas.
Upon its entry into the cannabis industry in 2014, the Company was an advisory firm that procured state-issued cannabis licenses on behalf of its clients, developed cannabis facilities which it leased to these newly-licensed companies, and provided industry-leading expertise and oversight in all aspects of their cannabis operations. The Company also provided its clients with as ongoing regulatory, accounting, real estate, human resources, and administrative services.
In 2018, the Company made the strategic decision to transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale operations (hereinafter referred to as the “Consolidation Plan”). The Consolidation Plan calls for the acquisition of its cannabis-licensed clients located in Delaware, Illinois, Maryland, Massachusetts, and Nevada. In addition, the Consolidation Plan includes the potential acquisition of a Rhode Island asset. All of these acquisitions are subject to state approval, and once consolidated, the entities will operate under the MariMed banner.
To date, acquisitions of the licensed businesses in Massachusetts and Illinois have been completed and establish the Company as a fully integrated seed-to-sale multi-state operator. The acquisitions of the remaining entities located in Maryland, Nevada, and Delaware are at various stages of completion and subject to each state’s laws governing the ownership transfer of cannabis licenses, which in the case of Delaware requires a modification of current cannabis ownership laws to permit for-profit ownership. Meanwhile, the Company continues to expand these businesses and maximize the Company’s revenue from rental income, management fees, and licensing royalties.
A goal in completing this transition from a consulting business to a direct owner of cannabis licenses and operator of seed-to-sale operations is to present a simpler, more transparent financial picture of the full breadth of the Company’s efforts, with a clearer representation of the revenues, earnings, and other financial metrics the Company has generated for its clients. The Company has played a key role in the successes of these entities, from the securing of their cannabis licenses, to the development of facilities that are models of excellence, to providing operational and corporate guidance. Accordingly, the Company believes it is well suited to own these facilities and manage the continuing growth of their operations.
The Company has also created its own brands of cannabis flower, concentrates, and precision-dosed products utilizing proprietary strains and formulations. These products are developed by the Company in cooperation with state-licensed operators who meet the Company’s strict standards, including all natural—not artificial or synthetic—ingredients. The Company licenses its brands and product formulations only to certified manufacturing professionals who follow state cannabis laws and adhere to the Company’s precise scientific formulations and trademarked product recipes.
The Company’s proprietary cannabis genetics produce flowers and concentrates under the brand name Nature’s Heritage™, and cannabis-infused products under the brand names Kalm Fusion®, in the form of chewable tablets and drink powder mixes, and the award-winning1 Betty’s Eddies® brand of all natural fruit chews. Both cannabis-infused brands are top selling products in Maryland and Massachusetts2 and the Company intends to introduce additional products under these brands in 2021. The Company’s brand of hemp-infused cannabidiol (“CBD”) products, Florance™, is distributed in the United States and abroad.
The Company also has exclusive sublicensing rights in certain states to distribute the Binske® line of cannabis products crafted from premium artisan ingredients, the Healer™ line of medical full-spectrum cannabis tinctures, and the clinically tested medicinal cannabis strains developed in Israel by global medical cannabis research pioneer Tikun Olam™. The Company intends to continue licensing and distributing its brands as well as other top brands in the Company’s current markets and in additional legal markets worldwide.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The spread of the virus in the United States and the measures implemented to contain it—including business shutdowns, indoor capacity restrictions, social distancing, and diminished travel—have negatively impacted the economy and have created significant volatility and disruption in financial markets. Consequently, the Company’s implementation of its aforementioned Consolidation Plan has been delayed. Additionally, while the cannabis industry has been deemed an essential business, and is not expected to suffer severe declines in revenue, the Company’s business, operations, financial condition, and liquidity have been impacted, as further discussed in this report.
1 Awards won by the Company’s Betty’s Eddies® brand include LeafLink 2020 Industry Innovator, Explore Maryland Cannabis 2020 Edible of the Year, and LeafLink 2019 Best Selling Medical Product.
2 Source: LeafLink Insights 2020.
The Company’s revenues are primarily comprised of the following categories:
The Company classifies its expenses into three general categories:
Liquidity and Capital Resources
The Company produced significant improvements to its liquidity in the reported periods:
The aforementioned improvements to were primarily the result of (i) increases in revenues and profitability generated by the Company’s cannabis operations in the states of Illinois and Massachusetts, acquired as part of the Company’s Consolidation Plan to transition from a consulting business to a direct owner of cannabis licenses and operator of see-to-sale operations, and (ii) $23.0 million of gross proceeds raised by the Company under a financing facility of up to $46.0 million pursuant to a securities purchase agreement with Hadron Healthcare Master Fund (“Hadron”) in exchange for newly-designated Series C convertible preferred stock and warrants.
Additionally, the section below entitled Non-GAAP Measurement discusses an additional financial measure not defined by GAAP which the Company’s management uses to evaluate liquidity.
Net cash provided by operating activities in the three months ended March 31, 2021 approximated $6.8 million, compared to net cash used in operating activities of approximately $407,000 in the same period in 2020. The year-over-year improvement was primarily attributable to the increase in cannabis-derived profits generated by the acquired operations in Illinois and Massachusetts.
Net cash used in investing activities in the three months ended March 31, 2021 approximated $2.9 million, compared to approximately $1.4 million in the same period in 2020. The increase was due to additional purchases of fixed assets and amounts paid to renew cannabis licenses.
Net cash provided by financing activities in the three months ended March 31, 2021 approximated $5.4 million, compared to approximately $2.9 million in the same period in 2020. The increase is primarily due to the $23.0 million of proceeds from the aforementioned Hadron transaction, offset by the paydown of debt and obligations of approximately $17.1 million. The remaining proceeds from the Hadron transaction will fund construction and upgrades of certain of the Company’s owned and managed facilities. The balance of the committed facility of up to an additional $23.0 million is intended to fund the Company’s specific targeted acquisitions provided such acquisitions are contracted in 2021 and consummated, including obtaining the necessary regulatory approvals, no later than the end of 2022.
Results of Operations
Three months ended March 31, 2021 compared to three months ended March 31, 2020
Revenues in the three months ended March 31, 2021 approximated $24.6 million compared to approximately $7.5 million in the same period in 2020, an increase of approximately $17.2 million or 230.1%. The year-over-year increase was primarily due to the four-fold growth of cannabis sales to approximately $20.9 million in the current period, compared to approximately $4.2 million from the same period a year ago. This growth was attributable to approximately (i) $5.4 million generated in the current period by the Company’s cultivation and production facility in New Bedford, MA; this location had completed in first harvest at the end of the prior period and commenced full scale selling operations after the end of such quarter, (ii) $3.8 million generated in the current period from the Company’s dispensary in Mt. Vernon, IL in the current period, which was not yet operational in the previous period, (iii) a $3.9 million increase in revenue generated in the current period from the Company’s dispensaries in Anna, IL and Harrisburg, IL due to 55% and 70% increases, respectively, in recreational customer visits year-over-year, and (iv) a $3.5 million increase in revenue generated from the Company’s Middleboro, MA dispensary which commenced recreational sales in the third quarter of 2020 and also saw a six-fold increase in medical customers. The year-over-year increase in revenues was also the result of continued improvement across all revenue categories, primarily from increased business with the Company’s clients in Delaware and Maryland.
Cost of revenues in the three months ended March 31, 2021 approximated $11.5 million compared to approximately $2.6 million in the same period in 2020, an increase of approximately $8.9 million. The year-over-year variance was primarily attributable to the higher level of revenues. As a percentage of revenues, these costs increased to 46.5% in the three months ended March 31, 2021 from 34.8% in the same period in 2020, primarily due to the change in the relative mix of revenue categories in each period. Specifically, in the three months ended March 31, 2021, (a) 85.0% of revenues were comprised of product sales, which historically have had corresponding costs of revenue of approximately 50.0%, and (b) 7.3% of revenues were comprised of real estate revenue, which have no corresponding cost of revenue. This compares to revenues in the same period in 2020 that were comprised of (x) 56.7% of product sales and (y) 26.4% of real estate revenues. While the cost rate is higher for product sales, the level of product sales able to be generated by the Company is several multiples higher than the level of real estate revenue able to be generated, resulting in significantly higher margin dollars and profitability to be generated by the Company.
As a result of the foregoing, gross profit approximated $13.2 million, or 53.5% of revenues in the three months ended March 31, 2021, from approximately $4.9 million, or 62.5% of revenues in the same period in 2020.
Personnel expenses increased to approximately $1.7 million in the three months ended March 31, 2021 from approximately $1.5 million in the same period in 2020. The increase was primarily due to the hiring of additional staff to support (i) higher levels of revenue, and (ii) the Company’s expansion into a direct owner and operator of seed-to-sale cannabis businesses. As a percentage of revenues personnel expenses dropped significantly to 7.0% in the three months ended March 31, 2021 from 20.3% in the same period in 2020.
Marketing and promotion costs increased to approximately $224,000 in the three months ended March 31, 2021 from approximately $112,000 in the same period in 2020, primarily from increased spending on public relations and related expenses. As a percentage of revenues, these costs fell to 0.9% in the three months ended March 31, 2021 from 1.5% in the same period in 2020.
General and administrative costs increased to approximately $3.2 million in the three months ended March 31, 2021 from approximately $2.2 million in the same period in 2020. This increase is primarily due to increased legal costs associated with the Company’s legal proceedings, coupled with higher facility costs on additional properties in service in 2021. As a percentage of revenues, these costs fell significantly to 12.9% in the three months ended March 31, 2021 from 29.9% in the same period in 2020.
Bad debt expense approximated $1.0 million in the three months ended March 31, 2021 compared to zero bad debt expense in the same period in 2020. The current period amount reflects a reserve of approximately $1.0 million recorded against aging receivable balances.
As a result of the foregoing, the Company generated operating income of approximately $7.0 million in the three months ended March 31, 2021 compared to approximately $1.0 million in the same period in 2020.
Net non-operating expenses decreased to approximately $1.5 million in the three months ended March 31, 2021 from approximately $3.3 million in the same period in 2020. The decrease is primarily due to an approximate $1.2 million reduction of interest expense from lower levels of outstanding debt, and an approximate $640,000 smaller decline in the fair value of investments.
As a result of the foregoing, the Company generated income before income taxes of approximately $5.5 million in the three months ended March 31, 2021, compared to a loss before income taxes of approximately $2.3 million in the same period in 2020. After a tax provision of approximately $1.2 million in the three months ended March 31, 2021 and approximately $13,000 in the same period in 2020, net income approximated $4.3 million in the current period, compared to a net loss of approximately $2.3 million in the prior period, a positive swing of approximately $6.6 million.
In addition to the financial information reflected this report, which is prepared in accordance with GAAP, the Company is providing an additional financial measure not defined by GAAP – EBITDA (defined below). The Company is providing this non-GAAP financial measurement as a supplement to the preceding discussion of the Company’s financial results.
Management defines EBITDA as net income (loss) before interest, income taxes, depreciation, and amortization. Management believes EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating results by excluding the effects of expenses that are not reflective of its operating business performance. In addition, the Company’s management uses EBITDA to understand and compare operating results across accounting periods, and for financial and operational decision making. The presentation of EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP.
Management believes that investors and analysts benefit from considering EBITDA in assessing the Company’s financial results and its ongoing business as it allows for meaningful comparisons and analysis of trends in the business. EBITDA is used by many investors and analysts themselves, along with other metrics, to compare financial results across accounting periods and to those of peer companies.
As there are no standardized methods of calculating non-GAAP measurements, the Company’s calculations may differ from those used by others, and accordingly, and therefore may not be directly comparable to similarly titled measures used by others.
Reconciliation of Net Income (Loss) to EBITDA (a Non-GAAP Measurement)
The table below reconciles Net Income (Loss) to EBITDA three months ended March 31, 2021 and 2020:
For the balance of 2021, the Company’s focus will to be on the following key areas:
No assurances can be given that any of these plans will come to fruition or that if implemented will necessarily yield positive results.
Please refer to Note 20 – Subsequent Events of the Company’s financial statements included in this report for a discussion of material events that occurred after the balance sheet date.
The issuance of the shares of common stock described in Note 20 – Subsequent Events of the Company’s financial statements 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/or 4(a)(5) of the Securities Act. 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.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
In the opinion of management, inflation has not had a material effect on the Company’s financial condition or results of its operations.
In the opinion of management, the Company’s financial condition and results of its operations are not materially impacted by seasonal sales.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information contained in this item pursuant to Regulation S-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021 (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 are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the past fiscal years, we implemented significant measures to remediate the previously disclosed ineffectiveness of our internal control over financial reporting, which included an 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. The remediation measures consisted of 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 of our accounting processes and enhancement to our financial controls, including the testing of such controls.
Other than as described above, there 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 three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Terminated Employment Agreement
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 multiple damages, attorney fees, costs, and interest.
The Company has moved to dismiss certain counts of the complaint and has asserted counterclaims against Mr. Kidrin 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 intends to vigorously defend this matter and prosecute its counterclaims.
While the Company’s motion to dismiss was pending, the parties reached a settlement in principle and the court has issued a nisi order of dismissal. The parties have not yet competed the settlement agreement. If the parties are for any reason unable to do so, then the Company will continue vigorously to defend this matter and prosecute its counterclaims.
In November 2019, Kind commenced an action by filing a complaint against the Company in the Circuit Court for Washington County, MD captioned Kind Therapeutics USA, Inc. vs. MariMed, Inc., et al. (Case No. C-21-CV-19-000670) (the “Complaint”). The Complaint, as amended, alleges breach of contract, breach of fiduciary duty, unjust enrichment, intentional misrepresentation, rescission, civil conspiracy, and seeking an accounting and declaratory judgment and damages in excess of $75,000. On November 15, 2019, the Company filed counterclaims against Kind and a third-party complaint against the members of Kind (Jennifer DiPietro, Susan Zimmerman, and Sophia Leonard-Burns) and William Tham (the “Counterclaims”). The Counterclaims, as amended, allege breach of contract with respect to each of the partnership/joint venture agreement, the MOU, the MSA, the Lease, and the Licensing and Manufacturing Agreement (“LMA”), unjust enrichment, promissory estoppel/detrimental reliance, fraud in the inducement, breach of fiduciary duty, and seeks reformation of the MSA, a declaratory judgment regarding enforceability of the partnership/joint venture arrangement and/or the MOU, specific performance of the parties’ various contracts, and the establishment of a constructive trust for the Company’s benefit. The Counterclaims also seek damages.
At the time the Complaint and Counterclaims were filed, 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 MSA and the Lease “appear to be independent, valid and enforceable contracts.”
A hearing on the parties’ cross-motions for preliminary injunction was held in September 2020 and November 2020. Also in November 2020, the Court granted the Company’s motion for summary judgment as to the Lease, determining that the Lease is valid and enforceable. Based on this ruling, the Company is seeking judgment at trial in the amount of approximately $5.4 million for past due rent and expenses owed by Kind under the Lease.
In December 2020, the Court entered a Preliminary Injunction Order, accompanied by a Memorandum Opinion, denying Kind’s motion for a preliminary injunction (which Kind had withdrawn at the conclusion of the hearing) and granting the Company’s request for preliminary injunction. The Court determined that the Company is likely to succeed with respect to the validity and enforceability of the MSA and the LMA, that the Company would suffer substantial and irreparable harm without the preliminary injunction, and that the balance of convenience and public interest both warranted the issuance of a preliminary injunction in the Company’s favor. The Court ordered, inter alia, that the MSA and LMA are in effect pending judgment after trial on the merits, and that Kind and its members, and their attorneys, agents, employees, and representatives, are prohibited from (a) interfering with the Company’s duties and responsibilities under the MSA and (b) withdrawing funds, making any distribution, paying any loans, returning any capital, or making any payment towards a debt from any Kind bank or other financial account(s) without written consent of the Company or Order of the Court, thereby preserving the Company’s management of Kind’s operations and finances at least through the jury trial currently scheduled to begin on March 28, 2022. Further, the Court ordered Kind to pay management and licensing fees to the Company beginning January 1, 2021. Kind has noted an appeal of the Order to the Maryland Court of Special Appeals, which is pending; however, the preliminary injunction order remains in effect.
In addition to the favorable rulings on the Lease, MSA, and LMA, the Company believes that its claims with respect to the partnership/joint venture agreement are meritorious. Further, the Company believes that Kind’s claims against the Company are without merit. On March 18, 2021, the Court issued an opinion and order on Kind’s motion for summary judgment finding that the MOU was not enforceable by the Company against Kind as a final binding agreement. The Company is evaluating an appeal of this ruling which under Maryland rules can only be pursued upon final judgment.
In March 2021, the Kind parties filed motions to modify the preliminary injunction order or, alternatively, for direction from the Court based on Kind’s claim to have terminated the MSA. The Company has opposed both motions and has filed a petition for civil contempt against the Kind parties for interfering with the Company’s management of Kind. The motions and petition are pending, and the preliminary injunction remains in effect.
The Company intends to aggressively prosecute and defend the action. Trial has been scheduled from March 28, 2022 to April 11, 2022.
In August 2020, Jennifer DiPietro, directly and derivatively on behalf of Mari Holdings MD LLC (“Mari-MD”) and Mia Development LLC (“Mia”), commenced an action against the Company’s CEO, CFO, and wholly-owned subsidiary MariMed Advisors Inc. (“MMA”), in Suffolk Superior Court, Massachusetts (C.A. No. 20-1865).
In this action, DiPietro, a party to prior ongoing litigation in Maryland involving the Company and Kind as discussed above, asserts claims for breach of fiduciary duty, breach of contract, fraud in the inducement, aiding and abetting the alleged breach of fiduciary duty, seeks access to books and records, and an accounting related to her investments in Mari-MD and Mia. DiPietro seeks unspecified monetary damages and rescission of her interest in Mari-MD, but not of her investment in Mia, which has provided substantial returns to her as a member.
The Company has answered the complaint and MMA has moved for leave to file counterclaims against DiPietro on its own behalf and derivatively on behalf of Mari-MD for DiPietro’s breach of her fiduciary duties to each of those entities, for tortious interference with Mari-MD’s lease and MMA’s management services agreement with Kind, and for breach of Mari-MD’s operating agreement.
The Company believes that the allegations of the complaint are without merit and intends to defend the case vigorously. The Company’s counterclaim seeks monetary damages from DiPietro, including the Company’s legal fees in the Kind action.
Item 1A. Risk Factors
As a smaller reporting company, the Company is not required to provide the information contained in this item pursuant to Regulation S-K. However, information regarding the Company’s risk factors appears in Part I, Item 1A. of its Annual Report on Form 10-K for the year ended December 31, 2020. These risk factors describe some of the assumptions, risks, uncertainties, and other factors that could adversely affect the Company’s business or that could otherwise result in changes that differ materially from management’s expectations. There have been no material changes to the risk factors contained in the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31, 2021, the Company issued (i) 4,610,645 shares of common stock upon the conversion of debentures, (ii) 3,365,972 shares of common stock upon the conversion of promissory notes, (iii) 50,000 shares of common stock upon the exercise of a warrant, (iv) 42,857 shares of common stock to satisfy an obligation, and (v) 11,413 shares of common stock related to an employee stock grant. In addition, the Company sold 6,216,216 shares of Series C convertible preferred stock.
The issuance of the shares of common stock described above were deemed to be exempt from registration under the Securities Act in reliance upon Sections 4(a)(2) and/or 4(a)(5) of the Securities Act. 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
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
* Filed herewith.
** Furnished herewith in accordance with Item 601 (32)(ii) of Regulation S-K.
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: May 17, 2021
INDEX TO EXHIBITS
* Filed herewith.
** Furnished herewith in accordance with Item 601 (32)(ii) of Regulation S-K.
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://www.xbrl.org/2003/role/disclosureRef