New Cannabis Ventures has a mission to spotlight “the most promising companies and influential investors in the cannabis industry,” but we also have a responsibility to investigate and warn of the opportunists that put self-enrichment ahead of building the industry in an ethical manner. We have called out many questionable individuals and companies since we began publishing two years ago, and we know that our audience appreciates the effort we make to do so.
We wrote recently about the many red flags at Sunset Island Group (OTC: SIGO), a relatively new cannabis company, warning investors of an imminent potential sale of shares by the company at $0.10 per share despite the stock having closed at $1.64 just prior to publication. Since then, the company has indeed sold 640,000 shares of the 20mm that it has registered with the SEC, increasing the float by 16% in about a week and collapsing the price. More importantly, we have learned more about the players behind the scenes and demonstrate how they were able to sell 3.637mm of the 4mm shares they owned earlier this year, reaping almost $3mm on an investment of just $11,000. Investors should be cautious, as the company is likely to continue to sell shares registered through the second S-1 that went effective in August. Further, we believe SIGO withheld material information from the SEC when it registered these shares.
In our prior write-up, we described how SIGO had been a penny stock that hadn’t reported financials since 2010 but had conducted a reverse merger in late 2016 with a company with limited operational history, Battle Mountain Genetics, boosting the outstanding shares from about 31K shares to over 50mm, with 46mm going to its two officers, CEO Danilo TJ Magallanes (36.8mm) and President & CFO Valerie Baugher (9.2mm), and the balance, 4mm shares, to Novus Group, LLC.
In this follow up, we share our findings that Novus Group, LLC was controlled by Joseph Wade (Joseph Wade Mezey) and that SIGO was controlled by his wife, Anastasia Shishova, neither of which was disclosed in the SEC filings that allowed Novus Group, now owned by 1PM Industries (OTC: OPMZ) to dump the majority of its shares, which it acquired for just $11,000, for almost $3mm and distribute the proceeds directly to Joseph Wade and Matt Billington.
Joseph Wade Controlled Novus Group (Now NG Advisors, owned by OPMZ)
SIGO hid the true nature of the holder of the 4mm shares representing 99.9% of the float that it registered with the SEC.
Joseph Wade is a notorious penny stock financier with a long history of unsuccessful endeavors, most recently with OPMZ, the company that owned Von Baron Farms and employed both of the SIGO executives, though neither the first amended S-1 filing that went effective on January 20th (registering 4mm shares) nor the second amended S-1 filing that went effective on August 7th (registering 20mm shares) mentioned 1PM Industries at all. Additionally, neither filing mentioned Wade, a lawyer who was disbarred by the State of New York in 2010 and who used to be known as Joseph Wade Mezey. His consumer debt settlement company had received a Desist and Refrain Order from the State of California in 2009.
Novus Group LLC was able to register 4mm shares, which represented over 99.9% of the float for resale, as disclosed in the first S-1:
According to the footnotes:
- Mr. Brian Weigel, an US resident and citizen exercises the sole voting and dispositive powers with respect to the shares of the Registrant’s common stock owned of record and beneficially by Novus Group.
- The above-referenced shares were obtained as part of the reverse merger between the Company and Battle Mountain Genetics. The Novus Group invested $11,000 into Battle Mountain Genetics for 4,000 shares which were exchanged for 4,000,000 shares of the Company as part of the reverse merger.
We were not able to identify “Brian Weigel”, and this is in clear contradiction to filings from OPMZ that we share below. SIGO presented this transaction as if it were with a disinterested party, but we believe that some of the funds may have indeed been recycled to the company, as described below:
The prices at which the Selling Security Holders may sell the shares of Common Stock in this Offering shall be at the fixed price of $1.00 until the common stock becomes quoted on the OTC Bulletin Board, the OTCQX, the OTCQB or listed on a securities exchange then it may be determined by the prevailing market price for the shares of Common Stock or in negotiated transactions. We will not receive any proceeds from the sale of Common Stock by the Selling Shareholders.
While SIGO never disclosed the true nature of Novus Group, LLC (now NG Advisors), the OPMZ filings surely did. According to this 8-K filing:
The Company acquired NG Advisors from its members on February 23, 2017. As part of the acquisition, the members of NG Advisors didn’t receive any additional stock or cash from the transaction. The members already were the majority shareholders of the Company and owned 100% Series F Preferred Stock (held by Wade Billington Partners). As a private company, the profits of NG Advisors and consulting operations were distributed to its members in accordance to the operating agreements.
As part of finalizing the acquisition; however, the members will no longer will be receiving the profits from NG Advisors or the related consulting operations. Instead, going forward the holders of the Series F Preferred Stock shall be entitled to monthly distributions of $130,000 per month from the profits from the consulting operations. If there are no monthly operational profits from NG Advisors or the consulting business than no distribution shall be made to the Series F shareholders. No officer or director receives a salary from the Company; however, the Company may create bonuses based on performance for its officers and/or directors.
Wade Billington Partners, who are to continue to receive consulting revenues, includes Joseph Wade and Matt Billington, its sole owners.
A final point is that OPMZ misled the SEC as well in how it described Novus Group, LLC, which held 4mm shares of SIGO. In its 10-K, filed in mid-June, which was before SIGO filed its second S-1:
In September 2015, the Company launched a medical marijuana edible line under the brand name “Von Baron Farms”. In February 2017, the Company discontinued its medical cannabis division which has ceased all operations as of February 28, 2017. On February 23, 2017, the Company acquired 100% of Novus Group, LLC (dba NG Advisors), which became our wholly owned subsidiary. Novus Group, LLC (dba NG Advisors) was a Company under common control and had no assets or liabilities prior to the date of acquisition.
OPMZ didn’t ever mention Sunset Island Group by name in its filings, but clearly Novus Group had assets or liabilities prior to the February 23rd, as it received 4mm shares of SIGO in October. It also misled investors in an 8-K filed on February 23rd when it said that the consulting company was “created on January 23, 2017.”
Joseph Wade’s Wife, Anastasia Shishova, Controlled Sunset Island Group
SIGO withheld the relationship between its controlling officer at the time of the reverse-merger with Battle Mountain Genetics and Novus Group, LLC’s true owners, which included her husband, Joseph Wade.
Anastasia Shishova has been involved with two other penny stocks, including Buscar (OTC: CGLD) and Capall Stables (a shell with Joseph Wade as CEO), since 2012 . In May of 2016, a filing with Colorado’s Secretary of State indicates that she became the registered agent of SIGO. The first S-1 indicated that she was the sole executive officer:
On October 17, 2016, the Company entered into an Agreement whereby the Company acquired 100% of Battle Mountain Genetics, Inc, in exchange for 50,000,000 shares of Sunset Island Group common stock. Immediately prior to the reverse merger, there were 30,894 common shares outstanding and no shares of Preferred shares outstanding and Anastasia Shishova was the sole officer/director. After the reverse merger, the Company had 50,031,771 Common shares outstanding…
There was no disclosure whatsoever that Shishova is Wade’s wife, but another company’s SEC filing suggests that is the case. This is from an 8-K for Buscar Holdings (OTC: CGLD) announcing its new CEO and sole Director, Anastasia Shishova:
The day to day operations of the stable are managed by our trainer with Joseph Wade (Mr. Wade is the husband of our CEO) as the licensed person for the stable. Ms. Shishova is currently in the process of becoming the licensed individual.
This is a material relationship not disclosed by SIGO with respect to the controlling shareholder of Novus Group, LLC, which was registering 99.9% of the float (4mm shares) for sale, being married to the company’s sole officer and director at the time of its acquisition of Battle Mountain Genetics and the exchange of shares.
Novus Group, LLC Cashes Out
SIGO shares purchased for just $11,000 months earlier allowed Novus Group, LLC to reap gains in excess of $2.895mm on the sale of 3.637mm shares according to SEC filings from OPMZ.
The profits from the sales were explained in two SEC filings. According to the 10-K filed on June 14th for the year ending February 28, the Company received $1,618,955 cash from sale of marketable securities: “4,000,000 shares of common stock of an unrelated public Company for $11,000 in contributed capital” and “429,387 shares in this company and recorded gain on sale of marketable securities of $1,617,601.” Sounds like SIGO! 4mm shares acquired for $11,000 by Novus Group, LLC.
A portion of the profits, perhaps on an after-tax basis, were distributed to Novus Group’s former owners, who own all 4mm shares of the OPMZ Series F Preferred Stock:
Series F Preferred Stock: The Company acquired NG Advisors from its members on February 23, 2017. As part of the acquisition, the members of NG Advisors didn’t receive any additional stock or cash from the transaction. The members already were the majority shareholders of the Company and owned 100% Series F Preferred Stock (held by Wade Billington Partners). As a private company, the profits of NG Advisors and consulting operations were distributed to its members in accordance to the operating agreements.
Wade took out $697,760 and Billington took out $174,441 (total of $872,201):
According to the 10-Q filed on July 24th for the quarter ending May 31, “During the three months ended May 31, 2017, the Company sold 3,270,257 shares in its common stock investment and recorded a gain on sale of marketable securities of $1,277,324.” This brings the total gain realized on the sale of 3.637mm shares of the 4mm it originally held at a cost of $11,000 to $2.895mm. Valuing the remaining shares at just $0.10 would push the gross gains to $3.26mm. The amount paid to Wade (and Billington) on these sales was not disclosed.
SIGO Fails to Report Apparent Continuing Financial Relationship
SIGO has never disclosed that Novus Group and Joseph Wade may continue to have an economic interest in the company’s operations.
While OPMZ’s filing doesn’t mention Sunset Island by name, this 8-K filing from May 3rd indicates that NG Advisors continues to have a relationship with SIGO:
The Company has entered into a joint venture agreement with a cannabis-focused agriculture company. The Company will provide the financing for the construction of a new 8,000 square foot cultivation facility. In exchange, the company will receive a percent of the profits from its operations. The goal would be to grow the facility to 22,000 square feet in the next 12-24 months.
SIGO has repeatedly discussed its facility as being 22,000 square feet. SIGO has never mentioned this material information, if it is the case that it will be paying a percentage of its profits to NG Advisors (and Joseph Wade). Additionally, if this is indeed the relationship we assume, then the money from the first S-1 is actually being recycled into SIGO from Novus Group, LLC.
Given the nature of the undisclosed relationship between Wade/Novus/OPMZ and SIGO, we question whether or not the $140K in revenue the company generated from 8/1 to 8/7, as reported in an 8-K filed on August 10th, may have involved Novus or Wade. In its second S-1, the company reported that its lease is at 20420 Spence Road, Salinas, California.
As described herein, Tenant, at its sole election, shall be permitted to sublease to one party only, namely to the California cannabis collective operating as VBF Brands, Inc.
Who is “VBF Brands”? Perhaps OPMZ’s “Von Baron Farms”? Indeed, as proven with the help of an anonymous person I will call “Surfkast”, who found this at ca-registry.com:
It appears that Wade is indeed a related party to SIGO yet again. How did the SEC miss that SIGO doesn’t even appear to be on the lease? Wade’s address is also the address for OPMZ!
SIGO Sells Shares at $0.10 (and an Undisclosed Security)
SIGO has sold 640K shares at $0.10 per share but is also selling an undisclosed security simultaneously.
SIGO recently reduced its shares outstanding from 50.04mm to 4.04mm by cancelling 46mm restricted shares held by its officers and giving them 4,600,000 shares of Series A Convertible Preferred Stock. While this has not been filed with the SEC, it was detailed in an 8-K filing on 8/18 and was filed with the Colorado Secretary of State. The securities are convertible into 46mm shares with voting rights and dividends rights based on how many shares it could be converted into. Common shares are restricted for three years from the time of conversion (though this could be changed easily in the future, as the officers control the company).
Investors should understand that the pending dividend of $0.001 per share, which in total aggregates $50K, will result in only $4000 in total distributed to common shareholders. The remaining $46,000 will go to insiders Magallanes and Baugher. This means that a shareholder who holds 10,000 shares will receive $10, perhaps enough to cover a round-trip commission. The company’s fiscal third quarter that ended on 7/31 will likely show a loss and no revenue, with the dividend funded by the sale of the securities, described below.
The company issued an 8-K on 8/23 that indicated that it was limited to selling shares via the second S-1 at $0.10 and that it would issue additional securities in conjunction:
Q3. How do you explain to shareholders an S-1 Registration where shares can be bought for ten cents?
A. The answers to these three questions are closely linked. The company currently occupies approximately 22,000 square feet. The company has been offered up to 750,000 square feet by our existing landlord. For the first phase of expansion, we plan to lease a minimum of a combined 152,000 square feet, however the Company is still in discussions with the landlord about the entire 750,000 square feet. The Company has stated that it would be interested in the entire space only if we could access it in phases that matched our ability to distribute and sell the product. As far as the S-1 Registration is concerned, although the shares are set at a fixed price, the company is not obligated to sell all of the shares. If we did so, theoretically, $2,000,000 would be raised, but to expand to 750,000 square feet, that would require $8,000,000 to $10,000,000 in operating capital. Therefore, in order to maximize the use of the S-1, the initial investors who will be purchasing shares from the S-1 have agreed to invest additional capital in a designated class of preferred shares that will become a long term investment in the company with no voting rights, conversion rights and with restrictions. With that in mind, the number of shares that may be sold from the S-1 is yet to be determined. Regardless, the S-1 is in place for expansion only. How we manage that process is directly related to the square footage that will be secured as part of the expansion and the number of shares added to the outstanding.
To date, these securities have not been described by the company. On 8/24, it issued a press release attempting to provide clarity. Here is a partial excerpt:
Mr. Magallanes went on to say, “Today at opening of business, our company has approximately 4,031,771 share outstanding. At close of business today, our company will have approximately 4,431,771 shares outstanding or an increase of 400,000 shares. In exchange, at close of business today, the company will have placed into our hands $340,000 in expansion capital. The particulars of the S-1 and how it will work, how we execute the strategy, the long term preferred share conversion, etc. are all irrelevant at this point. Again, we ask that you trust that we are doing what is in the best interest of the company and shareholders. What we are telling you is that with the first tranche, 400,000 shares will be added to the outstanding and $340,000 will be placed into our account. On a side note, we do not like debt of any kind and throughout the expansion, for the life of our business, we want to keep debt completely off the books or at least to a minimum. We currently have $300,000 in debt and that will be paid off in full immediately. That will leave us with $40,000.00 in expansion capital from the first tranche. Each subsequent tranche will also be negotiated in 400,000 share increments and we expect similar or better results with each.”
The company, according to OTC Markets, saw another increase in the shares outstanding to approximately 4.67mm as of 8/31 representing a 16% increase in the float in about a week. This means the company has also sold an additional 240K shares at $0.10 (and additional undisclosed securities, presumably), which wasn’t in “400,000 share increments” as suggested. These shares were free-trading shares sold at $0.10 each, meaning that those who purchased were quickly able to lock in substantial profits. We have no evidence to suggest who the buyer(s) might be, but it would not surprise us if it were Joseph Wade or NG Advisors. The company also issued additional securities that haven’t been detailed despite more than 12 days having passed.
SIGO, which had closed at $1.64 on 8/18 and traded as high as $2.25 on 8/21, when we published our first article before the market opened, has subsequently declined to $0.84 after trading as low as $0.57 since these sales commenced. The stock was at $0.10 as recently as July 14th:
Summary of Investigation
SIGO appears to have hidden material information from the public in its S-1 filings that allowed it to register shares for sale, actions that could invite enforcement from the SEC. Despite the recent decline, SIGO remains extremely overvalued, a startup business that isn’t yet sustainable but is valued at $41mm taking into account convertible preferred shares (that have been detailed). The stock has performed poorly despite a parade of bullish statements from the company as it has been selling the first 640K of 20mm shares that it has registered to sell at $0.10 per share. This process is likely to continue and will ultimately expand the tradable float and put significant pressure on the price over time. Caveat emptor!
Disclosure: I have no position presently or historically in SIGO or OPMZ and have never received compensation from anyone to write about either company.
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Based in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV.
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