Item 1. Financial Statements
D
RIVEN DELIVERIES, INC. &
SUBSIDIARY
|
CONSOLIDATED
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
Cash
|
$
354,585
|
$
5,249
|
Accounts
receivable
|
400
|
400
|
Right of use
asset
|
154,041
|
-
|
Inventory
|
186,367
|
-
|
|
|
|
TOTAL
CURRENT ASSETS
|
695,393
|
5,649
|
|
|
|
Excess purchase
price over net liabilities acquired
|
3,014,832
|
-
|
Right of use asset
- long term
|
186,669
|
-
|
Fixed assets,
net
|
76,984
|
24,344
|
Deposit
|
4,190
|
3,920
|
|
|
|
TOTAL
ASSETS
|
$
3,978,068
|
$
33,913
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts payable
and accrued expenses
|
$
727,157
|
$
219,137
|
Notes
payable
|
-
|
150,000
|
Notes payable -
related party
|
26,726
|
11,705
|
Deferred
Rent
|
-
|
4,900
|
Lease
liability
|
152,407
|
-
|
Contingent
liability
|
1,318,524
|
-
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
2,224,814
|
385,742
|
|
|
|
Lease liability -
long term
|
198,024
|
-
|
Contingent
liability - long term
|
779,454
|
-
|
|
|
|
TOTAL
LIABILITIES
|
3,202,292
|
385,742
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
Preferred
stock, $0.0001 par value, 15,000,000 shares authorized, no shares
issued and outstanding
|
-
|
-
|
Common
stock, $0.0001 par value, 200,000,000 shares authorized, 50,576,679
and 40,875,014 shares issued and outstanding
|
5,058
|
4,088
|
Additional
paid in capital
|
5,975,132
|
2,425,275
|
Accumulated
deficit
|
(5,204,414
)
|
(2,681,192
)
|
Stock
subscription receivable
|
-
|
(100,000
)
|
TOTAL STOCKHOLDERS' EQUITY
|
775,776
|
(351,829
)
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
3,978,068
|
$
33,913
|
|
|
|
See
accompanying notes to the condensed consolidated financial
statements.
|
D
RIVEN DELIVERIES, INC. &
SUBSIDIARY
|
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
For the Three
Months Ended
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
Sales
|
$
53,050
|
$
(24,156
)
|
$
33,633
|
$
(17,961
)
|
Other
revenue
|
12,774
|
-
|
12,774
|
-
|
Cost of goods
sold
|
48,394
|
35
|
48,394
|
35
|
Gross Profit
(Loss)
|
17,430
|
(24,191
)
|
(1,987
)
|
(17,996
)
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
Professional
fees
|
341,113
|
32,259
|
508,870
|
70,332
|
Compensation
|
959,470
|
26,837
|
1,496,653
|
60,772
|
General and
administrative expenses
|
234,568
|
23,745
|
413,432
|
49,843
|
Sales and
marketing
|
52,503
|
26,122
|
93,277
|
44,011
|
Total Operating
Expenses
|
1,587,654
|
108,963
|
2,512,232
|
224,958
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS
|
(1,570,224
)
|
(133,154
)
|
(2,514,219
)
|
(242,954
)
|
|
|
|
|
|
OTHER
EXPENSES
|
|
|
|
|
Interest
expense
|
(691
)
|
(1,870
)
|
(10,858
)
|
(3,456
)
|
Gain on
extinguishment of debt
|
2,080
|
-
|
1,855
|
-
|
Total Other
Expenses
|
1,389
|
(1,870
)
|
(9,003
)
|
(3,456
)
|
|
|
|
|
|
Net loss before
provision for income taxes
|
(1,568,835
)
|
(135,024
)
|
(2,523,222
)
|
(246,410
)
|
|
|
|
|
|
Provision for
Income Taxes
|
-
|
-
|
-
|
-
|
|
|
|
|
|
NET
LOSS
|
$
(1,568,835
)
|
$
(135,024
)
|
$
(2,523,222
)
|
$
(246,410
)
|
|
|
|
|
|
Net loss per share
- basic and diluted
|
$
(0.03
)
|
$
(0.39
)
|
$
(0.05
)
|
$
(0.71
)
|
|
|
|
|
|
Weighted average
number of shares outstanding during the period - basic and
diluted
|
48,046,180
|
346,556
|
46,179,458
|
346,556
|
|
|
|
|
|
See
accompanying notes to the condensed consolidated financial
statements.
|
DRIVEN
DELIVERIES, INC. & SUBSIDIARY
|
CONSOLIDA
T
ED CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY
|
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2017
|
-
|
$
-
|
$
-
|
$
(52,375
)
|
$
-
|
$
(52,375
)
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
(111,386
)
|
-
|
(111,386
)
|
|
|
|
|
|
|
|
Balance March
31, 2018
|
-
|
$
-
|
$
-
|
$
(163,761
)
|
$
-
|
$
(163,761
)
|
|
|
|
|
|
|
|
Issuance of
Founders' shares
|
28,340,000
|
2,834
|
(539
)
|
-
|
-
|
2,295
|
|
|
|
|
|
|
|
Contribution
of capital
|
-
|
-
|
15,705
|
-
|
-
|
15,705
|
|
|
|
|
|
|
|
Sale of common
stock
|
2,850,000
|
285
|
149,715
|
-
|
-
|
150,000
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
(135,024
)
|
-
|
(135,024
)
|
|
|
|
|
|
|
|
Balance June
30, 2018
|
31,190,000
|
$
3,119
|
$
164,881
|
$
(298,785
)
|
$
-
|
$
(130,785
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2018
|
40,875,014
|
$
4,088
|
$
2,425,275
|
$
(2,681,192
)
|
$
(100,000
)
|
$
(351,829
)
|
|
|
|
|
|
|
|
Sale of common
stock
|
5,060,000
|
506
|
1,011,494
|
-
|
-
|
1,012,000
|
|
|
|
|
|
|
|
Issuance of
options for services
|
-
|
-
|
244,062
|
-
|
-
|
244,062
|
|
|
|
|
|
|
|
Issuance of
warrants for services
|
-
|
-
|
103,632
|
-
|
-
|
103,632
|
|
|
|
|
|
|
|
Issuance of common stock and
warrants for cancellation of debt
|
375,000
|
37
|
53,823
|
-
|
-
|
53,860
|
|
|
|
|
|
|
|
Proceeds from stock subscription
receivable
|
-
|
-
|
-
|
-
|
100,000
|
100,000
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
(954,387
)
|
-
|
(954,387
)
|
|
|
|
|
|
|
|
Balance March
31, 2019
|
46,310,014
|
$
4,631
|
$
3,838,286
|
$
(3,635,579
)
|
$
-
|
$
207,338
|
|
|
|
|
|
|
|
Sale of common
stock
|
3,005,000
|
301
|
960,700
|
-
|
-
|
961,001
|
|
|
|
|
|
|
|
Issuance of
options for services
|
-
|
-
|
106,986
|
-
|
-
|
106,986
|
|
|
|
|
|
|
|
Issuance of
warrants for services
|
-
|
-
|
516,953
|
-
|
-
|
516,953
|
|
|
|
|
|
|
|
Issuance of common stock for
conversion of debt
|
261,665
|
26
|
52,307
|
-
|
-
|
52,333
|
|
|
|
|
|
|
|
Issuances of common stock for
acquisition
|
1,000,000
|
100
|
499,900
|
-
|
-
|
500,000
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
(1,568,835
)
|
-
|
(1,568,835
)
|
|
|
|
|
|
|
|
Balance June
30, 2019
|
50,576,679
|
$
5,058
|
$
5,975,132
|
$
(5,204,414
)
|
$
-
|
$
775,776
|
|
|
|
|
|
|
|
See
accompanying notes to the condensed consolidated financial
statements.
|
DRIVEN DELIVERIES, INC. & SUBSIDIARY
|
CON
S
OLIDATED CONDENSED STATEMENTS OF CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net
loss
|
$
(2,523,222
)
|
$
(246,410
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
Gain
on extinguishment of debt
|
(1,856
)
|
-
|
Stock
based compensation
|
971,633
|
2,295
|
Amortization
of right-of-use asset
|
46,800
|
-
|
Depreciation
expense
|
6,052
|
1,742
|
Changes
in operating assets and liabilities
|
|
|
Inventory
|
(47,350
)
|
-
|
Deposit
|
(270
)
|
-
|
Accounts
payable and accrued compensation
|
(30,621
)
|
16,090
|
Accounts
receivable
|
-
|
(600
)
|
Bank
overdraft
|
-
|
1,466
|
Cash
paydowns of lease liability
|
(42,601
)
|
-
|
Net Cash Used In
Operating Activities
|
(1,621,435
)
|
(225,417
)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Cash
acquired in acquisition
|
123,088
|
-
|
Cash
used in acquisition
|
(150,000
)
|
|
Purchase
of fixed assets
|
(40,339
)
|
(28,472
)
|
Net Cash Used In
Investing Activities
|
(67,251
)
|
(28,472
)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Contribution
of capital
|
-
|
15,705
|
Proceeds
from stock receivable
|
100,000
|
-
|
Proceeds
from loan payable
|
-
|
50,000
|
Repayments
of loan payable
|
(50,000
)
|
-
|
Proceeds
from loan payable - related party
|
23,726
|
-
|
Repayments
of loan payable - related party
|
(8,705
)
|
-
|
Common
Stock issued for cash
|
1,973,001
|
150,000
|
Net Cash Provided
By Financing Activities
|
2,038,022
|
215,705
|
|
|
|
NET
DECREASE IN CASH
|
349,336
|
(38,184
)
|
|
|
|
CASH AT BEGINNING
OF PERIOD
|
5,249
|
38,184
|
|
|
|
CASH AT END OF
PERIOD
|
$
354,585
|
$
-
|
|
|
|
Supplemental
cash flow information:
|
|
|
Cash paid for
income taxes
|
$
-
|
|
Cash paid for
interest expense
|
$
-
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
Common stock and
contingent consideration - business combination
|
$
2,597,978
|
$
-
|
Issuance of common
stock and warrants for cancellation of debt
|
$
106,193
|
$
-
|
Lease liability
recognized from right of use asset
|
$
266,869
|
$
-
|
|
|
|
See
accompanying notes to the condensed consolidated financial
statements.
|
DRIVEN DELIVERIES, INC.
NOTES TO CO
N
SOLIDATED CONDENSED
FINANCIAL STATEMENTS
JUNE 30, 2019 AND 2018
NOTE 1 –
ORGANIZATION AND NATURE OF
BUSINESS
Overview
Driven Deliveries Inc. (formerly Results-Based Outsourcing Inc)
(the “Company” or “Driven”), formed on July
22, 2013, is engaged in providing delivery services of legal
cannabis products to consumers in California.
On August 29, 2018, Driven Deliveries, Inc., a Nevada company
(“Driven Nevada”), was acquired by Results-Based
Outsourcing as part of a reverse merger transaction. As
consideration for the merger, Results-Based Outsourcing issued the
equity holders of Driven Nevada an aggregate of 30,000,000
post-split shares of their common. Following the merger, the
Company adopted the business plan of Driven Nevada as a delivery
company focused on deliveries for consumers of legal cannabis
products, in California. The merger was accounted for as a
recapitalization of the Company, therefore the financial statements
as presented in this report include the historical results of
Driven Nevada.
In
June 2019, the Company completed its acquisition of Ganjarunner,
Inc. and Global Wellness, LLC, which are engaged in the business of
providing delivery services of legal cannabis products to
consumers. See Note 4 – Merger Agreement below for more
information on the acquisition.
Risks and Uncertainties
The Company has a limited operating history and has generated
limited revenues from its operations. The Company's business and
operations are sensitive to general business and economic
conditions in the U.S. along with local, state, and federal
governmental policy decisions. A host of factors beyond the
Company's control could cause fluctuations in these conditions.
Adverse conditions may include: changes in cannabis regulatory
environment and competition from larger more well-funded companies.
These adverse conditions could affect the Company's financial
condition and the results of its operations.
NOTE 2 – GOING CONCERN ANALYSIS
Going Concern Analysis
For the six months ended June 30, 2019, the Company had a net loss
of $2,523,222 and working capital deficit of $1,529,421. The
Company will require additional capital in order to continue
its operations in the normal course of business. Management
has concluded that due to these conditions, there is substantial
doubt about the company’s ability to continue as a going
concern. The accompanying consolidated condensed financial
statements have been prepared assuming that the Company will
continue as a going concern.
Management’s plans include raising capital though the sale of
debt and/or equity. The Company’s ability to continue as a
going concern is dependent upon its ability to raise capital to
implement the business plan, generate sufficient revenues and to
control operating expenses. While we believe in the viability of
our strategy to generate sufficient revenue, control costs and the
ability to raise additional funds, there can be no assurances that
our strategy will be successful. The Company’s financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result
from the matters discussed herein.
NOTE 3 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”)
for interim financial information and the rules and regulations of
the Securities and Exchange Commission (“SEC” for
interim financial information. In the opinion of the
Company’s management, the accompanying condensed financial
statements reflect all adjustments, consisting of normal, recurring
adjustments, considered necessary for a fair presentation of the
results for the interim period ended June 30, 2019. Although
management believes that the disclosures in these unaudited
condensed financial statements are adequate to make the information
presented not misleading, certain information and footnote
disclosures normally included in financial statements that have
been prepared in accordance U.S. GAAP have been condensed or
omitted pursuant to the rules and regulations of the
SEC.
The accompanying unaudited condensed financial statements should be
read in conjunction with the Company’s financial statements
for the year ended December 31, 2018, which contains the audited
financial statements and notes thereto, for the year ended December
31, 2018 included within the Company’s Form 10-K filed with
the SEC on April 15, 2019. The interim results for the three and
six months ended June 30, 2019 are not necessarily indicative of
the results to be expected for the year ended December 31, 2019 or
for any future interim periods. The December 31, 2018 Balance Sheet
is derived from the Company's audited financial statements but does
not include all necessary disclosures for full U.S. GAAP
presentation.
Use of estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expense during the reporting period. Actual results could differ
from those estimates.
Concentrations of Credit Risk
The Company maintains its cash accounts at financial institutions
which are insured by the Federal Deposit Insurance Corporation. At
times, the Company may have deposits in excess of federally insured
limits.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash
equivalents. As of June 30, 2019, the Company did not have any cash
equivalents.
Equipment
Equipment is stated at cost less accumulated depreciation. Cost
includes expenditures for vehicles and computer equipment.
Maintenance and repairs are charged to expense as incurred. When
assets are sold, retired, or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations. The cost of
equipment is depreciated using the straight-line method over the
estimated useful lives of the related assets which is three years
for computer equipment and five years for vehicles. Depreciation
expense was $6,052 and $1,742 for the six months ended June 30,
2019 and 2018, respectively.
Inventory
Inventory
is stated at the lower of cost or net realizable value. Inventory
is determined to be salable based on demand forecast within a
specific time horizon. Inventory in excess of salable amounts and
inventory which is considered obsolete. At the point of
recognition, a new lower cost basis for that inventory is
established and subsequent changes in facts and circumstances do
not result in the restoration or increase in that new cost
basis. Inventory is costed on the FIFO basis.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the
provisions of ASC 718, “Compensation—Stock
Compensation”, which requires the measurement and recognition
of compensation expense related to the fair value of stock-based
compensation awards that are ultimately expected to vest. Stock
based compensation expense recognized includes the compensation
cost for all stock-based payments granted to employees, officers,
and directors based on the grant date fair value estimated in
accordance with the provisions of ASC 718. ASC 718 is also applied
to awards modified, repurchased, or canceled during the periods
reported.
Stock-Based Compensation for Non-Employees
The Company accounts for warrants and options issued to
non-employees under ASU 2018-07, Equity – Equity Based
Payments to Non-Employees, using the Black-Scholes option-pricing
model.
Debt Issued with Warrants
Debt issued with warrants is accounted for under the guidelines
established by ASC 470-20 – Accounting for Debt with
Conversion or Other Options. We record the relative fair value of
warrants related to the issuance of convertible debt as a debt
discount or premium. The discount or premium is subsequently
amortized to interest expense over the expected term of the
convertible debt. The value of the warrants issued with the debt
was de minimis.
Revenue Recognition
As of January 1, 2018, the company adopted ASC 606. The adoption of
ASC 606, Revenue From Contracts With Customers, represents a change
in accounting principle that will more closely align revenue
recognition with the delivery of the Company’s services and
will provide financial statement readers with enhanced disclosures.
In accordance with ASC 606, revenue is recognized when a customer
obtains control of promised services. The amount of revenue
recognized reflects the consideration to which the Company expects
to be entitled to receive in exchange for these services. Revenue
is recorded gross of taxes related to taxable sales transactions,
such as sales tax, use tax, or other government fees. The Company
used the Modified-Retrospective Method when adopting this standard.
There was no accounting effect due to the initial adoption. To
achieve this core principle, the Company applies the following five
steps:
1)
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into
an enforceable contract with a customer that defines each
party’s rights regarding the services to be transferred and
identifies the payment terms related to these services, (ii) the
contract has commercial substance and, (iii) the Company determines
that collection of substantially all consideration for services
that are transferred is probable based on the customer’s
intent and ability to pay the promised consideration. The Company
applies judgment in determining the customer’s ability and
intention to pay.
The Company has three contracts with different customers with the
same terms. All of these qualify as contracts since they have been
approved by both parties, have identifiable rights and payment
terms regarding the services to be transferred, have commercial
substance, and it is probable that the entity will collect the
consideration in exchange for the services.
The Company also sells directly to customers through their
Ganjarunner website. The Company takes customer orders through the
website and delivers directly to the customer. In these sales the
Company does not enter into a formal contract but sells directly to
the customer as a retailer.
2)
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based
on the services that will be transferred to the customer that are
both capable of being distinct, whereby the customer can benefit
from the service either on its own or together with other resources
that are readily available from third parties or from the Company,
and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other
promises in the contract. To the extent a contract includes
multiple promised services, the Company must apply judgment to
determine whether promised services are capable of being distinct
and distinct in the context of the contract. If these criteria are
not met the promised services are accounted for as a combined
performance obligation.
The Company’s performance obligations are to (1) deliver
cannabis in compliance with California law, (2) provide a platform
to sell the retailer’s products, and (3) sell directly to
customers through the Ganjarunner website. These items represent
performance obligations since they are distinct services and
products and are distinct in the context of the
contract.
3)
Determine the transaction price
The transaction price is determined based on the consideration to
which the Company will be entitled in exchange for transferring
services to the customer. To the extent the transaction price
includes variable consideration, the Company estimates the amount
of variable consideration that should be included in the
transaction price utilizing either the expected value method or the
most likely amount method depending on the nature of the variable
consideration. Variable consideration is included in the
transaction price if, in the Company’s judgment, it is
probable that a significant future reversal of cumulative revenue
under the contract will not occur. None of the Company’s
contracts as of June 30, 2019 contained a significant financing
component. Determining the transaction price requires significant
judgment, which is discussed by revenue category in further detail
below.
The Company provides delivery services in exchange for
a flat fee per delivery and an additional charge per mile. As
mandated by the California Bureau of Cannabis Control,
delivery drivers are required to be on the payroll of a licensed
retailer. In order to fulfill the performance obligation, delivery
drivers are included on the payroll of the customer, and the
Company reimburses the customer for the drivers’ wages at a
premium. The cost of paying the drivers are considered a cost to
fulfill a contract for which the Company receives no benefit, so it
is consideration payable to the customer, which is considered in
determining the transaction price. In addition, the
Company currently nets the amounts owed by the
customers for deliveries with the amounts owed to the customers for
drivers’ wages. As such, the company reduces the delivery fee
by the drivers’ wages to determine the transaction price.
These elements of the transaction price are based on variable
consideration determined to be constrained and are recognized as of
the later of when the service is rendered or when the Company pays
or promises to pay the consideration, which will generally be on a
monthly basis. If the cost of the drivers’ wages exceeds the
total fees for delivery, the Company would present a
net negative revenue. For the six months ended June 30, 2019
and 2018, the Company had net negative revenue
related to delivery of cannabis.
The transaction price of the commissions is a variable
consideration as the price is determined to be 10% of a delivered
sale from an order generated on the Company’s online
platform. The variable consideration is also constrained as the
amount of the consideration is dependent on the cost of the
products purchased; and is further constrained as the company has
little history to predict the amount to be recognized. Transaction
price for the commissions will be determined as the company
satisfies the performance obligation.
The direct sales made through the Ganjarunner website do not have a
variable consideration and are accounted for as product
sales.
4)
Allocate the transaction price to performance obligations in the
contract
If the contract contains a single performance obligation, the
entire transaction price is allocated to the single performance
obligation. However, if a series of distinct services that are
substantially the same qualifies as a single performance obligation
in a contract with variable consideration, the Company must
determine if the variable consideration is attributable to the
entire contract or to a specific part of the contract. For example,
a bonus or penalty may be associated with one or more, but not all,
distinct services promised in a series of distinct services that
forms part of a single performance obligation. Contracts that
contain multiple performance obligations require an allocation of
the transaction price to each performance obligation based on a
relative standalone selling price basis unless the transaction
price is variable and meets the criteria to be allocated entirely
to a performance obligation or to a distinct service that forms
part of a single performance obligation. The Company determines
standalone selling price based on the price at which the
performance obligation is sold separately. If the standalone
selling price is not observable through past transactions, the
Company estimates the standalone selling price taking into account
available information such as market conditions and internally
approved pricing guidelines related to the performance
obligations.
The Company will allocate the transaction price of
the delivery fees and to the deliveries that they perform
separately for the customer. The transaction price of the
commissions will be allocated per each sale that the Company
generates for a retailer that is delivered. There are no
discounts to allocate and there have been no changes in the
transaction price to allocate.
For the sales made through the Ganjarunner website, the transaction
price is allocated to the product and the delivery fees associated
with the sale.
5)
Recognize revenue when or as the Company satisfies a performance
obligation
The Company satisfies performance obligations either over time or
at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised
service to a customer.
Both performance obligations are satisfied at a point in time, and
as such revenue will be recognized when the delivery is completed.
The revenue will not be recognized for orders not fulfilled, but
the delivery fee is earned even if the delivery is rejected or the
person who placed the order is not present or available at the time
of delivery. The consideration payable to the customer for
drivers’ wages is recognized over time based on the inputs to
determine the drivers’ wage obligations, but the net
transaction price is known and therefore recognized by the end of
each reporting period.
For the sales made through the Ganjarunner website, the performance
obligation is satisfied at a point in time, and as such revenue
will be recognized when the delivery is completed.
Disaggregation of Revenue
The following table depicts the disaggregation of revenue according
to revenue type.
Revenue Type
|
Revenue for the three months ended
June 30, 2019
|
Revenue for the three months ended
June 30, 2018
|
Revenue for the six months ended
June 30, 2019
|
Revenue for the six months ended
June 30, 2018
|
Delivery
Income
|
$
18,973
|
6,192
|
$
34,343
|
13,160
|
Dispensary
Cost Reimbursements
|
(28,559
)
|
(30,391
)
|
(63,346
)
|
(31,164
)
|
Delivery
Income, net
|
(9,586
)
|
(24,199
)
|
(29,003
)
|
(18,004
)
|
Product
Sales
|
62,607
|
-
|
62,607
|
-
|
Commission
Income
|
29
|
43
|
29
|
43
|
Other
Revenue
|
12,774
|
-
|
12,774
|
-
|
Total
|
$
65,824
|
(24,156
)
|
46,407
|
(17,961
)
|
Due to this reduction of revenue from the reimbursement of wages
for the delivery couriers, the Company is presenting a
net negative delivery income for the three and six months ended
June 30, 2018 and 2019.
Leases
Under
Topic 842, operating lease expense is generally recognized evenly
over the term of the lease. The Company has operating leases
primarily consisting of office space with remaining lease terms of
11 months to 28 months. Current facility leases include our offices
in Las Vegas, Nevada, Long Beach, California, San Diego,
California, Glendale, California, and Sacramento, California. Lease
costs were $96,708 for the six months ended June 30, 2019. There
was no sublease rental income for the six months ended June 30,
2019.
Leases
with an initial term of twelve months or less are not recorded on
the balance sheet. For lease agreements entered into or reassessed
after the adoption of Topic 842, we combine the lease and non-lease
components in determining the lease liabilities and right of use
(“ROU”) assets.
Our
lease agreements generally do not provide an implicit borrowing
rate, therefore an internal incremental borrowing rate is
determined based on information available at lease commencement
date for purposes of determining the present value of lease
payments. We used the incremental borrowing rate on December 31,
2018 for all leases that commenced prior to that date.
Lease Costs
|
Six
Months Ended
June 30,
2019
|
Components of total
lease costs:
|
|
Operating lease
expense
|
$
96,708
|
Total lease
costs
|
$
96.708
|
|
Three
Months Ended
June 30,
2019
|
Components of total
lease costs:
|
|
Operating lease
expense
|
$
52,648
|
Total lease
costs
|
$
52,648
|
Lease Positions as of June 30, 2019
ROU
lease assets and lease liabilities for our operating leases were
recorded in the condensed consolidated balance sheet as
follows:
|
|
Assets
|
|
Right of use asset
– short term
|
$
154,041
|
Right of use asset
– long term
|
186,669
|
Total
assets
|
$
340,710
|
|
|
Liabilities
|
|
Operating lease
liabilities – short term
|
152,407
|
Operating lease
liabilities – long term
|
$
198,024
|
Total lease
liability
|
$
350,431
|
Lease Terms and Discount Rate
Weighted average
remaining lease term (in years) – operating
lease
|
2.63
|
Weighted average
discount rate – operating lease
|
10.91
%
|
Cash
Flows
|
Six
Months Ended
June
30, 2019
|
Cash paid for
amounts included in the measurement of lease
liabilities:
|
|
ROU
amortization
|
$
44,823
|
Cash paydowns of
operating liability
|
$
(42,601
)
|
Supplemental
non-cash amounts of lease liabilities arising from
obtaining
|
|
ROU
assets
|
$
(390,109
)
|
Lease
Liability
|
$
369,986
|
The future minimum lease payments under the leases are as
follows:
2019 (nine
months)
|
$
165,229
|
2020
|
156,916
|
2021
|
44,851
|
2022
|
39,535
|
2023
|
3,303
|
Total future
minimum lease payments
|
409,834
|
Lease imputed
interest
|
59,403
|
Total
|
$
350,431
|
Basic and Diluted Net Loss per Common Share
Basic loss per common share is computed by dividing the net loss by
the weighted average number of shares of common stock outstanding
for each period. Diluted loss per share is computed by dividing the
net loss by the weighted average number of shares of common stock
outstanding plus the dilutive effect of shares issuable through the
common stock equivalents. The weighted-average number of common
shares outstanding excludes common stock equivalents because their
inclusion would be anti-dilutive. As of June 30, 2019, common stock
equivalents are comprised of 13,176,750 warrants and 10,161,869
options.
Recent Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC.
There have been several ASUs to date, that amend the original text
of ASC. Management believes that those issued to date either (i)
provide supplemental guidance, (ii) are technical corrections,
(iii) are not applicable to us or (iv) are not expected to have a
significant impact our financial statements.
NOTE 4 – MERGER AGREEMENT
On June 21, 2019, the Company, GR Acquisition, Inc.
(“GRA”), a Nevada corporation ,Ganjarunner, Inc.
(“Ganjarunner”), a California corporation, and Global
Wellness, LLC (“GW”), a California limited liability
company, (Ganjarunner and GW are hereafter referred to collectively
as “GR/GW”) entered into an Agreement and Plan of
Merger (the “Agreement”), pursuant to which GR/GW shall
merge with and into GRA, with GRA continuing as the surviving
entity and wholly-owned subsidiary of the Company (the
“Merger”). The Merger closed on June 24, 2019 (the
“Closing Date”). Pursuant to the Agreement, the Company
agreed to pay to GR/GW $450,000, $150,000
of which has already been paid to GR/GW with the remaining $300,000
to be paid in two equal tranches of $150,000 whereby each tranche
is subject to GRA’s achievement of certain milestones.
Additionally, the Company shall pay to GR/GW (i) $350,000 at the
earlier to occur of the 6-month anniversary of the Closing Date or
upon the Company raising additional funding of at least $2,000,000
and (ii) $300,000 at the end of the 24-month anniversary of the
Closing Date. In addition, as further consideration, the Company
issued to GR/GW’s founders 1,000,000 shares of the
Company’s common stock on the Closing Date and shall make two
additional issuances of 2,000,000 shares of common stock on the
12-month and 24-month anniversaries of the Closing Date, with each
respective issuance contingent upon GRA’s achievement of
certain milestones as set forth in the Agreement.
Following
the closing of the transaction, Ganjarunner’s financial
statements as of the Closing were consolidated with the
Consolidated Financial Statements of the Company. These amounts are
provisional and may be adjusted during the measurement
period.
The
following presents the unaudited pro-forma combined results of
operations of the Company with the Ganjarunner Business as if the
entities were combined on January 1, 2019.
|
|
|
|
|
|
Gross
Revenue
|
$
1,651,200
|
1,008,191
|
Gross
Profit
|
$
832,367
|
496,703
|
Net
loss
|
$
(2,582,625
)
|
(277,921
)
|
Net loss per
share
|
$
(0.06
)
|
(0.80
)
|
Weighted average
number of shares outstanding
|
46,179,458
|
346,556
|
The
unaudited pro-forma results of operations are presented for
information purposes only. The unaudited pro-forma results of
operations are not intended to present actual results that would
have been attained had the acquisitions been completed as of
January 1, 2018 or to project potential operating results as of any
future date or for any future periods.
The
Company consolidated Ganjarunner as of the closing date of the
agreement, and the results of operations of the Company include
that of Ganjarunner.
The
following presents the consideration paid for the acquisition of
Ganjarunner and the preliminary purchase price allocation. These
amounts are provisional and may be adjusted during the measurement
period.
Purchase
Price
|
|
Cash
consideration
|
$
150,000
|
Future cash
consideration
|
903,886
|
Stock
consideration
|
500,000
|
Future stock
consideration
|
1,194,092
|
Total
purchase price
|
$
2,747,978
|
|
|
Allocation
of purchase price
|
|
Cash
|
$
123,088
|
Inventory
|
139,017
|
Fixed assets,
net
|
18,353
|
ROU
asset
|
125,541
|
Lease
Liability
|
(126,163
)
|
Accounts
payable
|
(546,690
)
|
Goodwill and
intangible assets
|
3,014,832
|
Total
allocation of purchase price
|
$
2,747,978
|
NOTE 5 – NOTES PAYABLE
On November 7, 2017 the Company issued a promissory note for
$75,000 that accrues interest of 6% annually. The promissory note
is due on the earlier of January 31, 2018 or in the event of
default, as such term is defined in the agreement. The terms of the
promissory note provide that the principal amount of the note is
convertible into the same security that is sold and issued in the
next Qualified Financing Round completed by the Company, except
that the conversion price shall be at a ten percent (10%) discount
to the equity price per share raised in such Qualified Financing
Round. Qualified Financing Round is defined as an equity financing
of the Company that is consummated during the term of the
promissory note which results in gross proceeds of not less than
$925,000. The note was in default but as of the date of this
report, has been fully paid off.
On February 1, 2018, the Company entered into a convertible bridge
loan agreement providing for a loan in the principal amount of
$50,000 to the Company. The loan bears interest at the rate of 6%
annually and is convertible into shares the Company’s common
stock at a 10% discount to the equity price per share that is sold
and issued in the next Qualified Financing Round completed by the
Company. Qualified Financing Round is defined as an equity
financing of the Company that is consummated during the term of the
loan which results in gross proceeds of not less than $925,000. In
connection with the loan, the Company issued to the lender a three
year warrant to purchase 12,500 shares of common stock of the
Company at an exercise price of $0.50 per share. The bridge loan
was due on March 31, 2018. In March 2019, the Company entered into
a debt cancellation agreement with the lender pursuant to which the
Company agreed to issue to the lender 375,000 shares of the
Company’s common stock and a three year warrant to purchase
25,000 shares of the Company’s common stock at an exercise
price of $0.20. The Company recorded a loss on extinguishment of
debt of $225 related to the cancellation.
On October 25, 2018, the Company issued a convertible promissory
note in the principal amount of $50,000 which is convertible into
shares the Company’s common stock at a price of $0.20 per
share. This note accrues interest of 8% annually. The note is due
on October 25, 2019. During the second quarter of 2019 the
note was converted into 261,665 shares of the Company’s
common stock.
NOTE 6 - STOCKHOLDERS’ DEFICIT
Common Stock
The Company is authorized to issue 200,000,000 shares of common
stock, par value $0.0001 per share.
During the six months ended June 30, 2019, the company issued
8,065,000 shares of common stock for cash of $1,973,001, 636,665
shares of common stock for conversion or cancellation of debt, and
1,000,000 shares related to the acquisition of
Ganjarunner.
Preferred Stock
The Company is authorized to issue 15,000,000 shares of preferred
stock, par value $0.0001 per share. The preferred stock may be
issued from time to time in one or more series as the
Company’s Board may authorize. None of the preferred stock
have been designated and none are issued and
outstanding.
Warrants
A summary of warrant issuances are as follows:
|
|
|
Weighted Average
Remaining
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
Outstanding January
1, 2018
|
18,750
|
$
0.50
|
2.85
|
Granted
|
9,112,500
|
0.19
|
3.83
|
Outstanding
December 31, 2018
|
9,131,250
|
0.19
|
3.83
|
Granted
|
4,058,000
|
0.16
|
6.73
|
Forfeited
|
(12,500
)
|
0.50
|
1.84
|
Outstanding June
30, 2019
|
13,176,750
|
$
0.18
|
4.38
|
During the first quarter of 2019, the Company issued warrants to
purchase 1,558,000 shares of common stock of the Company at an
exercise price of $0.10 per share. The warrants may be exercised on
a cashless basis and have a term of seven years. The warrants were
issued for consulting services.
During the second quarter of 2019, the Company issued warrants to
purchase 2,500,000 shares of common stock of the Company at an
exercise price of $0.20 per share. The warrants may be exercised on
a cashless basis and have a term of seven years. The warrants were
issued for consulting services.
Options
A summary of options issuances are as follows:
|
|
|
Weighted Average
Remaining
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
Outstanding January
1, 2018
|
-
|
$
-
|
-
|
$
-
|
Granted
|
4,854,692
|
0.04
|
3.00
|
0.19
|
Outstanding
December 31, 2018
|
4,854,692
|
0.04
|
3.00
|
0.19
|
Granted
|
5,610,022
|
0.22
|
6.74
|
0.28
|
Forfited
|
(302,845
)
|
0.04
|
2.67
|
0.04
|
Outstanding June
30, 2019
|
10,161,869
|
$
0.14
|
4.84
|
$
0.24
|
Nonvested
Shares
|
|
Nonvested at
January 1, 2018
|
-
|
Granted
|
4,854,692
|
Vested
|
(1,213,673
)
|
Forfeited
|
-
|
Nonvested at
December 31, 2018
|
3,641,019
|
Granted
|
5,610,022
|
Vested
|
(1,803,627
)
|
Forfeited
|
(302,845
)
|
Nonvested at June
30, 2019
|
7,144,569
|
During the first quarter of 2019, the Company issued stock options
purchase 3,922,522 shares of common stock of the Company at an
exercise price of $0.10 per share. The options have a term of seven
years. The company recognized a stock compensation expense of
$187,306 related to the issuance of these options for the three
months ended March 31, 2019.
During the second quarter of 2019, the Company issued stock options
purchase 1,687,500 shares of common stock of the Company at an
exercise price of $0.10 to $0.50 per share. The options have a term
of seven years. The company recognized a stock compensation expense
of $5,182 related to the issuance of these options for the three
months ended June 30, 2019.
The company recognized a stock compensation expense of $106,986 and
$351,048 respectively for the three and six months ended June 30,
2019, related to stock options.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
On May 15, 2018, the Company entered into a three (3) year lease to
rent office space for its principal executive office, with an
effective date of June 1, 2018. The lease provides for monthly rent
of $2,800 per month for the first year of the lease, $3,780 per
month for the second year and $3,920 per month for the third year.
The Company is also required to pay a monthly common area
maintenance fee of $420.
On February 1, 2019, the Company entered into a twelve-month lease
for office space in Las Vegas, Nevada. The lease requires a monthly
payment of $1,764 and terminates on February 14, 2020.
The Company assumed a three (3) year lease, with an effective date
of February 5, 2019, from a related party. The Company paid $20,839
upon signing the assignment. The lease provides for monthly rent of
$5,345 per month through June 30, 2019, $5,880 per month through
June 30, 2020 and $6,468 per month through June 30, 2021. The
Company is also required to pay a monthly common area maintenance
fee of $695.
The Company assumed a five (5) year lease, with an effective date
of June 24, 2019, the acquisition of Ganjarunner. The lease
provides for monthly rent of $3,113 per month through July 31,
2021, $3,206 per month through July 31, 2022 and $3,302 per month
through July 31, 2023.
On February 22, 2019, the Company entered into a consulting
agreement for public and media relations services. As part of this
agreement the Company will pay $4,000 per month to the
consultant.
On March 7, 2019, the Company entered into a consulting agreement
for business advisory services. Pursuant to the terms of the
consulting agreement, the Company agreed to pay cash compensation
of $10,417 per month. The Company also agreed to pay a one-time
payment of $5,000 within 5 days of the execution of the agreement.
The Company also agreed to issue the consultant 125,000 options to
purchase shares of the Company’s common stock, which options
will vest quarterly over a 3 year period.
On April 1, 2019 the Company entered into a consulting agreement
for business advisory services. As part of this agreement the
Company will pay the consultant $20,000 per month. Additionally,
the Company agreed to issue 500,000 warrants to purchase shares of
its common stock. These warrants have an exercise price of $0.20
and a term of 7 years.
During the second quarter of 2019, the Company entered into three
delivery contractor agreements with retailers. As part of these
contracts the Company will offer delivery services in exchange for
a delivery fee from each of these retailers.
During the six months ended June 30, 2019, the Company entered into
seven employment agreements. As part of these agreements the
Company will issue a total of 1,687,500 options to purchase
shares of the Company's common stock. These options
vest quarterly over two or three years.
NOTE 8 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2018, the Company entered into a
loan agreement with the Company’s CFO, Brian Hayek, pursuant
to which Mr. Hayek extended an interest free loan to the Company in
the amount of $30,705. As of June 30, 2019, the amount due on this
loan was $3,000.
On January 16, 2019, the Company appointed Jerrin James as the
Company’s COO. Pursuant to the terms of the agreement with
Mr. James, the Company agreed to issue 2,897,522 shares either in
the form of stock options or warrants, to purchase shares of the
Company’s common stock 25% of which will vest immediately
upon grant with the remainder vesting quarterly over three
years.
On March 5, 2019, the Company appointed Adam Berk as a Director to
the Company. In connection with his appointment the Company agreed
to issue to Mr. Berk, options to purchase 450,000 shares of common
stock which vest immediately upon grant.
On April 3, 2019, the Company appointed Christian Schenk as a
Director to the Company. In connection with his appointment the
Company agreed to issue to Mr. Schenk, warrants to purchase
1,500,000 shares of common stock which will vest immediately upon
grant. The Company also agreed to issue warrants to purchase
500,000 shares of common stock of the Company after the close of
the merger with Ganjarunner
(see
below for details on the business combination)
, and issue
warrants to purchase 1,000,000 shares of common stock of the
Company after successfully closing the Company’s pending
business arrangement with a cannabis B2B transportation provider or
other business as determined by the Board of
Directors.
NOTE 9 - SUBSEQUENT EVENTS
On July 10, 2019 (the “Closing Date”), the Company and
Mountain High Recreation, Inc. (“MH”), a California
corporation, entered into an Asset Purchase Agreement (the
“Agreement”), pursuant to which the Company acquired
certain assets from MH as specified in the Agreement, which
included (i) the option to purchase to MH’s California
Cannabis - Retailer Nonstorefront License (ii) the option to
purchase a certain real property lease located at 8 Light Sky Ct,
Sacramento, CA 95828 associated with that certain license , (iii)
the right to use all trademarks and intellectual property
associated with the MH brand (the “Assets”). The
Company assumed no liabilities of MH. The transactions contemplated
by the Agreement, closed on July 10, 2019 (the
“Closing”).
Pursuant to the Agreement, the Company agreed to pay
to MH the following: $200,000 at Closing, $150,000 on or before
December 20, 2019, $150,000 on or before March 31, 2020, $250,000
at the end of the twelfth (12
th
) month (on a rolling basis) following the Closing
Date and $250,000 at the end of the twenty-fourth
(24
th
) month (on a rolling basis) following the Closing
Date. In addition, at the Closing, the Company issued to MH
1,000,000 shares of its common stock . At the end of the twelfth
month (on a rolling basis) from the Closing Date, the Company
agreed to issue to MH warrants to purchase 2,000,000
shares of the Company’s Common Stock with an exercise price
equal to the per share purchase price paid by investors of the
Company’s then most recent private placement and exercisable
for a period of three (3) years from the date of issuance (the
“2020 Warrants”). At the end of the twenty-fourth month
(on a rolling basis) from the Closing Date, the Company shall issue
to MH warrants to purchase 2,000,000 shares of the Company’s
Common Stock with an exercise price equal to the per share purchase
price paid by investors of the Company’s then most recent
private placement price, exercisable for a period of three (3)
years from the date of issuance (the “2021 Warrants”).
The 2020 Warrants and 2021 Warrants are subject to adjustment,
based on the amount of gross revenue the Company recognized in
connection with the Assets.
Subsequent to the second quarter of 2019, the Company issued
550,000 shares of its common stock for consideration of
$274,945.
Item
2. Management’s Discussion
and Analysis of Financial Condition and Results of
Operation
Certain
statements in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” below, and
elsewhere in this quarterly report, are not related to historical
results, and are forward-looking statements. Forward-looking
statements present our expectations or forecasts of future events.
You can identify these statements by the fact that they do not
relate strictly to historical or current facts. These statements
involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or
implied by such forward-looking statements. Forward-looking
statements frequently are accompanied by such words such as
“may,” “will,” “should,”
“could,” “expects,” “plans,”
“intends,” “anticipates,”
“believes,” “estimates,”
“predicts,” “potential” or
“continue,” or the negative of such terms or other
words and terms of similar meaning. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance, achievements, or timeliness of such results. Moreover,
neither we nor any other person assumes responsibility for the
accuracy and completeness of such forward-looking statements. We
are under no duty to update any of the forward-looking statements
after the date of this quarterly report. Subsequent written and
oral forward looking statements attributable to us or to persons
acting in our behalf are expressly qualified in their entirety by
the cautionary statements and risk factors set forth in our annual
report on Form 10-K filed with the SEC on April 15, 2019, and in
other reports filed by us with the SEC.
You
should read the following description of our financial condition
and results of operations in conjunction with the financial
statements and accompanying notes included in this
report.
Overview
We were formed on July 22, 2013 and are engaged in the business of
delivering legal cannabis products to consumers in
California.
On August 29, 2018, Driven Deliveries, Inc., a Nevada company
(“Driven Nevada”), was acquired by Results-Based
Outsourcing as part of a reverse merger transaction. As
consideration for the merger, Results-Based Outsourcing issued the
equity holders of Driven Nevada an aggregate of 30,000,000
post-split shares of their common. Following the merger, the
Company adopted the business plan of Driven Nevada as a delivery
company focused on deliveries for consumers of legal cannabis
products, in California. The merger was accounted for as a
recapitalization of the Company, therefore the financial statements
as presented in this report include the historical results of
Driven Nevada.
Financial Results
We have a limited operating history. Therefore, there is limited
historical financial information upon which to base an evaluation
of our performance. Our prospects must be considered in light of
the uncertainties, risks, expenses, and difficulties frequently
encountered by companies in their early stages of operations. Our
financials for the six months ended June 30, 2019, show a net loss
of $2,523,222. We expect to incur additional net expenses over the
next several years as we continue to expand our existing
operations. The amount of future losses and when, if ever, we will
achieve profitability are uncertain.
Results of Operations
Revenue
During the six months ended June 30, 2019, the Company recorded
revenue in the amount of $46,407. The revenue for the period ended
June 30, 2019 was comprised of dispensary cost
reimbursements of $63,346 offsetting the delivery income of
$34,343, product sales of $62,607, and other revenue of $12,774.
This left the Company with a gross profit of ($1,987) for the six
months ended June 30, 2019. The Company had a negative revenue of
($17,961) during the six months ended June 30, 2018. The revenue
for the period ended June 30, 2018 was comprised of
dispensary cost reimbursements of $31,164 offsetting the delivery
income of $13,160. The change in revenue between the six months
ended June 30, 2019 and 2018 resulted from the Company expanding
its operations and acquisition of Ganjarunner in 2019.
During the three months ended June 30, 2019, the Company recorded
revenue in the amount of $65,824. The revenue for the period ended
June 30, 2019 was comprised of dispensary cost
reimbursements of $28,559 offsetting the delivery income of
$18,972, product sales of $62,607, and other revenue of $12,774.
This left the Company with a gross profit of $17,430 for the three
months ended June 30, 2019. The Company had a negative revenue of
($24,156) during the three months ended June 30, 2018. The revenue
for the period ended June 30, 2018 was comprised of
dispensary cost reimbursements of $30,391 offsetting the delivery
income of $6,192. The change in revenue between the six months
ended June 30, 2019 and 2018 resulted from the Company expanding
its operations and acquisition of Ganjarunner in 2019.
Operating Expenses
During the six months ended June 30, 2019, we incurred a loss from
operations of $2,514,219. This is due to professional fees of
$508,870, compensation of $1,496,653 including stock-based
compensation of $971,633, general and administrative of $413,332,
and sales and marketing of $93,277.
During the six months ended June 30, 2018, we incurred a loss from
operations of $242,954. This is due to professional fees of
$70,332, compensation of $60,772 including stock-based compensation
of $2,295, general and administrative of $49,843, and sales and
marketing of $44,011.
During the three months ended June 30, 2019, we incurred a loss
from operations of $1,570,224. This is due to professional fees of
$341,113, compensation of $959,470 including stock-based
compensation of $623,939, general and administrative of $234,568,
and sales and marketing of $52,503.
During the three months ended June 30, 2018, we incurred a loss
from operations of $133,154. This is due to professional fees of
$32,259, compensation of $26,837 including stock-based compensation
of $2,295, general and administrative of $23,745, and sales and
marketing of $26,122.
The increase in operating expenses between the six months ended
June 30, 2019 and 2018 are due to the Company expanding operations
and acquisition of Ganjarunner. The increase in professional fees
is primarily due to an increase in legal fees, business development
fees, accounting fees, and consulting fees. The increase in
compensation is primarily due to the increase in stock base
compensation. The increase in general and administrative expenses
is primarily due to rent expense and IT consulting expense. The
increase in sales and marketing is primarily due to increases in
public relations expense, marketing dues and subscriptions, and
marketing expenses.
Other Expenses
During the six months ended June 30, 2019, the Company incurred
interest expense of $10,858 compared to interest expense of $3,456
in the six months ended June 30, 2018. During the six months ended
June 30, 2019, the Company had a gain on extinguishment of debt of
$1,855.
During the three months ended June 30, 2019, the Company incurred
interest expense of $691 compared to interest expense of $1,870 in
the three months ended June 30, 2018. During the three months ended
June, 2019, the Company had a gain on extinguishment of debt of
$2,080.
Liquidity
We are a startup and anticipate that we will incur operating losses
for the foreseeable future. As of June 30, 2019, we had cash of
$354,585 and working capital deficit of $1,529,421. Based on our
current forecast and budget, management believes that its cash
resources will not be sufficient to fund its operations through the
end of 2019. Unless the Company can generate sufficient revenue
from the execution of the Company’s business plan, it will
need to obtain additional capital to continue to fund the
Company’s operations. There is no assurance that capital in
any form would be available to us, and if available, on terms and
conditions that are acceptable. If we are unable to obtain
sufficient funds, we may be forced to curtail and/or cease
operations.
Operating activities used $1,621,435 in cash for the six months
ended June 30, 2019. This was comprised of a net loss of
$2,523,222, $47,350 increase in inventory, and a $42,601 cash
paydown of the lease liability that was offset by $971,633 in
stock-based compensation and $46,800 amortization of the right of
use asset.
Operating activities used $225,417 in cash for the six months ended
June 30, 2018. This is comprised of a net loss of $246,410 was
offset by a $16,090 increase in accounts payable and accrued
expenses.
Investing activities used $67,251 in cash for the six months ended
June 30, 2019 due to $40, 339 in the purchase of fixed assets and
$123,088 in cash acquired in acquisition offset by $150,000 in cash
used in acquisition.
Investing activities used $28,472 in cash for the six months ended
June 30, 2018 due to the purchase of fixed assets.
Financing activities provided $2,038,022 in cash for the six months
ended June 30, 2019 due to cash from repayment of loan payable of
$50,000, proceeds of stock receivable of $100,000, and common stock
issued for cash of $1,973,001.
Financing activities provided $215,705 in cash for the six months
ended June 30, 2018 due to proceeds from loan payable of $50,000
and common stock issued for cash of $150,000.
Off-Balance Sheet Arrangements
We have not entered into 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 and would be considered material to
investors.
Critical accounting policies
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the
provisions of ASC 718, “Compensation—Stock
Compensation”, which requires the measurement and recognition
of compensation expense related to the fair value of stock-based
compensation awards that are ultimately expected to vest. Stock
based compensation expense recognized includes the compensation
cost for all stock-based payments granted to employees, officers,
directors and non-employees based on the grant date fair value
estimated in accordance with the provisions of ASC 718. ASC 718 is
also applied to awards modified, repurchased, or canceled during
the periods reported.
Debt Issued with Warrants
Debt issued with warrants is accounted for under the guidelines
established by ASC 470-20 – Accounting for Debt with
Conversion or Other Options. We record the relative fair value of
warrants related to the issuance of convertible debt as a debt
discount or premium. The discount or premium is subsequently
amortized to interest expense over the expected term of the
convertible debt. The value of the warrants issued with the debt
was de minimis.
Revenue Recognition
As of January 1, 2018, the company adopted ASC 606. The adoption of
ASC 606, Revenue From Contracts With Customers, represents a change
in accounting principle that will more closely align revenue
recognition with the delivery of the Company’s services and
will provide financial statement readers with enhanced disclosures.
In accordance with ASC 606, revenue is recognized when a customer
obtains control of promised services. The amount of revenue
recognized reflects the consideration to which the Company expects
to be entitled to receive in exchange for these services. Revenue
is recorded gross of taxes related to taxable sales transactions,
such as sales tax, use tax, or other government fees. The Company
used the Modified-Retrospective Method when adopting this standard.
There was no accounting effect due to the initial adoption. To
achieve this core principle, the Company applies the following five
steps:
1)
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into
an enforceable contract with a customer that defines each
party’s rights regarding the services to be transferred and
identifies the payment terms related to these services, (ii) the
contract has commercial substance and, (iii) the Company determines
that collection of substantially all consideration for services
that are transferred is probable based on the customer’s
intent and ability to pay the promised consideration. The Company
applies judgment in determining the customer’s ability and
intention to pay.
The Company has three contracts with different customers with the
same terms. All of these qualify as contracts since they have been
approved by both parties, have identifiable rights and payment
terms regarding the services to be transferred, have commercial
substance, and it is probable that the entity will collect the
consideration in exchange for the services.
The Company also sells directly to customers through their
Ganjarunner website. The Company takes customer orders through the
website and delivers directly to the customer. In these sales the
Company does not enter into a formal contract but sells directly to
the customer as a retailer.
2)
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based
on the services that will be transferred to the customer that are
both capable of being distinct, whereby the customer can benefit
from the service either on its own or together with other resources
that are readily available from third parties or from the Company,
and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other
promises in the contract. To the extent a contract includes
multiple promised services, the Company must apply judgment to
determine whether promised services are capable of being distinct
and distinct in the context of the contract. If these criteria are
not met the promised services are accounted for as a combined
performance obligation.
The Company’s performance obligations are to (1) deliver
cannabis in compliance with California law, (2) provide a platform
to sell the retailer’s products, and (3) sell directly to
customers through the Ganjarunner website. These items represent
performance obligations since they are distinct services and
producets and are distinct in the context of the
contract.
3)
Determine the transaction price
The transaction price is determined based on the consideration to
which the Company will be entitled in exchange for transferring
services to the customer. To the extent the transaction price
includes variable consideration, the Company estimates the amount
of variable consideration that should be included in the
transaction price utilizing either the expected value method or the
most likely amount method depending on the nature of the variable
consideration. Variable consideration is included in the
transaction price if, in the Company’s judgment, it is
probable that a significant future reversal of cumulative revenue
under the contract will not occur. None of the Company’s
contracts as of June 30, 2019 contained a significant financing
component. Determining the transaction price requires significant
judgment, which is discussed by revenue category in further detail
below.
The Company provides delivery services in exchange for
a flat fee per delivery and an additional charge per mile. As
mandated by the California Bureau of Cannabis Control,
delivery drivers are required to be on the payroll of a licensed
retailer. In order to fulfill the performance obligation, delivery
drivers are included on the payroll of the customer, and the
Company reimburses the customer for the drivers’ wages at a
premium. The cost of paying the drivers are considered a cost to
fulfill a contract for which the Company receives no benefit, so it
is consideration payable to the customer, which is considered in
determining the transaction price. In addition, the company
currently nets the amounts owed by the customers for deliveries
with the amounts owed to the customers for drivers’ wages. As
such, the Company reduces the delivery fee by the
drivers’ wages to determine the transaction price. These
elements of the transaction price are based on variable
consideration determined to be constrained and are recognized as of
the later of when the service is rendered or when the Company pays
or promises to pay the consideration, which will generally be on a
monthly basis. If the cost of the drivers’ wages exceeds the
total fees for delivery, the Company would present a
net negative revenue. For the six months ended June 30, 2019
and 2018, the Company had net negative revenue
related to delivery of cannabis.
The transaction price of the commissions is a variable
consideration as the price is determined to be 10% of a delivered
sale from an order generated on the Company’s online
platform. The variable consideration is also constrained as the
amount of the consideration is dependent on the cost of the
products purchased; and is further constrained as the company has
little history to predict the amount to be recognized. Transaction
price for the commissions will be determined as the company
satisfies the performance obligation.
The direct sales made through the Ganjarunner website do not have a
variable consideration and are accounted for as product
sales.
4)
Allocate the transaction price to performance obligations in the
contract
If the contract contains a single performance obligation, the
entire transaction price is allocated to the single performance
obligation. However, if a series of distinct services that are
substantially the same qualifies as a single performance obligation
in a contract with variable consideration, the Company must
determine if the variable consideration is attributable to the
entire contract or to a specific part of the contract. For example,
a bonus or penalty may be associated with one or more, but not all,
distinct services promised in a series of distinct services that
forms part of a single performance obligation. Contracts that
contain multiple performance obligations require an allocation of
the transaction price to each performance obligation based on a
relative standalone selling price basis unless the transaction
price is variable and meets the criteria to be allocated entirely
to a performance obligation or to a distinct service that forms
part of a single performance obligation. The Company determines
standalone selling price based on the price at which the
performance obligation is sold separately. If the standalone
selling price is not observable through past transactions, the
Company estimates the standalone selling price taking into account
available information such as market conditions and internally
approved pricing guidelines related to the performance
obligations.
The Company will allocate the transaction price of
the delivery fees and to the deliveries that they perform
separately for the customer. The transaction price of the
commissions will be allocated per each sale that the Company
generates for a retailer that is delivered. There are no
discounts to allocate and there have been no changes in the
transaction price to allocate.
For the sales made through the Ganjarunner website, the transaction
price is allocated to the product and the delivery fees associated
with the sale.
5)
Recognize revenue when or as the Company satisfies a performance
obligation
The Company satisfies performance obligations either over time or
at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised
service to a customer.
Both performance obligations are satisfied at a point in time, and
as such revenue will be recognized when the delivery is completed.
The revenue will not be recognized for orders not fulfilled, but
the delivery fee is earned even if the delivery is rejected or the
person who placed the order is not present or available at the time
of delivery. The consideration payable to the customer for
drivers’ wages is recognized over time based on the inputs to
determine the drivers’ wage obligations, but the net
transaction price is known and therefore recognized by the end of
each reporting period.
For the sales made through the Ganjarunner website, the performance
obligation is satisfied at a point in time, and as such revenue
will be recognized when the delivery is completed.
Disaggregation of Revenue
The following table depicts the disaggregation of revenue according
to revenue type.
Revenue Type
|
Revenue for the three months ended
June 30, 2019
|
Revenue for the three months ended
June 30, 2018
|
Revenue for the six months ended
June 30, 2019
|
Revenue for the six months ended
June 30, 2018
|
Delivery
Income
|
$
18,973
|
6,192
|
$
34,343
|
13,160
|
Dispensary
Cost Reimbursements
|
(28,559
)
|
(30,391
)
|
(63,346
)
|
(31,164
)
|
Delivery
Income, net
|
(9,586
)
|
(24,199
)
|
(29,003
)
|
(18,004
)
|
Product
Sales
|
62,607
|
-
|
62,607
|
-
|
Commission
Income
|
29
|
43
|
29
|
43
|
Other
Revenue
|
12,774
|
-
|
12,774
|
-
|
Total
|
$
65,824
|
(24,156
)
|
46,407
|
(17,961
)
|
Due to this reduction of revenue from the reimbursement of wages
for the delivery couriers the Company is presenting a net negative
delivery income for the three and six months ended June 30, 2018
and 2019.