ITEM
1. FINANCIAL STATEMENTS
AMERICAN
CANNABIS COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
|
|
|
September
30, 2016
|
|
|
|
December
31, 2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
71,572
|
|
|
$
|
555,780
|
|
Accounts
receivable, net of allowance $55,573 and $8,419, respectively
|
|
|
185,754
|
|
|
|
48,285
|
|
Deposits
|
|
|
6,500
|
|
|
|
9,345
|
|
Inventory
|
|
|
67,197
|
|
|
|
67,435
|
|
Prepaid
expenses and other current assets
|
|
|
48,267
|
|
|
|
32,117
|
|
Total
Current Assets
|
|
|
379,290
|
|
|
|
712,962
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
12,994
|
|
|
|
13,448
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
4,500
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
396,784
|
|
|
|
730,910
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
101,130
|
|
|
|
218,334
|
|
Advances
from clients
|
|
|
278,292
|
|
|
|
220,966
|
|
Convertible
note, net of discount of $0 and $11,248, repectively
|
|
|
150,000
|
|
|
|
60,252
|
|
Accrued
and other current liabilities
|
|
|
11,182
|
|
|
|
93,468
|
|
Total
Current Liabilities
|
|
|
540,604
|
|
|
|
593,020
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
540,604
|
|
|
|
593,020
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock, $0.00001 par value; 100,000,000 shares authorized; 46,751,074 and 44,808,731 issued and outstanding at September
30, 2016 and December 31, 2015, respectively
|
|
|
465
|
|
|
|
448
|
|
Additional
paid-in capital
|
|
|
4,355,257
|
|
|
|
4,268,708
|
|
Accumulated
deficit
|
|
|
(4,499,542
|
)
|
|
|
(4,131,266
|
)
|
Total
Shareholders’ equity
|
|
|
(143,820
|
)
|
|
|
137,890
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
$
|
396,784
|
|
|
$
|
730,910
|
|
AMERICAN
CANNABIS COMPANY, INC.
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the three months ended September 30,
|
|
For
the nine months ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
Services
|
|
$
|
143,610
|
|
|
$
|
143,072
|
|
|
$
|
603,083
|
|
|
$
|
607,130
|
|
Product
and equipment
|
|
|
93,290
|
|
|
|
200,057
|
|
|
|
617,869
|
|
|
|
648,411
|
|
Total
Revenues
|
|
|
236,900
|
|
|
|
343,129
|
|
|
|
1,220,952
|
|
|
|
1,255,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of consulting services
|
|
|
38,120
|
|
|
|
79,245
|
|
|
|
137,920
|
|
|
|
295,659
|
|
Cost
of products and equipment
|
|
|
66,614
|
|
|
|
190,547
|
|
|
|
447,470
|
|
|
|
592,545
|
|
Total
Cost of Revenues
|
|
|
104,734
|
|
|
|
269,792
|
|
|
|
585,390
|
|
|
|
888,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
132,166
|
|
|
|
73,337
|
|
|
|
635,562
|
|
|
|
367,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
353,292
|
|
|
|
159,145
|
|
|
|
884,733
|
|
|
|
341,792
|
|
Investor
Relations
|
|
|
11,129
|
|
|
|
14,924
|
|
|
|
29,197
|
|
|
|
202,626
|
|
Selling
and marketing
|
|
|
22,855
|
|
|
|
73,950
|
|
|
|
63,332
|
|
|
|
281,479
|
|
Research
and development
|
|
|
520
|
|
|
|
8,404
|
|
|
|
1,932
|
|
|
|
50,126
|
|
Total
Operating expenses
|
|
|
387,796
|
|
|
|
256,423
|
|
|
|
979,194
|
|
|
|
876,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Operations
|
|
|
(255,630
|
)
|
|
|
(183,086
|
)
|
|
|
(343,632
|
)
|
|
|
(508,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Gain on debt extinguishment
|
|
|
(59,128
|
)
|
|
|
—
|
|
|
|
(59,128
|
)
|
|
|
72,771
|
|
Change
in derivative Liabilities
|
|
|
64,419
|
|
|
|
—
|
|
|
|
64,419
|
|
|
|
—
|
|
Interest
(expense)
|
|
|
(19,605
|
)
|
|
|
(8,924
|
)
|
|
|
(29,935
|
)
|
|
|
(26,547
|
)
|
Total
Other Income (expense)
|
|
|
(14,314
|
)
|
|
|
(8,924
|
)
|
|
|
(24,644
|
)
|
|
|
46,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) before taxes
|
|
|
(269,944
|
)
|
|
|
(192,010
|
)
|
|
|
(368,276
|
)
|
|
|
(462,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
($
|
269,944
|
)
|
|
($
|
192,010
|
)
|
|
($
|
368,276
|
)
|
|
($
|
462,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
*
|
|
($
|
0.01
|
)
|
|
($
|
0.00
|
)*
|
|
($
|
0.01
|
)
|
|
($
|
0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
46,673,272
|
|
|
|
45,702,876
|
|
|
|
45,979,352
|
|
|
|
45,348,984
|
|
* denotes a loss of less than $(0.01).
The accompanying notes are an integral part
of these audited consolidated financial statements
AMERICAN
CANNABIS COMPANY, INC.
CONDENSED
CONSOLIDATED
STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
|
|
2016
|
|
2015
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(368,276
|
)
|
|
$
|
(462,462
|
)
|
Adjustments
to reconcile net loss) to net cash (used in )
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
66,431
|
|
|
|
6,015
|
|
Depreciation
|
|
|
3,744
|
|
|
|
2,435
|
|
Amortization
of discount on convertible notes payable
|
|
|
26,302
|
|
|
|
26,703
|
|
Stock-based
compensation to employees
|
|
|
16,240
|
|
|
|
102,857
|
|
Stock-based
compensation to service providers
|
|
|
9,198
|
|
|
|
146,655
|
|
Change
in Derivative liabilities
|
|
|
(64,419
|
)
|
|
|
|
|
Loss
(Gain) on debt extinguishment
|
|
|
59,128
|
|
|
|
(72,771
|
)
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivables
|
|
|
(203,900
|
)
|
|
|
(138,156
|
)
|
Deposits
|
|
|
2,845
|
|
|
|
(193,794
|
)
|
Inventory
|
|
|
238
|
|
|
|
(67,847
|
)
|
Prepaid
expenses and other current assets
|
|
|
(16,150
|
)
|
|
|
(15,066
|
)
|
Advances
from clients
|
|
|
57,326
|
|
|
|
676,144
|
|
Accrued
and other current liabilities
|
|
|
(91,484
|
)
|
|
|
(1,993
|
)
|
Accounts
payable
|
|
|
(117,206
|
)
|
|
|
89,472
|
|
Net
Cash (used in) provided by Operating Activities
|
|
|
(619,983
|
)
|
|
|
98,192
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(3,290
|
)
|
|
|
(24,583
|
)
|
Net
Cash Used in Investing Activities
|
|
|
(3,290
|
)
|
|
|
(24,583
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from convertible notes
|
|
|
139,065
|
|
|
|
—
|
|
Proceeds
from issuance of common shares
|
|
|
—
|
|
|
|
250,000
|
|
Net
Cash Provided by Financing Activities
|
|
|
139,065
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH
|
|
|
(484,208
|
)
|
|
|
323,609
|
|
|
|
|
|
|
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
555,780
|
|
|
|
165,213
|
|
|
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$
|
71,572
|
|
|
$
|
488,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
—
|
|
|
$
|
(155
|
)
|
Cash
paid (received) during the period for income taxes, net
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-Cash
Investing and financing activities
|
|
|
|
|
|
|
|
|
Conversion
of notes payable to shares of common stock
|
|
$
|
71,500
|
|
|
$
|
—
|
|
The report
on the financial statements and accompanying notes are an integral part of these financial statements.
AMERICAN
CANNABIS COMPANY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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, manufactures proprietary
industry solutions including; the Satchel™, SoHum Living Soils™, Cultivation Cube™ and the High Density Cultivation
System.™ The Company also sells 3rd party industry-specific products 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”.
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.
Reclassifications
Prior year
amounts have been reclassified to conform to the current year presentation.
Use
of Estimates in Financial Reporting
The preparation
of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of
assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the financial statements 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 in which 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.
Significant
Clients and Customers
For the
three months ended September 30, 2016, three customers individually accounted for 10% or more of the Company’s revenues;
these customers accounted for approximately 41% of the Company’s total revenues for the period. For the three months ended
September 30, 2015, two customers individually accounted for 10% or more of the Company’s revenues; these customers accounted
for approximately 63% of the Company’s total revenues for the period.
For the
nine months ended September 30, 2016, three customers individually accounted for 10% or more of the Company’s total revenues;
these customers accounted for approximately 53.2% of the Company’s total revenues for the period. For the nine months ended
September 30, 2015, three customers individually accounted for 10% or more of the Company’s total revenues; these customers
accounted for approximately 68% of the Company’s total revenues for the period.
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.
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.
Due to
the Company’s net losses for the three and nine months ended September 30, 2016 and September 30, 2015, any potentially
dilutive shares outstanding for these periods, respectively, were not presented in the EPS computations, as their effect would
have been antidilutive.
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.
Reclassifications
Prior
year amounts have been reclassified to conform to the current year presentation.
Note
3. Accounts Receivable, net
Accounts
receivable, net, was comprised of the following as of September 30, 2016 and December 31, 2015:
|
|
|
September
30, 2016
|
|
|
|
December
31, 2015
|
|
Gross accounts receivable
|
|
|
241,327
|
|
|
|
56,704
|
|
Less: allowance for doubtful accounts
|
|
|
(55,573
|
)
|
|
|
(8,419
|
)
|
Accounts receivable, net
|
|
|
185,754
|
|
|
|
48,285
|
|
The Company
had bad debt expense during the nine months ended September 30, 2016 and 2015 of $66,431 and $6,015, respectively. During the
nine months ended September 30, 2016 and 2015, the Company wrote-off old receivables and their related allowances for bad debts
of $19,277 and $0, respectively.
Note
4. Deposits
Deposits
were comprised of the following as of September 30, 2016 and December 31, 2015:
|
|
|
September
30, 2016
|
|
|
|
December
31, 2015
|
|
Attorney retainer deposits
in other current assets
|
|
|
6,500
|
|
|
|
9,345
|
|
Operating lease deposits
in other assets
|
|
|
4,500
|
|
|
|
4,500
|
|
Deposits
|
|
|
11,000
|
|
|
|
13,845
|
|
Deposits
as of September 30, 2016 and December 31, 2015 reflect down payments made to vendors and service providers.
Note
5. Inventory
Inventory
as of September 30, 2016 and December 31, 2015 of $67,197 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 September 30, 2016 and December 31, 2015:
|
|
|
September
30, 2016
|
|
|
|
December
31, 2015
|
|
Prepaid expenses
and other current assets
|
|
|
48,267
|
|
|
|
32,117
|
|
Note 7. Property and Equipment,
net
Property
and equipment, net, was comprised of the following as of September 30, 2016 and December 31, 2015:
|
|
|
September
30, 2016
|
|
|
|
December
31, 2015
|
|
Office equipment
|
|
|
9,277
|
|
|
|
7,472
|
|
Furniture and fixtures
|
|
|
10,262
|
|
|
|
8,777
|
|
Machinery and equipment
|
|
|
2,336
|
|
|
|
2,336
|
|
Property and equipment, gross
|
|
|
21,875
|
|
|
|
18,585
|
|
Less: accumulated depreciation
|
|
|
(8,881
|
)
|
|
|
(5,137
|
)
|
Property and equipment, net
|
|
|
12,994
|
|
|
|
13,448
|
|
The Company
recorded depreciation expense of $1,348 and $961 during the three months ended September 30, 2016 and 2015, respectively. During
the nine months ended September 30, 2016 and 2015, the Company recorded depreciation expense of $3,744 and $2,435, respectively.
Note
8. Convertible Notes Payable
As of September
30, 2016 and December 31, 2015, the Company reflected convertible notes payable as follows:
|
|
|
Principal
|
|
|
|
Loan
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Discount
|
|
|
|
Total
|
|
Balance as
of December 31, 2015
|
|
$
|
71,500
|
|
|
$
|
(11,248
|
)
|
|
$
|
60,252
|
|
Issued
in the period
|
|
|
150,000
|
|
|
|
(10,935
|
)
|
|
|
139,065
|
|
Converted
into shares of common stock
|
|
|
(71,500
|
)
|
|
|
10,075
|
|
|
|
(61,425
|
)
|
Amortization
of debt discount
|
|
|
—
|
|
|
|
(26,302
|
)
|
|
|
(26,302
|
)
|
Gain
on extinguishment
|
|
|
—
|
|
|
|
38,410
|
|
|
|
38,410
|
|
Balance as of
September 30, 2016
|
|
$
|
150,000
|
|
|
$
|
—
|
|
|
$
|
150,000
|
|
The Company
had convertible debentures which were originally issued on April 24, 2014, maturing on April 24, 2016, paid zero interest, and
were convertible until maturity at the holders’ discretion into shares of the Company’s common stock at $0.08 per
share. On April 11, 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 September 30, 2016, the Company had remaining convertible debentures in the total amount of $0, and any unamortized debt
discount remaining on the date of conversion was amortized in full to interest expense.
On
June 23, 2016, the Company entered into two convertible promissory notes: one for $50,000 and one for $330,000. As of the
date of this filing, the Company received $150,000 in proceeds recorded a discount of $10,935. The maturity date for each
note is February 14, 2017. Each note pays 8% fixed interest and was convertible at the holder’s discretion into shares
of the Company’s common stock at a conversion formula used to determine the conversion price per share. On August 4,
2016, the notes were amended and restated to change the conversion formula used to determine the conversion price per share
to a fixed price of $0.1135 per share and to delete a provision that provided for repayment of the notes through a separate
investment agreement providing for the Company to sell its registered shares to an investor.
Based on the August 4,
2016 amendment to the convertible feature of the note payable, we recognized a loss on extinguishment of debt of $59,128. In
addition, we calculated the beneficial conversion valuation before and after the amendment which yielded a change in
derivative liabilities of $64,419.
Note
9. Accrued and Other Current Liabilities
Accrued
and other current liabilities was comprised of the following at September 30, 2016 and December 31, 2015:
|
|
|
September
30, 2016
|
|
|
|
December
31, 2015
|
|
Accrued payroll liabilities
|
|
|
2,400
|
|
|
|
18,185
|
|
Accrual for products sold and shipped (in transit)
|
|
|
1,982
|
|
|
|
64,050
|
|
Other accruals
|
|
|
6,800
|
|
|
|
11,233
|
|
Accrued and other current liabilities
|
|
|
11,182
|
|
|
|
93,468
|
|
Note
10. Related Party Transactions
During
the nine months ended September 30, 2016, the Company incurred $26,500 of expense for accounting services payable to JDE Development
LLC, a company in which Mr. Jesus M Quintero, the Company’s Chief Financial Officer, is an owner.
Note
11. 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 per month for the three-month term payable on May 31, 2016, subject
to adjustment for actual hours of service rendered. On September 1, 2016, the Company and Mr. Johnson agreed to an extension of
the consulting engagement for an additional one-month term, ending on September 30, 2016. Mr. Johnson provided additional services
and the Company issued Mr. Johnson 87,600 shares of common stock on August 25, 2016, as a final payment for services rendered
from inception through September 30, 2016 at a value of $9,198.
On January
20, 2016, the Company was 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 sought damages of $100,000 related
to an employment contract. The Company filed a motion to dismiss the case based upon the employment contract, which required mandatory
contractual arbitration of disputes. On May 18, 2016 the Circuit Court of Cook County, Illinois granted the Company’s motion
and the case was dismissed. On November 1, 2016, the Company received notice of a demand for arbitration filed with the American
Arbitration Association by Mr. Baroud on October 27, 2016. The Company has yet to receive a copy of Mr. Baroud’s arbitration
claim.
Note
12. Stock-based Compensation
Warrants
As of September
30, 2016 and December 31, 2015, the Company issued fully-vested warrants 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 nine months ended September 30, 2016; consequently, no stock-based compensation
expense associated with warrants was recorded during the nine months ended September 30, 2016.
As of September
30, 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 September 30, 2016 and December 31, 2015, the warrants had 3.6 and 3.3
years remaining until expiration, respectively. No warrants were issued or outstanding during or preceding the nine months ended
September 30, 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.
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.
Note
13. 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 six months ended September 30, 2016 and 2015, respectively.
Common
Stock
American
Cannabis Company, Inc. is authorized to issue 100,000,000 common shares at $0.00001 par value per share.
Note
14. Subsequent Events
On August
4, 2016, the Company amended and restated its material definitive investment agreement dated June 23, 2016 with Tangiers Global,
LLC, a Wyoming Limited Liability Company. Tangiers agreed to invest up to five million dollars ($5,000,000) to purchase the Company’s
Common Stock, subject to the Company’s agreement to provide certain registration rights under the Securities Act of 1933,
as amended, concerning the Common Stock underlying Tangiers’ investment agreement. On September 12, 2016 the Company filed
a registration statement on Form S-1 to register the Common Stock underlying Tangiers’ investment agreement. On November
8, 2016, the SEC issued a Notice of Effectiveness for the registration of the Common Stock.
On October
26, 2016, the Company issued 50,000 shares of its restricted common stock to an employee as compensation based upon an employment
contract and performance review.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements
contained in this report that are not statements of historical fact, including without limitation, statements containing the words
“believes,” “expects,” “anticipates” and similar words, constitute forward-looking statements
that are subject to a number of risks and uncertainties. From time to time we may make other forward-looking statements. Investors
are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ as
a result of many factors, including the risks discussed from time to time in this report, including the risks described under
“Risk Factors” in any filings we have made with the SEC.
Our discussion
and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On
an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement
income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience
and on various other 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. There
can be no assurance that actual results will not differ from those estimates.
Background
American
Cannabis Company, Inc. and subsidiary company, Hollister & Blacksmith, Inc., doing business as American Cannabis Consulting
(“American Cannabis Consulting”), (collectively “the “Company”, “we”, “us”,
or “our”) 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, manufactures proprietary industry solutions including; the Satchel™, SoHum Living Soils™, Cultivation
Cube™ and the High Density Cultivation System.™ The Company also sells 3rd party industry-specific products 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”.
We were
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.
Results
of Operations
For
the three months ended September 30, 2016 compared to three months ended September 30, 2015.
The following
table presents our consolidated operating results for the three months ended September 30, 2016 compared to the three months ended
September 30, 2015:
|
|
For the three months ended September
30, 2016
|
|
% of Revenues
|
|
For the three months ended September
30, 2015
|
|
% of Revenues
|
|
$ Change
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting Services
|
|
$
|
143,610
|
|
|
|
60.6
|
|
|
$
|
143,072
|
|
|
|
41.7
|
|
|
$
|
538
|
|
Product and equipment
|
|
|
93,290
|
|
|
|
39.4
|
|
|
|
200,057
|
|
|
|
58.3
|
|
|
|
(106,767
|
)
|
Total Revenues
|
|
|
236,900
|
|
|
|
100.0
|
|
|
|
343,129
|
|
|
|
100.0
|
|
|
|
(106,229
|
)
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of consulting services
|
|
|
38,120
|
|
|
|
16.1
|
|
|
|
79,245
|
|
|
|
23.1
|
|
|
|
(41,125
|
)
|
Cost of products and equipment
|
|
|
66,614
|
|
|
|
28.1
|
|
|
|
190,547
|
|
|
|
55.5
|
|
|
|
(123,933
|
)
|
Total Cost of Revenues
|
|
|
104,734
|
|
|
|
44.2
|
|
|
|
269,792
|
|
|
|
78.6
|
|
|
|
(165,058
|
)
|
Gross Profit
|
|
|
132,166
|
|
|
|
55.8
|
|
|
|
73,337
|
|
|
|
21.4
|
|
|
|
58,829
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
353,292
|
|
|
|
149.1
|
|
|
|
159,145
|
|
|
|
46.4
|
|
|
|
194,147
|
|
Investor Relations
|
|
|
11,129
|
|
|
|
4.7
|
|
|
|
14,924
|
|
|
|
4.3
|
|
|
|
(3,795
|
)
|
Selling and marketing
|
|
|
22,855
|
|
|
|
9.6
|
|
|
|
73,950
|
|
|
|
21.6
|
|
|
|
(51,095
|
)
|
Research and development
|
|
|
520
|
|
|
|
0.2
|
|
|
|
8,404
|
|
|
|
2.4
|
|
|
|
(7,884
|
)
|
Total Operating Expenses
|
|
|
387,796
|
|
|
|
163.7
|
|
|
|
256,423
|
|
|
|
74.7
|
|
|
|
131,373
|
|
Loss from Operations
|
|
|
(255,630
|
)
|
|
|
(107.9
|
)
|
|
|
(183,086
|
)
|
|
|
(53.4
|
)
|
|
|
(72,544
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain on debt extinguishment
|
|
|
(59,128
|
)
|
|
|
(25.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(59,128
|
)
|
Change in Derivative liabilities
|
|
|
64,419
|
|
|
|
27.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64,419
|
|
Interest (expense)
|
|
|
(19,605
|
)
|
|
|
(8.3
|
)
|
|
|
(8,924
|
)
|
|
|
(2.6
|
)
|
|
|
(10,681
|
)
|
Total Other Income (expense)
|
|
|
(14,314
|
)
|
|
|
(6.0
|
)
|
|
|
(8,924
|
)
|
|
|
(2.6
|
)
|
|
|
(5,390
|
)
|
Net loss before taxes
|
|
|
(269,944
|
)
|
|
|
(113.9
|
)
|
|
|
(192,010
|
)
|
|
|
(56.0
|
)
|
|
|
(77,934
|
)
|
Income tax expense (benefit)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
NET LOSS
|
|
$
|
(269,944
|
)
|
|
|
(113.9
|
)
|
|
$
|
(192,010
|
)
|
|
|
(56.0
|
)
|
|
$
|
(77,934
|
)
|
Revenues
Total revenues
were $236,900 for the three months ended September 30, 2016 as compared to $343,129 for the three months ended September 30, 2015,
a decrease of $106,229. Although consulting service revenues remain steady for the three months ended September 2016, $143,610
or 60.6% of total revenues, versus $143,072 or 41.7% of total revenues for the three months ended September 30, 2015, we experienced
a decrease in our product and equipment revenues as amounts for the three months ended September 30, 2016 were $93,290 or 39.4%
of total revenues, versus $200,057 or 58.3% of total revenues for three months ended September 30, 2015. This decrease was attributed
to the lifecycle of client contracts with the company experiencing spikes in product revenues during facility build-outs. The
company was not performing any facility build-outs for the three months ended September 30, 2016, while two facility build-outs
were in-progress during the three months ended September 30, 2015.
Costs
of Revenues
Costs of
revenues primarily consist of labor, travel, and other costs directly attributable to providing services or products. During the
three months ended September 30, 2016, our total costs of revenues were $104,734, or 44.2% of total revenues. This compares to
total costs of revenues for the three months ended September 30, 2015 of $269,792 or 78.6% of total revenues. The decrease in
costs of revenues of $165,058 was primarily due to the change in operating activities discussed changes in our internal infrastructure.
For the three months ended September 30, 2016, consulting-related costs were $38,120, or 16.1% of total revenue, as compared to
costs of $79,245, or 23.1% of revenue for the three months ended September 30, 2015. Costs associated with products and equipment
were $66,614, or 28.1% of total revenue for the three months ended September 30, 2016 as compared to $190,547, or 55.5% of total
revenue for the three months ended September 30, 2015. As a percentage of revenues the decrease was attributed to the lifecycle
of client contracts with the company experiencing spikes in product revenues during facility build-outs. The company was not performing
any facility build-outs for the three months ended September 30, 2016, while two facility build-outs were in-progress during the
three months ended September 30, 2015.
Gross
Profit
Total gross
profit was $132,166 for the three months ended September 30, 2016, comprised of consulting services gross profit of $105,490 and
products and equipment gross profit of $26,676. This compares to total gross profit of $73,337 for the three months ended September
30, 2015, comprised of consulting services gross profit of $63,827 and products and equipment gross profit of $9,510. These increases
of $41,663 for consulting services gross profit and $17,166 for products and equipment gross profit were primarily due to growth
in our client base and volume of operations and further establishment of our products and equipment offerings. As a percentage
of total revenues, gross profit was 55.8% for the three months ended September 30, 2016 as compared to 21.4% for the three months
ended September 30, 2015. This increase was primarily due to client state licensing approval bonuses earned by the company during
the three months ended September 30, 2016.
Operating
Expenses
Total operating
expenses were $387,796, or 163.7% of total revenues for the three months ended September 30, 2016, compared to $256,423, or 74.7%
of total revenues for the three months ended September 30, 2015. This increase was primarily due to an increase in general and
administrative expenses as the Company has incurred higher expenses for accounting, bad debts and legal fees all attributed to
costs of running a public company; the increase was also attributed to reduced labor allocations transferred out of general and
administrative expenses to direct project costs (cost of revenues) for the three months ended September 30, 2016 as compared to
September 30, 2015. Also, the company has reduced selling and marketing efforts due to achieving stronger brand recognition in
the market place during the three months ended September 30, 2016 as compared with the three months ended September 30, 2015,
which has resulted in less investment in trade shows and conferences expenses. As part of the efforts on strengthening current
products and services in the market in 2016, the company incurred less research and development costs for the three months ended
September 30, 2016 as compared with the three months ended September 30, 2015.
Other
Income (Expense)
Other income
(expense) for the three months ended September 30, 2016 was an expense of $14,314 as compared with an expense of $8,924 for the
three months ended September 30, 2015. For the three months ended September 30, 2016 the company incurred a non-cash loss on extinguishment
of debt of $59,128 and also an interest expense reflecting $19,605 related to convertible notes payable discount amortization
for the period, which was offset by a $64,419 gain on change in derivative liabilities for the same period. For the three months
ended September 30, 2015 the company had interest expense of $8,924.
Net
Income (Loss)
As a result
of the factors discussed above, net income (expense) for the three months ended September 30, 2016 was a net loss of $269,944
or 113.9% of total revenues for the period, as compared to a net loss of 192,010, or 56.0% of total revenues for the three months
ended September 30, 2015.
Results
of Operations
For
the nine months ended September 30, 2016 compared to nine months ended September 30, 2015
The following
table presents our consolidated operating results for the nine months ended September 30, 2016 compared to the nine months ended
September 30, 2015:
|
|
|
For
the nine months ended September 30, 2016
|
|
|
%
of Revenues
|
|
|
|
For
the nine months ended September 30, 2015
|
|
|
|
%
of Revenues
|
|
|
|
$
Change
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
Services
|
|
$
|
603,083
|
|
|
49.4
|
|
|
$
|
607,130
|
|
|
|
48.4
|
|
|
($
|
4,047
|
)
|
Product
and equipment
|
|
|
617,869
|
|
|
50.6
|
|
|
|
648,411
|
|
|
|
51.6
|
|
|
|
(30,542
|
)
|
Total
Revenues
|
|
|
1,220,952
|
|
|
100.0
|
|
|
|
1,255,541
|
|
|
|
100.0
|
|
|
|
(34,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of consulting services
|
|
|
137,920
|
|
|
11.3
|
|
|
|
295,659
|
|
|
|
23.5
|
|
|
|
(157,739
|
)
|
Cost
of products and equipment
|
|
|
447,470
|
|
|
36.6
|
|
|
|
592,545
|
|
|
|
47.2
|
|
|
|
(145,075
|
)
|
Total
Cost of Revenues
|
|
|
585,390
|
|
|
47.9
|
|
|
|
888,204
|
|
|
|
70.7
|
|
|
|
(302,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
635,562
|
|
|
52.1
|
|
|
|
367,337
|
|
|
|
29.3
|
|
|
|
268,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
884,733
|
|
|
72.5
|
|
|
|
341,792
|
|
|
|
27.2
|
|
|
|
542,941
|
|
Investor
Relations
|
|
|
29,197
|
|
|
2.4
|
|
|
|
202,626
|
|
|
|
16.1
|
|
|
|
(173,429
|
)
|
Selling
and marketing
|
|
|
63,332
|
|
|
5.2
|
|
|
|
281,479
|
|
|
|
22.4
|
|
|
|
(218,147
|
)
|
Research
and development
|
|
|
1,932
|
|
|
0.2
|
|
|
|
50,126
|
|
|
|
4.0
|
|
|
|
(48,194
|
)
|
Total
Operating expenses
|
|
|
979,194
|
|
|
80.2
|
|
|
|
876,023
|
|
|
|
69.8
|
|
|
|
103,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(343,632
|
)
|
|
(28.1
|
)
|
|
|
(508,686
|
)
|
|
|
(40.5
|
)
|
|
|
165,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on debt extinguishment
|
|
|
(59,128
|
)
|
|
(4.8
|
)
|
|
|
72,771
|
|
|
|
5.8
|
|
|
|
(131,899
|
)
|
Change
in Derivative liabilities
|
|
|
64,419
|
|
|
5.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64,419
|
|
Interest
(expense)
|
|
|
(29,935
|
)
|
|
(2.5
|
)
|
|
|
(26,547
|
)
|
|
|
(2.1
|
)
|
|
|
(3,388
|
)
|
Total
Other Income (expense)
|
|
|
(24,644
|
)
|
|
(2.0
|
)
|
|
|
46,224
|
|
|
|
3.7
|
|
|
|
(70,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss before taxes
|
|
|
(368,276
|
)
|
|
(30.2
|
)
|
|
|
(462,462
|
)
|
|
|
(36.8
|
)
|
|
|
94,186
|
|
Income
Tax expense (benefit)
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
($
|
368,276
|
)
|
|
(30.2
|
)
|
|
($
|
462,462
|
)
|
|
|
(36.8
|
)
|
|
$
|
94,186
|
|
Revenues
Total revenues
were $1,220,952 for the nine months ended September 30, 2016 as compared to $1,255,541 for the nine months ended September 30,
2015, a decrease of $34,589. Consulting service was $603,083 or 49.4% of total revenues for the nine months ended September 30,
2016 as compared to $607,130 or 48.4% for the nine months ended September 30, 2015, a decrease of $4,047 which was primarily due
to the client lifecycle activities for the nine months ended September 30, 2016. We experienced a decrease in our product and
equipment revenues as amounts for the nine months ended September 30, 2016 were $617,869 or 50.6% of total revenues, versus $648,411
or 51.6% of total revenues for nine months ended September 30, 2015. This decrease was attributed to the changes in client lifecycle
activities in 2016 and increased competition from vendors as compared to the nine months ended September 30, 2015.
Costs
of Revenues
Costs of
revenues primarily consist of labor, travel, and other costs directly attributable to providing services or products. During the
nine months ended September 30, 2016, our total costs of revenues were $585,390, or 47.9% of total revenues. This compares to
total costs of revenues for the nine months ended September 30, 2015 of $888,204 or 70.7% of total revenues. The decrease in costs
of revenues of $302,814 was due to the changes in client activity as discussed above and a reduction in our internal infrastructure.
For the nine months ended September 30, 2016, consulting-related costs were $137,920, or 11.3% of total revenue, as compared to
costs of $295,659, or 23.5% of revenue for the nine months ended September 30, 2015. Costs associated with products and equipment
were $447,470 or 36.6% of total revenue for the nine months ended September 30, 2016 as compared to $592,545, or 47.2% of total
revenue for the nine months ended September 30, 2015. As a percentage of revenues, the decreases were primarily due to changes
in client activity and vendor competition during the nine months ended September 30, 2016.
Gross
Profit
Total gross
profit was $635,562 for the nine months ended September 30, 2016, comprised of consulting services gross profit of $465,163 and
products and equipment gross profit of $170,399. This compares to total gross profit of $367,337 for the nine months ended September
30, 2015, comprised of consulting services gross profit of $311,471 and products and equipment gross profit of $55,866. These
increases of $153,692 for consulting services gross profit and $114,533 for products and equipment gross profit were primarily
due to growth in our client base and volume of operations and further establishment of our products and equipment offerings. As
a percentage of total revenues, gross profit was 52.1% for the nine months ended September 30, 2016 as compared to 29.3% for the
nine months ended September 30, 2015. This increase was primarily due sales volume and client state licensing approval bonuses
earned by the company during the three months ended September 30, 2016.
Operating
Expenses
Total operating
expenses were $979,194, or 80.2% of total revenues for the nine months ended September 30, 2016 as compared to $876,023, or 69.8%
of total revenues for the nine months ended September 30, 2015. This increase was primarily due to an increase in general and
administrative expenses as the company is incurred higher expenses for accounting fees, bad debt expense, and legal fees all attributed
to costs of running a public company; the increase was also attributed to reduced labor allocations transferred out of general
and administrative expenses to direct project costs (cost of revenues) for the nine months ended September 30, 2016 as compared
to September 30, 2015. Also, the company has reduced selling and marketing efforts due to achieving stronger brand recognition
in the market place during the nine months ended September 30, 2016 as compared with the nine months ended September 30, 2015,
which has resulted in less investment in trade shows and conferences expenses. As part of the efforts on strengthening current
products and services in the market in 2016, the company incurred less research and development costs for the nine months ended
September 30, 2016 as compared with the nine months ended September 30, 2015.
Other
Income (Expense)
Other income
(expense) for the nine months ended September 30, 2016 was an expense of $24,644 as compared with income of $46,224 for the nine
months ended September 30, 2015. For the nine months ended September 30, 2016 the company incurred a non-cash interest expense
reflecting $29,935 related to convertible notes payable discount amortization for the period as compared to $26,547 for the nine
months ended September 30, 2015. For the nine months ended September 30, 2016 the company had income of $64,419 related to changes
in derivative liabilities, while recognizing a loss on extinguishment of debt of $59,128 for the nine months ended September 30,
2016 as compared to a gain on extinguishment of debt of $72,771 for the nine months ended September 30, 2015.
Net
Income (Loss)
As a result
of the factors discussed above, net loss for the nine months ended September 30, 2016 was $368,276 or 30.2% of total revenues
for the period, as compared to a net loss of $462,462, or 36.8% of total revenues for the nine months ended September 30, 2015.
Liquidity
and Capital Resources
As of September
30, 2016, our primary internal sources of liquidity were our working capital, which included cash and cash equivalents of $71,572
and accounts receivable of $185,754. We also have the ability to raise additional capital as needed through external equity financing
transactions. For the nine months ended September 30, 2016, primarily as a result of non-cash expenses, the Company’s operating
cash flows were a use of $619,983 due to an increase in accounts receivable of $203,900, an increase in prepaid expenses and other
current assets of $16,150 and a decrease in accrued and other current liabilities of $91,484 and a decrease in accounts payable
of $117,206. These amounts were offset by decreases in Deposits of $2,845 and an increase in advances from clients of $57,326.
Additionally, considering that our fixed overhead costs are low, and we have the ability to issue stock to compensate employees
and management, we believe our liquidity and capital resources to be adequate to fund our general and administrative expenses.
The Company will continue to explore capital raising opportunities in the future.
Operating
Activities
Net cash
used in operating activities for the nine months September 30, 2016 was $619,983 and cash provided was $98,192 for the nine months
ended September 30, 2015, respectively. The $619,983 use of cash was due to loss of $368,276 for the nine months ended September
30, 2016 along with an increase in accounts receivable of $203,900 and a $117,206 decrease in accounts payable, offset by an increase
in advances from clients of $57,326 and an increase in deposits of $2,845. Net cash provided by operating activities for the nine
months ended September 30, 2015 was $98,192, consisting of net loss of $462,462, noncash adjustments reconciling net income to
net cash provided by operating activities of $211,894 and a net source of cash of $348,760 from changes in operating assets and
liabilities. The net noncash adjustments of $211,894 were due to stock-based compensation granted to service providers of $146,655,
employee stock-based compensation of $102,857, amortization of the discount on convertible notes payable of $26,703, bad debt
expense of $6,015, and depreciation expense of $2,435, partially offset by a gain on debt extinguishment of $72,771 related to
a negotiated settlement of accumulated legal fees. Changes in operating assets and liabilities, a net source of cash of $348,760,
were the result of an increase in deferred revenue of $676,144 primarily related to customer prepayments on large product and
equipment orders and an increase in accounts payable of $89,472, partially offset by an increase in deposits of $193,794, an increase
in accounts receivable of $138,156, an increase inventory $67,847 that primarily reflects the receipt of Satchel inventory during
the period, and a decrease in accrued and other current liabilities of $1,993.
Investing
Activities
For the
nine months ended September 30, 2016 and 2015, investing activities were a use of cash of $3,290 and $24,583, respectively. This
was due to purchases of office furniture and computer equipment during the nine months ended September 30, 2016 and 2015, respectively.
Financing
Activities
For
the nine months ended September 30, 2016 and 2015, the net cash from financing activities was $139,065 and $250,000,
respectively. During the nine months ended September 30, 2016, the Company received proceeds of $139,065 from the
issuance of a convertible promissory note. Net cash provided by financing activities of $250,000 for the nine months ended
September 30, 2015 reflected the sale of 833,333 shares of common stock to an investor during the period.
Off
Balance Sheet Arrangements
As of
September 30, 2016 and December 31, 2015, we did not have any off balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Non-GAAP
Financial Measures
We use
Adjusted EBITA, a non-GAAP metric, to monitor our overall business performance. We define Adjusted EBITA as net income (loss)
before interest expense, net, provision for (benefit from) income taxes, stock-based compensation and certain non-recurring expenses,
which to date have been limited to costs associated with the Reverse Merger. We believe that such adjustments to arrive at Adjusted
EBITA provides us with a more comparable measure for managing our business. We also believe that it is a useful measure for securities
analysts, investors, and other interested parties in the evaluation of our Company.
A reconciliation
of net loss to Adjusted EBITA is provided below:
|
For
the three months ended September 30, 2016
|
For
the three months ended September 30, 2015
|
|
For
the nine months ended September 30, 2016
|
For
the nine months ended September 30, 2015
|
Adjusted EBITA reconciliation:
|
|
|
|
|
|
Net loss
|
$ (269,944)
|
$ (192,010)
|
|
$ (368,276)
|
$ (462,462)
|
Loss (Gain)
on debt Extinguishment
|
59,128
|
—
|
|
59,128
|
(72,771)
|
Interest expense,
net
|
19,605
|
8,924
|
|
29,935
|
26,547
|
Derivative Liabilities
|
(64,419)
|
—
|
|
(64,419)
|
—
|
Tax expense
(benefit)
|
—
|
—
|
|
—
|
—
|
Stock-based
compensation expense
|
1,818
|
61,733
|
|
16,240
|
249,512
|
Adjusted
EBITA
|
$ (253,812)
|
$ (121,353)
|
|
$ (327,392)
|
$ (259,174)
|