NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Note 1.
Principles of Consolidation.
The
consolidated financial statements include the accounts of American Cannabis Company, Inc. and its wholly owned subsidiary, Hollister
& Blacksmith, Inc., doing business as American Cannabis Company, Inc. Intercompany accounts and transactions have been eliminated.
Note 2.
Description of Business.
American Cannabis
Company, Inc. and its wholly owned 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. We provide advisory and consulting services specific to this industry, design industry-specific products
and facilities, and sell both exclusive and non-exclusive customer products commonly used in the industry.
Note
3. 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.
Use
of Estimates in Financial Reporting
The preparation
of financial statements in conformity with U.S. 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.
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. Cash balances may exceed federally insured limits.
Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date. As
of December 31, 2019, and 2018, the Company had cash balances in excess of FDIC insured limits of $250,000.
Inventory
Inventory
is comprised of products and equipment owned by the Company to be sold to end-customers. Inventory is valued at cost (net realizable
value) using the first-in first-out and specific identification methods, 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 December 31, 2019, market
values of all the Company’s inventory were greater than cost, and accordingly, no such valuation allowance was recognized.
Research
and Development
As
a component of our equipment and supplies offerings, from time-to-time we design and develop our own proprietary products to meet
demand in markets where current offerings are insufficient. These products include, but are not limited to: The Satchel™,
Cultivation Cube™, So-Hum Living Soils™ and the HDCS™. Costs associated with the development of new products
are expensed as incurred as research and development operating expenses. During the year ended December 31, 2019, our research
and development costs were $348 as compared to $590 for the fiscal year ended December 31, 2018.
Deposits
Deposits are
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).
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.
Accounts Receivable
Accounts receivable
are recorded at the net value of face amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates
its accounts receivable and, based on a method of specific identification of any accounts receivable for which it deems the net
realizable value to be less than the gross amount of accounts receivable recorded, establishes an allowance for doubtful accounts
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. As of December 31, 2019, and December 31, 2018 our allowance
for doubtful accounts and was $39,677 and $2,635, respectively. For December 31, 2019 and December 31, 2018, we recorded bad debt
expense of $88,749 and $2,815, respectively, which is reflected as a component of general and administrative expenses on the consolidated
statement of operations.
Significant
Customers
As
of December 31, 2019, there was one customer who equated 10% of the all revenues. For the year ended December 31, 2018, three
customers accounted for 47.5% of the Company’s total product sales revenues, and four customers accounted for 70.65% of
the Company’s total service-based revenue.
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. Depreciation of capitalized construction in progress costs, a component of property and equipment, net, begins
once the underlying asset is placed into service. Property and equipment are reviewed for impairment as discussed below under
“Accounting for the Impairment of Long-Lived Assets.” The Company had not capitalized any interest as of December
31, 2019 and 2018.
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 did not record any impairment charges related to long-lived assets during the years
ended December 31, 2019 and 2018.
Fair Value Measurements
Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value
hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 – Quoted prices in
active markets for identical assets or liabilities.
Level 2 – Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 – Unobservable inputs
that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets
or liabilities.
Our financial instruments include
cash, deposits, accounts receivable, accounts payables, advances from clients, accrued expense, and other current liabilities.
The carrying values of these financial instruments approximate their fair value due to their short maturities.
Revenue
Recognition
During the first quarter of 2019,
we adopted the following accounting principles related to revenue recognition: (a) FASB ASU 2016-12 “Revenue from Contracts
with Customers (Topic 606);” (b) FASB ASU 2016-11 “Revenue Recognition (Topic 605) and (c) FASB ASU 2016-10
“Revenue from Contracts with Customers (Topic 606).” Due to the nature of our contracts with customers,
adopting the new accounting principles did not have a significant impact on our prior period results of operations, cash flows
or financial position.
Our service and product revenues
arise from contracts with customers. Service revenue includes Operations Divisions consulting revenue. Product revenue includes
(a) Operations Division product sales (So-Hum Living Soils) and (b) Equipment Sales
Division. The majority of our revenue is derived from distinct performance obligations, such as time spent delivering a
service or the delivery of a specific product.
We may also enter into contracts
with customers that identify a single, or few, distinct performance obligations, but that also have non-distinct, underlying performance
obligations. These contracts are typically fulfilled within one to three months. Only an insignificant portion of
our revenue would be assessed for allocation between distinct (contractual) performance obligations and non-distinct deliverables
between reporting periods and, accordingly, we do not record a contract asset for completed, non-distinct performance obligations
prior to invoicing the customer.
We recognize revenue when the following
criteria are met:
The parties to the contract
have approved the contract and are committed to perform their respective obligations – our customary practice is
to obtain written evidence, typically in the form of a contract or purchase order.
Each party’s rights regarding
the goods or services have been identified – we have rights to payment when services are completed in accordance
with the underlying contract, or for the sale of goods when custody is transferred to our customers either upon shipment to or
receipt at our customers’ locations, with no right of return or further obligations.
The payment terms for the goods
or services have been identified – prices are typically fixed, and no price protections or variables are offered.
The contract has commercial
substance – our practice is to only enter into contracts that will positively affect our future cash flows.
Collectability is probable – we
typically require a retainer for all or a portion of the goods or services to be delivered, as well as continually monitoring
and evaluating customers’ ability to pay. Payment terms are typically zero to fifteen days within delivery of the
good or service.
Advances from Clients deposits
are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund
the amount received. Where possible, we obtain retainers to lessen our risk of non-payment by our customers. Advances
from Clients deposits are recognized as revenue as we perform under the contract.
Product
Sales
Revenue from
product and equipment sales, including delivery fees, is recognized when an order has been obtained from the customer, the price
is fixed and determinable when the order is placed, the product is delivered, title has transferred and collectability is reasonably
assured. Generally, our suppliers’ drop-ship orders to our clients with destination terms. The Company realizes revenue
upon delivery to the customer. Given the facts that (1) our customers exercise discretion in determining the timing of when they
place their product order; and, (2) the price negotiated in our product sales contracts is fixed and determinable at the time
the customer places the order, we are not of the opinion that our product sales indicate or involve any significant financing
that would materially change the amount of revenue recognized under the contract, or would otherwise contain a significant financing
component for us or the customer under FASB ASC Topic 606. During the year ended December 31, 2019, sales returns were $51,209
comprised of product returns and replacement.
Consulting
Services
We
also generate revenues from professional services consulting agreements. These arrangements are generally entered into: (1) on
an hourly basis for a fixed fee; or, (2) on a contingent fee basis. Generally, we require a complete or partial prepayment or
retainer prior to performing services.
For
hourly based fixed fee service contracts, we utilize and rely upon the proportional performance method, which recognizes revenue
as services are performed. Under this method, in order to determine the amount of revenue to be recognized, we calculate the amount
of completed work in comparison to the total services to be provided under the arrangement or deliverable. We segregate upon entry
into a contract any advances or retainers received from clients for fixed fee hourly services into a separate “Advances
from Clients” account, and only recognize revenues as we incur and charge billable hours, and then deposit the funds earned
into our operating account. Because our hourly fees for services are fixed and determinable and are only earned and recognized
as revenue upon actual performance, we are of the opinion that such arrangements are not an indicator of a vendor or customer
based significant financing, that would materially change the amount of revenue we recognize under the contract or would otherwise
contain a significant financing component under FASB ASC Topic 606.
Occasionally,
our fixed-fee hourly engagements are recognized under the completed performance method. Some fixed fee arrangements are for completion
of a final deliverable or act which is significant to the arrangement as a whole. These engagements do not generally exceed a
one-year term. If the performance is for a final deliverable or act, we recognize revenue under the completed performance method,
in which revenue is recognized once the final act or deliverable is performed or delivered for a fixed fee. 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.
FASB ASC Topic 606 provides a practical expedient to disregard the effects of a financing component if the period between payment
and performance is one year or less. As, our fixed fee hourly engagements do not exceed one year, no significant customer-based
financing is implicated under FASB ASC Topic 606. During the year ended December 31, 2019, and December 31, 2018, we have incurred
no losses from fixed fee engagements that terminate prior to completion. We believe if an engagement terminates prior to completion,
we can recover the costs incurred related to the services provided.
We
primarily enter into arrangements for which fixed and determinable revenues are contingent and agreed 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.
Our
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”) or estimates
of stand-alone selling prices. Revenues are recognized in accordance with our accounting policies for the elements as described
above (see Product Sales). 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, selling prices of the separate elements are generally readily
identifiable as fixed and determinable as we also sell those elements individually outside of a multiple services engagement.
Contracts with multiple elements typically incorporate a fixed-fee or hourly pricing structure. Arrangements are typically terminable
by either party upon sufficient notice or do not include provisions for refunds relating to services provided.
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 is 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.
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 year
ended December 31, 2019 and 2018, these costs were $32,071 and $124,026, 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. We recognize related compensation costs
on a straight-line basis over the requisite vesting period of the award, which to date has been one year from the grant date.
During the years ended December 31, 2019 and 2018, stock-based compensation expense for restricted shares for Company employees
and service providers was $73,514 and $73,742, respectively. Compensation expense for warrants are based on the fair value of
the instruments on the grant date, which is determined using the Black-Scholes valuation model and are expensed over the expected
term of the awards.
Income
Taxes
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 years ended December 31, 2019 and 2018, we
recorded a valuation allowance against our deferred tax assets that reduced our income tax benefit for the period to zero. As
of December 31, 2019, and 2018, we had no liabilities related to federal or state income taxes and the carrying value of our deferred
tax asset was zero.
Net
Loss Per Common Share
The Company
reports net 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 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
earnings per share is equal to basic earnings per share because there are no potential dilatable instruments that would have an
anti-dilutive effect on earnings. Diluted net 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 since 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. 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.
Material related
party transactions are required to be disclosed in the consolidated financial statements, 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.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued its new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic
842). Under the new guidance, the following will be required to be recognized for all leases (with the exception of short-term
leases) as of the commencement date:
|
•
|
A
lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted
basis; and
|
|
•
|
A
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term.
|
|
•
|
Under
the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary,
lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
|
|
•
|
The
new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize
lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.
|
Public
business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). The Company has adopted this pronouncement
as of January 1, 2019 and determined such adoption did not have a material effect in the Company’s consolidated financial
statements.
In
March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation —Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments
and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based
payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity
or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for
annual periods beginning after December 15, 2018, and interim periods within those annual periods. For private companies, the
amendments are effective for annual periods beginning after December 15, 2020, and interim periods within annual periods beginning
after December 15, 2019. Early adoption is permitted for any organization in any interim or annual period. The Company has adopted
this pronouncement as of January 1, 2019 and determined such adoption did not have a material effect in the Company’s consolidated
financial statements.
In
April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance
obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in
Topic 606. This guidance became effective for annual reporting and interim periods beginning after December 15, 2017. The
Company adopted the modified standard on January 1, 2018 and has concluded that the adoption of this standard did not have a material
impact or cause the Company to make any adjustments to the Company’s consolidated financial statements and results of operations.
In
January 2017, FASB issued Accounting Standards Update (ASU) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition
of a Business. The amendments in ASU 2017-01 became effective for public entities for annual and interim periods after December
15, 2017. The Company adopted the modified standard on January 1, 2018 and has concluded that the adoption of this standard did
not have a material impact or cause the Company to make any adjustments to the Company’s consolidated financial statements
and results of operations.
In
June 2018, FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvement
to Non-Employee Share Based Payment Accounting This
update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees
(for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock
Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued
to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees
will be substantially aligned. This standard will be effective for financial statements issued by public companies for the annual
and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The standard will be applied
in a retrospective approach for each period presented. Adoption of this ASU did not have a significant impact on our consolidated
financial statements and related disclosures.
In
August 2018, FASB issued Accounting Standards Update (ASU) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure of Fair
Value Measurement. The amendments in ASU 2018-13 becomes effective for public entities with fiscal years beginning after December
15, 2019. The Company is currently evaluating the effects, if any, that the application of ASU 2018-13 will have on disclosures
associated with fair value measurement.
Note 4.
Accounts Receivable and Advance from Clients
Accounts
receivable was comprised of the following:
|
|
December 31, 2019
|
|
December 31, 2018
|
Gross accounts receivable
|
|
$
|
135,332
|
|
|
$
|
61,520
|
|
Less: allowance for doubtful accounts
|
|
|
(39,677
|
)
|
|
|
(2,635
|
)
|
Accounts receivable, net
|
|
$
|
95,655
|
|
|
$
|
58,885
|
|
For
the years ended December 31, 2019 and December 31, 2018, the Company had bad debt expense of $88,749 and $2,815, respectively.
Our Advances from Clients had the following activity:
|
|
|
|
|
Amount
|
December 31, 2018
|
|
$
|
147,349
|
|
Additional deposits received
|
|
|
2,073,846
|
|
Less: Deposits recognized as revenue
|
|
|
(2,108,236
|
)
|
December 31, 2019
|
|
$
|
112,959
|
|
Note 5.
Inventory
Inventory
consisted of the following:
|
|
December 31, 2019
|
|
December 31, 2018
|
Raw materials
|
|
$
|
23,091
|
|
|
$
|
1,646
|
|
Finished goods
|
|
|
30,219
|
|
|
|
59,359
|
|
Total
|
|
$
|
53,310
|
|
|
$
|
61,005
|
|
|
|
|
|
|
|
|
|
|
Note
6. Property and Equipment, net
Property
and equipment, net, was comprised of the following:
|
|
December 31, 2019
|
|
December 31, 2018
|
Office equipment
|
|
$
|
35,624
|
|
|
$
|
8,482
|
|
Furniture and fixtures
|
|
|
7,240
|
|
|
|
7,240
|
|
Machinery and equipment
|
|
|
7,796
|
|
|
|
7,336
|
|
Work In Progress
|
|
|
10,935
|
|
|
|
—
|
|
Property and equipment, gross
|
|
|
61,595
|
|
|
|
23,058
|
|
Less: accumulated depreciation
|
|
|
(21,553
|
)
|
|
|
(15,020
|
)
|
Property and equipment, net
|
|
$
|
40,042
|
|
|
$
|
8,038
|
|
For the year
ended December 31, 2019 and December 31, 2018, the Company recorded depreciation expense of $6,533 and $3,745, respectively.
Note 7.
Accrued and Other Current Liabilities
Accrued
and other current liabilities consisted of the following:
|
|
December 31, 2019
|
|
December 31, 2018
|
Accrued Bonus
|
|
$
|
1,500
|
|
|
$
|
—
|
|
Accrued Payroll
|
|
|
16,173
|
|
|
|
10,924
|
|
Other Accrued Expenses & Payables
|
|
|
99,630
|
|
|
|
78,844
|
|
Accrued and other current liabilities
|
|
$
|
117,303
|
|
|
$
|
89,768
|
|
Note
8. Stock payable
The
following summarizes the changes in common stock payable:
|
|
Amount
|
|
Number of Shares
|
December 31, 2018
|
|
$
|
—
|
_
|
|
|
—
|
_
|
Additional Expensed Incurred
|
|
|
73,210
|
|
|
|
610,052
|
|
Shares Issued for Expensed Incurred
|
|
|
(23,804
|
)
|
|
|
(73,041
|
)
|
December 31, 2019
|
|
$
|
49,406
|
|
|
|
537,011
|
|
Note 9.
Commitments and Contingencies
Leases
Leases with
an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line
basis over the lease term. Leases with a term greater than one year are recognized on the balance sheet at the time of lease commencement
or modification of a right of use (“RoU”) operating lease asset and a lease liability, initially measured at the present
value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis.
RoU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to
make lease payments arising from the lease.
The Company's
lease consists of real estate lease for office space.
The Company’s
operating leases include options to extend or terminate the lease, which are not included in the determination of the RoU asset
or lease liability unless reasonably certain to be exercised. The Company's operating leases have remaining lease terms of less
than one year. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive
covenants.
As the Company's
leases do not provide an implicit rate, we used an incremental borrowing rate based on the information available at the lease
commencement date in determining the present value of lease payments. The discount rate used in the computations was 6%.
|
|
December 31, 2019
|
Assets:
|
|
|
|
|
Right to Use Lease Asset
|
|
$
|
34,418
|
|
Liabilities:
|
|
|
|
|
Operating Lease Liability
|
|
$
|
34,943
|
|
On
July 28, 2015, the Company entered into a 5-year lease for 6,500 square feet of office space to house its corporate offices. Under
the terms of the lease, payments are $4,500 per month for the first 36 months of the lease and escalate thereafter.
Rent expense
was $54,000 and $54,000 for the years ended December 31, 2019 and 2018, respectively.
The
following table summarizes the Company’s future lease obligations:
|
|
|
|
|
Year
|
|
Amount
|
2020
(Net of interest component of $1,057)
|
|
|
$
|
34,943
|
Note
10. Related Party Transactions
The
Company has a related party entity, Tabular Investments, LLC (“Tabular”) which was set to assign the Company’s
interest in various equity partnership. The sole member of Tabular is Tad Mailander, the Company’s internal legal counsel
and Director. The Company has valued all of its equity partnership investments at $0. Neither our direct equity ownership in,
nor our assignments of equity to Tabular Investments, LLC are, or are reasonably likely to allow for, substantive terms, transactions,
and arrangements, whether contractual or not contractual, that will have a current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We have no direct or indirect
majority influence or control over any entity in which we have a direct equity interest or equity interests assigned to Tabular.
We do not have any direct or indirect interest in, and do not control Tabular. We have not absorbed losses from either our direct
equity interests or assignments to Tabular, and we have provided no subordinated financial support to any project