Isodiol International Inc. (“Isodiol” or “the Company”) (formerly Laguna Blends Inc.) was incorporated under the Business Corporations Act (British Columbia) in June 2014 as Grenadier Resource Corp.
On June 9, 2017, the Company changed its name to Isodiol International Inc. The Company’s common shares are listed on the Canadian Securities exchange under the symbol “ISOL" and on the US OTC exchange under the symbol “ISOLF”.
The Company is focused on the nutritional health benefits that are derived from hemp and is a product development, sales, marketing and distribution company of hemp-based consumer products and solutions. The company specializes in identifying emerging trends and opportunities from all Cannabinoids available in hemp.
The company is not involved in the Marijuana industry as it does not sell cannabis plant. Hemp and cannabis come from the Cannabis sativa L specie, but are genetically distinct and are further distinguished by use, chemical makeup and cultivation methods.
Hemp, which refers to the non-psychoactive (less than 0.3% THC) varieties of Cannabis sativa L, is a renewable raw material used in thousands of products including health foods, body care, clothing, construction materials, biofuels and plastic composites. The Company’s growth strategy includes the development of over-the-counter and pharmaceutical drugs, expanding its phytoceutical portfolio and will aggressively continue International expansion into Latin America, Asia and Europe.
The Company strategically raised capital throughout fiscal 2019 and may require capital raises in additional to the revenues generated from ongoing operations in order to meet future financial commitments.
As of June 30, 2018 the Company had $11,515,258 in cash compared to March 31, 2018 of $15,549,664. For the three months ended June 30, 2018, the Company had gross profit of $4,602,895 and a net loss of $3,824,576. The majority of expenses consisted of consulting fees of $1,498,398, wages and salaries of $2,458,715, non-cash amortization of $697,535 and office and administration costs of $1,004,309.
The Company generated a significant increase in sales to date pursuant to acquisitions made during fiscal 2018 and acquisitions completed during the three months ended June 30, 2018, which include: BSPG laboratories Ltd. during April 2018, Azure Bottling LLC During May 2018, and Kure Corp. during May 2018.
The Company will continue to rely on capital financing until it is able to establish profitable operations which it is currently working towards. The Company believes that entry into the regulated hemp market, whose regulations allow for more robust consumer-facing brand marketing, advertising and retail channels, will serve to strengthen the Company’s Hemp based business focus.
These factors have allowed Isodiol to grow its sales and continue identifying new business opportunities within this market.
During the three months ended June 30, 2018, the Company acquired assets through acquisitions and business combinations that are complimentary to the overall growth of the Company and the ability to generate increased revenues.
Although the industry is growing, the company did make significant capital commitments during the period. If additional industry risks were to arise based on new regulation, it may affect the Company’s ability to raise funds going forward. This uncertainty does add a significant element of risk to the company that is inherent with the current industry. There is also a risk factor associated with product quality and availability of biomass for production of finished goods.
The company maintains a position of being able to secure enough biomass for operations.
DESCRIPTION OF BUSINESS
Isodiol International Inc. is involved in pharmaceutical grade pure, natural CBD and in the manufacturing and development of CBD consumer products.
Isodiol has the commercialized a 99%+ pure, naturally isolated CBD, including micro-encapsulations, and nano-technology for quality consumable and topical skin care products. Most recently, the company received approval for its CBD designated as an Active Pharmaceutical Ingredient for use in Finished Pharmaceutical Products as was announced April 26, 2018. This approval was obtained by the Medicines and Healthcare products Regulatory Agency of the UK.
Isodiol’s growth strategy includes the development of over-the-counter and pharmaceutical drugs, expanding its consumer products portfolio and aggressively continue international expansion into Latin America, Asia, and Europe.
The following lists the company’s subsidiaries and includes a description of each subsidiary’s key activities:
C3 Global Biosciences (C3GBS)
C3GBS’s business is focused on CBD research, science, innovation and technology to positively impact patient outcomes through clinical studies and evidence-based empirical data gathered by validated devices and platforms. Along with Isodiol, C3GBS will continue to focus on the research and development of CBD and other cannabinoids to improve the quality of life for consumers. Both the Company and C3GBS will continue to focus on the utilization of the Electroencephalogram (EEG) technology in the phytoceutical field, which allows physicians and researchers real-time feedback on the effect of Cannabis products. As a part of the 100% acquisition, the company issued 114,189 shares valuing $1,061,958.
The Bradley’s Brand (Bradley’s Brand)
Bradley’s Brand’s business is focused on manufacturing and distributing hemp oil and nicotine eliquids, as well as personal care products. Bradley's Brand also offers apparel and merchandising solutions. By partnering with Isodiol, Bradley's has been able to increase its operational reach from the United States and the United Kingdom, to the Latin American and additional European markets. As a part of the 100% acquisition, the company issued 154,680 shares valuing $487,242.
ISO-Sport
ISO-Sport’s business is to create products to focused on enhancing athletic performance and recovery needs of professional and prosumer athletes. The hemp-based nutrition line is geared towards mental and body wellness. ISO-Sport has been focused on raising awareness of CBD and related benefits that have been used by individuals within athletic organizations such as the National Football League, Cage Warriors and the MMA. ISO-Sport will continue to focus efforts towards professional athletes with the goal of assisting athletes through their daily lives, training and recovery process. This is a wholly-owned division of Isodiol International Inc.
Iso-Bev
Iso-Bev is in the manufacturing and development of consumer beverages derived from hemp. The Company hopes to take advantage of the hemp infused beverage industry with Iso-Bev’s monthly bottling capacity which is able to produce up to 5,000,000 bottles per month. This is a whollyowned subsidiary of Isodiol International Inc. IsoBev, acquired 100% of the assets of Culinary Coffee Roasters who’s business is the sale of quality coffees, tea and blended formulations, based out of Stuart, Florida. Culinary has been in the coffee beverage business for over fifteen years. In consideration for the acquisition, Isodiol paid $450,000 USD in stock equity, subject to a 36-month escrow release period at $3.15 a share.
Isolabs International Inc.
This division focuses on phytoceutical development in North America and International markets with development of IP and other proprietary assets This division will continue to externally source the cultivation of the plant and bring the manufacturing, processing, product R&D and distribution inhouse.
Biosynthesis Pharma Group Laboratories Ltd. (BSPG)
BSPG is large producer of industrial hemp and was the first Company to receive MHRA approval as an Active Pharmaceutical Ingredients (API) license holder. Through BSPG’s industrial-sized, proprietary extraction methodologies, BSPG produces high-purity, bioactive cannabinoids that are used in pharmaceutical applications to benefit those suffering from a range of life-threatening and non-life-threatening illnesses. BSPG is currently conducting clinical trials involving its product through strategic partnerships around the globe. This acquisition was closed on April 17, 2018. The Company will pay a total of $13M USD ($4.5M paid to date) and has issued 21,302,485 common shares. Pursuant to the BSPG acquisition, the Company also acquired 99% of the assets of Purodiol do Brasil Ltda. which consists of Purodiol trademarks and retention of the previous CEO of Purodiol who contains key product manufacturing and market knowhow. The Company issued 255,630 shares measured at a fair value of $10.50 per share and paid finders’ fees of $2,459,490 to arm’s length parties.
KURE™ Corp. (KURE)
KURE is a wholly owned subsidiary of Isodiol International Inc., headquartered in Charlotte, North Carolina and specializes in the distribution of vaporizing pens, e-Juices, and related accessories through its specialty retail stores and online distribution. KURE’s primary products are its distinct line of custom blended flavored e-Juices, KURE brand vaporizers, as well as popular third-party brands of advanced hardware and select eLiquids. All KURE products are available online and throughout its many store locations across the United States. KURE Vaporium™, KURE Society™, Kuriousity™, Kurators™, KURE Vape Pod are all respective trademarks of KURE. This acquisition was closed on May 1, 2018 for 2,380,952 in stock for total value of $15,000,000 USD.
Azure Bottling LLC (Azure)
Azure is a custom bottled water facility which is FDA approved and complies with local and state guidelines. They provide spring water, purified water, mineral water, vitamin-enhanced and alkaline water which is free of contaminants and impurities. This acquisition was closed on April 1, 2018 for $1,000,000 USD in cash upon closing and $350,000 USD on the 6-month anniversary and 1,130,351 shares based on a price of $1.29. The following are some key trademarks acquired by the Company during the fiscal 2018 year:
Pot-O-Coffee and Her-Coffee Trademarks
The Pot-O-Coffee and Her-Coffee product lines consists of two variants for cannabis infusion; one infused with cannabis plant-extracted tetrahydrocannabinol (THC) oil (the Company currently does not handle any component of the product(s) relating to handling THC), while the other is infused with non-psychotropic cannabidiol (CBD) derived from agricultural based Hemp Oil. Since the partnership, Isodiol has been able to establish licensing relationships with Canopy Growth, Nutritional High, a California manufacturer, and anticipates even further opportunity in the coming months. The licensing distribution agreements with Canopy Growth and Nutritional High is to manufacture and distribute the company’s Pot-O-Coffee, Her-Coffee and Pot-O-Tea branded cannabis-infused single-serve K-Cup products. Isodiol does not physically touch the THC compound, as it licenses the brand IP and manufactures the packaging. For these trademarks, the company issued 1,718,750 shares for total consideration of $2,062,500. The following is an acquisition that has not been completed as of the date of this MD&A:
Canadian National Pharma Group Inc (CN Pharma)
CN Pharma is a pharmaceutical manufacturing company which is currently in the process of receiving its Licensed Dealer ("LD") status under the provisions of the Canadian Controlled Drugs and Substances Act, in order to commence production of cannabis and hemp extracts or isolate. The Company is pursuing a 100% acquisition of CN Pharma based on whether or not CN Pharma is able to obtain its LD status. If CN Pharma is not able to obtain its LD status, the company will have the option to terminate the agreement and recover any acquisition fees paid to date. If CN Pharma obtains its LD status, the Company will issue $6,000,000 in common shares based on the price as of the closing date which shall be no later than December 31, 2018. As of the date of this MD&A, CN Pharma has not obtained its LD status.
The following summarizes the Company’s investment in 10330698 BC Ltd.: 10330698 BC Ltd.
On April 19, 2018, the company invested $2,000,000 to acquire 10% of 10330698 BC Ltd. (BC Ltd) shares. BC Ltd. plans to open and operate cannabis clinic’s across Canada. Isodiol does not have to obtain any additional licenses as a part of this partnership as BC Ltd will obtain the appropriate licenses. Isodiol intends to hold onto the shares of BC Ltd as an investment and will not be involved with its operations.
DISCUSSION OF OPERATIONS
Through the development of its own IP, Isodiol has been able to create a portfolio of products which are sold through various channels domestically in the US, and internationally. Growth in sales from the Company’s core operating subsidiary ISO-LLC commencing from the date of acquisition in May 2017, coupled with the strategic acquisitions described above have resulted in an increase in revenues totaling $9,218,093 for the three months ended June 30, 2018 (2017 - $2,740,542). This increase is consistent with additional revenue streams from strategic acquisitions as well as an overall increase in demand for CBD-related products. Management expects revenues to increase both from strategic acquisitions and increased demand over retail and pharmaceutical sales during the remainder of Fiscal 2019. Consistent with the above increases in revenues from acquisitions and market growth, the Company experienced increases in the following operational expenses during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017: • Consulting fees increased by $1,185,627 to $1,498,398 (2017 – $312,771) as the Company spent additional funds towards executing its management strategy for aggressive expansion and the use of Consultants to achieve these objectives; • Wages and salaries increased by $2,078,573 to $2,458,715 (2017 - $380,142) pursuant to the significant increase in operations and newly acquired companies; Page 6 • Advertising and promotions increased by $427,076 to $591,367 (2017 - $164,291) due to increased marketing campaigns designed to increase product and Company awareness globally; • Investor relations increased by $153,805 to $258,332 (2017 - $104,527) pursuant to increased operational activities and increase in investor communications; • Office and administration increased by $845,236 to $1,004,309 (2017 – $159,073) due to acquiring additional operations and increased costs of integrating new operations; • Professional fees increased by $467,486 to $509,445 (2017 - $41,959) pursuant to increased corporate and general legal work, agreements, LOIs, MOUs and overall increase in activities; • Rent increased by $343,652 to $392,525 (2017 – $48,873) pursuant to acquisitions and new locations acquired; • Travel and promotions increased by $318,550 to $432,328 (2017 – $113,778) due to increased product marketing and tradeshows to help enhance sales and global expansion; • Research and development increased by $204,634 to $212,340 (2017 - $7,706), pursuant to an increase in activities related to product development; and • Amortization increased by $675,691 to $697,535 (2017 – $21,844), pursuant to an increase in acquired fixed assets and intangible assets through license payments and strategic acquisitions completed; The Company experienced decreases in the following operational expenses during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017, as described below: • Shipping costs decreased by $155,918 to $4,966 (2017 – $160,884) as the Company’s shipping expenses now primarily relate to products sold and are included in cost of goods sold; • Share based compensation decreased by $1,211,997 to $nil (2017 - $1,211,997) due to the Company not issuing options during the three months period ended June 30, 2018; • Acquisition advisory fees decreased by $2,171,502 to $210,000 (2017 - $2,381,502) as the Company had already paid the majority of acquisition advisory related fees in fiscal 2018. The fees paid in fiscal 2019 relate to the BSPG acquisition; Isodiol operates as a business to business and retail company to generate sales of its products. The Company had a gross profit of $1,607,004 for the three months ended June 30, 2017. Gross profit for the three months ended June 30, 2018 were $4,602,895 with net revenues being $9,218,093. The Company predict increases in revenues as the Company moves towards being profitable by the end of fiscal 2019. This is expected to occur as the Company integrates the operations of its acquired business’ and assets acquired pursuant to acquisitions completed and increased demand for its products. The Company incurred a net comprehensive loss of $3,824,576 and $3,658,829 for the three months ended June 30, 2018 and 2017. The higher loss during the current period is primarily the result of continued strategic acquisitions and significant growth as described above. The Company incurred increased expenditures which has resulted in expansion of operations throughout the US, United Kingdom, China and Latin America.
