Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
These financial statements represent the consolidated financial statements of mCig, Inc. (mCig) and Vapolution, Inc. (Vapolution). mCig and Vapolution are collectively referred to herein as the Company.
mCig, Inc. (mCig) was incorporated in the State of Nevada on December 30, 2010 originally under the name Lifetech Industries, Inc. Effective August 2, 2013, our name was changed from "Lifetech Industries, Inc." to "mCig, Inc." reflecting our new business model.
Since October 2013, mCig, Inc. has positioned itself as a technology company focused on two long-term secular trends sweeping the globe: (1) The decriminalization and legalization of marijuana for medicinal or recreational purposes (2) The adoption of electronic vaporizing cigarettes (commonly known as eCigs) by the worlds 1.2 Billion smokers. We manufacture and retail the mCig the worlds most affordable loose-leaf eCig priced at only $10. Designed in the USA the mCig provides a superior smoking experience by heating plant material, waxes, and oils delivering a smoother inhalation experience. The company also owns Vapolution, Inc. which manufactures and retails home-use vaporizers such as the Vapolution 2.0. Through its wholly owned subsidiary, VitaCig, Inc. the company is preparing to launch the VitaCig, a $2 nicotine-free eCig that delivers a water-vapor mixed with vitamins and natural flavors.
On January 23, 2014, the company signed a Stock Purchase Agreement with Vapolution, Inc.
which manufactures and retails home-use vaporizers
. In accordance with this agreement mCig, Inc. acquired 100% of Vapolution, Inc.; a
s part of this transaction mCig, Inc. issued 5,000,000 shares to shareholders of Vapolution, Inc. Paul Rosenberg, President & CEO of mCig, Inc. canceled an equal amount (5,000,000 shares) of common shares owned by him resulting in a net non-dilutive transaction to existing mCig, Inc. shareholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Companys accounting policies used in the preparation of the accompanying consolidated financial statements conform to accounting principles generally accepted in the United States of America ("US GAAP") and have been consistently applied.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates include: revenue recognition; sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation and recoverability of long-lived assets; property and equipment; contingencies; and income taxes.
On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Revenue Recognition
Our revenue recognition policy is in accordance with generally accepted accounting principles, which requires the recognition of sales when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and the collectability of revenue is reasonably assured.
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MCIG, INC.
Notes To Consolidated Financial Statements
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT.)
In May 2012, the company signed an agreement with Epik Investments Limited, a Limited Liability Corporation incorporated under the laws of the Hong Kong Special Administrative Region, assigning them the exclusive rights to sell and distribute all of companys products in Hong Kong and the Peoples Republic of China. These exclusive distribution rights were for a period of 2 years. The company received consideration of $100,000 under the terms of the agreement. As of January 31, 2014, the company earned a total of $87,500 in revenue and accrued deferred revenue of $12,500
related to this agreement.
Effective December 2012 the company has signed an exclusive ten-country distribution agreement with SunPlex Limited. The sides have agreed to a 5 year distribution plan which involves three phases. Under the terms of the agreement, the project had the potential to bring sales of up to $75 Million or more over the course of 5 years. But as of January 31, 2014 no revenue has been realized from the said distribution agreement.
An agreement with Epik Investments Limited will be closed at the expiration of the 2-year period, ended April 30, 2014.
Cost of Goods Sold
The Company recognizes the direct cost of purchasing product for sale, including freight-in and packaging, as cost of goods sold in the accompanying income statement.
Cash and cash equivalents
The Company includes in cash and cash equivalents all short-term, highly liquid investments that mature within three months of their acquisition date. Cash equivalents consist principally of investments in interest-bearing demand deposit accounts and liquidity funds with financial institutions and are stated at cost, which approximates fair value. For cash management purposes the company concentrates its cash holdings in an account at Bank of America and an old account at JP Morgan Chase Bank.
Inventory
Inventory consists of finished product, mCig
electronic vaporizing cigarettes
valued at the lower of cost or market valuation under the first-in, first-out method of costing.
Accounts Receivable
Accounts receivable, primarily from retail customers, are reported at the amount invoiced. Management reviews accounts receivable on a monthly basis to determine if any receivables are potentially uncollectible. As of January 31, 2014, the Company expects these receivables to be fully collectible and therefore has not estimated an allowance for doubtful accounts for the period.
Intangible assets Goodwill
The Company's goodwill associated with its acquisitions is not amortized. Management reviews goodwill for impairment at least on an annual basis and at other times when existing conditions raise substantial questions about their recoverability. An impairment charge is recognized in the period which management determines that the assets are impaired. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Foreign currency translation
The Companys functional currency and its reporting currency is the United States Dollar.
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MCIG, INC.
Notes To Consolidated Financial Statements
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT.)
Financial Instruments
Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheets for cash, accounts receivable, inventory, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Website development costs
Under the provisions of FASB-ASC Topic 350, the Company previously capitalized costs of design, configuration, coding, installation, and testing of the Companys website up to its initial implementation. Costs will be amortized
to expense over an estimated useful life of three years using the straight-line method. Ongoing website post-
implementation cost of operations, including training and application, are expensed as incurred. The Company evaluates the recoverability of website development costs in accordance with FASB-ASC Topic 350. As of the quarter ended January 31, 2014, management does not believe that there is a need for the impairment of costs incurred towards the development of its website.
|
| |
|
January, 31
2014
|
April 30,
2013
|
Website development cost
|
$25,477
|
$15,522
|
Accumulated amortization
|
(6,037)
|
(2,156)
|
Total intangible assets
|
$19,440
|
$13,366
|
Stock-Based Compensation
The Company follows ASC 718-10, "Stock Compensation", which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company has not adopted a stock option plan and has not granted any stock options. The Company granted stock awards, at market value, to its advisors
for services rendered. Accordingly, stock-based compensation has been recorded to date.
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MCIG, INC.
Notes To Consolidated Financial Statements
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Recent accounting pronouncements
The Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations, or cash flows of the Company.
Income Taxes
Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Basic and Diluted Loss per Share
The Company follows ASC Topic 260 to account for earnings per share. Basic earnings per share (EPS) calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
3. BUSINESS ACQUISITIONS AND GOODWILL
On January 23, 2014, the Company completed the acquisition of Vapolution, Inc. by acquiring all of its' issued and outstanding shares in exchange for 5,000,000 shares of mCig's common stock at a market value of $0.25 per share on the date of the acquisition , where Vapolution became a wholly owned subsidiary.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition and the allocation of the purchase price to the fair value of net assets acquired: