Item
10. Directors, Executive Officers and Corporate Governance
Information
about our Directors
Effective
November 28, 2018, pursuant to the Company’s Bylaws, the Company’s Board of Directors (the “Board”) reduced
the size of the Board from five members to three members. The Company’s current directors are set forth below:
|
Name
|
|
Age
|
|
Positions
& Committees
|
|
Anthony
K. McDonald
|
|
60
|
|
Director;
Chief Executive Officer and President
|
|
Timothy
J. Keating
|
|
55
|
|
Chairman
of the Board; Audit Committee
|
|
J.
Taylor Simonton
|
|
74
|
|
Director;
Audit Committee*
|
|
*Chairman
of the committee
|
Certain
information, as of April 23, 2019, with respect to the Company’s current directors, including their names, a brief description
of their recent business experience, including present occupations and employment, certain directorships that each person holds,
and the year in which each person became a director of the Company is set forth below. The business address of each of the directors
is 1780 55th Street, Boulder, Colorado 80301.
|
Name
and Year First Elected Director
|
|
Background
Information and Principal Occupation(s) During Past Five Years and Beyond
|
|
Anthony
K. McDonald (2018)
|
|
Mr.
McDonald was appointed a director on September 12, 2018. On November 28, 2018, Mr. McDonald
was appointed our Chief Executive Officer and President. Mr. McDonald has been involved
in building businesses in the cleantech, energy efficiency and heating, ventilation and
air conditioning (“HVAC”) industries over the past 10 years. From 2008 to
2018, Mr. McDonald led sales and business development as Vice-President—Sales for
Coolerado Corp., a manufacturer and marketer of innovative, energy-efficient air conditioning
systems for commercial, government, and military use. Along with Coolerado’s CEO,
Mr. McDonald was instrumental in growing the business to become an INC. 600 high-growth
company award winner and assisted in raising $15 million of private funding from a cleantech
investment fund. In 2015, Coolerado was acquired by Seeley International, Australia’s
largest air conditioning manufacturer and an innovative global leader in the design and
production of energy-efficient cooling and heating products, where Mr. McDonald served
as National Account Manager. During 2018, Mr. McDonald was the Vice-President—Sales
and an outside advisor for SunTech Drive LLC, a solar energy equipment supplier located
in Boulder, Colorado. He is also the founder and Managing Partner of Cleantechsell.com
and the author of Cleantech Sell: The Essential Guide To Selling Resource Efficient Products
In The B2B Market.
Prior
to joining Coolerado, Mr. McDonald spent over ten years in the private equity industry where he was involved in numerous
transactions in the technology, manufacturing, and power development industries. As a business development officer at
Private Capital Resource Group and MidCoast Investments, national private equity acquisitions groups, and later as founder
and principal of Marz Capital, a specialty finance firm that provided financing for middle market buyouts, Mr. McDonald
has identified, financed, or acquired numerous transactions with total enterprise value in excess of $200 million.
Mr.
McDonald was also a consultant to international banks with KMPG from 1994 to 1997 and served a as director for Keating
Capital, Inc., a publicly-traded business development company that made investments in pre-IPO companies. He currently
serves as a mentor for companies in the Clean Tech Open competition.
Mr.
McDonald is a U.S. Army veteran and a graduate of the U.S. Military Academy at West Point, N.Y. where he earned a B.S.
degree in Engineering and Economics. He also received an M.B.A. degree from the Harvard Business School.
|
|
Timothy
J. Keating (2017)
|
|
Mr.
Keating was appointed Chairman of the Board of Directors on March 14, 2017 and is a member
of the Audit Committee. Mr. Keating brings more than 33 years of Wall Street experience,
including 17 years as the principal owner of Keating Investments, LLC. Mr. Keating also
served on the Equity Capital Formation Task Force and is the chairman of the Denver chapter
of Harvard Alumni Entrepreneurs. Mr. Keating is currently the President of Keating Wealth
Management, LLC, a Denver-area financial planning and investment advisory firm serving
high net worth investors and their families.
Mr.
Keating served as the President, Chief Executive Officer and Chairman of the Board of Directors of Keating Capital, Inc.
from its inception in 2008 to 2015. Mr. Keating was a member of Keating Investments, LLC from its founding in 1997 to
July 1, 2014, when the members of Keating Investments sold 100% of their membership interests to BDCA Adviser, LLC. Mr.
Keating also served as a member of the Investment Committee of Keating Investments from 2008 to 2015. Mr. Keating served
as the President and Chief Executive Officer of Keating Investments from its founding in 1997 to 2015. Mr. Keating previously
served as the President of Keating Securities, LLC, formerly a wholly owned subsidiary of Keating Investments and a Financial
Industry Regulatory Authority, Inc. (“FINRA”) registered broker-dealer, from August 1999 to August 2008. Prior
to founding Keating Investments, Mr. Keating was a proprietary arbitrage trader and also head of the European Equity Trading
Department at Bear Stearns International Limited (London) from 1994 to 1997. From 1990 to 1994, Mr. Keating founded and
ran the European Equity Derivative Products Department for Nomura International Plc in London. Mr. Keating began his career
at Kidder, Peabody & Co., Inc. where he was active in the Financial Futures Department in both New York and London.
Mr.
Keating is a
cum laude
graduate of Harvard College with an A.B. in Economics.
|
|
J.
Taylor Simonton (2017)
|
|
Mr.
Simonton was appointed a director on May 31, 2017 and is the chairman of the Audit Committee.
Mr. Simonton spent 35 years at PricewaterhouseCoopers, LLC (PwC), including 23 years
as a partner in the firm’s Assurance Services, before retiring in 2001. Mr. Simonton
was a partner for seven years in PwC’s National Professional Services Group, which
handles the firm’s auditing and accounting standards, SEC, corporate governance,
risk management and quality matters. He has extensive experience with SEC filings, including
assistance with over 100 initial public offerings during his PwC career.
In
May 2017, he was appointed an independent director, a member of the Audit Committee (elected its Chairman in May 2018)
and a member of the Governance Committee of Master Chemical Corporation (d/b/a Master Fluids Solutions), a developer and
marketer of specialty chemicals. In May 2014, he was elected an independent director and chair of the Audit Committee
of Advanced Emissions Solutions, Inc. (NASDAQ: ADES), a company which provides environmental solutions to customers in
coal-fired power generation, municipal water and other industries primarily through emissions and water purification control
technologies. He currently also serves as a member of the Nominating & Governance Committee and a member of the Activated
Carbon Committee.
From
May 2008 to July 2015, Mr. Simonton served as the lead independent director and chair of the Audit Committee of Crossroads
Capital, Inc. (f/k/a BDCA Venture, Inc. and Keating Capital, Inc.), a publicly-traded closed-end fund regulated as a business
development company under the Investment Company Act of 1940, where he also served as a member of the Valuation Committee
which he chaired from 2008 to 2011. From October 2013 to June 30, 2018, Mr. Simonton served as an independent director,
chair of the Audit Committee and member of the Nominating and Governance Committee of Escalera Resources Co., a natural
gas exploration and development company (OTC: ESCR) and a member of the Compensation Committee from July 2014 to June
30, 2018.
From
October 2008 to January 2014, Mr. Simonton served as an independent director and chair of the Audit Committee of Zynex,
Inc. (OTC: ZYXI), a company that primarily engineers, manufactures, markets and sells its own design of electrotherapy
medical devices used for pain management and rehabilitation. Mr. Simonton served as a director from September 2005 to
May 2013 of Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB), a casual dining restaurant chain operator serving high quality
gourmet burgers where he was a member of the Audit Committee, of which he was chair from October 2005 until June 2009,
and a member of the Nominating and Governance Committee. From January 2003 to February 2007, he also served as a director
and the chair of the Audit Committee of Fischer Imaging Corporation, a public company that designed, manufactured and
marketed medical imaging systems.
Mr.
Simonton served for 10 years until 2015 on the Board of Directors of the Colorado Chapter of the National Association
of Corporate Directors (NACD), where he served over time as its Treasurer, President, and Chairman. He is a Board Leadership
Fellow, NACD’s highest director credential, and was honored as Colorado’s 2014 Outstanding Public Company
Director by the Denver Business Journal and NACD-Colorado.
He
is admitted as an expert witness in accounting, auditing, and corporate governance in U.S. District Court, Colorado Division.
Mr. Simonton is a 1966 graduate of the University of Tennessee - Knoxville with a B.S. in Accounting and is a Certified
Public Accountant, licensed in Colorado.
|
Each
of the directors on our Board of Directors was elected or appointed because he has demonstrated an ability to make meaningful
contributions to our business and affairs, has a reputation for honesty and ethical conduct, has strong communication and analytical
skills, and has skills, experience and background that are complementary to those of our other Board members. Mr. Keating has
extensive financing, investment banking and investor relations experience and other managerial experience with micro- and small-cap
public companies and helping those companies define their business strategies and implementing business plans. Mr. Simonton has
extensive financial reporting, SEC compliance and corporate governance experience. Mr. McDonald has sales, sales and operation
management, and mergers and acquisitions experience and has been involved in the HVAC industry for many years, with an in-depth
knowledge of climate control systems.
Director
Independence
The
Board annually determines each director’s independence, although we are not required to have any independent directors because
the common stock of the Company is not listed on a national exchange. We do not consider a director independent unless the Board
has determined that he has no material relationship with us. We intend to monitor the relationships of our directors and officers
through a questionnaire each director completes no less frequently than annually and updates periodically as information provided
in the most recent questionnaire changes.
In
order to evaluate the materiality of any such relationship, the Board uses the definition of director independence set forth in
Rule 5605(a)(2) promulgated by the Nasdaq Stock Market. The Board has determined that Messrs. Keating and Simonton are independent
directors. Mr. McDonald is not an independent director as a result of his position as an executive officer.
Nominations
for Directors
The
Company has not established a nominating committee. Accordingly, the Board is responsible for identifying individuals qualified
to serve on the Board as directors and on committees of the Board, establishing procedures for evaluating the suitability of potential
director nominees consistent with the criteria approved by the Board, reviewing the suitability for continued service as a director
when his or her term expires and at such other times as the Board deems necessary or appropriate, and determining whether or not
the director should be re-nominated, and reviewing the membership of the Board and its committees and making changes, if any.
In
evaluating director nominees, the Board of Directors will generally consider the following factors:
|
|
●
|
the
appropriate size and composition of our Board of Directors;
|
|
|
|
|
|
|
●
|
whether
or not the person is an “independent” director as defined in Rule 5605(a)(2) promulgated by the Nasdaq Stock Market;
|
|
|
|
|
|
|
●
|
the
needs of the Company with respect to the particular talents and experience of its directors;
|
|
|
|
|
|
|
●
|
the
knowledge, skills and experience of nominees in light of prevailing business conditions and the knowledge, skills and experience
already possessed by other members of the Board of Directors;
|
|
|
|
|
|
|
●
|
familiarity
with national and international business matters and the requirements of the industry in which we operate;
|
|
|
|
|
|
|
●
|
experience
with accounting rules and practices;
|
|
|
●
|
the
desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by
new members; and
|
|
|
|
|
|
|
●
|
all
applicable laws, rules, regulations and listing standards, if applicable.
|
There
are no stated minimum criteria for director nominees, although the Board may consider such factors as it may deem are in the best
interests of the Company and its stockholders. The Board also believes it is appropriate for certain key members of our management
to participate as members of the Board of Directors.
The
Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members
of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered
for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new
perspective. If any member of the Board does not wish to continue in service, or if the Board decides not to re-nominate a member
for re-election, the Board identifies the desired skills and experience of a prospective director nominee in light of the criteria
above, or determines to reduce the size of the Board. Research may also be performed to identify qualified individuals. To date,
we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, nor do we anticipate doing
so in the future.
Stockholder
Communications with Directors
Stockholders
may communicate with the Board by sending a letter to the Corporate Secretary, Surna Inc., 1780 55th Street, Boulder, Colorado
80301. Each communication must set forth the name and address of the stockholder on whose behalf the communication is sent and
should indicate in the address whether the communication is intended for the entire Board, the non-employee directors as a group
or an individual director. Each communication will be screened by the Corporate Secretary or his designee to determine whether
it is appropriate for presentation to the Board or any specified director(s). Examples of inappropriate communications include
junk mail, spam, mass mailings, resumes, job inquiries, surveys, business solicitations and advertisements, as well as unduly
hostile, threatening, illegal, unsuitable, frivolous, patently offensive or otherwise inappropriate material. Communications determined
to be appropriate for presentation to the Board, or the director(s) to whom they are specifically addressed, will be submitted
to the Board or such director(s) on a periodic basis. Any communications that concern accounting, internal control or auditing
matters will be handled in accordance with procedures adopted by the Audit Committee.
Code
of Business Conduct and Ethics
Our
Board has adopted a Code of Business Conduct and Ethics, which is available for review on our website at www.surna.com and is
also available in print, without charge, to any stockholder who requests a copy by writing to us at Surna Inc., 1780 55th Street,
Boulder, Colorado 80301, Attention: Corporate Secretary. Each of our directors, employees and officers, including our Chief Executive
Officer, and all of our other principal executive officers, are required to comply with the Code of Business Conduct and Ethics.
There have not been any waivers of the Code of Business Conduct and Ethics relating to any of our executive officers or directors
in the past year.
Meetings
and Committees of the Board
Our
Board is responsible for overseeing the management of our business. We keep our directors informed of our business at meetings
and through reports and analyses presented to the Board and the committees of the Board. Regular communications between our directors
and management also occur outside of formal meetings of the Board and committees of the Board.
Meeting
Attendance
Our
Board generally holds meetings on a quarterly basis, but may hold additional meetings as required. In 2018, the Board held six
meetings. Each of our directors attended 100% of the Board meetings that were held during the periods when he or she was a director
and 100% of the meetings of each committee of the Board on which he or she served that were held during the periods that he served
on such committee. We do not have a policy requiring that directors attend our annual meetings of stockholders. We did not hold
a 2018 annual meeting of stockholders.
Committees
of the Board of Directors
Our
Board established an Audit Committee on May 31, 2017. The Audit Committee operates pursuant to a charter approved by the Board,
a copy of which is available on our website at
www.surna.com
by written request to the Company at Surna Inc., 1780 55th
Street, Boulder, Colorado 80301, Attention: Corporate Secretary. The charter sets forth the responsibilities of the Audit Committee.
The Audit Committee’s responsibilities include recommending the selection of our independent registered public accounting
firm; evaluating the appointment, compensation and retention of our registered public accounting firm; receiving formal written
statements from our independent registered public accounting firm regarding its independence, including a delineation of all relationships
between it and the Company; reviewing with such independent registered public accounting firm the planning, scope and results
of their audit of our financial statements; pre-approving the fees for services performed; reviewing with the independent registered
public accounting firm the adequacy of internal control systems; reviewing our annual financial statements and periodic filings,
and receiving our audit reports and financial statements. In addition, the Audit Committee’s responsibilities include considering
the effect on the Company of any changes in accounting principles or practices proposed by management or the independent registered
public accounting firm, any changes in service providers, such as the accountants, that could impact the Company’s internal
control over financial reporting, and any changes in schedules (such as fiscal or tax year-end changes) or structures or transactions
that required special accounting activities, services or resources. The Audit Committee is presently comprised of two persons:
Messrs. Keating and Simonton. Each member of the Audit Committee is considered independent under the rules promulgated by the
Nasdaq Stock Market. Our Board has determined that Mr. Simonton is an “audit committee financial expert” as that term
is defined under Item 407 of Regulation S-K of the Securities Act of 1933, as amended (the “Securities Act”). Mr.
Simonton currently serves as Chairman of the Audit Committee. The Audit Committee held six meetings during 2018.
Board
Leadership Structure
The
Board may, but is not required to, select a Chairman of the Board who presides over the meetings of the Board and meetings of
the stockholders and performs such other duties as may be assigned to him by the Board. The positions of Chairman of the Board
and Chief Executive Officer may be filled by one individual or two different individuals. Currently the positions of Chairman
of the Board and Chief Executive Officer are separated. Our Board believes that this structure has allowed Mr. McDonald, Chief
Executive Officer, to focus on our day-to-day business, while allowing Mr. Keating, our Chairman of the Board, to lead the Board
in its fundamental role of providing advice to and independent oversight (including risk oversight) of management.
Our
separated Chairman of the Board and Chief Executive Officer positions are augmented by our independent directors, who comprise
all of our Board committees and meet regularly in executive session without Mr. McDonald or other members of our management present
to ensure that our Board maintains an appropriate level of independent oversight of management.
Board’s
Role in Risk Oversight
While
risk management is primarily the responsibility of the Company’s management team, the Board is responsible for the overall
supervision of the Company’s risk management activities. The Board as a whole has responsibility for risk oversight, and
each Board committee has responsibility for reviewing certain risk areas and reporting to the full Board. The oversight responsibility
of the Board and its committees is enabled by management reporting processes that are designed to provide visibility to the Board
about the identification, assessment, and management of critical risks and management’s risk mitigation strategies in certain
focus areas. These areas of focus include strategic, operational, financial and reporting, succession and compensation and other
areas.
The
Board and its committees oversee risks associated with their respective areas of responsibility. The full Board oversees: (i)
risks and exposures associated with our business strategy and other current matters that may present material risk to our financial
performance, operations, prospects or reputation, (ii) risks and exposures associated with management succession planning and
executive compensation programs and arrangements, including equity incentive plans, and (iii) risks and exposures associated with
director succession planning, corporate governance, and overall board effectiveness. The Audit Committee oversees overall policies
with respect to risk assessment and risk management, material pending legal proceedings involving the Company and other contingent
liabilities, any potential related party or conflict of interest transactions, as well as other risks and exposures that may have
a material impact on our financial statements.
Management
provides regular updates to the Board regarding the management of the risks they oversee at each regular meeting of the Board.
We believe that the Board’s role in risk oversight must be evaluated on a case-by-case basis and that our existing Board’s
role in risk oversight is appropriate. However, we continually re-examine the manners in which the Board administers its oversight
function on an ongoing basis to ensure that they continue to meet the Company’s needs.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our executive officers, directors
and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes
in ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports
filed by such persons.
Based
solely on our review of the copies of such reports furnished to us, we believe that during the fiscal year ended December 31,
2018, all executive officers, directors and greater than 10% beneficial owners of our common stock complied with the reporting
requirements of Section 16(a) of the Exchange Act.
Executive
Officers
Executive
officers are appointed by our Board and serve at its discretion. Set forth below is information regarding our executive officers
as of April 23, 2019.
|
Name
|
|
Age
|
|
Positions
|
|
Anthony
K. McDonald
|
|
60
|
|
Chief
Executive Officer and President; Director
|
Mr.
McDonald’s biographical information is included with such information for the other members of our Board.
Item
11. Executive Compensation
Director
Compensation Program
On
September 12, 2018, the Board approved a revised compensation plan for independent directors. Under this plan, the Company pays
its independent directors an annual cash fee of $30,000, payable quarterly in advance, covering attendance at all regular or special
meetings of the Board or any committee thereof (including telephonic meetings) and any other services provided by them as a director
(other than services as the Chairman of the Board and lead independent director and the Chairman of the Audit Committee). In addition,
on the first business day of January each year, each independent director receives shares of the Company’s common stock
valued at $30,000. Under the prior plan, the independent directors were paid an annual fee of $60,000, payable quarterly in advance,
with 50% paid in cash and 50% paid in shares of the Company’s common stock.
The
Company pays the Chairman of the Board and lead independent director an additional annual fee of $15,000, payable in cash quarterly
in advance. Mr. Keating is currently the Chairman of the Board and is presently designated as the lead independent director.
The
Company pays the Audit Committee Chairman, currently Mr. Simonton, an annual fee of $15,000, payable in cash quarterly in advance,
for his services as the Audit Committee Chairman. There is no additional compensation paid to members of the Audit Committee.
At
the time of initial election or appointment, each independent director also receives an equity retention award in the form of
restricted stock units (“RSUs”), having an aggregate grant date value of $60,000. These RSUs vest 50% at the time
of grant and 50% on the first anniversary of the grant date. Under the prior plan, the equity retention award consisted of non-qualified
stock options and/or shares of common stock in such number as determined by the Board, which vested at 50% at the time of grant
and 50% on the first anniversary of the grant date.
Each
independent director is responsible for the payment of any and all income taxes arising with respect to the issuance of any equity
awarded under the plan.
The
Company also reimburses independent directors for out-of-pocket expenses incurred in attending Board and committee meetings and
undertaking certain matters on the Company’s behalf.
Employee
directors do not receive separate fees for their services as directors.
Under
the Nevada Revised Statutes and pursuant to our charter and bylaws, as currently in effect, the Company may indemnify the Company’s
officers and directors for various expenses and damages resulting from their acting in these capacities. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our officers and directors pursuant to the foregoing provisions,
we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities
Act, and is therefore unenforceable.
The
Company has entered into indemnification agreements with its directors and executive officers. The indemnification agreements
are intended to provide the Company’s directors the maximum indemnification permitted under the Nevada Revised Statutes,
unless otherwise limited by the Company’s charter and bylaws. Each indemnification agreement provides that the Company shall
indemnify the director or executive officer who is a party to the agreement (an “Indemnitee”), including the advancement
of legal expenses, if, by reason of his corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness
in any threatened, pending, or completed proceeding. Each indemnification agreement further provides that the applicable provisions
of the Company’s charter and bylaws regarding indemnification shall control in the event of any conflict with any provisions
of such indemnification agreements.
Director
Compensation Table
The
following table sets forth the compensation earned by or awarded or paid in 2018 to the individuals who served as our independent
directors during such period. While Mr. McDonald received certain compensation as an independent director prior to his appointment
as our Chief Executive Officer, all such compensation received by Mr. McDonald is disclosed in the Summary Executive Compensation
Table below.
|
Name
|
|
Fees
Earned
or Paid in
Cash
(1)
|
|
|
Stock
Awards
(2)
|
|
|
Total
|
|
|
Timothy J. Keating
|
|
$
|
45,000
|
|
|
$
|
30,000
|
|
|
$
|
75,000
|
|
|
J. Taylor Simonton
|
|
$
|
45,000
|
|
|
$
|
30,000
|
|
|
$
|
75,000
|
|
|
(1)
|
Excludes
reimbursement of out-of-pocket expenses.
|
|
(2)
|
Reflects
the dollar amount of the fair value of common stock issued in lieu of cash fees.
|
The
aggregate number of non-qualified stock options and restricted stock unit awards held as of December 31, 2018 by each independent
director are as follows:
|
Name
|
|
Shares
Underlying
Non-Qualified
Stock Options
|
|
|
Shares
Underlying
Restricted
Stock Units
|
|
|
Total
|
|
|
Timothy J. Keating
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
J. Taylor Simonton
|
|
|
900,000
|
|
|
|
–
|
|
|
|
900,000
|
|
Executive
Compensation Philosophy and Objectives
The
Company has not established a compensation committee. Accordingly, the Board is responsible for setting compensation policies
for executive officers which has two fundamental objectives: (i) to provide a competitive total compensation package that enables
the Company to attract and retain highly qualified executives with the skills and experience required for the achievement of business
goals; and (ii) to align certain compensation elements with the Company’s annual performance goals. The Board considers,
with respect to each of the Company’s executive officers, the total compensation that may be awarded, including base salary,
discretionary cash bonuses, annual stock incentive awards, stock options, restricted stock units and other equity awards, and
other benefits and perquisites. Under certain circumstances, the Board may also award compensation payable upon termination of
the executive officer under an employment agreement or severance agreement (if applicable). The Board recognizes that its overall
goal is to award compensation that is reasonable when all elements of potential compensation are considered. The Board believes
that cash compensation in the form of base salary and discretionary cash bonuses provides our executives with short-term rewards
for success in operations, and that long-term compensation through the award of stock options, restricted stock units and other
equity awards aligns the objectives of management with those of our stockholders with respect to long-term performance and success.
The
Board also has historically focused on the Company’s financial condition when making compensation decisions and approving
performance objectives. Because the Company has historically sought to preserve cash and currently does not operate at a profit,
overall compensation traditionally has been weighted more heavily toward equity-based compensation. The Board will continue to
periodically reassess the appropriate weighting of cash and equity compensation in light of the Company’s expenditures in
connection with commercial operations and its cash resources and working capital needs.
Summary
Executive Compensation Table
The
following table summarizes compensation earned by or awarded or paid to our named executive officers for the years ended December
31, 2018 and 2017.
|
Name
and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
(1)
|
|
|
Option
Awards
(1)
|
|
|
Non-equity
Incentive Plan Compensation
|
|
|
Non-qualified
Deferred Compensation Earnings
|
|
|
All
Other Compensation
|
|
|
Total
|
|
|
Anthony
K. McDonald - Chief Executive Officer and President
(2)
|
|
|
2018
|
|
|
$
|
13,154
|
|
|
$
|
-
|
|
|
$
|
30,000
|
|
|
$
|
373,836
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,398
|
|
|
$
|
426,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brandy
M. Keen (former Vice
|
|
|
2018
|
|
|
$
|
174,656
|
|
|
$
|
-
|
|
|
$
|
883,200
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,448
|
|
|
$
|
1,068,304
|
|
|
President
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary)
(3)
|
|
|
2017
|
|
|
$
|
127,070
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,512
|
|
|
$
|
136,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Bechtel (former Chief Executive
|
|
|
2018
|
|
|
$
|
180,000
|
|
|
$
|
125,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,608
|
|
|
$
|
325,608
|
|
|
Officer and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President)
(4)
|
|
|
2017
|
|
|
$
|
63,692
|
|
|
$
|
240,000
|
|
|
$
|
335,700
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
95,400
|
|
|
$
|
734,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
E. Smiens (former Chief Financial Officer, Treasurer and Secretary)
(5)
|
|
|
2018
|
|
|
$
|
71,346
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,342
|
|
|
$
|
74,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aaron
Trent Doucet (former
|
|
|
2018
|
|
|
$
|
40,938
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34,531
|
|
|
$
|
75,469
|
|
|
Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer)
(6)
|
|
|
2017
|
|
|
$
|
168,461
|
|
|
$
|
-
|
|
|
$
|
1,089,900
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
39,095
|
|
|
$
|
1,297,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
C. Kelly (former Chief Financial
|
|
|
2018
|
|
|
$
|
35,102
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35,102
|
|
|
Officer and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasurer)
(7)
|
|
|
2017
|
|
|
$
|
92,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
92,000
|
|
|
(1)
Reflects the dollar amount of the grant date fair value of awards granted in 2017 or 2018, measured in accordance with
FASB Accounting Standards Codification (“ASC”) Topic 718 (“Topic 718”) without adjustment for estimated
forfeitures. For a discussion of the assumptions used to calculate the value of equity awards, refer to Note 16 to our consolidated
financial statements for the fiscal year ended December 31, 2018 included in the Annual Report.
|
|
|
|
(2)
Mr. McDonald was appointed Chief Executive Officer and President in November 2018. Amounts presented include all compensation
for Mr. McDonald for the full 2018 year. Stock awards include restricted stock units awarded in September 2018 as an equity
retainer fee in connection with his appointment as an independent directror in September 2018, net of the restricted stock
units cancelled when Mr. McDonald was apopinted Chief Executive Officer and President. Option awards represent non-qualified
stock options to purchase shares of common stock awarded in November 2018, which are subject to certain to vesting (see Outstanding
Equity Awards table, below). Other compensation includes employer-paid portion of insurance benefits ($349) and cash fees
earned or paid in his capacity as an independent director prior to his appointment as CEO ($9,049).
|
|
|
|
(3)
Ms. Keen was Vice President and Secretary from July 2017 until her resignation in May 2018. Amounts presented include
all compensation for Ms. Keen for the full 2017 and 2018 years. Salary includes sales incentive compensation. Stock awards
represent restricted stock units awarded in 2018 which are subject to vesting (see Outstanding Equity Awards table, below).
Other compensation for 2017 and 2018 includes employer matching contributions under the Company’s 401(k) plan ($3,812
and $6,382, respectively) and employer-paid portion of insurance benefits ($5,700 and $4,066, respectively).
|
|
|
|
(4)
Mr. Bechtel was Chief Executive Officer and President from August 2017 until his resignation in November 2018. Amounts
presented include all compensation for Mr. Bechtel for the full 2017 and 2018 years. Bonus represents incentive stock bonus
earned in 2017 and 2018 per his employment agreement. Stock awards represent restricted stock units awarded in 2017, which
were subject to vesting in 2018 and 2019 based on the Company’s achievement of certain revenue thresholds and were forfeited
upon his resignation. Other compensation for 2017 and 2018 includes consulting fees paid in equity ($81,000 and $0,
respectively) and employer-paid portion of insurance benefits ($1,900 and $4,850, respectively). Other compensation in 2017
also includes compensation earned or paid in his capacity as an independent director prior to his appointment as CEO: (i)
cash fees of $10,000, and (ii) cash fees of $2,500 paid in equity. Other compensation for 2018 also includes $15,758 for the
gross-up on certain withholding taxes paid by the Company related to equity awards.
|
|
|
|
(5)
Mr. Smiens was Chief Financial Officer and Treasurer from July 2018, and Secretary from September 2018, until his termination
of employment in December 2018. To the Company’s knowledge, Mr. Smiens had no disagreement with the Company on any matters
relating to the Company’s operations, policies or practices. Amounts presented include all compensation for Mr. Smiens
for the full 2018 year. Other compensation for 2018 includes employer matching contributions under the Company’s 401(k)
plan ($1,616) and employer-paid portion of insurance benefits ($1,726).
|
|
|
|
(6)
Mr. Doucet served as President and Chief Executive Officer from June 2016 until his resignation in August 2017. From
August 2017 until March 2018, Mr. Doucet served as the Company’s Vice President of Business Development. Amounts presented
include all compensation for Mr. Doucet for the full 2017 and 2018 years. Salary includes sales incentive compensation. Stock
awards represent restricted stock units awarded in 2017, which vested in 2018 but have not been settled due to the failure
of Mr. Doucet to pay the required withholding taxes. The Company has commenced litigation against Mr. Doucet to have these
restricted stock units canceled. Other compensation for 2017 includes a moving allowance paid in connection with his relocation
to California ($28,000), a car allowance ($5,095) and employer-paid portion of insurance benefits ($6,000). Other compensation
for 2018 includes a car allowance ($3,323) and the gross-up on certain withholding taxes paid by the Company related to equity
awards ($31,208).
|
|
|
|
(7)
Mr. Kelly was Chief Financial Officer and Treasurer from August 2017 until his resignation in January 2018.
|
Outstanding
Equity Awards
The
following table sets forth certain information regarding outstanding equity awards held by our named executive officers as of
December 31, 2018.
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options Unexercisable
|
|
|
Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised Unearned Options
|
|
|
Option
Exercise Price
|
|
|
Option
Expiration Date
|
|
|
Number
of Shares or Units of Stock That Have Not Vested
|
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
(1)
|
|
|
Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
|
|
|
Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(1)
|
|
|
Anthony
K. McDonald
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
|
$
|
0.089
|
|
|
|
11/28/2028
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brandy M. Keen
(3)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,800,000
|
|
|
$
|
207,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Bechtel
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark E. Smiens
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aaron Trent Doucet
(4)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul C. Kelly
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
(1)
Calculated by multiplying the number of unvested shares by $0.074, the closing price per share of our common stock as
reported by the OTCQB on December 31, 2018.
|
|
|
|
(2)
On November 28, 2018, the Company granted to Mr. McDonald non-qualified stock options to purchase 5,000,000 shares of
common stock under the Company’s 2017 Equity Incentive Plan, of which: (i) 1,000,000 options vested and became
exercisable on the grant date, (ii) 2,000,000 options vest and become exercisable on December 31, 2019, if he continues
to be employed by the Company on that date, and (iii) 2,000,000 options vest and become exercisable on December 31, 2020,
if he continues to be employed by the Company on that date.
|
|
|
|
(3)
On May 29, 2018, the Company granted to Ms. Keen 4,800,000 restricted stock units under the Company’s 2017 Equity
Incentive Plan, of which: (i) 1,000,000 RSUs vested on June 30, 2018 and have been settled through the issaunce of
shares; (ii) 1,000,000 RSUs vested on December 31, 2018 and have been settled through the issuance of shares; (iii) 1,000,000
RSUs will vest on June 30, 2019, subject to her continued employment through the vesting date, (iv) 1,000,000 RSUs will vest
on December 31, 2019, subject to her continued employment through the vesting date, and (v) 800,000 RSUs will vest on April
30, 2020, subject to her continued employment through the vesting date.
|
|
|
|
(4)
On August 17, 2017, the Company granted to Mr. Doucet 9,000,000 restricted stock units, which vested in 12 equal installments
(750,000 units per installment) commencing on the first business day of January 2018 and continuing on the first business
day of each of the next 11 calendar months. These vested RSUs have not been settled due to the failure of Mr. Doucet to pay
the required withholding taxes. The Company has commenced litigation against Mr. Doucet to have these restricted stock units
canceled.
|
Compensation
Arrangements with Named Executive Officers
The
following summarizes the employment agreement that the Company has entered into with Mr. McDonald and Ms. Keen, as of December
31, 2018.
Anthony
K. McDonald
On
November 28, 2018, the Company entered into an employment agreement with Mr. McDonald, the Company’s Chief Executive Officer
and President. The initial term of the employment agreement commenced on November 28, 2018 and will continue until December 31,
2020. However, the Company and Mr. McDonald may terminate the employment agreement, at any time, with or without cause, by providing
the other party with 30-days’ prior written notice. In the event Mr. McDonald’s employment is terminated by the Company
during the initial term without cause, Mr. McDonald will be entitled to receive his base salary for an additional 30 days. Following
the initial term, the Company and Mr. McDonald may extend the employment agreement for additional one-year terms by mutual written
agreement. Under the employment agreement, Mr. McDonald will receive an annualized base salary of $180,000.
Under
the employment agreement, the Board approved an award of non-qualified stock options to purchase 5,000,000 shares of the Company’s
common stock under the Company’s 2017 Equity Incentive Plan, as may be modified and amended by the Company from time to
time (the “2017 Equity Plan”), which vest as follows: (i) 1,000,000 options vested and become exercisable on the grant
date, (ii) 2,000,000 options vest and become exercisable on December 31, 2019, if Mr. McDonald continues to be employed by the
Company on that date, and (iii) 2,000,000 options vest and become exercisable on December 31, 2020, if Mr. McDonald continues
to be employed by the Company on that date. The exercise price of these options is $0.089, based on the closing of the Company’s
common stock on November 27, 2018.
In
the event of a change of control involving the Company, any non-qualified stock options not already vested will become vested,
provided Mr. McDonald continues to provide services to the Company on the date immediately preceding the date of the change of
control.
In
consideration of the grant of the non-qualified stock options, Mr. McDonald agreed to cancel 197,368 RSUs, which were granted
to him as an equity retention award in connection with Mr. McDonald’s appointment to the Board on September 12, 2018 and
which had not vested as of November 28, 2018.
Brandy
M. Keen
On
October 10, 2017, the Company entered into an employment agreement with Ms. Keen, the Company’s Vice President, Secretary
and Senior Technical Advisor. Under the employment agreement, Ms. Keen was entitled to receive an annualized base salary of $150,000
and was eligible to participate in the Company’s sales incentive program for sales personnel, as in effect and as amended
from time to time by the Company (the “Sales Program”). In connection with the Sales Program, Ms. Keen was entitled
to a sales incentive equal to one-quarter of one percent (0.25%) of the revenue collected and earned from the Company’s
sales, payable quarterly in arrears.
In
May 2018, the Company and Ms. Keen entered into, an amended and restated employment agreement, which will expire on April 30,
2020. However, the Company and Ms. Keen may terminate the revised employment agreement, at any time, with or without cause, by
providing the other party with 30-days’ prior written notice. The revised employment agreement provides for an annualized
base salary of $150,000 and the continuation of the quarterly sales incentive.
Under
the revised employment agreement, the Board approved an award of 4,800,000 RSUs to Ms. Keen under the Company’s 2017 Equity
Incentive Plan that vest as follows: (i) 1,000,000 RSUs vested on June 30, 2018, subject to her continued employment through the
vesting date, (ii) 1,000,000 RSUs vested on December 31, 2018, subject to her continued employment through the vesting date, (iii)
1,000,000 RSUs will vest on June 30, 2019, subject to her continued employment through the vesting date, (iv) 1,000,000 RSUs will
vest on December 31, 2019, subject to her continued employment through the vesting date, and (v) 800,000 RSUs will vest on April
30, 2020, subject to her continued employment through the vesting date. The revised employment agreement provides that the foregoing
RSUs would continue to vest if Ms. Keen’s employment is terminated by the Company without cause. In the event of a change
of control involving the Company, any RSUs not already vested will become vested, provided Ms. Keen continues to provide services
to the Company on the date immediately preceding the date of the change of control.
In
connection with the revised employment agreement, Ms. Keen agreed to extend the post-termination restrictive period from one year
to two years from the date of termination or expiration and resigned as an executive officer and director of the Company effective
May 10, 2018.
Item
13. Certain Relationships and Related Transactions, and Director Independence
Transactions
with Related Parties
Amounts
Due to Stockholders
In
July 2014, the Company issued a $250,000 unsecured promissory note (“Hydro Note”) to Ms. Keen and Stephen Keen as
part of the purchase price of Hydro. Mr. Keen is a principal shareholder of the Company and was a former executive officer and
director, and was formerly a consultant to the Company (see below). Ms. Keen, the spouse of Mr. Keen, is also a principal shareholder
of the Company and previously served as an executive officer and director of the Company (see above). As of December 31, 2017,
the Hydro Note had a balance of $6,927, which was paid in full during 2018.
Stephen
Keen Consulting Agreement
In
May 2017, the Board approved a three-year consulting agreement under which Mr. Keen agreed to provide certain consulting services
to the Company including research and development, new product design and innovations, existing product enhancements and improvements,
and other technology advancements with respect to the Company’s business and products in exchange for an annual consulting
fee of $30,000. Pursuant to the terms of the consulting agreement, the Company recorded consulting fees of $10,000 and $20,000
payable to Mr. Keen during the years ended December 31, 2018 and 2017, respectively. In May 2018, the Company and Mr. Keen entered
into an agreement, which terminated the consulting agreement.
Sterling
Pharms Equipment Agreement
In
May 2017, the Board approved a three-year equipment, demonstration and product testing agreement between the Company and Sterling
Pharms, LLC (“Sterling”), an entity controlled by Mr. Keen, which operates a Colorado-licensed cannabis cultivation
facility. Under this agreement, the Company agreed to provide to Sterling certain lighting, environmental control, and air sanitation
equipment for use at the Sterling facility in exchange for a quarterly fee of $16,500. Also, under this agreement, Sterling agreed
to allow the Company and its existing and prospective customers to have access to the Sterling facility for demonstration tours
in a working environment, which the Company believes will assist it in the sale of its products. Sterling also agreed to monitor,
test and evaluate the Company’s products installed at the Sterling facility and to collect data and provide feedback to
the Company on the energy and operational efficiency and efficacy of the installed products, which the Company intends to use
to improve, enhance and develop new or additional product features, innovations and technologies. In consideration for access
to the Sterling facility to conduct demonstration tours and for the product testing and data to be provided by Sterling, the Company
will pay Sterling a quarterly fee of $12,000.
In
March 2018, the Company and Sterling entered into an amendment of the original agreement to include additional leased equipment
and to increase the quarterly fee payable to the Company to $18,330. The amendment of the original agreement also provided that,
upon expiration of the initial three-year term, either: (i) the leased equipment would be returned to the Company and the agreement
would terminate, (ii) Sterling could purchase the leased equipment at the agreed upon residual value of $81,827, or (iii) Sterling
and the Company could agree to an extension of the original agreement at mutually agreed to quarterly payments to and from the
parties.
Sterling
accepted delivery of the leased equipment and completed installation of the equipment at its facility on May 1, 2018. Accordingly,
the term of this agreement commenced May 1, 2018 and will expire April 30, 2021. After giving effect to the amended quarterly
equipment lease fees payable to the Company of $18,330 and the quarterly demonstration and testing fees payable to Sterling of
$12,000, the Company will receive a net payment of $6,330 from Sterling each quarter.
Company
Purchase of Common Stock from Stephen and Brandy Keen
In
May 2018, the Company and the Keens entered into a stock repurchase agreement, pursuant to which the Company agreed to repurchase
from the Keens certain shares of the Company’s common stock, subject to the closing of a private placement offering to accredited
investors of the Company’s common stock, which occurred during the second quarter of 2018. In June 2018, the Company closed
the transaction under the stock repurchase agreement and repurchased 3,125,000 shares of the Company’s common stock from
the Keens for a total purchase price of $400,000.
Company
Purchase of Preferred Stock from Stephen and Brandy Keen
In
May 2018, the Company and the Keens entered into a preferred stock option agreement under which the Company had the right, but
not the obligation, to acquire all 35,189,669 shares of preferred stock owned by the Keens (the “Preferred Stock”)
on or before April 30, 2020. Pursuant to the preferred stock option agreement, upon exercise of the option by the Company, the
Company agreed to issue one share of the Company’s common stock for each 1,000 shares of Preferred Stock purchased by the
Company. As consideration for the Keens’ grant of the option, the Company paid them $5,000. The Company exercised this option
and, in December 2018, completed the repurchase by the Preferred Stock and issued 35,190 shares of the Company’s common
stock to the Keens.
***************
During
2018, except as discussed above, there have been no transactions in which the Company was or is a participant, and there are no
currently proposed transactions in which the Company is to be a participant, in which the amount involved exceeds the lesser of
$120,000 or 1% of the Company’s average assets at year-end for the last two completed fiscal years, and in which any director,
executive officer or beneficial holder of more than 5% of any class of our voting securities or member of such person’s
immediate family had or will have a direct or indirect material interest.
Company
Policy Regarding Related Party Transactions
The
Company has procedures in place for the review, approval and monitoring of transactions involving the Company and certain persons
related to the Company. For example, the Company has a code of business conduct and ethics that generally prohibits any employee,
officer or director from engaging in any transaction where there is a conflict between such individual’s personal interest
and the interests of the Company. Waivers to the code of business conduct and ethics can generally only be obtained from the Board
and are publicly disclosed as required by applicable law and regulations.
In
addition, the charter of the Audit Committee of our Board tasks the Audit Committee with reviewing all related party transactions
for potential conflict of interest situations on an ongoing basis (if such transactions are not reviewed and overseen by another
independent body of the Board). In accordance with that policy, the Audit Committee’s general practice is to review and
oversee any transactions that are reportable as related party transactions under the Financial Accounting Standards Board (“FASB”)
and SEC rules and regulations. Management advises the Audit Committee and the full Board on a regular basis of any such transaction
that is proposed to be entered into or continued and seeks approval.
Item
14. Principal Accountant Fees and Services
On
November 28, 2017, the Audit Committee engaged Anton Collins Mitchell LLP (effective January 1, 2019, Anton Collins Mitchell LLP
changed its legal name to ACM LLP) (“ACM”) as the Company’s independent registered public accounting firm for
the fiscal year ended December 31, 2017 replacing RBSM LLC (“RBSM”). RBSM acted as the Company’s independent
registered public accounting firm for the fiscal year ended December 31, 2016 and reviewed the Company’s financial statements
included in the Company’s quarterly reports filed on Form 10-Q for 2017. ACM also acted as the Company’s independent
registered public accounting firm for the fiscal year ended December 31, 2018.
ACM
has advised us that neither the firm nor any present member or associate of it has any material financial interest, direct or
indirect, in the Company or its affiliates.
The
following table summarizes the fees of ACM (and its predecessor, RBSM), our independent registered public accounting firm, for
the years ended December 31, 2018 and 2017, respectively:
|
|
|
2018
|
|
|
2017
|
|
|
|
|
ACM
|
|
|
ACM
|
|
|
RBSM
|
|
|
Audit Fees
|
|
$
|
135,000
|
|
|
$
|
125,000
|
|
|
$
|
60,800
|
|
|
Audit-Related Fees
|
|
|
-
|
|
|
|
4,162
|
|
|
|
12,500
|
|
|
Tax Fees
|
|
|
19,500
|
(1)
|
|
|
-
|
|
|
|
7,500
|
(2)
|
|
Other Fees
|
|
|
-
|
|
|
|
5,451
|
|
|
|
-
|
|
|
Total
|
|
$
|
154,500
|
|
|
$
|
134,613
|
|
|
$
|
80,800
|
|
|
(1)
Tax fees in 2018 relate to tax returns for the 2017 year
|
|
(2)
Tax fees in 2017 relate to tax returns for the 2015 and 2016 years
|
Audit
Fees
. Audit fees consist of fees billed by our independent registered public accounting firms for professional services rendered
in connection with the audit of our annual consolidated financial statements, and the review of our consolidated financial statements
included in our quarterly reports.
Audit-Related
Fees
. Audit-related services consist of fees billed by our independent registered public accounting firms for assurance and
related services that are reasonably related to the performance of the audit or review of the Company’s financial statements
and are not reported under “Audit Fees.” These services include the review of our registration statements on Forms
S-8.
Tax
Fees
. Tax fees consist of fees billed by our independent registered public accounting firms for professional services rendered
for tax compliance, tax planning and tax advice. These services include assistance regarding federal, state, and local tax compliance.
All
Other Fees
. All other fees would include fees for products and services other than the services reported above.
Pre-Approval
Policy
Our
Audit Committee pre-approves all services to be provided by our independent registered public accounting firm. Since the formation
of our Audit Committee in May 2017, all fees paid to our independent registered public accounting firm for services were pre-approved
by our Audit Committee.