NOTE 11 – DEBT

Mortgages Payable

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

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 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 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 $4,852,000 and $4,895,000 on September 30, 2019 and December 31, 2018, respectively, of which approximately $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 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 September 30, 2019 and December 31, 2018, the outstanding principal balance on this mortgage was approximately $1,708,000 and $1,792,000, respectively, of which approximately $105,000 and $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 5th 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 September 30, 2019 and December 31, 2018, the outstanding principal balance on this mortgage was approximately $835,000 and $850,000, respectively, of which approximately $23,000 and $24,000, respectively, was 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 September 30, 2019, the pro-rata portion of such payment, based on the term of the $10M Note, approximated $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 in Note 1 – Organization and Description of Business. The $10M Note imposes certain covenants on the borrower, all of which were complied with as of 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 $294,000 of the warrant discount was amortized to interest expense through September 30, 2019. Accordingly, the carrying value of the $10M Note approximated $9.69 million at 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 in Note 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, and if extended, the noteholder shall receive an additional payment of $30,000. At September 30, 2019, the pro-rata portion, based on the term of the note, of the $180,000 payment approximated $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 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 (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 in Note 1 – Organization and Description of 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 September 30, 2019, this note has a principal balance of $6 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 through maturity in March 2020. The Company may elect to prepay the note in whole or part at any time after December 17, 2018 without premium or 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 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 nine months ended September 30, 2019.

During 2018, the Company issued 2,596,313 shares of its common stock and subscriptions on 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 nine months ended September 30, 2019.

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

The aggregate scheduled maturities of the Company’s total debt outstanding, inclusive of the promissory notes and mortgages described within this Note 11 – Debt, and the convertible debentures described in the following Note 12 – Debentures Payable, as of September 30, 2019 were: