This is what it sounds like when your stock is being bled out

cannastrips

Lifestyle Delivery Systems (LDS.C) has long promised to make bulk cash selling cannabis strips, which were apparently in such demand the CEO told me he’d “never do another raise, ever” after it went public, put out three news releases this week which, for mine, illustrate fully what it looks like in the moments before an atomic bomb goes off under a company.

News release #1:

Lifestyle Delivery Systems Inc. is pleased to announce that, it has closed its non-brokered private placement offering of 655,225 units at a price of $0.08 per Unit for total gross proceeds of $52,418. […] In addition, effective June 30, 2016, the Company secured a $100,000 credit facility (the “Loan Facility”) with an unrelated third party creditor.

When a company does a raise to bring in an amount of money comparable to what a school janitor makes in a year, that’s generally cause for alarm. When it follows that up by looking to borrow an amount of money comparable to what a hooker makes in a year, that’s no better.

So let’s get some detail on that loan with news release #2:

The Company received an additional $30,000 advance contemplated under a $100,000 credit facility, which was previously announced on July 6, 2016. In addition, the lender has agreed to advance an additional $20,000 remaining available under the Loan Facility.

The outstanding principal under the Loan Facility accrues interest at a rate of 3% per month, compounded monthly, and is due on or before January 1, 2017.  

So they’re just grabbing at whatever dough they can access right now, and they’re paying 36% per year for the privilege..

If you’re lending a company money at that interest rate, you’re doing great for yourself. But whoever is loaning money to Lifestyle Delivery Systems is also getting a set of steak knives tossed into the deal in the form of, you guessed it:

As additional consideration for the above advances under the Loan Facility, the Company issued to an affiliate of the lender share purchase warrants for the purchase of up to 700,000 common shares of the Company, exercisable at a price of $0.10 per share for a period expiring on January 15, 2018.  

Because of course they are.

Those 10c warrants drop to just a tad over 7c for subsequent suckles of the line-of-credit teat.

If additional advances are made to the Company by the lender, the Company will be required to issue share purchase warrants for the purchase of 14 additional common shares of the Company for each additional $1.00 advanced.

“Never going to do a raise ever again, won’t need to, we’re already making money” – CEO Brad Eckenweiler, a week before the company went public.

Oh right – I mentioned three news releases, not two. Here’s the other, though you can probably guess what it is ahead of time, if you’ve ever lived through a Vancouver stock scam before:

Lifestyle Delivery Systems Inc. announces that it has granted options to purchase up to 3,405,595 common shares to its executive officers and directors.  The options granted may be exercised at a price of $0.12 per share and expire on July 13, 2017.

Shareholders should be careful, because these crooks are a whisker away from granting themselves bedtime rights with your wife while they’re at it.

And if you’re wondering why I think I can get away with calling them crooks in a public forum, what are they going to do, drop a retainer on a slander lawsuit? That’d take another two nibbles at the loan and two more private placements to pay for.

Oh, speaking of, this private placement is the third they’ve had since saying they’d “never do another private placement ever.

But hey, maybe I’m just being too hard on these guys. I mean, things happen that make the best laid plans go sideways, right?

Maybe they’re selling product. Maybe they’ve got a nice little nest egg somewhere and these PPs are just for ancillary expenses. Maybe ah bullshit, they’re on the bones of their ass and spending money like it’s free.

During the three month period ended March 31, 2016, the Company recorded operating expenses of $350,007 (2015 – $123,496). The largest factors contributing to the increase in operating expenses were consulting fees of $139,290 (2015 – $39,587), followed by the office and general expenses of $104,854 (2015 – $803).

45k per month in consulting fees? Who’s consulting for them? Nine clones of me?*

The increase in consulting fees to $139,290 from $39,587 was attributable to the change in the Company’s business direction triggered by the acquisition of CDS, which resulted in increased fees the Company incurred for investor relations services, consulting services paid or accrued to the CEO, CFO and the President of the Company, and for other marketing and business development services

The dirty bastards aren’t even trying to hide the larceny! You get salary, and then you get a consulting fee, and then you get stock options too? What a racket.

And $30k per month in office space? I guess Eckenweiler found his wine cellar wi-fi signal a little too weak.

There was also $7k in meals and expenses, which is actually pretty fair considering what Eckenweiler was tossing about in the lead-up to his RTO.

But hey, maybe the company is ‘this close’ to turning it around! Maybe all those outrageous consulting fees are bringing real change on the ground, where people are buying up Cannastrips like they’re going out of style. Right?

As the Company’s current operations do not generate significant revenues, it will continue to rely on equity and debt financing in order to meet its ongoing day-to-day operating requirements. There can be no assurance that financing, whether debt or equity, will be available to the Company in the amount required at any particular time, or, if available, that it can be obtained on terms satisfactory to the Company.

Apparently 36% annual interest with a cut price warrant tossed in is considered satisfactory.

The company earned $8k in revenues in Q1. At a loss of $400k.

That’s why they’re borrowing money at mafia interest rates – because nobody would invest in that mess willingly, and it’s the only way they can keep the consulting fees rolling for another quarter or so.

Interesting side note: The biggest volume trading day of the last six months, by a factor of about 50x, was the day the directors and executive received their options for doing such a bang up job.

Next day? Back to crickets.

Those Q1 filings were unaudited, by the way. I’m sure Q2 will be totes better.

— Chris Parry

http://www.twitter.com/chrisparry

FULL DISCLOSURE*: I was a consultant to this company during its RTO, though no advice was ever heeded, and the last 5/6 of my contract was never paid, despite assurances to the contrary and a contract that promised up front fees. Soon as I started asking prickly questions about financial realities, the doors closed, though the excuses continued for months.

I did get some nice underwear out of it though, thanks Phil.

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