0001004878-15-000072.txt : 20150313 0001004878-15-000072.hdr.sgml : 20150313 20150313161832 ACCESSION NUMBER: 0001004878-15-000072 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20150313 DATE AS OF CHANGE: 20150313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Strainwise, Inc. CENTRAL INDEX KEY: 0001400683 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 208980078 STATE OF INCORPORATION: UT FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-198797 FILM NUMBER: 15699571 BUSINESS ADDRESS: STREET 1: 1350 INDEPENDENCE ST. STREET 2: SUITE 300 CITY: LAKEWOOD STATE: CO ZIP: 80215 BUSINESS PHONE: 303-736-2442 MAIL ADDRESS: STREET 1: 1350 INDEPENDENCE ST. STREET 2: SUITE 300 CITY: LAKEWOOD STATE: CO ZIP: 80215 FORMER COMPANY: FORMER CONFORMED NAME: 4th Grade Films Inc DATE OF NAME CHANGE: 20070523 S-1/A 1 s1amd3mar-15.txt S-1 AMEND #3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Amendment No. 3 STRAINWISE, INC ----------------------------------------- (Exact name of registrant as specified in its charter) Utah ----------------------------------------- (State or other jurisdiction of incorporation or organization) 1389 ---------------------------------------- (Primary Standard Industrial Classification Code Number) 20-8980078 -------------------- (I.R.S. Employer Identification Number) 1350 Independence St., Suite 300 Lakewood, CO 80215 (303) 736-2442 ----------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Shawn Phillips 1350 Independence St., Suite 300 Lakewood, CO 80215 (303) 736-2442 ----------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: William T. Hart, Esq. Hart & Hart, LLC 1624 Washington St. Denver, CO 80203 (303) 839-0061 As soon as practicable after the effective date of this Registration Statement ------------------------------------------------- (Approximate date of commencement of proposed sale to the public) If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] 1 If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) CALCULATION OF REGISTRATION FEE Title of each Proposed Proposed Class of Maximum Maximum Securities Amount Offering Aggregate Amount of to be to be Price Per Offering Registration Registered Registered Share (1) Price Fee ---------- ---------- ---------- ---------- ------------- Common stock (2) Total 4,130,050 $2.50 $10,325,125 $1,330 ------------------------------------------------------------------------------ (1) Offering price computed in accordance with Rule 457 (c). (2) Shares of common stock offered by selling shareholders. Pursuant to Rule 416, this Registration Statement includes such indeterminate number of additional securities as may be required for issuance as a result of any stock dividends, stock splits or similar transactions. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of l933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 2 PROSPECTUS STRAINWISE, INC. Common Stock By means of this prospectus a number of our shareholders are offering to sell up to 2,517,700 shares of our common stock, as well as up to 1,612,350 shares of our common stock issuable upon the exercise of outstanding warrants. Our common stock is traded on the OTC Bulletin Board under the symbol "STWC". On January 30, 2015, the closing price of our common stock was $1.69. The shares owned by selling shareholders may be sold in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then current market price, or in negotiated transactions. We will not receive any proceeds from the sale of the common stock by the selling stockholders. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. These securities are speculative and involve a high degree of risk. For a description of certain important factors that should be considered by prospective investors, see "risk factors" beginning on page 5 of this prospectus. The date of this prospectus is ___________, 2015. 3 PROSPECTUS SUMMARY We provide the following services to the eight retail marijuana outlets and six marijuana cultivation and growing facility owned by our Chief Executive Officer: o Branding, marketing, administrative and consulting; o Accounting and financial; o Compliance. In addition to the foregoing, we plan to: o provide nutrients and other cultivation supplies to licensed marijuana growers; o provide loans to individuals and business involved in the marijuana industry; and o lease equipment and facilities to licensed marijuana growers. We plan to make these services available to retail stores and cultivation and growing facilities in the regulated marijuana industry throughout the United States. We do not grow marijuana plants, produce marijuana infused products, sell marijuana plants and/or sell marijuana infused products of any nature. The Offering By means of this prospectus a number of our shareholders are offering to sell up to 2,517,700 shares of our common stock, as well as up to 1,612,350 shares of our common stock issuable upon the exercise of outstanding warrants. See the section of this prospectus entitled "Selling Shareholders" for more information. The purchase of the securities offered by this prospectus involves a high degree of risk. Risk factors include the lack of any relevant operating history, losses since we were incorporated, the possible need for us to sell shares of our common stock to raise capital and our auditors, in their report on our financial statements for the year ended January 31, 2014 and the period ended January 31, 2013 expressed substantial doubt as to our ability to continue in business. See the "Risk Factors" section of this prospectus below for additional Risk Factors. As of the date of this prospectus, we had 26,948,884 outstanding shares of common stock. 4 Summary Financial Information January 31, 2014 October 31, 2014 ---------------- ---------------- $ $ Current Assets 10,100 1,225,044 Working Capital (Deficit) (40,103) 263,719 Total Assets 31,550 4,340,406 Current Liabilities 50,203 961,325 Total Liabilities 53,476 1,909,771 Stockholders' Equity (Deficit) (21,926) 2,430,635 Year Ended Nine Months Ended January 31, 2014 October 31, 2014 ---------------- ---------------- $ $ Revenue 104,738 3,579,501 Operating Costs and Expenses (174,597) (3,104,898) Other Costs and Expenses -- (231,928) Provision for Income Taxes -- (52,814) ------- Net Income (Loss) (70,219) 189,861 ======== ======= Forward-Looking Statements This prospectus contains or incorporates by reference forward-looking statements, concerning our financial condition, results of operations and business. These statements include, among others: o statements concerning the benefits that we expect will result from the business activities that we contemplate; and o statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. You can find many of these statements by looking for words such as "believes", "expects", "anticipates", "estimates" or similar expressions used in this prospectus. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied. We caution you not to put undue reliance on these statements, which speak only as of the date of this prospectus. 5 To the extent, the information contained in this prospectus, changes in any material respect, we will amend this prospectus. RISK FACTORS This section discloses all material risks known to us. We do not make, nor have we authorized any other person to make, any representation about the future market value of our common stock. In addition to the other information contained in this registration statement, the following factors should be considered carefully in evaluating an investment in our securities. If any of the risks discussed below materialize, our current and intended business could fail and our common stock could decline in value or become worthless. Risks about our business We have a limited operating history and may never be profitable. Since we recently commenced operations under our new business plan, it is difficult for potential investors to evaluate our business. We will need to raise additional capital in order to fund our operations. There can be no assurance that we will be profitable or that our shares will have any value. Although we had net income for the three and nine months ended October 31, 2014, we may incur future losses. Our ability to continue as a going concern is dependent upon our remaining profitable in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no guarantee that we will be successful in achieving these objectives. All of our current agreements to provide our services are with affiliated entities, and were not negotiated at arm's length. Since all of our agreements to provide services are with affiliated entities and were not negotiated at arm's length, there is no assurance that others engaged in the marijuana industry will view the terms and conditions of these agreements and services as reasonable or fair, which could substantially inhibit our ability to fulfill our business model and grow. Further, disagreements that may arise among our affiliated entities could result in the termination of our current agreements, which could cause our business to fail. We are dependent on entities controlled by affiliates for all of our revenue. As of the date of this prospectus, all of our revenue was derived from companies controlled by Shawn Phillips and Erin Phillips, two of our officers and directors. Our business would suffer, and may fail, if Mr. and Mrs. Phillips were unable to meet their financial commitments to us. Our failure to obtain capital may significantly restrict our proposed operations. We need capital to operate and fund our business plan. We do not 6 know what the terms of any future capital raising may be; however, any future sale of our equity securities will dilute the ownership of existing stockholders and could be at prices substantially below the price of our shares of common stock in any pubic market that may exist for such shares. The failure of us to obtain such capital as required may result in the slower implementation of our business plan or our inability to continue our business. Our business is dependent on laws pertaining to the marijuana industry. Continued development of the marijuana industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt the lawful public use of marijuana, which would negatively impact our proposed business. As of January 31, 2015, 20 states and the District of Columbia allow their citizens to use Medical Marijuana. Additionally, voters in the states of Colorado and Washington approved ballot measures last November to legalize cannabis for adult use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of such federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government's enforcement of current federal laws or the enactment of new or more restrictive laws could cause significant financial damage to us and our shareholders. Further, and while we do not intend to harvest, distribute or sell cannabis, by leasing facilities to growers of marijuana, we could be deemed to be participating in marijuana cultivation, which remains illegal under federal law, and may expose us to potential criminal liability, with the additional risk that our properties could be subject to civil forfeiture proceedings. The marijuana industry faces strong opposition. It is believed by many that large well-funded businesses may have a strong economic opposition to the marijuana industry. We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, medical marijuana will likely adversely impact the existing market for the current "marijuana pill" sold by mainstream pharmaceutical companies. Further, the Medical Marijuana industry could face a material threat from the pharmaceutical industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry's products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the Medical Marijuana movement. Any inroads the pharmaceutical industry could make in halting or impeding the marijuana industry could have a detrimental impact on our proposed business. Marijuana remains illegal under Federal law. Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state 7 laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan and could cause us to cease our business. Laws and regulations affecting the marijuana industry are constantly changing, which could detrimentally affect our proposed operations. Local, state and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Potential competitors could duplicate our business model. There are limited aspects of our business which are protected by patents, copyrights, trademarks or trade names. As a result, potential competitors could duplicate our business model with little effort. We are dependent on our management and the loss of any of our officers could harm our business. Our future success depends largely upon the experience, skill, and contacts of our officers. The loss of the services of these officers may have a material adverse effect upon our business. Risks about our Common Stock Disclosure requirements pertaining to penny stocks may reduce the level of trading activity in the market for our common stock and investors may find it difficult to sell their shares. Trading of our common stock will be subject to Rule 15g-9 of the Securities and Exchange Commission, which rule imposes certain requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and "accredited investors." For transactions covered by the rule, brokers/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser's written agreement to the transaction prior to sale. The Securities and Exchange Commission also has rules that regulate broker/dealer practices in connection with transactions in "penny stocks". Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in that security is provided by the exchange or system). The penny stock rules require a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. 8 There is no established public market for our common stock, and any market that may develop could be volatile. There is currently no established public market for our common stock, and no assurance can be given that any established public market for our shares will commence, or if one does commence, that it will continue, in any respect. Interest in our common stock may not lead to a liquid trading market, and the market price of our common stock may be volatile. The following may result in short-term or long-term negative pressure on the trading price of our shares, among other factors: o Price and volume fluctuations in the stock market at large, which do not relate to our operating performance; and o Comments by securities analysts or government officials, including those with regard to the viability or profitability of the life settlement industry generally or with regard to our ability to meet market expectations. The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies. We are an "emerging growth company," subject to less stringent reporting and regulatory requirements of other publicly-held companies, and this status may have an adverse effect on our ability to attract interest in our common stock. We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or "JOBS Act." As long as we remain an "emerging growth company," we may take advantage of certain exemptions from various reporting and regulatory requirements that are applicable to other public companies that are not an "emerging growth company." We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile. Our management, who are husband and wife, own approximately 94.7% of our outstanding common stock and could elect all of our directors who in turn elect all of our officers. This percentage of stock ownership is significant in that it could carry any vote on any matter requiring stockholder approval, including the subsequent election of directors, who in turn elect all officers. As a result, these persons effectively control the Company, regardless of the vote of other stockholders. As a result, other stockholders may not have an effective voice in our affairs. See the section of this prospectus captioned "Principal Shareholders". This percentage does not include shares underlying outstanding options or warrants that can be exercised within 60 days. Future sales of our common stock could adversely affect our stock price and our ability to raise capital in the future, resulting in our inability to raise required funding for our operations. Future sales of substantial amounts of our common stock could harm any market that develops in our common stock. This also could harm our ability to raise capital in the future. Any sales of substantial amounts of our common stock in the public market, or the perception that those sales might occur, could harm the market price, if any, of our common stock. See the section of this prospectus captioned "Market Price of Common Stock" and 9 "Principal Shareholders". Further, certain stockholders have registration rights under which we will be required to register their shares for resale with the Securities and Exchange Commission; these shares or any registered securities we may register can also have an adverse effect on any market for our common stock. We will not solicit the approval of our stockholders for the issuance of authorized but unissued shares of our common stock unless this approval is deemed advisable by our Board of Directors or is required by applicable law, regulation or any applicable stock exchange listing requirements. The issuance of any additional shares of our common stock could dilute the value of our outstanding shares of common stock. MARKET FOR OUR COMMON STOCK Our common stock is quoted on the OTC Bulletin Board under the trading symbol "STWC". There has been very limited trading of our common stock since trading began on August 29, 2014. With the exception of the 25,641,884 shares issued in connection with the acquisition of Strainwise Colorado, all outstanding shares of our common stock have satisfied the resale requirements of Securities and Exchange Commission Rule 144. The resale of the shares that we are registering for resale could have a substantial adverse effect on any market for our common stock. See the "Selling Shareholders" section of this prospectus for more information. Holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors. Our Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend. No cash dividends have ever been declared and it is not anticipated that cash dividends will ever be paid. We currently intends to retain any future earnings to finance future growth. Any future determination to pay dividends will be at the discretion of our directors and will depend on our financial condition, results of operations, capital requirements and other factors the board of directors considers relevant. Our Articles of Incorporation authorize the Board of Directors to issue up to 5,000,000 shares of preferred stock. The provisions in the Articles of Incorporation relating to the preferred stock allow directors to issue preferred stock with multiple votes per share and dividend rights, which would have priority over any dividends paid with respect to the holders of common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to 10 shareholders generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if these transactions are not favored by management. As of January 30, 2015, and giving effect to the acquisition of Strainwise Colorado, we had approximately 138 shareholders of record and 26,948,884 outstanding shares of common stock. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion should be read in conjunction with the financial statements of Strainwise included as part of this registration statement. On August 19, 2014 the Company acquired approximately 90% of the outstanding shares of Strainwise, Inc., a Colorado corporation, in exchange for 23,124,184 shares of the Company's common stock. On September 12, 20014 the Company acquired the remaining outstanding shares of Strainwise Colorado in exchange for 2,517,700 shares of the Company's common stock. Although, from a legal standpoint, the Company acquired Strainwise on August 19, 2014, for financial reporting purposes the acquisition of Strainwise constituted a recapitalization, and the acquisition will be accounted for similar to a reverse merger, whereby Strainwise was deemed to have acquired the Company. Strainwise was incorporated in Colorado as a limited liability company on June 8, 2012, and converted to a Colorado corporation on January 16, 2014. However, Strainwise did not begin operations until January 1, 2014, when it began providing branding and fulfillment services to eight retail stores (seven of which sell recreational and medical marijuana to the public and one of which only sells medical marijuana to the public) owned by Shawn Phillips, an officer and director of the Company, and to six grow facilities operated by Mr. Phillips (collectively the "Affiliated Entities"). As a result, comparison of Strainwise's operating results for the year ended January 31, 2014, and the nine months ended October 31, 2014, would not be meaningful. As more fully described in the "Business" section of this prospectus, since January 1, 2014, Strainwise has been providing branding and fulfillments services to the marijuana retail stores owned by Mr. Phillips, and has been subleasing space to the grow facilities operated by Mr. Phillips for their operations. As of January 30, 2015 Strainwise was not providing services to any other entities. The following shows the amounts we received for the branding and fulfillment services provided pursuant to our Master Service Agreements and subleasing grow facilities for the periods shown, as well as the amounts we expect to receive during the twelve months ending October 31, 2015 from these sources. Projected revenue from branding, marketing, accounting and other services has been calculated in whole based upon the terms our Master Service Agreements with the Affiliated Entities. Projected revenue from subleasing is based upon executed agreements with the Affiliated Entities. Projected revenue does not include any amounts from nutrient sales or lending since, as of the date of this prospectus, future revenue from these sources cannot be estimated 11 with any degree of certainty. Projected revenues are significantly greater than actual revenue for the nine months ended October 31, 2014 (annualized for twelve months) since primarily due to the fact that the 51st Avenue grow facility did not become operational until August 2014. Amounts received Projected Revenue ------------------------------------ -------------------- Year Ended Nine months ended Twelve months ending January 31, 2014 October 31, 2014 January 31, 2016 Branding, marketing, accounting and other services $70,000 $ 790,000 $950,000 Nutrient Sales 34,378 550,017 760,000 Subleasing -- 1,978,894 3,978,000 -------- ---------- --------- Total $104,378 $3,546,501 $5,688,000 ======== ========== ==========
The Company's operating expenses, as a % of revenue, for the year ended January 31, 2014, were 89%. The Company's operating expenses, as a percentage of revenue, for the three and nine months ended October 31, 2014 were 79% and 86% respectively. The increase in operating expenses vs. revenue during the nine months ended October 31, 2014 was the result of increased compensation expenses, increased occupancy costs for new grow facilities, and interest expense. The Company's estimated capital requirements for the twelve months ending December 31, 2015 are as follows: (i) approximately $750,000 for lease payments and operational costs to develop a 65,000 square foot grow facility located in the metro Denver area, (ii) approximately $300,000 to $500,000 for additional equipment such as grow lights, electrical upgrades, generators and air conditioning and (iii) approximately $2,181,500 for payments on our four operating leases. When the grow facility is completed, the Company will lease the facility to affiliated dispensaries. As of January 30, 2015, the Company's operating expenses, excluding payments required for its operating leases, were approximately $185,000 per month. Between March 15, 2014 and August 19, 2014, Strainwise Colorado sold 2,224,700 units, at a price of $1.00 per unit, to a group of private investors. Each unit consisted of one share of Strainwise's common stock and one warrant. Every two warrants entitle the holder to purchase one share of Strainwise's common stock at a price of $5.00 per share at any time prior to January 31, 2019. When the Company acquired the remaining shares of Strainwise pursuant to the short form merger, the Company exchanged its warrants for the outstanding Strainwise warrants. The warrants issued by the Company have the same terms as the Strainwise warrants. On March 20, 2014 the Company borrowed $850,000 from Randall Taylor, an unrelated third party. The loan bears interest at 25% per year, payable monthly, and was scheduled to mature on September 21, 2014. On July 16, 2014, the terms of the loan were amended such that $200,000 of the loan was converted into 293,000 shares of the Company's common stock and the Company paid the remaining 12 balance of the loan ($325,000), plus accrued interest and a prepayment penalty of $11,250, on July 27, 2014. The $850,000 loan was used (i) to secure approximately $217,800 of deposits for the future rental and/or purchase of grow facilities to lease to growers in the industry, (ii) to acquire approximately $175,000 of cultivation equipment (iii) to make approximately $63,500 of tenant improvements to grow facilities under lease, (iv) to pay approximately $373,000 of principal and interest to the note holder, and (v) to pay other miscellaneous expenses. On July 26, 2014 the Company purchased a 5,000 square foot commercial building for $660,000. The building, which is located at 5110 Race Street in Denver, Colorado, houses a retail marijuana dispensary and a small grow facility which are owned by Shawn Phillips. The retail dispensary (known as "the Sanctuary") and grow facility are leased to one of the Affiliated Entities. The purchase price was paid with cash of $60,000 and a loan of $600,000, which is payable in varying amounts from $11,000 to $36,000 per month, with a final payment of $126,000 due on August 1, 2017. Beginning January 1, 2015, we subleased the Custer facility to an independent third party for a five year period beginning a triple-net-lease-basis, with monthly rental payments of $20,000 per month for the six month period beginning January 1, 2015 $51,200 per month for the six month period beginning July 1, 2015 and $35,000 per month for the 48 monthperiod beginning January 1, 2016. On January 30, 2015, three unrelated third parties collectively loaned the Company $550,000. The loans bear interest at 25% per year, are unsecured, and are due and payable on January 31, 2017. Interest-only payments are due each month, with the first interest payment due on February 15, 2015. At the option of the lenders, the loans can be converted into shares of the Company's common stock at the rate of $1.00 per share. On March 1, 2015 two of the third parties loaned the Company an additional $500,000. The terms of the new loans are the same as the loans made on January 30, 2015. Any of the following are an event of default which would cause all amounts due the lenders to become immediately due and payable: o the Company fails to make any interest payment when due; or o the Company breaches any representation, warranty or covenant or defaults in the timely performance of any other obligation in its agreements with the lenders. The loan proceeds were used to pay general and administrative expenses. Contractual Obligations The future minimum payments under the terms of the Company's material contractual obligations are shown below. 13 Year Ending January 31, -------------------------------------------------------- Description 2016 2017 2018 2019 2020 Thereafter ----------- ---- ---- ---- ---- ---- ---------- Corporate office lease $ 67,400 $ 52,700 $ -- $ -- $ $ -- Operating Leases 6,951,900 7,848,000 8,195,500 8,619,300 8,347,200 7,045,300 Mortgage 232,000 232,000 126,000 -- -- -- Loan -- 1,050,000 -- -- -- -- ----------- ---------- ---------- ---------- ---------- ---------- Total: $ 7,251,300 $9,182,700 $8,321,500 $8,619,300 $8,347,200 $ 7,045,300 =========== ========== ========== ========== ========== ===========
The Company plans to fund its operations and contractual requirements through fees received for branding and fulfillment services, sales of nutrients, subleasing grow facilities and the public or private sale of its securities. The Company will need to raise enough capital to fund its operations until it is able to earn a profit. The Company does not know what the terms of any future capital raising may be but any future sales of the Company's equity securities will dilute the ownership of existing stockholders and could be at prices below the market price of the Company's common stock. The inability of the Company to obtain the capital which it requires may result in the failure of the Company. The Company does not have any commitments from any person to provide the Company with capital. Trends The factors that will most significantly affect the Company's future operating results, liquidity and capital resources will be: o Government regulation of the marijuana industry; o Revision of Federal banking regulations for the marijuana industry; and o Legalization of recreational marijuana in states other than Colorado and Washington. Other than the foregoing, the Company does not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on: o revenues or expenses; o any material increase or decrease in liquidity; or o expected sources and uses of cash. Critical Accounting Policies and New Accounting Pronouncements See Notes 1 and 8 to the financial statements included as part of this registration statement, for a description of the Company's critical accounting policies and the potential impact of the adoption of any new accounting pronouncements. 14 BUSINESS On August 19, 2014, pursuant to an Agreement to Exchange Securities (the "Agreement"), we acquired approximately 90% of the outstanding common stock of Strainwise, Inc., a Colorado corporation ("Strainwise Colorado"), in exchange for 23,124,184 shares of our common stock. In connection with the acquisition: o we caused 1,038,000 shares of our outstanding common stock to be cancelled; o Shawn Phillips was appointed a director and the Chief Executive Officer of the Company; o Erin Phillips was appointed a director and the President, and Principal Financial and Accounting Officer of the Company; o David Modica was appointed a director and Manager of Quality Control and a director of the Company; o Shane Thueson, Nicholl Doolin and John Winchester, resigned as officers and directors of the Company; and o the Company sold its motion picture film business and related assets to Shane Thueson. On September 5, 2014 we changed our name to Strainwise, Inc. On September 12, 2014 we acquired the remaining outstanding shares of Strainwise Colorado in exchange for the issuance of 2,517,000 shares of our common stock. In connection with this transaction: o we issued 1,112,350 Series A warrants to former Strainwise Colorado shareholders in exchange for a like number of warrants held by the former Strainwise Colorado shareholders. The Series A warrants we issued have the same terms as the warrants exchanged by the former Strainwise Colorado shareholders (exercise price: $5.00 per share/expiration date: January 31, 2019). o we issued 500,000 warrants to one non-affiliated person in exchange for a like number of warrants held by the former Strainwise Colorado warrant holder. The warrants we issued have the same terms as the warrants exchanged by the former Strainwise Colorado warrant holder (exercise price: $0.10 per share/expiration date: January 31, 2019). Unless otherwise indicated, all references to us include the operations of Strainwise Colorado. As a result of the acquisition of Strainwise Colorado, we now provide services to the regulated marijuana industry. 15 Presently, cannabis production and sales are largely the domain of "mom-and-pop" operations that are not as large as they could be since marijuana remains illegal under federal law and banks and credit card companies are prohibited from processing marijuana business transactions according to applicable federal rules and regulations. However, working within state guidelines, entrepreneurs are moving forward with ambitious cannabis business strategies. Management believes the current group of retail and cannabis production companies see potential for increased sales and profits, especially if they can transition these mom-and-pop operations to mid-sized businesses, and subsequently transition the mid-sized businesses to larger, national brands. Shawn Phillips, the founder of Strai10.12nwise, owns seven recreational marijuana retail stores and two medical marijuana stores. Mr. Phillips also operates several sophisticated and efficient product cultivation ("grow") facilities, which collectively contain approximately 80,000 square feet of growing space. The retail marijuana stores and the grow facilities are sometimes referred to in this prospectus as the "Affiliated Entities". The seven retail stores have been in operation as medical marijuana, and subsequently, retail marijuana outlets, for between one and three years. As a result of the ownership and operation of their own retail marijuana stores and growing facilities, Shawn Phillips, and his wife Erin, are aware that the operators of many of the potential client stores need the services we plan to provide. Such services are presently beyond the reach (both financially and operationally) for a large majority of retail owners. The mom-and-pop owners do not have sufficient economies of scale, nor the level of management sophistication and background to enable them to fully leverage their business opportunity within the marijuana industry. Master Service Agreements Our branding and fulfillment services are provided under Master Service Agreements and are described below: o Branding, Marketing, Administrative and Consulting Services: Customers may contract with us to use the Strainwise name, logo and affinity images in their retail store locations. A monthly fee permits our branding customer to use the Strainwise brand at one 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. o Accounting and Financial Services: For a monthly fee, we provide our 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, retail store and grow facility. We 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 on behalf of the Company and the Captive Stores on an ongoing basis. 16 o Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, many times obtuse, and may prove cumbersome with which to comply. 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 provide this service on both an hourly rate and stipulated monthly fee. o Nutrient Supplier: We presently are one of the larger, single purchasers of nutrients and other cultivation supplies for the sole purpose of growing marijuana. As a result, we are able to make bulk purchases with price breaks, based upon volume. o Lending: We plan to provide loans to individuals and businesses in the cannabis industry. However, Colorado State law does not allow entities operating under a cannabis license to pledge the assets or the license of the cannabis operation for any type of general borrowing activity. Thus, our lending will be on an unsecured basis, with reliance on a personal guarantee of the borrower. The loans will enable borrowers to (if desired) purchase buildings for their operations, acquire fixtures and equipment, and/or fund their working capital needs. We plan to obtain the capital needed to fund the loans through fees received for branding and fulfillment services, sales of nutrients, subleasing grow facilities and the public or private sale of our securities. o Lease of Grow Facilities and Equipment: We sublease facilities and grow equipment at our cost, plus a premium of forty percent to persons in the marijuana industry. We may also enter into sale/lease backs of grow lights, tenant improvements and other grow equipment. We presently provide these branding and fulfillment services to the retail marijuana outlets owned by Shawn Phillips and the grow facilities operated by Mr. Phillips. The following shows the monthly fees we receive, and expect in the future to receive, for providing branding and fulfillment services to the retail outlets and grow facilities: Branding, marketing Accounting/ Retail Outlets and administrative compliance Sanctuary (1) $ 4,500 $ 5,500 Annie $ 4,500 $ 2,500 Ridge $ 4,500 $ 5,500 Spring $ 4,500 $ 2,500 Retreat $ 4,500 $ 5,500 Shelter $ 4,500 $ 5,500 Grove $ 4,500 $ 5,500 Haven (1) $ 4,500 $ 5,500 Range $ 4,500 $ 5,500 Federal Heights (2) -- -- 17 Grow Facilities --------------- 51st Avenue $ 15,000 $ 5,500 Nome $ 10,000 $ 5,500 32nd Avenue $ 20,000 $ 5,500 Bryant Street $ 2,000 $ 5,500 (1) This outlet also houses a small grow facility. (2) This outlet had not opened as of January 31, 2015. Monthly fees will not begin until the outlet is operational, which is expected to be in September, 2015. As of the date of this prospectus we had not provided any branding and fulfillment services on an hourly basis. We do not know what our hourly charge will be for any services we may provide by the hour. Our Master Service agreements expire on December 31, 2023. Although we plan to make our services available to independent retail stores and grow facilities in the regulated marijuana industry throughout the United States, as of the date of this prospectus we were not providing our branding and fulfillment services to any other persons or entities and we had not made any loans to any person. We do not grow marijuana plants, produce marijuana infused products, sell marijuana plants and/or sell marijuana infused products of any nature. Operating Leases/Subleasing On March 7, 2014, we leased a grow facility containing approximately 26,700 square feet ("Custer Lease") for a term of five years commencing on April 1, 2014. Under the terms of the lease, we paid a security deposit of $29,200. We will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 460 grow lights. Effective January 1, 2015, we subleased the Custer property to an unrelated third party. Pursuant to the terms of the sublease, the subtenant will pay us monthly rent according to the following schedule: Period Monthly Rent Beginning Ending $20,000 1-1-15 6-30-15 $51,200 7-1-15 12-31-15 $35,600 1-1-16 3-31-19 18 On April 1, 2014, we leased a grow facility containing approximately 65,000 square feet ("51st Ave Lease") for a term of five years and nine months, commencing on August 17, 2014. Under the terms of the lease, we are obligated to pay a security deposit of $150,000, one-third of which was paid upon the execution of the lease, the second third of which is due and payable after the first harvest or by October 1, 2014, and the final third of which is due and payable after the second harvest or by December 1, 2014. The entity which is leasing this facility us will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under 1,680 grow lights. On April 22, 2014, we leased a grow facility containing approximately 38,000 square feet ("Nome Lease") for a term of seven years, commencing on April 22, 2014. Under the terms of the lease, we paid a security deposit of $133,679. Although we will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under 800 grow lights, the entity which is leasing this facility to us agreed to provide financing for up to $750,000 of tenant improvements at an interest rate of 25%, payable monthly over 60 months. As of October 1, 2014, the $750,000 of tenant improvements had been completed at the facility and we began paying monthly installments of $22,013 at that time. On December 1, 2014, the lease was extended to April 30, 2015 and the lease payments were modified. The amendment to the lease included the cancellation of the $750,000 note payable to the lessor for the financing of tenant improvement, and the extension of an additional $800,000 to be used by us for future tenant improvements. The full amount of $1,550,000 of tenant improvement financing to be provided by the lessor will be amortized over the term of the amended lease as a component of the monthly lease payments. On November 11, 2014, we leased a retail location consisting of approximately 3,000 square feet ("Federal Heights Lease") for a term of five years and one month, with two five year renewal options. The lease, which commenced on November 11, 2014, requires us to pay rent of $5,704 each month. We will provide all of the tenant improvements required to convert the space to a marijuana dispensary. On June 10, 2014, we leased a grow facility containing approximately 113,000 square feet ("32nd Ave Lease") for a term of five years and nine months, commencing on July 1, 2014. Under the terms of the lease, we paid a security deposit of $250,000, $150,000 of which was paid upon the execution of the lease, and $100,000 of which will be paid when a certificate of occupancy is issued (expected in early 2015). The person which is leasing this facility us will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under 1,936 grow lights. On September 11, 2014, we leased a grow facility containing approximately 20,000 square feet ("Bryant Street Lease") for a term of ten years. We will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under 370 grow lights. With the exception of the Bryant Street property, there are no options to purchase the properties underlying these leases. During the term of the Bryant Street, lease we have the option to purchase the property subject to the lease for $2,400,000. 19 The future minimum payments under the terms of the Operating Leases are shown below. Lease Payments Due During Year Ending January 31, Lease 2016 2017 2018 2019 2020 Thereafter ----- ---- ---- ---- ---- ---- ---------- Custer $ 276,700 $ 310,800 $ 320,000 $ 358,700 $ 60,100 $ -- 51st Ave. 1,077,700 1,096,800 1,115,900 1,135,000 947,100 3,943,400 Nome 2,616,600 2,662,000 2,772,900 2,893,900 2,959,500 247,000 32nd Ave. 2,617,500 3,390,000 3,559,500 3,785,500 3,926,700 988,700 Bryant Street 295,000 320,000 358,700 377,800 385,300 1,866,100 Federal Heights 68,400 68,400 68,400 68,400 68,400 -- ---------- ---------- ---------- ---------- ---------- ---------- Total $6,951,900 $7,848,000 $8,195,400 $8,619,300 $8,347,100 $7,045,200 ========== ========== ========== ========== ========== ==========
None of the persons leasing these facilities to us are affiliated with us in any way. With the exception of the Custer property, we sublease the grow facilities described above to the Affiliated Entities for their grow operations. Our subleases with the Affiliated Entities expire on the same date as our leases with the owners of these properties. We charge the Affiliated Entities 140% of the amount we pay the lessors of these properties. We believe the terms of our subleases are comparable to those which we could have obtained from unrelated third parties. As explained above, effective January 1, 2015 we subleased the Custer property to an unrelated third party. As of the date of this prospectus the Federal Heights dispensary has not been subleased to one of the Affiliated Entities. The persons leasing the facilities described above to us, and the entities to which we are subleasing the facilities, are: Facility Lessor Subleassee (1) -------- ------ -------------- Custer Custer Place, LLC 5110 Race, LLC 51st Ave. Headgate II, LLC Denver Corridor, LLC Nome BCP - Nome I, LLC Denver Corridor, LLC 32nd Ave. Headgate III, LLC Denver Corridor, LLC Bryant Street Kalyx Colorado 5110 Race, LLC 695 Bryant, LLC (1) The subleasees are controlled by Shawn Phillips, one of our officers and directors. Acquisition of Race Street Property On July 26, 2014 we purchased a 5,000 square foot commercial building for $660,000. The building, which is located at 5110 Race Street in Denver, Colorado, houses a retail marijuana dispensary and a small grow facility which are owned by Shawn Phillips. The retail dispensary (known as "the Sanctuary") and grow facility are leased to one of the Affiliated Entities at a rate of $8,400 per month. The purchase price was paid with cash of $60,000 and a loan of $600,000, which is payable in varying amounts from $11,000 to $36,000 per month, with a final payment of $126,000 due on August 1, 2017. The loan is secured by the building we purchased. 20 Market Conditions In January 2014, the market was expanded in Colorado to allow adult use, including adult visitors from other states, of marijuana for recreational purposes. Voters in Washington State recently approved a ballot measure to legalize cannabis for adult use. Many predict that other states will follow Colorado and Washington in enacting legislation or approving ballot measures that expand the permitted use of cannabis. While projections vary widely, many believe that, as a result of the legalization of recreational marijuana in 2014, the Colorado medical and recreational market combined will reach $619,000,000 in 2014. According to an April 11, 2014 article in the Huffington Post, one study of the marijuana industry predicts that by 2018 retail marijuana sales could be $7.4 to $8.2 billion. Government Regulation Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The Department of Justice defines Schedule 1 controlled substances as "the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence." If the federal government decides to enforce the Controlled Substances Act in Colorado with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine. As of August 31, 2014, 20 states and the District of Columbia allow their citizens to use Medical Marijuana. Additionally, voters in the states of Colorado and Washington approved ballot measures last November to legalize cannabis for adult use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of such federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government's enforcement of such current federal laws could cause significant financial damage to the Company and its shareholders. While the Company does not intend to harvest, distribute or sell cannabis, the Company may be irreparably harmed by a change in enforcement by the federal or state governments or the enactment of new and more restrictive laws. 21 General Our offices are located at 1350 Independence Street, Suite 300, Lakewood, CO 80215. We lease our offices from an entity controlled by Erin Phillips, our President and one of our directors. The lease is for a 31 month period, commencing in January 2014 for 6,176 square feet at an annual rate of $64,848 for the first 12 months, $67,936 for the subsequent 12 months and $41,431 for the subsequent seven months, payable monthly, through October 31, 2016. Our lease is on the same terms and conditions as is the lease between the entity controlled by Ms. Phillips and the owner of the property, who is not affiliated with us. Consequently, we believe that the terms of our lease are comparable to terms we would receive directly from unrelated third parties. As of January 30, 2015, we had 10 full time employees and one part time employee. MANAGEMENT Name Age Position ---- --- -------- Shawn Phillips 42 Chief Executive Officer and a Director Erin Phillips 37 President, Chief Financial and Accounting Officer and a Director David Modica 37 Manager of Quality Control and a Director The following is a brief summary of the background of each officer and director including their principal occupation during the five preceding years. All directors will serve until their successors are elected and qualified or until they are removed. Shawn Phillips is one of the early pioneers in the marijuana industry in Colorado and is one of the founders of Strainwise. Currently, Shawn owns and holds all of the licenses issued by the State of Colorado for the eight marijuana stores (the "Captive Stores"). In concert with his spouse, Erin Phillips, he has been instrumental in the management of the operations of these stores since the date they were either purchased as an existing retail store or initially opened for medical marijuana sales beginning in 2010. In addition, Shawn oversees the growing facilities which supply the various strains of product to the Captive Stores and other retail operations in Colorado. Prior to 2010 Mr. Phillips was the owner/operator of RLO Realty, a residential and commercial real estate firm (2008-2010), an account executive with Stewart Title Company (2007-2008) and the owner/operator of Legacy Funding, a residential mortgage company (2001-2007). Mr. Phillips holds a B.S in Accounting from Colorado State University, and using his accounting education and experience, his established reliable point-of-sale accounting procedures and financial controls for these stores and the multiple production facilities. Mr. Phillips filed a personal bankruptcy petition in September 2009 and received a discharge in January 2010. Erin Phillips has over 17 years of operational and management experience. Erin is one of the early pioneers in the marijuana industry in Colorado and is one of the founders of Strainwise. In concert with her spouse, Shawn Phillips, 22 she has been instrumental in the management of the operations of the eight Captive Stores since the date they were either purchased as an existing retail store, or initially opened for medical marijuana sales beginning in 2010. Erin is responsible for managing the marketing, advertising and promotions at the Captive Stores, and is responsible for establishing and expanding the brand recognition of the Strainwise name and logo throughout the Company's target markets. Prior to establishing Strainwise, Erin spent 13 years in the mortgage industry as a business owner, audit and funding supervisor, title company closer, mortgage loan processer, and loan originator. David Modica has been the Quality Control Manager and a director of Strainwise since 2013. In this capacity, he works with the managers of the cultivation and grow facilities owned by Shawn Phillips to maintain the quality of the proprietary strains and marijuana products grown in these facilities. Upon initially joining Strainwise, he was tasked with converting the point-of-sale systems used by the Captive Stores to a more advanced system which can better track all categories of inventory. Prior to joining Strainwise, he was the owner and operator of a residential rental company (2005 to 2013), a web developer for Design Factory International (2003 to 2005), and a web developer/designer for Eastridge Technology (2001 to 2003). Mr. Modica obtained his B.A. from the University of North Carolina at Chapel Hill in 2000, with a degree in Journalism and Mass Communications. The specific experience, qualifications, attributes or skills that led to the conclusion that each named person should serve as a director are listed below: Shawn Phillips - experience in marijuana industry Erin Phillips - experience in marijuana industry David Modica - experience in marijuana industry and in point-of-sale technology Shawn Phillips, Erin Phillips and David Modica are not independent as that term is defined in Section 803 of the NYSE MKT Company Guide. As explained in the "Business" section of this prospectus, substantially all of our revenue is derived pursuant to Master Service Agreements we have with entities controlled by Shawn Phillips, one of our officers and directors. We do not have a financial expert as that term is defined by the Securities and Exchange Commission. Our Board of Directors does not have standing audit, nominating or compensation committees, committees performing similar functions, or charters for such committees. Instead, the functions that might be delegated to such committees are carried out by our Board of Directors, to the extent required. Our Board of Directors believes that the cost of associated with such committees, has not been justified under our current circumstances. Given our lack of operations to date, our Board of Directors believes that its current members have sufficient knowledge and experience to fulfill the duties and obligations of an audit committee. None of the current Board members is an "audit committee financial expert" within the meaning of the rules and 23 regulations of the Securities and Exchange Commission. The Board has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member's financial sophistication. Our Board of Directors does not currently have a policy for the qualification, identification, evaluation, or consideration of board candidates and does not think that such a policy is necessary at this time, because it believes that, given the limited scope of our operations, a specific nominating policy would be premature and of little assistance until our operations are at a more advanced level. Currently the entire Board decides on nominees. Our Board of Directors does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. We do not have any restrictions on shareholder nominations under its articles of incorporation or bylaws. The only restrictions are those applicable generally under Utah law and the federal proxy rules. The Board will consider suggestions from individual shareholders, subject to an evaluation of the person's merits. Shareholders may communicate nominee suggestions directly to the Board, accompanied by biographical details and a statement of support for the nominees. The suggested nominee must also provide a statement of consent to being considered for nomination. There are no formal criteria for nominees. Our Board of Directors does not have a "leadership structure" since each board member is free to introduce any resolution at any meeting of our directors and is entitled to one vote at any meeting. Holders of our common stock may send written communications to our entire board of directors, or to one or more board members, by addressing the communication to "the Board of Directors" or to one or more directors, specifying the director or directors by name, and sending the communication to our offices in Lakewood, Colorado. Communications addressed to the Board of Directors as whole will be delivered to each board member. Communications addressed to a specific director (or directors) will be delivered to the director (or directors) specified. Security holder communications not sent to the Board of Directors as a whole or to specified board members will be relayed to board members. The following table shows compensation we paid our officers during the periods indicated: All Other Annual Stock Option Compen- Name and Principal Fiscal Salary Bonus Awards Awards sation Position Year (1) (2) (3) (4) (5) Total ------------------ ----- -------- -------- ---------- -------- ------- ----- Shawn Phillips 2015 $81,800 -- -- -- -- $81,800 Chief Executive Officer 24 Erin Phillips 2015 $173,500 -- -- -- -- $173,500 President, Chief Financial and Accounting Officer David Modica 2015 $91,500 -- 40,000 -- -- $131,500 Manager of Quality Control Shane E. Thueson 2015 -- -- -- -- -- -- President (6) 2014 -- -- -- -- -- -- Nicholl Doolin 2015 -- -- -- -- -- -- Vice President (6) 2014 -- -- -- -- -- -- John K. Winchester 2015 -- -- -- -- -- -- Secretary (6) 2014 -- -- -- -- -- --
(1) The dollar value of base salary (cash and non-cash) received. (2) The dollar value of bonus (cash and non-cash) received. (3) During the periods covered by the table, the value of the Company's shares issued as compensation for services to the persons listed in the table. (4) The value of all stock options granted during the periods covered by the table. (5) All other compensation received that the Company could not properly report in any other column of the table. (6) This person resigned as an officer and director in August 2014. The following shows the amount we expect to pay to our officers during the twelve months ending December 31, 2015 and the amount of time these persons expect to devote to our business. Projected % of time to be devoted Name Compensation to the Company's business ---- ------------ ------------------------- Shawn Phillips $160,000 85% Erin Phillips $180,000 90% David Modica $ 72,000 95% Our directors serve until the next annual meeting of our shareholders and until their successors have been duly elected and qualified. Our officers serve at the discretion of our directors. During the two years ended January 31, 2015 we did not compensate any person for acting as a director. Our current officers and directors were elected to their positions in August 2014. We do not have any securities authorized for issuance under any equity compensation plans. 25 Non-Compete Agreements Both Shawn and Erin Phillips have entered into non-compete agreements wherein they agreed that during their employment and for a period of five (5) years after termination of their relationship with Strainwise, without the express written consent of Strainwise, they shall not, directly or indirectly (i) employ, solicit for employment, or recommend for employment any person employed by the Company; (ii) contact or solicit any person or business which was a client of the Company at any time within twelve (12) months before the termination of the employment with Strainwise in connection with any matters similar in nature or related to any business conducted between or contemplated by the Company and such client at any time during their employment with Strainwise; (iii) engage in any present or contemplated business activity that is or may be competitive with the Company (or any part thereof) in the State of Colorado or any other state of the United States of America where the Company (or any part thereof) conducts its business. For purposes of their non-compete agreements, Shawn and Erin Phillips agreed that to engage in a business in competition with the business of the Company, or a "competitive business" shall mean: (i) to be employed by, (ii) own an interest in, (iii) be a consultant to, (iv) be a partner in (v) or otherwise participate in any business or venture which offers or sells to businesses or persons, cannabis related products or services which are the same as or similar to those which are, at the then applicable time, being offered and sold by the Company (or any part thereof). Non-Disclosure Agreements Both Shawn and Erin Phillips have entered into non-disclosure agreements wherein they agreed not, directly or indirectly, to use, make available, sell, disclose or otherwise communicate to any third party, other than in their assigned duties and for the benefit of the Company, any of the confidential information of Strainwise, either during or after their relationship with Strainwise. They agreed not to publish, disclose or otherwise disseminate such information without prior written approval of an executive officer (other than themselves) of Strainwise. They acknowledged that they are aware that the unauthorized disclosure of Confidential Information of Strainwise may be highly prejudicial to its interests, an invasion of privacy, and an improper disclosure of trade secrets. Proprietary and confidential information shall include, but not be limited to: 1) methods, processes and/or technologies for the growing, cultivation and production of cannabis and marijuana plants and products; 2) cannabis business processes, procedures and strategies; 3) retail and medical cannabis store operations; 4) cannabis branding and fulfillment services; 5) forecasts, unpublished financial information, budgets, projections, customer lists, and client identities, characteristics and agreements; 6) software, processes, trade secrets, computer programs, electronic codes, inventions, innovations, discoveries, improvements, data, know-how, and formats; 7) business, marketing, and strategic plans; 26 8) information about costs, profits, markets, sales, contracts and lists of clients and referral sources; 9) employee personnel files and compensation information; 10) customer lists and names of customer contact personnel; and 11) customer terms, information, payments and data. Exchange Option and Mandatory Exchange Shawn and Erin Phillips have granted an option to the Company that entitles the Company to acquire the eight marijuana stores (the "Captive Stores") now owned and that may become owned by Mr. or Mrs. Phillips in the future ("Exchange Option"). The Exchange Option may be exercised by the Company anytime within a six month period from the date that laws or regulations permit the Company to own all or a part of the Captive Stores. Upon the exercise of the Exchange Option, the Phillips will be obligated to exchange the Captive Stores (or such percentage interest in the Captive Store that the Company can legally acquire) for shares of the Company's common stock (the "Exchange Shares"). The number of the Exchange Shares to be issued to the Phillips will be determined by the following formula: 5 x A x B --------- C Where: A = the combined EBITDA of the Captive Stores for the immediately preceding twelve (12) month period from the date the Exchange Option is exercised. B = The percentage in the Captive Stores that can be acquired by the Company. C = the average closing price on the Pink Sheets, OTC Bulletin Board, NASDAQ, or NYSE/MKT for the ninety (90) days preceding the date the Exchange Option is exercised; Combined EBITDA will be determined using generally accepted accounting principles, consistently applied. Notwithstanding the above, the number of Exchange Shares will be reduced, if necessary, such that, following the issuance of the Exchange Shares, the total number of shares of the Company's common stock owned by the Phillips, together with any shares issuable upon the exercise of any option or warrants held by the Phillips, or any shares issuable upon the conversion of any securities owned by the Phillips, will not exceed 85% of the Company's outstanding shares of common stock. Any advances to the Phillips and/or accounts receivable from the Phillips, or any distributions to them in excess of the capital account of any Captive Store at the time of the completion of the exchange, will (i) be personally 27 guaranteed by both Shawn and Erin Phillips, (ii) will be payable 36 months from the date of the completion of the exchange, and (iii) will bear interest, to be adjusted monthly, at the LIBOR rate plus 3%. If the Exchange Option is exercised, the following is an example of the number of Exchange Shares to be issued to the Phillips, assuming the Company can legally acquire a 50% interest in the Captive Stores: o Combined EBITDA for the immediately preceding twelve (12) month period - $80,000,000; o Fifty percent of the combined EBITDA - $80,000,000 X 50% = $40,000,000; o Combined EBITDA multiplied by 5 times - 40,000,000 X 5 = 200,000,000; o Average market price for the preceding ninety (90) day period - $20; and o Number of Exchange Shares to be issues to Phillips - 10,000,000 In the event the Captive Stores are not owned equally by Erin and Shawn Phillips: o the Exchange Shares to be issued to Erin Phillips will be based upon the percentage of the combined EBITDA of the Captive Stores owed by Erin Phillips; and o the Exchange Shares to be issued to Shawn Phillips will be based upon the percentage of the combined EBITDA of the Captive Stores owed by Shawn Phillips. The Exchange Shares will be "restricted shares", as that term is defined in Rule 144 of the Securities Exchange Commission. At the option of the holder of the Exchange Shares, the Exchange Shares will be included in the first registration statement filed by the Company with the Securities and Exchange Commission following the exercise of the Exchange Option, excluding any registration statement on Form S-4, S-8, or any other inapplicable form (the "piggy-back" registration rights). Notwithstanding the above, the underwriter of any public offering conducted by the Company may limit the Exchange Shares which may be sold due to market conditions. No shareholder of the Company will be granted piggyback registration rights superior to those of the Exchange Shares. The Company will pay all registration expenses (exclusive of underwriting discounts and commissions and special counsel to the Phillips). The registration rights may be transferred provided that the Company (i) is given prior written notice; (ii) the transfer is in connection with a transfer of not less than 1,000,000 shares of the Company's common stock; and (iii) the transfer is to no more than three persons. PRINCIPAL SHAREHOLDERS The following table shows the ownership, as of the date of this prospectus, of those persons owning beneficially 5% or more of the Company's common stock and the number and percentage of outstanding shares owned by each of the Company's directors and officers and by all officers and directors as a group. Except as listed below, each owner has sole voting and investment power over their shares of common stock. 28 Name Shares Owned % of Outstanding Shares ---- ------------ ----------------------- Shawn Phillips (1) (1) Erin Phillips 23,124,184 94.7% David Modica 25,000 Nil All officers and directors as a group (three persons) 23,149,184 94.7% (1) Shawn Phillips may be deemed to share beneficial voting and/or investment power with respect to the shares held by his wife, Erin Phillips. The address of each person listed above is 1350 Independence St., Suite 300 Lakewood, CO 80125. SELLING SHAREHOLDERS By means of this prospectus o a number of our shareholders are offering to sell up to 2,517,700 shares of our common stock, as well as up to 1,112,350 shares of our common stock issuable upon the exercise of our Series A warrants, and o a person holding an option to purchase 500,000 shares of our common stock is offering to sell the shares issuable upon the exercise of the option. The following selling shareholders acquired their shares in connection with our acquisition of Strainwise Colorado. Shares Issuable upon exercise of Shares to be Shares Series A Sold in this Ownership Name of Selling Shareholder Owned Warrants Offering After Offering --------------------------- ------ -------- -------- -------------- Jeffrey Beatie 2,000 1,000 3,000 -- Brian and Donna Beck 30,000 15,000 45,000 -- Cathy Boring 5,000 2,500 7,500 -- Donald Boring 200,000 100,000 300,000 -- Jeff and Audry Carapella 10,000 5,000 15,000 -- Matt Cinquanta 25,000 12,500 37,500 -- David Clark 10,000 5,000 15,000 -- Rick Clayton 25,000 12,500 37,500 -- Francis Conry 1,000 500 1,500 -- Thomas Cook 20,000 10,000 30,000 -- Paula and Patrick Delaney 4,200 2,100 6,300 --
29 Shares Issuable upon exercise of Shares to be Shares Series A Sold in this Ownership Name of Selling Shareholder Owned Warrants Offering After Offering --------------------------- ------ -------- -------- -------------- Matthew Ehrhard 10,000 5,000 15,000 -- Steven Haggerty 50,000 25,000 75,000 -- Henrietta Hubenka 10,000 5,000 15,000 -- Gale James 50,000 25,000 75,000 -- Ronald Kadziel 50,000 25,000 75,000 -- Vivienne Khong 200,000 100,000 300,000 -- Stan Kotzker 75,000 37,500 112,500 -- Vikki and George Kourkouliotis 10,000 5,000 15,000 -- Sean and Shannon Leonard 20,000 10,000 30,000 -- Naratorn Menzie 25,000 12,500 37,500 -- Michael Novick 20,000 10,000 30,000 -- James and Kelly Oleis 30,000 15,000 45,000 -- David Phillips 55,000 27,500 82,500 -- Mark Shanely 25,000 12,500 37,500 -- Mary Jane Shanely 1,000 500 1,500 -- Alan Simon 50,000 25,000 75,000 -- Timothy Sisto 15,000 7,500 22,500 -- Colleen Snead 1,000 500 1,500 -- Jeff and Judith Stettler 2,000 1,000 3,000 -- Mark Strait 6,000 3,000 9,000 -- Ken Turner, III 10,000 5,000 15,000 -- Violetta Wells 10,000 5,000 15,000 -- Tim Wingard 25,000 12,500 37,500 -- Jason D. Amos 10,000 5,000 15,000 -- Erik Aude 1,000 500 1,500 -- Josh Boren 3,000 2,500 5,500 -- Eric Busch 10,000 5,000 15,000 -- Tadd Busch 22,500 11,250 33,750 -- Judy Camarena 10,000 5,000 15,000 -- Tom Campbell 10,000 5,000 15,000 -- Linda Carhart 7,500 3,750 11,250 -- Dane Casterson 130,000 65,000 195,000 -- Daril Cinquanta 1,000 500 1,500 -- Cosmo Investments 50,000 25,000 75,000 -- Ronald Curtis 5,000 2,500 7,500 -- Brian and Tonya Destarac 1,000 500 1,500 -- Tonya Destarac/Gooch 1,000 500 1,500 -- Cory and Patricia Fisher 5,000 2,500 7,500 -- Don and Betty Fisher 25,000 12,500 37,500 -- Jeffrey Fullerton 25,000 12,500 37,500 --
30 Shares Issuable upon exercise of Shares to be Shares Series A Sold in this Ownership Name of Selling Shareholder Owned Warrants Offering After Offering --------------------------- ------ -------- -------- -------------- Brad Goldwater 2,000 1,000 3,000 -- Charles Guyette 275,000 137,500 412,500 -- James and Elzabeth Hannon 50,000 25,000 75,000 -- Margaret Heath 10,000 5,000 15,000 -- Gary and Wanda Hermanson 50,000 25,000 75,000 -- Dave Huggins 50,000 25,000 75,000 -- Kirk Huston 5,000 2,500 7,500 -- Steven James 50,000 25,000 75,000 -- Jennifer Kealy 4,000 2,000 6,000 -- Daniel Liccardi 20,000 10,000 30,000 -- Michael McVay 25,000 12,500 37,500 -- Naratorn Menzie 10,000 5,000 15,000 -- Dominic Mincks 6,000 3,000 9,000 -- David Modica 25,000 12,500 37,500 -- Tricia Morin 40,000 20,000 60,000 -- Nathan Myers 3,000 1,500 4,500 -- Melissa Myrick 5,000 2,500 7,500 -- November First Co. 25,000 12,500 37,500 -- Victoria Palmen 2,000 1,000 3,000 -- Shawnda Peck 10,000 5,000 15,000 -- Albert Silvestri 20,000 10,000 30,000 -- Beverly Smith 12,500 6,250 18,750 -- Sean Stephens 5,000 2,500 7,500 -- Michael Tompeter Trust 50,000 25,000 75,000 -- Ken Turner 10,000 5,000 15,000 -- Malcolm Weiss 1,000 500 1,500 -- Brian Weston 10,000 5,000 15,000 -- Grant Whitus 25,000 12,500 37,500 -- Roderick Wilson 10,000 5,000 15,000 -- ----------- --------- ---------- -------- 2,224,700 1,112,350 3,337,050 -- Randall Taylor 293,000 -- 293,000 -- ----------- --------- ---------- -------- 2,517,700 1,112,350 3,630,050 -- ========== ========= ========== ========
In January, 2014 Strainwise Colorado issued warrants to an unaffiliated person for services rendered. The warrants allowed the holder to purchase up to 500,000 shares of Strainwise Colorado's common stock at a price of $0.10 per share at any time prior to January 31, 2019. When we acquired the remaining shares of Strainwise on September 12, 2014, we exchanged warrants for the previously issued Strainwise warrants. The warrants we issued have the same terms as the Strainwise warrants. The person named below is the holder of these warrants. 31 Shares Issuable Upon Shares to be Name of Shares exercise Sold in this Ownership Selling Shareholder Owned of Warrants Offering After Offering ------------------ ------- ----------- ------------- -------------- John Walsh 55,408 500,000 500,000 55,408 (1) (1) Represents less than 1% of our outstanding shares. The controlling persons of the non-individual selling shareholders named above are: Name of Shareholder Controlling Person ------------------- ------------------ Cosmo Investments Trenton Staley November First Co. Larry Hansen Michael Trompeter Trust Michael Trumpeter No selling shareholder has, or had, any material relationship with us, or our officers or directors. No selling shareholder is, to our knowledge, affiliated with a securities broker. The shares of common stock owned by the selling shareholders may be offered and sold by means of this prospectus from time to time as market conditions permit, in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. The shares of common stock may be sold by one or more of the following methods, without limitation: o a block trade in which a broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; o ordinary brokerage transactions and transactions in which the broker solicits purchasers; and o face-to-face transactions between sellers and purchasers without a broker/dealer. In competing sales, brokers or dealers engaged by the selling shareholders may arrange for other brokers or dealers to participate. Brokers or dealers may receive commissions or discounts from selling shareholders in amounts to be negotiated. As to any particular broker-dealer, this compensation might be in excess of customary commissions. Neither we nor the selling stockholders can presently estimate the amount of such compensation. Notwithstanding the above, no FINRA member will charge commissions that exceed 8% of the total proceeds from the sale. 32 The selling shareholders and any broker/dealers who act in connection with the sale of their securities may be deemed to be "underwriters" within the meaning of ss.2(11) of the Securities Acts of 1933, and any commissions received by them and any profit on any resale of the securities as principal might be deemed to be underwriting discounts and commissions under the Securities Act. If any selling shareholder enters into an agreement to sell his or her securities to a broker-dealer as principal, and the broker-dealer is acting as an underwriter, we will file a post-effective amendment to the registration statement, of which this prospectus is a part, identifying the broker-dealer, providing required information concerning the plan of distribution, and otherwise revising the disclosures in this prospectus as needed. We will also file the agreement between the selling shareholder and the broker-dealer as an exhibit to the post-effective amendment to the registration statement. The selling stockholders may also sell their shares pursuant to Rule 144 under the Securities Act of 1933. We have advised the selling shareholders that they, and any securities broker/dealers or others who sell the common stock or warrants on behalf of the selling shareholders, may be deemed to be statutory underwriters and will be subject to the prospectus delivery requirements under the Securities Act of 1933. We have also advised each selling shareholder that in the event of a "distribution" of the securities owned by the selling shareholder, the selling shareholder, any "affiliated purchasers", and any broker/dealer or other person who participates in the distribution may be subject to Rule 102 of Regulation M under the Securities Exchange Act of 1934 ("1934 Act") until their participation in that distribution is completed. Rule 102 makes it unlawful for any person who is participating in a distribution to bid for or purchase securities of the same class as is the subject of the distribution. A "distribution" is defined in Rule 102 as an offering of securities "that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods". We have also advised the selling shareholders that Rule 101 of Regulation M under the 1934 Act prohibits any "stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing or stabilizing the price of the common stock in connection with this offering. DESCRIPTION OF SECURITIES Common Stock We are authorized to issue 50,000,000 shares of common stock. Holders of common stock are each entitled to cast one vote for each share held of record on all matters presented to shareholders. Cumulative voting is not allowed; hence, the holders of a majority of our outstanding shares of common stock can elect all directors. Holders of common stock are entitled to receive such dividends as may be declared by the Board out of funds legally available and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities. Our directors are not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future. 33 Holders of common stock do not have preemptive rights to subscribe to any additional shares which may be issued in the future. There are no conversion, redemption, sinking fund or similar provisions regarding the common stock. All outstanding shares of common stock are fully paid and nonassessable. Preferred Stock We are authorized to issue 5,000,000 shares of preferred stock. Shares of preferred stock may be issued from time to time in one or more series as may be determined by the Board of Directors. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each series will be established by the Board of Directors. Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions are not favored by management. As of the date of this prospectus we had not issued any shares of preferred stock. Warrants On September 12, 2014, we acquired the remaining outstanding shares of Strainwise Colorado in exchange for the issuance of 2,517,000 shares of our common stock. In connection with this transaction: o we issued 1,112,350 Series A warrants to former Strainwise Colorado shareholders in exchange for a like number of warrants held by the former Strainwise Colorado shareholders. Each Series A warrant allows the holder to purchase one share of our common stock. The Series A warrants we issued have the same terms as the warrants exchanged by the former Strainwise Colorado shareholders (exercise price: $5.00 per share/expiration date: January 31, 2019); o we issued 500,000 warrants to one non-affiliated person in exchange for a like number of warrants held by the former Strainwise Colorado warrant holder. Each warrant allows the holder to purchase one share of our common stock. The warrants we issued have the same terms as the warrants exchanged by the former Strainwise Colorado warrant holder (exercise price: $0.10 per share/expiration date: January 31, 2019). Transfer Agent and Registrar Our transfer agent is: Standard Registrar & Transfer Co., Inc. 12528 South 1840 East Draper, UT 84020 34 LEGAL PROCEEDINGS We are not involved in any legal proceedings and we do not know of any legal proceedings which are threatened or contemplated. INDEMNIFICATION Our Bylaws authorize indemnification of a director, officer, employee or agent against expenses incurred by him in connection with any action, suit, or proceeding to which he is named a party by reason of his having acted or served in such capacity, except for liabilities arising from his own misconduct or negligence in performance of his duty. In addition, even a director, officer, employee, or agent found liable for misconduct or negligence in the performance of his duty may obtain such indemnification if, in view of all the circumstances in the case, a court of competent jurisdiction determines such person is fairly and reasonably entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers, or controlling persons pursuant to these provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. AVAILABLE INFORMATION We have filed with the Securities and Exchange Commission a Registration Statement on Form S-1 (together with all amendments and exhibits) under the Securities Act of 1933, as amended, with respect to the Securities offered by this prospectus. This prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Securities and Exchange Commission. For further information, reference is made to the Registration Statement which may be read and copied at the Commission's Public Reference Room. We are subject to the requirements of the Securities and Exchange Act of 1934 and are required to file reports and other information with the Securities and Exchange Commission. Copies of any such reports and other information filed by us can also be read and copied at the Commission's Public Reference Room. The Public Reference Room is located at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding public companies. The address of the site is http://www.sec.gov. 35 FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 31, 2014 AND THE PERIOD ENDED JANUARY 31, 2013 (Audited) 36 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Strainwise, Inc.: We have audited the accompanying balance sheets of Strainwise, Inc. ("the Company") as of January 31, 2014 and 2013 and the related statement of operations, changes in members' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above present fairly, in all material respects, the financial position of Strainwise, Inc., as of January 31, 2014 and 2013 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States of America. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over financial reporting. Accordingly, we express no such opinion. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ B F Borgers CPA PC B F Borgers CPA PC Denver, CO August 14, 2014 37 STRAINWISE, INC. BALANCE SHEETS (AUDITED) January 31, January 31, 2014 2013 -------------- ----------- ASSETS Current assets: Cash $ 100 $ 100 Prepaid expense 10,000 - -------------- --------- Total current assets 10,100 100 Office equipment and furnishings 10,500 - Trademark, net amortization of $61 and $0 at January 31, 2014 and 2013, respectively 10,949 - -------------- --------- Total assets $31,549 $ 100 ============== ========= LIABILITIES Current liabilities: Due to affiliated entities and related parties $ 50,203 $ - -------------- --------- Total current liabilities 50,203 - Deferred rent 3,273 - -------------- --------- 53,476 - STOCKHOLDERS' (DEFICIT) EQUITY Common stock, no par value, 100,000,000 shares authorized, 20,430,000 issued and outstanding - - Additional Paid in Capital 48,292 100 (Deficit) Retained Earnings (70,219) - -------------- --------- Total stockholder's equity (21,927) 100 -------------- --------- Total liabilities and stockholders' deficit $ 31,549 $ 100 ============== ========= See accompanying notes. 38 STRAINWISE, INC. STATEMENTS OF OPERATIONS (AUDITED) Period (Inception of June 8, Year Ended 2012) ended January 31, January 31, 2014 2013 ------------- ------------- Revenues from affiliated entities Branding, marketing and administrative $ 31,500 $ - Accounting and financial services 21,000 - Compliance services 17,500 - Nutrient sales 34,378 - 104,378 Operating costs and expenses Compensation 60,560 - Professional, legal and consulting 60,752 - Financing costs 20,000 Nutrient purchases 18,094 Rent and other occupancy 5,404 - General and administrative 9,753 - Amortization 61 - ------------- ---------- Total operating costs and expenses 154,597 - ------------- ---------- Loss from operations before income taxes 70,219 - ------------- ---------- - Provision for taxes on income - - ------------- ---------- Net loss $ (70,219) $ - ============= ========== Basic and fully diluted loss per common share $ (0.082) - ============= ========== Basic weighted average number of shares outstanding 851,250 - ============= ========== Fully diluted weighted average number of shares outstanding 1,351,250 ============= ========== See accompanying notes. 39 STRAINWISE, INC. STATEMENTS OF CASH FLOWS (AUDITED) Period (Inception of June 8, Year Ended 2012) ended January 31, January 31, 2014 2013 ----------- ------------ Cash flows from operating activities: Net (loss) $(70,219) $ - Changes in current assets and liabilities: Increase in amounts due to affiliates 50,203 - Deferred rent 3,273 Stock-based compensation 48,192 Increase in prepaid expenses (10,000) - --------- ----------- Net cash used in operating activities 21,499 - Cash flows from investing activities: Purchases of office equipment and furnishings (10,500) - Establishment of trade mark (10,949) - --------- ----------- Net cash flows from investing activities (21,449) - Cash flows from financing activities: Contribution of capital for common stock - 100 --------- ----------- Net cash flows from financing activities - 100 --------- ----------- Net cash flows - 100 Cash and Cash equivalents, beginning of period 100 - --------- ----------- Cash and Cash equivalents, end of period $ 100 $ 100 ========= =========== Supplemental cash flow disclosures: Cash paid for interest $ - $ - ========= ========== Cash paid for income taxes $ - $ - ========= ========== See accompanying notes. 40 STRAINWISE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY For the Period from June 8, 2012 (date of inception) to January 31, 2014 (Audited) Additional Common Stock Capital In Deficit ------------------ Excess of Par Accumulated in Shares Amount Value Development Stage Total ------ ------ ------------- ---------------- ----- Balance, June 8, 2012, Inception Membership interest issued for cash - $ - $ 100 $ - $ 100 Net loss - - - - - ---------- ------ -------- ------- ----- Balance, January 31, 2013 - - 100 - 100 Conversion of common shares for membership interest 20,430,000 - - - - Stock-based compensation - - 48,192 - 48,192 Net loss - - - (70,219) (70,219) ---------- ------ -------- --------- ------- Balance, January 31, 2014 20,430,000 $ - $ 48,292 $ (70,219) $(21,927) =========== ====== ======== ========= ========
See accompanying notes. 41 STRAINWISE, INC. NOTES TO THE AUDITED FINANCIAL STATEMENTS Note 1 - Organization and summary of significant accounting policies: Following is a summary of our organization and significant accounting policies: Organization and nature of business - STRAINWISE, INC. (identified in these footnotes as "we" "us" or the "Company") provides branding and fulfillment services to entities in the cannabis retail and production industry. The Company was incorporated in the state of Colorado as a limited liability company on June 8, 2012, and subsequently converted to a Colorado corporation on January 16, 2014. The Company provides sophisticated fulfillment and branding services and solutions to (i) six grow facilities and eight retail stores (seven of which sell recreational and medical marijuana to the public and one of which only sells medical marijuana to the public) owned by an officer and director of the Company ("Affiliated Entities"), and (ii) makes such services available to independent retail stores and grow facilities in the regulated cannabis industry throughout the United States. The branding and fulfillment services that we currently provide are summarized, as follows: o 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 permits our branding customer to use the Strainwise brand at one 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. o Accounting and Financial Services: For a monthly fee, we provide our 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, retail store and grow facility. We 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 on behalf of the Company and the Captive Stores on an ongoing basis. o Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, and may prove cumbersome with which to comply. 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 provide this service on both an hourly rate and stipulated monthly fee. o Nutrient Supplier: The Company presently is a bulk purchaser of nutrients and other cultivation supplies for the sole purpose of growing marijuana. As a result, we are able to make bulk purchases with price breaks, based upon volume. We serve as a sole source nutrient purchasing agent and distributor with pricing based upon our bulk purchasing power. o Lending: We will provide loans to individuals and businesses in the cannabis industry. However, Colorado State law does not allow entities operating under a cannabis license to pledge the assets or the license of the cannabis operation for any type of general borrowing activity. Thus, our lending will be on an unsecured basis, with reliance on a personal guarantee of the borrower. o Lease of Grow Facilities and Equipment: We lease grow equipment and facilities on a turn-key basis to customers in the cannabis industry. We will also enter into sale lease backs of grow lights, tenant improvements and other grow equipment. o 42 We do not directly grow marijuana plants, produce marijuana infused products, sell marijuana plants and or sell marijuana infused products of any nature. Share exchange - As more fully described in Note 9 herein, on August 19, 2014, we entered into an Agreement to Exchange Securities ("Share Agreement") with 4th Grade Films, Inc. ("FHGR"), pursuant to which FHGR acquired approximately 90 % of the outstanding shares of Strainwise in exchange for 23,124,184 shares of FHGR's common stock. FHGR is a publicly-traded company, incorporated in Utah, with its common stock currently quoted on the OTC Bulletin Board. It is contemplated that the Exchange will qualify as a tax-free reorganization under the U.S. Internal Revenue Code. As part of the Share Exchange, we paid $134,700 of FHGR's liabilities and purchased 1,038,000 shares of FHGR's common stock for $120,300 from two shareholders of FHGR. The 1,038,000 shares were returned to treasury and cancelled. FHGR also agreed to sell its rights to a motion picture, together with all related domestic and international distribution agreements, and all pre-production and other rights to the film, to a former officer and director of FHGR in consideration for the assumption by a shareholder of FHGR of all liabilities of FHGR (net of the $134,700 we paid) which were outstanding immediately prior to the closing of the transaction. The business combination will be accounted for as a reverse acquisition and recapitalization, using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the transaction will be presented as a continuation of the Company. Under reverse acquisition accounting, the Company (subsidiary) is treated as the accounting parent (acquirer) and FHGR (parent) is treated as the accounting Subsidiary (acquiree). Following the Share Exchange, FHGR has 24,431,184 outstanding shares of common stock, with the current shareholders of FHGR owning 1,307,000 of the post-closing shares. Basis of presentation - The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents - For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents. Prepaid expenses - The amount of prepaid expenses as of January 31, 2014 and January 31, 2013 is $10,000 and $0, respectively. Prepaid expenses at January 31, 2014 is comprised of a retainer paid to our legal counsel. Fair value of financial instruments and derivative financial instruments - The carrying amounts of cash and current liabilities approximate fair value because of the short 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. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of our foreign exchange, commodity price or interest rate market risks. The FASB Codification clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows: 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. 43 The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Office equipment - Office equipment is recorded at cost and is depreciated under straight line methods over each item's estimated useful life. We review our office equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Maintenance and repairs of property and equipment are charged to operations. Major improvements are capitalized. Upon retirement, sale or other disposition of office equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations. Office equipment, net of accumulated amortization and depreciation are comprised of the following: January 31, January 31, 2014 2013 ------------ ----------- Office equipment: Office furniture and fixtures $10,500 $ - Accumulated amortization and depreciation - - ------------ ---------- $ 10,500 $ - ============ ========== There was no depreciation charged to operations for the year ended January 2014 and 2013 in that the office equipment was not placed into service until the last few days of January 2014. Income taxes - The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Long-Lived Assets - In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value. Trademarks - Trademarks are stated at cost and are amortized using the straight-line method over fifteen years. Accumulated amortization was $100 and $0 at January 31, 2014 and 2013, respectively. Intangible assets subject to amortization consist of the following at January 31, 2014: Gross Carrying Accumulated Amount Amortization Net ----------- ------------- ---- Trademarks $ 11,010 $ 61 $ 10,949 ======== ====== ======== Deferred Rent - The Company recognizes rent expense from operating leases on the straight-line basis. Differences between the expense recognized and actual payments are recorded as deferred rent. Revenue recognition - Revenue is recognized on an accrual basis as earned under contract terms. Revenues from affiliated entities is recognized as follows: o Branding, Marketing and Administrative Services Revenue: Under the terms of a ten year master service agreement, we allow an affiliated entity to use the Strainwise brand for both retail and marketing purposes at one location, plus we provide administrative services to assist the employees of the affiliated entity to operate the business of that related location. We charge the affiliated entity a monthly fee of approximately $4,500 for the branding, marketing and administrative services. Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the service, (iv) have the credit risk, and (v) there are no additional milestones that need to be met other than actually providing the services, in accordance with ASC 605-45-45, the revenue is recognized on monthly basis in accordance with the terms of the applicable master service agreement. 44 o Accounting and Financial Services Revenue: Under the terms of a ten year master service agreement, we have agreed to provide our affiliated entities with a fully implemented general ledger system, coupled with an industry centric chart of accounts, which enables management to readily monitor and manage all accounting and financial facets of a marijuana medical dispensary, retail store and/or grow facility. Under the terms of the master service agreement we have also agreed to 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. Under the terms of the master service agreement, we provide the above described accounting and financial services for a monthly fee of $3,000. Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the services, (iv) have the credit risk, and (v) there are no additional milestones that need to be met other than actually providing the above described services, in accordance with ASC 605-45-45, the revenue is recognized on monthly basis in accordance with the terms of the applicable master service agreement. o Compliance Services Revenue : Under the terms of a ten year master service agreement, we provide the affiliated entities with a compliance process that includes the preparation and filing of state, city and municipal applications and renewals of licenses in accordance with the rules, regulations and state laws governing the production, distribution and retail sale of marijuana. We provide this service to our affiliate entities under the terms of a master service agreement for a monthly fee of $2,500. Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the services, (iv) have the credit risk, and (v) there are no additional milestones that need to be met other than actually providing the above described services, in accordance with ASC 605-45-45, the revenue is recognized on monthly basis in accordance with the terms of the applicable master service agreement. o Nutrient Sales: Under the terms of a ten year master service agreement, we serve as a sole source nutrient purchasing agent and distributor for our affiliated entities, with pricing based upon our bulk purchasing power. We charge the affiliated entities for nutrients supplied to them at the cost of the nutrients, plus a premium of ninety percent. Since there are no additional milestones that need to be met other than actually buying and delivering the above nutrients to the affiliated entity, in accordance with ASC 605-45-45, the revenue is recognized in the month in which the nutrient is actually delivered to the related entity. o Grow Facilities Revenue: Under the terms of a ten year master service agreement, we lease grow facilities and equipment for a period equal to the term of the underlying lease with an independent, third party lessor in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) plus a premium of forty percent. Since there are no additional milestones that need to be met other than actually leasing the facilities and equipment to the respective affiliated entity, in accordance with ASC 605-45-45, the revenue is recognized in the month in which the lease payments are made to us by the lessee. Comprehensive Income (Loss) - Comprehensive income is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. From our Inception there have been no differences between our comprehensive loss and net loss. Net income per share of common stock - We have adopted applicable FASB Codification regarding Earnings per Share, which require presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Note 2 - Going concern: The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the period ended January 31, 2014, the Company has had limited operations. As of January 31, 2014, the Company has 45 not become profitable. In view of these matters, the Company's ability to continue as a going concern is dependent upon the Company's ability to begin operations and to achieve a level of profitability. The Company intends to continue financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Note 3 - Related Party Transactions: Substantially all of our revenues to date have been derived from Master Service Agreements with eight retail marijuana stores and four cultivation and growing facility that are majority owned by our Chief Executive Officer, who is also the husband or our majority shareholder and our President. Pursuant to the terms of these Master Service Agreements, the marijuana stores and grow facility pay us monthly fees for branding, marketing, administration, accounting and compliance services. We also supply nutrients to the six grow facilities at a 90% mark-up to our cost for the nutrients. Related party revenue was $104,378 and $0.00, respectively, for the years ended January 31, 2014 and 2013. As of January 31, 2014 and 2013, we had accounts receivable from affiliated entities of $70,000 and $0, respectively. As of January 31, 2013 and 2014, we had accounts payable to affiliated entities of $120,203 and $0, respectively. Although our agreements with the marijuana outlets and grow facility expire on December 31, 2023, all terms and contracts related to this revenue are determined by related parties and these terms can change at any time. Note 4 - Operating Leases: The Company rents office space for its corporate needs from an affiliated Company. The affiliate entered into a 31 month lease agreement in January 1, 2014 to lease 6,176 square feet for an annual rate of $64,848 for the first twelve months, and $67,936 for the subsequent 12 months, and $41,431 for the subsequent 7 months paid monthly, through October 31, 2016. This lease to the Company is on the same terms and conditions as is the direct lease between the affiliate and the independent lessor. Consequently, we believe that the lease terms to the Company are comparable to lease terms we would receive directly from third party lessors in our market, because the related party terms mirror the terms of the direct lease between the independent, third party lessor and the affiliated entity. See Note 9 for a full explanation of operating leases that went into effect after the balance sheet date, but before issuance. Note 5 - Issuance of shares: The Company was originally organized as a limited liability company on June 8, 2012 with $100 of membership equity. On January 16, 2014, the Company converted to a corporation and issued a total of 20,430,000 shares in exchange for the one hundred percent of the membership interests owned by the majority shareholder and President of the Company. As of January 31, 2014 there were a total of 20,430,000 shares of common stock issued and outstanding. Note 6 - Income Taxes: The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company's assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. The Company adopted the provisions of ASC 740, "Income Taxes" on April 1, 2007. FASB ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold at the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods. 46 The components of the income tax provision are as follows: Year Ended January 31, 2014 2013 ----------- ------------ Income tax expense (benefit): Current: Federal $ (11,742) $ - State (3,251) - --------- ------- Deferred income tax expense (benefit): (14,993) - Valuation allowance 14,993 - Provision $ - $ - ========= ======= Note 7 - New accounting pronouncements: The Financial Accounting Standards Board ("FASB") periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. The Company has reviewed the recently issued pronouncements. During this review the Company decided to early adopt ASU 2014-10 which eliminates the definition of a development stage entity, eliminates the development stage presentation and disclosure requirements under ASC 915, and amends provisions of existing variable interest entity guidance under ASC 810. Note 8 - Equity: Approved Warrants - In January 2014, the Company issued stock-based compensation to a consultant in the form of warrants to purchase 500,000 shares of the Company's common stock, at a price of $0.10 per share, at any time prior to January 31, 2019. The Board of Directors determined the exercise price and terms of the warrant. The Black-Scholes option-pricing model was used to estimate the warrant fair values. This option-pricing model requires a number of assumptions, of which the most significant are, expected stock price volatility, the expected pre-vesting forfeiture rate and the expected warrant term (the amount of time from the grant date until the warrants are exercised or expire). Expected volatility was estimated utilizing a weighted average of comparable published volatilities based on industry comparables. Expected pre-vesting forfeitures were based upon management's best estimates. The expected warrant term was based on the term of the warrant. The fair value of the warrants granted during the year ended January 31, 2014 was estimated, as of the grant date, using the Black-Scholes option pricing model, with the following assumptions: Expected volatility 187% Risk-free interest rate .25% Expected dividends - Expected terms (in years) 5 Share price at date of issuance $0.10 The warrants outstanding and activity as of and for the year ended January 31, 2014: Weighted Remaining Average Contractual Exercise Terms(in Shares Price years) ---------- -------- --------- Outstanding at January 31, $ - - 2013 Granted 500,000 $ 0.10 5 Exercised - $ - - Forfeited - $ - - Outstanding at January 31, 2014 500,000 $ 0.10 5 --------- -------- ------- Exercisable at January 31, 2015 500,000 $ 0.10 5 --------- -------- ------- The weighted average fair value of warrants granted at January 31, 2014 was $0.10. The exercise price of the warrants granted at January 31, 2014 equaled the estimated fair market value of the stock at the time of grant which was $0.10. No warrants were exercised during the current fiscal year. Accordingly, the Company did not realize any tax deductions related to the intrinsic value of exercised warrants. 47 In accordance with EITF 96-18 ' Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services', the total amount of share-based compensation expense recorded at January 31, 2014 of $48,192 will be fully recorded in the current year since no future services are required for the consultant to exercise the warrants. Note 9 - Subsequent events: Share Exchange - On August 19, 2014, we entered into an Agreement to Exchange Securities ("Share Exchange") with 4th Grade Films, Inc. ("FHGR"), pursuant to which FHGR will acquire approximately 90 % of the outstanding shares of Strainwise in exchange for 23,124,184 shares of FHGR's common stock. FHGR is a publicly-traded company, incorporated in Utah, with its common stock currently quoted on the OTC Bulletin Board. It is contemplated that the Exchange will qualify as a tax-free reorganization under the U.S. Internal Revenue Code. As part of the Share Exchange, we paid $134,700 of FHGR's liabilities and purchased 1,038,000 shares of FHGR's common stock for $120,300 from two shareholders of FHGR. The 1,038,000 shares were returned to treasury and cancelled. FHGR also agreed to sell its rights to a motion picture, together with all related domestic and international distribution agreements, and all pre-production and other rights to the film, to a former officer and director of FHGR in consideration for the assumption by a shareholder of FHGR of all liabilities of FHGR (net of the $134,700 we paid) which were outstanding immediately prior to the closing of the transaction. The business combination will be accounted for as a reverse acquisition and recapitalization, using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the transaction will be presented as a continuation of the Company. Under reverse acquisition accounting, the Company (subsidiary) is treated as the accounting parent (acquirer) and FGHR (parent) is treated as the accounting subsidiary (acquiree). As a result of the Share Exchange, FGHR has 24,431,184 outstanding shares of common stock, with the current shareholders of FGHR owning 1,307,000 of the post-closing shares. Operating Leases - We entered into a lease agreement on March 7, 2014 to lease from an unrelated third party a grow facility of approximately 26,700 square feet ("Custer Lease") for a term of five years commencing on April 1, 2014. Lease payments are scheduled to be $29,200 per month for the first twelve months of the lease, and then are scheduled to be $27,500 per month for the subsequent 12 months, $28,325 per month for the subsequent 12 months, $29,170 per month for the subsequent 12 months and $30,035 per month for the final 12 months of the lease. Under the terms of the Custer Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property, and we are obligated to pay a security deposit of $29,200 which was due and paid upon the execution of the Custer Lease. We have the option to renew the Custer Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the Custer Lease. We will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 460 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We will sublease this grow facility to the affiliated entities for a term of five years in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the Custer grow facility will be recognized on a monthly basis as the user is charged for the amount of the sublease We entered into a lease agreement on April 1, 2014 to lease from an unrelated, third party a grow facility of approximately 65,000 square feet ("51st Ave Lease") for a term of five years and nine months. The terms of the 51st Ave Lease stipulates the payment of $15,000 per month, prorated if necessary, until such time that the Lessor is able to deliver a Certificate of Occupancy, which is scheduled to occur on August 1, 2014. Thereafter, lease payments are scheduled to be $176,456 per month for the first six months of the lease, and then are scheduled to be $221,833 per month for the subsequent 24 months, $231,917 per month for the subsequent 12 months, $242,000 per month for the subsequent 12 months and $247,041 per month for the final 12 months of the lease. Under the terms of the 51st Ave Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property, and we are obligated to pay a security deposit of $150,000 one third of which was due and paid upon the execution of the 51st Ave Lease, the second third is due and payable after the first harvest or by October 1, 2014, and the final third is due and payable after the second harvest or by December 1, 2014.We have the option to renew the 51st Ave Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the 51st Avenue Lease. The lessor provides all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 1,940 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer 48 ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We will sublease this grow facility to the affiliated entities for a term of five years and nine months in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, and (iii) a premium of forty percent. Revenue from the sublease of the 51st Avenue grow facility will be recognized on a monthly basis as the user is charged for the amount of the sublease We entered into a lease agreement on April 22, 2014 to lease from an unrelated, third party a grow facility of approximately 38,000 square feet ("Nome Lease") for a term of seven years. The lease payments are scheduled to be $44,570 per month for the first twelve months of the lease, and then are scheduled to be $46,151 per month for the subsequent 12 months, $47,743 per month for the subsequent 12 months, $49,334 per month for the subsequent 12 months and $50,925 per month for the subsequent 12 months, $52,517 per month for the subsequent 12 months, and $54,108 for the final 12 months of the lease. Under the terms of the Nome Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property, and we are obligated to pay a security deposit of $133,679 one half of which was due and paid upon the execution of the Nome Lease, the final half was due and payable 30 days after the commencement date. We have the option to renew the Nome Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the Nome Lease. We will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 920 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We will sublease this grow facility to the affiliated entities for a term of seven years in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the Nome grow facility will be recognized on a monthly basis as the user is charged for the amount of the sublease. Under the terms of the Nome Lease, the lessor agreed to provide financing for up to $750,000 of tenant improvements at an interest rate of 25%, payable monthly over 60 months. As of October 1, 2014, the $750,000 of tenant improvements had been completed at the facility, and we began paying monthly installments of $22,013 at that time. On December 1, 2014, the lease was modified to extend the lease term through April 30, 2025; and the lease payments were modified to be $88,616 per month for the period ending April 30, 2015, and then, for the following twelve months, are scheduled to be $90,207, $91,799, $93,390, $94,981, $73,578, $75,169, $76,761, 78,352, and then $79,943 per month. The modification of the lease included the cancellation of the $750,000 payable to the lessor for the financing of tenant improvements, and the extension of an additional $800,000 to be used by us for future tenant improvements. The full amount of $1,550,000 of tenant improvement financing to be provided by the lessor will be amortized over the extended term of the modified lease as a component of the monthly lease payments. We entered into a lease agreement on June 10, 2014 to lease from an unrelated, third party a grow facility of approximately 113,000 square feet ("32nd Ave Lease") for a term of five years and nine months which will not become effective until the proper Licenses are awarded, expected to be September 1, 2014. The terms of the 32nd Ave Lease stipulates the payment of $25,000 per month, prorated if necessary, until such time that the Lessor is able to deliver a Certificate of Occupancy, which is scheduled to occur in early 2015. Thereafter, lease payments are scheduled to be $282,500 per month for the first Sixteen months of the lease, and then are scheduled to be $301,333 per month for the subsequent 12 months, $320,167 per month for the subsequent 12 months, and $329,583 per month for the final 12 months of the lease. Under the terms of the 32nd Ave Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property, and we are obligated to pay a security deposit of $250,000, $150,000 of which was due and paid upon the execution of the 32nd Ave Lease, and $100,000 due upon obtaining the Certificate of Occupancy. We have the option to renew the 32nd Ave Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the 32nd Ave Lease. The lessor will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 3,000 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We will sublease this grow facility to the affiliated entities for a term of five years and nine months in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, and (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the 32nd Avenue grow facility will be recognized on a monthly basis as the user is charged for the amount of the sublease. 49 Future minimum payments for these leases are: For the Year Ended January 31, Amount ----------------- ------ 2015 $2,482,400 2016 $7,656,012 2017 $7,775,609 2018 $8,174,906 2019 $7,472,803 Convertible Note Payable - The Company issued $850,000 in a convertible note on March 20, 2014 (the "Note"). The Note has an interest rate of 25%, payable monthly, and matures on September 21, 2014. The outstanding principal balance of the Note, plus any accrued but unpaid interest on the Note, is convertible at any time on or before the maturity date at $1 per common share. The convertible note is personally guaranteed by our majority shareholder and by an officer and director of the Company. On July 16, 2014, the terms of the Note were amended ("Amendment") wherein the holder of the Note elected to convert $200,000 of the principal of the Note into 293,000 of our common shares of stock at a price of $.6825 per share. As a component of the Amendment, we in turn elected to prepay the remaining principal balance of the Note, after the scheduled payment of the principal and accrued interest due the holder on July 24, 2014 and to pay a prepayment penalty of $11,250. The difference in the premium of the per share price of $0.6825 per the Amendment and the $1 per share per the Note, plus the amount of the prepayment penalty will be charged to interest expense ratably over the term of the Amendment. Private Offering - Through a private offering of our common stock at $1 per share, we have collected $2,140,700 as of the date of the issuance of the financial statements, July 31, 2014. Coupled with the 293,000 common shares issued in connection with the conversion of the convertible note described above, 22,863,700 shares of common stock would be outstanding upon the completion of our stock offering. As part of the private offering, we sold warrants which entitle the holders to purchase up to 1,070,350 shares of our common stock. The warrants can be exercised at any time prior to January 31, 2019 at a price of $5.00 per share. 50 STRAINWISE, INC. INTERIM FINANCIAL STATEMENTS For the three and nine month periods ended October 31, 2014 and 2013 (UNAUDITED) 51 STRAINWISE, INC. CONDENSED BALANCE SHEETS (Unaudited) October 31, January 31, 2014 2014 -------------- ------------ ASSETS Current assets: Cash $ 180,840 $ 100 Due from affiliated entities 1,017,077 - Prepaid expenses and other assets 27,127 10,000 -------------- -------- Total current assets 1,225.044 10,100 Commercial operating property, net of accumulated amortization of $4,001 and $0 at October 31, 2014 and January 31, 2014, respectively 656,000 - Tenant improvements and office equipment, net of accumulated amortization and depreciation of $110,991 and $0 at October 31, 2014 and January 31, 2014, respectively 2,102,775 10,501 Prepaid expenses and other assets 346,187 - Trademark, net of accumulated amortization of $610 and $61, at October 31, 2014 and January 31, 2014, respectively 10,400 10,949 ------------- --------- Total assets $ 4,340,406 $ 31,550 ============= ========= LIABILITIES AND STOCKHOLERS' (DEFICIT) EQUITY LIABILITIES Current liabilities: Accounts payable $ 344,867 $ - Deferred tax liability 52,814 - Due to affiliated entities - 50,203 Current portion of tenant allowance note and mortgage payable 563,644 - ------------- --------- Total current liabilities 961,325 50,203 Note payable for tenant allowances 443,785 - Mortgage payable 297,460 - Deferred rent 207,201 3,273 ------------- --------- Total liabilities 1,909,771 53,476 STOCKHOLDERS' EQUITY (DEFICIT) Common stock, no par value, 100,000,000 shares authorized, 26,948,884 and 20,430,000 issued and outstanding at October 31, 2014 and January 31, 2014, respectively - - Additional paid in capital 2,310,992 48,292 Retained earnings (deficit) 119,643 (70,218) ------------- --------- Total stockholders' equity 2,430,635 (21,926) ------------- --------- Total liabilities and stockholders' equity (deficit) $ 4,340,406 $ 31,550 ============= ========= See accompanying notes. 52 STRAINWISE, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended Three Months Ended October 31, October 31, 2014 2013 2014 2013 ----- ---- ---- ---- Revenues from affiliated entities Grow facilities usage fees $1,978,984 $ - $1,418,190 $ - Sale of nutrient supplies 550,017 - 188,070 - Branding, marketing and administrative fees 517,000 - 301,000 - Accounting and financial services fees 273,000 - 129,000 - Compliance services fees 227,500 - 107,500 - ---------- -------- --------- -------- 3,546,501 - 2,143,760 - Consulting services 33,000 - 33,000 - ---------- -------- --------- -------- Total revenues 3,579,501 - 2,176,760 - ---------- -------- --------- -------- Operating costs and expenses Rent and other occupancy 1,561,811 - 1,155,531 - Compensation 881,909 - 255,219 - Nutrient purchases 289,482 - 98,984 - Professional, legal and consulting 208,901 - 149,420 - Depreciation and amortization 115,536 - 56,678 - General and administrative 47,259 - 6,639 ---------- -------- --------- -------- Total operating costs and expenses 3,104,898 - 1,722,471 - ---------- -------- --------- -------- Income from operations 474,603 - 454,289 - Other costs and expenses Loss on early extinguishment of debt (93,000) - - - Interest expense (138,928) - (66,000) - ---------- -------- --------- -------- Earnings (loss) before taxes on income 242,675 - 388,289 - Provision for taxes on income (52,814) - (113,716) - ---------- -------- --------- -------- Net income (loss) $ 189,861 $ - $ 274,573 $ - =========== ======== ========= ========= Basic earnings (loss) per common share $ 0.0085 $ - $ 0.0197 $ - ========== ========= ========= ========= Fully diluted earnings (loss) per common share $ 0.0084 $ - $ 0.0112 $ - ========== ========= ========= ========= Basic weighted average number of shares outstanding 22,475,602 851,250 25,020,371 851,250 ========== ========= ========== ========= Fully diluted weighted average number of shares outstanding 22,563,151 1,350,250 24,421,014 1,350,250 ========== ========= ========== =========
See accompanying notes. 53 STRAINWISE, INC. CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Nine Months ended Months ended October 31, 2014 October 31, 2013 --------------- ----------------- Cash flows from operating activities: Net income $ 189,861 $ - Adjustments to reconcile net loss to net cash used in operating activities: Increase in amounts due from affiliates (1,067,279) - Increase in prepaid expenses and other assets (363,314) - Increase in deferred taxes payable 52,814 - Depreciation and amortization 114,991 - Increase in accounts payable 344,867 - Increase in deferred rent and interest 203,928 - Decrease in trademark 549 - ----------------- ---------------- Net cash flow used in operating activities (523,583) - Cash flows from investing activities: Investment in tenant improvements and office equipment (2,203,266) Investment in commercial operating building (660,000) - Share exchange in reverse merger transaction (255,000) - ----------------- ---------------- Net cash flow used in investing activities (3,118,266) - Cash flows from financing activities: Proceeds from common stock subscription 2,517,700 100 Note payable for tenant allowances 739,729 - Proceeds from mortgage 565,160 - Proceeds from sale of convertible note, inclusive of discount of $45,000 895,000 - Payments on convertible note (895,000) - ----------------- ---------------- Net cash flows from financing activities 3,822,589 100 ----------------- ---------------- Net cash flows 180,740 100 Cash and equivalent, beginning of period 100 - ----------------- ---------------- Cash and equivalent, end of period $ 180,840 $ 100 ================= ================ Supplemental cash flow disclosures: Cash paid for interest $ 117,666 $ - ================= ================ Cash paid for income taxes $ - $ - ================= ================
See accompanying notes. 54 STRAINWISE, INC. Notes to the Unaudited Financial Statements October 31, 2014 Note 1 - Organization and summary of significant accounting policies: Following is a summary of our organization and significant accounting policies: Organization and nature of business - STRAINWISE, INC. (identified in these footnotes as "we" "us" or the "Company") provides branding marketing, administrative, accounting, financial and compliance services ("Fulfillment Services") to entities in the cannabis retail and production industry. The Company was incorporated in the state of Colorado as a limited liability company on June 8, 2012, and subsequently converted to a Colorado corporation on January 16, 2014. The Company provides sophisticated Fulfillment Services to (i) the four grow facilities and eight retail stores (seven of which sell recreational and medical marijuana to the public and one of which only sells medical marijuana to the public) owned by an officer and director of the Company ("Affiliated Entities") and (ii) makes such services available to independent retail stores and grow facilities in the regulated cannabis industry throughout the United States. The Fulfillment Services that we currently provide are summarized, as follows: o 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 permits our branding customer to use the Strainwise brand at one 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. o Accounting and Financial Services: For a monthly fee, we provide our 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, retail store and grow facility. We 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 on behalf of the Company and the Captive Stores on an ongoing basis. o Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, and may prove cumbersome with which to comply. 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 provide this service on both an hourly rate and stipulated monthly fee. 55 o Nutrient Supplier: The Company presently is a bulk purchaser of nutrients and other cultivation supplies for the sole purpose of growing marijuana. As a result, we are able to make bulk purchases with price breaks, based upon volume. We serve as a sole source nutrient purchasing agent and distributor with pricing based upon our bulk purchasing power. o Lending: We will provide loans to individuals and businesses in the cannabis industry. However, Colorado State law does not allow entities operating under a cannabis license to pledge the assets or the license of the cannabis operation for any type of general borrowing activity. Thus, our lending will be on an unsecured basis, with reliance on a personal guarantee of the borrower. o Lease of Grow Facilities and Equipment: We lease grow equipment and facilities on a turn-key basis to customers in the cannabis industry. We will also enter into sale lease backs of grow lights, tenant improvements and other grow equipment. We do not directly grow marijuana plants, produce marijuana infused products, sell marijuana plants and or sell marijuana infused products of any nature. Share exchange - , On August 19, 2014, we entered into an Agreement to Exchange Securities ("Share Exchange"), pursuant to which we acquired approximately 90% of the outstanding shares of a privately held Colorado corporation ("Strainwise Colorado") in exchange for 23,124,184 shares of our common stock. As part of the Share Exchange, Strainwise Colorado paid $134,700 of our liabilities and purchased 1,038,000 shares of our common stock for $120,300 from two of our shareholders. The 1,038,000 shares were returned to treasury and cancelled. We also agreed to sell our rights to a motion picture, together with all related domestic and international distribution agreements, and all pre-production and other rights to the film, to a former officer and director in consideration for the assumption by one of our shareholders of all of our liabilities (net of the $134,700 paid by Strainwise Colorado) which were outstanding immediately prior to the closing of the transaction. On September 12, 2014 we acquired the remaining outstanding shares of Strainwise Colorado in exchange for the issuance of 2,517,000 shares of our common stock. The resulting business combination has been accounted for as a reverse acquisition and recapitalization, using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the transaction will be presented as a continuation of the Company. Under reverse acquisition accounting, Strainwise Colorado is treated as the accounting parent (acquirer) and we (parent) are treated as the accounting Subsidiary (acquiree). Basis of presentation - The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required by GAAP for complete annual financial statement presentation. 56 These condensed financial statements as of and for the three and nine months ended October 31, 2014 and 2013, reflect all adjustments which, in the opinion of management, are necessary to fairly present the Company's financial position and the results of its operations for the periods presented, in accordance with the accounting principles generally accepted in the United States of America. Operating results for the three and nine month periods ended October 31, 2014, are not necessarily indicative of the results to be expected for other interim periods or for the full year ending January 31, 2015. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents - For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents. During 2014, the Company entered into an agreement with our Chief Executive Officer to hold all of our cash funds in his personal bank account in trust for the Company. Because of current banking regulations, marijuana centric entities are not afforded normal banking privileges, and thus, we were not able to obtain a corporate bank account at a federally charted bank until well into the end of the second quarter of operations in 2014. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account and to make payments of our funds only for our business purposes and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. Additionally, the trust agreement required that the Chief Executive Officer make copies available of all transactions applicable to our operations to our accounting staff on a weekly, or as requested basis. At October 31, 2014 and January 31, 2014 there were no cash deposits in the personal bank account of the Chief Executive Officer held in trust for us. Prepaid expenses and other assets - The Company pays rent in advance of the rental period. The Company records the carrying amount as of the balance sheet date of rental payments made in advance of the rental period; such amounts are charged against earnings within one year. The Company also capitalizes any prepaid expenses related to the reverse merger. The amount of prepaid expenses and other assets as of October 31, 2014 and January 31, 2014 is $373,314 and $10,000, respectively. Current prepaid expenses and other assets are comprised of the following: October 31, January 31, 2014 2014 ------------ -------------- Prepaid insurance 19,345 - Legal retainer 7,782 - Rent deposits -- 10,000 ------------ -------------- $ 27,127 $ 10,000 ============ ============== 57 Noncurrent prepaid expenses and other assets are comprised of the following: October 31, January 31, 2014 2014 ------------ -------------- Prepaid rent $ 54,108 $ - Security deposits 292,079 - ------------ -------------- $ 346,187 $ - ============ ============== Fair value of financial instruments and derivative financial instruments - The carrying amounts of cash and current liabilities approximate fair value because of the short 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. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of our foreign exchange, commodity price or interest rate market risks. The FASB Codification clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows: 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. The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Commercial Operating Property - On July 26, 2014 we purchased a commercial property that was previously leased by one of our affiliates, which we have leased back to the affiliate. The commercial property consists of land and a building that contains both a retail store and a grow facility. We have allocated $220,000 and $440,000 of the purchase price to the cost of land and to the cost of the improvements to the building, respectively, based upon management's best estimate and belief. Management's estimate and belief was based upon consideration of (i) replacement cost, (ii) limited knowledge of comparable sales, (iii) anticipated future income generation, and (iv) single use, internally. No intangible asset value was assigned to the existing lease on the property, because the existing lease was immediately cancelled upon the completion of the purchase of the commercial property. The cost of the improvements to the building will be depreciated on a straight line method over 27.5 years, which we believe is the useful life of this asset. 58 Tenant improvements and office equipment - Tenant improvements are recorded at cost, and are amortized over the lesser of the economic life of the asset or the term of the applicable lease period. We determined that term of the leases applicable to our tenant improvements are less than the economic life of the respective assets that comprise our tenant improvements. Office equipment is recorded at cost and is depreciated under straight line methods over each item's estimated useful life. We review our tenant improvements and office equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Maintenance and repairs of property and equipment are charged to operations. Major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations. Tenant improvements and office equipment, net of accumulated amortization and depreciation are comprised of the following: October 31, January 31, 2014 2014 ----------- ----------- Tenant improvements: Upgrades of HVAC systems $ 864,374 $ - Upgrades of electrical generators and power equipment 609,312 - Structural improvements 588,801 Fire suppression, alarms and surveillance systems 77,659 - Office equipment: Computer equipment 26,369 - Office furniture and fixtures 22,251 10,500 Machinery 25,000 - ------------- -------- 2,213,766 10,500 Accumulated amortization and depreciation (110,991) - ------------- -------- $2,102,775 $ 10,500 ============= ======== Tenant improvements are amortized over the term of the lease, and office equipment is depreciated over its useful lives, which has been deemed by management to be three years. Amortization and depreciation expense for the nine months ended October 31, 2014 and 2013 was $112,960 and $0, respectively. Income taxes - The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. 59 Long-Lived Assets - In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value. Trademarks - Trademarks and other intangible assets are stated at cost and are amortized using the straight-line method over fifteen years. Accumulated amortization was $610 and $0 at October 31, 2014 and 2013, respectively and consisted of the following at October 31, 2014: Gross Carrying Accumulated Amount Amortization Net ---------- ------------- -------- Trademarks $11,010 $610 $ 10,400 ======= ==== ======== Deferred Rent - The Company recognizes rent expense from operating leases on the straight-line basis. Differences between the expense recognized and actual payments are recorded as deferred rent. Revenue recognition - Revenue is recognized on an accrual basis as earned under contract terms. Revenue from affiliated entities is recognized as follows: o Branding, Marketing and Administrative Services Revenue: Under the terms of a ten year master service agreement, we allow an affiliated entity to use the Strainwise brand for both retail and marketing purposes at one location, plus we provide administrative services to assist the employees of the affiliated entity to operate the business of that related location, Also, under a long term master service agreement, we provide administrative and management services to assist employees of affiliated entities to operate their grow facilities. We charge the affiliated entity a monthly fee of approximately $4,500 a month for the branding, marketing and administrative services and $4,500 to $20,000 for grow facility rent. Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the service, (iv) have the credit risk, and (v) since there are no additional milestone that need to be met other than actually providing the services, in accordance with ASC 605-45-45, the revenue is recognized on monthly basis in accordance with the terms of the applicable master service agreement. o Accounting and Financial Services Revenue: Under the terms of a ten year master service agreement, we have agreed to provide our affiliated entities with a fully implemented general ledger system, coupled with an industry centric chart of accounts, which enables management to readily monitor and manage all accounting and financial facets of a marijuana medical dispensary, retail store and/or grow facility. Under the terms of the master service agreement we have also agreed to 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. Under the terms of the master service agreement, we provide the above described accounting and financial services for a monthly fee of $3,000.Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the service, (iv) have the credit risk, and (v) since there are no additional milestone that need to be met other than actually providing the above described service, in accordance with ASC 605-45-45, the 60 revenue is recognized on monthly basis in accordance with the terms of the applicable master service agreement. o Compliance Services Revenue: Under the terms of a ten year master service agreement, we provide the affiliated entities with a compliance process that includes the preparation and filing of state, city and municipal applications and renewals of licenses in accordance with the rules, regulations and state laws governing the production, distribution and retail sale of marijuana. We provide this service to our affiliate entities under the terms of a master service agreement for a monthly fee of $2,500 per month. Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the service, (iv) have the credit risk, and (v) since there are no additional milestone that need to be met other than actually providing the above described service, in accordance with ASC 60545-45, the revenue is recognized on monthly basis in accordance with the terms of the applicable master service agreement. o Nutrient Sales: Under the terms of a ten year master service agreement, we serve as a sole source nutrient purchasing agent and distributor for our affiliated entities, with pricing based upon our bulk purchasing power. We charge the affiliated entities for nutrients supplied to them at the cost of the nutrients, plus a premium of ninety percent. Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the service, (iv) have the credit risk, and (v) since there are no additional milestone that need to be met other than actually buying and delivering the above nutrients to the affiliated entity, in accordance with ASC 605-45-45, the revenue is recognized in the month in which the nutrient is actually delivered to the related entity. o Grow Facilities Revenue: Under the terms of a ten year master service agreement, we lease grow facilities and equipment for a period equal to the term of the underlying lease with an independent, third party lessor in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) plus a premium of forty percent. Since we (i) are the primary obligor, (ii) determine the price, (iii) perform the service, (iv) have the credit risk, and (v) since there are no additional milestone that need to be met other than actually leasing the facilities and equipment to the respective affiliated entity, in accordance with ASC 605-45-45, the revenue is recognized in the month in which the lease payments are made by us to the respective independent, third party lessor. Comprehensive Income (Loss) - Comprehensive income is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. From our Inception there have been no differences between our comprehensive loss and net loss. Net income per share of common stock - We have adopted applicable FASB Codification regarding Earnings per Share, which require presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the 61 diluted EPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Note 2 - Going concern: The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the period ended October 31, 2014, the Company has had limited operations. As of October 31, 2014, the Company has only recently become minimally profitable. In view of these matters, the Company's ability to continue as a going concern is dependent upon the Company's ability to begin operations and to achieve a level of profitability. The Company intends to continue financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Note 3 - Related Party Transactions: Substantially all of our revenues to date have been derived from long term contracts with a group of entities that are majority owned by our Chief Executive Officer, who is also the husband of our majority owner and President. Note that all terms and contracts related to related party revenue are determined by related parties and these terms can change at any time. Related party revenue was $3,878,051 and $0, respectively, for the nine months ended October 31, 2014 and 2013. As of October 31, 2014 and January 31, 2014, we had accounts receivable from affiliated entities of $1,011,652 and $-0- respectively. Tenant improvements, net of improvements to our executive offices, were $2,071,466 as of October 31, 2014, and represent the cost of improvements we made to properties we rent from unrelated third parties and sublease to entities controlled by our Chief Executive Officer. We paid $660,000 for the property we purchased in July 2014 (see Note 8). We lease this property to an entity which is also controlled by our Chief Executive Officer. Note 4 - Operating Leases: The Company entered into a lease agreement with an affiliate for our corporate office needs. The lease is for a 31 month period, commenced in January 2014 for 6,176 square feet at an annual rate of $64,848 for the first twelve months, $67,936 for the subsequent 12 months, and $41,431 for the subsequent 7 months paid monthly, through October 31, 2016. This lease to the Company is on the same terms and conditions as is the direct lease between the affiliate and the independent lessor. Consequently, we believe that the lease terms to the Company are comparable to lease terms we would receive directly from third party lessors in our market, because the related party terms mirror the terms of the direct lease between the independent, third party lessor and the affiliated entity. 62 We entered into a lease agreement on March 7, 2014 to lease from an independent third party a grow facility of approximately 26,700 square feet ("Custer Lease") for a term of five years commencing on April 1, 2014. Lease payments are scheduled to be $29,200 per month for the first twelve months of the lease, and then are scheduled to be $27,500 per month for the subsequent 12 months, $28,325 per month for the subsequent 12 months, $29,170 per month for the subsequent 12 months and $30,035 per month for the final 12 months of the lease. Under the terms of the Custer Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property, and we are obligated to pay a security deposit of $29,200 which was due and paid upon the execution of the Custer Lease. We have the option to renew the Custer Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the Custer Lease. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. Beginning January 1, 2015, we subleased the Custer facility to an independent third party for a five-year period on a triple-net-lease-basis, with monthly rental payments of $20,000 per month for the six month period beginning January 1, 2015 $51,200 per month for the six month period beginning July 1, 2015 and $35,600 per month for the 48-month period beginning January 1, 2016. Effective January 1, 2015 revenue from the sublease of the Custer facility is recognized on a monthly basis as a reduction of lease expense. We entered into a lease agreement on April 1, 2014 to lease from an independent third party a grow facility of approximately 65,000 square feet ("51st Ave Lease") for a term of five years and nine months. The terms of the 51st Ave Lease stipulates the payment of $15,000 per month, prorated if necessary, until such time that the Lessor is able to deliver a Certificate of Occupancy, which occurred on August 1, 2014. Thereafter, lease payments are scheduled to be $176,456 per month for the first six months of the lease, and then are scheduled to be $221,833 per month for the subsequent 24 months, $231,917 per month for the subsequent 12 months, $242,000 per month for the subsequent 12 months and $247,041 per month for the final 12 months of the lease. Under the terms of the 51st Ave Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property and we are obligated to pay a security deposit in the total amount $150,000, two thirds of which has been paid, with the remaining $50,000 due by December 1, 2014. We have the option to renew the 51st Ave Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the 51st Avenue Lease. The Lessor will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 1,940 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We sublease this grow facility to an affiliated entity under the terms of a Master Service Agreement for a term of five years and nine months in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, and (iii) plus the amount of monthly 63 amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the 51st Avenue grow facility is recognized on a monthly basis as the user is charged for the amount of the sublease. We entered into a lease agreement on April 22, 2014 to lease from an independent third party a grow facility of approximately 38,000 square feet ("Nome Lease") for a term of seven years. The lease payments are scheduled to be $44,570 per month for the first twelve months of the lease, and then are scheduled to be $46,151 per month for the subsequent 12 months, $47,743 per month for the subsequent 12 months, $49,334 per month for the subsequent 12 months and $50,925 per month for the subsequent 12 months, $52,517 per month for the subsequent 12 months, and $54,108 for the final 12 months of the lease. Under the terms of the Nome Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property, and we are obligated to pay a security deposit of $133,679 one half of which was due and paid upon the execution of the Nome Lease, the final half was due and payable 30 days after the commencement date. We have the option to renew the Nome Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the Nome Lease. We are responsible to provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 920 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We sublease this grow facility to an affiliated entity under the terms of a Master Service Agreement for a term of seven years in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the Nome grow facility is recognized on a monthly basis as the user is charged for the amount of the sublease. We entered into a lease agreement on June 10, 2014 to lease from an independent third party a grow facility of approximately 113,000 square feet ("32nd Ave Lease") for a term of five years. The Lease will not become fully effective until we are awarded the necessary licenses, and the Lessor is able to deliver a Certificate of Occupancy, which is presently estimated to occur sometime during early to mid-2015. The terms of the 32nd Ave Lease stipulate the payment of $25,000 per month, prorated if necessary, until such time that the Lessor is able to deliver a Certificate of Occupancy Thereafter, lease payments are scheduled to be $282,500 per month for the first 24 months of the lease, and then are scheduled to be $301,333 per month for the subsequent 12 months, $320,167 per month for the subsequent 12 months, and $329,583 per month for the final 12 months of the lease. Under the terms of the 32nd Ave Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property, and we are obligated to pay a security deposit of $250,000, $150,000 of which was due and paid upon the execution of the 32nd Ave Lease, and $100,000 due upon obtaining the Certificate of Occupancy. We have the option to renew the 32nd Ave Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the 32nd Ave Lease. The lessor will provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 3,000 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We will sublease this grow facility to an affiliated entity under the 64 terms of a Master Service Agreement for a term of five years in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) and a premium of forty percent. Revenue from the sublease of the 32nd Avenue grow facility will be recognized on a monthly basis as the user is charged for the amount of the sublease. We entered into a lease agreement on September 11, 2014 to lease a grow facility of approximately 20,000 square feet ("Bryant St. Lease") for a term of ten years. During the first 12 months of the lease, lease payments are scheduled to be $23,984 for the first four months and 24,531 for the next eight months, and then are scheduled to be $24,647, $25,140, $31,221, $31,845, $32,483, $33,132, $33,794, $34,470, and $35,160 for the second through the tenth year of the lease, respectively. We are not required to provide any security deposits or first and last month's rental amounts. We have an option to purchase the building for $2,400,000 at any time during the first 36 months of the lease, provided that we deliver a purchase option notice to the Lessor prior to the end of the 33rd month of the lease. We are responsible to provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 370 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We lease this grow facility to an affiliated entity under the terms of a Master Services Agreement on a long term basis in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the Bryant Street grow facility is recognized on a monthly basis as the user is charged for the amount of the sublease. Future minimum payments for these leases, including the increase in the Nome Lease payments per the amendment described under subsequent events in Note 10 herein, are: For the 12 Months Ending October 31, Amount ------------------ ------ 2015 $5,989,627 2016 $7,845,004 2017 $8,086,492 2018 $8,523,339 2019 $8,441,104 Note 5 - Issuance of Shares: Through a private offering of our common stock at $1 per share, we collected $2,224,700 from subscribers, as of October 31, 2014, for 2,224,700 shares of our common stock. Coupled with the 293,000 common shares issued in connection with the conversion of the convertible note described in the following Note 7, and 65 the Share Exchange described in Note 1, the total number of shares of common stock issued and outstanding at October 31, 2014 was 26,948,884 shares Note 6 - Income Taxes: The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company's assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. The Company adopted the provisions of ASC 740, "Income Taxes" on July1, 2007. FASB ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold at the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods. The components of the income tax provision are as follows: Nine Months Ended Three Months Ended October 31, October 31, 2014 2013 2014 2013 ---- ---- ---- ---- Income Tax Expense Current: Federal $ 45,113 $ - $ 99,273 $ - State 7,701 - 14,443 - -------- ------- -------- ------ Income Tax Provision $ 52,814 $ - $113,716 $ - ======== ======= ======== ====== We have a net operating loss carryforward for financial statement reporting purposes of $76,351 from the year ended January 31, 2014. Note 7 - Convertible Note Payable: The Company issued a convertible note in the amount of $850,000 on March 20, 2014 (the "Note"). This Note was subsequently amended, and the unpaid principal balance was converted into common stock, as more fully described below. The Note had an interest rate of 25%, payable monthly, and was scheduled to mature on September 21, 2014. The outstanding principal balance of the Note, plus any accrued but unpaid interest on the Note, was convertible at any time on or before the maturity date at $1 per common share. The Note was personally guaranteed by our majority shareholder and by an officer and director of the Company. On July 16, 2014, the terms of the Note were amended ("Amendment") wherein the holder of the Note elected to convert $200,000 of the principal of the Note into 293,000 of our common shares of stock at a price of $.6825 per share. As a component of the Amendment, we in turn elected to prepay the remaining principal balance of the Note, after the scheduled payment of the principal and accrued interest due the holder on July 24, 2014, and to pay a prepayment penalty of $11,250. The difference of $93,000 in the premium of the per-share price of $0.6825 per share per the Amendment and the $1 per share per the Note, plus the 66 amount of the prepayment penalty was charged to the loss on the early extinguishment of debt and interest expense, respectively. Note 8 - Mortgage Payable On July 26, 2014 the company entered into a mortgage payable for the purpose of purchasing a commercial operating property that contains a grow facility and retail store, which we lease to one of our affiliated entities. The amount of the mortgage is $595,000, has a three year term, and has no stated rate of interest. In accordance with ASC 835-30, we imputed an interest rate for the mortgage payable of 21.36%. The mortgage is payable in varying amounts from $11,000 to $36,000 per month, which includes interest at stated amount of $6,000 per month, with a balloon payment of $126,000 due in the thirty-sixth month of the term. We account for the mortgage on a straight line basis with an imputed monthly payment of principal and interests in the amount of $22,301 per month. The difference between the imputed monthly payment amount and actual payment amounts is recorded as an increase or decrease to deferred interest expense, at the time a monthly payment is made. Actual cash payments of principal and interest due under the terms of the mortgage over the subsequent three year period are, as follows: Period ended October 31, 2015 - $221,000 2016 - $232,000 2017 - $232,000 2018 - $126,000 The mortgage is also personally guaranteed by Shawn Phillips, an affiliate of the Company. Note 9 - New Accounting Pronouncements: The Financial Accounting Standards Board ("FASB") periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. The Company has reviewed the recently issued pronouncements and concluded that there are no new accounting standards are applicable to the Company. The Company elected to adopt ASU 2014-10, Development Stage Entities: Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage. We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow. Note 10 - Subsequent Events: We entered into a lease agreement on November 11, 2014 to lease a retail location of approximately 2,976 square feet ("Federal Heights Lease") for a term of 5 years and one month, with two 5 year renewal options. During term of the lease, lease payments are scheduled to be $5,704 per month. We are responsible to provide all of the tenant improvements that will enable the continuous sale of marijuana products at the Federal Heights retail location by an affiliated entity. We account for this lease as an operating lease rather than as a capital 67 lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the grow facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the grow facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We will lease this retail location to an affiliated entity under the terms of a Master Services Agreement on a long term basis in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the Federal Heights retail location will be recognized on a monthly basis as the user is charged for the amount of the sublease. We entered into a modification of the Nome lease on December 1, 2014, wherein the lease was modified to extend the lease term through April 30, 2025; and, the lease payments were modified to be $88,616 per month for the five months ending April 30 2015, and then are scheduled to be $90,207, $91,799, $93,390, $94,981, $73,578, $75,169, $76,761, 78,352, and then $79,943 per month for the final 12 months of the lease. The modification of the lease included the cancellation of the $750,000 note payable to the lessor for the financing of tenant improvements, and the extension of an additional $800,000 to be used by us for future tenant improvements. The full amount of $1,550,000 of tenant improvement financing to be provided by the lessor is to be amortized over the extended term of the modified lease as a component of the monthly lease payments. 68 TABLE OF CONTENTS Page PROSPECTUS SUMMARY ..................................................... RISK FACTORS ........................................................... MARKET FOR OUR COMMON STOCK ............................................ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. BUSINESS................................................................ MANAGEMENT ............................................................. PRINCIPAL SHAREHOLDERS.................................................. SELLING SHAREHOLDERS.................................................... DESCRIPTION OF SECURITIES............................................... LEGAL PROCEEDINGS....................................................... INDEMNIFICATION ........................................................ AVAILABLE INFORMATION................................................... FINANCIAL STATEMENTS.................................................... No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this prospectus, and if given or made, such information or representations must not be relied upon as having been authorized by the Company. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of the securities offered in any jurisdiction to any person to whom it is unlawful to make an offer by means of this prospectus. 69 PART II Information Not Required in Prospectus Item 13. Other Expenses of Issuance and Distribution. The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered. SEC Filing Fee $ 1,330 Blue Sky Fees and Expenses 2,000 Legal Fees and Expenses 30,000 Accounting Fees and Expenses 5,000 Miscellaneous 1,670 ------- TOTAL $40,000 ======= All expenses other than the SEC filing fee are estimated. Item 14. Indemnification of Officers and Directors The Utah Revised Business Corporation Act and our bylaws provide that we may indemnify any and all of our officers, directors, employees or agents or former officers, directors, employees or agents, against expenses actually and necessarily incurred by them, in connection with the defense of any legal proceeding or threatened legal proceeding, except as to matters in which such persons shall be determined to not have acted in good faith and in our best interest. Item 15. Recent Sales of Unregistered Securities. The following lists all sales of our securities during the past three years: On August 29, 2014, we acquired approximately 90% of the outstanding common stock of Strainwise, Inc., a Colorado corporation ("Strainwise Colorado"), in exchange for 23,214,184 shares of our common stock. On September 5, 2014 we acquired the remaining outstanding shares of Strainwise Colorado in exchange for the issuance of 2,517,000 shares of our common stock. In connection with this transaction: o we issued 1,112,350 Series A warrants to former Strainwise Colorado shareholders in exchange for a like number of warrants held by the former Strainwise Colorado shareholders. The Series A warrants we issued have the same terms as the warrants exchanged by the former Strainwise Colorado shareholders (exercise price: $5.00 per share/expiration date: January 31, 2019). o we issued 500,000 warrants to one non-affiliated person in exchange for a like number of warrants held by the former Strainwise Colorado warrant holder. The warrants we issued have the same terms as the 70 warrants exchanged by the former Strainwise Colorado warrant holder (exercise price: $0.10 per share/expiration date: January 31, 2019). In connection with the issuance of these shares, we relied upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). The persons who acquired these shares and warrants were sophisticated investors and were provided full information regarding our business and operations. There was no general solicitation in connection with the offer or sale of these securities. The persons who acquired these securities acquired them for their own accounts. The certificates representing these securities will bear a restricted legend providing that they cannot be sold except pursuant to an effective registration statement or an exemption from registration under the Securities Act. No commission was paid to any person in connection with the offer or sale of these securities. The following lists all sales of Strainwise, Inc.'s ("Strainwise Colorado") securities during the past three years. On January 16, 2014 Strainwise Colorado issued 20,430,000 shares of its common stock to Erin Phillips in consideration for the assignment to Strainwise Colorado of all of the outstanding membership interests in Strainwise, LLC. In January, 2014 Strainwise Colorado issued warrants to an unaffiliated person for services rendered. The warrants allow the holder to purchase up to 500,000 shares of Strainwise Colorado's common stock at a price of $0.10 per share at any time prior to January 31, 2019. In July, 2014 Strainwise Colorado issued 293,000 shares of its common stock to one person as a result of the conversion of a note in the principal amount of $200,000. Between March 15, 2014 and August 19, 2014 Strainwise Colorado sold 2,224,700 units, at a price of $1.00 per unit, to 81 private investors of whom 50 were accredited investors. Each unit consisted of one share of Strainwise Colorado's common stock and one warrant. Every two warrants entitle the holder to purchase one share of Strainwise Colorado's common stock at a price of $5.00 per share at any time prior to January 31, 2019. Strainwise Colorado relied upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") in connection with sale and issuance of these securities. The persons who acquired these securities were "sophisticated investors" and were provided full information regarding the business and operations of Strainwise Colorado. There was no general solicitation in connection with the offer or sale of these securities. The persons who acquired these securities acquired them for their own accounts. The certificates representing the shares of common stock and warrants will bear a restricted legend providing that they cannot be sold except pursuant to an effective registration statement or an exemption from registration under the Securities Act. No commission was paid to any person in connection with the sale or issuance of these securities. 71 Item 16. Exhibits The following exhibits are filed with this Registration Statement: Exhibit Number Description of Exhibit ------- ---------------------- 2.1 Agreement to Exchange Securities with Strainwise, Inc. (2) 2.2 Plan of Merger (3) 3.1(a) Articles of Incorporation (1) 3.1(b) Articles of Amendment dated July 21, 2004 (1) 3.1(c) Amendment to Articles of Incorporation dated September 5, 2014 (3) 3.3 Bylaws (1) 5 Hart & Hart Legal Opinion (3) 10.1 Exchange Option (3) 10.2 Custer Lease (2) 10.2.1 Custer Sublease 10.3 51st Ave. Lease (2) 10.4 Nome Lease (2) 10.4.1 Amendment to Nome Lease (5) 10.5 32nd Ave. Lease (2) 10.6 Form of Master Service Agreement, together with schedule required by Instruction 2 to Item 601(a) of Regulation S-K. 10.7 Lock-Up/Leak-Out Agreements, together with schedule required by Instruction 2 to Item 601(a) of Regulation S-K. (3) 10.8 Non-Disclosure/Non-Compete Agreements (3) 10.9 Bryant Street Lease (4) 10.10 Loan Agreement/Randall Taylor (4) 10.11 Promissory Note, Deed of Trust and Security Agreements 5110 Race Street Property (4) 10.12 Lease - 5110 Race Street 10.13 Federal Heights Lease 10.14 Form of Amended and Restated Senior Loan Agreement, 25% Convertible Promissory Note, Personal Guaranty Agreement and Subsidiary Guaranty Agreement, together with schedule required by instruction 2 to the Item 601 (a) of regulation S-K. 72 21 Subsidiaries (3) 23.1 Consent of Attorneys (3) 23.2 Consent of Accountants (1) Incorporated by reference to the same exhibit filed with the Company's amended registration statement on Form 10-SB filed on October 29, 2007. (2) Incorporated by reference to the same exhibit filed with the Company's 8-K report filed on August 21, 2014. (3) Filed with initial registration statement. (4) Filed with Amendment No. 1 to this registration statement. (5) Filed with Amendment No. 2 to this registration statement. Item 17. Undertakings The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section l0 (a)(3) of the Securities Act: (ii)To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (1) To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the termination of the offering. 73 Insofar as indemnification for liabilities arising under the Securities Act of l933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: (i) If the registrant is relying on Rule 430B: (A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and (B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or (ii)If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a 74 document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. (5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv)Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. 75 SIGNATURES Pursuant to the requirements of the Securities Act of l933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Denver, Colorado on the 12th day of March, 2015. STRAINWISE, INC. By: /s/ Shawn Phillips ------------------------------------ Shawn Phillips, Chief Executive Officer In accordance with the requirements of the Securities Act of l933, this registration statement has been signed by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Shawn Phillips Chief Executive Officer March 12, 2015 ---------------------- and a Director Shawn Phillips /s/ Erin Phillips Chief Financial and March 12, 2015 ---------------------- Accounting Officer Erin Phillips and a Director /s/ David Modica Director March 12, 2015 ---------------------- David Modica 76 STRAINWISE, INC. FORM S-1 AMENDMENT NO. 3 EXHIBITS 77 EX-10 2 s1amd3ex1021.txt EXH. 10.2.1 - CUSTER SUBLEASE EXHIBIT 10.2.1 78 SUBLEASE AGREEMENT This sublease agreement ("Sublease Agreement"), entered into this 1st day of January, 2015 is made between 5110 RACE, LLC a Colorado limited liability company ("Lessor" or "Sublandlord") and Monarch America, Inc. a Colorado corporation ("Subtenant") for the period beginning January 1, 2015 and ending March 31, 2019 (the "Sublease Term") for the premises located at 1150 W Custer Place, Denver, Colorado 80223 (the "Premises"). The parties agree: Term and Rent. Subtenant shall take full lawful possession of the Premises for the Sublease Term and shall pay as rent for the Sublease Term to Lessor the total sum of One Million, Eight Hundred, Fifteen Thousand, Six Hundred Dollars and no cents ($1,815,600.00) for the term of the lease, monthly payments as defined below. The Premises is approximately 26,700 Square feet. The calculation average results in a cost of Sixteen Dollars ($16.00) per square foot, 26,700 square feet. Sublease Term to Lessor the total sum of Twenty Thousand Dollars and no cents ($20,000.00) per month rent abated, as monthly rent for the Term, due directly to the Sublandlord on or before the first day of each month, commencing January 1, 2015 and terminating on June 30, 2015. Subtenant shall pay as rent for the Sublease Term to Lessor the total sum of Fifty One Thousand, Two Hundred Dollars and no cents ($51,200.00) per month as monthly rent for the remainder of the Sublease Term, due directly to the Sublandlord on or before the first day of each month, commencing July 1, 2015 and terminating on December 31, 2015. Subtenant shall pay as rent for the Sublease Term to Lessor the total sum of Thirty Five Thousand, Six Hundred, and no cents ($35,600.00) per month as monthly rent for the remainder of the Sublease Term, due directly to the Sublandlord on or before the first day of each month, commencing January 1, 2016 and terminating on March 31, 2019. 2. Contingencies. Landlord and Sublandlord, as tenant, entered into a Lease Agreement dated as of January 1, 2015 (the "Master Lease"), concerning the real property legally described located as 1150 W Custer Place, Denver Colorado 80223, County of Denver (the "Demised Premises"). This Sublease Agreement shall be contingent on the written consent of the Landlord and the full execution of the attached Consent to Sublease Agreement. 3. Deposit. Subtenant shall be required to pay a security deposit of Sixty Thousand Dollars and no cents ($60,000.00) on or before November 1, 2015. 4. Original Lease. This Sublease Agreement incorporates and is subject to the Master Lease, a copy of which has been provided to the Subtenant, and which is incorporated as if it were set out in this Sublease Agreement. Subtenant further agrees that Subtenant shall be bound by all of the terms and conditions of the Master Lease, except for the rent and deposit provided in the Sublease Agreement. 79 5. Additional Agreements-Triple Net Lease. ($2,500.00 Est.) a. Utilities. Subtenant shall be responsible for paying all utilities for the Premise. Utilities, for purposes of this Sublease Agreement include, but are not limited to: power; electricity; water; trash; sewage; property insurance as required in the Master Lease; business insurance; telephone; and alarm expenses. b. Taxes. Subtenant shall be responsible for paying all taxes incurred by Sublandlord due to the terms of the Lease. c. Regulatory Approval. Subtenant shall be responsible for obtaining and maintaining all applicable state and local licenses and permits and shall be responsible for all costs associated with complying with the Colorado Medical Marijuana Code or the Colorado Retail Marijuana Code and any rules promulgated pursuant thereto (collectively the "Code"). 6. Marijuana Use: Notwithstanding anything contained in the Master Lease or Sublease Agreement to the contrary, the Sublandlord acknowledges, agrees and understands that the Subtenant is licensed applicant to operate a marijuana business pursuant to the Code and is currently permitted to operate, entitled to possess, use, cultivate, distribute, transport, sell, and/or acquire marijuana under the Code. Subtenant shall maintain appropriate licensing as required by applicable Colorado law in good standing and at all times remain within the limits allowed by applicable law with regard to the possession, cultivation, distribution, acquisition, transportation, sale or use of marijuana. Any violation of any statute or rule under any applicable Colorado law regarding marijuana by the Subtenant may be considered a material breach of the Sublease Agreement and may subject the Subtenant to all rights and remedies of the Sublandlord in the event of breach. 7. Duration of the Sublease: This Sublease Agreement shall be binding on the parties for the Sublease Term unless early terminated pursuant to this Sublease Agreement. If at any point the Master Lease converts to a month to month lease, this Sublease Agreement shall continue in effect for that extended period of time until such time as the parties end their relationship. 8. Events of Default. Each of the following events shall be an event of default ("Event of Default") by Subtenant under this Sublease Agreement: a. Subtenant shall fail to abide by any of the terms of this Sublease Agreement and/or Master Lease. b. Subtenant loses its licenses to operate a marijuana business at the premise due to no fault of Sublandlord. c. The Subtenant fails to pay the Rent to the Sublandlord or any amount of it when due or within any grace period, if any. d. The Subtenant becomes insolvent, commits an act of bankruptcy, becomes bankrupt, takes the benefit of any legislation that may be in force for bankrupt or insolvent debtors, becomes involved in a voluntary or involuntary winding up, dissolution or liquidation proceeding, or if a receiver will be appointed for the affairs of the Subtenant. 80 e. The Subtenant abandons the Premises or any part of the Premises. f. The Subtenant uses the Subleased Premises for any unpermitted or illegal purposes. g. The Premises, or any part of the Premises is completely or partially damaged by fire or other casualty that is due to the Subtenant's negligence, willful act, or that of the Subtenant's employee, family, agent, or guest. h. Any other event of default provided in the Master Lease. 9. Sublandlord's Remedies. a. Upon each occurrence of an Event of Default and so long as such Event of Default is not cured within seven (7) days written notice, Sublandlord may at any time thereafter at its election: terminate this Sublease Agreement or Subtenant's right of possession, (but Subtenant shall remain liable as hereinafter provided) and/or pursue any other remedies at law or in equity. Upon the termination of this Sublease Agreement or termination of Subtenant's right of possession, it shall be lawful for Sublandlord, without formal demand or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other action or proceeding authorized by law and to remove Subtenant and all persons and property therefrom. If Sublandlord re-enters the Premises, Sublandlord shall have the right to keep in place and use, or remove and store, all of the furniture, fixtures and equipment at the Premises. b. If Sublandlord terminates this Sublease Agreement, Sublandlord may recover from Subtenant the sum of: all rent and all other amounts accrued hereunder to the date of such termination; the cost of reletting the whole or any part of the Premises, including without limitation costs of removing and storing Subtenant's or any other occupant's property, repairing or otherwise putting the Premises into the condition in which the Premises was received by Subtenant, ordinary wear and tear excepted, as acceptable to a new Subtenant or Subtenants of the same type or for the same use as Subtenant, and all reasonable expenses incurred by Sublandlord in pursuing its remedies, including reasonable attorneys' fees and court costs; and the excess of the then present value of the rent and other amounts payable by Subtenant under this Sublease Agreement as would otherwise have been required to be paid Subtenant to Sublandlord during the period following the termination of this Sublease Agreement measured from the date of such termination to the expiration date stated in this Sublease Agreement, over the present value of any net amounts which Subtenant establishes Sublandlord can reasonably expect to recover by reletting the Premises for such period, taking into consideration the availability of acceptable subtenants and other market conditions affecting leasing. Such present values shall be calculated at a discount rate equal to the ninety (90) day U.S. Treasury bill rate at the date of such termination. c. If Sublandlord terminates Subtenant's right of possession (but not this Sublease Agreement), Sublandlord shall use its best 81 efforts to relet the Premises for the account of Subtenant for such rent and upon such terms as shall be satisfactory to Sublandlord without thereby releasing Subtenant from any liability hereunder and without demand or notice of any kind to Subtenant. d. Exercise by Sublandlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Sublease Agreement by Sublandlord, whether by agreement or by operation of law, it being understood that such surrender and/or termination can be effected only by the written agreement of Sublandlord and Subtenant. 10. Subtenant's Remedies/Limitation of Liability. Subtenant shall not be in default hereunder and Subtenant shall not have any remedy or cause of action unless Sublandlord fails to perform any of its obligations hereunder within ten (10) days after written notice from Subtenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of ten (10) days, then after such period of time as is reasonably necessary). All obligations of Sublandlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Sublease Agreement, Subtenant may not terminate this Sublease Agreement for breach of Sublandlord's obligations hereunder. All obligations of Sublandlord under this Sublease Agreement will be binding upon Sublandlord only during the period of its ownership or leasehold of the Premises and not thereafter. 11. Indemnity and Hold Harmless. Notwithstanding anything contained in the Master Lease or Sublease Agreement to the contrary, Subtenant, for themselves, their personal representatives, heirs, successors, legal representatives, assigns, invitees and guests, hereby agree to indemnify and hold harmless Sublandlord from any loss or liability, damage, or costs, and discharge Sublandlord for any and all loss or damage and any claims or demands therefore including, but not limited to, attorneys' fees, that Sublandlord may incur in any suit, demand, legal action, or claim of any nature made by any government agency. 12. Sole Agreement: Notwithstanding anything contained in the Master Lease or Sublease Agreement to the contrary, the parties agree that this Sublease Agreement contain the entire agreement between the parties related to the leasing of the Premise. This Sublease Agreement cannot be modified or amended in any way except through a written amendment signed by the parties hereto. No oral agreements are binding unless reduced to writing. 13. Governing Law/Prevailing Party: This Sublease Agreement shall be governed by the laws of the state of Colorado. The prevailing party in any litigation arising from this agreement shall be awarded attorneys' fees paid by the non-prevailing party. 14. Successors and Assigns. The rights and obligations of either party shall not be transferable without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. All obligations of the parties herein shall be binding upon their respective successors or assigns. Notwithstanding, this Sublease Agreement may be assigned, in whole or in part, to a wholly owned subsidiary of Sublandlord. 82 15. Joint and Several Liability: To the extent that there is more than one Subtenant or this Sublease Agreement assigned, all Subtenants agree that each is jointly and severally liable for the other Subtenant's responsibilities under this Sublease Agreement. 16. Waiver. No waiver or breach of any term or condition of this Sublease Agreement shall operate as a waiver of any other breach of such term or condition, or of any other term or condition, nor shall any failure to enforce any provisions hereunder operate as a waiver of such provision or any other provision hereunder. 17. Severability. In case any one or more of the provisions contained in this Sublease Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, except in those instances where removal or elimination of such invalid, illegal, or unenforceable provision or provisions would result in a failure of consideration under this Sublease Agreement, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Sublease Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. 18. Notices. All notices hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, one day after delivery to a nationally recognized overnight delivery service, charges prepaid, three days after being sent by registered or certified mail, postage prepaid, to the parties at their respective addresses set forth above or to such other address as any party shall have specified by notice to the other in accordance with this Section. 19. Attorney's Fees. Should either party employ an attorney to enforce any provision of this Sublease Agreement or seek damages for breach of this Sublease Agreement, the losing party shall pay all reasonable attorney's fees and expenses and court costs incurred by the other. IN WITNESS WHEREOF, the parties hereto set their hands the day and year as hereinafter set forth by their duty authorized representatives. Sublandlord:; 5110 Race, LLC /s/ Shawn Phillips ------------------------------ By: Shawn Phillips Its: Manager Subtenant: Monarch America, Inc. /s/ Eric Hagen ----------------------------- By: Eriv Hagen Its: Chief Executive Officer 83 EX-10 3 s1amd3ex106.txt EXH. 10.6 - TERMS OF MASTER SERVICE AGREE. EXHIBIT 10.6 84 STRAINWISE, INC. Shown below are the parties to, and terms of, the Company's Master Service Agreements. Fees changed per Agreement Exhibit A to Agreement ---------------------------------------------------- ---------------------------------- Brand, marketing Accounting/ Customer Name and Address Store Name and administrative Compliance ------------------------- ---------- ------------------ ---------- Denver Corridor, Inc. 51st Avenue Grow Facility (1) $ 15,000 $ 5,500 8468 Lewis Court Arvada, CO 80005 Denver Corridor, Inc. Nome Grow Facility (1) $ 10,000 $ 5,500 8468 Lewis Court Arvada, CO 80005 Denver Corridor, Inc. 32nd Avenue Grow Facility (1) $ 20,000 $ 5,500 8468 Lewis Court Arvada, CO 80005 5110 Race, LLC Bryant Street Grow Facility (1) $ 10,000 $ 5,500 5110 Race St. Denver, CO 80216 5110 Race, LLC Sanctuary (2) (3) $ 4,500 $ 5,500 5110 Race St. Denver, CO 80216 Annie's Tobacco Emporium, LLC Annie $ 4,500 $ 2,500 135 S. Nevada St. Central City, CO 80427 Boulder County Caregivers, LLC Ridge $ 4,500 $ 5,500 P.O. Box 150247 Lakewood, CO 80215 Colorado Blvd. LLC Spring $ 4,500 $ 2,500 15 Colorado Blvd. Idaho Springs, CO 80452 Rocky Mountain Farmacy, Inc. Retreat $ 4,500 $ 5,500 P.O. Box 150247 Lakewood, CO 80215 85 Rocky Mountain Farmacy, Inc. Shelter $ 4,500 $ 5,500 P.O. Box 150247 Lakewood, CO 80215 North Federal, LLC Grove $ 4,500 $ 5,500 5110 Race St. Denver, CO 80216 Western Remedies, LLC Haven $ 4,500 $ 5,500 5110 Race St. Denver, CO 80216 Railroad Avenue, Inc. Range $ 4,500 $ 5,500 1350 Independence St. Suite 300 Lakewood, CO 80215
(1) The amount the Company charges for renting the grow facility to this entity is in accordance with Exhibit A, Section 5 of the Master Service Agreement. (2) The Sanctuary is both a dispensary and a grow facility. (3) Fees charged include rent to the Company for subleasing the grow facility to this entity. 86 EX-10 4 s1amd3ex1012.txt EXH. 10.12 - 5110 RACE ST. LEASE EXHIBIT 10.12 87 REAL ESTATE LEASE This Lease Agreement (this "Lease") is dated November 11, 2014, by and between TJ INVESTMENTS LLC ("Landlord"), and STRAINWISE ("Tenant"). The parties agree as follows: PREMISES. Landlord, in consideration of the lease payments provided in this Lease, leases to Tenant A 2,976 SQUARE FOOT OFFICE BUILDING AT 9462 FEDERAL BLVD. $23.00/sf. NNN LEASE. 5-YEAR TERM WITH (2) CONSECUTIVE 5 YEAR OPTIONS. (the "Premises") located at 9462 FEDERAL BLVD., FEDERAL HEIGHTS, Colorado 80260. TERM. The lease term will begin on November 15, 2014 and will terminate on November 30, 2019. It is understood that either party must provide written notification to the other thirty (30) days in advance of intent to vacate the Premises. Termination must occur at the end of the calendar month. Upon vacating the Premises, Tenant hereby agrees to return same in as good repair and "Broom Cleaned" condition as of the commencement date of the Lease, acceptable to Landlord 's designated representative. TRIPLE NET LEASE. This Lease is what is commonly referred to as a "Triple Net Lease", it being the intention of the parties that Landlord shall not have any responsibility of any kind or nature whatsoever to maintain, repair, improve, alter or in any way incur any expense in connection with the Property, and that the rent and any other payments to be made by Tenant to or on behalf of Landlord under the terms hereof, are to be free and clear of any impositions, expenses or setoffs of any kind or nature whatsoever, including without limitation, any taxes, charges or expenses in connection with the ownership, maintenance, repair and operation of the Property, all such expenses, charges and taxes to be paid by Tenant as provided herein. Tenant shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon and a proportionate share of real property taxes, all-risk and earthquake insurance, and common area maintenance expenses. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable, proportionate share as determined by Landlord of all charges jointly metered with other Premises. LEASE PAYMENTS. Tenant shall pay to Landlord monthly installments of $5,704.00, payable in advance on the first day of each month, for a total lease payment of $347,944.00. Lease payments shall be made to the Landlord at 3291 W. 74TH AVE., WESTMINSTER, Colorado 80030, which address may be changed from time to time by the Landlord. ESTIMATED PAYMENTS. Tenant shall be notified by Landlord of Estimated Payments for taxes, insurance, maintenance of the landscaping and parking lot, and landscaping and parking lot utilities and services from time to time. The Estimated Payments shall be paid by Tenant together with rent, on the first day of each month throughout the Term. The Estimated Payments may be increased or decreased by Landlord upon written notice to Tenant based upon statements 88 received or charges incurred by Landlord, information available to Landlord as to the probable cost of expected charges and expenses, or the reasonable estimate of Landlord as to the probable amount of expected charges or expenses. Landlord shall be entitled to retain the monies received from such payments in its general fund pending payment of all such costs and charges. No more frequently than once each calendar quarter, the actual costs shall be determined by Landlord, and Tenant shall remit to Landlord on demand its unpaid pro rata share of the actual expense. In the event Tenant paid more than the actual expenses for such period of time, Landlord shall apply such overpayment towards the next Estimated Payments owing by Tenant. At the termination of this Lease, an accounting for such charges and expenses shall be made to the nearest practical accounting period, and Tenant shall pay to Landlord any balance due, or the Landlord shall refund to Tenant any excess amount paid. SECURITY DEPOSIT. At the time of the signing of this Lease, Tenant shall pay to Landlord, in trust, a security deposit of $6,000.00 to be held and disbursed for Tenant damages to the Premises (if any) as provided by law. POSSESSION. Tenant shall be entitled to possession on the first day of the term of this Lease, and shall yield possession to Landlord on the last day of the term of this Lease, unless otherwise agreed by both parties in writing. At the expiration of the term, Tenant shall remove its goods and effects and peaceably yield up the Premises to Landlord in as good a condition as when delivered to Tenant, ordinary wear and tear excepted. USE OF PREMISES. Tenant may use the Premises only for ESTABLISHMENT AS A MEDICAL MARIJUANA RETAILER AND OR AS ALLOWED BY THE LOCAL MUNICIPALITY. The Premises may be used for any other purpose only with the prior written consent of Landlord, which shall not be unreasonably withheld. Tenant shall notify Landlord of any anticipated extended absence from the Premises not later than the first day of the extended absence. ALTERATIONS. Tenant covenants and agrees that all Alterations constructed on the Property or work performed or caused to be performed by Tenant shall be in full compliance with all laws, rules, orders, ordinances, directions, codes, regulations and requirements of all governmental agencies, offices, departments, bureaus and boards having jurisdiction over the Property. Tenant shall provide Landlord with at least 45 days' notice prior to having any construction materials delivered to the Property or commencing construction of any improvements, and shall reasonably cooperate with Landlord in the posting of a notice of non-responsibility. COST OF ALTERATIONS. Tenant shall pay all costs of constructing any such Alterations approved by Landlord including but not limited to fees and costs charged by architects, engineers, the general contractor, subcontractors, and laborers and material men, and shall not permit any mechanic's or materialmen's lien to be filed against the Property in connection therewith. 89 PARKING. Tenant shall be entitled to use 23 parking space(s) for the parking of the Tenant's customers'/guests/ motor vehicle(s). PROPERTY INSURANCE. Tenant shall maintain casualty property insurance on the Premises and all improvements against loss or damage by fire and lightning and against loss or damage by other risks in an amount not less than 100% of the full replacement value. Landlord shall be named as an additional insured in such policies. Tenant shall deliver appropriate evidence to Landlord as proof that adequate insurance is in force issued by companies reasonably satisfactory to Landlord. Landlord shall receive advance written notice from the insurer prior to any termination of such insurance policies. All insurance proceeds payable by the occurrence of any covered loss shall be payable to Landlord, and Tenant shall have no right or claim to any such insurance proceeds payable with respect to the Improvements, excluding, however, any such proceeds that may be payable with respect to Tenant's personal property or trade fixtures. Tenant shall also maintain any other insurance which Landlord may reasonably require for the protection of Landlord's interest in the Premises. Tenant is responsible for maintaining casualty insurance on its own property. LIABILITY INSURANCE. Tenant shall maintain liability insurance on the Premises in a total aggregate sum of at least $1,000,000.00. Tenant shall deliver appropriate evidence to Landlord as proof that adequate insurance is in force issued by companies reasonably satisfactory to Landlord. Landlord shall receive advance written notice from the insurer prior to any termination of such insurance policies. RENEWAL TERMS. This Lease shall automatically renew for an additional period of ONE MONTH per renewal term, unless either party gives written notice of termination no later than SIXTY DAYS days' prior to the end of the term or renewal term. The lease terms during any such renewal term shall be the same as those contained in this Lease except that the lease installment payments shall be $5,952.00 per month. MAINTENANCE. Tenant shall have the responsibility to maintain the Premises in good repair at all times during the term of this Lease. UTILITIES AND SERVICES. Tenant shall be responsible for all utilities and services incurred in connection with the Premises. Tenant acknowledges that Landlord has fully explained to Tenant the utility rates, charges and services for which Tenant will be required to pay to Landlord (if any), other than those to be paid directly to the third-party provider. TAXES. Taxes attributable to the Premises or the use of the Premises shall be allocated as follows: 90 REAL ESTATE TAXES. Tenant shall pay all real estate taxes and assessments which are assessed against the Premises during the time of this Lease. Real Property Taxes" shall include any form of assessment, license, fee, rent, tax, levy, penalty or tax imposed by any authority having the direct or indirect power to tax, including any improvement district, as against any legal or equitable interest of Landlord in the Premises or as against Landlord 's business of renting the Premises. Tenant's share of Real Property Taxes shall be equitably prorated to cover only the period of time within the fiscal tax year during which this Lease is in effect. With respect to any assessments which may be levied against or upon the Premises, and which may be paid in annual installments, only the amount of such annual installments (with appropriate proration for any partial year) and interest due thereon shall be included within the computation of the annual Real Property Taxes. Landlord represents that, to the best of his knowledge, there are no assessment or improvement districts being planned which would affect the Premises other than as in effect as of the date of this Lease. PERSONAL TAXES. Tenant shall pay all personal taxes and any other charges which may be levied against the Premises and which are attributable to Tenant's use of the Premises, along with all sales and/or use taxes (if any) that may be due in connection with lease payments. Accordingly, Tenant shall pay before delinquency all taxes levied or assessed on Tenant's fixtures, improvements, furnishings, merchandise, equipment and personal property in and on the Premises, whether or not affixed to the real property. If Tenant in good faith contests the validity of any such personal property taxes, then Tenant shall at its sole expense defend itself and Landlord against the same and shall pay and satisfy any adverse determination or judgment that may be rendered thereon and shall furnish Landlord with a surety bond satisfactory to Landlord in an amount equal to 150% of such contested taxes. Tenant shall indemnify Landlord against liability for any such taxes and/or any liens placed on the Premises in connection with such taxes. If at any time after any tax or assessment has become due or payable Tenant or its legal representative neglects to pay such tax or assessment, Landlord shall be entitled, but not obligated, to pay the same at any time thereafter and such amount so paid by Landlord shall be repaid by Tenant to Landlord with Tenant's next rent installment together with interest at the highest rate allowable by law. TERMINATION UPON SALE OF PREMISES. Notwithstanding any other provision of this Lease, Landlord may terminate this lease upon SIXTY DAYS days' written notice to Tenant that the Premises have been sold. TERMINATION CLAUSE. Tenant may, upon 45 days' written notice to Landlord, terminate this lease provided that the Tenant pays a termination charge equal to 1 months' rent or the maximum allowable by law, whichever is less. Termination will be effective as of the last day of the calendar month following the end of the 45 day notice period. Termination charge will be in addition to all rent due up to the termination day. 91 MILITARY TERMINATION CLAUSE. In the event, the Tenant is, or hereafter becomes, a member of the United States Armed Forces on extended active duty and hereafter the Tenant receives permanent change of station orders to depart from the area where the Premises are located, or is relieved from active duty, retires or separates from the military, or is ordered into military housing, then in any of these events, the Tenant may terminate this lease upon giving thirty (30) days written notice to the Landlord. The Tenant shall also provide to the Landlord a copy of the official orders or a letter signed by the tenant's commanding officer, reflecting the change, which warrants termination under this clause. The Tenant will pay prorated rent for any days (he/she) occupy the dwelling past the first day of the month. Any security deposit will be promptly returned to the tenant, provided there are no damages to the premises. DEFAULTS. Tenant shall be in default of this Lease if Tenant fails to fulfill any lease obligation or term by which Tenant is bound. Subject to any governing provisions of law to the contrary, if Tenant fails to cure any financial obligation within 5 days (or any other obligation within 10 days) after written notice of such default is provided by Landlord to Tenant, Landlord may take possession of the Premises without further notice (to the extent permitted by law), and without prejudicing Landlord's rights to damages. In the alternative, Landlord may elect to cure any default and the cost of such action shall be added to Tenant's financial obligations under this Lease. Tenant shall pay all costs, damages, and expenses (including reasonable attorney fees and expenses) suffered by Landlord by reason of Tenant's defaults. All sums of money or charges required to be paid by Tenant under this Lease shall be additional rent, whether or not such sums or charges are designated as "additional rent". The rights provided by this paragraph are cumulative in nature and are in addition to any other rights afforded by law. LATE PAYMENTS. For any payment that is not paid within 5 DAYS AFTER IT IS DUE days after its due date, Tenant shall pay a late fee of $50.00. CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative, and shall not be construed as exclusive unless otherwise required by law. NON-SUFFICIENT FUNDS. Tenant shall be charged $40.00 for each check that is returned to Landlord for lack of sufficient funds. REMODELING OR STRUCTURAL IMPROVEMENTS. Tenant shall have the obligation to conduct any construction or remodeling (at Tenant's expense) that may be required to use the Premises as specified above. Tenant may also construct such fixtures on the Premises (at Tenant's expense) that appropriately facilitate its use for such purposes. Such construction shall be undertaken and such fixtures may be erected only with the prior written consent of the Landlord which shall not be unreasonably withheld. Tenant shall not install awnings or advertisements on any part of the Premises without Landlord's prior written consent. At the end of the lease term, Tenant shall be entitled to remove (or at the request of Landlord shall remove) such fixtures, and shall restore the Premises to substantially the same condition of the Premises at the commencement of this Lease. 92 ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not be unreasonably withheld), Landlord shall have the right to enter the Premises to make inspections, provide necessary services, or show the unit to prospective buyers, mortgagees, tenants or workers. However, Landlord does not assume any liability for the care or supervision of the Premises. As provided by law, in the case of an emergency, Landlord may enter the Premises without Tenant's consent. During the last three months of this Lease, or any extension of this Lease, Landlord shall be allowed to display the usual "To Let" signs and show the Premises to prospective tenants. INDEMNITY REGARDING USE OF PREMISES. To the extent permitted by law, Tenant agrees to indemnify, hold harmless, and defend Landlord from and against any and all losses, claims, liabilities, and expenses, including reasonable attorney fees, if any, which Landlord may suffer or incur in connection with Tenant's possession, use or misuse of the Premises, except Landlord's act or negligence. DANGEROUS MATERIALS. Tenant shall not keep or have on the Premises any article or thing of a dangerous, flammable, or explosive character that might substantially increase the danger of fire on the Premises, or that might be considered hazardous by a responsible insurance company, unless the prior written consent of Landlord is obtained and proof of adequate insurance protection is provided by Tenant to Landlord. However, Tenant shall be entitled to use and store only those Hazardous Materials, that are necessary for Tenant 's business, provided that such usage and storage is in full compliance with all applicable local, state and federal statutes, orders, ordinances, rules and regulations (as interpreted by judicial and administrative decisions). Tenant shall not keep or store on the Premises chemicals in quantities, amounts, concentrations or type which are in excess of those permitted by local, state or federal laws, regulations or ordinances. Tenant shall give to Landlord immediate verbal and follow-up written notice of any spills, releases or discharges of Hazardous Materials on the Premises, or in any common areas or parking lots (if not considered part of the Premises), caused by the acts or omissions of Tenant, or its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors. Tenant covenants to investigate, clean up and otherwise remediate any spill, release or discharge of Hazardous Materials caused by the acts or omissions of Tenant, or its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors at Tenant 's cost and expense; such investigation, clean up and remediation to be performed after Tenant has obtained Landlord 's written consent, which shall not be unreasonably withheld; provided, however, that Tenant shall be entitled to respond immediately to an emergency without first obtaining Landlord 's written consent. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, judgments, damages, penalties, fines, liabilities, losses, suits, administrative proceedings and costs (including, but not limited to, attorneys' and consultant fees) arising from or related to the use, presence, transportation, storage, disposal, spill, release or discharge of Hazardous Materials on or about the Premises caused by the acts or omissions of Tenant, its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors. Tenant shall not be entitled to install any tanks under, on or about the Premises for the storage of Hazardous Materials without the express written consent of Landlord, which may be given or withheld in Landlords sole discretion. 93 COMPLIANCE WITH REGULATIONS. Tenant shall promptly comply with all laws, ordinances, requirements and regulations of the federal, state, county, municipal and other authorities, and the fire insurance underwriters. However, Tenant shall not by this provision be required to make alterations to the exterior of the building or alterations of a structural nature. MECHANICS LIENS. Neither the Tenant nor anyone claiming through the Tenant shall have the right to file mechanics liens or any other kind of lien on the Premises and the filing of this Lease constitutes notice that such liens are invalid. Further, Tenant agrees to (1) give actual advance notice to any contractors, subcontractors or suppliers of goods, labor, or services that such liens will not be valid, and (2) take whatever additional steps that are necessary in order to keep the premises free of all liens resulting from construction done by or for the Tenant. ARBITRATION. Any controversy or claim relating to this contract, including the construction or application of this contract, will be settled by binding arbitration under the rules of the American Arbitration Association, and any judgment granted by the arbitrator(s) may be enforced in any court of proper jurisdiction. SUBORDINATION OF LEASE. This Lease is subordinate to any mortgage that now exists, or may be given later by Landlord, with respect to the Premises. OTHER. FOR RENEWAL. The contract will automatically renew after 60 months, the Landlord will increase the rent to no more than 5% in comparison with the current lease rate. LICENSE CONTINGENCIES. This lease is contingent upon licensing approval issued by the State of Colorado and shall not be binding if the State of Colorado Medical Marijuana Center store license is not granted. ASSIGNABILITY/SUBLETTING. Lessee shall have the right to assign the lease or to sublet the premises or any part thereof to a LLC or Corporation that Shawn Phillips has controlling interest, without the consent of the Lessor, provided, however, that no such assignment or subletting shall relieve Lessee from its duty to perform fully all of the agreements, covenants, and conditions set forth in this lease. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Colorado. ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement of the parties and there are no other promises, conditions, understandings or other agreements, whether oral or written, relating to the subject matter of this Lease. This Lease may be modified or amended in writing, if the writing is signed by the party obligated under the amendment. 94 SEVERABILITY. If any portion of this Lease shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Lease is invalid or unenforceable, but that by limiting such provision, it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited. WAIVER. The failure of either party to enforce any provisions of this Lease shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Lease. BINDING EFFECT. The provisions of this Lease shall be binding upon and inure to the benefit of both parties and their respective legal representatives, successors and assigns. SIGNATURES AND NOTICE. This Lease shall be signed by the following parties. No notice under this Lease shall be deemed valid unless given or served in writing and forwarded by mail, postage prepaid, addressed to the parties below: LANDLORD: TJ INVESTMENTS LLC DAN DOAN, President 3291 W. 74TH Ave. Westminster, Colorado 80030 TENANT: STRAINWISE SHAWN PHILLIPS, CEO LANDLORD: TJ INVESTMENTS LLC By: /s/ Dan Doan Date: November 13, 2014 ------------------------- Dan Doan, President TENANT: STRAINWISE By: /s/ Shawn Phillips Date: November 13, 2014 ------------------------- Shawn Phillips, CEO 95 EX-10 5 s1amd3ex1013.txt EXH. 10.13 - FEDERAL HEIGHTS LEASE EXHIBIT 10.13 96 COMMERCIAL LEASE The parties agree as follows: Landlord: Strainwise, Inc. Tenant: 5110 Race, LLC (d/b/a The Sanctuary) Location of leased premises: 5110 Race Street, Denver, CO Term: Sixty months beginning August 1, 2014. Term can be renewed for five additional years upon written notice from Tenant to Landlord. Notice must be given at least three months before expiration of lease. Rent: $8,400 per month During the term of the lease, Tenant will pay property taxes, insurance, utilities, cleaning, trash removal, maintenance and any repairs which are not the responsibility of the Landlord. During the term of the lease, Landlord will pay for any repairs (exceeding $5,000 per instance) to the foundation, exterior walls, or roof. Tenant may grow and sell marijuana at the leased premises. AGREED TO AND ACCEPTED: February 27, 2015 STRAINWISE, INC. By /s/ Erin Phillips --------------------------------- Erin Phillips 5110 RACE STREET, LLC By /s/ Shawn Phillips --------------------------------- Shawn Phillips, Managing Member 97 EX-10 6 s1amd3ex1014.txt EXH. 10.14 - AMENDED SENIOR LOAN & ALL AGREES EXHIBIT 10.14 98 Form of Amended and Restated Senior Loan Agreement, 25% Convertible Promissory Note, Personal Guaranty Agreement and Subsidiary Guaranty Agreement, together with schedule required by instruction 2 to the Item 601 (a) of regulation S-K. Lender Amount of Loan Date of Loan Green Acres Partners LLC $350,000 1-30-15 San Gabriel Advisors, LLC $ 50,000 1-30-15 San Gabriel Advisors, LLC $ 50,000 1-30-15 Green Acres Partners, LLC $350,000 3-01-15 San Gabriel Advisors, LLC $150,000 3-01-15 99 EXHIBIT 10.14 Continued 100 AMENDED AND RESTATED SENIOR LOAN AGREEMENT This Amended and Restated Senior Loan Agreement (this "Agreement"), dated February 5, 2015, is by and between Green Acres Partners A, LLC, a Nevada limited liability company (the "Lender"), on the one hand, and Strainwise, Inc., a Utah corporation (the "Borrower"), on the other hand. RECITALS WHEREAS, the Lender desires to provide the Borrower with a loan to meet its capital needs; WHEREAS, the Borrower has indicated that it wishes to borrow an aggregate of up to TWO MILLION THREE HUNDRED THOUSAND DOLLARS ($2,300,000); and WHEREAS, the parties desire that the Lender will loan the Borrower money to be used to meet its capital needs; WHEREAS, the parties entered into a Senior Loan Agreement on January 30, 2015, and enter into this Agreement which amends and restates, but does not extinguish, impair, novate or discharge the obligations evidenced by that certain Senior Loan Agreement, dated January 30, 2015, executed by the Borrower in favor of the Lender. NOW THEREFORE, in consideration of the foregoing recitals, mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as set forth below. 1. Principal. Upon receipt of funds, the Borrower promises to unconditionally pay to the order of the Lender the aggregate principal amount set forth in Schedule A of the promissory note (the "Loan Amount"), together with interest pursuant to this Agreement and the corresponding promissory note documenting the Loan Amount. Repayment of the Loan Amount shall be subject to the terms and conditions of the Amended and Restated 25% Senior Promissory Note, attached hereto as Exhibit A (the "Note"), to be issued to the Lender upon receipt of funds. 2. Interest Rate. The rate of simple interest for the Loan Amount shall be TWENTY-FIVE PERCENT (25%) per annum and will be due as provided in the Note. 3. Personal Guaranties. Funding of the Loan Amount is conditioned upon receipt of the personal guaranties of Shawn David Phillips and Erin Phillips as set forth in the Amended and Restated Personal Guaranty, attached hereto as Exhibit B. 4. Subsidiary Guarantee. Funding of the Loan Amount is conditioned upon receipt of the guaranty of Strainwise, Inc., a Colorado corporation and wholly owned subsidiary of the Borrower as set forth in the Amended and Restated Subsidiary Guaranty, attached hereto as Exhibit C. 5. Conversion Rights. The principal amount of the Note and any accrued but unpaid interest thereon, are convertible into shares of common stock of the Borrower (the "Common Stock") as provided in the Note (the "Conversion Shares"). 101 6. Registration Procedures. 6.1. Demand Rights. From the date hereof, until the date which is three (3) years from the date hereof (the "Demand Period"), subject to the terms and conditions of this Agreement, the Lender will have in the single opportunity, in addition to other rights enumerated in this Agreement, to request registration under the Securities Act of 1933, as amended (the "Securities Act") of all or part of the Conversion Shares, including any securities issued or issuable with respect to the Conversion Shares by way of replacement, share dividend, share split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization (the "Registrable Securities"), as provided herein (a "Demand Registration"). a. Except as provided below, during the Demand Period any holder or combination of holders (the "Demanding Shareholders") owning more than 50% or more of the Registrable Securities may deliver to the Borrower a written request (a "Demand Registration Request") that the Borrower register any or all such Demanding Shareholders' Registrable Shares. b. A Demand Registration Request from Demanding Shareholders shall (i) set forth the number of Registrable Securities intended to be sold pursuant to the Demand Registration Request; (ii) disclose whether all or any portion of a distribution pursuant to such registration will be sought by means of an underwriting; and (iii) identify any managing underwriter or managing underwriters proposed for the underwritten portion, if any, of such registration. c. Upon the receipt by the Borrower of a Demand Registration Request, the Borrower shall, within ten (10) days following receipt of such Demand Registration Request, notify the Demanding Shareholders whether all, part, or none of the distribution is expected to be made by means of an underwriting, and, if more than one means of distribution is contemplated, may require holders to notify the Borrower of the means of distribution of their Registrable Securities to be included in the registration. The right of the holder to include all or any portion of its Registrable Securities in an underwriting shall be conditioned upon the Borrower's having received a timely written request for such inclusion by way of a Demand Registration Request (which right shall be further conditioned to the extent provided in this Agreement). 6.2. Right to Piggyback. If the Borrower proposes to undertake an offering of shares of Common Stock for its account or for the account of other stockholders and the registration form to be used for such offering may be used for the registration of Registrable Securities (a "Piggyback Registration"), each such time the Borrower will give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration (each, a "Piggyback Notice") and the Borrower will use its best efforts to cause to be included in such registration all Registrable Securities with respect to which the Borrower has received written requests for inclusion therein within twenty (20) days after the date of sending the Piggyback Notice. a. Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Borrower, and the managing underwriters advise the Borrower in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in an orderly manner within a price range acceptable to the Borrower, the Borrower will 102 include in such registration (a) first, the securities the Borrower proposes to sell, and (b) second, the Registrable Securities requested to be included in such registration and any other securities requested to be included in such registration that are held by persons other than the Holders of Registrable Securities pursuant to registration rights, pro rata among the holders of Registrable Securities and the holders of such other securities requesting such registration on the basis of the number of shares of such securities owned by each such holder. b. Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Borrower's securities other than the holders of Registrable Securities (the "Other Holders"), and the managing underwriters advise the Borrower in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in an orderly manner in such offering within a price range acceptable to the Other Holders requesting such registration, the Borrower will include in such registration (a) first, the securities requested to be included therein by the Other Holders requesting such registration, and (b) second, the Registrable Securities requested to be included in such registration hereunder, pro rata among the holders of Registrable Securities requesting such registration on the basis of the number of shares entitled to registration rights owned by each such holder. c. The rights granted by this section will not apply to the Borrower's current registration statement. 6.3. Registration. The Borrower will use its reasonable best efforts to effect the registration of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Borrower will as expeditiously as possible: a. Registration Statement. Prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective. b. Amendments and Supplements. Promptly prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period required by the intended method of disposition and the terms of this Agreement and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement. c. Provisions of Copies. Promptly furnish to each seller of Registrable Securities the number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller. d. Blue Sky Laws. Use its reasonable best efforts to register or qualify such Registrable Securities under the securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or 103 advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, provided, that the Borrower will not be required to (a) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection; (b) subject itself to taxation in any such jurisdiction; or (c) consent to general service of process in any such jurisdiction. e. Prospectus Updating. Promptly notify each seller of such Registrable Shares when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any of the following events (i) the occurrence of one or more event which, individually or together, represents a fundamental change in the information contained in the prospectus included with such registration statement; (ii) any material addition or change on the plan of distribution; or (iii) any event which would cause the information in the prospectus included in such registration statement to contain an untrue statement of a material fact or omit any material fact necessary to make the statements therein not misleading. In such event, at the request of any such seller, the Borrower will promptly prepare a supplement or amendment to such prospectus. f. Due Diligence. Make available for inspection by any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such underwriter, all financial and other records, pertinent corporate documents, and properties of the Borrower, and cause the Borrower's officers, directors, employees, and independent accountants to supply all information reasonably requested by any such underwriter, attorney, accountant or agent in connection with such registration statement. g. Deemed Underwriters or Controlling Persons. Permit any holder of Registrable Securities which holder, in such holder's reasonable judgment, might be deemed to be an underwriter or a controlling person of the Borrower, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material in form and substance satisfactory to such holder and to the Borrower and furnished to the Borrower in writing, which in the reasonable judgment of such holder and its counsel should be included. h. Stop Orders. Promptly notify holders of the Registrable Securities of the threat of issuance by the SEC of any stop order suspending the effectiveness of the registration statement or the initiation of any proceeding for that purpose, and make every reasonable effort to prevent the entry of any order suspending the effectiveness of the registration statement. In the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such registration statement for sale in any jurisdiction, the Borrower will use its reasonable best efforts promptly to obtain the withdrawal of such order. 6.4. Further Information. The Borrower may require each holder of Registrable Securities to furnish to the Borrower in writing such information regarding the proposed distribution by such holder as the Borrower may from time to time reasonably request. 6.5. Notice to Suspend Offers and Sales. Each Holder severally agrees that, upon receipt of any notice from the Borrower of the happening of any event of 104 the kind described in Sections 6.3(e) and 6.3(h) hereof, such Holder will forthwith discontinue disposition of shares of Common Stock pursuant to a registration hereunder until receipt of the copies of an appropriate supplement or amendment to the prospectus under Section 6.3(e) or until the withdrawal of such order under Section 6.3(h). 6.6. Reference to Holders. If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Borrower and if, in the holder's reasonable judgment, such holder is or might be deemed to be a controlling person of the Borrower, such holder shall have the right to require (a) the insertion therein of language in form and substance satisfactory to such holder and the Borrower and presented to the Borrower in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Borrower's securities covered thereby and that such holdings do not imply that such holder will assist in meeting any future financial requirements of the Borrower. 6.7. Registration Expenses. 6.7.1 Expense Borne by Borrower. Except as specifically otherwise provided in Section 6.7.2, the Borrower will be responsible for payment of all expenses incident to any registration hereunder, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, road show expenses, advertising expenses and fees and disbursements of counsel for the Borrower and all independent certified public accountants and other Persons retained by the Borrower in connection with such registration. 6.7.2 Expense Borne by Selling Security Holders. The holder will be responsible for payment of his own legal fees (if he retains legal counsel separate from that of the Borrower), underwriting fees and brokerage discounts, commissions and other sales expenses incident to any registration hereunder. 7. Non-Waiver. No course of dealing between the parties hereto, or any failure or delay on the part of a party in exercising any rights or remedies hereunder, shall operate as a waiver of any rights or remedies of that party under this or any other applicable instrument. No single or partial exercise of any rights or remedies hereunder shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder. 8. Representations and Warranties. Each of the parties hereto represents and warrants to the others as follows: 8.1 Powers and Authority. It has all necessary power to carry on its present business and has full right, power and authority to enter into this Agreement, to make the loans or borrowings, as applicable, herein provided for, and otherwise perform and to consummate the transactions contemplated hereby. 8.2 No Conflicts. This Agreement does not, and the performance or observance by the party of any of the matters and things herein provided for will not, constitute an Event of Default, as defined in the Note, or event which with the lapse of time, the giving of notice or both, would constitute an event of default under any other agreement to which it is a party or by which it is bound. 8.3 Corporate Organization. It is a duly organized and validly existing under its jurisdiction of organization. 105 8.4 Corporate Authorization. The board of directors or other governing body of the party has authorized the execution and performance of this Agreement. 9. Right of First Refusal. Provided that the Lender and any affiliates have loaned in the aggregate $2,300,000 to the Borrower, and in the event the Borrower receives an offer from (or negotiates with) a third party to provide the Borrower with additional financing before the Maturity Date (as defined in the Note), the Borrower shall notify the Lender of the terms of financing within ten (10) days of the offer or negotiation. The Borrower hereby unconditionally and irrevocably grants the Lender a right of first refusal, to offer financing on the same terms and conditions as those agreed to or offered by the third party. The Lender will have ten (10) days after receiving notice from the Borrower to decide whether to provide financing based on the same terms as those agreed to or offered by the third party. If the Lender fails to respond to the Borrower within ten (10) days, as set forth above, the Borrower may proceed with the third party financing. The Borrower shall not enter into a definitive agreement for additional financing with another party without providing notice to the Lender and an opportunity for Lender to respond as provided in this Section. 10. Fees and Expenses. Except as expressly set forth in this Agreement to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Borrower shall pay up to $10,000.00 of the Lender's reasonable attorney's fees and out of pocket costs incurred in connection with the negotiation of this Agreement, the issuance of the Note, and other costs incurred by Lender and reasonably associated with this transaction. 11. Successors and Assigns; Assignment. Except as otherwise expressly provided herein, the provisions hereof inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. The Borrower may not assign this Agreement or any of the rights or obligations referenced herein without the prior written consent of the Lender. The Lender may assign this Agreement, in whole or in part, without the prior consent of the Borrower, and any assignee of this Agreement shall inure to all of the rights of the Lender hereunder. 12. Waiver of Notice. The Borrower hereby waives notice, presentment, demand, protest, and notice of dishonor. 13. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given pursuant to this Agreement must be in writing (including electronic format) and will be deemed by the parties to have been received (i) upon delivery in person (including by reputable express courier service) at the address set forth below; (ii) upon delivery by electronic mail (as verified by a printout showing satisfactory transmission) at the electronic mail address set forth below (if sent on a business day during normal business hours where such notice is to be received and if not, on the first business day following such delivery where such notice is to be received); or (iii) upon receipt if mailed with the United States Postal Service if mailed from and to a location within the continental United States by registered or certified mail, return receipt requested, addressed to the address set forth below. Any party hereto may from time to time change its physical or electronic address or facsimile number for notices by giving notice of such changed address or number to the other party in accordance with this section. 106 If to the Lender at: Green Acre Partners A, LLC 4 Richland Place Pasadena, CA 91103 Attention: Justin Yorke Email Address: justin@mcgrainfinancial.com With a copy (which will not constitute notice) to: Ronald N. Vance The Law Office of Ronald N. Vance & Associates, P.C. 1656 Reunion Avenue Suite 250 South Jordan, UT 84095 Email Address: ron@vancelaw.us If to the Borrower at: Strainwise, Inc. 8468 Lewis Court Arvada, CO 80005 Attention: Erin Phillips Email Address: erin@strainwise.com 14. No Stockholder Rights. Nothing contained in this Agreement shall be construed as conferring upon Lender or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Borrower or any other matters or any rights whatsoever as a stockholder of the Borrower. 15. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Agreement. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. 16. Binding Agreement; Survival. This Agreement shall bind and inure to the benefit of both parties, and except as otherwise expressly provided to the contrary herein, each of their respective heirs, successors and assigns. 17. Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to the Lender, upon any breach or default of the Borrower under this Agreement shall impair any such right, power, or remedy of the Lender nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default therefore or thereafter occurring. All remedies, either under this Agreement or by law or otherwise afforded to the Lender, shall be cumulative and not alternative. 18. Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the language used in this Agreement has been chosen by the parties to express their mutual intent. Accordingly, no rules of strict construction will be applied against any party with respect to this Agreement. 107 19. Cumulative Rights. No delay on the part of the Lender in the exercise of any power or right under this Agreement or under any other instrument executed pursuant to this Agreement shall operate as a waiver of any such power or right, nor shall a single or partial exercise of any power or right preclude other or further exercise of such power or right or the exercise of any other power or right. 20. Payments Free of Taxes, Etc. All payments made by the Borrower under this Agreement shall be made by the Borrower free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions, and withholdings. In addition, the Borrower shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance, and enforcement of this Agreement. Upon request by the Lender, the Borrower shall furnish evidence satisfactory to the Lender that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies, and charges have been paid. 21. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 22. Other Interpretive Provisions. References in this Agreement to any document, instrument or agreement (a) includes all exhibits, schedules, and other attachments thereto, (b) includes all documents, instruments or agreements issued or executed in replacement thereof, and (c) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The words "include" and "including" and words of similar import when used in this Agreement shall not be construed to be limiting or exclusive. 23. No Oral Modification or Waivers. The terms herein may not be modified or waived orally, but only by an instrument in writing signed by the party against which enforcement of the modification or waiver is sought. 24. Attorneys' Fees. In the event of any suit or action to enforce or interpret any provision of this Agreement or otherwise arising out of this Agreement, the prevailing party is entitled to recover, in addition to other direct incremental costs, reasonable attorney fees in connection with the suit, action, or arbitration, and in any appeals. 25. Governing Law; Jurisdiction; Venue. This Agreement, and all matters arising directly and indirectly herefrom (the "Covered Matters"), shall be governed in all respects by the laws of the State of Colorado as such laws are applied to agreements between parties in Colorado. The Lender and the Borrower irrevocably submit to the personal jurisdiction of the courts of the State of Colorado and the United States District Court for the District of Colorado for the purpose of any suit, action, proceeding or judgment relating to or arising out of the Covered Matters. Service of process on the Lender or the Borrower in connection with any such suit, action or proceeding may be served on the Lender or the Borrower anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. The Lender and the Borrower irrevocably consent to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Lender and the Borrower irrevocably waive any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 108 26. Entire Agreement; Integration Clause. This Agreement sets forth the entire agreement and understandings of the parties hereto with respect to this transaction, and this Agreement supersedes and nullifies all other agreements made between the parties hereto. 27. Counterparts. This Agreement may be executed in as many counterpart copies as may be required. All counterparts shall collectively constitute a single agreement. [Signature page follows] 109 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. BORROWER Strainwise, Inc., a Utah corporation By: /s/ Erin Phillips ------------------------------ Name: Erin Phillips Its: President LENDER Green Acres Partners B, LLC By Green Acres Partners B, LLC, Manager By: /s/ Justin Yorke ------------------------------ Name: Justin Yorke Its: Manager 110 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITY UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. STRAINWISE, INC. AMENDED AND RESTATED 25% SENIOR CONVERTIBLE PROMISSORY NOTE Up to $2,300,000 February, 5, 2015 STRAINWISE, INC., a Utah corporation (the "Company"), for value received, hereby promises to pay to GREEN ACRES PARTNERS A, LLC, a Nevada limited liability company (the "Holder"), the aggregate principal amount of all the "Loan Advance(s)" owing to the Holder as set forth in Schedule A hereto, on the terms and conditions set forth in this Amended and Restated 25% Senior Convertible Promissory Note (this "Note"). This Note amends and restates, but does not extinguish, impair, novate or discharge the obligations evidenced by that certain Promissory Note, dated January 30, 2015, executed by the Company in favor of the Holder. Each Loan Advance owing to the Holder by the Company, and all payments made on account of principal thereof, shall be recorded by the Holder upon the transfer thereof, endorsed on the grid marked as Schedule A hereto, which is part of this Note; provided, however, that the failure of the Holder to make any such recordation or endorsement shall not affect the obligations of the Company under this Note. Payment for all amounts due hereunder shall be made by mail or wire to the registered address of the Holder. The performance of the obligations of the Company hereunder are secured by guaranties of the principals of the Company and a subsidiary of the Company, of even date herewith, and all other present and future security agreements between the Company and the Holder. The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Maturity. The principal hereof and any unpaid accrued interest hereon, as set forth below, regardless of when paid or recorded on Schedule A, shall be due and payable on the earlier to occur of: (i) January 31, 2017 (the "Maturity Date"); or (ii) when declared due and payable by the Holder upon the occurrence of an Event of Default (as defined below). 2. Interest. This Note shall accrue interest on the principal for a period from the date of this Note at a rate of twenty-five percent (25%) per annum (the "Interest Rate"), commencing on the date set forth in Schedule A for that particular Loan Advance. The Company will pay interest on the Note on a monthly basis until paid in full. Interest shall be calculated on the basis of a 365-day year for the actual number of days elapsed. Interest payments are due and payable in advance on or before the 15th day of each month during the term of this Note, commencing February 15, 2015. If there occurs an acceleration or prepayment of the Note prior to the Maturity Date in accordance with the terms hereof, all interest due and payable at such time on the principal amount due 111 shall be paid in full. All payments hereunder are to be applied first to reasonable costs and fees referred to herein, second to the payment of accrued interest, and the remaining balance to the payment of principal. 3. Prepayment Penalty. This Note is subject to prepayment, in whole or in part, at any time upon not less than thirty (30) days' written notice to the Holder. If any prepayment is made by or on behalf of the Company prior to the Maturity Date, there shall be a prepayment penalty equal to ten percent (10%) of the principal so prepaid. 4. Subordination. The Company covenants and agrees, and the Holder, by such Holder's acceptance hereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Section, the indebtedness represented by this Note and the payment of the principal of and interest on this Note are hereby expressly made senior to any other indebtedness of the Company, other than the debt owed Bishane Race LLC in the principal amount of $457,160. The Company hereby covenants that to the extent that the Company has other debts outstanding (other than those set forth above), the Company will use its best efforts to obtain the agreement of such creditors to subordinate their debts to that of the Holder. 5. Events of Default. If any of the events specified in this Section occur (herein individually referred to as an "Event of Default"), the Holder may, so long as such condition exists, declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company: a. Default in the payment of the principal or unpaid accrued interest of this Note when due and payable; b. The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the Federal Bankruptcy Act, or any other applicable Federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action; c. If, within sixty (60) calendar days after the commencement of an action against the Company, without the consent or acquiescence of the Company (and service of process in connection therewith on the Company) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) calendar days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; d. The Company is a party to any Change of Control Transaction or agrees to sell or dispose of all or in excess of fifty percent (50%) of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction). For the purpose of this Note, the term "Change of Control Transaction" means the occurrence after the date hereof of any of the following: (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of the Company, by contract or otherwise) of in excess of fifty percent (50%) of the voting securities of the Company; (ii) the Company merges into or consolidates with any other person or entity, or any person or entity 112 merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than sixty percent (60%) of the aggregate voting power of the Company or the successor entity of such transaction; (iii) the Company or its subsidiary sells or transfers all or substantially all of its assets to another person or entity and the stockholders of the Company or the subsidiary immediately prior to such transaction own less than sixty percent (60%) of the aggregate voting power of the successor entity immediately after the transaction; (iv) a replacement at one time or within a two (2) year period of more than one-half of the members of the Board of Directors of the Company or any subsidiary (the "Board of Directors") which is not approved by a majority of those individuals who are members of the Board of Directors on the original issue date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof); or (v) the execution by the Company or a subsidiary of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (i) through (iv) above; or e. Any material breach of this Agreement or the Loan Agreement between the parties of even date herewith, as hereafter amended, that remains uncured after notice of breach and failure to timely cure such breach. 6. The Holder's Rights Upon Event of Default. Upon the occurrence and continuance of any Event of Default, the Holder in its sole and absolute discretion will have the right to declare all unpaid interest and principal immediately due and payable and exercise all other legal rights in connection therewith. 7. Conversion. Subject to and in compliance with the provisions contained herein, the Holder, or its assignee, is entitled, at its option, at any time prior to maturity, or in case this Note or some portion hereof shall have been called for prepayment prior to such date, then, in respect of this Note or such portion hereof, until and including, but not after, the close of business within thirty (30) days of the date of notice of prepayment, to convert the principal amount of the debt owed under this Note into common shares of the Company at the rate of $1.00 per share (the "Shares"). If the Holder exercises this option, it shall do so by surrendering this Note, duly endorsed or assigned to the Company, accompanied by written notice to the Company, in the form set forth below, that the Holder hereof elects to convert this Note or, if less than the entire principal amount hereof is to be converted, the portion hereof to be converted. Such conversion shall be effected at the rate of one share of Company common stock per $1.00 of principal amount plus accrued and unpaid interest of this Note, all subject to such adjustment in such conversion price, if any, as may be required by the provisions of this Note. No fractions of Shares will be issued on conversion, but instead of any fractional interest, the Company will pay cash adjustments as provided herein. 8. Limitations on Right of Conversion. Following receipt of the written notice of intention to convert the Note, the Company shall take such steps as it deems appropriate to permit conversion of the Note as specified in the notice without registration or qualification under applicable federal and state securities laws; provided, that in no event shall the Company be required to consent to the general service of process or to qualify as a foreign corporation in any jurisdiction where the Holder resides if such jurisdiction is different than such Holder's residence when the Note was originally offered and sold. In order to comply with exemptions from the registration requirements of the Securities Act of 1933 (the "Act") and certain state securities statutes, the Company may require the Holder of this Note to make certain representations and 113 execute and deliver to the Company certain documents as a condition to exercise of conversion rights hereunder, all in form and substance satisfactory to the Company as determined in its sole discretion. In the event the Company reasonably determines that the Note cannot be converted in compliance with applicable federal and state securities laws in the absence of registration or qualification under such statutes, the Company shall be under no obligation to permit conversion of the Note and issue any shares of common stock pursuant hereto. The Company shall also utilize its best efforts to qualify such Shares for sale under the applicable state laws in those jurisdictions in which the Holder of the Note resides at the time of conversion. If, notwithstanding such efforts to qualify such Shares for sale in such state, the Company is unable to so qualify such Shares for sale in such state, the Shares delivered shall be subject to applicable restrictions on their transfer under the laws of such state or, of no exemption from registration is available, this Note shall not be convertible. 9. Adjustment in Conversion. The conversion price and number of Shares issuable upon conversion of this Note may be subject to adjustment from time to time as follows: a. If the Company takes a record of the Holders of its Shares for the purpose of entitling them to receive a dividend in Shares, the conversion price in effect immediately prior to such record date shall be proportionately decreased, such adjustment to become effective immediately after the opening of business on the day following such record date; b. If the Company subdivides the outstanding Shares into a greater number of Shares or combine the outstanding Shares into a smaller number of Shares, or issues by reclassification any of its Shares, the conversion price in effect immediately prior thereto shall be adjusted so that the Holder of the Note thereafter surrendered for conversion shall be entitled to receive after the occurrence of any of the events described the number of Shares to which the Holder would have been entitled had such Note been converted immediately prior to the occurrence of such event, such adjustment to become effective immediately after the opening of business on the day following the date upon which such subdivision or combination or reclassification, as the case may be, becomes effective; c. No fraction of a Share shall be issued upon conversion, but in lieu thereof the Company, notwithstanding any other provision hereof, may pay therefor in cash at the fair value of the fractional Share at the time of conversion; d. Neither the purchase or other acquisition by the Company of any Shares, nor the sale of other disposition by the Company of any Shares, shall affect any adjustment of the conversion price or be taken into account in computing any subsequent adjustment of the conversion price; and e. If at any time: i. the Company proposes to pay any dividend payable in Shares upon its Shares or make any distribution, including cash or property dividend, out of earnings or earned surplus, to the holders of Shares; ii. the Company proposes to enter into any plan of capital reorganization or reclassification of the Shares of the Company; or iii. the Company proposes to merge, consolidate, or encumber or sell all or substantially all of its assets other than in the ordinary course of business, then, in any one or more of said cases, the Company shall cause a notice to be mailed to the registered Holder of this Note at the address of such Holder set forth in the registration records of the Company. Such notice shall be solely for the convenience of such registered holder and shall not be a condition precedent to, nor shall any defect therein or failure in connection therewith 114 affect the validity of, the action proposed to be taken by the Company. Such notice shall be mailed, at least ten (10) days prior to the date on which the books of the Company shall close, or a record date shall be taken for such Shares dividend, Share split or reclassification, consolidation, merger, or sale of properties and assets, as the case may be. Such notice shall specify such record date for the closing of the transfer books. 10. Restrictions. The Holder of this Note, by acceptance hereof, both with respect to the Note and the Shares to be issuable upon conversion of the Note (unless issued pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act")), represents and warrants as follows: a. The Note and the Shares are being acquired for the Holder's own account to be held for investment purposes only and not with a view to, or for, resale in connection with any distribution of such Note or Shares or any interest therein without registration or other compliance under the Act, and the Holder hereof has no direct or indirect participation in any such undertaking or in underwriting such an undertaking. b. The Holder hereof has been advised and understands that the Note and the Shares have not been registered under the Act and the Note and/or the Shares must be held and may not be sold, transferred, or otherwise disposed of for value unless they are subsequently registered under the Act or an exemption from such registration is available; the Company is under no obligation to register the Note and/or the Shares under the Act; in the absence of such registration, sale of the Note or Shares may be impracticable; the Company or the Company's registrar and transfer agent, if any, will maintain stock transfer orders against registration of transfer of the Note and the Shares; and the certificates to be issued for any Shares will bear on their face a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE ACT OR THE LAWS OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE STATUTES. c. The Company may refuse to transfer the Note and/or the Shares unless the Holder thereof provides an opinion of legal counsel reasonably satisfactory to the Company or a "no action" or interpretive response from the Securities and Exchange Commission to the effect that the transfer is proper; further, unless such letter or opinion states that the Note and/or Shares are free from any restrictions under the Act, the Company may refuse to transfer the Note and/or the Shares to any transferee who does not furnish in writing to the Company the same representations and agrees to the same conditions with respect to such Note and Shares as set forth herein. The Company may also refuse to transfer the Note or Shares if any circumstances are present reasonably indicating that the transferee's representations are not accurate. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account, and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with Federal, state or local tax authorities. 115 12. Successors and Assigns; Assignment. Except as otherwise expressly provided herein, the provisions hereof inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. Nothing in this Note, express or implied, is intended to confer upon any party, other than the parties hereto and their successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Note, except as expressly provided herein. The Company may not assign this Note or any of the rights or obligations referenced herein without the prior written consent of the Holder. The Holder may assign this Note, in whole or in part, without the prior consent of the Company, and any assignee of this Note shall inure to all of the rights of the Holder hereunder. 13. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest, and notice of dishonor. 14. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given pursuant to this Note must be in writing (including electronic format) and will be deemed by the parties to have been received (i) upon delivery in person (including by reputable express courier service) at the address set forth below; (ii) upon delivery by electronic mail (as verified by a printout showing satisfactory transmission) at the electronic mail address set forth below (if sent on a business day during normal business hours where such notice is to be received and if not, on the first business day following such delivery where such notice is to be received); or (iii) upon receipt if mailed with the United States Postal Service if mailed from and to a location within the continental United States by registered or certified mail, return receipt requested, addressed to the address set forth below. Any party hereto may from time to time change its physical or electronic address or facsimile number for notices by giving notice of such changed address or number to the other party in accordance with this section. If to the Holder at: Green Acre Partners A, LLC 4 Richland Place Pasadena, CA 91103 Attention: Justin Yorke Email Address: justin@mcgrainfinancial.com With a copy (which will not constitute notice) to: Ronald N. Vance The Law Office of Ronald N. Vance & Associates, P.C. 1656 Reunion Avenue Suite 250 South Jordan, UT 84095 Email Address: ron@vancelaw.us If to the Company at: Strainwise, Inc. 8468 Lewis Court Arvada, CO 80005 Attention: Erin Phillips Email Address: erin@strainwise.com 116 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. 17. Binding Agreement; Survival. This Note shall bind and inure to the benefit of both parties, and except as otherwise expressly provided to the contrary herein, each of their respective heirs, successors and assigns. 18. Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to the Holder, upon any breach or default of the Company under this Note shall impair any such right, power, or remedy of the Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default therefore or thereafter occurring. All remedies, either under this Note or by law or otherwise afforded to the Holder, shall be cumulative and not alternative. 19. Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Note and that the language used in this Note has been chosen by the parties to express their mutual intent. Accordingly, no rules of strict construction will be applied against any party with respect to this Note. 20. Cumulative Rights. No delay on the part of the Holder in the exercise of any power or right under this Note or under any other instrument executed pursuant to this Note shall operate as a waiver of any such power or right, nor shall a single or partial exercise of any power or right preclude other or further exercise of such power or right or the exercise of any other power or right. 21. Payments Free of Taxes, Etc. All payments made by the Company under this Note shall be made by the Company free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions, and withholdings. In addition, the Company shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance, and enforcement of this Note. Upon request by the Holder, the Company shall furnish evidence satisfactory to the Holder Party that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies, and charges have been paid. 22. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Note and the balance of this Note shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 23. Other Interpretive Provisions. References in the Note to any document, instrument or agreement (a) includes all exhibits, schedules, and other attachments thereto, (b) includes all documents, instruments or agreements issued or executed in replacement thereof, and (c) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Note refer to this Note as a whole and not to any particular provision 117 of this Note. The words "include" and "including" and words of similar import when used in this Note shall not be construed to be limiting or exclusive. 24. No Oral Modification or Waivers. The terms herein may not be modified or waived orally, but only by an instrument in writing signed by the party against which enforcement of the modification or waiver is sought. 25. Attorneys' Fees. In the event of any suit or action to enforce or interpret any provision of this Note or otherwise arising out of this Note, the prevailing party is entitled to recover, in addition to other direct incremental costs, reasonable attorney fees in connection with the suit, action, or arbitration, and in any appeals. 26. Governing Law; Jurisdiction; Venue. This Note, and all matters arising directly and indirectly herefrom (the "Covered Matters"), shall be governed in all respects by the laws of the State of Colorado as such laws are applied to agreements between parties in Colorado. The Holder and the Company irrevocably submit to the personal jurisdiction of the courts of the State of Colorado and the United States District Court for the District of Colorado for the purpose of any suit, action, proceeding or judgment relating to or arising out of the Covered Matters. Service of process on the Holder or the Company in connection with any such suit, action or proceeding may be served on the Holder or the Company anywhere in the world by the same methods as are specified for the giving of notices under this Note. The Holder and the Company irrevocably consent to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Holder and the Company irrevocably waive any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 27. Entire Agreement; Integration Clause. This Note sets forth the entire agreement and understandings of the parties hereto with respect to this transaction, and this Note supersedes and nullifies all other agreements made between the parties hereto. 28. Counterparts. This Note may be executed in as many counterpart copies as may be required. All counterparts shall collectively constitute a single agreement. [Signature page follows] 118 IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. STRAINWISE, INC., a Utah corporation By: /s/ Erin Phillips ------------------------------ Name: Erin Phillips Its: President 119 SCHEDULE A LOAN ADVANCES AND PAYMENTS OF PRINCIPAL Green Acres Partners, LLC Amount of Principal Amount of Paid or Unpaid Principal Notation Date Loan Advance Prepaid Balance Made By ------------------------------------------------------------------------------- 1/30/2015 $350,000 -0- $350,000 Justin Yorke 3/01/2015 $350,000 -0- $700,000 John Walsh 120 SCHEDULE A LOAN ADVANCES AND PAYMENTS OF PRINCIPAL San Gabriel Advisors, LLC DBP FBO John P. McGrain Amount of Principal Amount of Paid or Unpaid Principal Notation Date Loan Advance Prepaid Balance Made By ------------------------------------------------------------------------------- 1/30/2015 $150,000 -0- $150,000 Justin Yorke 3/01/2015 $150,000 -0- $300,000 John Walsh 121 SCHEDULE A LOAN ADVANCES AND PAYMENTS OF PRINCIPAL San Gabriel Advisors, LLC Amount of Principal Amount of Paid or Unpaid Principal Notation Date Loan Advance Prepaid Balance Made By ------------------------------------------------------------------------------- 1/30/2015 $50,000 -0- $50,000 Justin Yorke 122 STRAINWISE, INC. 25% SENIOR CONVERTIBLE PROMISSORY NOTE CONVERSION NOTICE The undersigned owner of this Note hereby irrevocably exercises the option to convert this Note or the portion hereof designated, into shares of common stock of Strainwise, Inc., a Utah corporation, in accordance with the terms of this Note, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned unless a different name has been indicated below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay any transfer taxes payable with respect thereto. Date: _________________, 201_____ ------------------------------------ (Signature) Title: ------------------------------ FILL IN FOR REGISTRATION OF SHARES ----------------------------------- (Printed Name) ----------------------------------- (Social Security or other identifying number) ----------------------------------- (Street Address) ----------------------------------- (City, State, and ZIP Code) ----------------------------------- Portion to be converted (if less than all) 123 AMENDED AND RESTATED PERSONAL GUARANTY AGREEMENT THIS AMENDED AND RESTATED PERSONAL GUARANTY AGREEMENT (this "Guaranty"), dated as of February 5, 2015, is made by Shawn David Phillips and Erin Phillips (the "Guarantors"), in favor of Green Acres Partners A, LLC, a Nevada limited liability company (the "Lender"). RECITALS WHEREAS, Strainwise, LLC, a Utah corporation (the "Company") and the Lender are parties to a Senior Loan Agreement and 25% Convertible Promissory Note dated January 30, 2015 WHEREAS, the Company and the Lender entered into an Amended and Restated Senior Loan Agreement and an Amended and Restated 25% Convertible Promissory Note, dated February 5, 2015 (the Senior Loan Agreement and the 25% Convertible Promissory Note, dated January 30, 2015 and the Amended and Restated Senior Loan Agreement and the Amended and Restated 25% Convertible Promissory Note, dated February 5, 2015 will be collectively referred to as the "Loan Documents"); WHEREAS, this Guaranty amends and restates, but does not extinguish, impair, novate or discharge the obligations evidenced by that certain Personal Guaranty Agreement, dated January 30, 2015, executed by the Guarantors in favor of the Lender; WHEREAS, the Lender has based its investment in part upon the representation that the Guarantors would guaranty the debts of the Company with the Lender; and WHEREAS, the Guarantors have determined that their execution, delivery, and performance of this Guaranty directly benefits them, and is in their best interests; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to enter into and perform the Loan Documents, the Guarantors hereby agree with the Lender as follows: 1. Definitions. All terms used in this Guaranty, which are defined in the Loan Documents and not otherwise defined herein, will have the same meanings herein as set forth therein. The following terms shall have the following meanings under this Guaranty: "Material Adverse Effect" means any change or effect that is, or is reasonably likely to be, materially adverse to the business, assets and liabilities (taken together), financial condition or operations or results of operations of the Company and its subsidiaries, taken as a whole; provided, however, that none of the following shall be deemed (either alone or in combination) to constitute such a change or effect: (a)(i) any adverse change attributable to the announcement or pendency of the transactions contemplated by this Guaranty; or (ii) any adverse change attributable to or conditions generally affecting the United States economy or financial markets in general; or (b) any act or threat of terrorism or war anywhere in the world, any armed 124 hostilities or terrorist activities anywhere in the world, any threat or escalation of armed hostilities or terrorist activities anywhere in the world or any governmental or other response or reaction to any of the foregoing. 2. Guaranty. The Guarantors hereby unconditionally and irrevocably, guaranty the punctual payment, as and when due and payable, by stated maturity or otherwise, of all obligations of the Company from time to time owing by it in respect to the Loan Documents, including, without limitation, all interest that accrues after the commencement of any insolvency proceeding of the Company or the Guarantors, whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such insolvency proceeding, and all fees, commissions, expense reimbursements, indemnifications, and all other amounts due or to become due under any of the Loan Documents (such obligations, to the extent not paid by the Company, being the "Guaranteed Obligations"), and agree to pay any and all expenses (including reasonable counsel fees and expenses) reasonably incurred by the Lender in enforcing any rights under this Guaranty. Without limiting the generality of the foregoing, the Guarantors' liability hereunder extends to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Company to the Lender under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of an insolvency proceeding involving the Company or the Guarantors (each, a "Transaction Party"). 3. Guaranty Absolute; Continuing Guaranty; Assignments. a. The Guarantors guaranty that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto. The obligations of the Guarantors under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against the Guarantors to enforce such obligations, irrespective of whether any action is brought against any Transaction Party or whether any Transaction Party is joined in any such action or actions. The liability of the Guarantors under this Guaranty will be irrevocable, absolute, and unconditional irrespective of, and the Guarantors hereby irrevocably waive, to the extent permitted by law, any defenses it may now or hereafter have in any way relating to, any or all of the following: i. any lack of validity or enforceability of any Loan Document or any agreement or Guaranty or instrument relating thereto; ii. any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from any Loan Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to any Transaction Party or otherwise; iii. any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; 125 iv. any change, restructuring or termination of the corporate, limited liability company or partnership structure or existence of any Transaction Party; or v. any other circumstance (including any statute of limitations) or any existence of or reliance on any representation by the Lender that might otherwise constitute a defense available to, or a discharge of, any Transaction Party or any other guarantor or surety. This Guaranty will continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Lender or any other person upon the insolvency, bankruptcy or reorganization of any Transaction Party or otherwise, all as though such payment had not been made. b. This Guaranty is a continuing guaranty and will (i) remain in full force and effect until the cash payment in full of the Guaranteed Obligations (other than inchoate indemnity obligations) and payment of all other amounts payable under this Guaranty and will not terminate for any reason prior to the Maturity Date of the Note (other than payment in full of the Note) and (ii) be binding upon the Guarantors and their successors and assigns. This Guaranty will inure to the benefit of and be enforceable by the Lender and its successors, and permitted pledgees, transferees, and assigns. Without limiting the generality of the foregoing sentence, the Lender may pledge, assign or otherwise transfer all or any portion of its rights and obligations under and subject to the terms of any Loan Documents to any other person, and such other person will thereupon become vested with all the benefits in respect thereof granted to Lender herein or otherwise, in each case as provided in such Loan Document. 4. Waivers. To the extent permitted by applicable law, the Guarantors hereby waive promptness, diligence, notice of acceptance, and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that the Lender exhaust any right or take any action against any Transaction Party or any other person. The Guarantors acknowledge that it will receive direct and indirect benefits from the financing arrangements contemplated herein and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. The Guarantors hereby waive any right to revoke this Guaranty, and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. 5. Subrogation. The Guarantors may not exercise any rights that they may now or hereafter acquire against any Transaction Party or any other guarantor that arise from the existence, payment, performance or enforcement of the Guarantors' obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification, and any right to participate in any claim or remedy of the Lender against any Transaction Party or any other guarantor, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any Transaction Party or any other guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations (other than inchoate indemnity obligations) and all other amounts payable under this Guaranty have been paid in full in cash. If any amount is paid to the Guarantors in violation of the immediately preceding sentence at any time prior to the later of the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, such amount will be held in trust for the benefit of the Lender and will forthwith be paid to the Lender to be credited and applied to the Guaranteed Obligations and 126 all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. If (a) the Guarantors make payment to the Lender of all or any part of the Guaranteed Obligations, and (b) all of the Guaranteed Obligations (other than inchoate indemnity obligations) and all other amounts payable under this Guaranty are be paid in full in cash, the Lender will, at the Guarantors' request and expense, execute and deliver to the Guarantors appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantors of an interest in the Guaranteed Obligations resulting from such payment by the Guarantors. 6. Representations, Warranties and Covenants. The Guarantors hereby represent and warrant as follows: a. The execution, delivery and performance by the Guarantors of this Guaranty and each other Loan Document to which the Guarantors are a party (i) have been duly authorized by all necessary action, (ii) do not and will not contravene any applicable law or any contractual restriction binding or otherwise affecting on the Guarantors or their properties, (iii) do not and will not result in or require the creation of any lien (other than pursuant to any Loan Document) upon or with respect to any of their properties, and (iv) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to it or their operations or any of their properties. b. No authorization or approval or other action by, and no notice to or filing with, any governmental authority is required in connection with the due execution, delivery and performance by the Guarantors of this Guaranty or any of the other Loan Document to which the Guarantors are a party. c. Each of this Guaranty and the other Loan Documents to which the Company or the Guarantors are or will be a party, when delivered, will be, a legal, valid, and binding obligation of the Guarantors, enforceable against the Guarantors in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, suretyship or other similar laws. d. There is no pending or, to the best knowledge of the Guarantors, threatened action, suit or proceeding affecting the Guarantors or to which any of the properties of the Guarantors are subject, before any court or other governmental authority or any arbitrator that (i) if adversely determined, could reasonably be expected to have a Material Adverse Effect or (ii) relates to this Guaranty or any of the other Loan Documents to which the Company or the Guarantors are a party or any transaction contemplated hereby or thereby. e. The Guarantors (i) have read and understands the terms and conditions of the Loan Documents, and (ii) now have and will continue to have independent means of obtaining information concerning the affairs, financial condition, and business of the Transaction Parties, and have no need of, or right to obtain from any Lender, any credit or other 127 information concerning the affairs, financial condition or business of the Transaction Parties that may come under the control of the Lender. 7. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default under any of the Loan Documents, the Lender may, and is hereby authorized to, at any time and from time to time, without notice to the Guarantors (any such notice being expressly waived by the Guarantors) and to the fullest extent permitted by law, set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Guarantors against any and all obligations of the Company or Guarantors now or hereafter existing under this Guaranty or any other Loan Document, irrespective of whether or not any Lender has made any demand under this Guaranty or any other Loan Document and although such obligations may be contingent or unmatured. The Lender agrees to notify the Guarantors promptly after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have under this Guaranty or any other Loan Document in law or otherwise. 8. Successors and Assigns; Assignment. Except as otherwise expressly provided herein, the provisions hereof inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Nothing in this Guaranty, express or implied, is intended to confer upon any party, other than the parties hereto and their successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Guaranty, except as expressly provided herein. The Guarantors may not assign this Guaranty or any of the rights or obligations referenced herein without the prior written consent of the Lender. The Lender may assign this Guaranty, in whole or in part, without the prior consent of the Guarantors, and any assignee of this Guaranty shall inure to all of the rights of the Lender hereunder. 9. Waiver of Notice. The Guarantors hereby waive notice, presentment, demand, protest, and notice of dishonor. 10. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given pursuant to this Guaranty must be in writing (including electronic format) and will be deemed by the parties to have been received (i) upon delivery in person (including by reputable express courier service) at the address set forth below; (ii) upon delivery by electronic mail (as verified by a printout showing satisfactory transmission) at the electronic mail address set forth below (if sent on a business day during normal business hours where such notice is to be received and if not, on the first business day following such delivery where such notice is to be received); or (iii) upon receipt if mailed with the United States Postal Service if mailed from and to a location within the continental United States by registered or certified mail, return receipt requested, addressed to the address set forth below. Any party hereto may from time to time change its physical or electronic address or facsimile number for notices by giving notice of such changed address or number to the other party in accordance with this section. 128 If to the Lender at: Green Acre Partners A, LLC 4 Richland Place Pasadena, CA 91103 Attention: Justin Yorke Email Address: justin@mcgrainfinancial.com With a copy (which will not constitut notice) to: Ronald N. Vance The Law Office of Ronald N. Vance & Associates, P.C. 1656 Reunion Avenue Suite 250 South Jordan, UT 84095 Email Address: ron@vancelaw.us If to the Guarantors at: Strainwise, Inc. 8468 Lewis Court Arvada, CO 80005 Attention: Erin Phillips Email Address: erin@strainwise.com 11. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Guaranty. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. 12. Binding Agreement; Survival. This Guaranty shall bind and inure to the benefit of both parties, and except as otherwise expressly provided to the contrary herein, each of their respective heirs, successors and assigns. 13. Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to the Lender, upon any breach or default of the Debtor under this Guaranty shall impair any such right, power, or remedy of the Lender nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default therefore or thereafter occurring. All remedies, either under this Guaranty or by law or otherwise afforded to the Lender, shall be cumulative and not alternative. 14. Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Guaranty and that the language used in this Guaranty has been chosen by the parties to express their mutual intent. Accordingly, no rules of strict construction will be applied against any party with respect to this Guaranty. 129 15. Cumulative Rights. No delay on the part of the Lender in the exercise of any power or right under this Guaranty or under any other instrument executed pursuant to this Guaranty shall operate as a waiver of any such power or right, nor shall a single or partial exercise of any power or right preclude other or further exercise of such power or right or the exercise of any other power or right. 16. Payments Free of Taxes, Etc. All payments made by the Guarantors under these Loan Document shall be made by the Guarantors free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions, and withholdings. In addition, the Guarantors shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance, and enforcement of this Guaranty. Upon request by the Lender, the Guarantors shall furnish evidence satisfactory to the Lenders that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies, and charges have been paid. 17. Severability. If one or more provisions of this Guaranty are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Guaranty and the balance of this Guaranty shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 18. Other Interpretive Provisions. References in the Loan Documents to any document, instrument or agreement (a) includes all exhibits, schedules, and other attachments thereto, (b) includes all documents, instruments or agreements issued or executed in replacement thereof, and (c) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guaranty refers to this Guaranty as a whole and not to any particular provision of this Guaranty. The words "include" and "including" and words of similar import when used in this Guaranty shall not be construed to be limiting or exclusive. 19. No Oral Modification or Waivers. The terms herein may not be modified or waived orally, but only by an instrument in writing signed by the party against which enforcement of the modification or waiver is sought. 20. Attorneys' Fees. In the event of any suit or action to enforce or interpret any provision of this Guaranty or otherwise arising out of this Guaranty, the prevailing party is entitled to recover, in addition to other direct incremental costs, reasonable attorney fees in connection with the suit, action, or arbitration, and in any appeals. 21. Governing Law; Jurisdiction; Venue. This Guaranty, and all matters arising directly and indirectly herefrom (the "Covered Matters"), shall be governed in all respects by the laws of the State of Colorado as such laws are applied to agreements between parties in Colorado. The Lender and the Guarantors irrevocably submit to the personal jurisdiction of the courts of the State of Colorado and the United States District Court for the District of Colorado for the purpose of any suit, action, proceeding or judgment relating to or arising 130 out of the Covered Matters. Service of process on the Lender or the Guarantors in connection with any such suit, action or proceeding may be served on the Lender or the Guarantors anywhere in the world by the same methods as are specified for the giving of notices under this Guaranty. The Lender and the Guarantors irrevocably consent to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Lender and the Guarantors irrevocably waive any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 22. Entire Agreement; Integration Clause. This Guaranty sets forth the entire agreement and understandings of the parties hereto with respect to this transaction, and this Guaranty supersedes and nullifies all other agreements made between the parties hereto. 23. Counterparts. This Guaranty may be executed in as many counterpart copies as may be required. All counterparts shall collectively constitute a single agreement. [Signature page follows] 131 IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be executed as of the date first above written. GUARANTORS Signature: /s/ Shawn David Phillips ---------------------------- Name: Shawn David Phillips Signature: /s/ Erin Phillips ---------------------------- Name: Erin Phillips 132 AMENDED AND RESTATED SUBSIDIARY GUARANTY AGREEMENT THIS AMENDED AND RESTATED SUBSIDIARY GUARANTY AGREEMENT (this "Guaranty"), dated as of February 5, 2015 is made by Strainwise, Inc., a Colorado corporation (the "Guarantor"), in favor of Green Acres Partners A, LLC, a Nevada limited liability company (the "Lender"). RECITALS WHEREAS, Strainwise, Inc., a Utah corporation (the "Company") and the Lender are parties to a Senior Loan Agreement and 25% Convertible Promissory Note dated January 30, 2015; WHEREAS, the Company and the Lender entered into an Amended and Restated Senior Loan Agreement and an Amended and Restated 25% Convertible Promissory Note, dated February 5, 2015 (the Senior Loan Agreement and the 25% Convertible Promissory Note, dated January 30, 2015 and the Amended and Restated Senior Loan Agreement and the Amended and Restated 25% Convertible Promissory Note, dated February 5, 2015 will be collectively referred to as the "Loan Documents"); WHEREAS, this Guaranty amends and restates, but does not extinguish, impair, novate or discharge the obligations evidenced by that certain Guaranty Agreement, dated January 30, 2015, executed by the Guarantor(1) in favor of the Lender; WHEREAS, the Lender has based its investment in part upon the representation that the Guarantor would guaranty the debts of the Company with the Lender; and WHEREAS, the Guarantor has determined that its execution, delivery, and performance of this Guaranty directly benefits it, and is in its best interests. NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to enter into and perform the Loan Documents, the Guarantor hereby agrees with the Lender as follows: 24. Definitions. All terms used in this Guaranty, which are defined in the Loan Documents and not otherwise defined herein, will have the same meanings herein as set forth therein. The following terms shall have the following meanings under this Guaranty: "Material Adverse Effect" means any change or effect that is, or is reasonably likely to be, materially adverse to the business, assets and liabilities (taken together), financial condition or operations or results of operations of the Company and its subsidiaries, taken as a whole; provided, however, that none of the following shall be deemed (either alone or in combination) to constitute such a change or effect: (a)(i) any adverse change attributable to the announcement or pendency of the transactions contemplated by 133 this Guaranty; or (ii) any adverse change attributable to or conditions generally affecting the United States economy or financial markets in general; or (b) any act or threat of terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation of armed hostilities or terrorist activities anywhere in the world or any governmental or other response or reaction to any of the foregoing. 25. Guaranty. The Guarantor hereby unconditionally and irrevocably, guaranties the punctual payment, when due and payable, by stated maturity or otherwise, of all obligations of the Company from time to time owing by it in respect to the Loan Documents, including, without limitation, all interest that accrues after the commencement of any insolvency proceeding of the Company or the Guarantor, whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such insolvency proceeding, and all fees, commissions, expense reimbursements, indemnifications, and all other amounts due or to become due under any of the Loan Documents (such obligations, to the extent not paid by the Company, being the "Guaranteed Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses) reasonably incurred by the Lender in enforcing any rights under this Guaranty. Without limiting the generality of the foregoing, the Guarantor's liability hereunder extends to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Company to the Lender under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of an insolvency proceeding involving the Guarantor or the Company (each, a "Transaction Party"). 26. Guaranty Absolute; Continuing Guaranty; Assignments. a. The Guarantor guaranties that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto. The obligations of the Guarantor under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against the Guarantor to enforce such obligations, irrespective of whether any action is brought against any Transaction Party or whether any Transaction Party is joined in any such action or actions. The liability of the Guarantor under this Guaranty will be irrevocable, absolute, and unconditional irrespective of, and the Guarantor hereby irrevocably waives, to the extent permitted by law, any defenses it may now or hereafter have in any way relating to, any or all of the following: i. any lack of validity or enforceability of any Loan Document or any agreement, Guaranty or instrument relating thereto; ii. any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from any Loan Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to any Transaction Party or otherwise; 134 iii. any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; iv. any change, restructuring or termination of the corporate, limited liability company or partnership structure or existence of any Transaction Party; or v. any other circumstance (including any statute of limitations) or any existence of or reliance on any representation by the Lender that might otherwise constitute a defense available to, or a discharge of, any Transaction Party or any other guarantor or surety. This Guaranty will continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Lender or any other person upon the insolvency, bankruptcy or reorganization of any Transaction Party or otherwise, all as though such payment had not been made. b. This Guaranty is a continuing guaranty and will (i) remain in full force and effect until the cash payment in full of the Guaranteed Obligations (other than inchoate indemnity obligations) and payment of all other amounts payable under this Guaranty and will not terminate for any reason prior to the Maturity Date of the Note (other than payment in full of the Note) and (ii) be binding upon the Guarantor and his successors and assigns. This Guaranty will inure to the benefit of and be enforceable by the Lender and its successors, and permitted pledgees, transferees, and assigns. Without limiting the generality of the foregoing sentence, the Lender may pledge, assign or otherwise transfer all or any portion of its rights and obligations under and subject to the terms of any Loan Documents to any other person, and such other person will thereupon become vested with all the benefits in respect thereof granted to Lender herein or otherwise, in each case as provided in such Loan Document. 27. Waivers. To the extent permitted by applicable law, the Guarantor hereby waives promptness, diligence, notice of acceptance, and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that the Lender exhaust any right or take any action against any Transaction Party or any other person. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated herein and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. The Guarantor hereby waives any right to revoke this Guaranty, and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. 28. Subrogation. The Guarantor may not exercise any rights that it may now or hereafter acquire against any Transaction Party or any other guarantor that arise from the existence, payment, performance or enforcement of the Guarantor's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification, and any right to participate in any claim or remedy of the Lender against any Transaction Party or any other guarantor, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, 135 without limitation, the right to take or receive from any Transaction Party or any other guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations (other than inchoate indemnity obligations) and all other amounts payable under this Guaranty have been paid in full in cash. If any amount is paid to the Guarantor in violation of the immediately preceding sentence at any time prior to the later of the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, such amount will be held in trust for the benefit of the Lender and will forthwith be paid to the Lender to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. If (a) the Guarantor makes payment to the Lender of all or any part of the Guaranteed Obligations, and (b) all of the Guaranteed Obligations (other than inchoate indemnity obligations) and all other amounts payable under this Guaranty are be paid in full in cash, the Lender will, at the Guarantor's request and expense, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Guaranteed Obligations resulting from such payment by the Guarantor. 29. Representations, Warranties and Covenants. The Guarantor hereby represents and warrants as follows: a. The execution, delivery and performance by the Guarantor of this Guaranty and each other Loan Document to which the Guarantor is a party (i) have been duly authorized by all necessary actions, (ii) do not and will not contravene its charter or by-laws, or any applicable law or any contractual restriction binding or otherwise affecting on the Guarantor or its properties, (iii) do not and will not result in or require the creation of any lien (other than pursuant to any Loan Document) upon or with respect to any of its properties, and (iv) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to it or its operations or any of its properties. b. No authorization or approval or other action by, and no notice to or filing with, any governmental authority is required in connection with the due execution, delivery and performance by the Guarantor of this Guaranty or any of the other Loan Document to which the Guarantor is a party. c. Each of this Guaranty and the other Loan Documents to which the Guarantor or the Company is or will be a party, when delivered, will be, a legal, valid, and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, suretyship or other similar laws. d. There is no pending or, to the best knowledge of the Guarantor, threatened action, suit or proceeding affecting the Guarantor or to which any of the properties of the Guarantor are subject, before any court or other governmental authority or any arbitrator that (i) if adversely determined, could reasonably be expected to have a Material Adverse Effect or (ii) relates to this Guaranty or any of the other Loan Documents to which the Guarantor or the Company are a party or any transaction contemplated hereby or thereby. 136 e. The Guarantor (i) has read and understands the terms and conditions of the Loan Documents, and (ii) now has and will continue to have independent means of obtaining information concerning the affairs, financial condition, and business of the Transaction Parties, and has no need of, or right to obtain from any Lender, any credit or other information concerning the affairs, financial condition or business of the Transaction Parties that may come under the control of any Lender. 30. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default under any of the Loan Documents, the Lender may, and is hereby authorized to, at any time and from time to time, without notice to the Guarantor (any such notice being expressly waived by the Guarantor) and to the fullest extent permitted by law, set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Guarantor against any and all obligations of the Guarantor now or hereafter existing under this Guaranty or any other Loan Document, irrespective of whether or not any Lender has made any demand under this Guaranty or any other Loan Document and although such obligations may be contingent or unmatured. The Lender agrees to notify the Guarantor promptly after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have under this Guaranty or any other Loan Document in law or otherwise. 31. Successors and Assigns; Assignment. Except as otherwise expressly provided herein, the provisions hereof inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Nothing in this Guaranty, express or implied, is intended to confer upon any party, other than the parties hereto and their successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Guaranty, except as expressly provided herein. The Guarantor may not assign this Guaranty or any of the rights or obligations referenced herein without the prior written consent of the Lender. The Lender may assign this Guaranty, in whole or in part, without the prior consent of the Guarantor, and any assignee of this Guaranty shall inure to all of the rights of the Lender hereunder. 32. Waiver of Notice. The Guarantor hereby waives notice, presentment, demand, protest, and notice of dishonor. 33. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given pursuant to this Guaranty must be in writing (including electronic format) and will be deemed by the parties to have been received (i) upon delivery in person (including by reputable express courier service) at the address set forth below; (ii) upon delivery by electronic mail (as verified by a printout showing satisfactory transmission) at the electronic mail address set forth below (if sent on a business day during normal business hours where such notice is to be received and if not, on the first business day following such delivery where such notice is to be received); or (iii) upon receipt if mailed with the United States Postal Service if mailed from and to a location within the continental United States by registered or certified mail, return receipt requested, addressed to the address set forth below. Any party 137 hereto may from time to time change its physical or electronic address or facsimile number for notices by giving notice of such changed address or number to the other party in accordance with this section. If to the Lender at: Green Acre Partners A, LLC 4 Richland Place Pasadena, CA 91103 Attention: Justin Yorke Email Address: justin@mcgrainfinancial.com With a copy (which will not constitute notice) to: Ronald N. Vance The Law Office of Ronald N. Vance & Associates, P.C. 1656 Reunion Avenue Suite 250 South Jordan, UT 84095 Email Address: ron@vancelaw.us If to the Guarantor at: Strainwise, Inc. 8468 Lewis Court Arvada, CO 80005 Attention: Erin Phillips Email Address: erin@strainwise.com 34. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Guaranty. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. 35. Binding Agreement; Survival. This Guaranty shall bind and inure to the benefit of both parties, and except as otherwise expressly provided to the contrary herein, each of their respective heirs, successors and assigns. 36. Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to the Lender, upon any breach or default of the Debtor under this Guaranty shall impair any such right, power, or remedy of the Lender nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default therefore or thereafter occurring. All remedies, either under this Guaranty or by law or otherwise afforded to the Lender, shall be cumulative and not alternative. 37. Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Guaranty and that the language used in this Guaranty has been chosen by the parties to express their mutual intent. Accordingly, no rules of strict construction will be applied against any party with respect to this Guaranty. 138 38. Cumulative Rights. No delay on the part of the Lender in the exercise of any power or right under this Guaranty or under any other instrument executed pursuant to this Guaranty shall operate as a waiver of any such power or right, nor shall a single or partial exercise of any power or right preclude other or further exercise of such power or right or the exercise of any other power or right. 39. Payments Free of Taxes, Etc. All payments made by the Guarantor under these e Loan Documents shall be made by the Guarantor free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions, and withholdings. In addition, the Guarantor shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance, and enforcement of this Guaranty. Upon request by the Lender, the Guarantor shall furnish evidence satisfactory to the Lender that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies, and charges have been paid. 40. Severability. If one or more provisions of this Guaranty are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Guaranty and the balance of this Guaranty shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 41. Other Interpretive Provisions. References in the Loan Documents to any document, instrument or agreement (a) includes all exhibits, schedules, and other attachments thereto, (b) includes all documents, instruments or agreements issued or executed in replacement thereof, and (c) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guaranty refers to this Guaranty as a whole and not to any particular provision of this Guaranty. The words "include" and "including" and words of similar import when used in this Guaranty shall not be construed to be limiting or exclusive. 42. No Oral Modification or Waivers. The terms herein may not be modified or waived orally, but only by an instrument in writing signed by the party against which enforcement of the modification or waiver is sought. 43. Attorneys' Fees. In the event of any suit or action to enforce or interpret any provision of this Guaranty or otherwise arising out of this Guaranty, the prevailing party is entitled to recover, in addition to other direct incremental costs, reasonable attorney fees in connection with the suit, action, or arbitration, and in any appeals. 44. Governing Law; Jurisdiction; Venue. This Guaranty, and all matters arising directly and indirectly herefrom (the "Covered Matters"), shall be governed in all respects by the laws of the State of Colorado as such laws are applied to agreements between parties in Colorado. The Lender and the Guarantor irrevocably submit to the personal jurisdiction of the courts of the State of Colorado and the United States District Court for the District of Colorado for the purpose of any suit, action, proceeding or judgment relating to or arising out of the Covered Matters. Service of process on the Lender or the Guarantor in 139 connection with any such suit, action or proceeding may be served on the Lender or the Guarantor anywhere in the world by the same methods as are specified for the giving of notices under this Guaranty. The Lender and the Guarantor irrevocably consent to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Lender and the Guarantor irrevocably waive any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 45. Entire Agreement; Integration Clause. This Guaranty sets forth the entire agreement and understandings of the parties hereto with respect to this transaction, and this Guaranty supersedes and nullifies all other agreements made between the parties hereto. 46. Counterparts. This Guaranty may be executed in as many counterpart copies as may be required. All counterparts shall collectively constitute a single agreement. [Signature page follows] 140 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed as of the date first above written. GUARANTOR STRAINWISE, INC., a Colorado corporation Signature: /s/ Erin Phillips --------------------------- By: Erin Phillips Its: President 141 EX-23 7 s1amd3ex232.txt EXH. 23.2 - ACCOUNTANTS' CONSENT EXHIBIT 23.2 142 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the use in this Registration Statement on Form S-1 of our report dated August 14, 2014 with respect to the audited financial statements of Strainwise, Inc. for the year ended January 31, 2014 and the period ended January 31, 2013. /s/ B.F. Borgers CPA PC BF Borgers CPA PC Denver, Colorado March 11, 2015 143