The report on the financial statements and accompanying notes are
an integral part of these financial statements.
The accompanying notes are an integral part of these financial
statements.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2016 and 2015
(Unaudited)
Note 1.
Description of the Business
American Cannabis Company, Inc. and
its subsidiary company, Hollister & Blacksmith, Inc., doing business as American Cannabis Consulting (“American Cannabis
Consulting”), (collectively “the “Company”) are based in Denver, Colorado and operate a fully-integrated
business model that features end-to-end solutions for businesses operating in the regulated cannabis industry in states and countries
where cannabis is regulated and/or has been de-criminalized for medical use and/or legalized for recreational use. The Company
provides advisory and consulting services specific to this industry, designs industry-specific products and facilities, and manages
a strategic group partnership that offers both exclusive and non-exclusive customer products commonly used in the industry. American
Cannabis Company, Inc. is a publicly listed company quoted on the OTCQB under the symbol “AMMJ”.
American Cannabis Company, Inc. was
incorporated in the State of Delaware on September 24, 2001 under the name Naturewell, Inc. to develop and market clinical diagnostic
products using immunology and molecular biologic technologies.
On March 13, 2013, Naturewell, Inc.
completed a merger transaction whereby it acquired 100% of the issued and outstanding share capital of Brazil Interactive Media,
Inc. (“BIMI”), which operated as a Brazilian interactive television company and television production company through
its wholly owned Brazilian subsidiary company EsoTV Brasil Promoção Publicidade Licenciamento e Comércio
Ltda. (“EsoTV”). Naturewell’s Articles of Incorporation were amended to reflect a new name: Brazil Interactive
Media, Inc.
On May 15, 2014, BIMI entered into
a merger agreement (“the Merger Agreement”) to acquire 100% of the issued and outstanding shares of American Cannabis
Consulting while simultaneously disposing of 100% of the issued share capital EsoTV (“the Separation Agreement”).
Both the merger with American Cannabis Consulting and disposal of EsoTV were completed on September 29, 2014. BIMI subsequently
amended its Articles of Incorporation to change its name to American Cannabis Company, Inc.. On October 10, 2014, American Cannabis
Company, Inc changed its stock symbol from BIMI to AMMJ.
The foregoing descriptions of the Merger
Agreement and Separation Agreement do not purport to be complete and are qualified in their entirety by the terms of such agreements,
which are filed as exhibits to the Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission
(“SEC”) on October 3, 2014.
Immediately following the completion
of the Merger Agreement, former shareholders of American Cannabis Consulting owned 31,710,628 shares of American Cannabis Company,
Inc.’s common stock representing 78.44% of American Cannabis Company, Inc.’s issued and outstanding share capital.
Accordingly, American Cannabis Consulting was deemed to have been the accounting acquirer in a Reverse Merger which resulted in
a recapitalization of the Company. Consequently, the Company’s condensed consolidated financial statements reflect
the results of American Cannabis Consulting since Inception (March 5, 2013) and of American Cannabis Company, Inc. (formerly BIMI)
since September 29, 2014.
Note 2.
Summary of Significant Accounting Policies
Basis of Accounting
The financial statements are prepared
in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Company
has elected a fiscal year ending on December 31. Certain balance sheet reclassifications have been made to prior period balances
to reflect the current period’s presentation format; such reclassifications had no impact on the Company’s consolidated
statements of operations or consolidated statements of cash flows and had no material impact on the Company’s consolidated
balance sheets.
Use of Estimates in Financial Reporting
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and
expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the financial statements in the period they are deemed to be necessary.
Significant estimates made in the accompanying financial statements include but are not limited to following: those related to
revenue recognition, allowance for doubtful accounts and unbilled services, lives and recoverability of equipment and other long-lived
assets, contingencies and litigation. The Company is subject to uncertainties, such as the impact of future events, economic,
environmental and political factors, and changes in the business climate; therefore, actual results may differ from those estimates.
When no estimate in a given range is deemed to be better than any other when estimating contingent liabilities, the low end of
the range is accrued. Accordingly, the accounting estimates used in the preparation of the Company's financial statements will
change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating
environment changes. Changes in estimates are made when circumstances warrant. Such changes and refinements in estimation methodologies
are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to
the financial statements.
Unaudited Interim Financial Statements
The accompanying unaudited financial statements
have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Regulation
S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring
entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations;
and (c) cash flows, have been made in order to make the financial statements presented not misleading. The results of operations
for such interim periods are not necessarily indicative of operations for a full year.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are held in operating
accounts at a major financial institution.
Accounts Receivable
Accounts receivable are recorded at
the net value of face amount less an allowance for doubtful accounts. The Company evaluates its accounts receivable periodically
based on specific identification of any accounts receivable for which the Company deems the net realizable value to be less than
the gross amount of accounts receivable recorded; in these cases, an allowance for doubtful accounts is established for those
balances. In determining its need for an allowance for doubtful accounts, the Company considers historical experience, analysis
of past due amounts, client creditworthiness and any other relevant available information. However, the Company’s actual
experience may vary from its estimates. If the financial condition of its clients were to deteriorate, resulting in their inability
or unwillingness to pay the Company’s fees, it may need to record additional allowances or write-offs in future periods.
This risk is mitigated to the extent that the Company receives retainers from its clients prior to performing significant services.
The allowance for doubtful accounts,
if any, is recorded as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing
adjustments. To the extent the provision relates to a client's inability to make required payments on accounts receivables, the
provision is recorded in operating expenses. As of March 31, 2016 and December 31, 2015, the Company’s allowance for doubtful
accounts was $8,418 and $8,418, respectively. The Company did not record bad debt expense during the three months ended March
31, 2016 or during the three months ended March 31, 2015.
Deposits
Deposits is comprised of advance payments
made to third parties, primarily for inventory for which the Company has not yet taken title. When the Company takes title to
inventory for which deposits are made, the related amount is classified as inventory, then recognized as a cost of revenues upon
sale (see “Costs of Revenues” below).
Inventory
Inventory is comprised of products
and equipment owned by the Company to be sold to end-customers. Inventory is valued at cost, based on the specific identification
method, unless and until the market value for the inventory is lower than cost, in which case an allowance is established to reduce
the valuation to market value. As of March 31, 2016 and December 31, 2015, market values of all of the Company’s inventory
were greater than cost, and accordingly, no such valuation allowances were recognized.
Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current
assets is primarily comprised of advance payments made to third parties for independent contractors’ services or other general
expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract
or service period.
Significant Clients and Customers
For the three months ended March 31,
2016, five customers individually accounted for $514,824 of the Company’s total revenues; these customers accounted for
approximately 95% of the Company’s total revenues for the period. For the three months ended March 31, 2015, three clients
individually accounted for 10% or more of the Company’s revenues, and in aggregate, they comprised approximately 79% of
the Company’s total revenues for the period.
Property and Equipment, net
Property and Equipment is stated at
net book value, cost less depreciation. Maintenance and repairs are expensed as incurred. Depreciation of owned equipment is provided
using the straight-line method over the estimated useful lives of the assets, ranging from two to seven years. Costs associated
with in-progress construction are capitalized as incurred and depreciation is consummated once the underlying asset is placed
into service. Property and equipment is reviewed for impairment as discussed below under “Accounting for the Impairment
of Long-Lived Assets.” The Company did not capitalize any interest as of March 31, 2016.
Accounting for the Impairment of
Long-Lived Assets
The Company evaluates long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset
to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair
value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the
assets. The Company had not recorded any impairment charges related to long-lived assets as of March 31, 2016 or December 31,
2015.
Beneficial Conversion Feature
If the conversion features of conventional
convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a
beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ACF”) Topic 470-20
Debt with
Conversion and Other Options
. In those circumstances, the convertible debt is recorded net of the discount related to the
BCF, and the Company amortizes the discount to interest expense, over the life of the debt using the effective interest method.
Revenue Recognition
Revenue is recognized in accordance
with FASB ASC Topic 605,
Revenue Recognition
. The Company recognizes revenue when persuasive evidence of an arrangement
exists, the related services are rendered or delivery has occurred, the price is fixed or determinable and collectability is reasonably
assured.
The Company generates revenues from
professional services consulting agreements. These arrangements are generally entered into on a time basis, for a fixed-fee or
on a contingent fee basis. Generally, a prepayment or retainer is required prior to performing services.
Revenues from time-based engagements
are recognized as the hours are incurred by the Company.
Revenues from fixed-fee engagements are recognized under the
completed or proportional performance methods. Management reviews arrangement to determine whether or not the fixed-fee is
for a final deliverable or act which is significant to the arrangement as a whole. If it is, revenue is recognized under the
completed performance method, in which revenue is recognized once the final act or deliverable is performed or delivered.
Revenue recognized under the proportional performance method is recognized as services are performed. Under this method, the
Company estimates the amount of completed work in comparison to the total services to be provided under the arrangement or
deliverable in order to determine the amount of revenue to be recognized. Revenue recognition is affected by a number of
factors that change the estimated amount of work required to complete the deliverable, such as changes in scope, timing,
awaiting notification of license award from local government, and the level of client involvement. Losses, if any, on
fixed-fee engagements are recognized in the period in which the loss first becomes probable and reasonably estimable. During
the three month periods ended March 31, 2016 and March 31, 2015, no such losses have occurred. The Company believes if an
engagement terminates prior to completion it can recover the costs incurred related to the services provided.
The Company has some arrangements for
which revenues are contingent upon achieving a pre-determined deliverable or future outcome. Any contingent revenue for these
arrangements is not recognized until the contingency is resolved and collectability is reasonably assured.
The Company’s arrangements with
clients may include terms to deliver multiple services or deliverables. These contracts specifically identify the services to
be provided with the corresponding deliverable. The value for each deliverable is determined based on the prices charged when
each element is sold separately or by other vendor-specific objective evidence (“VSOE”). Revenues are recognized in
accordance with our accounting policies for the elements as described above. The elements qualify for separation when the deliverables
have value on a stand-alone basis and the value of the separate elements can be established by VSOE or an estimated selling price.
While assigning values and identifying separate elements requires judgment, generally selling prices of the separate elements
are readily identifiable as the Company also sells those elements individually outside of a multiple services engagement. Contracts
with multiple elements are typically fixed-fee or on time basis. Arrangements are typically terminable by either party upon sufficient
notice and do not include provisions for refunds relating to services provided.
Differences between the timing of billings
and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying balance sheet.
Revenues recognized for services performed, but not yet billed to clients are recorded as unbilled services.
Reimbursable expenses, including those
relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically,
an equivalent amount of reimbursable expenses are included in total direct client service costs. Reimbursable expenses related
to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability
is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in the statement
of operations on a net basis.
Revenue from product and equipment
sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product
is shipped, title has transferred and collectability is reasonably assured. Generally, our suppliers’ drop-ship orders to
our clients with origin terms. For any shipments with destination terms, the Company defers revenue until delivery to the customer.
During the three months ended March 31, 2016 and March 31, 2015, sales returns were not significant and as such, no sales return
allowance had been recorded as of March 31, 2016 and December 31, 2015.
Costs of Revenues
The Company’s policy is to recognize
costs of revenue in the same manner in conjunction with revenue recognition. Cost of revenue includes the costs directly attributable
to revenue recognition and includes compensation and fees for services, travel and other expenses for services and costs of products
and equipment. Selling, general and administrative expenses are charged to expense as incurred.
Advertising and Promotion Costs
Selling and Marketing costs are included
as a component of selling and marketing expense and are expensed as incurred. During the three months ended March 31, 2016 and
March 31, 2015, these costs were $20,815 and $94,305, respectively.
Shipping and Handling Costs
For product and equipment sales, shipping
and handling costs are included as a component of cost of revenues.
Stock-Based
Compensation
Restricted shares are awarded to employees
and entitle the grantee to receive shares of common stock at the end of the established vesting period. The fair value of the
grant is based on the stock price on the date of grant. The Company recognizes related compensation costs on a straight-line basis
over the requisite vesting period of the award. During the three months ended March 31, 2016, the Company had employee stock-based
compensation expense of $7,529. Compensation expense for warrants and options is based on the fair value of the instruments on
the grant date, which is determined using the Black-Scholes valuation model. During the three months ended March 31, 2016, there
was no compensation expense for warrants or stock options.
Income Taxes
The Company’s corporate status
changed from an S-Corporation, which it had been since inception, to a C-Corporation during the year ended December 31, 2014.
As provided in Section 1361 of the Internal Revenue Code, for income tax purposes, S-Corporations are not subject to corporate
income taxes; instead, the owners are taxed on their proportionate share of the S-Corporation’s taxable income. Accordingly,
we were not subject to income taxes for the three months ended March 31, 2014. We recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance
with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year
in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred tax assets
to the amount expected to be realized. For the three months ended March 31, 2016, due to cumulative losses since our corporate
status changed, we recorded a valuation allowance against our deferred tax asset that reduced our income tax benefit for the period
to zero. As of March 31, 2016 and December 31, 2015, we had no liabilities related to federal or state income taxes and the carrying
value of our deferred tax asset was zero.
Net Income (Loss) Per Common Share
The Company reports net income (loss)
per common share in accordance with FASB ASC 260, “Earnings per Share”. This statement requires dual presentation
of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share computations. Basic
net income (loss) per share is computed by dividing net income attributable to common stockholders by the weighted average number
of shares of common stock outstanding during the period and excludes the effects of any potentially dilutive securities. Diluted
net income (loss) per share gives effect to any dilutive potential common stock outstanding during the period. The computation
does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.
Related Party Transactions
The Company follows FASB ASC subtopic
850-10,
Related Party Disclosures
, for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20, related
parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required,
absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted
for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company;
f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate
interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties
or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such
other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the
dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any
change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties
as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
See
Note 11. Related Party Transactions for associated disclosures.
Recent
Accounting Pronouncements
The
Company has reviewed all the recently issued, but not yet effective, accounting pronouncements and it does not believe any of
these pronouncements will have a material impact on the Company.
Note 3. Accounts Receivable, net
Accounts receivable,
net, was comprised of the following as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
(Audited)
|
Gross accounts receivable
|
|
$
|
35,686
|
|
|
$
|
56,704
|
|
Less: allowance for doubtful accounts
|
|
|
(8,419
|
)
|
|
|
(8,419
|
)
|
Accounts receivable, net
|
|
$
|
27,267
|
|
|
$
|
48,285
|
|
The Company had no bad debt expense during
the three months ended March 31, 2016 and March 31, 2015.
Note
4. Deposits
Deposits
was comprised of the following as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
(Audited)
|
Inventory deposits
|
|
$
|
9,345
|
|
|
$
|
9,345
|
|
Operating lease deposits
|
|
|
4,500
|
|
|
|
4,500
|
|
Deposits
|
|
$
|
13,845
|
|
|
$
|
13,845
|
|
Inventory
deposits reflect down payments made to suppliers or manufacturers under inventory purchase agreements.
Note
5. Inventory
Inventory
as of March 31, 2016 and December 31, 2015 of $101,395 and $67,435, respectively, was fully comprised of finished goods.
Note 6.
Prepaid expenses and other current assets
Prepaid
expenses and other current assets was comprised of the following as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
(Audited)
|
Prepaid expenses
|
|
|
37,556
|
|
|
|
28,907
|
|
Other current assets
|
|
|
5,265
|
|
|
|
3,210
|
|
Prepaid expenses and other current assets
|
|
$
|
42,821
|
|
|
$
|
32,117
|
|
Note 7. Property and Equipment, net
Property and equipment, net, was
comprised of the following as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
(Audited)
|
Office equipment
|
|
$
|
9,275
|
|
|
$
|
7,472
|
|
Furniture and fixtures
|
|
|
8,777
|
|
|
|
8,777
|
|
Machinery and equipment
|
|
|
2,337
|
|
|
|
2,336
|
|
Property and equipment, gross
|
|
|
20,389
|
|
|
|
18,585
|
|
Less: accumulated depreciation
|
|
|
(6,350
|
)
|
|
|
(5,137
|
)
|
Property and equipment, net
|
|
$
|
14,039
|
|
|
$
|
13,448
|
|
The Company recorded depreciation expense
of $1,214 and $716 during the three months ended March 31, 2016 and March 31, 2015, respectively.
Note 8. Notes Payable
As of March 31, 2015, the Company had
remaining convertible debentures in the total amount of $71,500. The debentures were originally issued on April 24, 2014, matured
on April 24, 2016, paid zero interest, and are convertible until maturity at the holders’ discretion into shares of the
Company’s common stock at $0.08 per share. As of April 11th, 2016, the maturity date on this note was renegotiated to April
24th, 2018. On April 12, 2016, the Company received notice of a partial conversion of this note in the amount of $58,000 that
was converted into 725,000 shares of common stock at a price of $0.08 per share. On May 6, 2016, the Company received notice for
the conversion of the balance of the note in the amount of $13,500 that was converted into 168,750 shares of common stock at a
price of $0.08 per share. Based on this conversion, as of March 31, 2016, the balance of $69,250 is reflected as a current
liability.
Note 9. Accrued and Other Current
Liabilities
Accrued and other current liabilities
was comprised of the following at March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
(Audited)
|
Accrued payroll liabilities
|
|
|
22,812
|
|
|
|
18,185
|
|
Accrual for inventory products sold and shipped (in transit)
|
|
|
40,773
|
|
|
|
64,050
|
|
Other accruals
|
|
|
9,261
|
|
|
|
11,233
|
|
Accrued and other current liabilities
|
|
$
|
72,846
|
|
|
$
|
93,468
|
|
Note 10. Net (Loss) Per Common
Share
The following is a reconciliation of weighted common shares
outstanding used in the calculation of basic and diluted net income (loss) per common share:
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Net income (loss)
|
|
$
|
(13,557
|
)
|
|
$
|
(226,838
|
)
|
Weighted average shares used for basic net income (loss) per common share
|
|
|
44,881,991
|
|
|
|
44,782,078
|
|
Incremental diluted shares
|
|
|
—
|
|
|
|
—
|
|
Weighted average shares used for diluted net income (loss) per common share
|
|
|
44,881,991
|
|
|
|
44,782,078
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
*(0.00
|
)
|
|
$
|
(0.01
|
)
|
Diluted
|
|
$
|
*(0.00
|
)
|
|
$
|
(0.01
|
)
|
*Denotes a loss of less than $0.01
|
|
|
|
|
|
|
|
|
Note 11. Related Party Transactions
During the three months ended March
31, 2016, the Company incurred $6,000 of expense payable to JDE Development LLC, a company in which Jesus M Quintero, the Company’s
Chief Financial Officer, is an owner. During the three months ended March 31, 2015, the Company incurred $13,887 of expense payable
to New Era CPAs, an accounting firm in which Antonio Migliarese, the Company’s former Chief Financial Officer, is a partner.
This expense is payable in 35,607 shares of the Company’s common stock. As of March 31, 2016, the Company owed Mr. Migliarese
65,607 shares of common stock valued at $32,187. During the three months ended March 31, 2016 and 2015, the Company generated
revenue from the sale of products in the amount of $500 and $0, respectively, to a company controlled by a Director, of which
the balance of the related accounts receivable as of March 31, 2016 and March 31, 2015 was $4,035 and $0, respectively.
Note 12.
Commitments and Contingent
Liabilities
On March 1, 2016, the Company retained Brian Johnson
as a consultant for an initial term of three months until May 31, 2016, and agreed to pay Mr. Johnson 10,000 shares of its restricted
common stock for the three-month term payable on May 31, 2016.
On January 20, 2016, we were named as a defendant in a civil suit
entitled: Anthony Baroud vs. Hollister & Blacksmith, Inc., dba American Cannabis Company filed in the Circuit Court of Cook
County, Illinois. The lawsuit seeks damages of $100,000 related to an employment contract. The Company filed a motion to compel
contractual arbitration that has yet to be ruled on by the Court.
Note 13. Stock-based Compensation
Restricted Shares
From time to time, the Company grants
certain employees restricted shares of its common stock to provide further compensation in-lieu of wages and to align the employee’s
interests with the interests of its stockholders. Because vesting is based on continued employment, these equity-based incentives
are also intended to attract, retain and motivate personnel upon whose judgment, initiative and effort the Company’s success
is largely dependent. The Company issued no restricted shares during the period covered by this report.
On March 1, 2016, the Company
retained Brian Johnson as a consultant for an initial term of three months until May 31, 2016, and agreed to pay Mr. Johnson 10,000
shares of its restricted common stock per month for the three-month term payable on May 31, 2016. From the date of the grant to
March 31, 2016, shares issuable to Mr. Johnson had a value of $1,100.00.
Warrants
As of March 31, 2016, fully-vested
warrants issued to the Company’s independent board member to purchase up to two hundred and fifty thousand (250,000) shares
of common stock at an exercise price of sixty-three cents ($0.63) per share were outstanding, exercisable within five (5) years
of the date of issuance on November 19, 2014. The grant date fair value of the warrants, as calculated based on the Black-Scholes
valuation model, was $0.59 per share. There were no outstanding unvested warrants or new issuances of warrants during the three
months ended March 31, 2016; consequently, no stock-based compensation expense associated with warrant was recorded during the
three months ended March 31, 2016.
As of March 31, 2016 and December 31,
2015, as the exercise price per share exceeded the price per share of our common shares, there was no aggregate intrinsic value
of outstanding warrants. As of March 31, 2016 and December 31, 2015, the warrants had 3.9 and 3.6 years remaining until expiration,
respectively. No warrants were issued or outstanding during or preceding the three months ended March 31, 2016.
Stock Options
In addition to the warrants as described above, the
Company’s independent board member shall be eligible to receive options for 400,000 shares of common stock under the Company’s
incentive plan, as and when duly approved by the Board of Directors. As these stock options were not granted as of March 31, 2016,
no expense in relation to these options was recognized during the three months ended March 31, 2016
Stock Issuable in Compensation for Professional
Services
From time to time, the Company
enters into agreements whereby a professional service provider will be compensated for services rendered to the Company by shares
of common stock in lieu of cash. During the three months ended March 31, 2015, the following related activity occurred
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The Company incurred $13,887 of expense payable in 35,607 common shares to New Era
CPAs, an accounting firm in which Antonio Migliarese, the Company’s former Chief Financial Officer, is a partner. During
the year ended December 31 2014, the Company incurred $18,300 of expense payable in 30,000 common shares to New Era CPAs. As of
March 31, 2016, as a result of these transactions, 65,607 common shares were earned and issuable to New Era CPAs.
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On March 1, 2016, the Company retained Brian Johnson as a consultant for an initial
term of three months until May 31, 2016, and agreed to pay Mr. Johnson 10,000 shares of its restricted common stock for the three-month
term payable on May 31, 2016.
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Note 14. Stockholders’
Equity
Preferred Stock
American Cannabis Company, Inc. is
authorized to issue 5,000,000 shares of preferred stock at $0.01 par value. No shares of preferred stock were issued and
outstanding during the three month periods ended March 31, 2016 and March 31, 2015.
Common Stock
American Cannabis Company, Inc. is authorized to issue 100,000,000
common shares at $0.00001 par value per share.
On
March 23, 2016 the Company issued 833,333 common shares to a shareholder
as consideration for a stock purchase that previously closed in the first quarter of 2015.
Note 15. Subsequent Events
As of April
11th, 2016, the maturity date on this note was renegotiated to April 24th, 2018. On April 12, 2016, the Company received notice
of a partial conversion of this note in the amount of $58,000 that was converted into 725,000 shares of common stock at a price
of $0.08 per share. On May 6, 2016, the Company received notice for the conversion of the balance of the note in the amount of
$13,500 that was converted into 168,750 shares of common stock at a price of $0.08 per share. Based on this conversion, as of
March 31, 2016, the balance of $69,250 is reflected as a current liability.