NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
Organization and Nature of Operations:
Business Description
–
Business Activity:
Medicine Man Technologies Inc. (the "Company") is a Nevada corporation incorporated on
March 20, 2014. The Company is a cannabis consulting company providing services related to cost efficient cannabis cultivation
technologies focusing on quality as well as safety, retail operations related to the delivery of cannabis related products, and
other related business lines as described in our operating strategic vision outlines below.
Brand Warehouse Development
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The Company intends to aggregate new business opportunities into its corporate fabric in a manner that does not diminish the various
companies or brands it is partnering with, but rather enhances it. Suitable candidates for consideration will have ongoing operations
within various industry segments, such as the Denver Consulting Group LLC. Over time, the Company expects to expand its presence
within the industry through the development of an ‘intelligent acquisition’ process.
Intelligent Acquisition
–
This
term is meant to define a selection and due diligence process that will enable both the Company as well as the acquisition to benefit
mutually in that each may better 1) establish a more stable method of continual valuation through direct contact with the public
marketplace wherein with the related growth of the enterprise as a whole it will eventually be able to achieve a national exchange
listing status, 2) market themselves collectively thus taking advantage of certain cost savings strategies through shared participation
in various events and advertising opportunities, 3) take advantage of other operating and reporting cost efficiencies available
to the Company through aggregation of such acquisitions, 4) continue to work develop a full spectrum of products and services deliverable
to the general cannabusiness marketplace through careful segmentation of the marketplace as a whole, and 5) continue to work collaboratively
within the industry to achieve both transparency as well as a strong positive reputation for ethical behavior when working both
internally within its collective as well as externally with others in the industry.
Our Three Current Business Groups
As we evolve our various business lines and
branding strategies, we are working to align our service offerings into logical groupings (3 at this time) that will allow our
potential clients as well as investors a better understanding of how we operate currently as well as into the future. In FY 2017,
we intend to break down our income in the following groupings so that our shareholders as well as possible investors may have a
better understanding of our general operations.
As the industry’s competitive landscape
is very fluid and conditions within both new states as well as existing states with cannabis related regulations are everchanging,
we price our services according to market conditions as well as competitive influences and are continually managing our pricing
structures on a very frequent basis to insure a best rate to value ratio is clearly maintained.
Since general consulting and new state initiatives
typically involve these elements and are generally related to the startup phase of any new cannabis business in a new state adopting
either medical or adult use initiative, we have elected to include these elements in one grouping. The specifics of these newly
established groups are as follows:
Education, Design, Business Plan, and
New State Initiatives (Group 1)
Private Consultation Services
We expect these services to augment our existing
Seminar offerings and over time replace most of our local seminar offerings all together.
2-Hour Private Consulting Package
This package is designed for individuals and
business owners that are interested in becoming involved in the cannabis industry but need more guidance and personal consultation
when working to advance their own goals and industry knowledge in order to increase their chances of success in this burgeoning
industry. The 2-Hour Private Consultation Package includes a private One-on-One consultation with our consulting staff and/or ownership,
as well as a private full tour of both our Medical and Adult Use Dispensary Operations and Medicine Man’s 40,000 square foot
cultivation facility.
This package sets the foundation for groups
considering entering the cannabis space by providing real world examples of projects and cannabis industry marketplaces that we
have worked within to provide clients with fact based information from which to build their business outlooks from. The 2-Hour
Private Consultation is also the main entry point for clients considering our services to have the opportunity to sit down with
our team and learn more about our Licensing Services. Consultation fees collected are credited back to clients who proceed with
our Full Licensing Packages.
Details:
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Initial phone call prior to consultation/tour to discuss client’s outlook for client’s
future operations to prepare consulting team for client’s upcoming visit
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60-minute private consultation at Medicine Man Technologies Headquarters in Denver, CO.
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60-minute private tour of Medicine Man Production Company’s Dispensary and Cultivation Operations
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Monthly E-Newsletter with Cultivation, Dispensary and Investment Tips
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Exclusive invites to events, workshops and boot camps hosted by Medicine Man Technologies
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When Client is under contract by Medicine Man Technologies for Licensing Services, Client will
be credited back their initial consultation fee to be applied towards their licensing fees.
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Recommended for:
Individuals and business owners that need more
guidance and personal consultation when working to advance their own goals in the cannabis industry and to increase their business’s
success.
3-Hour Private Consulting Package
Operating in the emerging cannabis industry
requires experienced partners who can help Clients avoid costly mistakes. Our team of professional consultants help clients navigate
the process of becoming successful cannabis operators. Using our personal experience, expertise and proven methods, Clients may
avoid many of the costly pitfalls of entering and operating in the space and maximize their return on investment. This package
includes a private One-on-One consultation with our consulting staff and/or Ownership, a private full tour of both our Medical
and Adult Use Dispensary Operations and Medicine Man’s 40,000 square foot cultivation facility, a basic Pro Forma to aid
in Clients financial modeling, a copy of the Three-A-Light Cultivation Manual by Josh Haupt (a $500 value), and a Success Nutrients
Starter Kit (a $320 Value).
Details:
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Initial phone call prior to consultation/tour to discuss client’s outlook for client’s
future operations to prepare consulting team for client’s upcoming visit
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60-minute private consultation at our headquarters in Denver, CO.
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60-minute private tour of Medicine Man Production Company’s Dispensary and Cultivation Operations
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60-minute private tour of the Three-A-Light cultivation facility
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Base pro forma to use for financial modeling purposes
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A Three-A-Light cultivation book/manual ($500 value)
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Success Nutrients Starter Kit (a $320 value)
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Monthly E-Newsletter with Cultivation, Dispensary and Investment Tips
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Exclusive invites to events, workshops and boot camps hosted by us
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When a client is under contract to receive our licensing services, a client will be credited back
their initial consultation fee to be applied towards their licensing fees.
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Recommended for: Individuals and business owners
who:
Are current cannabis cultivators but are not
producing the yields and consistency they could be and need guidance from our senior consultants and lead cultivation staff members
on how to improve their performance and efficiencies … or
Entrepreneurs who are interested in the cannabis
industry and have the capital, connections and passion to become operators in the cannabis space but do not have intimate knowledge
about the industry and need guidance in several areas in order to being the state licensure process. We provide these client groups
with high level guidance as it pertains to such things as complex state application processes, facility design, financial modeling,
security, cultivation methodologies, pesticide and nutrient management plans, dispensary operations, inventory management, packaging
and labeling and much more.
We also offer customized consulting services
on a project needs basis related to
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Business Plan Generation
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Customized Bid Based Service Offerings, Specific State Regulation Based
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Seminar Offering Services
We offer seminars in emerging markets and at
our facilities in Denver, CO. The crash course seminars are designed to educate participants about the requirements associated
with becoming licensed operators in their own geographic market, and include guidance and tips on navigating:
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Medical and Recreational Market Trends
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Cultivation Methodologies and Technology
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Processing Methodologies and Technology
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Operating Pros and Cons
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Banking, Tax, and Finance
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Real Estate Planning and Tips
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License Application Planning and Tips
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Advocacy, Outreach, Lobbying
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The Denver-based seminars end with a tour of
Medicine Man’s cultivation and dispensary facilities, allowing participants to get a first-hand view of a fully compliant
medical and recreational cultivation and dispensary operation.
We have been asked to provide key support and
informational segments for various local, regional, and national events and continues to work to maintain our industry presence
through such event participation. We have already scheduled specialty seminars in North Carolina, Arkansas, Pennsylvania, and Michigan
during FY 2017 and expects to add additional events throughout the year.
Facility Design
We have experience designing indoor grows,
greenhouse grows, and hybrid growing facilities as well as retail dispensaries. Our design team consists of an architect and a
contracting firm that have a wealth of knowledge in the medical and recreational cannabis cultivation and retail space; having
designed and constructed numerous facilities throughout the state of Colorado and other markets. Our team will collaborate with
a client’s local architect and general contractor to develop an optimal design and construction plan that will meet all IBC
and zoning codes as well as support the Variable Capacity Continuous Harvest model. Our team will provide all reference drawings,
lighting, tables, shelving specs and any other pertinent intellectual property, developed and refined by Medicine Man Denver.
We also have experience in supporting multiple
facility layouts and deployments, including both existing and new buildings. We have worked through both deployments and have extensive
knowledge within industrial building environments. Our documented designs and floor plans ensure your facility will operate at
maximum efficiency from day one, avoiding the multitude of costly mistakes made by many cannabis startups.
We have just hired a full time interior design
professional with a substantial commercial space planning background that will enable our team to become more valuable in that
we can now provide CAD file design guidance.
Financial Modeling
We assist clients with financial modeling and
pro forma financial statement development which is a critical activity for every cannabis business irrespective of its age and
size. For new enterprises, especially in the cannabis industry, the preparation of financial projections is integral to the business
planning process.
Financial models are used to compile forecasts
and budgets; to assess possible funding requirements; and to explore the likely financial consequences of alternative funding,
marketing or operational strategies. They can also be used for business planning, raising finance, investment or funding appraisals,
financial analysis, corporate planning etc. Used effectively, a financial model can help prevent major planning errors; identify
or evaluate opportunities; attract external funding; provide strategic guidance; evaluate financial and development options; monitor
progress etc.
New State Application Process Support Services
(Template Support Based)
Our primary objective is to help clients deliver
a positive customer experience with the utmost attention to product, public, and patient safety. We provide education to our clients
as to how to produce the highest quality products with the lowest cost of production, delivered to customers with great customer
service on a consistent and safe basis.
Through our providing basic application support
guidance elements, we support client’s efforts in pursuit of state-issued operating license. Our team provides a cultivation
and/or dispensary element (once known) as may be needed to demonstrate sufficiency within an application. Our proven application
support experience has successfully distinguished our client's applications in this emerging industry.
We have experience working within both competitive
and non-competitive application environments. We have navigated the application process in several states, including: Colorado,
Nevada, Illinois, New York, Maryland, Hawaii, Pennsylvania and Puerto Rico. As each state handles the process differently, we bring
a wealth of knowledge and experience in working through an application and believe in an "on the ground" approach –
ensuring clients receive support when it matters most. As a result, our clients have successfully filed winning cultivation and
dispensary applications across several states.
Once a client has secured your state-issued
operating license, we will support their efforts to become fully operational through the licensing of our proprietary cultivation
and dispensary methodologies on an ‘as needed’ basis. Our team of seasoned consultants helps applicants navigate the
process of pursuing state licensure and becoming a successful cannabis operation.
This service offering is generally provided
as an ‘assembly needed’ product wherein we provide basic guidance elements for a particular state’s deployment
initiative that can then be incorporated in to an application process.
Licensing Services, Existing or New State
Based (Full Service)
Through our licensing services, we support
a client’s efforts within a competitive or non-competitive state application process with the goal of securing a state-issued
operating license. Once licensed, we help clients deploy state of the art facilities, train staff, implement standard operating
procedures, and become operational.
Entities applying for medical and recreational
operating licenses will have to demonstrate their ability to ensure patient, product, and public safety while also maximizing their
productivity to meet the forthcoming demand with high-quality, consistent products. Our latest tests have increased the per light
productivity to 3 pounds of dried, cured flower per 1,000w fixture – this is invaluable in states which impose limits on
canopy size or plant counts, or in instances in which operators have a limited space to cultivate within. We treat cultivation
like manufacturing with the underlying principal that consistent input should yield consistent output, and have developed a process
to back this up.
Licensing services include the following support
throughout the pre-application process:
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Real estate sufficiency reviews and planning
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Generate facility design plans that client design build team can utilize
in the creation of architectural and construction plans
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Provide client with pro forma for financial
modeling
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Provide client with a facility equipment
list
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Provide client with organizational charts
and job description information
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Provide client with a list of preferred
third-party vendors for consideration
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Provide client with an application checklist
once the final rules are published
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Provide client with narrative of our operating plans for use in demonstrating
qualification for state licensure
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Licensing services include the following support
throughout the post-application process:
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Provide client with facility shop drawings
(tables, racks, lighting systems, etc.)
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Provide client with detailed Standard
Operating Procedures
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Provide client with further design and
deployment support related to facility construction
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Provide client with on-site training within
our Denver-based facilities
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Provide client with on-site training at
their facilities once operational
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Provide on-going support for a period
of five years including the ongoing dissemination of process improvements or adjustments to standard operating procedures
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Clients who successfully achieve state licensure
may also engage us for managed facility support. This offering provides a turn-key solution for new operators, inclusive of support
with pursuit of licensure, design and deployment of their facility, and ongoing management of the facility for a defined period
of time.
Three-A-Light Publication (Home Version)
Pono is the holder of all intellectual property
rights relating to the cannabis cultivation of full scale commercial grow operations utilized and proposed to be utilized by our
current and future clients. No patents have been filed to protect the various methods and expertise utilized for these commercial
grows because of the federal prohibition on cannabis.
“Three-a-light” is a tutorial for
how to grow cannabis plants for the individual grower growing for his own benefit or caregiver growing for their patients in a
limited way. The book is currently offered on Amazon at a price of $500 per copy, the highest price for a book offered by Amazon.
To date, approximately 1,100 books have been sold.
There are key differences between growing cannabis
indoors and outdoors. While outdoor crops can yield more, the quality of indoor cannabis cannot be matched. This book teaches the
secrets of getting the greatest yield without sacrificing quality and includes a step-by-step marijuana growing guide from seed
to finished flower. It provides a simple approach to a very painstaking and complex process. It contains illustrations on how to
grow cannabis and covers the nine vital components of growing marijuana indoors in order to achieve the highest average yield per
light.
We believe the sale of “Three-a-light”
books advance the use of our cultivation techniques, use of our proprietary nutrients, and provides brand exposure as well as leads
to new service provider relationships that over time will be significant.
Three-A-Light Publication (Professional
Version)
It should be noted that our Three-A-Light Professional
Version is only made available to licensed or operational clients utilizing full cultivation support (i.e. Cultivation MAX, licensing,
etc.).
Existing Cultivation and Dispensary Operation
(Group 2)
Cultivation Max Services
As the legal cannabis marketplace evolves and
the price of products stabilizes, there is an in creating need to control the cost of production and maximize a cultivation facility’s
performance. Through our Cultivation Max services, the Company optimizes existing cultivation operator’s existing facilities
to improve yield, consistency, quality, and efficiency in order to maximize its full production potential. The service is designed
to enable existing operators to become highly efficient cultivators, allowing them to continually compete in a highly competitive
landscape.
Through the implementation of our proprietary
cultivation methodology, facility and room design, plant and nutrient management the Company may significantly improve existing
performance within a client’s facility. The Company understands the uniqueness of existing facilities and customizes the
approach to each project to ensure mutually beneficial results. The Company earns revenue based on the delta of performance improvement
beyond the baseline performance documented at the beginning of the engagement. The term of a Cultivation Max agreement as well
as the percentage of revenue is determined on a per project basis.
As an example of this performance delta over
existing indoor as well as greenhouse based performance, it is generally known that existing indoor cultivation practices are considered
best practices when achieving two (2) pounds per light in terms of dried cured flower per harvest cycle or approximately one (1)
gram per watt. This is based upon five (5) to six (6) harvest cycles per year. A greenhouse will likely mimic this level of performance
but generally may achieve fewer harvests per year. According to a recent MJardin Study (as included in the ArcView 2015 Annual
Industry Report), average yields in terms of grams per square foot of flower canopy range between 168 and 282 grams annually. Current
performance for the Three-A-Light Professional cultivation practice generates approximately 700 grams per square foot of dried
cured flower per square foot of flower space annually (based upon 5.5 harvests per year utilizing a thirty-two square (32) foot
table supporting eight (8) plants that yields approximately nine (9) pounds per harvest or 5.5 times nine (9) pounds times 453
grams per pound divided by thirty-two (32) square feet or a total of approximately 700 grams per square foot per annual period)
which represents a substantial competitive advantage to our clients.
This level of superior performance is based
upon a proven cultivation practice that includes a very specific feeding and integrated pest management system that is hand managed
and does not (at this time) have any reliance on automated technology since the overall operating cost per pound of dried cured
flower more than offsets the use of additional labor. These results are based upon use of 1,000 watt double ended lamps that are
substantially more efficient than this use of other lower operating cost lamps of an LED or other nature that can be three to four
times more expensive from a capital deployment perspective.
Managed Facility Services
As the Company has grown, the volume of requests
for full facility management has increased. As a result, the Company has structured a service offering to include organizational
setup and interim management of client’s cultivation, processing, and dispensary facility(s). As part of the managed facilities
services, the Company may provide the following:
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1.
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Oversee
the hiring and training of the primary facility General Manager. General Manager will oversee the hiring and training of market-based
Cultivation Manager, Production Manager, and Dispensary Manager, as necessary, who may all train on-site in Colorado while client
facilities are under construction.
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Provide
organizational charts and job descriptions to aid client management team in hiring within their local market.
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If
desired, embed a Senior Cultivation Team Member within the client’s facility for a defined period of time, beginning at
a time mutually determined between the Company and the Client. Upon completion of the service agreement, opportunity for full-time
employment is typically made available to client.
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4.
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If
desired, embed a Senior Processing Team Member within the client’s facility for a defined period of time, beginning at a
time mutually determined between the Company and the Client. Upon completion of the service agreement, opportunity for full-time
employment is typically made available to client.
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5.
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If
desired, embed a Senior Dispensary Team Member within the client’s facility for a defined period of time, beginning at a
time mutually determined between the Company and the Client. Upon completion of the service agreement, opportunity for full-time
employment is typically made available to client.
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6.
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All
costs for the above services to be covered by the client including time and expense.
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Revenue for managed services is derived on
a fee basis for ongoing support and also incentivized by production metrics tied to overall facility performance. These services
are typically provided through a custom assessment and bidding process.
Products (Group 3)
Success Nutrients
SN was incorporated in Colorado on May 5, 2015.
Since inception SN has been engaged in the manufacturing and wholesale and retail distribution of nine different plant nutrients
for cannabis, each of which comes in three separate sizes and which has been primarily marketed to the cannabis industry, more
specifically, cultivation experts and other growers in the cannabis industry in Colorado. Each of SN’s nine product lines
are sold in three separate sizes, with retail pricing ranging from $25-$30 for small packages up to a range of $200-$300 for large
packages.
The development of SN’s product line
was the result of consolidation of all the micro and macro nutrients found to produce the most grams of cannabis flower per square
foot while achieving the highest quality possible. Until January 2017, SN’s operations were primarily directed towards in
the cannabis industry in the state of Colorado. Subsequently, SN’s products were successfully registered with the state
agricultural departments for California, Oregon, Washington, Arizona and Michigan, as well as in Canada. Prior to obtaining this
registration the SN products were only able to be purchased online. As a result of being registered, all SN products can now be
displayed on retail shelves in those aforesaid states. SN will continue to pursue product registration in other states and countries
prioritizing those locations that provide greater market size for its products.
The Success Nutrients brand provides one of
the key underpinnings of the cultivation methodology and is essential to the overall Three a Light TM performance metric, which
is discussed more fully below under “Business of Pono.”. With an investment of two years of research, development and
intense testing, this product line was specifically formulated for the cannabis industry.
SN’s goal is to revolutionize modern
cannabis gardening as it is currently known with an emphasis on stronger plants, healthy flowers and an overall cleaner product.
Generally, growers of cannabis have been able to generate approximately 1.5 lbs. per grow light. By using both the nutrients offered
by SN, together with the process offered by Pono, results have more than doubled in some cases. While no assurances can be provided,
we believe that this will add substantial growth to our existing cannabis consulting operation, especially as the cannabis industry
continues to grow and expand as additional states approve the use and cultivation of medical and recreational marijuana. We believe
that if we offer prospective new clients the opportunity to learn cultivation techniques that allow them to increase production
over their competitors, our business will increase, which is one of the primary purposes of the Transactions. The combination of
SN and Pono registration techniques have directly resulted in the creation of a new line of consulting services that improve the
performance of current cultivations. We call this service “Cultivation Max.” We have already signed several new clients
for this service.
Three-A-Light Publication (Home Version)
Pono was incorporated in the State of Colorado
on February 16, 2015. It is the holder of all intellectual property rights relating to the cannabis cultivation of full scale commercial
grow operations utilized and proposed to be utilized by our current and future clients. No patents have been filed to protect the
various methods and expertise utilized for these commercial grows because of the federal prohibition on cannabis.
“Three-a-light” is a tutorial for
how to grow cannabis plants for the individual grower growing for his own benefit or caregiver growing for their patients in a
limited way. The book is currently offered on Amazon at a price of $500 per copy, the highest price for a book offered by Amazon.
To date, approximately 1,100 books have been sold. Pono currently generates approximately $25,000 to $40,000 a month in revenue
(through February 2017) from the sale of these books and other related services.
There are key differences between growing cannabis
indoors and outdoors. While outdoor crops can yield more, the quality of indoor cannabis cannot be matched. This book teaches the
secrets of getting the greatest yield without sacrificing quality and includes a step-by-step marijuana growing guide from seed
to finished flower. It provides a simple approach to a very painstaking and complex process. It contains illustrations on how to
grow cannabis and covers the nine vital components of growing marijuana indoors in order to achieve the highest average yield per
light.
We believe the sale of “Three-a-light”
books advance the use of our cultivation techniques, use of our proprietary nutrients, and provides brand exposure as well as leads
to new service provider relationships that over time will be significant.
Three-A-Light Publication (Professional
Version)
It should be noted that our Three-A-Light Professional
Version is only made available to licensed or operational clients utilizing full cultivation support (Cultivation MAX).
Competitive and Client Base
Competitive Advantage
As we continue to grow, amassing additional
experience and knowledge (similar to our recent substantial gains in as represented by Three-A-Light and Success Nutrients) we
believe we will continue to enjoy a competitive advantage within the industry over any other business providing a group of service
offerings similar to our own.
With our focus on the fulfillment of a brands
warehouse concept, wherein we can commonly acquire, market, value, and cross promote various Cannabusiness enterprises we believe
that over time we will be able to achieve a more economical cost of operations (public company) while delivering highest quality
goods and services that generate strong shareholder returns in terms of our stock value in this nascent space.
As with our latest new product, Cultivation
MAX we are now working with existing underperforming cultivation facility ownership groups wherein we provide access to our advanced
knowledge as well as proprietary nutrients wherein we are only compensated on the delta achieved over their existing performance
(generally less than 1.5 pounds a light or 350 grams of dried cured flower per square foot of flower canopy) while also guaranteeing
through payment reduction that their existing cost per pound to cultivate will not increase.
Unlike most ‘consultants’ in this
industry, we have proven that we do not know it all and as we continue to be ready to learn from others (through acquisition and
or cooperation), we believe that ability in and of itself will allow us to continue to expand our client base and revenues substantially.
General Client Summary
Medicine Man Technologies has been actively
involved in the state application process on behalf of our clients. To date we have actively participated in an application process
in the following states: Colorado, California, Florida, Illinois, Nevada, New York, Maryland, Hawaii, Oregon, Pennsylvania and
Puerto Rico. As with most consultants, we have won and lost in pursuit of a license application process. To date we have assisted
clients in securing the following licenses or have active clients as follows:
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Four (CUP authorized or in process status) California Cultivation Licenses
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One Colorado cultivation license
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Three Colorado dispensary licenses (Denver, Aurora, Thornton)
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Two Illinois cultivation licenses
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Four Illinois dispensary licenses
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Two Nevada cultivation licenses
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Two Nevada Cultivation MAX Client Licenses
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One Maryland processing license
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One Maryland cultivation license
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Three Maryland dispensary licenses
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One Hawaii vertically integrated license noting the applicant was top scored in Kauai and removed
for investor background check violations
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One Oregon Tier II Cultivation License and One Oregon Medical Cultivation License (outdoor)
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We have one active cultivation client and one pending Puerto Rico cultivation application
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We have already begun to generate new business
opportunities in Michigan, Ohio, Florida, and Arkansas and have more recently initiated Cultivation MAX support services for two
larger Nevada clients (500 light and 400 light) which, over time should generate significant income for the Company.
Related Parties
– Related
parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause
the direction of the management and policies of the Company. The Company disclose related party transactions that are outside
of normal compensatory agreements, such as salaries or director fees. The Company has related party transactions with the
following individuals / companies:
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Super Farm LLC
– Joshua Haupt, Chief Cultivation Officer
of the Company, has a 20% ownership
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De Best Inc
.– Joshua Haupt, Chief Cultivation Officer
of the Company, has a 20% ownership
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Medicine Man Denver
– Andy Williams, Director of the
Company, has a 38% ownership
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Josh Haupt
– Chief Cultivation Officer
of the Company
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1.
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Liquidity and Capital Resources
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Cash Flows
– During the
quarters ending June 30, 2017 and 2016, the Company primarily utilized cash and cash equivalents and profits from operations to
fund its operations.
Cash and cash equivalents are carried at cost
and represent cash on hand, deposits placed with banks or other financial institutions and all highly liquid investments with an
original maturity of three months or less as of the purchase date. The Company had $200,600 and $351,524 classified as cash and
cash equivalents as of June 30, 2017 and December 31, 2016, respectively.
2.
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Critical Accounting Policies and Estimates
:
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Basis of Presentation:
These accompanying
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial
statements.
Fair Value Measurements:
Fair value
is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement
date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable
inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last
unobservable, as follows:
Level 1 – Quoted
prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 – Unobservable inputs
that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets
or liabilities.
Our financial instruments include cash, accounts
receivable, note receivable, accounts payables and tenant deposits. The carrying values of these financial instruments approximate
their fair value due to their short maturities. The carrying amount of our debt approximates fair value because the interest rates
on these instruments approximate the interest rate on debt with similar terms available to us. Our derivative liability was adjusted
to fair market value at the end of each reporting period, using Level 3 inputs.
Use of Estimates:
The preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts
reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be
based upon amounts that differ from these estimates.
Accounts receivable:
The Company extends
unsecured credit to its customers in the ordinary course of business. Accounts receivable related to licensing revenues are recorded
at the time the milestone result in the funds being due has been achieved, services are delivered and payment is reasonably assured.
Licensing revenues are generally collected from 30 to 60 days after the invoice is sent. As of June 30, 2017, and December 31,
2016, the Company had accounts receivable of $231,399 and $25,000, respectively. The company wrote off $0 of its accounts receivable
in the current quarter. Allowance for doubtful accounts is currently zero as all receivables are less than 60 days old. The company
will continue to evaluate the need for recognizing an additional allowance in the future.
AFS Securities:
Investments available
for sale is comprised of publicly traded stock purchased as an investment. The Company considers the securities to be liquid and
convertible to cash in under a year. The Company has the ability and intent to liquidate any security that the Company holds to
fund operations over the next twelve months, if necessary, and as such has classified all its marketable securities as short-term.
Our investment securities at June 30, 2017 consist of available-for-sale instruments which include $17,701 of equity in publicly
traded companies. All our available-for-sale securities are Level 2 due to limited trading volume. Realized gains and losses on
these securities will be included in “other income (expense)” in the consolidated statements of income using the specific
identification method. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in accumulated other
comprehensive income (accumulated OCT).
Short term note receivable:
Notes receivable
is comprised of a $250,000 loan with $28,893 of accrued interest for a total loan value of $278,893 issued to the organization
that owns Funk Sack, Inc. This loan was extended with the option of negotiating an agreement to acquire the entirety of the company
through a stock swap. However, in the fourth quarter of 2016 the Company determined that it would not complete the acquisition
of the company and instead will hold the investment and it will be repaid. The loan was issued May 6, 2016 and is due to be repaid
November 1, 2017. As the note is still current and the Funk Sacks organization is continuing to operate and grow this note is considered
to be fully collectable.
Other assets:
Other assets at June 30,
2017 and December 31, 2016 were $50,006 and $27,479, respectively and as of June 30, 2017 included $25,506 in prepaid registrations
fees for major cannabis events the Company is sponsoring and advertising costs and $24,500 in two security deposits.
Accounts payable:
Accounts payable at
June 30, 2017 and December 31, 2016 was $32,328 and $0, respectively.
Other liabilities:
Other liabilities
at June 30, 2017 and December 31, 2016 were $10,713 and $175, respectively. At June 30, 2017, this was comprised of $10,352 in
accrued expense.
Fair Value of Financial Instruments:
The
carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these
items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available for
sale securities are recorded at current market value as of the date of this report.
Revenue recognition and related allowances:
Revenue
from licensing and consulting services is recognized when the obligations to the client are fulfilled which is determined when
milestones in the contract are achieved. Revenue from seminar fees is related to one-day seminars and is recognized as earned at
the completion of the seminar. Revenue from product sales either being nutrients or book sales are recognized when the goods is
transferred. All revenue is measured at fair value.
Costs of Services Sold
– Costs
of services sold are comprised of direct salaries and related expenses incurred while supporting the implementation of licensing
agreements and related services.
General & Administrative Expenses –
General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s
services.
Advertising and Marketing Costs:
Advertising
and marketing costs are expensed as incurred and were $89,509 and $21,672 during the six months ended June 30, 2017 and 2016, respectively.
Stock based compensation:
The Company
accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation
expense for share-based awards based upon an assessment of the grant date fair value for stock and restricted stock awards using
the Black-Scholes option pricing model.
Stock compensation expense for stock options
is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITF 96-18 when stock or options are
awarded for previous or current service without further recourse. The Company issued stock options to contractors and external
companies that had been providing services to the Company upon their termination of services. Under ASC 718 and EITF 96-18 these
options were recognized as expense in the period issued because they were given as a form of payment for services already rendered
with no recourse.
Share based expense paid to through direct
stock grants is expensed as occurred. Since the Company’s stock has become publicly traded, the value is determined based
on the number of shares issued and the trading value of the stock on the date of the transaction. Prior to the Company’s
stock being traded the Company used the most recent valuation. The Company recognized $4,480,318 in expenses for stock based compensation
to employees and consultants during the six months ended June 30, 2017.
Income taxes:
The Company has adopted
SFAS No. 109 – “Accounting for Income Taxes”. ASC Topic 740 requires the use of the asset and liability method
of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled.
Management fee contracts:
In February
2017, the Company entered into a Merger Agreement with Pono Publications Ltd. (“Pono”), as well as a Share Exchange
Agreement with Success Nutrients, Inc. (“SN”), each a Colorado corporation, in order to facilitate the acquisition
of both of these entities. The ratification of the acquisition of these companies requires the approval of the holders of a majority
of the Company’s shareholders, which was submitted for such approval at the Company’s annual shareholder meeting held
on May 2017. The relevant agreements provide that the effective date for accounting purposes would be April 1, 2017. Success Nutrients
became a wholly owned subsidiary of Medicine Man Technologies, Inc. and the business conducted by Pono was incorporated into a
newly formed wholly owned subsidiary, Medicine Man Consulting, Inc., which is also where the Company will continue to conduct its
consulting service business.
In March 2017, the Company integrated
Pono Publications and Success Nutrients into its operations including a lease for approximately 10,000 square feet of space
located at 6660 East 47th Street, Denver, CO 80216. This integration also included four (4) full time team members as well as
several independent contractors. From April 1, 2017 to June 30, 2017 the Company has agreed to manage the acquirees through a
management fee agreement whereby all cash collected was recognized as other income and all cash expenses were direct costs of
the project. As of June 30, 2017, the management contract resulted in cash collections of approximately $100,000 and
cash expenditures of approximately $170,000 resulting in a net loss of $70,257 which was presented on a net basis as a loss
in the other income portion of our income statement. As of April 1, 2017 the Company’s consolidated financial
statements included these two entity’s.
3.
|
Recent Accounting Pronouncements
|
FASB ASU 2017-01 “Clarifying the Definition
of a Business (Topic 805)”
– In January 2017, the FASB issued 2017-1. The new guidance that changes the definition
of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance
requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single
identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business.
The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by
more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning
after December 15, 2017, and for interim periods within those years. Adoption of this ASU is not expected to have a significant
impact on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-15 “Statement of Cash
Flows (Topic 230)” –
In August 2016, the FASB issued 2016-15. Stakeholders indicated that there is a diversity
in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU
2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This
ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted. Adoption of this ASU will not have a significant impact on our statement of cash flows.
FASB ASU 2016-11 “Revenue Recognition
(Topic 605) and Derivatives and Hedging (Topic 815)”
– In May 2016, the FASB issued 2016-11, which clarifies guidance
on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity
reports revenue on a gross or net basis. This ASU is effective for annual reporting periods beginning after December 15,
2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on
our consolidated results of operations, cash flows and financial position.
FASB ASU 2015-11 “Inventory (Topic
330): Simplifying the Measurement of Inventory,” or ASU 2015-11
- In July 2015, the FASB issued ASU 2015-11, which requires
an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments
apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual
reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim
period. Adopting this ASU did not have a significant impact on our financial position, results of operations and cash flows.
4.
|
Stockholders’ Equity
:
|
The Company’s initial authorized stock
at inception was 1,000,000 common shares, par value $0.001 per share. In 2016 the company subsequently amended its Articles of
Incorporation to increase its authorized shares to 90,000,000 Common Shares, par value $0.001 per share and 10,000,000 preferred
shares, par value $0.001 per share.
During the time in which the Company was establishing
its operations it issued 4,199,000 shares of Common Stock to various individuals as founders for prior services completed which
was valued at par value, resulting in the Company booking stock based expense of $4,199.
During the time in which the Company was establishing
it operations it issued 5,331,000 shares of Common Stock to various individuals for a license agreement valued at par value resulting
in the Company recognizing a purchased asset of $5,331.
Commencing in November 2014, the Company commenced
a private offering of its Common Stock at an offering price of $1.00 per share. At December 31, 2014, it had accepted subscription
from 26 investors and received net proceeds of $260,000 therefrom.
In December 2014, the Company issued 50,000
shares of its Common Stock for legal fees and recognized an expense for this issuance of $50,000 based upon the prior sale in November
2014 of its Common Stock.
On March 17, 2015, 10,000 shares of Common
Stock were sold to one investor as part of the private offering commencing in November 2014 in exchange for $10,000 cash.
During the second quarter of 2015, the Company
issued 50,000 shares of Common Stock to an individual in consideration for their services rendered in support of the Company resulting
in the Company recognizing compensation expense of $50,000 based upon a per share price of $1.00 per share realized in the most
recent private offering.
On July 1, 2015, the Company issued 72,500
shares of Common Stock to four different individuals in consideration for their services rendered in support of the Company, resulting
in recognizing compensation expense of $29,725 based upon an independent valuation determining the value of shares at $0.41 per
share.
At December 31, 2015, the Company had 9,972,500
shares outstanding.
On January 4, 2016, the Company issued 120,000
shares of Common Stock to various individuals in consideration of their services rendered in support of the Company resulting in
recognizing compensation expense of $49,200 based upon an independent valuation determining the value of shares at $0.41 per share.
During the three months ended March 31, 2017,
the Company issued 145,587 shares of Common Stock upon conversion of convertible notes in the aggregate amount of $254,777.
On June 3, 2017, the Company issued 1,400,000
shares of Common Stock to various individuals in consideration of their services rendered in support of the Company resulting in
recognizing compensation expense of $2,380,000 based upon the closing stock price on June 2, 2017 at $1.70 per share.
On June 3, 2017, the Company issued 7,000,000
shares of Common Stock in consideration for the acquisition of Success Nutrients and Pono Publications.
On June 3, 2017, the Company issued 2,000,000
warrants to purchase Common Stock to three individuals. See Note 15 for further explanation.
During the three months ended June 30, 2017,
the Company issued 44,151 shares of Common Stock upon conversion of convertible notes in the aggregate amount of $60,000.
At June 30, 2017, the Company had 18,992,238
common shares outstanding.
5.
|
Property and Equipment
:
|
Property and equipment are recorded at cost,
net of accumulated depreciation and are comprised of the following:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Furniture & Fixtures
|
|
$
|
82,415
|
|
|
$
|
11,526
|
|
Marketing Display
|
|
|
36,900
|
|
|
|
42,681
|
|
Vehicles
|
|
|
6,000
|
|
|
|
–
|
|
Office Equipment
|
|
|
74,996
|
|
|
|
10,838
|
|
|
|
$
|
200,311
|
|
|
$
|
65,045
|
|
Less: Accumulated depreciation
|
|
|
(46,278
|
)
|
|
|
(22,919
|
)
|
|
|
$
|
154,033
|
|
|
$
|
42,126
|
|
Depreciation on equipment is provided on a
straight-line basis over its expected useful lives at the following annual rates.
Furniture & Fixtures
|
|
|
3 years
|
|
Marketing Display
|
|
|
3 years
|
|
Vehicles
|
|
|
3 years
|
|
Office Equipment
|
|
|
3 years
|
|
Depreciation expense for the six-month periods
ending June 30, 2017 and 2016 was $23,576 and $8,266 respectively.
On May 1, 2014, the
Company entered into a non-exclusive Technology License Agreement with Futurevision, Inc., f/k/a Medicine Man Production Corporation,
a Colorado corporation, dba Medicine Man Denver (“Medicine Man Denver”), a company owned and controlled by affiliates
of the Company, whereby Medicine Man Denver granted a license to use all of their proprietary processes they have developed, implemented
and practiced at its cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical
marijuana and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including
trade secrets, skills and experience (present and future). As payment for the license rights the Company issued Medicine Man Denver
(or its designees) 5,331,000 shares of the Company’s common stock. The Company accounted for this license in accordance with
ASC 350-30-30 “Intangibles – Goodwill and Other by recognizing the fair value of the amount paid by the company for
the asset at the time of purchase. Since the Company has a limited operating history, management determined to use par value as
the value recognized for the transaction. Since the term of the initial license agreement is ten (10) years, the cost of the asset
will be recognized on a straight-line basis over the life of the agreement. In addition, each period the Company will evaluate
the intangible asset for impairment. As of December 31, 2014, no impairment was deemed necessary.
During 2016, the Company
attained two intangible assets, Product Agreement & Registration and a Trade Secret. These two intangible assets were acquired
due to the result of the acquisition of Success and Pono on June 30, 2017. Refer to the Note 9 for further explanation of the purchase
price accounting. The Company’s procurement of product registration during the year was within five states and Canada. The
Company’s product was registered in California, Oregon, Colorado, Michigan, Arizona, Washington and all of Canada. The registration
allows the Company to sell their product within the confines of that region. The registration fees capitalized are the initial
costs to obtain the license. The licenses have nominal annual renewal costs. These subscriptions are amortized over a 15-year period.
During 2016, the Company incurred an intangible
asset due to the development of the products nutrient recipe. The nutrient recipe development was a onetime fee, paid to the Company’s
developer. The intellectual property is amortized over a 15-year economic life of the asset. The economic life of the asset is
shorter than the indefinite life considered the legal life of the assets so 15 years is deemed the economic life of the asset.
Amortization expense for the periods ending
June 30, 2017 and 2016 was $1,463 and $266, respectively.
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
License Agreement
|
|
$
|
5,300
|
|
|
$
|
5,300
|
|
Product License and Registration
|
|
|
38,124
|
|
|
|
–
|
|
Trade Secret - IP
|
|
|
32,500
|
|
|
|
–
|
|
|
|
$
|
75,924
|
|
|
$
|
5,300
|
|
Less: accumulated amortization
|
|
|
(3,055
|
)
|
|
|
(1,592
|
)
|
|
|
$
|
72,869
|
|
|
$
|
3,708
|
|
7.
|
Convertible Notes and Derivative Liability:
|
At December 31, 2016 the Company had raised
$810,000 through a private placement of promissory convertible notes with certain accredited investors, bearing interest at 12%,
with interest and principal due January 1, 2019. During the quarter ended June 30, 2017 the Company did not raise any additional
capital with the same terms. In the period ended June 30, 2017 the Company converted $60,000 of promissory convertible notes with
certain accredited investors, bearing interest at 12%, with interest and principal due January 1, 2019, into 44,151 shares of common
stock.
Upon issuance, each of the notes is immediately
convertible at the noteholders election into the Company’s common stock at $1.75 per share or 90% of the VWAP of the five
days following the notice of conversion, whichever is lower. Since the conversion rate can be tied to an underlying item, the notes
are considered to be a derivative that is recorded as a liability at fair value and adjusted to fair value at the conclusion of
each reporting period. The underlying assumptions used in the Black Scholes model to determine the fair value of the derivative
liability were based on the individual date the notes were closed and were the following:
|
Upon issuance
|
June 30, 2017
|
Current stock price
|
$ 1.66 to $4.35
|
$1.39
|
Risk-free interest rate
|
.67%
|
1.38%
|
Expected dividend yield
|
0
|
0
|
Expected term (in years)
|
2.39 to 2.09
|
2.39 to 2.09
|
Expected volatility
|
85% to 114%
|
123%
|
|
|
|
Changes in the derivative liability were as follows:
|
|
|
|
|
|
January 1, 2017
|
$294,002
|
|
Gain on derivative liability
|
(131,383)
|
|
Conversion of notes - APIC
|
(139,602)
|
|
June 30, 2017
|
$23,017
|
|
8.
|
Related Party Transactions:
|
As of June 30, 2017, the Company has three
related parties, Medicine Man Denver, De Best Inc. and Super Farm LLC. One of the Officers of the Company, Joshua Haupt, currently
owns 20% of both De Best and Super Farm. During 2017, the Company had net sales from Super Farm LLC totaling $61,251 and $21,553
sales from De Best Inc. The Company give’s a larger discount to related parties than non-related parties. The gross profit
margin for related parties was 49% at June 30, 2017. As of June 30, 2017, the Company had accounts receivable balance with Super
Farm LLC totaling $13,561 and $3,660 accounts receivable from De Best Inc. During 2017, the Company had cost of sales associated
with Super Farm LLC totaling $12,698 and $4,720 from De Best Inc. Additionally, one of the Directors of the Company, Andy Williams,
currently owns 38% of Medicine Man Denver. During 2017, the Company had net sales from Medicine Man Denver totaling $40,140, accounts
receivable balance of $7,073 and cost of sales totaling $8,618.
9.
|
|
Goodwill and Acquisition accounting:
|
On June 3, 2017, the Company issued an aggregate
of 7,000,000 shares of its common stock for 100% ownership of both Success Nutrients and Pono Publications. The Company utilized
purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price
accounting resulted in the Company valuing the investment as $6,301,080 of Goodwill. The ASC at 350-20-35-3A directs that “An
entity may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%)
that the fair value of a reporting unit is less than its carrying amount, including goodwill”. During 2017, the Company obtained
an independent valuation of the Company at 6.2.17. The fair market value at 6.2.17 of the Company was valued at $17,031,748, thus
creating a fair market value greater than the carrying value of Goodwill. The ASC at 350-20-35-3D directs that “If an entity
determines that it is not more likely that the fair value of a reporting unit is less than its carrying amount, then Goodwill impairment
is unnecessary.” Additionally, the valuation that was obtained for the Company at 6.2.17 valued the Company’s per share
value of Common Stock at $.93. This price was used because of the large block of stock given creates a blockage discount since
it can’t all be sold at market prices immediately. The valuation was used to value the stock instead of the $1.70 market
price due to the large amount of stock involved.
Pono and Success Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
|
|
Book Value
|
|
|
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
86,659
|
|
|
|
86,659
|
|
|
Accounts payable
|
|
|
3,268
|
|
|
|
3,268
|
|
Inventory
|
|
|
109,174
|
|
|
|
109,174
|
|
|
Note payable
|
|
|
58,280
|
|
|
|
58,280
|
|
PPE
|
|
|
16,922
|
|
|
|
16,922
|
|
|
Other liabilities
|
|
|
11,352
|
|
|
|
11,352
|
|
Intangibles
|
|
|
69,065
|
|
|
|
69,065
|
|
|
|
|
|
72,900
|
|
|
|
72,900
|
|
|
|
|
281,820
|
|
|
|
281,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Price (7,000,000 *.93)
|
|
|
|
|
|
|
6,510,000
|
|
|
|
|
|
|
|
|
|
|
|
Less: BV of Assets
|
|
|
|
|
|
|
(281,820
|
)
|
|
|
|
|
|
|
|
|
|
|
Add: BV of Liabilities
|
|
|
|
|
|
|
72,900
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
6,301,080
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, and December 31, 2016,
respectively, the Company had $109,174 and $0 of finished goods inventory. The Company only has finished goods within inventory
because it does not produce any of its products. All inventory is produced by a third party. The inventory valuation method that
the Company uses is the FIFO method. During 2017 and 2016, the company had $0 obsolescence within their inventory.
As of June 30, 2017, and December 31, 2016,
the Company had a note payable balance of $58,280 and $0, respectively. The note payable is a balance that is due to an officer
of the Company, Joshua Haupt.
12.
|
Net Income (Loss) per Share
|
In accordance with ASC Topic 280 – “Earnings
Per Share”, the basic earnings per common share is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding. Diluted earnings per common share is computed similar to basic loss per common
share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive. The Company's quarterly earnings
for the period ended June 30, 2017 and 2016 basic and diluted earnings/(loss) per share $(0.22) and $(0.02), respectively.
13.
|
Commitments and Concentrations
:
|
Office Lease – Denver, Colorado
–
The Company entered into a lease for office space at 4880 Havana Street, Suite 200, Denver, Colorado 80239. The lease period started
March 1, 2017 and will terminate February 29, 2020, resulting in the following future commitments:
2017 fiscal year
|
|
$
|
95,947
|
|
2018 fiscal year
|
|
|
154,174
|
|
2019 fiscal year
|
|
|
171,000
|
|
2020 fiscal year
|
|
|
29,000
|
|
Office Lease – Denver, Colorado
–
The Company entered into a lease for office space at 6660 E. 47
th
Ave Drive, Denver, Colorado 80216. The lease commitment
is split between both Success Nutrients and Pono Publications. The lease period started December 1, 2016 and will terminate November
30, 2020, resulting in the following future commitments:
2017 fiscal year
|
|
$
|
115,328
|
|
2018 fiscal year
|
|
|
118,528
|
|
2019 fiscal year
|
|
|
121,728
|
|
2020 fiscal year
|
|
|
124,928
|
|
The Company had no tax provisions as of June
30, 2017 and December 31, 2016. The company had a net loss in the quarter ending June 30, 2017 and the deferred tax asset has a
full valuation against it.
The Company issued one round of warrants related
to various equity transactions that was approved by the Board on June 3, 2017 and issued on June 19, 2017. Since the terms weren’t
established until June 19, 2017, these were valued on this date per the signed agreements and issuance on June 19, 2017. The Company
accounts for its warrants issued in accordance with the US GAAP accounting guidance under ASC 480. We estimated the fair value
of these warrants at the respective balance sheet dates using the Black-Scholes option pricing model as described in the stock-based
compensation section above, based on the estimated market value of the underlying common stock at the valuation measurement date
of $1.50, the remaining contractual term of the warrant of 2.5 years, risk-free interest rate of 1.38% and expected volatility
of the price of the underlying common stock of 126%. There is a moderate degree of subjectivity involved when using option pricing
models to estimate the warrants and the assumptions used in the Black Scholes option-pricing model are moderately judgmental.
|
|
Number of shares
|
|
|
Exercise Price
|
|
Balance as of March 31, 2017
|
|
|
–
|
|
|
|
–
|
|
Warrants issued
|
|
|
2,000,000
|
|
|
$
|
1.445
|
|
Settlements
|
|
|
–
|
|
|
|
–
|
|
Balance as of June 30, 2017
|
|
|
2,000,000
|
|
|
|
|
|
During the six months ended June 30, 2017,
the Company issued 2,000,000 common stock purchase warrants to three employees of the Company with an exercise price of $1.445
per share for a period of time expiring on December 31, 2019. As of June 30, 2017, none of the warrants were exercised. Stock-based
compensation expense recognized for warrants during the six-month period ended June 30, 2017 was $2,100,318.
Effective July 21, 2017, the Company consummated
the acquisition of Denver Consulting Group LLC, a Colorado limited liability company (“DCG”). The Company issued an
aggregate of 2,258,065 shares of its common stock to the DCG members in exchange for 100% of their issued and outstanding member
interests, valued at $3.5 million based upon the closing price of the Company’s Common Stock on the date the relevant Term
Sheet was executed. As a result, DCG is now a wholly owned subsidiary of the Company. The transaction with DCG did not result in
a change in the Company’s current management.
As a part of this acquisition, the Company
absorbed four full-time DCG team members on a contingent to hire basis (90 day).
The Company entered into final negotiations
with a Canadian company for exclusive representation of several of the Company’s goods and services as noted in Item 2 of
this report wherein we would also be jointly developing a new product and service offering associated with lighting technology
and deployment.