EX-99.2 3 medman_ex9902.htm PRO FORMA FINANCIALS

Exhibit 99.2

 

Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Financial Information

 

The unaudited pro forma condensed combined balance sheet as of March 31, 2020 and the unaudited pro forma condensed combined statements of operations for each of the three months ended March 31, 2020 and for the year ended December 31, 2019 combine the financial statements of Medicine Man Technologies, Inc. (“Medicine Man”) and Mesa Organics, Ltd. (“Mesa”) giving effect to the transaction described in the Merger Agreement, as if they had occurred on January 1, 2019 in respect of the unaudited pro forma condensed combined statements of operations and on March 31, 2020 in respect of the unaudited pro forma condensed combined balance sheet.

 

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

 

·Medicine Man’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2019, as contained in the Form 10-K filed on March 31, 2020 with the United States Securities and Exchange Commission (the “SEC”).
·Medicine Man’s unaudited condensed consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2020, as contained in its Quarterly Report on Form 10-Q filed on May 14, 2020 with the SEC.
·Mesa’s audited financial statements as of and for the year ended December 31, 2019, contained elsewhere herein.
·Mesa’s unaudited condensed financial statements as of and for the three months ended March 31, 2020 and 2019, contained elsewhere herein.
·the other information contained in or incorporated by reference into this filing.

 

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

 

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

 

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

 

 

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Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

March 31, 2020

 

   Medicine Man   Mesa   Pro Forma
Adjustments
   Pro Forma Combined 
                 
ASSETS                    
Current assets:                    
Cash and cash equivalents  $9,075,427   $472,445   $(472,445)(A) $6,961,362 
              (2,612,018)(B)    
              497,953 (C)    
Accounts receivable, net of allowance for doubtful accounts   511,984    732,665    (732,665)(A)  985,278 
              473,294 (C)    
Accounts receivable – related party   59,512            59,512 
Inventory   642,689    2,121,253    (2,121,253)(A)  4,379,611 
              3,736,922 (C)    
Note receivable – related party   767,695            767,695 
Other assets   707,706    36,447    (36,447)(A)  707,706 
Prepaid acquisition costs   1,269,367            1,269,367 
Total current assets   13,034,380    3,362,810    (1,266,659)   15,130,531 
Non-current assets:                    
Fixed assets, net accumulated depreciation   541,791    1,638,082    (1,638,082)(A)  1,650,906 
              1,109,115 (C)    
Goodwill   12,304,306        1,837,354 (C)  14,141,660 
Intangible assets, net of amortization   73,641    17,315    (17,315)(A)  2,743,941 
              2,670,300 (C)    
Investment   435,898            435,898 
Accounts receivable - litigation   3,063,968            3,063,968 
Deferred tax assets, net   268,423            268,423 
Notes receivable – noncurrent, net   242,959            242,959 
Operating lease right of use assets   63,925            63,925 
                     
Total non-current assets   16,994,911    1,655,397    3,961,372    22,611,680 
Total assets  $30,029,291   $5,018,207   $2,694,713   $37,742,211 
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
                     
Current liabilities:                    
Accounts payable  $1,182,832   $2,331,141   $(2,331,141)(A) $4,102,933 
              2,920,101 (C)    
Accounts payable – related party   2,500            2,500 
Accrued expenses   1,194,032    637,088    (637,088)(A)  1,194,032 
Derivative liabilities   1,118,783            1,118,783 
Income taxes payable   1,940            1,940 
Total current liabilities   3,500,087    2,968,229    (48,128)   6,420,188 
                     
Non-current liabilities:                    
Lease liabilities   75,838            75,838 
Note(s) payable       196,831    (196,831)(A)   
                     
                     
Total non-current liabilities   75,838    196,831    (196,831)   75,838 
                     
Total liabilities   3,575,925    3,165,060    (244,959)   6,496,026 
                     
Stockholders’ equity:                    
Common stock $0.001 par value. 250,000,000 authorized, 39,952,628 were issued and outstanding at March 31, 2020 and 2,554,750 were issued proforma at March 31, 2020.   39,953        2,555 (D)  42,508 
Additional paid-in capital   51,609,200    1,202,164    (1,202,164)(A)  56,399,464 
              4,790,264 (D)    
Accumulated equity (deficit)   (24,195,787)   404,887    (404,887)(A)  (24,195,787)
Common stock held in treasury, at cost, 257,732 shared held at March 31, 2020.   (1,000,000)           (1,000,000)
Net income       246,096    (246,096)(A)   
Total stockholders’ equity   26,453,366    1,853,147    2,939,672    31,246,185 
                     
Total liabilities and stockholders’ equity  $30,029,291   $5,018,207   $2,694,713   $37,742,211 

 

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

 

 

 

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Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2020

 

   Medicine Man   Mesa   Pro Forma Adjustments   Pro Forma Combined 
                 
Operating revenues                    
Product sales  $2,418,235   $2,678,141   $   $5,096,376 
Product sales – related party   110,696            110,696 
Consulting and licensing services   661,257            661,257 
Other operating revenues   12,946            12,946 
Total revenue   3,203,134    2,678,141        5,881,275 
                     
Cost of goods and services                    
Cost of goods and services   2,148,535    1,869,034        4,017,569 
Total cost of goods and services   2,148,535    1,869,034        4,017,569 
Gross profit   1,054,599    809,107        1,863,706 
                     
Operating expenses                    
Selling, general and administrative   657,763    426,289        1,084,052 
Professional services   1,248,988            1,248,988 
Salaries   1,997,036    36,104        2,033,140 
Stock-based compensation   1,252,731            1,252,731 
Depreciation and amortization expense   9,156    100,618    13,873 (A)   123,647 
                     
Total operating expenses   5,165,674    563,011    13,873    5,742,558 
                     
Income (loss) from operations   (4,111,075)   246,096    (13,873)   (3,878,852)
                     
Other income/expenses                    
Interest income (expense)   48,042            48,042 
Gain on forfeiture of contingent consideration   1,462,636            1,462,636 
Unrealized gain (loss) on derivative liabilities   1,191,963            1,191,963 
Unrealized gain (loss) on investment   29,124            29,124 
                     
Total other income (expense)   2,731,765            2,731,765 
Loss before income taxes   (1,379,310)   246,096    (13,873)   (1,147,087)
Provision for income tax (benefit) expense                
                     
Net income (loss)  $(1,379,310)  $246,096   $(13,873)  $(1,147,087)
                     
(Loss) per share                    
Basic and fully diluted:                    
Weighted average number of shares outstanding   39,952,628         2,554,750 (D)   42,507,378 
                     
(Loss) per share   $(0.03)            $(0.03)

 

See notes to the unaudited pro forma condensed combined financial information

 

 

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Medicine Man Technologies, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2019

 

  

Medicine

Man

   Mesa   Pro Forma
Adjustments
   Pro Forma Combined 
                 
Operating revenues                    
Product sales, net  $6,468,230   $7,843,311   $   $14,311,541 
Product sales – related party, net   1,351,578            1,351,578 
Litigation revenue   1,782,457            1,782,457 
Licensing, consulting and Cultivation Max fees   2,767,649            2,767,649 
Other operating revenues   31,041            31,041 
Total operating revenues   12,400,955    7,843,311        20,244,266 
                     
Cost of goods and services                    
Cost of goods and services   7,616,221    4,110,953        11,727,174 
Total cost of goods and services   7,616,221    4,110,953        11,727,174 
                     
Gross profit   4,784,734    3,732,358         8,517,092 
                     
Operating expenses                    
Selling, general and administrative   2,199,609    863,898        3,063,507 
Professional services   3,357,877            3,357,877 
Salaries, benefits and related expenses   3,567,535    169,357        3,736,892 
Stock-based compensation   7,279,363            7,279,363 
Depreciation and amortization expense   61,708    357,664    100,332 (A)   519,704 
Derivative expense – contingent compensation   5,400,559            5,400,559 
Total operating expenses   21,866,651    1,390,919    100,332    23,357,902 
                     
(Loss) Income from operations   (17,081,917)   2,341,439    (100,332)   (14,840,810)
                     
Other income (expense)                    
Bad debt expense   (151,169)           (151,169)
Gain (loss) on sale of assets       (50,810)       (50,810)
Unrealized gain on derivative liabilities   1,627,177            1,627,177 
Unrealized loss on marketable securities   (1,792,569)           (1,792,569)
Interest expense   (160,195)           (160,195)
Total other expense   (476,756)   (50,810)       (527,566)
                     
Income before income tax expense   (17,558,673)   2,290,629    (100,332)   (15,368,376)
                     
Income tax benefit   582,931            582,931 
Net (loss) income  $(16,975,742)  $2,290,629   $(100,332)  $(14,785,445)
                     
(Loss) per share                    
                     
Basic and fully diluted:                    
Weighted average number of shares outstanding   33,740,557         2,554,750 (D)   36,295,307 
                     
(Loss) per share  $(0.50)            $(0.41)

 

See notes to the unaudited pro forma condensed combined financial information

 

 

 

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Medicine Man Technologies, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(USD and shares in 000’s except for per share amounts)

 

Note 1. Basis of Presentation

 

The unaudited pro forma condensed combined financial information set forth herein is based upon the consolidated financial statements of Medicine Man Technologies, Inc. and Mesa Organics, Ltd. The unaudited pro forma condensed combined financial information is presented as if the transaction had been completed on January 1, 2019 with respect to the unaudited pro forma condensed combined statements of operations for each of the three months ended March 31, 2020 and for the year ended December 31, 2019 and on March 31, 2020 in respect of the unaudited pro forma condensed combined balance sheet.

 

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

 

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

 

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

 

Note 2. Description of the Transaction

 

On April 20, 2020, Medicine Man Technologies, Inc. operating its business under the trade name Schwazze (the “Company”) consummated the merger (the “Merger”) with Mesa Organics, Ltd. (“Mesa”). On April 20, 2020, the Parties entered into an amendment to the Merger Agreement. The aggregate purchase price is $2,643,314 of cash and 2,594,754 shares of the Company’s common stock, par value $0.001 per share. Upon consummation of the Merger, the Company acquired ownership of Mesa’s subsidiaries, which are in the business of owning and operating certain marijuana establishments in the state of Colorado, pursuant to the MED and local license.

 

Note 3. Purchase Price Allocation

 

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

 

Mesa Organics, Ltd. Purchase Price Allocation    
     
Cash  $2,646,314 
Common stock   4,930,033 
Working capital adjustment   (171,510)
Other Non-Interest Bearing Liabilities Assumed   2,920,101 
Total Purchase Consideration  $10,324,938 

 

 

 

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The preliminary allocation for the consideration recorded for the acquisition is as follows:

 

Current assets  $4,708,169 
Net fixed assets   1,109,115 
Intangible assets   2,670,300 
Goodwill   1,837,354 
Total Purchase Consideration  $10,324,938 

 

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

 

Note 4. Pro Forma Adjustments

 

The following pro forma adjustments give effect to the transaction.

 

Unaudited Pro Forma Condensed Combined Balance Sheet – As of March 31, 2020

 

Note A To remove Mesa Organics, Ltd. assets, liabilities, and equity.
Note B To record cash consideration paid.
Note C To record assets acquired and liabilities assumed from Mesa Organics Ltd.
Note D To record common stock issued as consideration.

 

Unaudited Pro Forma Condensed Combined Statement of Operations – For The Three Months Ended March 31, 2020

Note A To record depreciation/amortization expense.

 

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

Note A To record depreciation/amortization expense.

 

 

 

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