|
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.
On March 13, 2013, Naturewell, Inc. completed
a merger transaction whereby it acquired 100% of the issued and outstanding share capital of Brazil Interactive Media, Inc. (“BIMI”),
which operated as a Brazilian interactive television company and television production company through its wholly owned Brazilian
subsidiary company, EsoTV Brasil Promoção Publicidade Licenciamento e Comércio Ltda. (“EsoTV”).
Naturewell’s Articles of Incorporation were amended to reflect a new name: Brazil Interactive Media, Inc.
On May 15, 2014, BIMI entered into a merger
agreement (“the Merger Agreement”) to acquire 100% of the issued and outstanding American Cannabis Consulting while
simultaneously disposing of 100% of the issued share capital EsoTV (“the Separation Agreement”). Both the merger with
American Cannabis Consulting and disposal of EsoTV were completed on September 29, 2014. BIMI subsequently amended its Articles
of Incorporation to change its name to American Cannabis Company, Inc. On October 10, 2014, American Cannabis Company, Inc changed
its stock symbol from BIMI to AMMJ.
The foregoing descriptions of the Merger
Agreement and Separation Agreement do not purport to be complete and are qualified in their entirety by the terms of such agreements,
which are filed as exhibits to the Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission
(“SEC”) on October 3, 2014.
Immediately following the completion of
the Merger Agreement, former shareholders of American Cannabis Consulting owned 31,710,628 shares of American Cannabis Company,
Inc.’s common stock representing 78.4% of American Cannabis Company, Inc.’s issued and outstanding share capital. Accordingly,
American Cannabis Consulting was deemed to have been the accounting acquirer in a Reverse Merger which resulted in a recapitalization
of the Company. Consequently, the Company’s consolidated financial statements reflect the results of American Cannabis
Consulting since Inception (March 5, 2013) and of American Cannabis Company, Inc. (formerly BIMI) since September 29, 2014.
Results of Operations
For the three months ended June 30,
2017 compared to three months ended June 30, 2016.
The following table presents our consolidated
operating results for the three months ended June 30, 2017 compared to the three months ended June 30, 2016:
|
|
Three Months
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
% of
|
|
|
June 30,
|
|
|
% of
|
|
|
|
|
|
|
2017
|
|
|
Revenues
|
|
|
2016
|
|
|
Revenues
|
|
|
$ Change
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services
|
|
$
|
841,762
|
|
|
|
88.3
|
|
|
|
211,863
|
|
|
|
47.8
|
|
|
$
|
629,899
|
|
Products and equipment
|
|
|
111,018
|
|
|
|
11.7
|
|
|
|
231,785
|
|
|
|
52.2
|
|
|
|
(120,767
|
)
|
Total revenues
|
|
|
952,780
|
|
|
|
100.0
|
|
|
|
468,745
|
|
|
|
100.0
|
|
|
|
509,132
|
|
Costs of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of consulting services
|
|
|
87,251
|
|
|
|
9.2
|
|
|
|
51,278
|
|
|
|
11.6
|
|
|
|
35,973
|
|
Cost of products and equipment
|
|
|
46,146
|
|
|
|
4.8
|
|
|
|
145,848
|
|
|
|
32.9
|
|
|
|
(99,702
|
)
|
Total costs of revenues
|
|
|
133,397
|
|
|
|
14.0
|
|
|
|
197,126
|
|
|
|
44.4
|
|
|
|
(63,729
|
)
|
Gross profit
|
|
|
819,383
|
|
|
|
86.0
|
|
|
|
246,522
|
|
|
|
55.6
|
|
|
|
572,861
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
439,021
|
|
|
|
46.1
|
|
|
|
307,953
|
|
|
|
69.4
|
|
|
|
(131,068
|
)
|
Investor relations
|
|
|
11,795
|
|
|
|
1.2
|
|
|
|
893
|
|
|
|
0.2
|
|
|
|
10,902
|
|
Selling and marketing
|
|
|
39,069
|
|
|
|
4.1
|
|
|
|
19,662
|
|
|
|
4.4
|
|
|
|
19,407
|
|
Research and development
|
|
|
212
|
|
|
|
0.0
|
|
|
|
1,413
|
|
|
|
0.3
|
|
|
|
(1,201
|
)
|
Total operating expenses
|
|
|
490,097
|
|
|
|
51.4
|
|
|
|
329,921
|
|
|
|
74.4
|
|
|
|
160,176
|
|
Income (loss) from operations
|
|
|
329,286
|
|
|
|
34.6
|
|
|
|
(83,339
|
)
|
|
|
(18.8
|
)
|
|
|
412,685
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
540
|
|
|
|
0.0
|
|
|
|
(1,376
|
)
|
|
|
(0.3
|
)
|
|
|
1,916
|
|
Total other income (expense)
|
|
|
540
|
|
|
|
0.0
|
|
|
|
(1,376
|
)
|
|
|
(0.3
|
)
|
|
|
1,916
|
|
Net income (loss) before income taxes
|
|
$
|
329,826
|
|
|
|
34.6
|
|
|
$
|
(84,775
|
)
|
|
|
(19.1
|
)
|
|
$
|
|
|
Income tax expense (benefit)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
Net income (loss)
|
|
$
|
329,826
|
|
|
|
34.6
|
|
|
$
|
(84,775
|
)
|
|
|
(19.1
|
)
|
|
$
|
414,601
|
|
Revenues
Total revenues were $952,780 for the three
months ended June 30, 2017 as compared to $468,745 for the three months ended June 30, 2016, an increase of $509,132. Consulting
service revenues increased for the three months ended June 30, 2017, $841,762 or 88.3% of total revenues, versus $211,863 or 47.8%
of total revenues for the three months ended June 30, 2016. We experienced a decrease in our product and equipment revenues as
amounts for the three months ended June 30, 2017 were $111,018 or 11.7% of total revenues, versus $231,785 or 52.2% of total revenues
for three months ended June 30, 2016. This decrease was attributed to the lifecycle of client contracts with the company experiencing
spikes in product revenues during facility design and build-outs. The company was not performing any facility build-outs for the
three months ended June 30, 2017, while two facility build-outs were in-progress during the three months ended June 30, 2016.
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 June 30,
2017, our total costs of revenues were $133,397, or 14.0% of total revenues. This compares to total costs of revenues for the three
months ended June 30, 2016 of $197,126 or 44.4% of total revenues. The decrease in costs of revenues of $63,729 was primarily due
to the lower profit margins resulting from the sale of equipment as compared to consulting revenue. For the three months ended
June 30, 2017, consulting-related costs were $87,251, or 9.2% of total revenue, as compared to costs of $51,278, or 11.6% of revenue
for the three months ended June 30, 2016. Costs associated with products and equipment were $46,146, or 4.8% of total revenue for
the three months ended June 30, 2017 as compared to $145,858, or 32.9% of total revenue for the three months ended June 30, 2016.
As a percentage of revenues, the decrease was attributed to the lifecycle of client contracts with the company experiencing spikes
in product revenues during design and facility build-outs. The company was not performing any design and facility build-outs for
the three months ended June 30, 2017, while two facility build-outs were in-progress during the three months ended June 30, 2016.
Gross Profit
Total gross profit was $819,383 for the
three months ended June 30, 2017, comprised of consulting services gross profit of $754,511 and products and equipment gross profit
of $64,872. This compares to total gross profit of $246,522 for the three months ended June 30, 2016, comprised of consulting services
gross profit of $160,585 and products and equipment gross profit of $85,937. The increase of $593,926 for consulting services gross
profit was due to growth in our new consulting client base and volume of operations. As a percentage of total revenues, gross profit
was 86.0% for the three months ended June 30, 2017 as compared to 55.6% for the three months ended June 30, 2016.
Operating Expenses
Total operating expenses were $490,097,
or 51.4% of total revenues for the three months ended June 30, 2017, compared to $329,921, or 74.4% of total revenues for the three
months ended June 30, 2016. This decrease was primarily due to efficiencies in operations.
Other Income (Expense)
Other income (expense) for the three months
ended June 30, 2017 was an expense of $540 as compared with an expense of $(1,376) for the three months ended June 30, 2016. For
the three months ended June 30, 2017 the Company had interest increase of $540.
Net Income (Profit)
As a result of the factors discussed above,
net income (expense) for the three months ended June 30, 2017 was a net profit of $329,826, or 34.6% of total revenues for the
period, as compared to a net loss of ($84,775), or (19.1%) % of total revenues for the three months ended June 30, 2016, due to
the Company being well positioned to capitalize on the growing industry following the November 2016 election.
For the six months ended June 30, 2017
compared to six months ended June 30, 2016.
The following table presents our consolidated
operating results for the six months ended June 30, 2017 compared to the six months ended June 30, 2016:
|
|
Six Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
% of
|
|
|
June 30,
|
|
|
% of
|
|
|
|
|
|
|
2017
|
|
|
Revenues
|
|
|
2016
|
|
|
Revenues
|
|
|
$ Change
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services
|
|
$
|
1,415,059
|
|
|
|
90.1
|
|
|
|
459,473
|
|
|
|
46.7
|
|
|
$
|
955,586
|
|
Products and equipment
|
|
|
154,879
|
|
|
|
9.9
|
|
|
|
524,579
|
|
|
|
53.3
|
|
|
|
(369,700
|
)
|
Total revenues
|
|
|
1,569,938
|
|
|
|
100.0
|
|
|
|
984,052
|
|
|
|
100.0
|
|
|
|
585,886
|
|
Costs of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of consulting services
|
|
|
149,076
|
|
|
|
9.5
|
|
|
|
99,880
|
|
|
|
10.1
|
|
|
|
49,276
|
|
Cost of products and equipment
|
|
|
131,205
|
|
|
|
8.4
|
|
|
|
380,857
|
|
|
|
38.7
|
|
|
|
(249,652
|
)
|
Total costs of revenues
|
|
|
280,281
|
|
|
|
17.9
|
|
|
|
480,657
|
|
|
|
48.8
|
|
|
|
(200,376
|
)
|
Gross profit
|
|
|
1,289,657
|
|
|
|
82.1
|
|
|
|
503,395
|
|
|
|
51.2
|
|
|
|
786,263
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,080,026
|
|
|
|
68.8
|
|
|
|
531,440
|
|
|
|
54.0
|
|
|
|
548,586
|
|
Investor relations
|
|
|
16,990
|
|
|
|
1.1
|
|
|
|
18,068
|
|
|
|
1.8
|
|
|
|
(1,078
|
)
|
Selling and marketing
|
|
|
77,304
|
|
|
|
4.9
|
|
|
|
40,477
|
|
|
|
4.1
|
|
|
|
36,827
|
|
Research and development
|
|
|
680
|
|
|
|
0.0
|
|
|
|
1,413
|
|
|
|
0.1
|
|
|
|
(733
|
)
|
Total operating expenses
|
|
|
1,175,000
|
|
|
|
74.8
|
|
|
|
591,398
|
|
|
|
60.1
|
|
|
|
583,602
|
|
Income (loss) from operations
|
|
|
114,657
|
|
|
|
7.3
|
|
|
|
(88,003
|
)
|
|
|
(8.9
|
)
|
|
|
202,660
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
9,169
|
|
|
|
0.6
|
|
|
|
(10,329
|
)
|
|
|
(1.0
|
)
|
|
|
19,498
|
|
Total other income (expense)
|
|
|
9,169
|
|
|
|
0.6
|
|
|
|
(10,329
|
)
|
|
|
(1.0
|
)
|
|
|
19,498
|
|
Net income (loss) before income taxes
|
|
$
|
123,826
|
|
|
|
7.9
|
|
|
$
|
(98,332
|
)
|
|
|
(10.0
|
)
|
|
$
|
222,158
|
|
Income tax expense (benefit)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
Net income (loss)
|
|
$
|
123,826
|
|
|
|
7.9
|
|
|
$
|
(98,332
|
)
|
|
|
(20.0
|
)
|
|
$
|
222,158
|
|
Revenues
Liquidity and Capital Resources
As of June 30, 2017, our primary internal
sources of liquidity were our working capital, which included cash and cash equivalents of $1,675,808 and accounts receivable of
$193,538. We also have the ability to raise additional capital as needed through external equity financing transactions. Additionally,
considering that our fixed overhead costs are low, we have the ability to issue stock to compensate employees and management, and
the level of future revenue we expect to generate from executed client contracts, we believe our liquidity and capital resources
to be adequate to fund our operational and general and administrative expenses for at least the next 12 months without needing
to raise additional debt or equity funding. There is no guarantee we will have the ability to raise additional capital as needed
through external equity financing transactions if required.
Operating Activities
Net cash used in by operating activities
for the six months ended June 30, 2017 was a inflow of $322,077 consisting of net gain of $123,826, increases in accounts
payable of $17,911 due to inventory product purchases, an decrease in advances from clients $210,024 which related
to recognition of revenues from advances received during 2016 and inventory of $16,974 based on product purchases. Net cash
used in operating activities for the three months ended June 30, 2016 was a use of $464,529, consisting of net loss
of $98,332, decreases in accounts payable of $146,491 due to inventory product purchases, an increase in advances from
clients $105,416 which related to recognition of revenues from advances received during 2016 and inventory of $293 based
on product purchases.
Investing Activities
For the six months ended June 30,
2017 and 2016, investing activities were a use of cash of $0 and ($1,662) respectively.
Financing Activities
For the six months ended June 30, 2017
and 2016, the net cash from financing activities was $602,693 and $139,065 respectively. During the three months ended June
30, 2017, the Company received proceeds of $602,693 from the proceeds from the issuance of convertible notes payable and from the
sale of common stock.
Off Balance Sheet Arrangements
As of June 30, 2017, and December 31, 2016,
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. 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 income (loss) to Adjusted EBITA is provided below.
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Adjusted EBITA reconciliation:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
123,826
|
|
|
|
(98,332
|
)
|
Stock-based compensation expense
|
|
|
401,809
|
|
|
|
23,620
|
|
Interest expense, net
|
|
|
—
|
|
|
|
10,329
|
|
Tax expense (benefit)
|
|
|
—
|
|
|
|
—
|
|
Adjusted EBITA
|
|
$
|
525,635
|
|
|
$
|
132,281
|
|