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SHWZ Medicine Man

Filed: 4 Mar 21, 5:17pm

Exhibit 99.2

 

Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Financial Information

 

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2020 and the unaudited pro forma condensed combined statements of operations for each of the nine months ended September 30, 2020 and for the year ended December 31, 2019 combine the financial statements of Medicine Man Technologies, Inc. (“Medicine Man”), Commerce City, LLC (“Commerce City) and Lucky Ticket, LLC (“Lucky Ticket”)giving effect to the transaction described in the Agreements, as if they had occurred on January 1, 2019 in respect of the unaudited pro forma condensed combined statements of operations and on September 30, 2020 in respect of the unaudited pro forma condensed combined balance sheet.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with:

 

 ·Medicine Man’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2019, as contained in the Form 10-K filed on March 31, 2020 with the United States Securities and Exchange Commission (the “SEC”).

 

 ·Medicine Man’s unaudited condensed consolidated financial statements and accompanying notes as of and for the nine months ended September 30, 2020, as contained in its Quarterly Report on Form 10-Q filed on November 13, 2020 with the SEC.

 

 ·Commerce City and Lucky Ticket’s audited financial statements as of and for the year ended December 31, 2019, contained elsewhere herein.

 

 ·Commerce City and Lucky Ticket’s unaudited condensed financial statements as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019, contained elsewhere herein.

 

 ·the other information contained in or incorporated by reference into this filing.

 

The final purchase consideration and the allocation of the purchase consideration may materially differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized following the completion of the acquisition.

 

The unaudited pro forma adjustments give effect to events that are directly attributable to the transaction and are based on available data and certain assumptions that management believes are factually supportable. In addition, with respect to the unaudited condensed combined statements of operations, the unaudited pro forma adjustments are expected to have a continuing impact on the combined results.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only and to aid you in your analysis of the financial aspects of the acquisition. The unaudited pro forma condensed combined financial information described above has been derived from the historical financial statements of Medicine Man, Commerce City, and Lucky Ticket and the related notes included elsewhere in this Form 8-K. The unaudited pro forma condensed combined financial information is based on Medicine Man’s accounting policies. Further review may identify additional differences between the accounting policies of Medicine Man, Commerce City, and Lucky Ticket. The unaudited pro forma adjustments and the pro forma condensed combined financial information do not reflect the impact of synergies or post-transaction management actions and are not necessarily indicative of the financial position or results of operations that may have actually occurred had the transaction taken place on the dates noted, or of Medicine Man’s future financial position or operating results.

 

 

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Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

September 30, 2020

 

 

  Medicine Man  Lucky Ticket  Commerce City  Pro Forma Adjustments   Pro Forma Combined 
                 
ASSETS                     
Current assets:                     
Cash and cash equivalents $2,981,688  $148,250  $227,073  $(375,323)(A) $2,982,888 
               1,200(C)    
Accounts receivable, net of allowance for doubtful accounts  812,212             812,212 
Accounts receivable – related party  91,990             91,990 
Inventory  2,151,612   168,719   240,576       2,560,907 
Notes receivable – related party  283,849             283,849 
Prepaid expenses and other current assets  254,602      7,039   (7,039)(A)  254,602 
                      
Total current assets  6,575,953   316,969   474,688   (381,162)   6,986,448 
                      
Non-current assets:                     
Fixed assets, net  2,719,154   73,618   313,144       3,105,916 
Goodwill  17,445,843         18,870,436(C)  36,316,279 
Intangible assets, Net  70,329             70,329 
Investment  527,575             527,575 
Accounts receivable – litigation  3,063,968             3,063,968 
Deferred tax assets, net  268,423             268,423 
Notes receivable – noncurrent, net  247,272             247,272 
Operating lease right of use assets  1,650,117             1,650,117 
Other assets  127,999   5,400      (5,400)(A)  127,999 
                      
Total non-current assets  26,120,680   79,018   313,144   18,865,036    45,377,878 
                      
Total assets $32,696,633  $395,987  $787,832  $18,483,874   $52,364,326 

 

 

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LIABILITIES AND STOCKHOLDERS' EQUITY                     
Checks issued in excess of bank balance $  $18,529  $  $(18,529)(A) $ 
Accounts payable  2,957,390      5,066   (5,066)(A)  2,957,390 
Accounts payable – related party  127,694             127,694 
Accrued expenses  1,426,315   106,480   103,002   (209,482)(A)  1,426,315 
Seller note payable           5,919,319(B)  6,921,214 
Convertible note payable           2,491,258(B)  2,491,258 
Derivative liabilities  782,896             782,896 
Income taxes payable               
Loyalty points liability     130,000   80,000       210,000 
                      
Total current liabilities  5,294,295   255,009   188,068   8,177,500    13,914,872 
                      
Noncurrent liabilities:                     
Lease liabilities  1,684,005             1,684,005 
                      
Total noncurrent liabilities  1,684,005             1,684,005 
                      
Total liabilities  6,978,300   255,009   188,068   8,177,500    15,598,877 
                      
Stockholders’ equity                     
Common stock $0.001 par value, 250,000,000 authorized, 42,194,878 shares issued and 41,762,146 shares outstanding at September 30, 2020, and 39,952,628 shares issued and outstanding at December 31, 2019.  42,195             42,195 
Preferred Stock              4,429,956(B)  4,429,956 
Additional paid-in capital  60,714,343         6,617,160(B)  67,331,503 
Accumulated equity (deficit)  (33,705,705)  140,978   599,764   (740,742)(A)  (33,705,705)
                      
Common stock held in treasury, at cost, 432,732 shares held at September 30, 2020 and 257,732 shares held at December 31, 2019  (1,332,500)            (1,332,500)
                      
Total stockholders' equity  25,718,333   140,978   599,764   10,306,374    36,765,449 
                      
Total liabilities and stockholders’ equity $32,696,633  $395,987  $787,832  $18,483,874   $52,364,326 

 

   

See notes to the unaudited pro forma condensed combined financial information.

 

  

 

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Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2020

 

 

  Medicine Man  Lucky Ticket  Commerce City  

Pro Forma

Adjustments

   Pro Forma Combined 
                 
Operating revenues:                     
Product sales, net $14,292,374  $4,562,094  $2,876,996  $   $21,731,464 
Product sales – related party, net  484,930             484,930 
Consulting and licensing services  1,267,587             1,267,587 
Other operating revenues  12,946             12,946 
                      
Total revenue  16,057,837   4,562,094   2,876,996       23,496,927 
                      
Cost of goods and services:                     
Cost of goods and services  9,904,131   2,270,708   1,439,580       13,614,419 
                      
Gross profit  6,153,706   2,291,386   1,437,416       9,882,508 
                      
Operating expenses:                     
Selling, general and administrative expenses  3,054,091   854,062   644,373       4,552,526 
Professional services  5,390,186             5,390,186 
Salaries, benefits and related expenses  5,973,482             5,973,482 
Stock based compensation  5,815,808             5,815,808 
Depreciation     6,255   24,042       30,297 
                      
Total operating expenses  20,233,567   860,317   668,415       21,762,299 
                      
Income from operations (loss)  (14,079,861)  1,431,069   769,001       (11,879,791)
                      
Other income (expense):                     
Gain on forfeiture of contingent consideration  1,462,636             1,462,636 
Interest income (expense), net  46,726         (850,000)(E)  (803,274)
Amortization of debt discount - warrants           (150,284)(F)  (150,284)
Other income (expense)  32,621             32,621 
Unrealized gain (loss) on derivative liabilities  1,527,850             1,527,850 
Unrealized gain (loss) on investments  120,800             120,800 
                      
Total other income  3,190,633         (1,000,284   2,190,349 
                      
Income (loss) before income tax expense  (10,889,228)  1,431,069   769,001   (1,000,284   (7,689,442)
                      
Income tax benefit (expense)           (880,000)(D)  (880,000)
                      
Net income (loss) $(10,889,228) $1,431,069  $769,001  $(1,880,284)  $(10,569,442)
                      
Earnings (loss) per share attributable to common shareholders:                     
Weighted average number of shares outstanding - basic and diluted  41,242,041         865,821    42,107,862 
                      
Basic and diluted earnings (loss) per share $(0.26)           $(0.25)

 

See notes to the unaudited pro forma condensed combined financial information

 

 

 

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Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2019

 

 

  Medicine Man  Lucky Ticket  Commerce City  Pro Forma Adjustments   Pro Forma Combined 
                 
Operating revenues                     
Product sales, net $6,468,230  $5,656,049  $3,227,482  $   $15,351,761 
Product sales – related party, net  1,351,578             1,351,578 
Litigation revenue  1,782,457             1,782,457 
Licensing, consulting and Cultivation Max fees  2,767,649             2,767,649 
Other operating revenues  31,041             31,041 
                      
Total operating revenues  12,400,955   5,656,049   3,227,482       21,284,486 
                      
Cost of goods and services                     
Cost of goods and services  7,616,221   2,535,833   1,603,338       11,755,392 
                      
Gross profit  4,784,734   3,120,216   1,624,144       9,529,094 
                      
Operating expenses                     
Selling, general and administrative  2,199,609   1,055,354   839,174       4,094,137 
Professional services  3,357,877             3,357,877 
Salaries, benefits and related expenses  3,567,535             3,567,535 
Stock-based compensation  7,279,363             7,279,363 
Depreciation and amortization expense  61,708             61,708 
Derivative expense – contingent compensation  5,400,559             5,400,559 
Depreciation     7,714   31,988       39,702 
                      
Total operating expenses  21,866,651   1,063,068   871,162       23,800,881 
                      
Income from operations (loss)  (17,081,917)  2,057,148   752,982       (14,271,787)
                      
Other income (expense)                     
Bad debt expense  (151,169)            (151,169)
Amortization of debt discount - warrant              (200,379)    (200,379)
Unrealized gain on derivative liabilities  1,627,177             1,627,177 
Unrealized loss on marketable securities  (1,792,569)            (1,792,569)
Interest expense  (160,195)        (1,130,000)(E)  (1,290,195)
                      
Total other expense  (476,756)        (1,130,000)   (1,807,135)
                      
Income (loss) before income tax expense  (17,558,673)  2,057,148   752,982   (1,130,000)   (16,078,922)
                      
Income tax benefit (expense)  582,931         (1,140,000)(D)  (557,069)
                      
Net (loss) income $(16,975,742) $2,057,148  $752,982  $(2,470,379))  $(16,635,991)
                      
Earnings (loss) per share attributable to common shareholders:                     
Weighted average number of shares outstanding - basic and diluted  33,740,557         865,821    34,606,378 
                      
Basic and diluted earnings (loss) per share $(0.50)           $(0.48)

 

See notes to the unaudited pro forma condensed combined financial information

 

 

 

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Medicine Man Technologies, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

Note 1. Basis of Presentation

 

The unaudited pro forma condensed combined financial information set forth herein is based upon the consolidated financial statements of Medicine Man Technologies, Inc., Commerce City, LLC and Lucky Ticket, LLC. The unaudited pro forma condensed combined financial information is presented as if the transaction had been completed on January 1, 2019 with respect to the unaudited pro forma condensed combined statements of operations for each of the nine months ended September 30, 2020 and for the year ended December 31, 2019 and on September 30, 2020 in respect of the unaudited pro forma condensed combined balance sheet.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the combined financial position or results of operations had the transaction occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the completion of the transactions.

 

We have accounted for the acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.

 

Pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet are based on items that are factually supportable and directly attributable to the transaction. Pro forma adjustments reflected in the pro forma condensed combined statements of operations are based on items that are factually supportable, directly attributable to the transaction and expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or benefits from the transaction, including potential synergies that may be generated in future periods.

 

Note 2. Description of the Transaction

 

On December 17, 2020, Medicine Man Technologies, Inc. operating its business under the trade name Schwazze (the “Company”) consummated the Agreements with Commerce City and Lucky Ticket. The aggregate purchase price for both entities is $19,457,693, which comprised of cash, seller notes, and stock in Medicine Man, Inc. In December 2020, the Company acquired the net assets of four other companies, which are not included in the unaudited pro forma condensed financial information presented.

 

Note 3. Purchase Price Allocation

 

The fair value of the consideration transferred was valued as of the date of the acquisition as follows:

 

Commerce City, LLC and Lucky Ticket, LLC Purchase Consideration   
    
Cash $6,921,214 
Seller Notes  6,921,214 
Stockholders’ Equity  5,615,265 
Total Purchase Consideration $19,457,693 

 

 

 

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The preliminary allocation for the consideration recorded for the acquisition is as follows if the acquisition had taken place as of September 30, 2020:

 

Current Assets $410,495 
Property and Equipment  386,762 
Goodwill  18,870,436 
Loyalty Points Liability  (210,000)
Total $19,457,693 

 

The purchase price allocation is preliminary. The purchase price allocation will continue to be preliminary until a third-party valuation is finalized and the fair value and useful life of the assets acquired is determined. The amounts from the final valuation may significantly differ from the preliminary allocation.

 

Note 4. Pro Forma Adjustments

 

The following pro forma adjustments give effect to the transaction.

 

Unaudited Pro Forma Condensed Combined Balance Sheet – As of September 30, 2020

 

Note ATo remove Commerce City and Lucky Ticket assets, liabilities, and equity.
  

Note B

 

  

To record purchase consideration and transaction financing.

 

The purchase consideration included cash, seller notes, and Medicine Man, Inc., stock. There were warrants associated with the seller notes that the Company determined required equity treatment. The exercise price was $1.20 per share and exercisable within five years from the acquisition date. The Company evaluated the warrants for liability or equity classification and concluded the warrants should be accounted for as equity. The Company determined the total fair value of the warrants to be $2,010,812, which will be amortized over the term of the notes. The warrant amount presented on the pro forma schedule of $1,001,895 was calculated based on a pro-rata allocation for Commerce City and Lucky Ticket.

 

The convertible note for $5,000,000, dated December 16, 2020, accrues interest at 12% per annum and matures in December 2021. If a Qualified Financing occurs on or prior to the Maturity Date or Holder receives a Prepayment Notice, then all (but not less than all) of the outstanding principal amount of this Promissory Note and Security Agreement and all accrued and unpaid interest on this Promissory Note and Security Agreement shall be convertible at the sole option of Holder into either (i) the securities issued in such Qualified Financing or (ii) shares of Maker’s Series A Cumulative Convertible Preferred Stock, par value $0.001 per share at the price per share equal to the price per share paid by the other investors in the Qualified Financing on the issuance as preferred stock, as applicable. The terms are further described in the convertible promissory note and security agreement. The convertible note amount presented on the pro forma schedule was calculated based on a pro-rata allocation for Commerce City and Lucky Ticket.

 

The Company sold an aggregate of 12,400 shares of the Company’s Series A preferred stock, par value $0.001 per share having the rights, preferences and privileges set forth in the securities purchase agreements, including the conversion of such Preferred Stock into shares of the Company’s common stock, par value $0.001 per share. Such purchase and sale of Preferred Stock shall take place in a single closing subject to the terms and conditions of this Agreement. The preferred stock amount presented on the pro forma schedule was calculated based on a pro-rata allocation for Commerce City and Lucky Ticket.

 

Note CTo record assets acquired and liabilities assumed from Commerce City and Lucky Ticket at preliminary estimated fair value.  The Company has not completed its purchase price allocation and the amounts noted are preliminary.
  

 

Unaudited Pro Forma Condensed Combined Statement of Operations – For The Nine Months Ended September 30, 2020 

 

  
Note DTo record provision for income tax based on an estimated effective tax rate of 24% applied to income taxable under IRC Section 280E.
  
Note E

To record interest on seller note and convertible note payable of 12% per annum.

  
Note FTo record amortization of debt discount related to warrant. The amortization amount presented on the pro forma schedule was calculated based on a pro-rata allocation for Commerce City and Lucky Ticket and a five year life.

 

Unaudited Pro Forma Condensed Combined Statement of Operations – For The Year Ended December 31, 2019

 

Note DTo record provision for income tax based on an estimated effective tax rate of 24% applied to income taxable under IRC Section 280E.
  
Note ETo record interest on seller note and convertible note payable of 12% per annum.
  
Note F

To record amortization of debt discount related to warrant. The amortization amount presented on the pro forma schedule was calculated based on a pro-rata allocation for Commerce City and Lucky Ticket and a five year life.

 

 

 

 

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