CV Sciences Inc (CVSI)

[Det_Robert_Thorne]

IMO, was designed to help MJNA and CVSI

I haven't commented on the SEC matter before now, but I think that the $35M deal was designed to do a few things, and wrote the following on Nov 13, 2013, the day before CVSI (then known as CANV) filed the 3Q/13 report where it announced that it took the $27M goodwill impairment [I've emphasized a few things in BOLD that were especially prescient]:

IMO the deal was designed to do a few things that required a high initial sales price:

1) Let Medical Marijuana -- the seller -- use the $35M deal price to inflate its 2013 revenue for their 2013 guidance. Once it was noted that they couldn't account for it as revenue, but as extraordinary income, the loss of that $35M from the revenue line made the guidance look foolish.

2) Make CANV look like a player that could pay $35M

3) Allow Medical Marijuana to show the stock from the deal as a pretty hefty investment asset on the balance sheet

4) Float the Medical Marijuana share price high enough that CANV's CEO could sell his MedMar shares for much more than he paid for them, giving him the cash to form Roen Ventures, which then loaned the money to CANV in the form of a convertible loan, which will now make Roen the largest shareholder

5) Since CANV made part of the payment in cash, Med Mar gets a source of much needed cash without having to dilute its share count even further

Assuming that CANV pays Med Mar $3M in cash and $32M in shares, with the $4.50 - $6 "lock", Med Mar will end up with about 5.5M shares. If they sell those shares for $1 at the time of the offering, they'll see about $8.5M, which was probably a fair price for Phytosphere, because even though they valued the CBD inventory at $8.7M at the time of the deal, CANV valued it much, much lower ($525K) in their 1Q/13 10-Q, I think because Med Mar valued it at end-customer prices, while CANV valued it as unrefined CBD oil.

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=94036072

FWIW, I think that items 4 and 5 happened, but can't prove them 100%.

The following excerpt is from a post I wrote in April, 2014, the day after CVSI filed its 10-K covering 2013:

I've been writing for most of the past year that the $35M price and the quarterly installments were designed to pump-up the income numbers for Phytosphere's seller, Medical Marijuana, Inc., and the drastic revision to the cost of the deal seems to indicate that the original $35M price was dramatically overstated.

What's really surprising to me is that CANV doesn't even mention the $35M value of the deal in the 10-K, though that value was mentioned in the 10-Qs for Q1 - Q3 of 2013.

This change is probably why CannaVest is having to revise their 10-Qs for 2013, but unfortunately for CANV, the announcement has attracted the attention of the Rosen Law Firm, which issued a PR on Friday evening announcing an investigation into CANV:

ih.advfn.com/p.php?pid=nmona&article=61825205

If they were trying to do a favor to Medical Marijuana, Inc by structuring the deal the way they did, it appears the old proverb, No good deed goes unpunished may apply here.

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=100520799

Regarding the value of the Phytosphere assets, I wrote about those, too, but haven't been able to find the posts. On Feb 12, 2012, CVSI filed an 8-K which included an exhibit (Exhibit A) that described the Phytosphere assets, but put no value on them. Here is the text of that section:

Purchased Assets

1. All inventory on hand or in transit of Seller (wherever located) as of the Effective Date, including raw materials and finished product, whether stored at a location of Seller or stored at a third-party location.
2. Tangible personal property consisting of Seller’s Leybold Heraeus Film Evaporator (located at Seller’s Werc Shop) (Item 010101017).
3. All Internet domain names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith.
4. All landline telephone numbers, facsimile numbers, e-mail addresses, postal addresses and postal boxes.
5. All rights of Seller in, to and under its vendor and supplier contracts and all of the vendor and supplier relationships related to Seller’s business and related goodwill, if any, related to or used in conjunction with Seller’s business, and all customer and vendor contact information.
6. All cash on hand and in financial institutions, including as of the Effective Date the sum of $50,774.55.
7. All franchises, approvals, permits, licenses, orders, registrations, certificates, variances and similar rights obtained from governments and governmental agencies.
8. The rights of Seller relating to the Assumed Liabilities.

https://www.sec.gov/Archives/edgar/data/1510964/000101968713000421/canna_8k-ex1003.htm