Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes ☐
No ☒
Indicate by check mark whether the registrant
(1) 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 ☒ 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 (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes ☒ 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.
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
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate
market value of the voting and non-voting common equity (common stock) held by non-affiliates of the registrant as of the close of business
on June 30, 2020 was approximately $56.2 million based upon the closing price of the common stock on the OTC Markets, Inc. on that date.
As of March 23, 2021, 42,160,246 shares of the registrants common
stock were outstanding.
This Amendment No. 1 on Form 10-K/A (this “Form
10-K/A”) to the Annual Report on Form 10-K of Medicine Man Technologies, Inc. (the “Company,” “Medicine Man,”
“we,” “us” or “our”) for the year ended December 31, 2020, filed with the Securities and Exchange
Commission on March 31, 2021 (the “Original 10-K”), is being filed for the purposes of including the information required
by Part III (Items 10-14) of Form 10-K and to amend Item 15 to include two exhibits that were inadvertently omitted from the Original
10-K, to correct nine exhibits filed with the Original 10-K that contained extraneous materials and to reflect the exhibits filed or
furnished with this Form 10-K/A. At that time the Company filed the Original 10-K, it intended to file a definitive proxy statement for
its 2020 Annual Meeting of Stockholders within 120 days after the end of its fiscal year pursuant to Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Because the Company will not file the definitive proxy
statement within such 120-day period, the omitted information is filed herewith and provided below as required. The reference on the
cover of the Original 10-K to the incorporation by reference to portions of our definitive proxy statement into Part III of the Original
10-K is hereby deleted.
As a result, Part III, Items 10-14
and Part IV, Item 15 of the Company's Original 10-K are hereby amended and restated in their entirety.
Except
as described above, this Form 10-K/A does not modify or update disclosure in, or exhibits to, the Original 10-K, and such disclosure
in, or exhibits to, the Original 10-K remain unchanged and speak as of the date of the filing of the Original 10-K. In particular,
this Form 10-K/A does not change any previously reported financial results, nor does it reflect events occurring after the date of the
Original 10-K. Accordingly, this Form 10-K/A should be read in conjunction with the Original 10-K and the Company’s other filings
made with the Securities and Exchange Commission since the filing of the Original 10-K, including amendments to those filings, if any.
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Directors and Executive Officers
Set forth below are the Company’s Directors
and Executive Officers, together with an overview of their professional experience and expertise.
|
Name
|
|
Age
|
|
Position(s) Held
|
|
Justin Dye (2)(3)
|
|
49
|
|
Chief Executive Officer and Executive Chairman (director since 2019)
|
|
Nancy Huber
|
|
63
|
|
Chief Financial Officer
|
|
Nirup Krishnamurthy
|
|
59
|
|
Chief Operating Officer
|
|
Daniel Pabon
|
|
44
|
|
General Counsel, Chief Government Affairs Officer and Corporate Secretary
|
|
Brian Ruden (3)
|
|
46
|
|
Director (director since 2019)
|
|
Jeffrey A. Cozad (1)(2)(3)
|
|
57
|
|
Director (director since 2021)
|
|
Jeff Garwood (1) (3)
|
|
59
|
|
Director (director since 2020)
|
|
Pratap Mukharji (1)(2)
|
|
61
|
|
Director (director since 2021)
|
|
Salim Wahdan (1)
|
|
41
|
|
Director (director since 2021)
|
_________________________
|
(1)
|
Currently a member of the Audit Committee.
|
|
(2)
|
Currently a member of the Nominating and Corporate Governance Committee.
|
|
(3)
|
Currently a member of the Compensation Committee.
|
Justin Dye was named Chief
Executive Officer and Executive Chairman of the Company in December 2019 and has served as a director and Chairman since June 2019. Mr.
Dye has 25 years of experience in private equity, general management, operations, strategy, corporate finance, and M&A. Prior to
founding Dye Capital & Company (“Dye Capital”), a private equity firm investing in growth companies in disruptive industries,
in 2018, he served as an integral part of the private equity consortium that acquired Albertsons Companies (“Albertsons”),
a grocery store chain, and led its expansion through over $40 billion in acquisitions, divestitures, real estate and financing transactions.
During his 11-year tenure as Chief Strategy Officer, Chief Operating Officer, and Chief Administration Officer, Albertsons grew sales
from approximately $10 billion to over $60 billion with over 2,300 stores and 285,000 employees. Prior to Albertsons, Justin held roles
at Cerberus Capital Management, General Electric and Arthur Andersen. Justin serves as lead director for New Seasons Market and is a
member of the DePauw University Board of Trustees. Mr. Dye’s financial and executive experience qualifies him to serve on our Board
of Directors (the “Board”).
Nancy Huber was named Chief
Financial Officer of the Company in December 2019. She was hired in August 2019 as Senior Vice President of Finance for the Company.
Ms. Huber has over 30 years of experience in accounting and finance. Most recently she spent 12 years as the Chief Financial Officer
for Forward Foods, LLC, a privately held consumer-packaged goods company, which sold products to grocery, mass, military, convenience
store, club and natural channels, both directly and indirectly. Ms. Huber also has leadership experience in gold and diatomaceous earth
mining. She worked as the Chief Financial Officer for Western Multiplex Corporation, taking the company public on the Nasdaq exchange
and was a founder and Chief Financial Officer of AccelGraphics Inc. also listed on the Nasdaq. Ms. Huber has an MBA from Kellogg School
of Management, Northwestern University and a Bachelor of Science in Chemical Engineering from Purdue University.
Nirup Krishnamurthy was named
Chief Operating Officer of the Company in September 2020. He had previously served as the Company’s Chief Information and Integration
Officer since June 2019; Mr. Krishnamurthy provided such service as a consultant until March 1, 2020, at which time he began formal employment
with the Company. Mr. Krishnamurthy has over 25 years of experience in innovation, technology, restructuring, and M&A for Fortune
500 companies. Since May 2018, Mr. Krishnamurthy has been a partner with Dye Capital, a private equity firm investing in growth companies
in disruptive industries. In addition to his work with Dye Capital, Mr. Krishnamurthy has acted as managing director of EBIT+ LLC (“EBIT+”),
a management consulting firm he founded in January 2016; EBIT+ works with executive management to improve revenues and margins while
reducing operating costs. From September 2011 through December 2015, Mr. Krishnamurthy was EVP and Chief Strategy Officer & Chief
Information Officer with The Great Atlantic and Pacific Tea Company (“A&P”), a grocery store chain, where he was responsible
for the information services, digital commerce, supply chain & logistics, strategic sourcing and retail space planning functions
for A&P. Mr. Krishnamurthy has also held senior management positions with companies including Northern Trust Corporation and United
Airlines, Inc. He obtained a Ph.D. in Industrial Engineering Operations Research and a M.S. in Industrial Engineering Operations/Production
Management from the State University of New York, and a B.S. in Mechanical Engineering from Anna University in Chennai, India.
Daniel Pabon was named General
Counsel, Chief Government Affairs Officer and Corporate Secretary in August 2019. Prior to joining the Company, Mr. Pabon served as Vice
President of Sewald Hanfling Public Affairs, a government affairs firm, from 2018 and 2019. Before that, he was in private law practice.
In addition, he served eight years in the State of Colorado Legislature as a State Representative from 2011 to 2019. He held numerous
leadership positions including Deputy Whip, Assistant Majority Leader, Speaker Pro Tempore, and Chair of the Finance Committee. During
his tenure, he assisted with the design and development of Colorado’s cannabis legal and regulatory model. Mr. Pabon has had extensive
experience in compliance, law department management, litigation, cannabis regulation and governance and government affairs issues. He
has consulted with and advised state and local governments as well as private businesses all over the world on how to implement cannabis
regulations, both medical and recreational. Mr. Pabon served as a member of the City of Denver Marijuana Licensing Working Group (MLWG).
He was a volunteer with the Covid-19 Eviction Defense Project. He has served as an adjunct professor of business law at the Community
College of Denver. He also served on the Obama-Biden Presidential Transition Team. Mr. Pabon received a Bachelor of Science degree in
Mechanical Engineering from the University of Colorado at Boulder and his juris doctor from the University of Colorado School of Law.
Mr. Pabon is also a graduate of the Harvard Kennedy School for Executive Education.
Brian Ruden has served as director
since December 2019. He is the owner of several Colorado Retail Marijuana Store Licenses around the state of Colorado doing business
as Star Buds. Since 2010, he has owned and operated marijuana licenses in Colorado, Washington DC, and Hawaii. In 2014, Mr. Ruden founded
Starbuds Consulting, a consulting company which provides strategic advice to start-up marijuana operations. Before entering the marijuana
industry, Mr. Ruden was a tax attorney in Colorado. In 2005, Mr. Ruden received his law degree from the University of Denver, Sturm College
of Law. He received his Bachelor of Science from the University of Massachusetts. Mr. Ruden’s extensive business experience in
the marijuana industry qualifies him to serve on the Board.
Jeff Garwood has served as
a director since September 2020. Mr. Garwood is the founder and since 2010 has been the managing member of Liberation Capital, LLC, a
private equity fund that is focused on providing modular, repeatable waste to value project finance. He is also the co-owner of, and
since 2010 has actively managed, Zysense LLC, an entity providing high precision measurement instruments for research. Prior to founding
Liberation Capital, Garwood, held a variety of leadership positions with General Electric Company (“GE”), including President
and CEO of GE Water and Process Technologies, President and CEO of GE Fanuc, and President of Garrett Aviation. Prior to joining Garret
Aviation, Mr. Garwood worked for numerous years at the strategic consulting firm McKinsey and Company. Garwood received a B.S. of Chemical
Engineering from North Carolina State University and an M.B.A. from the Kenan-Flagler Business School at the University of North Carolina
at Chapel Hill. Mr. Garwood is a recognized visionary business leader bringing 30 years of extensive experience across finance and operations,
and we believe his significant experience and qualifications across multiple industries qualify him to serve on the Board.
Pratap Mukharji has served as a
director since January 2021. He was a senior partner and director at Bain & Company from 2015-2020 where he led its Supply Chain
and Service Operations practice. He retired in May 2020. Since retirement, he has been an Executive in Residence at the Fuqua School
of Business at Duke University. With a concentration in Industrials and Retail, Mr. Mukharji has led strategy; M&A; transformation
and turnaround; operations improvement; due diligence, omnichannel; and e-commerce efforts across multiple industries. Prior to Bain,
he was at Kearney and Booz-Allen & Hamilton. Mr. Mukharji received a BA in Economics from Haverford College at which he was Phi Beta
Kappa, and a MBA from the Fuqua School of Business at Duke University at which he was a Fuqua Scholar. During his career, Mr. Mukharji
examined small and large capitalized companies and advised them on growth opportunities. We believe his significant experience through
consulting work analyzing company financial statements and performing due diligence qualify him to serve on the Board.
Jeffrey A
Cozad has served as a director since March 2021. From 2017-2019. Mr. Cozad was a Managing
Partner at Stonerise Capital Partners in San Francisco, CA, a firm he co-founded in 2007. Beginning in January 2020, Mr. Cozad became
Managing Partner Emeritus at Stonerise Capital Partners. Mr. Cozad is the co-founder of CRW Cann Holdings, LLC (“CRW”)–
a special purpose vehicle created to support Schwazze’s vision of becoming the one of the biggest vertically integrated player
in the Colorado cannabis market. He is also the Managing Partner of his family office, Cozad Investments, LP, which has completed more
than 20 investments across a disparate set of industries over the past 13 years. Mr. Cozad holds an MBA from The University of Chicago
Booth School of Business and received a BA in Economics and Management from DePauw University, where he serves on the Board of Trustees
and is Chairman of the University Endowment Fund Investment Committee. We believe his significant experience with investments across
a variety of industries qualifies him to serve on the Board.
Salim Wahdan has served as a director
since March 2021. Mr. Wahdan has close to two decades of entrepreneurial experience owning and operating retail businesses. During the
last five years, he was a partner and operator of Star Buds in Adams, Louisville, and Westminster, several of the Star Buds’ branded
dispensaries the Company purchased between December 2020 and March 2021. He ran the back office of the operation and was charged with
accounting, inventory, and strategic growth. Mr. Wahdan was instrumental in the early growth of the Star Buds franchise. Previous to
his time in the cannabis industry, he owned and operated various retail concepts in Colorado. We believe his significant experience within
the cannabis industry owning and operating retail concepts qualifies him to serve on the Board.
Board Designation Rights
The Company has granted rights to designated
directors as follows:
|
|
•
|
Under
the Securities Purchase Agreement, dated June 5, 2019, between the Company and Dye Capital
Cann Holdings, LLC (“Dye Cann I”), as amended by the Amendment to Securities
Purchase Agreement, dated July 15, 2019, the Amendment to Security Purchase Agreement, dated
May 20, 2020, and the Consent, Waiver and Amendment, dated December 16, 2020 (as amended,
the “Dye Cann I SPA”), until the later of (i) two years from the last closing
under the Dye Cann I SPA, or (ii) the date Dye Cann I no longer owns, in the aggregate, at
least $10,000,000 of common stock, as measured by a trailing 30 day volume weighted average
price of the common stock, or continues to hold at least 8,333,333 shares of common stock,
the Company is required to take all actions to ensure that two individuals designated by
Dye Cann I shall be appointed to the Board. Currently, Justin Dye and Jeffrey Garwood serve
as Dye Cann I’s designees on the Board.
|
|
|
•
|
Under
the letter agreement, dated December 16, 2020, between the Company and Dye Capital Cann Holdings
II, LLC (“Dye Cann II”), for as long as Dye Cann II owns, in the aggregate, at
least $10,000,000 of the Series A Preferred Stock, as measured by a trailing 30 day volume
weighted average price of the common stock, on an as-converted basis, or continues to hold
at least 10,000 shares of the Company’s Series A Cumulative Convertible Preferred Stock
(“Series A Preferred Stock”), the Company is required to take all actions to
ensure that either one individual if the Board consists of five or fewer members or two individuals
if the Board consists of more than five members designated by Dye Cann II shall be appointed
to the Board. For so long as Dye Cann II is entitled to designate director, each committee
of the Board shall include at least one of the directors designated by Dye Cann II as a member
or, if Dye Cann II so elects, as an observer. Currently, Pratap Mukharji serves as Dye Cann
II’s designee on the Board.
|
|
|
•
|
Under
the letter agreement, dated February 26, 2021, between the Company and CRW, for as long as
CRW owns, in the aggregate, at least $15,000,000 of Series A Preferred Stock (calculated
on an as-converted basis based on the volume weighted average price of the Company’s
common stock over a 30-day period) or continues to hold at least 15,000 shares of Series
A Preferred Stock, the Company is required to take all actions to ensure that one individual
designated by CRW will be appointed to the Board. For as long as CRW has the right to designate
a director, each committee of the Board shall include the CRW designee as a member or, if
CRW so elects, as an observer. Currently, Jeffrey A. Cozad serves as CRW’s designee
on the Board.
|
|
|
•
|
Under
the Omnibus Amendment No. 2 to Asset Purchase Agreements, dated December 17, 2020, among
the Corporation and the sellers party thereto (the “Star Buds Agreement”), for
as long as the Sellers (as defined in the Star Buds Agreement) and the Members (as defined
in the Star Buds Agreement) meet a specified ownership threshold, the Company shall recommend
to its Board that Brian Ruden and Naser Joudeh jointly be permitted to designate three directors
for appointment to the Board if the Board consists of seven or more members. Currently, Brian
Ruden and Salim Wahdan serve as Messrs. Ruden and Joudeh’s designees on the Board.
|
Board Terms
Our bylaws provide for a “staggered”
or “classified” board of directors, whereby the directors of the Board are divided into two classes, Class A and Class B,
respectively, each class consisting, as nearly as possible, of one-half of the total number of directors constituting the entire Board.
Directors in each class are elected to approximately two-terms expiring at the election of their respective successors at alternating
annual meetings of our stockholders. The following table sets forth the name, class, term and designating party of each of our current
directors:
|
Name
|
Class
|
Term
|
Designating
Party
|
|
Jeffrey
A. Cozad
|
A
|
Expires
2022 annual meeting
|
CRW
|
|
Jeffrey
Garwood
|
A
|
Expires
2022 annual meeting
|
Cann
I
|
|
Salim
Wahdan
|
A
|
Expires
2022 annual meeting
|
Brian
Ruden and Naser Joudeh
|
|
Justin
Dye, Chairman
|
B
|
Expired
2021 annual meeting
|
Cann
I
|
|
Pratap
Mukharji
|
B
|
Expired
2021 annual meeting
|
Cann
II
|
|
Brian
Ruden
|
B
|
Expires
2021 annual meeting
|
Brian
Ruden and Naser Joudeh
|
Family Relationships
There are no family relationships among the officers and directors.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and
Ethics that applies to all of our officers, employees and directors, including our Chief Executive Officer and Chief Financial Officer.
Our Code of Business Conduct and Ethics is available on our website at https://www.schwazze.com. We will provide a copy of our Code of
Business Conduct and Ethics to any person without charge upon request to: Medicine Man Technologies, Inc., 4880 Havana Street, Suite
201, Denver Colorado, 80239 Attention: Corporate Secretary.
We intend to satisfy the disclosure requirement
under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of the Code of Business Conduct and Ethics applicable
to our Chief Executive Officer and Chief Financial Officer by posting such information at the investor relations site on our website
at www.schwazze.com in the near future.
Delinquent
Section 16(a) Reports
Section 16(a) of the Exchange Act requires our
officers and directors, and persons who beneficially own more than 10% of our equity securities registered pursuant to Section 12 of
the Exchange Act, to file reports of ownership and changes in ownership with the SEC. Based solely upon a review of the reports filed
during 2020 and or written representations from the reporting persons, we believe that, during our fiscal year ended December 31, 2020,
there were untimely filings of a Form 3, 4 and/or 5 by the Company’s Section 16(a) filers as follows: (i) Justin Dye filed one
late Form 4 on April 30, 2021 reporting fourteen transactions related to a grant of stock options on December 5, 2019, a grant of shares
of Company common stock as compensation for Board service on October 1, 2020, the repricing of outstanding options on December 15, 2020
and the purchase of shares of Preferred Stock by affiliated entities on December 16, 18, 22, 2020; February 3, 25, 26, 2021; and March
2,30, 2021; (ii) Nancy Huber filed one late Form 3 on April 30, 2021 relating to her appointment as Chief Financial Officer on December
5, 2019, and one late Form 4 on April 30, 2021 reporting nine transactions related to grants of stock options on December 5, 2019, March
27, 2020 and December 15, 2020 and the repricing of outstanding options on December 15, 2020; (iii) Nirup Krishnamurthy filed one late
Form 4 on April 30, 2021 reporting five transactions related to a grant of stock options on December 15, 2020 and the repricing of outstanding
options on December 15, 2020; (iv) Dan Pabon filed one late Form 3 on April 30, 2021 relating to his appointment as General Counsel on
August 12, 2019, and one late Form 4 on April 30, 2021 reporting six transactions related to grants of stock options on December 5, 2019
and March 27, 2020 and the repricing of outstanding options on December 15, 2020; (v) Jeffrey Garwood filed one late Form 4 on April
30, 2021 reporting two transactions related to the purchase of shares of the Company’s common stock and a grant of shares of Company
common stock as compensation for Board service on March 25, 2021; (vi) Leo Riera filed one late Form 4 on April 30, 2021 reporting two
transactions related to a grant of stock options on April 20, 2020 and a grant of shares of Company common stock as compensation for
Board service on October 1, 2020; (vii) and Brian Ruden filed one late Form 4 on April 30, 2021 reporting nine transactions related to
a grant of shares of Company common stock as compensation for Board service on October 1, 2020 and the receipt of shares of Series A
Preferred Stock and warrants to purchase shares of the Company’s common stock in connection with the Star Buds acquisitions on
December 17, 2020 and December 18, 2020.
CORPORATE GOVERNANCE
Committees
of the Board
The Board has established various committees
to assist it with the performance of its responsibilities. These committees and their members are listed below. The Board designates
the members of these committees and the committee chairs annually, usually, at its organizational meeting following the annual meeting
of stockholders, based on the recommendation of the Nominating and Corporate Governance Committee. The Board has adopted written charters
for each of these committees which can be found at the investor relations section of the Company’s website at www.schwazze.com.
Copies are also available in print to any stockholder upon written request to Medicine Man Technologies, Inc., 4880 Havana Street, Suite
201, Denver, Colorado 80239, Attention: Corporate Secretary. The chair of each committee develops the agenda for that committee and determines
the frequency and length of committee meetings.
Audit Committee
Our Board has established an Audit Committee,
which is composed of Mr. Mukharji, Mr. Cozad, Mr. Garwood, and Mr. Wahdan. The Audit Committee Chairman is Mr. Mukharji. The Board has
determined that Mr. Mukharji is an audit committee financial expert due to Mr. Mukharji’s experience. Through his consulting work,
Mr. Mukharji has analyzed both public and private company financial statements, performed due diligence work, implemented several financial
systems, and is proficient in internal controls and processes. The Board has determined that Mr. Mukharji is independent under the OTCQX
Rules for U.S. Companies. The Audit Committee’s primary duties are to:
|
|
·
|
review and discuss with management and our independent auditor our
annual and quarterly financial statements and related disclosures, including disclosure under “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and the results of the independent auditor’s audit or
review, as the case may be;
|
|
|
·
|
review our financial reporting processes and internal control over
financial reporting systems and the performance, generally, of our internal audit function;
|
|
|
·
|
oversee the audit and other services of our independent registered
public accounting firm and be directly responsible for the appointment, independence, qualifications, compensation and oversight
of the independent registered public accounting firm, which reports directly to the Audit Committee;
|
|
|
·
|
provide an open means of communication among our independent registered
public accounting firm, management, our internal auditing function and our Board;
|
|
|
·
|
review any disagreements between our management and the independent
registered public accounting firm regarding our financial reporting;
|
|
|
·
|
prepare the Audit Committee report for inclusion in our proxy statement
for our annual stockholder meetings; and
|
|
|
·
|
establish procedures for complaints received regarding our accounting,
internal accounting control and auditing matters.
|
Our Audit Committee charter also mandates that
our Audit Committee approve all audit and permissible non-audit services conducted by our independent registered public accounting firm.
The Audit Committee was established in 2016.
Nominating and Corporate Governance Committee
Our Board has also established a Nominating and
Corporate Governance Committee. The Nominating Corporate Governance Committee consists of Mr. Cozad, Mr. Dye and Mr. Mukharji. The Nominating
and Governance Committee Chair is Mr. Mukharji. The Committee’s primary duties are to:
|
|
·
|
recruit new directors, consider director nominees recommended by stockholders
and others and recommend nominees for election as directors;
|
|
|
·
|
review the size and composition of our Board and its committees;
|
|
|
·
|
oversee the evaluation of the Board;
|
|
|
·
|
recommend actions to increase the Board’s effectiveness; and
|
|
|
·
|
develop, recommend and oversee our corporate governance principles,
including our Code of Business Conduct and Ethics and our Nominating and Corporate Governance Guidelines.
|
The Nominating and Corporate Governance Committee
was established in 2016.
Compensation Committee
Our Board has established a Compensation Committee.
Mr. Cozad, Mr. Dye, Mr. Garwood and Mr. Ruden serve on this committee. The Compensation Committee Chairman is Mr. Dye. The Committee’s
primary duties are to:
|
|
·
|
approve corporate goals and objectives relevant to executive officer
compensation and evaluate executive officer performance in light of those goals and objectives;
|
|
|
·
|
determine and approve executive officer compensation, including base
salary and incentive awards;
|
|
|
·
|
make recommendations to the Board regarding compensation plans;
|
|
|
·
|
administer our stock plan; and
|
|
|
·
|
prepare a report on executive compensation for inclusion in our proxy
statement for our annual stockholder meetings.
|
Our Compensation Committee determines and approves
all elements of executive officer compensation. It also provides recommendations to the full Board with respect to non-employee director
compensation. The Compensation Committee may not delegate its authority to any other person, although it may delegate its authority to
a subcommittee.
The Compensation Committee was established in
2016.
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
SUMMARY COMPENSATION TABLE
|
Name and principal position
|
|
|
Year
|
|
|
Salary ($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
(5)
|
|
|
Total ($)
|
|
|
Justin Dye,
|
(1)
|
|
|
2020
|
|
|
$
|
311,540
|
|
|
$
|
50,000
|
|
|
|
303,978
|
|
|
$
|
665,518
|
|
|
Chief Executive Officer
|
|
|
|
2019
|
|
|
$
|
128,077
|
|
|
$
|
–
|
|
|
|
5,280,532
|
|
|
$
|
5,408,609
|
|
|
Nancy Huber,
|
(2)
|
|
|
2020
|
|
|
$
|
207,695
|
|
|
$
|
–
|
|
|
|
145,526
|
|
|
$
|
353,221
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Pabon, General Counsel and
|
(3)
|
|
|
2020
|
|
|
$
|
228,461
|
|
|
$
|
–
|
|
|
|
145,526
|
|
|
$
|
373,987
|
|
|
Chief Government Affairs Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nirup Krishnamurthy,
|
(4)
|
|
|
2020
|
|
|
$
|
218,306
|
|
|
$
|
–
|
|
|
|
981,109
|
|
|
$
|
1,199,415
|
|
|
Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Dye was named Chief Executive Officer and Executive
Chairman in December 2019. Prior to his appointment, Mr. Dye served as the Company’s Chairman. The amounts listed under Salary
in 2019 includes $120,000 of board compensation.
|
|
(2)
|
Ms. Huber was named Chief Financial Officer in December 2019
|
|
(3)
|
Mr. Pabon was named General Counsel and Chief Government Affairs Officer in August 2019.
|
|
(4)
|
Mr. Krishnamurthy was named Chief Operating Officer in September 2020.
|
|
(5)
|
The amounts in the Options Award column reflect the aggregate grant date fair value of stock options
granted during 2019 and 2020, computed in accordance with FASB ASC Topic 718. This amount does not reflect the actual economic value
realized by the named executive officer. Assumptions used in the calculation of the aggregated grant date fair value for these options
are included in Note 12 Stockholder’s Equity to our audited financial statements, included in Item 8 of the Original 10-K.
On December 15, 2020, the Board repriced certain outstanding stock options issued to the Company’s employees. The repriced
stock options had original exercise prices ranging from $1.52 per share to $3.83 per share. All of these stock options were repriced
to have an exercise price of $1.26 per share, which was the closing price of the Company’s Common Stock on December 15, 2020.
The repriced share fair value is included in the 2020 amounts within the Options Award. The terms of the options are described under
the Outstanding Equity Awards at Fiscal Year-End Table below.
|
OUTSTANDING OPTION AWARDS AT FISCAL YEAR END
The following table discloses information regarding
outstanding option equity awards granted or accrued as of December 31, 2020 for each of our named executive officers.
|
|
|
Outstanding Awards
|
|
|
|
|
|
|
Option Awards
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Option
Exercise
Price ($)
|
|
|
Vesting start date
|
|
Option
Expiration
Date
|
|
Justin Dye
|
|
|
2,000,000
|
|
|
|
1.26
|
|
|
12/05/2019 (2)
|
|
12/15/2030
|
|
Nancy Huber
|
|
|
50,000
|
|
|
|
1.26
|
|
|
03/30/2020 (1)
|
|
12/15/2030
|
|
|
|
|
550,000
|
|
|
|
1.26
|
|
|
12/15/2019 (2)
|
|
12/15/2030
|
|
|
|
|
100,000
|
|
|
|
1.26
|
|
|
03/27/2020 (2)
|
|
12/15/2030
|
|
Daniel Pabon
|
|
|
550,000
|
|
|
|
1.26
|
|
|
09/02/2019 (2)
|
|
12/15/2030
|
|
|
|
|
100,000
|
|
|
|
1.26
|
|
|
03/27/2020 (2)
|
|
12/15/2030
|
|
Nirup Krishnamurthy
|
|
|
300,000
|
|
|
|
1.26
|
|
|
06/05/2019 (3)
|
|
12/15/2030
|
|
|
|
|
300,000
|
|
|
|
1.26
|
|
|
06/05/2019 (3)
|
|
12/15/2030
|
|
|
|
|
400,000
|
|
|
|
1.26
|
|
|
12/15/2020 (2)
|
|
12/15/2030
|
(1) Options vested immediately.
(2) Options vest in four equal annual installments
on the first, second, third, and fourth anniversary of the vesting start date.
(3) Options vest in two equal annual installments
on the first and second anniversary of the vesting start date.
DIRECTOR COMPENSATION
Director Compensation Policy
Through September 2020, director compensation
was as follows:
|
|
·
|
Non-employee directors received a monthly cash retainer of $6,000
|
|
|
·
|
Non-employee directors received a monthly cash retainer of $2,000 for
service on each committee of the Board
|
|
|
·
|
The Chairman of the Board received an additional monthly cash retainer
of $8,000
|
Starting in October 2020, we award each of our
directors an annual grant of shares of common stock worth $50,000 during the fourth quarter of each year.
Director Compensation Table
The following provided compensation information
for the year ended December 31, 2020 for our non-executive directors.
|
Name
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonardo Riera (1)
|
|
$
|
217,808
|
|
|
$
|
50,000
|
|
|
$
|
666,509
|
|
|
$
|
160,000
|
|
|
$
|
1,094,317
|
|
|
Brian Ruden
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
$
|
–
|
|
|
$
|
142,735
|
|
|
Jeff Garwood
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
$
|
–
|
|
|
$
|
92,735
|
|
|
(1)
|
Mr. Riera resigned as director in January 2021. All other compensation relates
to severance related costs. As of December 31, 2020, Mr. Riera held an option to purchase 225,000 shares of common stock for $1.71
per share, which vested immediately on grant date of March 5, 2020. He also held an option to purchase 325,000 shares of common stock
for $1.17 per share, which vested immediately on November 10, 2020. The exercise price of the options is equal to the closing stock
market price of our common stock on the date of grant and the options expire 10 years from the date of grant. For further information,
see Note 12 Stockholder’s Equity to our audited financial statements, included in Item 8 of the Original 10-K.
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The following table sets forth, based on 42,387,078
shares of our common stock outstanding as of April 28, 2021, certain information as to the stock ownership of each person known by us
to own beneficially more than five percent or more of our outstanding common stock, of each of the named executive officers included
in the Summary Compensation Table and our directors, and of all our current executive officers and directors as a group. In computing
the outstanding shares of common stock, we have excluded all shares of common stock subject to options, warrants or other securities
that are not currently exercisable or convertible or exercisable or convertible within 60 days and are therefore not deemed to be outstanding
and beneficially owned by the person holding the options, warrants or other securities for the purpose of computing the number of shares
beneficially owned and the percentage ownership of that person; provided, that we have included shares of common stock underlying such
options, warrants or other securities with respect to each person who acquired any such options, warrants or other securities with the
purpose or effect of changing or influencing the control of the Company in accordance with Rule 13d-3 promulgated under the Exchange
Act. Unless otherwise indicated, the address of each of the following beneficial owner is c/o Medicine Man Technologies, Inc., 4880 Havana
Street, Suite 201, Denver, CO 80239. All beneficial ownership is direct and the beneficial owner has sole voting and investment power
over the securities beneficially owned unless otherwise noted.
The Series A Preferred Stock is not convertible
at a holder’s election within 60 days after April 28, 2021. Accordingly, we have excluded the shares of common stock issuable upon
conversion of shares of Series A Preferred Stock in the table below other than with respect to holders who have a right to designate one
or more directors for appointment or election to the Board. If included in the table below, the shares of common stock issuable upon conversion
of shares of Series A Preferred Stock are calculated by including accrued but unpaid interest as of April 28, 2021.
|
Name of Beneficial Holder
|
|
Number of Shares of Beneficially Owned (A)
|
|
|
Percent of Outstanding Class
|
|
|
Officers & Directors
|
|
|
|
|
|
|
|
|
|
Justin Dye (1)
|
|
|
41,814,155
|
|
|
|
55.88%
|
|
|
Jeffrey Garwood
|
|
|
107,735
|
|
|
|
0.25%
|
|
|
Jeffery Cozad (2)
|
|
|
21,773,870
|
|
|
|
33.95%
|
|
|
Salim Wahdan (3)
|
|
|
218,439
|
|
|
|
0.51%
|
|
|
Pratap Mukharji
|
|
|
64,192
|
|
|
|
0.15%
|
|
|
Brian Ruden (4)
|
|
|
9,609,890
|
|
|
|
18.50%
|
|
|
Nancy Huber (5)
|
|
|
225,042
|
|
|
|
0.53%
|
|
|
Nirup Krishnamurthy (6)
|
|
|
150,000
|
|
|
|
0.35%
|
|
|
Dan Pabon (6)
|
|
|
162,500
|
|
|
|
0.38%
|
|
|
All Officers and Directors as a Group (7 Persons)
|
|
|
74,125,824
|
|
|
|
69.36%
|
|
|
5% or greater holders:
|
|
|
|
|
|
|
|
|
|
Dye Capital and Co. (7)
|
|
|
41,233,801
|
|
|
|
55.47%
|
|
|
CRW Capital Cann Holdings LLC (8)
|
|
|
21,749,360
|
|
|
|
33.91%
|
|
|
Dye Capital Cann Holdings, LLC (9)
|
|
|
18,575,000
|
|
|
|
35.95%
|
|
|
Dye Capital Cann Holdings II, LLC (10)
|
|
|
18,317,509
|
|
|
|
30.17%
|
|
|
Brian Ruden (11)
|
|
|
9,609,890
|
|
|
|
18.50%
|
|
|
Naser A. Joudeh (12)
|
|
|
8,657,248
|
|
|
|
16.96%
|
|
|
James E Parco (13)
|
|
|
2,699,262
|
|
|
|
6.37%
|
|
|
Charles Haupt (14)
|
|
|
2,660,000
|
|
|
|
6.28%
|
|
|
Haupt Stock Investments, LLC (15)
|
|
|
2,610,000
|
|
|
|
6.16%
|
|
_________________________
(1) Represents
80,354 shares of common stock held by Mr. Dye, 500,000 shares of common stock underlying options that have vested held by Mr. Dye, 9,287,500
shares of common stock and 9,287,500 shares of common stock underlying warrants held by Dye Cann I, 4,341,292 shares of common stock
issuable upon conversion of Series A Preferred Stock held by Dye Capital, and 18,317,509 shares of common stock issuable upon conversion
of Series A Preferred Stock held by Dye Cann II . Mr. Dye has voting and investment control over the shares of common stock beneficially
owned by Dye Capital, Dye Cann I and Dye Cann II. Mr. Dye disclaims beneficial ownership of the shares held by Dye Capital, Dye Cann
I and Dye Cann II except to the extent of his pecuniary interest therein.
(2) Represents 24,510 shares of common stock held by Mr. Cozad and
21,749,360 shares of common stock issuable upon conversion of Series A Preferred Stock held by CRW Capital Cann Holdings. Mr. Cozad has
voting and investment control over the shares of common stock beneficially owned by CRW Capital Cann Holdings. Mr. Cozad disclaims beneficial
ownership of the shares held by CRW Capital Cann Holdings except to the extent of his pecuniary interest therein.
(3) Represents 24,510 shares and 193,929 shares underlying shares of
common stock underlying warrants.
(4) Represents 42,735 shares of common stock, 1,715,936 shares of common
stock underlying warrants, and 7,851,219 shares of common stock issuable upon conversion of Series A Preferred Stock held by Mr. Ruden
(5) Represents 12,542 shares of common stock and 212,500 shares of
common stock underlying options that have vested held by Ms. Huber.
(6) Represents shares of common stock underlying options that have
vested.
(7) Represents 4,341,292 shares of common stock issuable upon conversion
of shares of Series A Preferred Stock held by Dye Capital, 9,287,292 shares of common stock held by Dye Cann I, 9,287,292 shares of common
stock issuable upon conversion of warrants held by Dye Cann I, and 18,317,509 shares of common stock issuable upon conversion of shares
of Series A Preferred Stock held by Dye Cann II. Dye Capital is the manager of each of Dye Cann I and Dye Cann II and has voting and and
investment control over the shares beneficially owned by Dye Cann I and Dye Cann II. Justin Dye is the general partner of Dye Capital
and has voting and investment control over the shares beneficially owned by Dye Capital and, indirectly, over the shares beneficially
ownedd by Dye Cann I and Dye Cann II. Dye Capital, Dye Cann I and Dye Cann II’s address is 350 Camino Gardens Blvd, Suite
200, Boca Raton, FL 33432. Dye Capital disclaims beneficial ownership of the shares beneficially owned by Dye Cann I and Dye Cann
II except to the extent of its pecuniary interest therein. Mr. Dye disclaims beneficial ownership of the shares beneficially owned by
Dye Capital, Dye Cann I and Dye Cann II except to the extent of his pecuniary interest therein.
(9) Represents 9,287,500 shares of common stock and 9,287,500 shares
of common stock underlying warrants held by Dye Cann I. Mr. Dye has voting and investment control over the shares of common stock beneficially
owned by Dye Cann I. Mr. Dye disclaims beneficial ownership of the shares held by Dye Cann I except to the extent of his pecuniary interest
therein. Dye Cann I’s address is 350 Camino Gardens Blvd, Suite 200, Boca Raton, FL 33432.
(10) Represents 18,317,509 shares of common stock issuable upon conversion
of Series A Preferred Stock held by Dye Cann II . Mr. Dye has voting and investment control over the shares of common stock beneficially
owned by Dye Cann II. Mr. Dye disclaims beneficial ownership of the shares held by Dye Cann II except to the extent of his pecuniary interest
therein. Dye Cann II’s address is 350 Camino Gardens Blvd, Suite 200, Boca Raton, FL 33432.
(11) Represents 42,735 shares of common stock, 1,715,936 shares of
common stock underlying warrants, and 7,851,219 shares of common stock issuable upon conversion of Series A Preferred Stock held by Mr.
Ruden.
(12) Represents 560,662 shares of common stock underlying warrants
and 2,565,309 shares of common stock issuable upon conversion of Series A Preferred Stock held by Mr. Joudeh and 991,795 shares of common
stock underlying warrants and 4,539,482 shares of common stock issuable upon conversion of Series A Preferred Stock held by his spouse
in her name and a wholely owned LLC. The Company does not know if they share voting and investment power over these securities. The address
of Mr. Joudeh and his spouse is 16836 E. Weaver Pl., Aurora, CO 80016
(13) Includes 1,421,877 shares held by James E Parco and 1,277,375
held by his wife, Pamela S. Parco. The Company does not know if they share voting and investment power over these securities. The address
of Mr. Parco and his spouse is P.O. Box 324, Palmer Lake, CO 80133
(14) Represents 50,000 shares of common stock held by Charles Haupt
and 3,542,786 shares held in the name of Haupt Stock Investments LLC, over which Mr. Haupt has voting and investment control. The address
of Mr. Haupt and Haupt Stock Investments LLC is 27652 Schoolhouse Rd., Golden, CO 80403.
(15 Represents 3,542,786 shares held in the name of Haupt Stock Investments
LLC, over which Mr. Haupt has voting and investment control. The address of Mr. Haupt and Haupt Stock Investments LLC is 27652
Schoolhouse Rd., Golden, CO 80403.
The following table sets forth, based on 87,266
shares of Series A Preferred Stock outstanding as of April 28, 2021, certain information as to the stock ownership of each person known
by us to own beneficially more than five percent of the Series A Preferred Stock, of each of the named executive officers included in
the Summary Compensation Table and our directors, and of all our current executive officers and directors as a group. Unless otherwise
indicated, the address of each of the following beneficial owner is c/o Medicine Man Technologies, Inc., 4880 Havana Street, Suite 201,
Denver, CO 80239. All beneficial ownership is direct and the beneficial owner has sole voting and investment power over the securities
beneficially owned unless otherwise noted.
|
Name of Beneficial Holder
|
|
Number of Shares of Beneficially Owned (A)
|
|
|
Percent of Outstanding Class
|
|
|
Officers & Directors
|
|
|
|
|
|
|
|
|
|
Justin Dye (1)
|
|
|
26,410
|
|
|
|
30.26%
|
|
|
Salim Wahdan
|
|
|
1,036
|
|
|
|
1.19%
|
|
|
Jeffery Cozad (2)
|
|
|
25,350
|
|
|
|
29,05%
|
|
|
Brian Ruden
|
|
|
9,151
|
|
|
|
10.49%
|
|
|
All Officers and Directors as a Group (7 Persons)
|
|
|
61,947
|
|
|
|
70.99%
|
|
|
5% or greater holders:
|
|
|
|
|
|
|
|
|
|
Dye Capital and Co. (3)
|
|
|
26,410
|
|
|
|
30.26%
|
|
|
CRW Capital Cann Holdings LLC (4)
|
|
|
25,350
|
|
|
|
29.05%
|
|
|
Dye Capital Cann Holdings II, LLC (5)
|
|
|
21,350
|
|
|
|
24.47%
|
|
|
Brian Ruden
|
|
|
9,151
|
|
|
|
10.49%
|
|
|
Naser A. Joudeh (6)
|
|
|
8,281
|
|
|
|
9.49%
|
|
|
|
|
|
|
|
|
|
|
|
___________________________
|
(1)
|
|
Represents 25,350 shares of Series A Preferred Stock held by Dye Cann II and 5,060 shares of Series A Preferred Stock held by Dye Capital. Mr. Dye has voting and investment control over the shares beneficially owned by Dye Cann II and Dye Capital.
|
|
(2)
|
|
Represents 25,350 shares held by CRW. CRW Capital, LLC is the manager of CRW and has voting and investment control over the shares beneficially owned by CRW. Mr. Cozad is one of the managers of CRW Capital, LLC and therefore has shared voting and investment control over the shares beneficially owned by CRW. Mr. Cozad disclaims beneficial ownership of the shares held by CRW except to the extent of his pecuniary interest therein.
|
|
(3)
|
|
Represents 5,060 shares of Series A Preferred Stock held by
Dye Capital and 21,350 shares of Series A Preferred Stock held by Dye Cann II. Dye Capital is the manager of Dye Cann II and has
voting and investment control over the shares beneficially owned by Dye Cann II. Justin Dye is the general partner of Dye Capital
and has voting and investment control over the shares beneficially owned by Dye Capital and, indirectly, over the shares beneficially
owned by Dye Cann II. Mr. Dye, Dye Capital, and Dye Cann II’s address is 350 Camino Gardens Blvd, Suite 200, Boca Raton,
FL 33432. Dye Capital disclaims beneficial ownership of the shares beneficially owned by Dye Cann II except to the extent of
its pecuniary interest therein. Mr. Dye disclaims beneficial ownership of the shares beneficially owned by Dye Cann II except to
the extent of his pecuniary interest therein.
|
|
(4)
|
|
CRW Capital, LLC is the manager of CRW and has voting and investment control over the shares beneficially owned by CRW. Jeffrey Cozad and Marc Rubin are the managers of CRW Capital, LLC and share voting and investment control over the shares beneficially owned by CRW. CRW Capital, LLC and Messrs. Cozad and Rubin disclaim beneficial ownership of the shares held by CRW except to the extent of their respective pecuniary interest therein. The address for CRW, CRW Capital LLC and Messrs. Cozad and Rubin is 4740 W. Mockingbird Lane, P.O. Box 195579, Dallas, Texas 75209.
|
|
(5)
|
|
Represents 21,350 shares of Series A Preferred Stock held by Dye Cann II. Dye Capital is the
manager of Dye Cann II and has voting and investment control over the shares beneficially owned by Dye Cann II. Mr. Dye is the general
partner of Dye Capital and has voting and investment control over the shares held by Dye Capital and, indirectly, over the shares
held by Dye Cann II. Dye Capital and Dye Cann II’s address is 350 Camino Gardens Blvd, Suite 200, Boca Raton, FL 33432. Mr.
Dye disclaims beneficial ownership of the shares beneficially owned by Dye Cann II except to the extent of his pecuniary interest
therein.
|
|
(6)
|
|
Represents 2,990 shares held by Mr. Joudeh and 5,291 shares held by his spouse in her name and a wholly owned LLC. The Company does not know if they share voting and investment power over these securities. The address of Mr. Joudeh and his spouse is 16836 E. Weaver Pl., Aurora, CO 80016
|
|
|
|
|
Securities Authorized for Issuance under
Equity Compensation Plans
The following table summarizes plans under which
our equity securities are authorized for issuance as of December 31, 2020.
|
Plan Category
|
|
Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants
and rights
|
|
|
Weighted-
average
exercise
prices of
outstanding
options,
warrants
and rights
|
|
|
Number of
securities
remaining
available for
future
issuance
under the
equity
compensation
plans
(excluding
securities
reflected
in
column (a))
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
9,573,250
|
|
|
$
|
1.26
|
|
|
|
8,926,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
Total
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
The Medicine Man Technologies, Inc. 2017 Equity
Incentive Plan, as Amended (the “Plan”), is intended to promote the best interests of the Company and its stockholders by
assisting the Company in the recruitment and retention of persons with ability and initiative and providing an incentive to such persons
to contribute to the growth of the Company’s business. The Company is authorized to make awards of up to an aggregate of 18,500,000
shares of the Company’s common stock under the Pl The Company is authorized to make such awards of shares of common stock, shares
of restricted stock, appreciation rights, deferred shares, performance shares, incentive stock options, nonqualified stock options under
the Plan. Eligible persons under the Plan include employees, directors and consultants of the Company or any affiliate of the Company.
Unless earlier terminated, the Plan will terminate in 2027.
Under two separate Securities Purchase Agreements
the Company has entered into with Dye Cann II and CRW, respectively, for as long as Dye Cann II or CRW, as the case may be, holds any
shares of Series A Preferred Stock, the Company may not have issued and outstanding awards under any equity incentive plan for the issuance
of shares of common stock representing more than 12% of the then-issued and outstanding shares of common stock (calculated on an as-converted,
fully-diluted basis, excluding warrants) in the aggregate.
In addition, the Company has made the following
awards outside of the Plan: (i) the right to receive an aggregate of 1,500,000 shares of common stock granted to two former officers
(one of which also is a former director), which will vest at such time that the Company’s stock price appreciates to $8.00 per
share with defined minimum average daily trading volume thresholds, and (ii) options to purchase an aggregate of 2,000,000 shares of
common stock at an exercise price of $1.49 per share granted to one former officer.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
Related Party Transactions
Transactions Involving Former Directors, Executive
Officers or Their Affiliated Entities
During the year ended December 31, 2019, the
Company recorded sales to Futurevision, Inc., f/k/a Medicine Man Production Corp., d/b/a Medicine Man Denver (“Medicine Man Denver),
a customer of the Company, totaling $402,839 and sales discounts totaling $143,473. As of December 31, 2019, the Company had an accounts
receivable balance with Medicine Man Denver totaling $34,748. Also, during the year ended December 31, 2019, the Company incurred expenses
from Medicine Man Denver totaling $125,897 for contract labor and other related administrative costs. During the year ended December
31, 2020, the Company recorded sales to Medicine Man Denver, totaling $997,262. The Company had an accounts receivable balance with Medicine
Man Denver totaling $72,109 as of December 31, 2020. The Company’s former Chief Executive Officer, Andrew Williams, currently owns
38% of Medicine Man Denver.
During the year ended December 31, 2019, the
Company recorded sales to MedPharm Holdings LLC (“MedPharm”), a customer of the Company, totaling $64,378 and sales discounts
totaling $7,498. As of December 31, 2019, the Company had an accounts receivable balance with MedPharm Holdings totaling $2,604. During
the year ended December 31, 2020, the Company recorded sales to MedPharm totaling $73,557. The Company had a net accounts receivable
balance with MedPharm totaling $5,885 as of December 31, 2020.
During the year ended December 31, 2019, the
Company made loans to MedPharm totaling $767,695 evidenced by promissory notes with original maturity dates ranging from September 21,
2019 through January 19, 2020 and bearing interest between 8 and 10% per annum. On August 1, 2020, the Company and MedPharm entered into
a Settlement Agreement and Mutual Release (the “Settlement Agreement”) pursuant to which (i) the parties agreed that the
outstanding amount owed by MedPharm to the Company was $767,695 of principal and $47,161 in accrued and unpaid interest, (ii) MedPharm
paid the Company $100,000 in cash, (iii) Andrew Williams returned 175,000 shares of the Company’s common stock to the Company,
as partial repayment of the outstanding balance at a value of $1.90 per share. These shares are held in treasury. The parties agreed
that MedPharm would pay the remaining balance of $181,911 by delivering product to the Company on an agreed-upon schedule through March
31, 2021.
During the year ended December 31, 2019, the
Company recorded sales to Baseball 18, LLC (“Baseball”) totaling $165,617. The revenue is included under product sales -
related party, net, in the Company’s consolidated financial statements. As of December 31, 2019, the Company had an accounts receivable
balance with Baseball totaling $169,960. During the year ended December 31, 2019, the Company recorded sales from Farm Boy, LLC (“Farm
Boy”) totaling $321,307. The revenue is included under product sales - related party, net, in the Company’s consolidated
financial statements. As of December 31, 2019, the Company had an accounts receivable balance with Farm Boy totaling $330,911. During
the year ended December 31, 2020, the Company recorded sales to Baseball totaling $14,605, to Farm Boy totaling $16,125, to Emerald Fields
LLC totaling $16,605, and to Los Sueños Farms totaling $52,244. As of December 31, 2020 the Company had net accounts payable balances
with Baseball of $31,250, and with Farm Boy of $93,944. One of the Company’s former directors, Robert DeGabrielle, owns the Colorado
retail marijuana cultivation licenses for Baseball, Farm Boy, Emerald Fields LLC and Los Sueños Farms.
Transactions with Entities Affiliated with
Justin Dye
The Company has participated in several transaction
involving Dye Capital, Dye Cann I and Dye Cann II. Justin Dye, the Company’s Chief Executive Officer, one of our directors, the
largest beneficial owner of the Company’s common stock and Series A Preferred Stock, controls Dye Capital and Dye Capital controls
Dye Cann I and Dye Cann II. Dye Cann I is the largest holder of the Company’s outstanding common stock. Dye Cann II is a significant
holder of the Series A Preferred Stock. Mr. Dye has sole voting and dispositive power over the securities held by Dye Capital, Dye Cann
I, and Dye Cann II.
The Company entered into the Dye Cann I SPA with
Dye Cann I on June 5, 2019, pursuant to which the Company agreed to sell to Dye Cann I up to between 8,187,500 and 10,687,500 shares
of the Company’s common stock in several tranches at $2.00 per share and warrants to purchase 100% of the number of shares of common
stock sold at a purchase price of $3.50 per share. At the initial closing on June 5, 2019, the Company sold to Dye Cann I 1,500,000 shares
of common stock and warrants to purchase 1,500,000 shares of common stock for gross proceeds of $3,000,000, and the Company has consummated
subsequent closings for an aggregate of 9,287,500 shares of common stock and warrants to purchase 9,287,500 shares of common stock for
aggregate gross proceeds of $18,575,000 to the Company. The terms of the Dye Cann I SPA are disclosed in the Company’s Current
Report on Form 8-K filed on June 6, 2019. The Company and Dye Cann I entered into a first amendment to the Dye Cann I SPA on July 15,
2019, as described in the Company’s Current Report on Form 8-K filed on July 17, 2019, a second amendment to the Dye Cann I SPA
on May 20, 2020, as described in the Company’s Current Report on Form 8-K filed on May 22, 2020, and a Consent, Waiver and Amendment
on December 16, 2020, as described in the Company’s Current Report on Form 8-K filed on December 23, 2020. At the time of the initial
closing under the Dye Cann I SPA, Justin Dye became a director and the Company’s Chief Executive Officer.
The Company granted Dye Cann I certain demand
and piggyback registration rights with respect to the shares of common stock sold under the Dye Cann II SPA and issuable upon exercise
of the warrants sold under the Dye Cann II SPA. The Company also granted Dye Can I the right to designate one or more individuals for
election or appointment to the Board and Board observer rights as described under Item 10. Directors, Executive Officers and Corporate
Governance – Board Designation Rights and such disclosure is incorporated herein by reference. Further, under the Dye Cann I SPA,
until June 5, 2022, if the Company desires to pursue debt or equity financing, the Company must first give Dye Cann I an opportunity
to provide a proposal to the Company with the terms upon which Dye Cann I would be willing to provide or secure such financing. If the
Company does not accept Dye Cann I’s proposal, the Company may pursue such debt or equity financing from other sources but Dye
Cann I has a right to participate in such financing to the extent required to enable Dye Cann I to maintain the percentage of the Company’s
common stock (on a fully-diluted basis) that it then owns, in the case of equity securities, or, in the case of debt, a pro rata portion
of such debt based on the percentage of the Company’s common stock (on a fully-diluted basis) that it then owns.
The Company entered into a Securities Purchase
Agreement (the “Dye Cann II SPA”) with Dye Cann II on November 16, 2020 pursuant to which the Company agreed to sell to Dye
Cann II shares of Series A Preferred Stock in one or more tranches at a price of $1,000 per share. The terms of the Dye Cann II SPA are
disclosed in the Company’s Current Report on Form 8-K filed on December 23, 2020. The Company and Dye Cann II entered into an amendment
to the Dye Cann II SPA on December 16, 2020, as described in the Company’s Current Report on Form 8-K filed on December 23, 2020,
a second amendment to the Dye Cann II SPA on February 3, 2021, as described in the Company’s Form 8-K filed on February 9, 2021,
and a third amendment to the Dye Cann II SPA on March 30, 2021, as described under Item 9B of this Report. The Company issued and sold
to Dye Cann II 7,700 shares of Series A Preferred Stock on December 16, 2020, 1,450 shares of Series A Preferred Stock on December 18,
2020, 1,300 shares of Series Preferred Stock on December 22, 2020, 3,100 shares of Series A Preferred Stock on February 3, 2021, 3,800
shares of Series A Preferred Stock on March 2, 2021 and 4,000 shares of Series A Preferred Stock on March 30, 2021. As a result, the
Company issued and sold an aggregate of 21,350 shares of Series A Preferred Stock to Dye Cann II for aggregate gross proceeds of $21,350,000.
The Company granted
Dye Cann II certain demand and piggyback registration rights with respect to the shares of common
stock issuable upon conversion of the Series A Preferred Stock under the Dye Cann II SPA. Further, the Company granted Dye Can II the
right to designate one or more individuals for election or appointment to the Board and Board observer rights as described under Item
10. Directors, Executive Officers and Corporate Governance – Board Designation Rights and such disclosure is incorporated herein
by reference.
On December 16, 2020, the Company entered into
a Secured Convertible Note Purchase Agreement with Dye Capital and issued and sold to Dye Capital a Convertible Note and Security Agreement
in the principal amount of $5,000,000 as described in the Company’s Current Report on Form 8-K filed on December 23, 2020. On February
26, 2021, Dye Capital elected to convert the $5,000,000 principal amount and the $60,250 of accrued but unpaid interest under the Convertible
Promissory Note and Security Agreement under its terms and Dye Capital and the Company entered into a Conversion Notice and Agreement
pursuant to which the Company issued 5,060 shares of Series A Preferred Stock to Dye Capital and also paid Dye Capital $230.97 in cash
in lieu of issuing any fractional shares of Series Preferred Stock upon conversion, as described in the Company’s Current Report
on Form 8-K filed on March 4, 2021.
The Company previously reported the terms of the Series A Preferred
Stock in the Company’s Current Report on Form 8-K filed on December 23, 2020 and under Item 1 of this Report, which disclosure
is incorporated herein by reference.
During the year ended December 31, 2020, the
Company recorded expenses of $66,264 with Tella Digital. During the quarter ended March 31, 2021, the Company recorded expenses of $170,119
with Tella Digital. Tella Digital provides on-premise digital experience solutions for our retail dispensary locations. Mr. Dye serves
as Chairman of Tella Digital and has super majority rights.
Transactions with CRW and Affiliated Entities
On February 26,
2021, the Company entered into a Securities Purchase Agreement (the “CRW SPA”) with CRW pursuant to which the Company issued
and sold 25,350 shares of Series A Preferred Stock to CRW at a price of $1,000 per share for aggregate gross proceeds of $25,350,000.
The transaction made CRW a beneficial owner of more than 5% of the Company’s common stock. The Company granted CRW certain
demand and piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Series A Preferred
Stock under the CRW SPA. On the same date, the Company entered into a letter agreement with CRW, granting CRW the right to designate
one individual for election or appointment to the Board and Board observer rights as described under Item 10. Directors, Executive Officers
and Corporate Governance – Board Designation Rights and such disclosure is incorporated herein by reference. Under the letter agreement,
for as long as CRW has the right to designate a Board member, if the Company, directly or indirectly, plans to issue, sell or grant any
securities or options to purchase any of its securities, CRW has a right to purchase its pro rata portion of such securities, based on
the number of shares of Series A Preferred Stock beneficially held by CRW on the applicable date on an as-converted to common stock basis
divided by the total number of shares of common stock outstanding on such date on an as-converted, fully-diluted basis (taking into account
all outstanding securities of the Company regardless of whether the holders of such securities have the right to convert or exercise
such securities for common stock at the time of determination). Further, under the letter agreement, the Company will pay CRW Capital,
LLC, the sole manager of CRW and a holder of a carried interest in CRW, a monitoring fee equal to $150,000 in monthly installments of
$10,000. On March 14, 2021, the Board appointed Jeffrey A. Cozad as a director to fill a vacancy on the Board. Mr. Cozad is a manager
and owns 50% of CRW Capital, LLC, and he shares voting and disposition power over the shares of Series A Preferred Stock held by CRW.
Mr. Cozad and his family members indirectly own membership interests in CRW. The Company previously reported the terms of the CRW SPA
and the CRW letter agreement in the Company’s Current Report on Form 8-K filed March 4, 2021.
Transactions with Entities Affiliated with Brian Ruden
The Company has participated in several transactions
involving entities owned or affiliated with Brian Ruden, one of its directors and a beneficial owner of more than 5% of the Company’s
common stock.
Between December 17, 2020 and March 2, 2021,
the Company’s wholly-owned subsidiary SBUD, LLC acquired the Star Buds assets on the terms and as described in Note 11. Commitments
and Contingencies and Note 17. Subsequent Events to the Company’s consolidated financial statements included in Item 8 of this
Report and such disclosure is incorporated by reference herein. The Company previously reported the terms of the applicable purchase
agreements and related amendments in the Company’s Current Reports on Form 8-K filed June 8, 2020, September 21, 2020, December
22, 2020, and March 8, 2021.
The aggregate purchase price for the Star Buds
assets was $118,000,000, paid as follows: (i) $44,250,000 in cash at the applicable closings, (ii) $44,250,000 in deferred cash, also
referred to in this Report as “seller note(s),” (iii) 29,500 shares of Series A Preferred Stock, of which 25,075 shares were
issued at the applicable closings and 4,425 shares are held in held in escrow and will be released post-closing to either Star Buds or
the Company depending on post-closing adjustments to the purchase price. In addition, the Company issued warrants to purchase an aggregate
of 5,531,250 shares of the Company’s common stock to the sellers. As of March 31, 2021, the Company owed an aggregate principal
amount of $44,250,000 under the seller notes and accrued but unpaid interest of $425,162. The Company has not paid any principal and has
paid an aggregate of $810,887 of interest on the seller notes as of March 31, 2021. Mr. Ruden’s interest in the aggregate purchase
price for the Star Buds assets is as follows: (i) $13,727,490 in cash at the applicable closings, (ii) $13,727,490 in seller notes, (iii)
9,152 shares of Series A Preferred Stock, of which 7,779 shares were issued at the applicable closings and 1,373 shares are held in held
in escrow and will be released post-closing to either Mr. Ruden or the Company depending on post-closing adjustments to the purchase price.
In addition, the Company issued warrants to purchase an aggregate of 1,715,936 shares of the Company’s common stock to Mr. Ruden
and paid Mr. Ruden an aggregate of $111,824 in interest on his seller notes.
Mr. Ruden was a part-owner of each of the Star
Buds Companies. Mr. Ruden owned 50% of Colorado Health Consultants LLC, 50% of Starbuds Aurora LLC, 50% of Starbuds Pueblo LLC, 50% of
Starbuds Alameda LLC, 48% of SB Arapahoe LLC, 36% of Starbuds Commerce City LLC, 30% of Starbuds Louisville LLC, 25% of Starbuds Niwot
LLC, 16.66% of Lucky Ticket LLC, 15% of KEW LLC, and 10% of LM MJC LLC.
In connection with acquiring the Star Buds assets
for our Pueblo West and Commerce City locations, SBUD LLC entered into a lease with each of 428 S. McCulloch LLC and 5844 Ventures LLC
on substantially the same terms.
Each of the leases is for an initial three-year
term. The lease with 428 S. McCulloch LLC is for the Company’s Pueblo West Star Buds location and was effective on December 17,
2020. The lease with 45844 Ventures LLC is for the Company’s Commerce City Star Buds location and was effective on December 18,
2020. Each lease provides for a monthly rent payment of $5,000. SBUD LLC expect to pay each landlord an aggregate of $180,000 during
the initial term of the leases. During 2020, SBUD LLC made aggregate rent payments of $10,000. Between January 1, 2021 and March 31,
2021, SBUD LLC made aggregate rent payments of $30,000. In addition, SBUD LLC must pay each landlord’s expenses and disbursements
incurred in connection with the ownership, operation, maintenance, repair and replacement of the premises. SBUD LLC has the option to
renew each lease for two additional three-year terms. The rent increase to $5,500 per month during the first three-year renewal period,
and to $6,050 during the second three-year renewal period. The Company has an option to purchase the premises at fair market value at
any time during the lease term and also has a right of first refusal if the landlords desire to sell the premises to a third party.
On December 17, 2020, SBUD, LLC entered into
a Trademark License Agreement with Star Brands LLC under which Star Brands LLC licenses certain trademarks to SBUD, LLC effective as
of the closing of the acquisitions of all of the Star Buds assets. SBUD LLC has no payment obligation under this agreement. Mr. Ruden
is a part-owner of Star Brands LLC.
In connection with the Star Buds acquisitions,
the Company granted Mr. Ruden and Naser Joudeh the right designate individuals for election or appointment to the Board as described
under the Item 10. Directors, Executive Officers and Corporate Governance – Board Designation Rights and such disclosure is incorporated
herein by reference.
Procedures for Approval of Related Party
Transactions
Related party transactions are subject to the
advance review and approval of the Audit Committee and/or the full Board, with advice from outside counsel. In its review, the Audit
Committee and/or Board is provided with full disclosure of the parties involved in the transaction and considers the relationships amongst
the parties and members of our Board and executive officers.
Our bylaws provide that until June 5, 2021, at
least four members of the Board must vote in favor of certain specified actions, including, among others, entering into or be a party
to or making modifications to any transaction with any director or officer of the Company or any “associate” (as defined
in Rule 12b-2 promulgated under the Exchange Act) of any such person (including any family member thereof).
Independence Standards for Directors
Our Board is currently comprised of six members,
and one seat is open at this time. Our Board has affirmatively determined that Mr. Cozad, Mr. Garwood and Mr. Mukharji are each independent
within the meaning of the OTCQX Rules for U.S. Companies. The Board currently has four members on its Audit Committee, three of which
are independent, Mr. Cozad, Mr. Garwood, and Mr. Mukharji which meets the qualification of the OTCQX Rules for U.S. Companies.
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES.
|
The following table sets forth the aggregate
fees billed by BF Borgers, CPA P.C. (“BFB”), our independent registered accounting firm for the fiscal years ended December
31, 2020 and December 31, 2019. These fees are categorized as audit fees, audit-related fees, tax fees, and all other fees. The nature
of the services provided in each category is described in the table below.
|
|
|
2020
|
|
|
2019
|
|
|
Audit fees
|
|
$
|
86,400
|
|
|
$
|
115,000
|
|
|
Audit-related fees
|
|
|
–
|
|
|
|
–
|
|
|
Tax fees
|
|
|
–
|
|
|
|
2,500
|
|
|
All other fees
|
|
|
–
|
|
|
|
–
|
|
|
Total Fees
|
|
$
|
86,400
|
|
|
$
|
117,500
|
|
Audit fees. Consist of fees billed for professional
services rendered for the audit of the consolidated financial statements and review of the quarterly interim consolidated financial statements.
These fees also include the review of registration statements and the delivery of consents in connection with registration statements.
Tax fees. Consists of fees paid to BFB related
to the filings of federal and state returns during the years ended December 31, 2019.
The Audit Committee of our Board has established
its pre-approval policies and procedures, pursuant to which the Audit Committee approved the foregoing audit and tax services provided
by BFB in 2020 and 2019 consistent with the Audit Committee’s responsibility for engaging our independent auditors. The Audit Committee
also considered whether the non-audit services rendered by our independent registered public accounting firm are compatible with an auditor
maintaining independence. The Audit Committee has determined that the rendering of such services is compatible with BFB maintaining its
independence.