Notes To Financial Statements
(Unaudited)
1
. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
mCig, Inc. (mCig) (fka Lifetech Industries) was incorporated in the State of Nevada on December 30, 2010 to develop a new day spa business in the affluent area of Montrose, California, surrounded by La Crescenta, La Canada, and Glendale.
On April 30, 2012, the company entered into a Joint Venture Agreement, a Distribution Agreement, and a Technology License Agreement (the Agreements) with Leadwill Corporation, a Japanese corporation (the Manufacturer and the Licensor).
Pursuant to the Joint Venture Agreement, we acquired the global exclusive right (excluding Japan) to make, use, sell and otherwise distribute all of the Manufacturers AWG products and technologies. In addition, we have the exclusive right to assign, sublicense, or otherwise subcontract our distribution and marketing rights to third parties. We were also granted an exclusive license to any and all of the Manufacturers patents, trademarks, and all other intellectual property related to AWG products and have the exclusive right to assign, sublicense, or otherwise transfer these rights to third parties. We will receive the Manufacturers AWG products at the price of twelve percent (12%) above wholesale costs for such products.
Pursuant to the Distribution Agreement, we were appointed as the Manufacturers sole and exclusive Distributor. As such, we were given the exclusive right to: (1) market, promote, sell, and distribute all of the Manufacturers current and future AWG products and technology; and (2) assign, sublicense, or otherwise subcontract these distribution and marketing rights to third parties worldwide (excluding Japan). The Manufacturer will receive ten percent (10%) of the net profits generated from our distribution of the AWG technology, less related costs and expenses.
Pursuant to the Technology License Agreement, we were granted an exclusive, perpetual license to make, manufacture, use, sell or otherwise distribute all of the Licensors AWG related technology. We were also granted the right to sublicense these rights to third parties at our sole discretion. We will pay the Licensor a royalty equal to ten percent (10%) of the Net Sales Revenue received from our sales of the licensed technology on a quarterly basis.
Upon execution of the Agreements, Leadwill Corporation has agreed to (A) file all necessary doing business as (d/b/a) documents in Japan so that Leadwill shall d/b/a Lifetech Japan, (B) change its corporate name from Leadwill Corporation to Lifetech Japan, or (C) transfer or spinoff all and not less than all of its AWG business into a new, separate corporate entity in Japan, to be called Lifetech Japan. All of our rights set forth in the Agreements shall apply equally to the new, separate corporate entity.
On September 1, 2012, the company entered into a Joint Venture Agreement, a Distribution Agreement, and a Technology License Agreement (the New Agreements) with Lifetech Japan Corporation (the New Manufacturer), a Japanese corporation. The New Agreements were executed pursuant to the transfer of the AWG business from Leadwill to Lifetech Japan. The Lifetech AirWell System is a highly advanced air to water generator that produces high quality water by promoting and filtering the condensation of moisture from air. The Air Well System uses an advance triple step gathering system and 12-step purification process to produce water that is free of chemicals, pollutants, contaminants and hormones.
As of October 31, 2013, we did not purchase or make any sales of air to water generators. We were not able to raise enough investment to fund production or further product development.
Effective December 1, 2012 LifeTech Industries Inc. has signed an exclusive ten-country distribution agreement with SunPlex Limited. The three phases, previously disclosed, are not part of the distribution agreement. In accordance with the agreement SunPlex has 30 days from receipt of evaluation units to perform all of its product testing as well as its due diligence assessment, subject to acceptance by SunPlex.
Under the terms of the agreement, the project has the potential to bring sales of up to $75 Million. This is based upon five year forecasts that are non-binding on SunPlex. As of October 31, 2013 no revenue has been realized from the said distribution agreement.
As of October 31, 2013 no revenue has been realized from the said distribution agreement.
This agreement will be cancelled on April 30, 2014.
8
mCig, Inc.
(A Development Stage Company)
Notes To Financial Statements
(Unaudited)
1
. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION (CONT.)
On May 23, 2013, the Company received a resignation notice from Benjamin Chung from all of his positions with the Company, including President, CEO, Principal Executive Officer, CFO, Principal Accounting Officer, Secretary, Treasurer and as Director.
On May 23, 2013, the Company appointed Paul Rosenberg as its new President, CEO, Principal Executive Officer, CFO, Principal Accounting Officer, Secretary, Treasurer and as Director.
Effective August 2, 2013, we have changed our name from "Lifetech Industries, Inc." to "mCig, Inc.".
As of October 31, 2013, we have adjusted the company's business plan and its technology by launching a new consumer product. Accordingly, 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. Designed in the USA the mCig provides a superior smoking experience by heating (not burning) plant material, waxes, and oils delivering a smoother inhalation experience.
In accordance with our decision to change company's business model and strategy, all agreements related to the Lifetech business will be terminated and cancelled as of April 30, 2014. It will not have any impact on the current and future operations because all of these agreements are related to the previous business directions of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Companys accounting policies used in the preparation of the accompanying 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.
Development Stage Company
The Company is a development stage company as defined in FASB ASC 915 Development Stage Entities. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced. All losses accumulated since inception has been considered as part of the Companys development stage activities.
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 a new account at Bank of America and an old account at JP Morgan Chase Bank.
9
mCig, Inc.
(A Development Stage Company)
Notes To Financial Statements
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT.)
Foreign currency translation
The Companys functional currency and its reporting currency is the United States Dollar.
Financial Instruments
Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheets for cash, 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 October 31, 2013, management does not believe that there is a need for the impairment of costs incurred towards the development of its website.
|
|
|
|
October, 31
2013
|
April 30,
2013
|
Website development cost
|
$ 23,280
|
$ 15,522
|
Accumulated amortization
|
(4,743)
|
(2,156)
|
Total intangible assets
|
$ 18,537
|
$ 13,366
|
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.
10
mCig, Inc.
(A Development Stage Company)
Notes To Financial Statements
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT.)
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.
In May 2012, we 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 our products in Hong Kong and the Peoples Republic of China. These exclusive distribution rights are for a period of 2 years. We received consideration of $100,000 under the terms of the agreement.
As of October 31, 2013, the company earned a total of $75,000 in revenue and accrued deferred revenue of $25,000
related to this agreement.
Effective December 1, 2012 LifeTech Industries Inc. has signed an exclusive ten-country distribution agreement with SunPlex Limited. The three phases, previously disclosed, are not part of the distribution agreement. In accordance with the agreement SunPlex has 30 days from receipt of evaluation units to perform all of its product testing as well as its due diligence assessment, subject to acceptance by SunPlex.
Under the terms of the agreement, the project has the potential to bring sales of up to $75 Million. This is based upon five year forecasts that are non-binding on SunPlex. As of October 31, 2013 no revenue has been realized from the said distribution agreement.
As of October 31, 2013 no revenue has been realized from the said distribution agreement.
This agreement will be cancelled on April 30, 2014.
All agreements related to the Lifetech business will be terminated and closed as of April 30, 2014. It will not have any impact on the current and future operations because all of these agreements are related to the previous business directions of the Company.
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.
3. GOING CONCERN
As of October 31, 2013, our company has accumulated losses of $287,347 since inception. Our company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending April 30, 2014. In response to these problems, management intends to raise additional funds through public or private placement offerings. These factors, among others, raise substantial doubt about our companys ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
4. STOCKHOLDERS EQUITY
Common Stock
The authorized capital of the Company is 1,000,000,000 common shares with a par value of $0.0001 per share.
On July 13, 2011, the Company authorized the issuance of 250,000,000 shares of common stock at $0.0001 per share to Benjamin Chung, the former CEO. The Company relied on Section 4(2) of the Securities Act for this issuance.
11
mCig, Inc.
(A Development Stage Company)
Notes To Financial Statements
(Unaudited)
4. STOCKHOLDERS EQUITY (CONT.)
In January 2011, the Officer of the Company contributed an amount of $100 for stock which had not yet been issued. This amount was classified as Stock Payable on the balance sheet. On July 13, 2011, when 250,000,000 shares of common stock were issued, this amount was reclassified to additional paid in capital.
On July 13, 2011, the Company issued 250,000,000 shares of common stock at $0.001 per share to Benjamin Chung, the former CEO for services of $5,000 and for cash of $20,000. The Company relied on Section 4(2) of the Securities Act for this issuance.
During the period between January 2011 and February 2011, the Company issued 250,000,000 shares of common stock under private placement agreements to various investors at $0.0001 per share. The Company received a total of $24,900, net of proceeds.
On September 17, 2013, the company issued 60,000 restricted shares of common stock at $0.21 per share for professional services rendered in order to promote the company via social media. These shares were valued at $12,600 based on the price on the date of grant.
On October 18, 2013, the company issued 30,000 restricted shares of common stock at $0.11 per share for professional services rendered in order to promote the company via social media. These shares were valued at $3,300 based on the price on the date of grant.
Stock split
Effective July 31, 2013, the company effected a 1 old for 10 new forward stock split of the Companys common stock. As a result, our authorized capital increased from 200,000,000 to 1,000,000,000 shares of common stock and our issued and outstanding increased from 50,000,000 shares of common stock to 500,000,000 shares of common stock, all with a par value of $0.0001.
Preferred Stock
On September 14, 2013, the company entered into a Share Cancellation / Exchange / Return to Treasury Agreement with Paul Rosenberg, the chief executive officer of our company, for the cancellation of 230,000,000 shares of our common stock held by Mr. Rosenberg in exchange for 23,000,000 shares of our companys Series A Preferred Stock. The Series A Preferred Stock has 10 votes for every share. The Preferred Shares are convertible and can be exchanged for a stated number of shares of the company's common stock, but not earlier than one year after the date of signature of the agreement. No dividend shall be declared or paid on the Preferred Stock.
On April 11, 2014, we have amended a Share Cancellation / Exchange / Return to Treasury Agreement, under the terms of which shares may be converted at any time or from time to time.
On April 11, 2014, we filed a Certificate of Correction with the Secretary of State of the State of Nevada, solely to correct an error found in the Certificate of Designation, originally filed on September 11, 2014 (the Prior Filing). The Prior Filing incorrectly stated that shareholders have no preemptive rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.
The correct section 5 is disclose that each holder of shares of Series A Preferred Stock shall have the right to convert, at any time and from time to time, all or any part of the Preferred Shares held by such Holder into a stated number of the company's Common Stock Shares.
As at April 21, 2014, the Certificate of Correction is pending for approval.
12
mCig, Inc.
(A Development Stage Company)
Notes To Financial Statements
(Unaudited)
5. RELATED PARTY TRANSACTIONS
On July 13, 2011, the Officer of the Company contributed an amount of $100 towards additional paid in capital.
As of April 30, 2013 the company was obligated to Mr. Benjamin Chung for an unsecured and non-interest bearing demand loan with a balance of $172,678.
Effective April 19, 2013 Benjamin Chung and Paul Rosenberg signed the Debt Assignment, Consent and Release Agreement, according to which the Assignor (Benjamin Chung) grants, assign, transfer and set over unto the Assignee (Paul Rosenberg) his entire right, title and interest in and to the Debt upon the terms and conditions contained in the Agreement.
On July 30, 2013, Mr. Paul Rosenberg, President and CEO, agreed to forgive all the debts (the sum of $172,678) owed to him by the Company and recorded as Additional Paid in Capital.
As of October 31, 2013, the President of the Company, Mr. Paul Rosenberg loaned the Company in the amount of $53,050 for operating purposes. The amount due to the related party is unsecured and non-interest-bearing and remains outstanding.
6. SUBSEQUENT EVENTS
On November 15, 2013, the company issued 45,000 restricted shares of common stock at $0.07 per share for professional services rendered in order to promote the company via social media. These shares were valued at $3,150 based on the price on the date of grant.
On December 12, 2013, the company made an amendment of Certificate of Incorporation to decrease the number of authorized shares of Common stock, $0.0001 par value per share, from 1,000,000,000 shares to 560,000,000 shares.
13
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
Business Overview
mCig, Inc. (mCig) (fka Lifetech Industries) was incorporated in the State of Nevada on December 30, 2010 to develop a new day spa business in the affluent area of Montrose, California, surrounded by La Crescenta, La Canada, and Glendale.
On April 30, 2012, the company entered into a Joint Venture Agreement, a Distribution Agreement, and a Technology License Agreement (the Agreements) with Leadwill Corporation, a Japanese corporation (the Manufacturer and the Licensor).
Pursuant to the Joint Venture Agreement, we acquired the global exclusive right (excluding Japan) to make, use, sell and otherwise distribute all of the Manufacturers AWG products and technologies. In addition, we have the exclusive right to assign, sublicense, or otherwise subcontract our distribution and marketing rights to third parties. We were also granted an exclusive license to any and all of the Manufacturers patents, trademarks, and all other intellectual property related to AWG products and have the exclusive right to assign, sublicense, or otherwise transfer these rights to third parties. We will receive the Manufacturers AWG products at the price of twelve percent (12%) above wholesale costs for such products.
Pursuant to the Distribution Agreement, we were appointed as the Manufacturers sole and exclusive Distributor. As such, we were given the exclusive right to: (1) market, promote, sell, and distribute all of the Manufacturers current and future AWG products and technology; and (2) assign, sublicense, or otherwise subcontract these distribution and marketing rights to third parties worldwide (excluding Japan). The Manufacturer will receive ten percent (10%) of the net profits generated from our distribution of the AWG technology, less related costs and expenses.
Pursuant to the Technology License Agreement, we were granted an exclusive, perpetual license to make, manufacture, use, sell or otherwise distribute all of the Licensors AWG related technology. We were also granted the right to sublicense these rights to third parties at our sole discretion. We will pay the Licensor a royalty equal to ten percent (10%) of the Net Sales Revenue received from our sales of the licensed technology on a quarterly basis.
Upon execution of the Agreements, Leadwill Corporation has agreed to (A) file all necessary doing business as (d/b/a) documents in Japan so that Leadwill shall d/b/a Lifetech Japan, (B) change its corporate name from Leadwill Corporation to Lifetech Japan, or (C) transfer or spinoff all and not less than all of its AWG business into a new, separate corporate entity in Japan, to be called Lifetech Japan. All of our rights set forth in the Agreements shall apply equally to the new, separate corporate entity.
On September 1, 2012, the company entered into a Joint Venture Agreement, a Distribution Agreement, and a Technology License Agreement (the New Agreements) with Lifetech Japan Corporation (the New Manufacturer), a Japanese corporation. The New Agreements were executed pursuant to the transfer of the AWG business from Leadwill to Lifetech Japan. The Lifetech AirWell System is a highly advanced air to water generator that produces high quality water by promoting and filtering the condensation of moisture from air. The Air Well System uses an advance triple step gathering system and 12-step purification process to produce water that is free of chemicals, pollutants, contaminants and hormones.
As of October 31, 2013 we did not purchase or make any sales of air to water generators. We were not able to raise enough investment to fund production or further product development.
Effective December 1, 2012 LifeTech Industries Inc. has signed an exclusive ten-country distribution agreement with SunPlex Limited. The three phases, previously disclosed, are not part of the distribution agreement. In accordance with the agreement SunPlex has 30 days from receipt of evaluation units to perform all of its product testing as well as its due diligence assessment, subject to acceptance by SunPlex.
14
Under the terms of the agreement, the project has the potential to bring sales of up to $75 Million. This is based upon five year forecasts that are non-binding on SunPlex. As of October 31, 2013 no revenue has been realized from the said distribution agreement.
As of October 31, 2013 no revenue has been realized from the said distribution agreement.
This agreement will be cancelled on April 30, 2014.
On May 23, 2013, the Company received a resignation notice from Benjamin Chung from all of his positions with the Company, including President, CEO, Principal Executive Officer, CFO, Principal Accounting Officer, Secretary, Treasurer and as Director.
On May 23, 2013, the Company appointed Paul Rosenberg as its new President, CEO, Principal Executive Officer, CFO, Principal Accounting Officer, Secretary, Treasurer and as Director.
Effective August 2, 2013, we have changed our name from "Lifetech Industries, Inc." to "mCig, Inc.".
As of October 31, 2013, we have adjusted the company's business plan and its technology by launching a new consumer product. Accordingly, 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.
All agreements related to the Lifetech business will be terminated and closed as of April 30, 2014. It will not have any impact on the current and future operations because all of these agreements are related to the previous business directions of the Company.
Liquidity and Capital Resources