Colorado
|
20-8980078
|
(State or other jurisdiction of
|
(I.R.S. Employer Identification No.)
|
Incorporation or organization)
|
|
1350 Independence St., Suite 300
|
|
Lakewood, CO
|
80215
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
Non-accelerated filer ☐
|
Smaller reporting company ☒
|
|
Emerging growth company ☒
|
|
Page
|
PART I - FINANCIAL INFORMATION
|
|
|
|
Item 1 - Financial Statements
|
3
|
|
|
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
|
19
|
|
|
Item 3 – Quantitative and Qualitative disclosures about market risk
|
26
|
|
|
Item 4 – Controls and Procedures
|
26
|
|
|
PART II - OTHER INFORMATION
|
|
Item 1 – Legal Proceedings
|
26
|
Item 2 – Unregistered sales of equity securities and use of proceeds
|
26
|
Item 3 – Defaults upon senior securities
|
27
|
Item 6 – Exhibits
|
27
|
|
|
SIGNATURES
|
28
|
July 31,
2019
|
January 31,
2019
|
||||
ASSETS
|
|||||
Current assets:
|
|||||
Cash
|
$
|
75,020
|
$
|
2,965
|
|
Accounts Receivable, net
|
80,517
|
56,459
|
|||
Inventory
|
56,051
|
29,786
|
|||
Prepaid expenses and other assets
|
7,571
|
19,675
|
|||
Total current assets
|
219,159
|
108,885
|
|||
Property and equipment, net
|
18,415
|
2,767
|
|||
Intangible assets, net
|
8,898
|
9,452
|
|||
Right-of-use asset
|
476,209
|
-
|
|||
Notes receivable and equity-method investments, related parties
|
514,778
|
452,709
|
|||
Total assets
|
$
|
1,237,459
|
$
|
573,813
|
|
LIABILITIES AND STOCKHOLERS’ EQUITY (DEFICIT)
|
|||||
LIABILITIES
|
|||||
Current liabilities:
|
|||||
Accounts payable
|
$
|
324,065
|
$
|
447,626
|
|
Accrued expenses
|
585,658
|
437,388
|
|||
Accrued expenses, related party
|
353,905
|
218,165
|
|||
Advance held in trust for related parties
|
38,245
|
-
|
|||
Loan to related party
|
69,184
|
32,021
|
|||
Deferred revenue
|
196,500
|
192,500
|
|||
Lease liability
|
137,091
|
-
|
|||
Notes payable, current, net of discount
|
647,471
|
274,282
|
|||
Total current liabilities
|
2,352,119
|
1,601,982
|
|||
Lease liability
|
339,664
|
-
|
|||
Long-term loan from related party
|
-
|
48,240
|
|||
Long-term notes payable
|
75,000
|
125,000
|
|||
Total liabilities
|
2,766,783
|
1,775,222
|
|||
Stockholders’ deficit
|
|||||
Common stock, par value $0.00001, 100,000,000 shares authorized, 34,455,876 and 33,792,589 issued and outstanding at July 31, 2019 and January 31,
2019, respectively.
|
345
|
338
|
|||
Additional Paid in Capital
|
8,055,388
|
7,238,361
|
|||
Retained deficit
|
(9,566,200)
|
(8,440,108)
|
|||
Parent’s Stockholder deficit
|
(1,510,467)
|
(1,201,409)
|
|||
Non-controlling interest
|
(18,857)
|
-
|
|||
Total stockholders’ deficit
|
(1,529,324)
|
(1,201,409)
|
|||
Total liabilities and stockholders’ deficit
|
$
|
1,237,459
|
$
|
573,813
|
|
For the three months ended
|
|
For the six months ended
|
||||
|
July 31,
|
|
July 31,
|
||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Consulting Services
|
$ 41,224
|
|
$ 87,436
|
|
$ 61,769
|
|
$ 131,249
|
Product sales
|
13,589
|
|
-
|
|
23,411
|
|
-
|
Cost of consulting services
|
(13,174)
|
|
(2,443)
|
|
(24,641)
|
|
(12,443)
|
Gross profit
|
41,639
|
|
84,993
|
|
60,539
|
|
118,806
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
Rents and other occupancy
|
23,993
|
|
13,500
|
|
41,956
|
|
26,016
|
Compensation
|
146,577
|
|
138,281
|
|
309,469
|
|
284,485
|
Professional, legal and consulting
|
242,769
|
|
35,193
|
|
357,746
|
|
85,089
|
General and administrative
|
162,478
|
|
89,130
|
|
223,438
|
|
141,641
|
Depreciation and amortization
|
908
|
|
434
|
|
1,492
|
|
869
|
Total operating costs and expenses
|
576,725
|
|
276,538
|
|
934,101
|
|
538,100
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
Interest expense
|
(177,111)
|
|
(1,128)
|
|
(244,713)
|
|
(1,740)
|
Other expenses
|
4
|
|
-
|
|
4
|
|
-
|
Impairment on investment
|
-
|
|
-
|
|
(2,739)
|
|
-
|
Loss on investment in affiliate
|
(1,272)
|
|
-
|
|
(23,939)
|
|
-
|
Total other income (expense)
|
(178,379)
|
|
(1,128)
|
|
(271,387)
|
|
(1,740)
|
|
|
|
|
|
|
|
|
Loss from continuing operations, before provision for taxes on income
|
(713,465)
|
|
(192,673)
|
|
(1,144,949)
|
|
(421,034)
|
Provision for taxes on income
|
-
|
|
-
|
|
-
|
|
-
|
Net loss before non-controlling interest
|
(713,465)
|
|
(192,673)
|
|
(1,144,949)
|
|
(421,034)
|
Less: net loss attributable to non-controlling interest
|
(18,857)
|
|
-
|
|
(18,857)
|
|
-
|
Net loss attributable to parent
|
$ (694,608)
|
|
$ (192,673)
|
|
$(1,126,092)
|
|
$ (421,034)
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
|
|
|
|
|
|
Basic earnings and fully diluted loss per common share
|
$ (0.02)
|
|
$ (0.01)
|
|
$ (0.04)
|
|
$ (0.02)
|
|
|
|
|
|
|
|
|
Basic and fully diluted weighted average number of shares outstanding
|
31,203,755
|
|
27,140,550
|
|
31,272,320
|
|
27,140,550
|
For the six months ended July 31,
|
|||||
2019
|
2018
|
||||
Cash flows from operating activities:
|
|||||
Net loss
|
$
|
(1,144,949)
|
$
|
(421,034)
|
|
Depreciation and amortization
|
1,492
|
868
|
|||
Accretion of debt discount
|
182,189
|
-
|
|||
Shares issued for services
|
188,500
|
-
|
|||
Loss from equity investment in unconsolidated subsidiary
|
23,939
|
-
|
|||
Stock based compensation
|
23,067
|
-
|
|||
Changes in assets and liabilities
|
|||||
Accounts receivable
|
(8)
|
(12,257)
|
|||
Inventory
|
(26,265)
|
(17,898)
|
|||
Right-of-use asset
|
546
|
-
|
|||
Notes receivable, related party
|
(215,185)
|
(9,999)
|
|||
Prepaid expenses and other assets
|
12,104
|
(7881)
|
|||
Accounts payable
|
88,739
|
185,069
|
|||
Accrued expenses
|
131,008
|
214,198
|
|||
Deferred revenue
|
4,000
|
45,000
|
|||
Net cash flow used in operating activities
|
(730,823)
|
(23,934)
|
|||
Cash flows from investing activities:
|
|||||
Purchase of fixed assets
|
(8,751)
|
-
|
|||
Proceeds from consolidation of subsidiary
|
665
|
-
|
|||
Net cash flow used in investing activities
|
(8,086)
|
-
|
|||
Cash flows from financing activities:
|
|||||
Proceeds from issuance of stock
|
80,000
|
-
|
|||
Proceeds from debt
|
550,000
|
-
|
|||
Proceeds from related party loans
|
31,048
|
8,765
|
|||
Payments to related party loans
|
(25,084)
|
(12,523)
|
|||
Proceeds from related party loans, restricted cash
|
175,000
|
-
|
|||
Net cash flows from financing activities
|
810,964
|
(3,758)
|
|||
Net cash flows
|
72,055
|
(27,692)
|
|||
Cash and equivalent, beginning of period
|
2,965
|
27,925
|
|||
Cash and equivalent, end of period
|
$
|
75,020
|
$
|
233
|
|
Supplemental cash flow disclosures:
|
|||||
Cash paid for interest
|
$
|
223
|
$
|
1,740
|
|
Non-cash transaction
|
|||||
Shares issued for services
|
$
|
188,500
|
$
|
-
|
|
|
Common Stock
|
|
Additional Capital in excess of par value
|
|
|
|
|
|||
|
Shares
|
Amount
|
|
|
Accumulated Deficit
|
NCI
|
Total
|
|||
Balance, January 31, 2018
|
27,140,550
|
$ 271
|
|
$5,325,413
|
|
$(6,164,832)
|
$ -
|
$ (839,148)
|
||
Net loss
|
-
|
-
|
|
-
|
|
(228,361)
|
-
|
(228,361)
|
||
Balance, April 30, 2018
|
27,140,550
|
$ 271
|
|
5,325,413
|
|
(6,393,193)
|
-
|
(1,067,509)
|
||
Net loss
|
-
|
-
|
|
-
|
|
(192,673)
|
-
|
(192,673)
|
||
Balance, July 31, 2018
|
27,140,550
|
$ 271
|
|
$5,325,413
|
|
$(6,585,866)
|
$ -
|
$(1,260,182)
|
||
|
|
|
|
|
|
|
|
|||
Balance, January 31, 2019
|
33,792,589
|
$ 338
|
|
$7,238,361
|
|
$(8,440,108)
|
$ -
|
$(1,201,409)
|
||
Private share offering
|
80,000
|
1
|
|
41,352
|
|
-
|
-
|
41,353
|
||
Warrants
|
-
|
-
|
|
38,647
|
|
-
|
-
|
38,647
|
||
Stock based compensation
|
-
|
-
|
|
13,181
|
|
-
|
-
|
13,181
|
||
Net loss
|
-
|
-
|
|
-
|
|
(431,484)
|
-
|
(431,484)
|
||
Balance, April 30, 2019
|
33,872,589
|
$ 339
|
|
$7,331,541
|
|
$(8,871,592)
|
$ -
|
$(1,539,712)
|
||
Shares issued for services
|
583,287
|
6
|
188,494
|
-
|
-
|
188,500
|
||||
Beneficial conversion feature on convertible debt
|
-
|
-
|
|
415,000
|
|
-
|
-
|
415,000
|
||
Stock based compensation
|
-
|
-
|
|
9,886
|
|
-
|
-
|
9,886
|
||
Investment in subsidiary
|
-
|
-
|
|
110,467
|
|
-
|
-
|
110,467
|
||
Net loss
|
-
|
-
|
|
-
|
|
(694,608)
|
(18,857)
|
(713,465)
|
||
Balance, July 31, 2019
|
34,455,876
|
$ 345
|
|
$8,055,388
|
|
$ (9,566,200)
|
$ (18,857)
|
$(1,529,324)
|
July 31, 2019
|
January 31, 2019
|
|||
Leasehold improvements
|
$
|
10,951
|
$ 2,200
|
|
Office equipment, furniture and fixtures
|
34,981
|
26,276
|
||
45,932
|
28,476
|
|||
Accumulated amortization and depreciation
|
(27,517)
|
(25,709)
|
||
$
|
18,415
|
$ 2,767
|
||
Trademarks
|
July 31, 2019
|
January 31, 2019
|
Gross carrying amount
|
$ 13,260
|
$ 13,260
|
Accumulated amortization
|
4,362
|
3,809
|
Net intangible assets
|
$ 8,898
|
$ 9,451
|
2019
|
2018
|
|||
Hourly fee contracts
|
$ -
|
$ -
|
||
Fixed fee contracts
|
32,500
|
127,500
|
||
Monthly fee contracts
|
29,269
|
3,749
|
||
$ 61,769
|
$ 131,249
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities.
|
Level 2:
|
Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
|
Level 3:
|
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
For the Fiscal Year Ending
January 31,
|
|
|||
2020
|
|
|
81,727
|
|
2021
|
|
|
140,000
|
|
2022
|
|
|
130,350
|
|
2023
|
|
|
87,600
|
|
2024
|
51,100
|
|||
Thereafter
|
|
|
—
|
|
Total minimum lease payments
|
|
$
|
490,777
|
|
|
|
Number of Warrants
|
|
Exercise Price
|
|
Wtgd Avg Calculation
|
|
Wtgd Avg Remining Life
|
Balance at 1/31/2018
|
|
2,224,700
|
|
$ 5.00
|
|
$ 11,123,500
|
|
1.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
2,000,000
|
|
0.16
|
|
$ 322,000
|
|
|
Exercised
|
|
(311,000)
|
|
0.16
|
|
$ (49,650)
|
|
|
Cancelled
|
|
(2,013,700)
|
|
5.00
|
|
$ (11,091,850)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1/31/2019
|
|
1,900,000
|
|
$ 0.16
|
|
$ 304,000
|
|
1.71
|
|
|
|
|
|
|
|
|
|
Granted
|
|
1,430,000
|
|
1.25
|
|
$ 1,785,000
|
|
|
Exercised
|
|
-
|
|
-
|
|
-
|
|
|
Cancelled
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 7/31/19
|
|
3,330,000
|
|
$ 0.63
|
|
$ 2,089,000
|
|
2.64
|
Expected term (years)
|
5
|
Risk-free interest rate
|
2.73%
|
Volatility
|
218%
|
Expected dividend yield
|
0.00%
|
ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Opportunity Assessment: For a standard fee, we will complete an Opportunity Assessment for a client, which would include financial modeling, completed with our proprietary assessment software.
|
•
|
Application Filing Assistance: Based upon our knowledge of the various rules and regulations of respective state and local jurisdictions, we will provide turn-key application preparation and submission services
for a client, and/or provide consulting assistance to a client who is self-preparing their application.
|
•
|
Branding, Marketing and Administrative Consulting Services: Customers may contract with us to use the Strainwise name, logo and affinity images in their retail store locations. A monthly fee will permit a
branding customer to use the Strainwise brand at a specific location. In addition, we will assist operators in marketing and managing their businesses, setting up new retail locations and general business planning and execution at an hourly
rate. This includes services to establish an efficient, predictable production process, as well as, nutrient recipes for consistent and appealing marijuana strains.
|
•
|
Accounting and Financial Services: For a monthly fee, we will provide customers with a fully implemented general ledger system, with an industry centric chart of accounts, which enables management to readily
monitor and manage all facets of a marijuana medical dispensary and cultivation facility. We will provide bookkeeping, accounts payable processing, cash management, general ledger processing, financial statement preparation, state and
municipal sales tax filings, and state and federal income tax compilation and filings.
|
•
|
Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, and compliance may prove cumbersome. Thus, customers may contract
with us to implement a compliance process, based upon the number and type of licenses and permits for their specific business. We will provide this service on both an hourly rate and stipulated monthly fee.
|
•
|
Lending: We will provide loans to individuals and businesses in the cannabis industry.
|
|
For the three months ended
|
|
|
|
||
|
July 31,
|
|
|
|
||
|
2019
|
|
2018
|
|
Change
|
|
|
|
|
|
|
|
|
Consulting Services
|
$ 41,224
|
|
$ 87,436
|
|
$ (46,212)
|
-53%
|
Product sales
|
13,589
|
|
-
|
|
13,589
|
|
Cost of sales and services
|
(13,174)
|
|
(2,443)
|
|
(10,731)
|
439%
|
Gross profit
|
41,639
|
|
84,993
|
|
(43,354)
|
-51%
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
|
|
Rents and other occupancy
|
23,993
|
|
13,500
|
|
10,493
|
78%
|
Compensation
|
146,577
|
|
138,281
|
|
8,296
|
6%
|
Professional, legal and consulting
|
242,769
|
|
35,193
|
|
207,576
|
590%
|
General and administrative
|
162,478
|
|
89,130
|
|
73,348
|
82%
|
Depreciation and amortization
|
908
|
|
434
|
|
474
|
109%
|
Total operating costs and expenses
|
576,725
|
|
276,538
|
|
300,187
|
109%
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
Interest expense
|
(177,111)
|
|
(1,128)
|
|
(175,983)
|
15601%
|
Other income/(expenses)
|
4
|
|
-
|
|
4
|
100%
|
Impairment on investment
|
-
|
|
-
|
|
-
|
0%
|
Loss on debt conversion
|
-
|
|
-
|
|
-
|
0%
|
Loss on investment in affiliate
|
(1,272)
|
|
-
|
|
(1,272)
|
100%
|
Total other income (expense)
|
(178,379)
|
|
(1,128)
|
|
(177,251)
|
15714%
|
|
|
|
|
|
|
|
Loss from continuing operations, before provision for taxes on income
|
(713,465)
|
|
(192,673)
|
|
(520,792)
|
270%
|
Provision for taxes on income
|
-
|
|
-
|
|
-
|
0%
|
Net loss before noncontrolling interest
|
(713,467)
|
|
(192,673)
|
|
(520,792)
|
270%
|
Less: net loss attributable to noncontrolling interest
|
(18,857)
|
|
-
|
|
(18,857)
|
100%
|
Net loss attributable to parent
|
$ (694,608)
|
|
$ (192,673)
|
|
$ (501,935)
|
261%
|
•
|
Product sales – the Company recognized product sales of merchandise and sale of CBD products from its consolidated subsidiary, Meridian A, LLC.
|
•
|
Professional, legal, and consulting – Professional legal and accounting/consulting services increased during the year due to additional resources used for compliance and the
issuance of shares in-lieu of cash in the amount of $100,000.
|
•
|
General and administrative – Investor relations expenses increased during the period due to issuances of shares in-lieu of cash in the amount of $79,500.
|
•
|
Interest expense – Interest increased as a result of new debt arrangements during the periods, in addition to the amortization of the debt discount in the amount of $141,280.
|
|
For the six months ended
|
|
|
|
||
|
July 31,
|
|
|
|
||
|
2019
|
|
2018
|
|
Change
|
|
|
|
|
|
|
|
|
Consulting Services
|
$ 61,769
|
|
$ 131,249
|
|
$ (69,480)
|
-53%
|
Product sales
|
23,411
|
|
-
|
|
23,411
|
100%
|
Cost of sales and services
|
(24,641)
|
|
(12,443)
|
|
(12,198)
|
98%
|
Gross profit
|
60,539
|
|
118,806
|
|
(58,267)
|
-49%
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
|
|
Rents and other occupancy
|
41,956
|
|
26,016
|
|
15,940
|
61%
|
Compensation
|
309,469
|
|
284,485
|
|
24,984
|
9%
|
Professional, legal and consulting
|
357,746
|
|
85,089
|
|
272,657
|
320%
|
General and administrative
|
223,438
|
|
141,641
|
|
81,797
|
58%
|
Depreciation and amortization
|
1,492
|
|
869
|
|
623
|
72%
|
Total operating costs and expenses
|
934,101
|
|
538,100
|
|
396,001
|
74%
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
Interest expense
|
(244,713)
|
|
(1,740)
|
|
(242,973)
|
13964%
|
Other income/(expenses)
|
4
|
|
-
|
|
4
|
100%
|
Impairment on investment
|
(2,739)
|
|
-
|
|
(2,739)
|
0%
|
Loss on debt conversion
|
-
|
|
-
|
|
-
|
0%
|
Loss on investment in affiliate
|
(23,939)
|
|
-
|
|
(23,939)
|
100%
|
Total other income (expense)
|
(271,387)
|
|
(1,740)
|
|
(269,647)
|
15497%
|
|
|
|
|
|
|
|
Loss from continuing operations, before provision for taxes on income
|
(1,144,949)
|
|
(421,034)
|
|
(723,915)
|
172%
|
Provision for taxes on income
|
-
|
|
-
|
|
-
|
0%
|
Net loss before noncontrolling interest
|
(1,144,949)
|
|
(421,034)
|
|
(723,915)
|
172%
|
Less: net loss attributable to noncontrolling interest
|
(18,857)
|
|
-
|
|
(18,857)
|
100%
|
Net loss attributable to parent
|
$ (1,126,092)
|
|
$ (421,034)
|
|
$ (705,058)
|
167%
|
•
|
Product sales – the Company recognized product sales of merchandise and sale of CBD products from its consolidated subsidiary, Meridian A, LLC. In correlation the company
recognized cost of sales related to products.
|
•
|
Professional, legal, and consulting – Professional legal and accounting/consulting services increased during the year due to additional resources used for compliance and the
issuance of shares in-lieu of cash in the amount of $100,000.
|
•
|
General and administrative – Investor relations expenses increased during the period due to issuances of shares in-lieu of cash in the amount of $79,500.
|
•
|
Interest expense – Interest increased as a result of new debt arrangements during the periods, in addition to the amortization of the debt discount in the amount of $182,189.
|
For the six months
ended July 31,
|
|
|||||||
2019
|
2018
|
|||||||
Consolidated Statements of Cash Flows Data:
|
||||||||
Net cash used in operating activities
|
$
|
(730,823)
|
$
|
(23,934)
|
||||
Net cash used in investing activities
|
(8,086)
|
-
|
||||||
Net cash provided by financing activities
|
810,964
|
(3,758)
|
||||||
Net change in cash
|
$
|
72,055
|
$
|
(27,692)
|
ITEM 3.
|
QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|