UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______.
Commission File Number 000-26108
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AMERICAN CANNABIS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
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94-2901715
(I.R.S. Employer Identification No.) |
3457 Ringsby Court, Unit
111
Denver, Colorado
(Address of principal executive offices) |
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80216
(Zip Code) |
(720) 466-3789
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] |
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Accelerated filer [ ] |
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Non-accelerated filer [ ] |
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Smaller reporting company [X] |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
On May 6, 2015, 44,593,750 shares of common stock were outstanding.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
Page |
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Item 1. |
FINANCIAL STATEMENTS (Unaudited):
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3 |
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CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31,
2015 AND DECEMBER 31, 2014 |
3 |
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CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 2015 AND THE THREE MONTHS ENDED MARCH 31, 2014
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4 |
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND MARCH 31,
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5 |
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
6 |
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Item 2. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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11 |
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Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
14 |
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Item 4. |
CONTROLS AND PROCEDURES |
14 |
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PART II. OTHER INFORMATION |
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Item 1. |
LEGAL PROCEEDINGS |
16 |
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Item 1A. |
RISK FACTORS |
16 |
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Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
16 |
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Item 3. |
DEFAULTS UPON SENIOR SECURITIES |
16 |
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Item 5. |
OTHER INFORMATION |
16 |
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Item 6. |
EXHIBITS |
16 |
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Signatures |
16 |
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN CANNABIS COMPANY, INC. AND SUBSIDIARY
FORMERLY BRAZIL INTERACTIVE MEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
March 31, 2015 | |
December 31, 2014 |
| |
(Unaudited) | |
(Audited) |
Assets | |
| |
|
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 316,771 | | |
$ | 165,213 | |
Accounts receivable, net | |
| 106,185 | | |
| 57,642 | |
Deposits | |
| 65,013 | | |
| 181,941 | |
Inventory | |
| 150,780 | | |
| 4,555 | |
Prepaid expenses and other current assets | |
| 143,829 | | |
| 12,325 | |
Total current assets | |
| 782,578 | | |
| 421,676 | |
Property and equipment, net | |
| 58,950 | | |
| 48,416 | |
Total assets | |
$ | 841,528 | | |
$ | 470,092 | |
Liabilities and stockholders' equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 243,957 | | |
$ | 62,136 | |
Deferred revenue | |
| 25,000 | | |
| 173,528 | |
Convertible note, net of discount | |
| 33,354 | | |
| 24,551 | |
Accrued and other current liabilities | |
| 198,040 | | |
| 52,747 | |
Total current liabilities | |
| 500,351 | | |
| 312,962 | |
Total liabilities | |
| 500,351 | | |
| 312,962 | |
Commitments and contingencies (Note 12) | |
| | | |
| | |
Stockholders' equity | |
| | | |
| | |
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued or outstanding | |
| — | | |
| — | |
Common stock, $0.00001 par value; 100,000,000 shares authorized;
44,593,750 and 44,518,750 issued and outstanding at March 31, 2015 and December 31, 2014, respectively | |
| 446 | | |
| 446 | |
Additional paid-in capital | |
| 4,183,182 | | |
| 3,699,526 | |
Retained deficit | |
| (3,842,451 | ) | |
| (3,542,842 | ) |
Total stockholders' equity | |
| 341,177 | | |
| 157,130 | |
Total liabilities and stockholders' equity | |
$ | 841,528 | | |
$ | 470,092 | |
The
accompanying notes are an integral part of these consolidated unaudited financial statements
AMERICAN CANNABIS COMPANY,
INC. AND SUBSIDIARY
FORMERLY BRAZIL INTERACTIVE MEDIA,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
Three Months | |
Three Months |
| |
Ended | |
Ended |
| |
March 31, 2015 | |
March 31, 2014 |
Revenues | |
| | | |
| | |
Consulting services | |
$ | 195,570 | | |
$ | 23,864 | |
Products and equipment | |
| 248,097 | | |
| 7,448 | |
Total revenues | |
| 443,667 | | |
| 31,312 | |
Costs of revenues | |
| | | |
| | |
Cost of consulting services | |
| 100,892 | | |
| 19,425 | |
Cost of products and equipment | |
| 225,651 | | |
| 7,025 | |
Total cost of revenues | |
| 326,543 | | |
| 26,450 | |
Gross Profit | |
| 117,124 | | |
| 4,862 | |
Operating expenses | |
| | | |
| | |
General and administrative | |
| 210,499 | | |
| 18,006 | |
Selling and marketing | |
| 94,305 | | |
| 21,445 | |
Research and development | |
| 30,372 | | |
| — | |
Total operating expenses | |
| 335,176 | | |
| 39,451 | |
Income (loss) from operations | |
| (218,052 | ) | |
| (34,589 | ) |
Other income (expense) | |
| | | |
| | |
Interest income (expense), net | |
| (8,786 | ) | |
| (43 | ) |
Total other income (expense) | |
| (8,786 | ) | |
| (43 | ) |
Net income (loss) before income taxes | |
| (226,838 | ) | |
| (34,632 | ) |
Income tax expense (benefit) | |
| — | | |
| — | |
Net income (loss) | |
$ | (226,838 | ) | |
$ | (34,632 | ) |
Basic and diluted net income (loss) per common share | |
$ | (0.01 | ) | |
$ | (0.00 | )* |
Basic and diluted weighted average common shares outstanding | |
| 44,782,078 | | |
| 25,368,502 | |
*denotes net loss per common share of less than $0.01. | |
| | | |
| | |
The accompanying
notes are an integral part of these consolidated unaudited financial statements
AMERICAN
CANNABIS COMPANY, INC. AND SUBSIDIARY
FORMERLY
BRAZIL INTERACTIVE MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
Three Months | |
Three Months |
| |
Ended | |
Ended |
| |
March 31, 2015 | |
March 31, 2014 |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) | |
$ | (226,838 | ) | |
$ | (34,632 | ) |
Adjustments to reconcile net income (loss) to net cash used in operating
activities: | |
| | | |
| | |
Depreciation | |
| 716 | | |
| 147 | |
Amortization of discount on convertible notes payable | |
| 8,803 | | |
| — | |
Stock-based compensation to employees | |
| 43,271 | | |
| — | |
Stock-based compensation to service providers | |
| 63,841 | | |
| — | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (48,542 | ) | |
| 1,250 | |
Deposits | |
| 116,929 | | |
| (27,000 | ) |
Inventory | |
| (146,225 | ) | |
| — | |
Prepaid expenses and other current assets | |
| (4,957 | ) | |
| 3,118 | |
Deferred revenue | |
| (148,528 | ) | |
| 3,516 | |
Accrued and other current liabilities | |
| 72,312 | | |
| 17,862 | |
Accounts payable | |
| 182,026 | | |
| 3,377 | |
Net cash used in operating activities | |
| (87,192 | ) | |
| (32,362 | ) |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property and equipment | |
| (11,250 | ) | |
| — | |
Net cash used in investing activities | |
| (11,250 | ) | |
| — | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from sale of common stock | |
| 250,000 | | |
| — | |
Proceeds from short-term notes payable | |
| — | | |
| 35,000 | |
Distributions to stockholders | |
| — | | |
| (4,000 | ) |
Net cash provided by financing activities | |
| 250,000 | | |
| 31,000 | |
Net increase (decrease) in cash and cash equivalents | |
| 151,558 | | |
| (1,362 | ) |
Cash and cash equivalents at beginning of period | |
| 165,213 | | |
| 17,597 | |
Cash and cash equivalents at end of period | |
| 316,771 | | |
| 16,235 | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for (received from) interest | |
$ | (17 | ) | |
$ | 43 | |
Cash paid for (received from) income taxes, net | |
$ | — | | |
$ | — | |
The
accompanying notes are an integral part of these consolidated unaudited financial statements
AMERICAN CANNABIS COMPANY, INC. AND SUBSIDIARY
FORMERLY
BRAZIL INTERACTIVE MEDIA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(Unaudited)
Note 1.
Description of the Business
American Cannabis Company, Inc. and its subsidiary company,
Hollister & Blacksmith, Inc., doing business as American Cannabis Consulting (“American Cannabis Consulting”),
(collectively “the “Company”) are based in Denver, Colorado and operate a fully-integrated business model that
features end-to-end solutions for businesses operating in the regulated cannabis industry in states and countries where cannabis
is regulated and/or has been de-criminalized for medical use and/or legalized for recreational use. The Company provides advisory
and consulting services specific to this industry, designs industry-specific products and facilities, and manages a strategic
group partnership that offers both exclusive and non-exclusive customer products commonly used in the industry. American Cannabis
Company, Inc. is a publicly listed company quoted on the OTCQB under the symbol “AMMJ”.
American Cannabis Company, Inc. was incorporated in the
State of Delaware on September 24, 2001 under the name Naturewell, Inc. to develop and market clinical diagnostic products using
immunology and molecular biologic technologies.
On March 13, 2013, Naturewell, Inc. completed a merger transaction
whereby it acquired 100% of the issued and outstanding share capital of Brazil Interactive Media, Inc. (“BIMI”), which
operated as a Brazilian interactive television company and television production company through its wholly owned Brazilian subsidiary
company EsoTV Brasil Promoção Publicidade Licenciamento e Comércio Ltda. (“EsoTV”). Naturewell’s
Articles of Incorporation were amended to reflect a new name: Brazil Interactive Media, Inc.
On May 15, 2014, BIMI entered into a merger agreement (“the
Merger Agreement”) to acquire 100% of the issued and outstanding American Cannabis Consulting while simultaneously disposing
of 100% of the issued share capital EsoTV (“the Separation Agreement”). Both the merger with American Cannabis Consulting
and disposal of EsoTV were completed on September 29, 2014. BIMI subsequently amended its Articles of Incorporation to change
its name to American Cannabis Company, Inc.. On October 10, 2014, American Cannabis Company, Inc changed its stock symbol from
BIMI to AMMJ.
The foregoing descriptions of the Merger Agreement and Separation
Agreement do not purport to be complete and are qualified in their entirety by the terms of such agreements, which are filed as
exhibits to the Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission (“SEC”)
on October 3, 2014.
Immediately following the completion of the Merger Agreement,
former shareholders of American Cannabis Consulting owned 31,710,628 shares of American Cannabis Company, Inc.’s common
stock representing 78.44% of American Cannabis Company, Inc.’s issued and outstanding share capital. Accordingly, American
Cannabis Consulting was deemed to have been the accounting acquirer in a Reverse Merger which resulted in a recapitalization of
the Company. Consequently, the Company’s condensed consolidated financial statements reflect the results of American
Cannabis Consulting since Inception (March 5, 2013) and of American Cannabis Company, Inc. (formerly BIMI) since September 29,
2014.
Note 2.
Summary of Significant Accounting Policies
Basis of Accounting
The financial statements are prepared
in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Company
has elected a fiscal year ending on December 31. Certain balance sheet reclassifications have been made to prior period balances
to reflect the current period’s presentation format; such reclassifications had no impact on the Company’s consolidated
statements of operations or consolidated statements of cash flows and had no material impact on the Company’s consolidated
balance sheets.
Use of Estimates in Financial Reporting
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and
expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the financial statements in the period they are deemed to be necessary.
Significant estimates made in the accompanying financial statements include but are not limited to following: those related to
revenue recognition, allowance for doubtful accounts and unbilled services, lives and recoverability of equipment and other long-lived
assets, contingencies and litigation. The Company is subject to uncertainties, such as the impact of future events, economic,
environmental and political factors, and changes in the business climate; therefore, actual results may differ from those estimates.
When no estimate in a given range is deemed to be better than any other when estimating contingent liabilities, the low end of
the range is accrued. Accordingly, the accounting estimates used in the preparation of the Company's financial statements will
change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating
environment changes. Changes in estimates are made when circumstances warrant. Such changes and refinements in estimation methodologies
are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to
the financial statements.
Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared
in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly,
the financial statements do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring entries necessary
for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows,
have been made in order to make the financial statements presented not misleading. The results of operations for such interim
periods are not necessarily indicative of operations for a full year.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are held in operating
accounts at a major financial institution.
Accounts Receivable
Accounts receivable are recorded at the net value of face
amount less an allowance for doubtful accounts. The Company evaluates its accounts receivable periodically based on specific identification
of any accounts receivable for which the Company deems the net realizable value to be less than the gross amount of accounts receivable
recorded; in these cases, an allowance for doubtful accounts is established for those balances. In determining its need for an
allowance for doubtful accounts, the Company considers historical experience, analysis of past due amounts, client creditworthiness
and any other relevant available information. However, the Company’s actual experience may vary from its estimates. If the
financial condition of its clients were to deteriorate, resulting in their inability or unwillingness to pay the Company’s
fees, it may need to record additional allowances or write-offs in future periods. This risk is mitigated to the extent that the
Company receives retainers from its clients prior to performing significant services.
The allowance for doubtful accounts,
if any, is recorded as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing
adjustments. To the extent the provision relates to a client's inability to make required payments on accounts receivables, the
provision is recorded in operating expenses. The Company’s allowance for doubtful accounts was $4,497 and $9,338 as of March
31, 2015 and December 31, 2014, respectively. The Company did not record bad debt expense during the three months ended March
31, 2015 or during the three months ended March 31, 2014.
Deposits
Deposits is comprised of advance payments made to third parties,
primarily for inventory for which the Company has not yet taken title. When the Company takes title to inventory for which deposits
are made, the related amount is classified as inventory, then recognized as a cost of revenues upon sale (see “Costs of
Revenues” below).
Inventory
Inventory is comprised of products and equipment owned by
the Company to be sold to end-customers. Inventory is valued at cost, based on the specific identification method, unless and
until the market value for the inventory is lower than cost, in which case an allowance is established to reduce the valuation
to market value. As of March 31, 2015 and December 31, 2014, market values of all of the Company’s inventory were greater
than cost, and accordingly, no such valuation allowances were recognized.
Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current
assets is primarily comprised of advance payments made to third parties for independent contractors’ services or other general
expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract
or service period.
Significant Clients and Customers
For the three months ended March 31,
2015, two customers individually accounted for 10% or more of the Company’s revenues; these customers accounted for approximately
66% of the Company’s total revenues for the period. For the three months ended March 31, 2014, three clients individually
accounted for 10% or more of the Company’s revenues, and in aggregate, they comprised approximately 82% of the Company’s
total revenues for the period.
As of March 31, 2015, three customers
accounted for 10% or more of the Company’s accounts receivable balance; these customers accounted for approximately 79%
of the Company’s accounts receivable balance at that date. As of December 31, 2014, three customers accounted for 10% or
more of the Company’s accounts receivable balance; these customers accounted for approximately 88% of the Company’s
gross accounts receivable balance at that date.
Property and Equipment, net
Property and Equipment is stated at
net book value, cost less depreciation. Maintenance and repairs are expensed as incurred. Depreciation of owned equipment is provided
using the straight-line method over the estimated useful lives of the assets, ranging from two to seven years. Costs associated
with in-progress construction are capitalized as incurred and depreciation is consummated once the underlying asset is placed
into service. Property and equipment is reviewed for impairment as discussed below under “Accounting for the Impairment
of Long-Lived Assets.” The Company did not capitalize any interest as of March 31, 2015 or December 31, 2014.
Accounting for the Impairment of
Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence,
recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted
net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based
on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. The Company had
not recorded any impairment charges related to long-lived assets as of March 31, 2015 or December 31, 2014.
Beneficial Conversion Feature
If the conversion features of conventional
convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a
beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ACF”) Topic 470-20 Debt with
Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the
BCF, and the Company amortizes the discount to interest expense, over the life of the debt using the effective interest method.
Revenue Recognition
Revenue is recognized in accordance with FASB ASC Topic 605, Revenue
Recognition. The Company recognizes revenue when persuasive evidence of an arrangement exists, the related services are rendered
or delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.
The Company generates revenues from
professional services consulting agreements. These arrangements are generally entered into on a time basis, for a fixed-fee or
on a contingent fee basis. Generally, a prepayment or retainer is required prior to performing services.
Revenues from time-based engagements
are recognized as the hours are incurred by the Company.
Revenues from fixed-fee engagements are recognized under the
completed or proportional performance methods. Management reviews arrangement to determine whether or not the fixed-fee is
for a final deliverable or act which is significant to the arrangement as a whole. If it is, revenue is recognized under the
completed performance method, in which revenue is recognized once the final act or deliverable is performed or delivered.
Revenue recognized under the proportional performance method is recognized as services are performed. Under this method, the
Company estimates the amount of completed work in comparison to the total services to be provided under the arrangement or
deliverable in order to determine the amount of revenue to be recognized. Revenue recognition is affected by a number of
factors that change the estimated amount of work required to complete the deliverable, such as changes in scope, timing,
awaiting notification of license award from local government, and the level of client involvement. Losses, if any, on
fixed-fee engagements are recognized in the period in which the loss first becomes probable and reasonably estimable. During
the three month periods ended March 31, 2015 and March 31, 2014, no such losses have occurred. The Company believes if an
engagement terminates prior to completion it can recover the costs incurred related to the services provided.
The Company has some arrangements for
which revenues are contingent upon achieving a pre-determined deliverable or future outcome. Any contingent revenue for these
arrangements is not recognized until the contingency is resolved and collectability is reasonably assured.
The Company’s arrangements with
clients may include terms to deliver multiple services or deliverables. These contracts specifically identify the services to
be provided with the corresponding deliverable. The value for each deliverable is determined based on the prices charged when
each element is sold separately or by other vendor-specific objective evidence (“VSOE”). Revenues are recognized in
accordance with our accounting policies for the elements as described above. The elements qualify for separation when the deliverables
have value on a stand-alone basis and the value of the separate elements can be established by VSOE or an estimated selling price.
While assigning values and identifying separate elements requires judgment, generally selling prices of the separate elements
are readily identifiable as the Company also sells those elements individually outside of a multiple services engagement. Contracts
with multiple elements are typically fixed-fee or on time basis. Arrangements are typically terminable by either party upon sufficient
notice and do not include provisions for refunds relating to services provided.
Differences between the timing of billings
and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying balance sheet.
Revenues recognized for services performed, but not yet billed to clients are recorded as unbilled services.
Reimbursable expenses, including those
relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically,
an equivalent amount of reimbursable expenses are included in total direct client service costs. Reimbursable expenses related
to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability
is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in the statement
of operations on a net basis.
Revenue from product and equipment sales, including delivery fees,
is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred
and collectability is reasonably assured. Generally, our suppliers’ drop-ship orders to our clients with origin terms. For
any shipments with destination terms, the Company defers revenue until delivery to the customer. During the three months ended
March 31, 2015 and March 31, 2014, sales returns were not significant and as such, no sales return allowance had been recorded
as of March 31, 2015 and December 31, 2014.
Costs of Revenues
The Company’s policy is to recognize
costs of revenue in the same manner in conjunction with revenue recognition. Cost of revenue includes the costs directly attributable
to revenue recognition and includes compensation and fees for services, travel and other expenses for services and costs of products
and equipment. Selling, general and administrative expenses are charged to expense as incurred.
Advertising and Promotion Costs
Advertising and promotion costs are
included as a component of selling and marketing expense and are expensed as incurred. During the three months ended March 31,
2015 and March 31, 2014, these costs were $275 and $70, respectively.
Shipping and Handling Costs
For product and equipment sales, shipping
and handling costs are included as a component of cost of revenues.
Stock-Based
Compensation
Restricted shares are awarded to employees
and entitle the grantee to receive shares of common stock at the end of the established vesting period. The fair value of the
grant is based on the stock price on the date of grant. The Company recognizes related compensation costs on a straight-line basis
over the requisite vesting period of the award. During the three months ended March 31, 2015, stock-based compensation expense
for restricted shares was $43,271. Compensation expense for warrants and options is based on the fair value of the instruments
on the grant date, which is determined using the Black-Scholes valuation model. During the three months ended March 31, 2015,
there was no compensation expense for warrants or stock options. Compensation expense for common shares of stock is based on an
assessment of fair value as of the grant date and is recognized over the vesting period, or if the common shares immediately vest,
is recognized in full upon the grant. There were no grants of any kind during or outstanding for the three months ended March
31, 2014, and accordingly, no stock-based compensation costs for the period.
Income Taxes
The Company’s corporate status
changed from an S-Corporation, which it had been since inception, to a C-Corporation during the year ended December 31, 2014.
As provided in Section 1361 of the Internal Revenue Code, for income tax purposes, S-Corporations are not subject to corporate
income taxes; instead, the owners are taxed on their proportionate share of the S-Corporation’s taxable income. Accordingly,
we were not subject to income taxes for the three months ended March 31, 2014. We recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance
with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year
in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred tax assets
to the amount expected to be realized. For the three months ended March 31, 2015, due to cumulative losses since our corporate
status changed, we recorded a valuation allowance against our deferred tax asset that reduced our income tax benefit for the period
to zero. As of March 31, 2015 and December 31, 2014, we had no liabilities related to federal or state income taxes and the carrying
value of our deferred tax asset was zero.
Net Income (Loss) Per Common Share
The Company reports net income (loss)
per common share in accordance with FASB ASC 260, “Earnings per Share”. This statement requires dual presentation
of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share computations. Basic
net income (loss) per share is computed by dividing net income attributable to common stockholders by the weighted average number
of shares of common stock outstanding during the period and excludes the effects of any potentially dilutive securities. Diluted
net income (loss) per share gives effect to any dilutive potential common stock outstanding during the period. The computation
does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.
Related Party Transactions
The Company follows FASB ASC subtopic 850-10, Related Party
Disclosures, for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20, related
parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required,
absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted
for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company;
f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate
interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties
or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include
disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar
items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated
or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s)
involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for
each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding
of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods
for which statements of operations are presented and the effects of any change in the method of establishing the terms from that
used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and,
if not otherwise apparent, the terms and manner of settlement.
See Note 11. Related Party Transactions
for associated disclosures.
Recent Accounting Pronouncements
The Company
has reviewed all the recently issued, but not yet effective, accounting pronouncements and it does not believe any of these pronouncements
will have a material impact on the Company.
Note 3. Accounts Receivable, net
Accounts receivable,
net, was comprised of the following as of March 31, 2015 and December 31, 2014:
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(Unaudited) | |
(Audited) |
Gross accounts receivable | |
$ | 110,682 | | |
$ | 66,980 | |
Less: allowance for doubtful accounts | |
| (4,497 | ) | |
| (9,338 | ) |
Accounts receivable, net | |
$ | 106,185 | | |
$ | 57,642 | |
The Company had no bad debt expense during
the three months ended March 31, 2015 and March 31, 2014.
Note 4.
Deposits
Deposits was comprised of the following as of March 31, 2015 and
December 31, 2014:
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(Unaudited) | |
(Audited) |
Inventory deposits | |
$ | 63,013 | | |
$ | 179,941 | |
Operating lease deposits | |
| 2,000 | | |
| 2,000 | |
Deposits | |
$ | 65,013 | | |
$ | 181,941 | |
Inventory
deposits reflect down payments made to suppliers or manufacturers under inventory purchase agreements.
Note 5.
Inventory
Inventory
as of March 31, 2015 and December 31, 2014 of $150,780 and $4,555, respectively, was fully comprised of finished goods.
Note 6.
Prepaid expenses and other current assets
Prepaid expenses and other current assets was comprised of the
following as of March 31, 2015 and December 31, 2014:
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(Unaudited) | |
(Audited) |
Prepaid professional services to be compensated in stock | |
$ | 126,347 | | |
$ | — | |
Prepaid expenses | |
| 14,273 | | |
| 9,454 | |
Other current assets | |
| 3,209 | | |
| 2,871 | |
Prepaid expenses and other current assets | |
$ | 143,829 | | |
$ | 12,325 | |
Note 7. Property and Equipment, net
Property and equipment, net, was comprised of the following as
of March 31, 2015 and December 31, 2014:
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(Unaudited) | |
(Audited) |
Office equipment | |
$ | 5,742 | | |
$ | 5,742 | |
Furniture and fixtures | |
| 2,935 | | |
| 2,935 | |
Machinery and equipment | |
| 1,250 | | |
| 1,250 | |
Construction in progress | |
| 51,301 | | |
| 40,051 | |
Property and equipment, gross | |
| 61,228 | | |
| 49,978 | |
Less: accumulated depreciation | |
| (2,278 | ) | |
| (1,562 | ) |
Property and equipment, net | |
$ | 58,950 | | |
$ | 48,416 | |
The Company recorded depreciation expense
of $716 and $147 during the three months ended March 31, 2015 and March 31, 2014, respectively. During the three months ended
March 31, 2015, the Company capitalized $11,250 of additional expenses associated with its demonstration inventory unit.
Note 8. Notes Payable
As of March 31, 2015, the Company had remaining convertible debentures
in the total amount of $71,500. The debentures were originally issued on April 24, 2014, mature on April 24, 2016, pay zero interest,
and are convertible until maturity at the holders’ discretion into shares of the Company’s common stock at $0.08 per
share. The debentures have been discounted in the amount of $71,500 due to the intrinsic value of the beneficial conversion option.
As of March 31, 2015, the aggregate carrying value of the debentures was $33,354, net of debt discounts of $38,146, and is reflected
on the Company’s consolidated balance sheet as Convertible notes payable, net. Amortization of debt discount, which is reflected
on the consolidated statement of operations as interest expense, was $8,803 for the three months ended March 31, 2015.
As of March 31, 2014, the Company had
a short-term note payable with a principal amount of $35,000 and an interest rate of 5% per annum that it entered into on March
21, 2014. On May 15, 2014, as a result of the issuance of the convertible notes payable described above, the note was fully satisfied.
The Company recorded interest expense related to this note of $43 during the three months ended March 31, 2014. In connection
with the Reverse Merger and the issuance of convertible notes payable as described in the preceding paragraph, this short-term
note payable was deemed to be fully satisfied. Accordingly, the Company recorded a $35,000 gain on debt extinguishment during
the second quarter of 2014.
Note 9. Accrued and Other Current
Liabilities
Accrued and other current liabilities was comprised of the following
at March 31, 2015 and December 31, 2014:
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(Unaudited) | |
(Audited) |
Accrued legal fees | |
$ | 108,829 | | |
$ | 101,509 | |
Unbilled inventory | |
| 46,550 | | |
| — | |
Accrued payroll liabilities | |
| 20,807 | | |
| 11,522 | |
Accrued accounting fees | |
| 11,694 | | |
| 5,000 | |
Due to directors | |
| 1,999 | | |
| 1,999 | |
Other | |
| 8,161 | | |
| 5,488 | |
Accrued and other current liabilities | |
$ | 198,040 | | |
$ | 125,518 | |
Note 10. Net Income (Loss) Per
Common Share
The following is a reconciliation of weighted common shares outstanding
used in the calculation of basic and diluted net income (loss) per common share:
| |
Three Months | |
Three Months |
| |
Ended | |
Ended |
| |
March 31, 2015 (Unaudited) | |
March 31, 2014 (Unaudited) |
Net income (loss) | |
$ | (226,838 | ) | |
$ | (34,632 | ) |
Weighted average shares used for basic net income (loss) per common share | |
| 44,782,078 | | |
| 25,368,502 | |
Incremental diluted shares | |
| — | | |
| — | |
Weighted average shares used for diluted net income (loss) per commo share | |
| 44,782,078 | | |
| 25,368,502 | |
Net income (loss) per common share: | |
| | | |
| | |
Basic | |
$ | (0.01 | ) | |
$ | (0.00 | )* |
Diluted | |
$ | (0.01 | ) | |
$ | (0.00 | )* |
*denotes net loss of less than $0.01 per common share. | |
| | | |
| | |
For the three months ended March 31, 2015, as a result of the
net loss for the period, the Company excluded 1,319,774 shares from its calculation of diluted net income (loss) per common
share because their effect would have been antidilutive. These shares were comprised of 156,937 shares of restricted stock,
269,087 of warrants and 893,750 of share equivalents associated with convertible notes payable. No potentially dilutive shares were issued or outstanding during the three months ended March 31,
2014.
Note 11. Related Party Transactions
From time to time, the Company purchases
inventory and equipment from Baroud Development Group, in which Anthony Baroud, the Company’s Chief Technology Officer,
is an owner. During the three months ended March 31, 2015 and March 31, 2014, total such purchases were zero and $27,000, respectively.
During the three months ended March
31, 2014, prior to the Reverse Merger, the Company distributed a total of $4,000 to its co-founders and owners, Corey Hollister
and Ellis Smith.
During the three months ended March
31, 2015, the Company incurred $13,887 of expense payable to New Era CPAs, an accounting firm in which Antonio Migliarese, the
Company’s Chief Financial Officer, is a partner. This expense is payable in 35,607 shares of the Company’s common
stock. As of March 31, 2015, the Company owed Mr. Migliarese $5,000 in cash and 65,607 shares of common stock valued at $32,187.
Note 12. Commitments and Contingent Liabilities
Under the terms of the Company’s
agreement with the manufacturer of its exit packing product, the SatchelTM, the Company is committed to the purchase
of a total of 500,000 units at a price per unit of $1.00. As of March 31, 2015, a total of 144,600 units had yet to be received,
for a remaining purchase commitment of $144,600. As of the date of this report, the manufacturer has not met the delivery schedule
established under the agreement, which represents a material breach of the agreement under its terms.
During the three months ended March
31, 2015, the Company entered into an agreement with a third-party service provider for services to be compensated in shares of
common stock. Under the terms of the agreement, the Company is obligated to issue 50,000 shares of its common stock upon execution
and an additional 150,000 share of its common stock upon the fulfillment of certain stated deliverables.
Under the terms of the Company’s
various consulting agreements with clients, the Company is obligated to perform certain future services. The Company is not currently
a party to any pending legal proceedings.
Note 13. Stock-based Compensation
During the year ended December 31, 2014, the Company recorded
a total of $43,271 of stock-based compensation expense to employees, which was the result of the following activity:
Restricted Shares
From time to time, the Company grants certain employees restricted
shares of its common stock to provide further compensation in-lieu of wages and to align the employee’s interests with the
interests of its stockholders. Because vesting is based on continued employment, these equity-based incentives are also intended
to attract, retain and motivate personnel upon whose judgment, initiative and effort the Company’s success is largely dependent.
There were 202,500 restricted shares granted as of March 31, 2015. The fair value of restricted stock units is determined based
on the quoted closing price of the Company’s common stock on the date of grant.
The following table summarizes the Company’s restricted
share award activity during the three months ended March 31, 2015:
| |
| |
Weighted Average |
| |
Restricted Shares | |
Grant Date |
| |
Common Stock | |
Fair Value |
| Outstanding unvested at December 31, 2014 | | |
| 150,000 | | |
$ | 0.94 | |
| Granted | | |
| 52,500 | | |
| 0.70 | |
| Vested restricted shares | | |
| — | | |
| — | |
| Forfeited | | |
| — | | |
| — | |
| Outstanding unvested at March 31, 2015 | | |
| 202,500 | | |
$ | 0.88 | |
During the
three months ended March 31, 2015, the Company granted 52,500 restricted shares. Total stock-based compensation expense for restricted
shares was $43,271 for the three months ended March 31, 2015. The Company had no stock-based compensation activity during or preceding
the three months ended March 31, 2014 and no awards outstanding as of March 31, 2014.
Unrecognized
stock-based compensation expense related to outstanding unvested restricted shares as of March 31, 2015 is expected to be recognized
over a weighted average period of 0.4 years, as follows:
|
|
Future Stock-Based |
|
|
Compensation Expense |
|
|
(Restricted Shares) |
|
2015 |
|
|
$ |
136,515 |
|
|
2016 |
|
|
|
632 |
|
|
Thereafter |
|
|
|
— |
|
|
Total |
|
|
$ |
137,147 |
|
Warrants
As of March 31, 2015, fully-vested warrants issued to the Company’s
independent board member to purchase up to two hundred and fifty thousand (250,000) shares of common stock at an exercise price
of sixty-three cents ($0.63) per share were outstanding, exercisable within five (5) years of the date of issuance on November
19, 2014. The grant date fair value of the warrants, as calculated based on the Black-Scholes valuation model, was $0.59 per share.
There were no outstanding unvested warrants or new issuances of warrants during the three months ended March 31, 2015; consequently,
no stock-based compensation expense associated with warrant was recorded during the three months ended March 31, 2015.
As of March 31, 2015 and December 31,
2014, as the exercise price per share exceeded the price per share of our common shares, there was no aggregate intrinsic value
of outstanding warrants. As of March 31, 2015 and December 31, 2014, the warrants had 4.6 and 4.9 years remaining until expiration,
respectively. No warrants were issued or outstanding during or preceding the three months ended March 31, 2014.
Stock Options
In addition to the warrants as described
above, the Company’s independent board member shall be eligible to receive options for 400,000 shares of common stock under
the Company’s incentive plan, as and when duly approved by the Board of Directors. As these stock options were not granted
as of March 31, 2015, no expense in relation to these options was recognized during the three months ended March 31, 2015.
Stock Issuable in Compensation
for Professional Services
From time to time, the Company enters
into agreements whereby a professional service provider will be compensated for services rendered to the Company by shares of
common stock in lieu of cash. During the three months ended March 31, 2015, the following related activity occurred:
• | | The Company incurred $13,887 of expense payable in 35,607 common shares to New Era
CPAs, an accounting firm in which Antonio Migliarese, the Company’s Chief Financial Officer, is a partner. During the
year ended December 31 2014, the Company incurred $18,300 of expense payable in 30,000 common shares to New Era CPAs. As of March
31, 2015, as a result of these transactions, 65,607 common shares were earned and issuable to New Era CPAs. |
• | | The Company issued 200,000 common shares valued at $156,000 to a professional service
provider in exchange for $200 and services to be rendered from January 2015 to January 2016. The Company recorded expense of $29,453
on its condensed consolidated statement of operations during the three months ended March 31, 2015; $126,347 was reflected as
prepaid and other current assets as of March 31, 2015. |
• | | The Company agreed to issue 200,000 common shares valued at $82,000 to a professional
service provider in exchange for services. Of these shares, 50,000 were earned and issuable as of March 31, 2015, for which $20,500
of expense was recognized on the condensed consolidated statement of operations for the period. An additional 150,000 common shares,
valued at $61,500, are issuable upon the service provider meeting certain established deliverables. The agreement is effective
through August 30, 2015. |
Note 14. Stockholders’
Equity
Preferred Stock
American Cannabis Company, Inc. is
authorized to issue 5,000,000 shares of preferred stock at $0.01 par value. No shares of preferred stock were issued and
outstanding during the three month periods ended March 31, 2015 and March 31, 2014.
Common Stock
American Cannabis Company, Inc. is
authorized to issue 100,000,000 common shares at $0.00001 par value per share.
During the three months ended March
31, 2015:
• | | Stock-based compensation associated with 202,500 cumulative outstanding restricted
shares granted to employees resulted in an increase to additional paid-in capital of $43,271. Of these shares, 52,500 were issued
during the three months ended March 31, 2015. |
• | | 200,000 shares of common stock, valued at $156,000, were issued as prepaid compensation
for professional services settled in stock in lieu of cash. As of March 31, 2015, $29,453 of this expense was recognized and $126,347
was reflected on the consolidated balance sheet within prepaid expenses and other current assets. |
• | | 125,000 shares of previously issued common stock were rescinded and canceled. |
Common Stock Shares Issuable
During the three months ended March 31, 2015:
• | | The Company sold 833,333 shares of common stock for $250,000 of cash; these shares
were fully issuable as of March 31, 2015, |
• | | 50,000 shares of common stock, valued at $20,500, were earned and issuable as compensation
for professional services settled in stock in lieu of cash, and |
• | | 35,607 shares of common stock, valued at $13,887, were earned by and issuable to an
accounting firm in which the Company’s Chief Financial Officer is a partner as compensation for professional services to
be settled in stock in lieu of cash. |
As a result of the transactions described
above, as of March 31, 2015, there were 44,593,750 shares of our common stock issued and outstanding and the balances of common
stock and additional paid-in capital were $446 and $4,183,182, respectively. An additional 948,940 shares of common stock were
issuable to an investor and various service providers.
Note 15. Reportable Segments
The Company operates in one segment,
in the regulated cannabis industry, as a provider of professional consulting services, products and equipment.
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. We provide advisory and consulting services specific to this industry, design industry-specific products
and facilities, and manage a strategic group partnership that offers both exclusive and non-exclusive customer products commonly
used in the industry. We are 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
Three months ended March 31, 2015
compared to three months ended March 31, 2014
The following table presents our consolidated operating results
for the three months ended March 31, 2015 compared to the three months ended March 31, 2014:
| |
Three Months | |
| |
Three Months | |
| |
|
| |
Ended | |
% of | |
Ended | |
% of | |
|
| |
March
31, 2015 | |
Revenues | |
March
31, 2014 | |
Revenues | |
$
Change |
Revenues | |
| | | |
| | | |
| | | |
| | | |
| | |
Consulting services | |
$ | 195,570 | | |
| 44.1 | | |
$ | 23,864 | | |
| 76.2 | | |
$ | 171,706 | |
Products and equipment | |
| 248,097 | | |
| 55.9 | | |
| 7,448 | | |
| 23.8 | | |
| 240,649 | |
Total revenues | |
| 443,667 | | |
| 100.0 | | |
| 31,312 | | |
| 100.0 | | |
| 412,355 | |
Costs of revenues | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of consulting services | |
| 100,892 | | |
| 22.7 | | |
| 19,425 | | |
| 62.0 | | |
| 81,467 | |
Cost of products and equipment | |
| 225,651 | | |
| 50.9 | | |
| 7,025 | | |
| 22.4 | | |
| 218,626 | |
Total cost of revenues | |
| 326,543 | | |
| 73.6 | | |
| 26,450 | | |
| 84.5 | | |
| 300,093 | |
Gross Profit | |
| 117,124 | | |
| 26.4 | | |
| 4,862 | | |
| 15.5 | | |
| 112,262 | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 210,499 | | |
| 47.4 | | |
| 18,006 | | |
| 57.5 | | |
| 192,493 | |
Selling and marketing | |
| 94,305 | | |
| 21.3 | | |
| 21,445 | | |
| 68.5 | | |
| 72,860 | |
Research and development | |
| 30,372 | | |
| 6.8 | | |
| — | | |
| — | | |
| 30,372 | |
Total operating expenses | |
| 335,176 | | |
| 75.5 | | |
| 39,451 | | |
| 126.0 | | |
| 295,725 | |
Income (loss) from operations | |
| (218,052 | ) | |
| (49.1 | ) | |
| (34,589 | ) | |
| (110.5 | ) | |
| (183,463 | ) |
Other income (expense) | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest income (expense), net | |
| (8,786 | ) | |
| (2.0 | ) | |
| (43 | ) | |
| (0.1 | ) | |
| (8,743 | ) |
Total other income (expense) | |
| (8,786 | ) | |
| (2.0 | ) | |
| (43 | ) | |
| (0.1 | ) | |
| (8,743 | ) |
Net income (loss) before income taxes | |
| (226,838 | ) | |
| (51.1 | ) | |
| (34,632 | ) | |
| (110.6 | ) | |
| (192,206 | ) |
Income tax expense (benefit) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Net income (loss) | |
$ | (226,838 | ) | |
| (51.1 | ) | |
$ | (34,632 | ) | |
| (110.6 | ) | |
$ | (192,206 | ) |
Revenues
Total revenues were $443,667 for the
three months ended March 31, 2015, compared to $31,312 for the three months ended March 31, 2014, an increase of $412,355. This
increase was primarily due to the further establishment of our products and equipment offerings and growth in our client base
and volume of operations as our business has matured following commencement of business operations in April 2013. For the three
months ended March 31, 2015, consulting services revenue was $195,570, or 44.1% of total revenue, compared to $23,864, or 76.2%
of total revenues for the three months ended March 31, 2014. For the three months ended March 31, 2015, products and equipment
revenue was $248,097, or 55.9% of total revenues, compared to $7,448, or 23.8% of total revenues for the three months ended March
31, 2014.
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 March 31, 2015, our total costs of
revenues were $326,543, or 73.6% of total revenues. This compares to total costs of revenues for the three months ended March
31, 2014 of $26,450, or 84.5% of total revenues. The increase in costs of revenues of $300,093 was primarily due to the increase
in sales volume discussed above and internal infrastructure development. For the three months ended March 31, 2015, consulting-related
costs were $100,892, or 22.7% of total revenue, as compared to costs of $19,425, or 62.0% of revenue for the three months ended
March 31, 2014. Costs associated with products and equipment were $225,651, or 50.9% of total revenue for the three months ended
March 31, 2015 as compared to $7,025, or 22.4% of total revenue for the three months ended March 31, 2014. As a percentage of
revenues, the decreases were primarily due to higher sales volume during the three months ended March 31, 2015, as certain primarily-fixed
costs such as labor made up a comparably smaller percentage of revenues.
Gross Profit
Total gross profit was $117,124 for
the three months ended March 31, 2015, comprised of consulting services gross profit of $94,678 and products and equipment gross
profit of $22,446. This compares to total gross profit of $4,862 for the three months ended March 31, 2014, comprised of consulting
services gross profit of $4,439 and products and equipment gross profit of $423. These increases of $90,239 for consulting services
gross profit and $22,023 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 26.4% for the three months ended March 31, 2015 and 15.5% for the three months ended March 31, 2014. This increase was primarily
due to higher sales volume during the three months ended March 31, 2015.
Operating Expenses
Total operating expenses were $335,176,
or 75.5% of total revenues for the three months ended March 31, 2015, compared to $39,451, or 126.0% of total revenues for the
three months ended March 31, 2014. This increase was primarily due to increased headcount to meet the increasing demand and address
selling, marketing and research and development functions, as well as higher operating expenses associated with becoming an SEC
registrant. Professional fees, which include legal, auditing and accounting expenses, were $161,187 for the three months ended
March 31, 2015, or 48.1% of total operating expenses for the period, compared to $6,080, or 15.4% of total operating expenses
for the three months ended March 31, 2014.
Other Income (Expense)
Other income (expense) for the three
months ended March 31, 2015 was expense of $8,786, which was comprised of non-cash interest expense of $8,803 on convertible notes
payable discount amortization during the period, partially offset by $17 of interest income. Other income (expense) for the three
months ended March 31, 2014 of $43 of expense was comprised of interest expense related to a short-term note payable we held during
that period.
Income Tax Expense (Benefit)
Although our tax status changed from
a non-taxable pass-through entity (S-Corporation) to a taxable entity (C-Corporation) during the year ended December 31, 2014,
due to cumulative losses since we became a C-Corporation, we recorded a valuation allowance against our related deferred tax asset
which netted our deferred tax asset and benefit for income taxes to zero for the three months ended March 31 2015. We were an
S-Corporation throughout the three months ended March 31, 2014, and accordingly, no provision or benefit for income taxes was
applicable.
Net Income (Loss)
As a result of the factors discussed
above, net income (expense) for the three months ended March 31, 2015 was net loss of $226,838, or 51.1% of total revenues for
the period, as compared to a net loss of $34,632, or 110.6% of total revenues for the three months ended March 31, 2014.
Liquidity and Capital Resources
As of March 31, 2015, our primary internal
sources of liquidity was our working capital, which included cash and cash equivalents of $316,771 and accounts receivable of
$106,185. We also have the ability to raise additional capital as needed through external equity financing transactions. For the
three months ended March 31, 2015, primarily as a result of non-cash expenses, the Company’s operating cash flows were a
use of $87,192 despite a net loss of $226,838. 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 three months ended March 31, 2015 was $87,192, consisting of net loss of $226,838, non-cash adjustments reconciling net
income to net cash used in operating activities of $116,631 and a net source of cash of $23,015 from changes in operating assets
and liabilities. The net non-cash adjustments of $116,631 were due to amortization of the discount on convertible notes payable
of $8,803, employee stock-based compensation of $43,271, professional services compensated in shares of common stock of $63,841
and depreciation of $716. Changes in operating assets and liabilities, a net source of cash of $23,015, were the result of an
increase in accounts payable of $182,026, a decrease in deposits of $116,929 due to receipt and sell-through of previously backlogged
inventory and an increase in accrued and other current liabilities of $72,312, partially offset by a decrease in deferred revenue
of $148,528, an increase in inventory of $146,225, an increase in accounts receivable of $48,542 and an increase in prepaid expenses
and other current assets of $4,957.
For the three months ended March 31,
2014, net cash used in operating activities was $32,362, which consisted of net loss of $34,632, non-cash adjustments reconciling
net income to net cash provided by operating activities of $147 (depreciation expense), and changes in operating assets and liabilities
of $2,123. The change in operating assets and liabilities was the result of an increase of deposits of $27,000 being mostly offset
by an increase in accrued liabilities and other current assets of $17,862, an increase in deferred revenue of $3,516, an increase
in accounts payable of $3,377, a decrease in prepaid expenses and other current assets of $3,118 and a decrease in accounts receivable
of $1,250.
Investing Activities
Investing activities were a use of cash of $11,250 for the
three months ended March 31, 2015 due to additional spendiing on our demonstration inventory unit which is classified as
construction-in-progress. There were no investing cash flows during the three months ended March 31, 2014.
Financing Activities
Net cash provided by financing activities
of $250,000 for the three months ended March 31, 2015 reflected the sale of 833,333 shares of common stock to an investor during
the period. During the three months ended March 31, 2014, financing activities were a use of $31,000, as $35,000 received from
the issuance of short-term notes was partially offset by $4,000 in distributions to owners.
Off Balance Sheet Arrangements
As of March 31, 2015 and December 31,
2014, 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 income (loss) to Adjusted EBITA is provided
below.
| |
Three Months | |
Three Months |
| |
Ended | |
Ended |
| |
March 31, 2015 (Unaudited) | |
March 31, 2014 (Unaudited) |
Adjusted EBITA Reconciliation: | |
| |
|
Net income (loss) | |
$ | (226,838 | ) | |
$ | (34,632 | ) |
Stock-based compensation to employees | |
| 43,271 | | |
| — | |
Stock-based compensation to service providers | |
| 63,841 | | |
| — | |
Interest expense, net | |
| 8,786 | | |
| 43 | |
Tax expense (benefit) | |
| — | | |
| — | |
Adjusted EBITA | |
$ | (110,940 | ) | |
$ | (34,589 | ) |
ITEM 3. QUANTITATIVE
& QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller
reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under
this item.
ITEM 4. CONTROLS AND
PROCEDURES
Management of the Company is responsible for
maintaining disclosure controls and procedures that are designed to ensure that financial information required to be disclosed
in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is
recorded, processed, summarized and reported within the timeframes specified in the Securities and Exchange Commission’s
rules and forms, consistent with Items 307 and 308 of Regulation S-K.
In addition, the disclosure controls and procedures
must ensure that such financial information is accumulated and communicated to the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other
required disclosures.
As of March 31, 2015, an evaluation of the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the
Securities Exchange Act of 1934 (the “Exchange Act”) was carried out under the supervision and with the participation
of our Chief Executive Officer, Chief Financial Officer, and other persons carrying out similar functions for the Company. Based
on the evaluation of the Company’s disclosure controls and procedures, the Company concluded that during the period covered
by this report, such disclosure controls and procedures were effective.
The Company continues to employ and refine
a structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas,
are subject to multiple reviews by accounting personnel. In addition, the Company evaluates and assesses its internal controls
and procedures regarding its financial reporting, utilizing standards incorporating applicable portions of the Public Company
Accounting Oversight Board’s 2009 Guidance for Smaller Public Companies in Auditing Internal Controls Over Financial Reporting
as necessary and on an on-going basis.
Because of its inherent limitations, internal
control over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements. In addition,
projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls
The Company has no reportable changes
to its internal controls over financial reporting for the period covered by this report.
The Company will continually enhance and test its internal controls
over financial reporting on a continuing basis. Additionally, the Company’s management, under the control of its Chief Executive
Officer and Chief Financial Officer, will increase its review of its disclosure controls and procedures on an ongoing basis. Finally,
the Company plans to designate, in conjunction with its Chief Financial Officer, individuals responsible for identifying reportable
developments and the process for resolving compliance issues related to them. The Company believes these actions will focus necessary
attention and resources in its internal accounting functions.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party
to any pending legal proceedings.
ITEM 1A. RISK FACTORS
We are a smaller reporting company
as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 2. UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS
No transactions meeting the reporting
requirements of this item occurred during the periods covered by this report.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
No senior securities were issued
and outstanding during the three months ended March 31, 2015 or 2014.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
This list is intended to constitute
the exhibit index.
| 101.INS | XBRL Instance Document* |
| 101.SCH | XBRL Taxonomy Extension
Schema Document* |
| 101.CAL | XBRL Taxonomy Extension
Calculation Linkbase Document* |
| 101.DEF | XBRL Taxonomy Extension
Definition Linkbase Document* |
| 101.LAB | XBRL Taxonomy Extension
Label Linkbase Document* |
| 101.PRE | XBRL Taxonomy Extension
Presentation Linkbase Document* |
*Pursuant to Rule 406T of Regulation S-T, these interactive data
files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933 or Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those
sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | American Cannabis Company, Inc. |
| | |
| Date: May 19, 2015 | By: |
/s/ Corey Hollister |
| | |
Corey Hollister, |
|
| | |
Chief Executive Officer |
|
| | |
(Principal Executive Officer) |
| Date: May 19, 2015 | By: |
/s/ Antonio Migliarese |
| | |
Antonio Migliarese, |
|
| | |
Chief Financial Officer |
|
| | |
(Principal Financial Officer) |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, I, Corey Hollister, certify that:
1. | | I have reviewed this report on Form 10-Q of American Cannabis Company, Inc., for the
fiscal quarter ended March 31, 2015; |
2. | | Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
3. | | Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
4. | | The registrant’s other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared; |
(b) | | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | | Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
(d) | | Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and |
5. | | The registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and |
(b) | | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal controls over financial reporting. |
Date: May 19, 2015
/s/ Corey Hollister
Corey Hollister
Chief Executive Officer, Principle
Executive Officer
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, I, Antonio Migliarese, certify that:
1. | | I have reviewed this report on Form 10-Q American Cannabis Company, Inc., for the
fiscal quarter ended March 31, 2015; |
2. | | Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
3. | | Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
4. | | The registrant’s other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared; |
(b) | | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | | Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
(d) | | Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and |
5. | | The registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and |
(b) | | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal controls over financial reporting. |
Date: May 19, 2015
/s/ Antonio Migliarese
Antonio Migliarese
Chief Financial Officer, Principal
Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the quarterly report
of American Cannabis Company, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Corey Hollister, Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge and belief:
|
1. |
The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report
fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: May 19, 2015
/s/ Corey Hollister
Corey Hollister
Chief Executive Officer, Principle
Executive Officer
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in
typed form within the electronic version of this written statement has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the quarterly report
of American Cannabis Company, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Antonio Migliarese, principal financial
officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge and belief:
|
1. |
The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report
fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: May 19, 2015
/s/ Antonio Migliarese
Antonio Migliarese
Chief Financial Officer, Principal
Financial Officer
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in
typed form within the electronic version of this written statement has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
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