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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

     
(Mark One)

 

[X]

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2021

 

Or

 

[ ]  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                            to                     

 

 

 

Commission File Number 000-26108

 

AMERICAN CANNABIS COMPANY, INC.
(Exact name of registrant as specified in its charter)

     
Delaware
(State or other jurisdiction of
incorporation or organization)
  90-1116625
(I.R.S. Employer
Identification No.)

 

2590 Walnut Street, #6
Denver
, Colorado
(Address of principal executive offices)

 

 

80205
(Zip Code)

(303974-4770
(Registrant's telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

None

Title of each class

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.00001 Par Value

(Title of each class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 
 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer[ ]

  Accelerated filer [ ]  

Non-accelerated filer [ ]

(Do not check if a smaller reporting company)

  Smaller reporting company [X]

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). [ ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

 

The aggregate market value of common equity held by non-affiliates of the Registrant as of December 31, 2021 was approximately $5,815,104.

As at April 18, 2022 84,727,938 shares of common stock, par value $0.00001, were issued and outstanding.

 

 
 

 


 

TABLE OF CONTENTS

ITEM 1.   BUSINESS     1
           
ITEM 1A.   RISK FACTORS     6
           
ITEM 1B.   UNRESOLVED STAFF COMMENTS     6
           
ITEM 2.   PROPERTIES     6
           
ITEM 3.   LEGAL PROCEEDINGS     6
           
ITEM 4.   MINE SAFETY DISCLOSURES     6
           
    PART II      
ITEM 5.  

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION AND HOLDERS

    6
           
ITEM 6.   SELECTED FINANCIAL DATA     7
           
ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     7
           
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK     16
           
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA     16
           
ITEM 9.  

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

    41
           
ITEM 9A.   CONTROLS AND PROCEDURES     41
           
ITEM 9B.   OTHER INFORMATION     42
           
    PART III      
           
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE     43
           
ITEM 11.   EXECUTIVE COMPENSATION     44
           
ITEM 12.  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

    45
           
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE     46
           
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES     46
           
    PART IV      
           
ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES      47

 

 
 

 

PART I.

 

ITEM 1. BUSINESS

 

This annual report on Form 10-K (including, but not limited to, the following disclosures regarding our Business) contains forward looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this annual report on Form 10-K. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.

 

Forward-looking statements in this annual report on Form 10-K reflect our good faith judgment based on facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this annual report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this annual report on Form 10-K, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

Company Background

 

American Cannabis Company, Inc. and subsidiary is a publicly listed company quoted on the OTC Markets OTCQB Trading Tier under the symbol “AMMJ”. We are based in Denver, Colorado and operate a fully-integrated business model that features end-to-end solutions for businesses operating in regulated cannabis industry in states and countries where cannabis is regulated and/or has been decriminalized for medical use and/or legalized for recreational use. We provide advisory and consulting services specific to this industry, design industry-specific products and facilities, and manage a strategic group partnership that offers both exclusive and non-exclusive customer products commonly used in the industry. We also are licensed operators of three medical cannabis dispensaries and a cannabis cultivation facility in Colorado Springs, CO.

 

We are a Delaware corporation formed on September 24, 2001 with the name Naturewell, Inc. Pursuant to a merger transaction on March 13, 2013,, the Company changed its name to Brazil Interactive Media, Inc. (“BIMI”), and operated as the owner of a Brazilian interactive television technology and television production company named BIMI, Inc. Pursuant to an Agreement and Plan of Merger dated May 15, 2014, between the Company, Cannamerica Corp. (“Merger Sub”), a wholly-owned subsidiary of BIMI, and Hollister & Blacksmith, Inc. a wholly owned subsidiary of American Cannabis Consulting (“American Cannabis Consulting”) we changed our name to American Cannabis Company, Inc. Pursuant to the Merger Agreement, which was consummated and became effective on September 29, 2014, Merger Sub was merged with and into American Cannabis Consulting through a reverse triangular merger transaction, we changed our name to “American Cannabis Company, Inc.”, and our officers and directors in office prior to the Merger Agreement resigned and American Cannabis Consulting appointed new officers and directors to serve our Company. In concert with the Merger Agreement, we consummated a complete divestiture of BIMI, Inc. pursuant to a Separation and Exchange Agreement dated May 16, 2014 (the “Separation Agreement”) between the Company, BIMI, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, and Brazil Investment Holding, LLC (“Holdings”), a Delaware limited liability company. On October 10, 2014, we changed our stock symbol from BIMI to AMMJ.

 

Industry and Regulatory Overview

 

As of the date of this filing, thirty-five states, including the state of Colorado, the District of Columbia and four U.S. Territories currently have laws broadly legalizing cannabis in some form for either medicinal or recreational use governed by state specific laws and regulations. Although legalized in some states, cannabis is a “Schedule 1” drug under the Controlled Substances Act (21 U.S.C. § 811) (“CSA”) and is illegal under federal law.

 

On August 29, 2013, The Department of Justice set out its prosecutorial priorities in light of various states legalizing cannabis for medicinal and/or recreational use. The “Cole Memorandum” provided that when states have implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of cannabis, conduct in compliance with those laws and regulations is less likely to threaten the federal priorities. Indeed, a robust system may affirmatively address those priorities by, for example, implementing effective measures to prevent diversion of cannabis outside of the regulated system and to other states, prohibiting access to cannabis by minors, and replacing an illicit cannabis trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for. In those circumstances, consistent with the traditional allocation of federal-state efforts in this area, the Cole Memorandum provided that enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing cannabis-related activity. If state enforcement efforts are not sufficiently robust to protect against the harms set forth above, the federal government may seek to challenge the regulatory structure itself in addition to continuing to bring individual enforcement actions, including criminal prosecutions, focused on those harms.

  1  

 

 

On January 4, 2018, Attorney General Jeff Sessions issued a memorandum for all United States Attorneys concerning cannabis enforcement under the CSA. Mr. Sessions rescinded all previous prosecutorial guidance issued by the Department of Justice regarding cannabis, including the August 29, 2013 “Cole Memorandum”.

 

In rescinding the Cole Memorandum, Mr. Sessions stated that U.S. Attorneys must decide whether or not to pursue prosecution of cannabis activity based upon factors including: the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community. Mr. Sessions reiterated that the cultivation, distribution, and possession of marijuana continues to be a crime under the U.S. Controlled Substances Act.

 

On March 23, 2018, President Donald J. Trump signed into law a $1.3 trillion-dollar spending bill that included an amendment known as “Rohrabacher-Blumenauer,” which prohibits the Justice Department from using federal funds to prevent certain states “from implementing their own State laws that authorize the use, distribution, possession or cultivation of medical cannabis.”

 

On December 20, 2018, President Donald J. Trump signed into law the Agriculture Improvement Act of 2018, otherwise known as the “Farm Bill.” Prior to its passage, hemp, a member of the cannabis family, was classified as a Schedule 1 controlled substance, and so illegal under the federal CSA.

 

With the passage of the Farm Bill, hemp cultivation is now broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law.

 

Under Section 10113 of the Farm Bill, hemp cannot contain more than 0.3 percent THC. THC refers to the chemical compound found in cannabis that produces the psychoactive “high” associated with cannabis. Any cannabis plant that contains more than 0.3 percent THC would be considered non-hemp cannabis—or marijuana—under the CSA and would not be legally protected under this new legislation and would be treated as an illegal Schedule 1 drug.

 

Additionally, there will be significant, shared state-federal regulatory power over hemp cultivation and production. Under Section 10113 of the Farm Bill, state departments of agriculture must consult with the state’s governor and chief law enforcement officer to devise a plan that must be submitted to the Secretary of the United States Department of Agriculture (hereafter referred to as the “USDA”). A state’s plan to license and regulate hemp can only commence once the Secretary of USDA approves that state’s plan. In states opting not to devise a hemp regulatory program, USDA will construct a regulatory program under which hemp cultivators in those states must apply for licenses and comply with a federally run program. This system of shared regulatory programming is similar to options states had in other policy areas such as health insurance marketplaces under Affordable Care Act, or workplace safety plans under Occupational Health and Safety Act—both of which had federally-run systems for states opting not to set up their own systems.

The Farm Bill outlines actions that are considered violations of federal hemp law (including such activities as cultivating without a license or producing cannabis with more than 0.3 percent THC). The Farm Bill details possible punishments for such violations, pathways for violators to become compliant, and even which activities qualify as felonies under the law, such as repeated offenses.

 

One of the goals of the previous 2014 Farm Bill was to generate and protect research into hemp. The 2018 Farm Bill continues this effort. Section 7605 re-extends the protections for hemp research and the conditions under which such research can and should be conducted. Further, section 7501 of the Farm Bill extends hemp research by including hemp under the Critical Agricultural Materials Act. This provision recognizes the importance, diversity, and opportunity of the plant and the products that can be derived from it, but also recognizes that there is a still a lot to learn about hemp and its products from commercial and market perspectives.

 

As a result of the November, 2020 federal elections, and the election of Joseph R. Biden as president, there is speculation that the federal government may move to amend parts of the CSA and de-schedule cannabis as a Schedule 1 drug.

 

In late January, 2021, Senate Majority Leader Chuck Schumer said lawmakers are in the process of merging various cannabis bills, including his own legalization legislation. He is working to enact reform in this Congressional session. This would include the Marijuana Freedom and Opportunity Act, that would federally de-schedule cannabis, reinvest tax revenue into communities most affected by the drug war, and fund efforts to expunge prior cannabis records. It is likely that the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act would be incorporated.

 

Other federal legislation under review for possible submission includes the SAFE Banking Act (or Secure and Fair Enforcement Act), a bill that would allow cannabis companies to access the federally insured banking system and capital markets without the risk of federal enforcement action, and the Strengthening the Tenth Amendment Through Entrusting States Act (or STATES Act), a bill that seeks protections for businesses and individuals in states that have legalized and comply with state laws).

  2  

 

 

As of the date of this filing, cannabis remains an illegal Schedule 1 drug under the CSA and none of the legislative initiatives being discussed have become federal law.

 

Notably with respect to our business, on November 1, 2019, Colorado Bill HB-19-1090, was passed and made effective. This law allows publicly traded corporations to apply for and qualify for the ownership of Colorado cannabis licenses. Other states that have legalized cannabis for recreational and/or medicinal use restrict public companies from owning interests in state cannabis licenses altogether, or have enacted regulations which make it difficult for corporations to comply with application requirements, including all shareholders submitting to and passing background checks.

 

On September 18, 2020, Colorado’s Marijuana Enforcement Division (MED), approved the Company’s application for suitability, establishing the Company as one of the few publicly traded companies authorized to acquire and operate various cannabis licenses throughout Colorado, in both the recreational and medical markets.

 

Business Overview

 

We now primarily operate within the regulated cannabis industry with four operation divisions: (i) consulting and professional services; (ii) the sale of products and equipment commonly utilized in the cultivation, processing, transportation or retail sale of cannabis; (iii) a new business consulting division called “American Hemp Services,” which offers hemp producers with consulting and professional services including business plan creation, greenhouse and farm design, license acquisition, seed sales, hemp processing, operational deployment, and crop improvement; and, (iv) our licensed owner operator medical marijuana dispensaries and cultivation facilities located in Colorado Springs, Colorado under the trade name “Naturaleaf.” Our operations are limited to only those state jurisdictions where medical and/or recreational cannabis business has been legalized.

Consulting Services

 

We offer consulting services for companies associated with the cannabis and hemp industries in all stages of development. Our service offerings include the following:

 

o Cannabis and Hemp Business Planning. Our commercial cannabis and hemp business planning services are structured to help those pursuing state based operational licensing to create and implement effective, long-range business plans. We work with our clients to generate a comprehensive strategy based on market need and growth opportunities, and be a partner through site selection, site design, the development of best operating practices, the facility build-out process, and the deployment of products. We understand the challenges and complexities of the regulated commercial cannabis and hemp markets and we have the expertise to help client businesses thrive.

 

o Cannabis and Hemp Business License Applications. Our team has the experience necessary to help clients obtain approval for their state license and ensure their company remains compliant as it grows. We have crafted successful, merit-based medical marijuana business license applications in multiple states, and we understand the community outreach and coordination of services necessary to win approval. As part of the process for crafting applications, we collaborate with clients to develop business protocols, safety standards, a security plan, and a staff training program. Depending on the nature of our clients’ businesses and needs, we can work with our clients to draft detailed cultivation plans, create educational materials for patients, or design and develop products that comply with legal state guidelines

 

o Cultivation Build-out Oversight Services. We offer cultivation build-out consulting as part of our Cannabis and Hemp Business Planning service offerings. We help clients ensure their project timeline is being met, facilities are being designed with compliance and the regulated cannabis industry in mind, and that facilities are built to the highest of quality standards for cannabis and hemp production and/or distribution. This enables a seamless transition from construction to cultivation, ensuring that client success is optimized and unencumbered by mismanaged construction projects.

 

o Cannabis Regulatory Compliance. Based on our understanding of regulated commercial cannabis and hemp laws nationwide, we can help client cultivation operations, retail dispensaries and/or infused-product kitchen businesses to meet and maintain regulatory compliance for both medical and recreational markets. We partner with our clients to establish standard operating procedures in accordance with their state’s regulation and help them implement effective staff hiring and training practices to ensure that employees adhere to relevant guidelines.

 

o Compliance Audit Services. Our regulatory compliance service offerings include compliance auditing. The regulated cannabis and hemp industries are developing rapidly with evolving laws and regulations and navigating through current and new regulations and systems can be tedious and daunting. To assist our clients in addressing these challenges, we offer compliance audits performed by our experienced and knowledgeable staff; our team members maintain comprehensive oversight of the cannabis and hemp industries while staying up to date on current and new laws and regulations. Our compliance audits assess various regulatory topics, including: (1) licensing requirements; (2) visitor intake procedures; (3) seed-to-sale inventory tracking; (4) proper waste disposal procedures; (5) recordkeeping and documentation requirements; (6) cannabis transportation procedures; (7) packaging and labeling requirements; (8) security requirements; (9) product storage; (10) mandatory signage; and (11) preparedness for state and local inspections.

 

o Cannabis and Hemp Business Growth Strategies. Our team shares its collective knowledge and resources with our clients to create competitive, forward-looking cannabis and hemp business growth strategies formulated to minimize risk and maximize potential. We customize individual plans for the unique nature of our client businesses, their market and big-picture goals, supported with a detailed analysis and a thorough command of workflow best practices, product strategies, sustainability opportunities governed by a core understanding or regulatory barriers and/or opportunities.

 

o Cannabis and Hemp Business Monitoring. The regulated commercial cannabis and hemp industries are constantly growing and shifting, and the ongoing monitoring of a cannabis and hemp business allows it to remain responsive to evolving consumer demands and state regulations as well as potential operations problems. We offer fully integrated business analysis solutions. Our monitoring services include sales tracking, market assessment, loss prevention strategies, review of operational efficiency and workflow recommendations. Additionally, our services include Strength, Weakness, Opportunity and Threat (“SWOT”) analysis, where we analyze client operations to pinpoint strengths, weaknesses, opportunities and threats. Our SWOT analyses allow clients to focus their efforts and resources on the most critical areas along these dimensions.

 

  3  

 

Equipment and Supplies

 

In addition to professional consulting services, we operate an equipment and supplies division for customers in the cannabis industry. Our Group Purchasing Organization, American Cultivator CO., enables customers to procure commonly used cultivation supplies at competitive prices. Our major product offerings include the following:

 

o The Satchel™. The Satchel was invented in response to regulatory changes in Colorado and elsewhere that require childproof exit containers. The Satchel is a pouch-like case designed as a high-quality, child-proof exit package solution for the regulated cannabis industry. The Satchel meets child-safety requirements of the Consumer Products Safety Commission (“CPSC”), making it compliant in all states, and the Satchel’s drawstring and toggle lock fulfills the requirements of the Poison Prevention Packaging Act of 1970 (16 CFR part 1700). There are few products meeting regulatory standards, and even fewer that offer distinctive quality. The Satchel will meet all current exit packaging regulations, featuring a child-proof closure that completely conceals the contents inside. On March 29, 2016, the U.S. Patent and Trademark Office issued us Patent No. 9,296,524 B2 for the Satchel.

 

o SoHum Living Soil™. The right grow methodology is critical to the success of any cannabis cultivation operation, and SoHum Living Soil™ is our solution to ensure that our customers can implement an optimal methodology that will maximize quality and yields while simplifying the cultivation process and reducing risk of operator error and test failure. The SoHum medium is a fully amended Just-add-water soil that contains none of the synthetic components found in other potting mixes and requires no chemical additives to spur growth. Compared with comparable methodologies, SoHum Living Soil™ offers a number of key advantages, including: (1) consistent Pyto-pharmaceutical-grade product quality; (2) improved plant resistance to disease; and (3) reduced operator error.

 

o High Density Cultivation System (HDCS™). A key metric in the success of a cultivation operation is the maximization of available space to grow. Our High-Density Cultivation System is a solution designed to ensure that space is used in the most efficient manner possible. The system takes advantage of the existence of vertical space, with racks installed vertically and placed on horizontal tracking to eliminate multiple isles and create multiple levels of space with which to grow plants. The High-Density Cultivation System allows customers to increase production capacity without the need to add additional square footage to the operation.

 

o The Cultivation Cube™. The Cultivation Cube™ is a self-contained, scalable cultivation system that is compliant with regulatory guidelines. The Cultivation Cube™ allows commercial cannabis cultivation operations to maximize space, yield and profit through an innovative design that provides a fully integrated growing solution. The Cultivation Cube utilizes more lights per square foot than traditional grow systems, which translates to profit increases per square foot. The Cultivation Cube™ is also stackable, which allows customers to achieve vertical gains and effectively doubles productive square-footage. It is an ideal solution for commercial-scale cultivation within limited space, with numerous advantages over other traditional grow systems, including: (1) flexibility to fit customer build-out sites; (2) efficient speed-to-market with fast delivery and setup; (3) increased security with limited access units; (4) risk mitigation through precision environmental controls; and, (5) is compatible with lean manufacturing principles and operations.

 

o Other Products. We offer our clients a diverse array of commonly utilized product offerings from across all areas of the regulated cannabis industry, including cultivation operations, medicinal and recreational cannabis dispensary operations, and infused products. Examples of products available through American Cultivator Co. include HID Ballasts, reflectors, MH and HPS bulbs, T5 fixtures, mediums, nutrients and fertilizers, growing containers, flood tables, reservoirs, and various other supplies, including cleaning products and office supplies. We also offer a Group Purchasing Organization (“GPO”) focused on disposables to creates purchasing power by leveraging groups of businesses to obtain discounts from vendors based on the collective buying power of the GPO.

 

Naturaleaf

 

On December 16, 2020, the Company announced that it executed a non-binding letter of intent to purchase assets of Naturaleaf, a long-standing licensed operator in the Colorado Springs medical cannabis market since 2009. Assets include three (3) retail dispensaries located throughout the city along with one 10,000 square foot cultivation operation with non-volatile extraction capabilities.

 

On March 11, 2021, we entered into an asset purchase agreement with Medihemp, LLC (“Medihemp”) and its wholly owned subsidiary SLAM Enterprises, LLC (“SLAM”), and Medical Cannabis Caregivers, Inc. (“Medical Cannabis”), each an entity organized and operating under the laws of the State of Colorado, and all doing business as “Naturaleaf.”

 

Medihemp and SLAM respectively own fixed assets and operates two retail Medical Marijuana Centers located at 1004 S. Tejon Street, Colorado Springs, CO 80903, and 2727 Palmer Park Blvd. Suite A, Colorado Springs, CO 80909.

 

Medical Cannabis owns and operates fixed assets and operates a retail Medical Marijuana Center located at 5875 Lehman Drive, Ste. 100, Colorado Springs, CO 80918.

 

Medical Cannabis also owns and operates a Medical Marijuana Optional Premises Cultivation license, and a Medical Marijuana-Infused Product Manufacturer license, along with fixed assets all located at 2611 Durango Drive, Colorado Springs, CO 80910.

 

  4  

 

On April 30, 2021, the Colorado MED and the City of Colorado Springs granted approval for the change of ownership, and we completed the asset purchase agreement. By virtue of the closing, we acquired, own, and operate the fixed assets and associated intellectual property of Naturaleaf, including assignment of the following licenses issued by the Colorado Marijuana Enforcement Division (“MED”) and the corresponding City of Colorado Springs (“City”):

 

o Medihemp and SLAM’s and Medical Cannabis’ respective Medical Marijuana Center licenses;

 

o Medical Cannabis’ Medical Marijuana Infused Product Manufacturer license; and,

 

o Medical Cannabis’ Medical Marijuana Optional Premises Cultivation license.

 

We also entered into leases for Medihemp, SLAM, and Medical Cannabis’ respective retail Medical Marijuana Centers and entered into a separate lease for Medical Cannabis’ Durango Drive cultivation facility.

 

Sales and Marketing

 

We sell our services and products throughout the United States in states that have implemented regulated cannabis programs as well as Canada. We intend to expand our offerings to more countries, states and jurisdictions as they adopt state-regulated or Federal programs.

 

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 occurred as research and development operating expenses. During the years ended December 31, 2021, and 2020 our research and development costs were de minimis.

 

Significant Customers

 

For the year ended December 31, 2021, nine customers accounted for 50.1% of the Company’s total revenues from its consulting and soil and product revenue lines for the period. As of December 31, 2020, three customers accounted for 84.21% of the Company’s total revenues.

 

At December 31, 2021, two customers accounted for 77.3% of accounts receivable, net. Accounts Receivable, net consist of customers of our consulting services and soil and products revenue streams. At December 31, 2020, three customers accounted for 84.21% of accounts receivables, net.

 

Intellectual Property

 

On March 29, 2016, the U.S. Patent and Trademark Office issued patent number 9,296,524 B2 for The Satchel™, our child-proof exit package solution for the regulated cannabis industry. We also have trademark applications pending to protect our branding and logos. These pending applications included trademarks for American Cannabis Company (stylized and/or with design logo), American Cannabis Consulting (stylized and/or with design logo), the design and colors used in our leaf logo, the Cultivation Cube (stylized and/or with design logo), our slogan (“Growing the Next Frontier”), and two-word marks and the logo associated with So-Hum Living Soil™.

 

Competition

 

Our competitors include professional services firms and cannabis dispensaries in the regulated cannabis and hemp industries, as well as suppliers of equipment and supplies commonly utilized in the cultivation, processing, or retail sale of cannabis and hemp. We compete in markets where cannabis and hemp has been legalized and regulated, which includes various states within the United States, it’s territories and Indian Country therein and Canada. We expect that the quantity and composition of our competitive environment will continue to evolve as the cannabis and hemp industries mature. Additionally, increased competition is possible to the extent that new states and geographies enter the marketplace as a result of continued enactment of regulatory and legislative changes that de-criminalize and regulate cannabis and hemp products. We believe that by being well established in the industry, our experience and success to date, and our continued expansion of service and product offerings in new and existing locations, are factors that mitigate the risk associated with operating in a developing competitive environment. Additionally, the contemporaneous growth of the industry as a whole will result in new customers entering the marketplace, thereby further mitigating the impact of competition on our operations and results.

 

Employees

 

As of December 31, 2021, we have 7 full-time employees in our Denver headquarters, and 7 full time and 7 part time employees, in our Colorado Springs, Colorado dispensaries and cultivation facility. None of our U.S employees are represented by a labor union.

 

  5  

 

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

 

ITEM 2. PROPERTIES

 

Our headquarters are located at 2590 Walnut Street, #6, Denver, CO 80205, where we lease office space under a contract effective January 1, 2022, expiring on June 30, 2022.

 

As a result of our acquisition of Naturaleaf, we entered into the following leases:

 

o 1004 S. Tejon Street, Colorado Springs, CO 80903 subject to a one-year term expiring June 30, 2022 with a monthly rent of $3,700.

 

o 2727 Palmer Park Blvd. Suite A, Colorado Springs, CO 80909 subject to a one-year term expiring June 30, 2022 with a monthly rent of $1,069.
     
o 5870 Lehman Drive Suite 200, Colorado Springs, CO 80918 subject to a lease with two years remaining and expiring on January 1, 2023 with an option to extend for an additional 60 months. Our current monthly rent is $2,732.

 

o 2611 Durango Drive, CO Springs, CO, subject to a lease expiring May 31, 2022 with a monthly rent of $10,200.

 

Our corporate headquarters, and our Colorado Springs, Colorado dispensary and cultivation leases are, as of the date of this filing, adequate for our operations, providing productive capacity, and complete utilization for our business.

 

ITEM 3. LEGAL PROCEEDINGS

 

On November 15, 2019, Erin Turoff  filed suit against the Company and Mr. Terry Buffalo, our former principal executive officer, principal financial officer and director, and Mr. Ellis Smith, our current principal executive officer and principal financial officer and director, in Denver County District Court under case number 2019CV034380. The complaint sought a declaratory judgment and damages relating to Plaintiff’s allegations that while working with the Company, she was misclassified as an independent contractor when she was allegedly an employee of the Company. Plaintiff alleged she is owed unpaid overtime, liquidated damages, wages, and other compensatory damages for her misclassification and alleged wrongful termination. Plaintiff’s suit against Mr. Buffalo and Mr. Smith personally alleged that each are the alter ego of the Company and are therefore jointly and severally liable. The Company filed a cross complaint against Plaintiff for theft of trade secrets and other tort theories. On January 24, 2022, without admitting or denying the claims and counterclaims of the parties, the parties entered into a settlement agreement and mutual release of their respective claims. In exchange for the release and dismissal of the action with prejudice, the Company, and separately Messrs. Buffalo and Smith jointly and severally, agreed to pay Plaintiff a total of $350,000 in a structured settlement consisting of an initial payment of $100,000, and monthly payments of $6,250 for 24 months, with a second lump sum payment of $50,000 due on or before the anniversary of the initial payment, and a final $50,000 payment due on or before January 24, 2023. On February 17, 2022, the parties moved the court for joint dismissal of the principal case and cross complaints. The court dismissed the case on February 18, 2022. The Company has made all payments consistent with the settlement agreement as of the date of this filing.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

PART II.

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.MARKET INFORMATION AND HOLDERS

 

Our common stock trades on the OTC Markets OTCQB Trading Tier under the ticker symbol “AMMJ.” As of December 31, 2021, there were 494 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock:

 

2021   High   Low
 Quarter ended December 31    $ 0.11    $ 0.05
 Quarter ended September 30    $ 0.17 $ 0.09
 Quarter ended June 30    $ 0.25 $ 0.18
 Quarter ended March 31    $ 0.39 $ 0.06

 

2020 High   Low  
 Quarter ended December 31    $ 0.12    $ 0.05
 Quarter ended September 30    $ 0.16    $ 0.05
 Quarter ended June 30    $ 0.20    $ 0.09
 Quarter ended March 31    $ 0.08    $ 0.17

 

DIVIDEND POLICY

 

We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock. Instead, we currently anticipate that we will retain all of our future earnings, if any, to fund the operation and expansion of our business and to use as working capital and for other general corporate purposes. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.

  6  

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The statements contained in this report that are not statements of historical fact, including without limitation, statements containing the words “believes,” “expects,” “anticipates” and similar words, constitute forward-looking statements that are subject to a number of risks and uncertainties. From time to time we may make other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many factors, including the risks discussed from time to time in this report, including the risks described under “Risk Factors” in any filings we have made with the SEC.

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.

 

Background

 

American Cannabis Company, Inc. and subsidiary is a publicly listed company quoted on the OTC Markets OTCQB Trading Tier under the symbol “AMMJ”. We are based in Denver, Colorado and operate within the regulated cannabis industry with four operation divisions: (i) consulting and professional services; (ii) the sale of products and equipment commonly utilized in the cultivation, processing, transportation or retail sale of cannabis; (iii) a new business consulting division called “American Hemp Services,” which offers hemp producers with consulting and professional services including business plan creation, greenhouse and farm design, license acquisition, seed sales, hemp processing, operational deployment, and crop improvement; and, (iv) our licensed owner operator medical marijuana dispensaries and cultivation facilities located in Colorado Springs, Colorado under the trade name “Naturaleaf.” Our operations are limited to only those state jurisdictions where medical and/or recreational cannabis business has been legalized. American Cannabis Company, Inc. is a publicly listed company quoted on the OTCQB Tier under the symbol “AMMJ”. 

NATURALEAF ACQUISITION

 

On April 30, 2021, the Company closed its acquisition of the assets of Medihemp, LLC, and its wholly owned subsidiary SLAM Enterprises, LLC, and Medical Cannabis Caregivers, Inc., each an entity organized and operating under the laws of the State of Colorado, and all doing business as “Naturaleaf” in the medicinal cannabis industry in Colorado.

 

Medihemp and SLAM, respectively own fixed assets and operate two retail Medical Marijuana Centers located in Colorado Springs, Colorado. Medical Cannabis owns fixed assets and operates a retail Medical Marijuana Center located in Colorado Springs, Colorado. Medical Cannabis also owns and operates a Medical Marijuana Optional Premises Cultivation license, and a Medical Marijuana-Infused Product Manufacturer license.

 

Naturaleaf agreed to sell or assign to the Company the following assets:

 

  1. Three Medical Marijuana (MMC) Store Licenses;

 

  2. One Marijuana Infused Product Licenses (MIPS); and,

 

  3. One Option Premises Cultivation License (OPC); and,

 

  4. Related real property assets, goodwill, and related business assets.

  

As a result, the Company has expanded its business model to include the cultivation and retail sale of cannabis in the medicinal cannabis industry.

 

  7  

 

The aggregate consideration paid for the Assets was $2,890,000, which consisted of (i) a cash payment of $1,100,000, (ii) the issuance of a promissory note to the owner of Naturaleaf in the principal amount of $1,100,000 (the “Seller Note”), and (iii) the issuance of 3,000,000 shares of the Company’s restricted common stock valued at $0.23 per share or $690,000.

 

The asset acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of Medihemp LLC and Medical Cannabis Caregivers, Inc.’s (hereafter “Naturaleaf’s”) assets acquired and conformed the accounting policies of Naturaleaf to its own accounting policies.

 

As part of the acquisition, the owners of Naturaleaf retained the outstanding cash balance on the date of the acquisition and had agreed to the payment of all outstanding accounts payables and related party advances.

 

The Company has performed a preliminary valuation analysis of the fair market value of Naturaleaf’s assets. The following table summarizes the allocation of the purchase price as of the acquisition date:

 

Cash   $ --  
Inventory     72,172  
Property, plant and equipment     26,715  
Long Term Deposits     6,000  
Identifiable intangible assets     800,000  
Goodwill     1,985,113  
Accounts payable     --  
Total consideration   $ 2,890,000  

Goodwill from the acquisition primarily relates to the future economic benefits arising from the assets acquired and is consistent with the Company's stated intentions and strategy. Other assets include inventory and fixed assets.

 

The fair value of Naturaleaf’s identifiable intangible assets was $800,000 at April 30, 2021, consisting of $500,000 in licenses and $300,000 in brand names.

 

The estimated fair values assigned to identifiable assets acquired assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

 

Results of Operations

 

Year ended December 31, 2021 compared to year ended December 31, 2020

 

The following table presents our operating results for the year ended December 31, 2021 compared to December 31, 2020:

 

  8  

 

 

AMERICAN CANNABIS COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

    For the Year Ended    
    December 31,   December 31,   Increase
    2021   2020   (Decrease)
Revenues            
Consulting Services   $ 381,094     $ 505,363       (124,269 )
Product & Equipment     1,017,361       1,064,431       (47,070 )
Cannabis Products     1,006,148       —         1,006,148  
Total Revenues     2,4404,603       1,569,794       834,809  
                         
Cost of Revenues                        
Cost of Consulting Services     36,179       108,706       (72,527 )
Cost of Products and Equipment     758,940       740,409       18,531  
Cost of Cannabis Products     553,336       —         553,336  
Total Cost of Revenues     1,348,455       849,115       499,340  
Gross Profit     1,056,148       720,679       335,469  
                         
Operating Expenses                        
General and Administrative     2,050,272       1,010,902       1,039,370  
Selling and Marketing     199,968       298,937       (98,969 )
Bad Debt Expense     54,435       4,910       49,525  
Litigation Settlement Expense     350,000       —         350,000  
Stock Based Compensation Expense     42,206       29,970       12,236  
Total Operating Expenses     2,696,881       1,344,719       1,352,162  
Loss from Operations     (1,640,733 )     (624,040 )     (1,016,693 )
                         
Other Income (Expense)                        
Interest (expense)     (75,374 )     (1,786 )     (73,588 )
Debt Forgiveness     240,975       —         240,975  
Other income     35,883       93,413       (57,530 )
Total Other (Expense)Income     201,484       91,627       109,857  
Net Loss     (1,439,249 )     (532,413 )     (906,836 )
Income Tax Expense     —         —         —    
NET LOSS   $ (1,439,249 )   $ (532,413 )     (906,836 )

 

  9  

 

Revenues

 

Total revenues were $2,404,603 for the year ended December 31, 2021 as compared to $1,569,794 for the year ended December 31, 2020. The increases in total revenue of $834,809 for the year ended December 31, 2021, represents a decrease of $124,269 in consulting revenue combined with a $47,070 decrease in product and equipment revenue offset by the new revenue stream from the sale of cannabis products of $1,006,148.

 

Costs of Revenues

 

Costs of revenues primarily consists of labor, travel, cost of equipment and soil sold, and other costs directly attributable to providing services or soil products. Costs of revenues related to our cannabis products include cultivation costs, including labor, utilities, supplies and cultivation facility rent. During the year ended December 31, 2021, our total costs of revenues were $1,348,455 compared to $849,115 for the year ended December 31, 2020. Decreases in costs of consulting services and products and equipment during year ended December 31, 2021 were associated with decreases in revenue and were offset by $573,937 in costs associated with the Company’s new sale of cannabis products.

 

Consulting Services

 

Consulting service revenues during the year ended December 31, 2021 were $381,094 versus $503,363 for the year ended December 31, 2020. Decreases in consulting services is a combination of seeing not only COVID-19 restrictions effect clients plans for expansion or implementation of projects combined with delays in legalization in certain states where voters have approved legalization for either medicinal or recreational use in late 2020, but there have been delays in implementing the laws and programs. During the 4th Quarter of 2021, the Company did start to see an uptick in requests for services as more states implemented their laws.

 

Costs of Services were $36,179 compared to $108,706 for the year ended December 31, 2021 and 2020. Costs associated with consulting services decreased $72,527, as the Company has focused on the use of internal staff, rather than consultants for a majority of this work.

 

Soil Product and Equipment Revenues

 

Our product and equipment revenues for the year ended December 31, 2021 were $1,017,361 versus $1,064,431 for the year ended December 31, 2020. As a result of changes in warehousing and production practices, combined with an increase in prices and the discontinuance of certain products, soil sales have seen a decrease.

 

Costs of Products and Equipment were $758,940 and $740,409, during the year ended December 31, 2021. Costs associated with products and equipment increased, as a result of increased equipment sales during the 4th quarter.

 

Cannabis Product Revenues

 

Cannabis product revenues during the year ended December 31, 2021 were $1,006,148. The Company acquired the assets of Naturaleaf on April 30, 2021 and only began recognizing revenues from these operations on May 1, 2021.

 

Costs associated with cannabis products consists of those costs incurred in the cultivation of the plants and the retail sale of the products. During the year ended December 31, 2021, such costs were $553,336.

 

Gross Profit

 

Total gross profit was $1,056,148 for the year ended December 31, 2021, compromised of consulting services gross profit of $344,915, products and equipment gross profit of $258,421 and a gross profit of $452,812 for cannabis products. This compares to total gross profit of $720,679 for the year ended December 31, 2020, compromised of consulting services gross profit of $396,657 and products and equipment gross profit of $324,002. The relative decreases in the gross profits of consulting services and products and equipment are a result of the actions described below.

 

The decrease in our consulting services gross profits during the year ended December 31, 2021, reflects the effects of COVID-19 which has been compounded by delays in finalization of rules for implementation in states that in 2020 legalized cannabis for either medicinal or recreational purposes The decrease in gross profits for products and equipment was due to the Company expanding its product line in large quantity container (“Tote”) selling at lower margins as a promotion to clients during the period.

 

  10  

 

 

Operating Expenses

 

Total operating expenses were $2,696,881, for the year ended December 31, 2021, and $1,344,719 for the year ended December 31, 2021. The increase in operating expenses of $1,352,162 is attributed to the recognition of the $350,000 settlement expense in the Turoff litigation and are combined with increases in bad debt expense, legal, accounting and other third-party consultant costs associated with the closing of the Naturaleaf asset acquisition. The Company has seen additional increases in depreciation and amortization expenses, sales and marketing expenses and web site design during the period.

 

Other Income (Expense)

 

Other income (expense) for the year ended December 31, 2021 was $201,484 as compared with $91,627 for the nine months ended December 31, 2020. The increase is a direct result of the forgiveness of the Company’s then outstanding PPP loan by the Small Business Administration offset by increases in interest expenses resulting from the $1,100,000 promissory note issued in connection with the asset acquisition from Naturaleaf.

  

Net Loss

 

Net loss for the year ended December 31, 2021 was ($1,439,249) as compared to a net loss of ($532,413) for the year ended December 31, 2020. The increase in losses are a direct result of increases in cost of goods and operational expenses caused by the acquisition of the Naturaleaf acquisition combined with the litigation settlement expense.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of December 31, 2021, our primary internal sources of liquidity were our working capital, which included cash and cash equivalents of $670,423 and accounts receivable of $11,316. Additionally, considering that our fixed overhead costs are low, we have the ability to issue stock to compensate employees and management. In prospective, due to the delay in additional states enacting legalization for cannabis products management has initiated raising additional capital as needed to offset general and administrative expenses for at least the next 12 months. Management believes this strategy will adequately provide the necessary liquidity and capital resources to fund our operational and general and administrative expenses for at least the next 12 months.

 

During the year ended December 31, 2021, the Company issued 8,050,000 registered shares of common stock in exchange for net proceeds of $1,241,043 pursuant to the Common Stock Purchase Agreement entered into on October 11, 2019 with White Lion Capital LLC. The Company has registered 34,000,000 million shares of its common stock to sell to White Lion Capital, LLC on an as needed basis for funds to support operational activities.

 

Operating Activities

 

Net cash used by operating activities for the year ended December 31, 2021 was a use of ($957,978), compared to net cash used by operating activities of ($525,794), for the year ended December 31, 2020. Increases in cash used were a result of the increases in inventory, prepaid expenses and an increase in net loss. All a result of the addition of cannabis operations.

 

Investing Activities

 

For the year ended December 31, 2021 and 2020, investing activities were a use of cash of ($1,465,960) and $267 respectively. The increases were result of the cash payment in the acquisition of the assets of Naturaleaf of $1,100,000 and expenditures of equipment and leasehold improvements for the cultivation and dispensary facilities of $357,801.

 

Financing Activities

 

During the year ended December 31, 2021 proceeds received from financing activities was $1,371,229 and $1,303,478 for the year ended December 31, 2020. Funds received during the year ended December 31, 2021 were from the sale of shares of the Company’s registered common stock and a receipt of funds from the Company’s second SBA PPP Loan.

  

 

Off Balance Sheet Arrangements

 

As of December 31, 2021, and December 31, 2020, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Non-GAAP Financial Measures

  11  

 

A reconciliation of net income(loss) to Adjusted EBITDA is provided below:

 

    Year Ended   Year Ended
    December 31, 2021   December 31, 2020
Adjusted EBITDA reconciliation:                
Net loss   $ (1,439,249 )   $ (532,413 )
Bad Debt Expense     54,435       4,910  
Depreciation and Amortization     95,262       13,937  
Interest Expense     75,374       1,786  
Stock-based compensation to employees     42,207       29,970  
Stock issued for services     —         7,066  
Adjusted EBITDA   $ (1,171,971 )   $ (474,744 )

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect amounts reported in those statements. We have made our best estimates of certain amounts contained in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. However, application of our accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties, and, as a result, actual results could differ materially from these estimates. Management believes that the estimates, assumptions, and judgments involved in the accounting policies described below have the most significant impact on our consolidated financial statements.

 

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

 

Cash and Cash Equivalents

We consider 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.

Inventory

Inventory is primarily comprised of products and equipment to be sold to end-customers. Inventory is valued at cost, based on the specific identification method, unless and until the market value for the inventory is lower than cost, in which case an allowance is established to reduce the valuation to market value. As of December 31, 2020, and December 31, 2019, market values of all of our inventory were greater than cost, and accordingly, no such valuation allowances was recognized.

 

Deposits

Deposits is comprised of advance payments made to third parties, primarily for inventory for which we have not yet taken title. When we take 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 are 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 any allowance for doubtful accounts. On a periodic basis, we evaluate our accounts receivable and, based on a method of specific identification of any accounts receivable for which we deem the net realizable value to be less than the gross amount of accounts receivable recorded, we establish an allowance for doubtful accounts for those balances. In determining our need for an allowance for doubtful accounts, we consider historical experience, analysis of past due amounts, client creditworthiness and any other relevant available information. However, our actual experience may vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay our fees, we may need to record additional allowances or write-offs in future periods. This risk is mitigated to the extent that we collect retainers from our 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, 2021, and December 31, 2020 our allowance for doubtful accounts was $ 82,540 and $14,980, respectively. For December 31, 2021 and December 31, 2020, we recorded bad debt expense of $54,435 and $4,910, respectively.

 

  12  

 

Operating Lease

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability, on a discounted basis, and a right-of-use asset for substantially all leases, as well as additional disclosures regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which provides an optional transition method of applying the new lease standard. Topic 842 can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or as permitted by ASU 2018-11, at the beginning of the period in which it is adopted.

 

We adopted this standard using a modified retrospective approach on January 1, 2019. The modified retrospective approach includes a number of optional practical expedients relating to the identification and classification of leases that commenced before the adoption date; initial direct costs for leases that commenced before the adoption date; and, the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset.

The Company elected the package of practical expedients permitted under ASC 842 allowing it to account for its existing operating lease that commenced before the adoption date as an operating lease under the new guidance without reassessing (i) whether the contract contains a lease; (ii) the classification of the lease; or, (iii) the accounting for indirect costs as defined in ASC 842.

 

In considering its qualitative disclosure obligations under ASC 842-20-50-3, the Company examined its one lease for office space that has a fixed monthly rent with no variable lease payments and no options to extend. The lease is for an office space. The lease does not provide for terms and conditions granting residual value guarantees by the Company, or any restrictions or covenants imposed by the lease for dividends or incurring additional financial obligations by the Company. The Company also elected a short-term lease exception policy and an accounting policy to not separate non-lease components from lease components for our facility lease, as we determined our right of use asset to be zero.

 

Consistent with ASC 842-20-50-4, the Company calculated its total lease cost based solely on its monthly rent obligation. The Company had no cash flows arising from its lease, no finance lease cost, short term lease cost, or variable lease costs. Our office lease does not produce any sublease income, or any net gain or loss recognized from sale and leaseback transactions. As a result, the Company did not need to segregate amounts between finance and operating leases for cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows; supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets; weighted-average calculations for the remaining lease term; or the weighted average discount rate.

 

The adoption of this guidance resulted in no significant impact to our results of operations or cash flows.

 

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 and is recognized over the estimated useful life. Property and equipment are reviewed for impairment as discussed below under “Accounting for the Impairment of Long-Lived Assets.” We did not capitalize any interest as of December 31, 2021 and as of December 31, 2020.

 

Accounting for the Impairment of Long-Lived Assets

We evaluate 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. We have not recorded any impairment charges related to long-lived assets during the year ended December 31, 2021, and December 31, 2020.

 

Revenue Recognition

 We have adopted the following accounting principles related to revenue recognition: (a) FASB ASU 2016-12 “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), (b) Equipment sales division, (c) Cannabis 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 six 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 in accordance with ASC 606 using the following 5 steps to identify revenues:

 

  (1) Identify the contract with the Customer. Our customary practice is to obtain written evidence, typically in the form of a contract or purchase order.

 

  (2) Identify the performance obligations in the contract. 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 delivery to our customers’ locations, with no right of return or further obligations.

 

  (3) Determination of the transaction price. Prices are typically fixed, and no price protections or variables are offered.

 

  (4) Allocation of the transaction price to the performance obligations in the contract. Transaction prices are typically allocated to the performance obligations outlined in the contract.

 

  (5) Recognize Revenue when (or as) the entity satisfies a performance obligation. We typically require a retainer for all or a portion of the goods or services to be delivered. We recognize revenue as the performance obligations detailed in the contract are met.

 

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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 meet specified performance obligations as detailed in the contract.

 

Product and Equipment 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 years ended December 31, 2021 and 2020, sales returns were $0.

 

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

For hourly based fixed fee service contracts, we utilize and rely upon the proportional performance method, which recognizes revenue as services are completed. 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. 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 years ended December 31, 2021 and 2020, we 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 recognized as liabilities and paid to the appropriate government entities.

  

Cannabis Sales

 

Revenues consist of the retail sale of cannabis and related products. Revenue is recognized at the point of sale for retail customers. Payment is typically due upon transferring the goods to the customer or within a specified time period permitted under the Company’s credit policy. Sales discounts were not material during the years ended December 31, 2021 and 2020.

 

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Costs of Revenues

Our policy is to recognize costs of revenue in the same manner in conjunction with revenue recognition. Cost of revenues include 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, 2021 and December 31, 2020, these costs were $116,122 and $9,934, 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 restricted 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, 2021 and 2020, stock-based compensation expense for restricted shares for Company employees was $42,207 and $29,970, 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. During the year ended December 31, 2021 and 2020, no warrants were issued as stock compensation.

 

Income Taxes

Our corporate status changed from an S-Corporation, which it had been since inception, to a C-Corporation during the year ended December 31, 2014. As provided in Section 1361 of the Internal Revenue Code, for income tax purposes, S-Corporations are not subject to corporate income taxes; instead, the owners are taxed on their proportionate share of the S-Corporation’s taxable income. Accordingly, we were only subject to income taxes for a portion of 2014. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. For the year ended December 31, 2021 and December 31, 2020, due to cumulative losses since our corporate status changed, we recorded a valuation allowance against our deferred tax asset that reduced our income tax benefit for the period to zero. As of December 31, 2021, and December 31, 2020, we had no liabilities related to federal or state income taxes and the carrying value of our deferred tax asset was zero. The years 2010 to 2021 remain subject to examination by the Company’s major tax jurisdictions.

Due to its cannabis operations, the Company is subject to the limitations of Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

Net Loss Per Common Share

We report 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 net income (loss) per share gives effect to any dilutive potential common stock outstanding during the period. The computation does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

 

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Related Party Transactions

We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.

 

Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

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.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

  16  

 

 

 

Report of Independent Registered Public Accounting Firm (PCAOB Number 324)

 

Board of Directors and Shareholders

American Cannabis Company, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of American Cannabis Company, Inc. (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses. As of December 31, 2021, the Company has an accumulated deficit of $9,447,517. During the year ended December 31, 2021, the Company also experienced negative cash flows from operating activities of $957,978. It appears these principal conditions or events, considered in the aggregate, indicate it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Emphasis of Matter Related to the Company’s Operations

 

The Company is an organization that provides products and services in the legalized cannabis industry. The Company operates in an industry where laws and regulations vary significantly by jurisdiction. Currently, several states permit medicinal or recreational use of cannabis; however, the use of cannabis is prohibited on a federal level in the United States. If any of the states that permit use of cannabis were to change their laws or the federal government was to actively enforce such prohibition, the Company’s business could be adversely affected. The Company also currently accepts credit card payments for purchases of legal cannabis at their retail locations. At any given time, the credit card companies may cease to process credit card payments for these sales, which could cause significant interruption in the Company’s operations.

 

Basis for Opinion

 

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. the Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

 

Valuation of Intangible Assets associated with the business combination in accordance with ASC 805

 

Description of the matter:

 

The Company closed its acquisition of the assets of Medihemp, LLC, and its wholly owned subsidiary SLAM Enterprises, LLC, and Medical Cannabis Caregivers, Inc., each an entity organized and operating under the laws of the State of Colorado, and all doing business as “Naturaleaf” in the medicinal cannabis industry in Colorado. The Company accounted for the acquisitions under the acquisition method of accounting for business combination. Accordingly, the purchase price was primarily allocated to the assets acquired based on their respective fair values, including licenses and brand recognition related intangible assets. Management estimated the fair value of licenses and brand recognition utilizing multi-period excess earnings and relief from royalty methods, respectively. The fair value determination of the intangible assets required management to make significant assumptions related to the forecasted revenue growth rates and the selection of the discount rates. We identified the intangible assets for the business combination as a critical audit matter because of the significant assumptions management makes to fair value these assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions related to the revenue growth rates and the selection of the discount rates utilized to value these intangible assets.

 

How we addressed the matter in our audit: 

 

Our audit procedures related to the revenue growth rates and the selection of the assumptions for the intangible assets acquired included the following, among others:

o We assessed the reasonableness of the revenue growth rates by comparing the assumptions used in the projections to external market sources, historical data, and results from other areas of the audit.
o We performed qualitative and quantitative analyses to assess the assumptions that would significantly impact the overall valuation of the intangible assets acquired.
o We involved a valuation specialist to assist in our evaluation of the methodologies and certain significant assumptions used by the Company.

 

/s/ Macias Gini & O’Connell LLP

 

We have served as the Company’s auditor since 2020.

 

 

 

Irvine, CA

April 22, 2022

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AMERICAN CANNABIS COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

 

 

                 
    December 31,   December 31,
    2021   2020
ASSETS                
Current Assets                
Cash and Equivalents   $ 670,423     $ 1,723,132  
Accounts Receivable, Net     11,316       24,955  
Deposits     2,895       2,895  
Inventory     278,608       62,402  
Prepaid Expenses and Other Current Assets     51,353       50,302  
Total Current Assets     1,014,595       1,863,686  
                 
Property and Equipment - Net     375,832       24,655  
                 
Other Assets                
Intangible Assets     745,937           
Goodwill     1,985,113           
Right of Use Assets - Operating Leases, net     95,722           
Long Term Deposits     6,000           
Total Other Assets     2,832,772           
TOTAL ASSETS   $ 4,223,199     $ 1,888,341  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current Liabilities                
Accounts Payable   $ 242,679     $ 13,153  
Advances from Clients     111,892       88,843  
Accrued and Other Current Liabilities     161,718       49,244  
Stock payable     42,207           
Right of Use Liabilities, all current     95,722           
Litigation Settlement, current     175,000           
Note payable, current     1,100,000       109,914  
Total Current Liabilities     1,929,218       261,154  
                 
LONG TERM LIABILITIES                
Litigation Settlement     175,000           
Total Long Term Liabilities     175,000           
TOTAL LIABILITIES     2,104,218       261,154  
                 
Shareholders' Equity                
Preferred Stock, $0.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2021 and 2020                  
Common stock, $0.00001 par value; 500,000,000 shares authorized; 81,902,938 and 70,727,938 shares issued and outstanding at December 31, 2021 and 2020, respectively     819       707  
Additional paid-in capital     11,565,679       9,634,748  
Accumulated deficit     (9,447,517 )     (8,008,268 )
Total Shareholders' Equity     2,118,981       1,627,187  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 4,223,199     $ 1,888,341  

 

The accompanying notes are an integral part of these  consolidated financial statements  

  18  

 

AMERICAN CANNABIS COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

                 
    For the Year Ended
    December 31,   December 31,
    2021   2020
Revenues        
Consulting Services   $ 381,094     $ 505,363  
Product & Equipment     1,037,962       1,064,431  
Cannabis Products     1,006,148           
Total Revenues     2,425,204       1,569,794  
                 
Cost of Revenues                
Cost of Consulting Services     36,179       108,706  
Cost of Products and Equipment     758,940       740,409  
Cost of Cannabis Products     573,937           
Total Cost of Revenues     1,369,056       849,115  
Gross Profit     1,056,148       720,679  
                 
Operating Expenses                
General and Administrative     2,050,272       1,010,902  
Selling and Marketing     199,968       298,937  
Bad Debt Expense     54,435       4,910  
Litigation Settlement Expense     350,000          
Stock Based Compensation Expense     42,206       29,970  
Total Operating Expenses     2,696,881       1,344,719  
Loss from Operations     (1,640,733 )     (624,040 )
                 
Other Income (Expense)                
Interest (expense)     (75,374 )     (1,786 )
Debt Forgiveness     240,975           
Other income     35,883       93,413  
Total Other (Expense) Income     201,484       91,627  
Net Loss     (1,439,249 )     (532,413 )
Income Tax Expense                  
NET LOSS   $ (1,439,249 )   $ (532,413 )
Basic and diluted net loss per common share   $ (0.02 )   $ (0.01 )
Basic and diluted weighted average common shares outstanding     78,387,733       57,548,474  

 

The accompanying notes are an integral part of these consolidated financial statements.

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AMERICAN CANNABIS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

                 
      For the Year Ended  
    December 31,   December 31,
    2021   2020
CASH FLOWS FROM OPERATING ACTIVITIES                
Net Loss   $ (1,439,249 )   $ (532,413 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Gain on Sale of assets              1,183  
Allowance for Bad Debt Expenses     54,435       4,910  
Depreciation and amortization     95,562       13,937  
Stock-based compensation to employees     42,207       29,970  
Stock issued for services              7,066  
Litigation Settlement Expense     350,000           
Debt Forgiveness     (240,975 )         
Changes in operating assets and liabilities:                
Accounts receivable     (40,795 )     67,395  
Inventory     (144,034 )     (9,092 )
Prepaid expenses and other current assets     (1,051 )     (19,455 )
Right to Use Lease Asset     (95,722 )     34,418  
Accounts Payable     229,524       3,405  
Advances from Clients     23,049     (24,116 )
Accrued and other current liabilities     113,349       (68,059 )
Operating Lease Liability     95,722       (34,943 )
Net Cash Used In Operating Activities   $ (957,918 )   $ (525,794 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property and equipment     (357,801 )     (2,233 )
Proceeds from sales of property and equipment              2,500  
Acquisition of Assets     (1,100,000 )         
Intangible assets     (8,159 )         
Net Cash (Used in) Provided by Investing Activities   $ (1,466,960 )   $ 267  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from note payable     130,186       109,914  
Proceeds from sale of common stock     1,241,043       1,193,564  
Net Cash Provided by Financing Activities   $ 1,371,229     $ 1,303,478  
                 
NET (DECREASE) INCREASE IN CASH     (1,052,709 )     777,951  
                 
CASH AT BEGINNING OF PERIOD     1,723,132       945,181  
                 
CASH AT END OF PERIOD   $ 670,423     $ 1,723,132  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Cash paid for income taxes   $        $     
Cash paid for interest   $        $     
Stock issued for acquisition of assets   $ 690,000     $     
Note Payable issued for acquisition of assets   $ 1,100,000     $     

 

The accompanying notes are an integral part of these  consolidated financial statements

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AMERICAN CANNABIS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS  ENDED DECEMBER 31, 2021 AND 2020

 

                                         
                     
        Additional       Total
  Common Stock   Paid-In'   Accumulated   Shareholders
  Shares   Amount   Capital   Deficit   Equity
Balance, December 31, 2019     52,978,605     $ 529     $ 8,354,920     $ (7,475,855 )   $ 879,594  
Stock-based compensation to employees     970,828       10       79,366                79,376  
Stock issued for services     78,505       1       7,065                7,066  
Shares issued cash     16,700,000       167       1,193,397                1,193,564  
Net Loss     —                           (532,413 )     (532,413 )
Balance, December 31, 2020     70,727,938     $ 707     $ 9,634,748     $ (8,008,268 )   $ 1,627,187  
                  Additional                Total   
    Common Stock       Paid-In       Accumulated        Shareholders   
    Shares       Amount       Capital       Deficit       Equity   
Balance, December 31, 2020     70,727,938     $ 707     $ 9,634,748     $ (8,008,268 )   $ 1,627,187  
Stock issued for asset acquisition     3,000,000       30       689,970                690,000  
Stock issued for cashless exercise of warrants     125,000       1       (1 )                  
Stock issued for cash     8,050,000       81       1,240,962                1,241,043  
Net Loss     —                           (1,439,249 )     (1,439,249 )
Balance, December 31, 2021     81,902,938     $ 819     $ 11,565,679     $ (9,447,517 )   $ 2,118,981  

 

The accompanying notes are an integral part of these  consolidated financial statements

  21  

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Note 1. 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.

 

On April 30, 2021, the Company closed its acquisition of the assets of Medihemp, LLC, and its wholly owned subsidiary SLAM Enterprises, LLC, and Medical Cannabis Caregivers, Inc., each an entity organized and operating under the laws of the State of Colorado, and all doing business as “Naturaleaf” in the medicinal cannabis industry in Colorado.

 

Naturaleaf agreed to sell or assign to the Company the following assets:

 

  1. Three Medical Marijuana (MMC) Store Licenses;

 

  2. One Marijuana Infused Product Licenses (MIPS); and

 

  3. One Option Premises Cultivation License (OPC); and

 

  4. Related real property assets, goodwill, and related business assets.

 

As a result, the Company has expanded its business model to include the cultivation and retail sale of cannabis in the medicinal cannabis industry.

 

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Accounting

 

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying consolidated financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the periods presented.

 

Principal of Consolidation

 

The consolidated financial statements for the years ended December 31, 2021 and 2020 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.

  22  

 

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Going Concern

 

Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern ("ASC 205-40") requires management to assess the Company’s ability to continue as a going concern for one year after the date the financial statements are issued. Under ASC 205-40, management has the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued. As required by this standard, management’s evaluation shall initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued.

 

Our assessment included the preparation of a detailed cash forecast that included all projected cash inflows and outflows. During 2021, we secured additional cash financings through the sales and issuances of our common stock through. However, we continue to focus on growing our revenues. Accordingly, operating expenditures may exceed the revenue we expect to receive for the foreseeable future. We, also, have a history of operating losses, negative operating cash flows, and negative working capital, and expect these trends to continue into the foreseeable future.

 

As of the date of this Annual Report on Form 10-K, while we believe we have adequate capital resources to complete our near-term operations, there is no guarantee that such capital resources will be sufficient until such time we reach profitability. We may access capital markets to fund strategic acquisitions or ongoing operations on terms we believe are favorable. The timing and amount of capital that may be raised is dependent on market conditions and the terms and conditions upon which investors would require to provide such capital. We may utilize debt or sell newly issued equity securities through public or private transactions .

  

There can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all. In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and support our growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, our operations would be materially negatively impacted; however, we have been successful in accessing capital markets in the past, and we are confident in our ability to access capital markets again, if needed.

 

The Company has an accumulated deficit, recurring losses, and expects continuing future losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s primary source of operating funds in 2021 and 2020 has been from funds generated from proceeds from the sale of common stock and operations. The Company has experienced net losses from operations since its inception but expects these conditions to improve in 2022 and beyond as it develops its business model. The Company has an accumulated deficit at December 31, 2021 and requires additional financing to fund future operations.

 

The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. 

 

  23  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

 

Use of Estimates in Financial Reporting

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amount of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the consolidated financial statements during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period in which they are deemed to be necessary. Significant estimates made in the accompanying consolidated 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, the allocation of the asset purchase price, 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 consolidated 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 consolidated financial statements.

 

Segment Information

 

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and assess performance. The Company reports results of operations in 1 segment the Cannabis Industry, with 3 revenue lines: Consulting Services, Soil Product and Equipment and Cannabis Products.

 

The Consulting Services provides services to the Cannabis industry as to the development and expansion of cultivation and retail facilities. These services include business plans, design advice and cultivation oversight. These services are offered throughout the United States.

 

The Soil Product and Equipment handles the sale of our So-Hum Living Soils Product and the resale of Equipment in connection with our consulting services not only in the Cannabis industry but also to other agricultural industries. These products are offered for sale throughout the United States.

 

The Cannabis Products Division handles both the cultivation of and the retail sale of medicinal cannabis products in the State of Colorado.

 

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, 2021 and 2020, the Company had cash balances in excess of FDIC insured limits of $250,000.

 

  24  

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Accounts Receivable, net

 

Accounts receivable are recorded at the net value of face amount less an allowance for doubtful accounts. The Company evaluates its accounts receivable periodically based on specific identification of any accounts receivable for which the Company deems the net realizable value to be less than the gross amount of accounts receivable recorded; in these cases, an allowance for doubtful accounts is established for those balances. In determining its need for an allowance for doubtful accounts, the Company considers historical experience, analysis of past due amounts, client creditworthiness and any other relevant available information. However, the Company’s actual experience may vary from its estimates. If the financial condition of its clients were to deteriorate, resulting in their inability or unwillingness to pay the Company’s fees, it may need to record additional allowances or write-offs in future periods. This risk is mitigated to the extent that the Company receives retainers from its clients prior to performing significant services.

 

The allowance for doubtful accounts, if any, is recorded as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client's inability to make required payments on accounts receivables, the provision is recorded in operating expenses. As of December 31, 2021, and 2020, the Company’s allowance for doubtful accounts was $82,540 and $57,512, respectively. The Company recorded bad debt expense during the years ended December 31, 2021 and 2020 of $54,435 and $4,910, respectively.

 

Deposits

 

Deposits is comprised of advance payments made to third parties, for rent, utilities, and 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.

 

Inventory

 

Inventory is comprised of products and equipment owned by the Company to be sold to end-customers. The Company’s inventory as it relates to its soil products and equipment is valued at cost 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 net realizable value. As of December 31, 2021 and 2020, market values of all the Company’s inventory were greater than cost, and accordingly, no such valuation allowance was recognized.

 

Inventory also consists of pre-harvested cannabis plants and related end products. Inventory is valued at the lower of cost or net realizable value. Costs of inventory purchased from third party vendors for retail sales at dispensaries is determined using the first in first out method. Costs are capitalized to cultivated inventory until substantially ready for sale. Costs include direct and indirect labor, consumables, materials, packaging supplies, utilities, facilities costs, quality and testing costs, production related depreciation and other overhead costs. The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items. The reserve estimate for excess and obsolete inventory is based on expected future use and on an assessment of market conditions. At December 31, 2021, the Company’s management determined that a reserve for excess and obsolete inventory was not necessary

 

Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets are 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.

 

  25  

 

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Significant Clients and Customers

 

For the year ended December 31, 2021, nine customers accounted for 50.1% of the Company’s total revenues from its consulting and soil and product revenue lines for the period. As of December 31, 2020, three customers accounted for 84.21% of the Company’s total revenues.

 

At December 31, 2021, two customers accounted for 77.3% of accounts receivable, net. Accounts Receivable, net consist of customers of our consulting services and soil and products revenue streams. At December 31, 2020, three customers accounted for 84.21% of accounts receivables, net.

 

Property and Equipment, net

 

Property and Equipment is stated at net book value, cost less depreciation. Maintenance and repairs are expensed as incurred. Depreciation of owned equipment is provided using the straight-line method over the estimated useful lives of the assets, ranging from two to seven years. Costs associated with in progress construction are capitalized as incurred and depreciation is consummated once the underlying asset is placed into service. Property and equipment are reviewed for impairment as discussed below under “Accounting for the Impairment of Long-Lived Assets.” The Company did not capitalize any interest as of December 31, 2021 and 2020.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under ASC Topic 350, Intangibles-Goodwill and Other. The Company tests goodwill for impairment annually, or more frequently whenever events or circumstances indicate impairment may exist. Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the fourth quarter. The Company recognized goodwill of $1,985,113 during the year ended December 31, 2021 as part of the Naturaleaf Acquisition.

The Company does not have any other indefinite-lived intangible assets. 

In accordance with FASB ASC 350, “Intangibles – Goodwill and Other,” we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

 

Intangible Assets, net

 

Definite life intangible assets at December 31, 2021 include licenses and brand names recognized as part of the Naturaleaf Acquisition. Intangible assets are record at cost. Licenses and brand names represent the estimated fair value of these items at the date of acquisition, April 30, 2021. Intangible assets are amortized on a straight-line basis over their estimated useful life. Licenses are assigned a life of 15 years and tradenames are assigned a life of 5 years. During the year ended December 31, 2021, the Company recognized an amortization expense of $62,223.

 

  26  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Accounting for the Impairment of Long-Lived Assets

 

The Company evaluates long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. The Company had not recorded any impairment charges related to long lived assets as of December 31, 2021 and 2020.

 

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

 

We have adopted the following accounting principles related to revenue recognition: (a) FASB ASU 2016-12 “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), (b) Equipment sales division, (c) Cannabis 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 six 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.

 

  27  

 

 

 AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

We recognize revenue in accordance with ASC 606 using the following 5 steps to identify revenues:

 

  (1) Identify the contract with the Customer. Our customary practice is to obtain written evidence, typically in the form of a contract or purchase order.

 

  (2) Identify the performance obligations in the contract. 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 delivery to our customers’ locations, with no right of return or further obligations.

 

  (3) Determination of the transaction price. Prices are typically fixed, and no price protections or variables are offered.

 

  (4) Allocation of the transaction price to the performance obligations in the contract. Transaction prices are typically allocated to the performance obligations outlined in the contract.

 

  (5) Recognize Revenue when (or as) the entity satisfies a performance obligation. We typically require a retainer for all or a portion of the goods or services to be delivered. We recognize revenue as the performance obligations detailed in the contract are met.

 

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 meet specified performance obligations as detailed in the contract.

 

Product and Equipment 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 years ended December 31, 2021 and 2020, sales returns were $0.

 

  28  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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 completed. 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. 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 years ended December 31, 2021 and 2020, we 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 recognized as liabilities and paid to the appropriate government entities.

  

Cannabis Sales

 

Revenues consist of the retail sale of cannabis and related products. Revenue is recognized at the point of sale for retail customers. Payment is typically due upon transferring the goods to the customer or within a specified time period permitted under the Company’s credit policy. Sales discounts were not material during the years ended December 31, 2021 and 2020.

 

Loyalty Reward Program

 

The Company offers a loyalty reward program to its dispensary customers that provides a discount on purchases based upon the total amount of a purchase, at the time of purchase. Management has determined that as there is no separate performance obligation to the reward program, i.e., the accumulation and redemption of points, and as such the Company recognizes the revenue at the time of purchase.

 

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 years ended December 31, 2021 and 2020 these expenses were $116,122 and $9,934, 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, 2021 and 2020, stock-based compensation expense for restricted shares for Company employees was $42,207 and $29,970, 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. During the year ended December 31, 2021 and 2020, no warrants were issued as stock compensation.

 

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 years ended December 31, 2021 and 2020, our research and development costs were de minimis.

 

  29  

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Income Taxes

 

The Company’s corporate status changed from an S Corporation, which it had been since inception, to a C Corporation during the year ended December 31, 2014. As provided in Section 1361 of the Internal Revenue Code, for income tax purposes, S Corporations are not subject to corporate income taxes; instead, the owners are taxed on their proportionate share of the S Corporation’s taxable income. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated 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 year ended December 31, 2021, due to cumulative losses since our corporate status changed, we recorded a valuation allowance against our deferred tax asset that reduced our income tax benefit for the period to zero. As of December 31, 2021 and 2020, we had no liabilities related to federal or state income taxes and the carrying value of our deferred tax asset was zero.

 

Due to its cannabis operations, the Company is subject to the limitations of Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

 

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 loss 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.

 

Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

  30  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Impact of COVID-19 Pandemic

 

On March 11, 2020the World Health Organization declared the current coronavirus (“COVID-19”) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures had a significant adverse impact upon many sectors of the economy, including retail commerce.

 

In response to state and local measures and for protection of both employees, the Company made required changes to operations, which did not have a material impact upon operations or the financial condition of the Company.

 

While the state and local governments have eased restrictions on restrictions and activities, it is possible that a resurgence in COVID-19 cases could prompt a return to or new tighter restrictions to be instituted in the future. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of these consolidated financial statements.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”. The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”. The pronouncement also improves consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company has adopted the standard and there was not an impact on its consolidated financial statements.

 

In January 2020, the FASB issued ASU No. 2020-01, "Investments — Equity Securities: Clarifying the Interactions between Topic 321, Topic 323, and Topic 815" ("ASU No. 2020-01"). ASU No. 2020-01 clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with ASC 321, "Investments — Equity Securities" immediately before applying or upon discontinuing the equity method of accounting in ASC 323, "Investments—Equity Method and Joint Ventures." The provisions of ASU No. 2020-01 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years with early adoption permitted, including early adoption in an interim period for public business entities for periods for which financial statements have not yet been issued. The Company has adopted thee standard and there was not an impact on its consolidated financial statements.

  

Note 3. Naturaleaf Asset Acquisition

 

On April 30, 2021, the Company closed its acquisition of the assets of Medihemp, LLC, and its wholly owned subsidiary SLAM Enterprises, LLC, and Medical Cannabis Caregivers, Inc., each an entity organized and operating under the laws of the State of Colorado, and all doing business as “Naturaleaf” in the medicinal cannabis industry in Colorado.

 

  31  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Naturaleaf agreed to sell or assign to the Company the following assets:

 

  1. Three Medical Marijuana (MMC) Store Licenses;

 

  2. One Marijuana Infused Product Licenses (MIPS); and,

 

  3. One Option Premises Cultivation License (OPC); and,

 

  4. Related real property assets, goodwill, and related business assets.

 

The aggregate consideration paid for the Assets was $2,890,000, which consisted of (i) a cash payment of $1,100,000, (ii) the issuance of a promissory note to the owner of Naturaleaf in the principal amount of $1,100,000 (the “Seller Note”), and (iii) the issuance of 3,000,000 shares of the Company’s restricted common stock valued at $0.23 per share or $690,000.

 

The asset acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of Medihemp LLC and Medical Cannabis Caregivers, Inc.’s (hereafter “Naturaleaf’s”) assets acquired and conformed the accounting policies of Naturaleaf to its own accounting policies. The Company expensed certain legal, auditing and licensing costs with the acquisition of $83,095.

 

As part of the acquisition, the owners of Naturaleaf retained the outstanding cash balance on the date of the acquisition and had agreed to the payment of all outstanding accounts payables and related party advances.

 

The Company has performed a valuation analysis of the fair market value of Naturaleaf’s assets. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:

 

 Schedule of purchase price as of the acquisition        
Cash   $ --  
Inventory     72,172  
Property, plant and equipment     26,715  
Long Term Deposits     6,000  
Identifiable intangible assets     800,000  
Goodwill     1,985,113  
Accounts payable     --  
Total consideration   $ 2,890,000  

 

Goodwill from the acquisition primarily relates to the future economic benefits arising from the assets acquired, the assembled workforce acquired and synergies between the cultivation and retail operations and is consistent with the Company's stated intentions and strategy. Other assets include inventory and fixed assets.

 

The fair value of Naturaleaf’s identifiable intangible assets was $800,000 at April 30, 2021, consisting of $500,000 in licenses and $300,000 in brand names. During the year ended December 31, 2021, the Company recognized an amortization expense of $62,223.

 

  32  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

 

 

The results of operations of Naturaleaf for the period from April 30, 2021 through December 31, 2021 are included in the Company's consolidated financial statements as of December 31, 2021.

 

Pro Forma Financial Information

 

The following pro forma information presents a summary of the Company’s combined operating results for the years ended December 31, 2021 and 2020, as if the acquisition had occurred on January 1, 2020. The following pro forma financial information is not necessarily indicative of the Company’s operating results as they would have been had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.

 

 Schedule of pro forma financial information                
  Years ended
    December 31,
    2021   2020
         
Total Revenues   $ 3,191,742     $ 2,898,672  
(Loss) Income from Operations   $ (1,332,564 )   $ (139,589 )
                 
Basic and diluted loss per share   $        $     

 

Note 4. Accounts Receivable and Advance from Clients

 

Accounts receivable was comprised of the following:

 

Schedule of Accounts receivable and advance from clients                
         
    December 31,
2021
  December 31, 2020
Accounts Receivable – Trade   $ 93,856     $ 82,467  
Less: Allowance for Doubtful Accounts     (82,540 )     (57,512 )
Accounts Receivable, net   $ 11,316     $ 24,955  

 

The Company had bad debt expense during the years ended December 31, 2021 and 2020 of $54,435 and $4,910, respectively.

 

  33  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Our Advances from Clients had the following activity:

 

Advances from Clients              
    December 31, 2021     December 31, 2020
Beginning Balance $ 88,843     $ 112,959  
  Additional deposits received   404,143       481,237  
  Less: Deposits recognized as revenue   (381,094 )      (505,363 )
Ending Balance $ 111,892     $ 88,843  

 

Note 5. Inventory

 

Inventory consisted of the following:

 

Schedule of inventory                
         
    December 31,
2021
  December 31, 2020
Raw Materials - Soil   $ 60,900     $ 39,746  
Work In Process - Cultivation     136,266           
Finished Goods - Soil     58,594       22,656  
Finished Goods - Cannabis Retail     22,848       22,656  
Total Inventory   $ 278,608     $ 62,402  

 

Note 6. Property and Equipment, net

 

Property and equipment, net, was comprised of the following:

 

 Schedule of property and equipment        
         
    December 31,
2021
  December 31, 2020
Office equipment   $ 39,574     $ 34,072  
Software     13,204       13,204  
Furniture and Fixtures     2,328           
Machinery and Equipment     376,745           
Leasehold Improvements               
Property and equipment, gross   $ 431,851     $ 47,274  
Less: Accumulated Depreciation     (56,019 )     (22,621 )
Property and equipment, net   $ 375,832     $ 24,655  

 

As part of the Naturaleaf Asset Acquistion, the Company acquired $26,715 in fixed assets consisting of machinery and equipment. During the year ended December 31, 2021, the Company purchased office equipment in the amount of $5,500 and has made purchases of machinery and equipment of $352,301 in order to upgrade operations at the new cultivation facilities.

 

  34  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Note 7. Intangible Assets, Net

 

A significant amount of the Company’s current identified intangible assets were assumed upon consummation of the Naturaleaf acquisition on April 30, 2021. The Company has incurred capitalizable costs in connection with patent applications that it started work on. Identified intangible assets consisted of the following at the dates indicated below:

 

                               
    December 31, 2021
    Gross carrying amount   Accumulated amortization   Carrying value   Estimated useful life
Licenses   $ 500,000     ($ 22,223 )   $ 477,777       15 years  
Brand   $ 300,000     ($ 40,000 )   $ 260,000       5 years  
Patent Applications   $ 8,160              $ 8,160       —    
Total intangible assets, net   $ 808,160     ($ 62,223 )   $ 745,937          

 

The weighted-average amortization period for intangible assets we acquired during the year ended December 31, 2021 was approximately 11.47  years. There were no intangible assets acquired during the year ended December 31, 2020.

 

Amortization expense for intangible assets was $62,223 and $0 for the years ended December 31, 2021 and 2020, respectively. Total estimated amortization expense for our intangible assets for the years 2021 through 2026 is as follows:

 

           

Year Ended

December 31,

   
  2022     $ 93,333  
  2023     $ 93,333  
  2024     $ 93,333  
  2025     $ 93,333  
  2026     $ 53,333  
  Thereafter     $ 311,112  

 

Note 8. Accrued and Other Current Liabilities

 

Accrued and other current liabilities consisted of the following:

 

Schedule of accrued and other current liabilities                
         
    December 31,
2021
  December 31, 2020
Accrued Interest   $ 74,137     $ 449  
Accrued Payroll     18,428           
Sales Tax Payable     592           
Other Accrued Expenses & Payables     68,561       48,795  
Accrued and other current liabilities.   $ 161,718     $ 49,244  

 

Note 9. Stock Payable

 

The following summarizes the changes in common stock payable:

 

 Schedule of stock payable    
    Amount
December 31, 2020   $     
  Additional Expenses Incurred     42,207  
  Payments Upon Issuance of Shares         
December 31, 2021   $ 42,207  

 

 

Note 10. Operating Lease Right-of-Use Asset/Operating Lease Liability

 

The Company leases property under operating leases. Property leases include retail and cultivation space with fixed rent payments and lease terms ranging from one to two years. The Company is obligated to pay the lessor for maintenance, real estate taxes, insurance and other operating expenses on certain property leases. These expenses are variable and are not included in the measurement of the lease asset or lease liability. These expenses are recognized as variable rent expense when incurred.

 

The Company’s lease portfolio consists of the following.

 

 Schedule of lease portfolio                
Lease Name   Asset Type   Start Date   Expiration Date   Monthly Rent
Durango Lease   Real Property   5/1/2021   5/31/2022   $ 10,200  
Lehman Lease   Real Property   5/1/2021   12/31/2022   $ 2,732  
Palmer Lease   Real Property   5/1/2021   6/30/2022   $ 1,069  
Greenspace Membership   Real Property   4/15/2021   12/31/2021   $ 1,000  
Tejon Lease   Real Property   5/1/2021   4/30/2022   $ 3,700  

 

  35  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

On June 1, 2020, the Company entered into a new lease membership agreement for a one-year term for an amount of $2,895 per month, the lease expired on May 31, 2021. At that time the Company entered into an 8 ½ month lease for less space for an amount of $1,000 per month. We determined under ASC 842, due to the short-term nature of the lease that the lease membership agreement met the criteria of ASC 842-20-25-2 and as such it was not necessary to capitalize the lease and rent will be recognized on a monthly straight-line basis.

 

On May 1, 2020, as part of the Naturaleaf Acquisition, the Company entered into leases for grow facilities and dispensaries. These leases were determined to be operating leases under ASC 842 and such leases was capitalized. It was determined that the Tejon lease, due to the short-term nature of the lease met the criteria of ASC 842-20-25-2 and as such it was not necessary to capitalize the lease and rent would be recognized on a straight-line basis.

 

The Company records the lease asset and lease liability at the present value of lease payments over the lease term. The leases typically do not provide an implicit rate; therefore, the Company uses its estimated incremental borrowing rate at the time of lease commencement to discount the present value of lease payments. The Company’s discount rate for operating leases at December 31, 2021 was 12.5%. Leases often include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Lease expense is recognized on a straight-line basis over the lease term to the extent that collection is considered probable. As a result, the Company been recognizing rents as they become payable.

 

As of December 31, 2021, the aggregate remaining annual lease payments of operating leases liabilities are as follows:

 

 Schedule of operating leases liabilities    
    Operating
Leases
2022   $ 99,684  
Total     99,684  
Less: amount representing interest     (3,962 )
Present value of future minimum lease payments     95,722  
Less: current obligations under leases     95,722  
Long-term lease obligations   $  

 

As of December 31, 2021, the aggregate remaining minimal annual lease payments under these operating leases were as follows: 

 

   Schedule of remaining minimal annual lease payments          
  2022     $ 99,684  
  Total     $ 99,684  

 

Note 11. Loans Payable

 

PPP Loans

 

On March 27, 2020, the CARES Act was enacted to provide financial aid to family and businesses impacted by the COVID-19 pandemic. The Company participated in the CARES Act, and on August 6, 2020, the Company entered into a note payable with a bank under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP loan”) in the amount of $109,914. This loan payable matures on August 6, 2022 with a fixed interest rate of 1% per annum with interest deferred for six months. The PPP loan has an initial term of two years, is unsecured and guaranteed by the SBA. Under the terms of the PPP loan, the Company may apply for forgiveness of the amount due on the PPP loan. The Company used the proceeds from the PPP loan for qualifying expenses as defined in the PPP. The Company intends to apply for forgiveness of the PPP loan in accordance with the terms of the CARES Act. However, the Company cannot assure at this time that the PPP loan will be forgiven partially or in full. If the loan is not forgiven based on the PPP guidelines to be issued by the SBA, as defined, then, the monthly payment amount will be $6,186 beginning on March 6, 2021 through August 6, 2022. On March 3, 2021, the SBA forgave the principal of $109,914 and accrued interest of $875 at that time..

 

On April 23, 2021, the Company entered into a second note payable with a bank under the SBA PPP Loan in the amount of $130,186. The PPP Loan is subject to the same terms of forgiveness as above. On September 27, 2021, the SBA forgave the principal of $130,186 and any accrued interest.

 

Naturaleaf Seller Note

 

As part of the Naturaleaf Acquisition, the Company issued a promissory note to the owner of Naturaleaf in the principal amount of $1,100,000 (the “Seller Note”). The note has a term of 1 year with a due date of April 30, 2022 and does not require any payments prior to the due date. The note has an annual interest rate of 10%. At December 31, 2021, interest of $74,137 had been accrued.

 

Note 12. 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 outside 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 do not expect to, and we have provided no subordinated financial support to any project

 

Note 13. Stock Based Compensation

 

During the year ended December 31, 2021, the Company issued stock-based compensation for employees and service providers pursuant to its 2015 Equity Incentive Plan.

 

Restricted Shares

 

From time to time, the Company grants certain employees restricted shares of its common stock to provide further compensation in-lieu of wages and to align the employee’s interests with the interests of its stockholders. Because vesting is based on continued employment, these equity-based incentives are also intended to attract, retain and motivate personnel upon whose judgment, initiative and effort the Company’s success is largely dependent.

 

During the year ended December 31, 2021, the Company granted 275,000 restricted shares and recognized $42,207 in associated employee stock-based compensation expense. The fair value of restricted stock unit is determined based on the quoted closing price of the Company’s common stock on the date grant. As of December 31, 2021, none of the shares were issued, and the entire amount is recorded as stock payable.

 

During the year ended December 31, 2020, the Company granted 492,567 restricted shares and recognized $29,970 in associated employee stock-based compensation expense. The fair value of the restricted stock is determined based on the quoted closing price of the Company’s common stock on the date of grant. During the years ended December 31, 2020, the Company issued 478,261 shares of restricted shares granted during the fiscal year ended December 31, 2019.

 

During the year ended December 31, 2020, the Company issued 78,505 restricted common shares to two employees in payment of commissions earned totaling $7,066.

  36  

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Net Loss Per Share

 

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.

 

Outstanding stock options and common stock warrants are considered anti-dilutive because we are in a net loss position. Accordingly, the number of weighted average shares outstanding for basic and fully diluted net loss per share are the same.

 

The following summarizes equity instruments that may, in the future, have a dilutive effect on earnings per share:

 

 Schedule of stock based compensation        
    December 31,
2021
  December 31, 2020
Warrants              397,500  
Stock Payable     275,000           
Total     275,000       397,500  

 

Warrants

 

During the year ended December 31, 2021, 125,000 shares of common stock were issued to in connection with the cashless exercise of 125,000 warrants, 100,000 of these shares were issued to an officer and director of the Company.

 

During the year ended December 31, 2021, the Company did not issue or approve any warrants. Warrants exercisable for 272,500 shares expired.

 

Note 14. Shareholders’ Equity

 

Preferred Stock

 

American Cannabis Company, Inc. is authorized to issue 5,000,000 shares of preferred stock at $0.01 par value. No shares of preferred stock were issued and outstanding at December 31, 2021 and 2020, respectively.

 

Common Stock

 

During the year ended December 31, 2021, the Company issued 8,050,000 registered shares of common stock in exchange for net proceeds of $1,241,043 pursuant to the Common Stock Purchase Agreement entered into on October 11, 2019 with White Lion Capital LLC.

 

During the year ended December 31, 2021, the Company issued 3,000,000 shares of its restricted common stock to the sellers of Naturaleaf, as part of the acquisition of assets of Naturaleaf. The shares had a value of $690,000 based on a closing market price on April 30, 2021 of $0.23 per share.

 

During the year ended December 31, 2021, warrants with a cashless exercise provision were exercised for 125,000 restricted shares . Of which, a warrant for 100,000 shares was exercised by an officer/director of the Company.

 

  37  

 

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

During the years ended December 31, 2020, the Company issued 478,261 shares of restricted shares granted during the fiscal year ended December 31, 2019.

 

Note 15. Commitments and Contingencies

 

Legal

 

In the ordinary course of its business, the Company becomes involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Companies expenses legal fees in the period in which they are incurred.

 

Employment Litigation

 

On November 15, 2019, a civil action was filed against the Company and Mr. Terry Buffalo, our former chief executive officer and director, and Mr. Ellis Smith our chief development officer and director, in Denver County District Court, Case Number 2019CV034380. The complaint sought a declaratory judgement and damages related to Plaintiff’s allegation that she was misclassified as an independent contractor while working for the Company. Plaintiff alleged she was owed unpaid overtime, liquidated damages, wages, statutory penalties and other compensatory damages for her misclassification and alleged wrongful termination. Plaintiff’s suit against Mr. Buffalo and Mr. Smith alleges that each were the alter ego of the Company and are therefore jointly and severally liable. The Company filed a counterclaim against Plaintiff alleging misappropriation of trade secrets, breach of contract, and other claims relating to her theft of confidential and proprietary information. A Settlement Agreement was entered into by all parties in January 2022. At December 31, 2021, there was a reasonable basis from which a determination could be made concerning the amount of a possible liability to the Company as its related to this lawsuit. 

 

The Settlement Agreement provides for a cash settlement of $350,000 to be paid over a 2 year period and as a result at December 31, 2021, the Company has recognized a total of liability of $350,000, of which $175,000 is classified as current.

 

  38  

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

 Note 16. Income Taxes

 

 

The following table displays a reconciliation from the U.S. statutory rate to the effective tax rate and the provision for (benefit from) income taxes for the years ended December 31, 2021 and 2020, respectively:

 

 Schedule of income tax rate                
    For the Years Ended
    December 31,   December 31,
    2021   2020
         
Income Tax Benefit    $ (623,358     $ (38,021 ) 
Non-deductible expenses including non-deductible pre-merger losses     163,495           
Change in valuation allowance     459,863       38,021
Total Income Tax Benefit   $        $     

 

Deferred tax assets (liabilities) consisted of the following:

 

Schedule of deferred tax assets                
    December 31,   December 31,
    2021   2020
         
Total Deferred Tax Liabilities                
Lease Liability Expense   $ (24,457)     $     
Total Deferred Tax Assets                
Net operating loss carryforwards   1,230,904     770,558  
Beneficial Conversion feature              3,524  
Right of Use Asset     24,457           
Allowance for Doubtful Accounts     17,735       14,694  
Net Deferred Tax Assets     1,248,639       788,776  
Valuation Allowance     (1,248,639)       (788,776 )
Total Deferred Tax Assets   $        $     

 

The Company determined that it is not more likely than not that its deferred tax asset would be realizable. accordingly, the Company recorded a valuation allowance for the full amount of its deferred tax asset, resulting in a zero carrying value of the Company’s deferred tax asset and no benefit from or provision for income taxes for the year ended December 31, 2021 and 2010. Federal and state operating loss carry forwards are $4,812,598 and $3,669,322 as of December 31, 2021 and 2020, respectively and begin to expire in 2034. The years 2010 to 2018 remain subject to examination by the Company’s major tax jurisdictions. Utilization of the net operating loss carry forwards and credits may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions.

 

  39  

 

 

AMERICAN CANNABIS COMPANY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Note 17. Subsequent Events

 

In accordance with ASC 855-10, the Company has analyzed its operations after consolidated financial statements were available to be issued and has determined that there were no other significant subsequent events or transactions that would require recognition or disclosure in the consolidated financial statements for the year ended December 31, 2021, other than as follows.

 

During the three months ended March 31, 2022, the Company issued 2,500,000 registered shares of common stock in exchange for net proceeds of approximately $117,000 pursuant  to the Common Stock Purchase Agreement entered into on October 11, 2019 with White Lion Capital LLC.

 

During the three months ended March 31, 2022, the Company issued to its officers and directors 325,000 shares of its restricted common stock as payment of stock based compensation earned in 2022 totaling $42,207.

 

  40  

 

 

SUPPLEMENTARY DATA

 

The Company is a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

  

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021, the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses discussed below.

 

Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

o pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets.

 

o provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and,

 

o provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management identified the following material weaknesses:

 

o we do not have an Audit Committee – While not being legally obligated to have an Audit Committee, it is the management’s view that such a committee, including a financial expert board member, is an utmost important entity level control of the Company’s financial statements. Currently the Board of Directors acts in the capacity of the Audit Committee and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.

 

o we have not performed a risk assessment and mapped our processes to control objectives.

 

o we have not implemented comprehensive entity-level internal controls.

o we have not implemented adequate system and manual controls; and

 

o we do not have sufficient segregation of duties.

 

  41  

 

Our management assessed the effectiveness of internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013). Based on management’s assessment, management concluded that the above material weaknesses have not been remediated and, accordingly, our internal control over financial reporting is not effective as of December 31, 2021.

 

Remediation of Material Weaknesses

 

We have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

 

o We intend to allocate resources to perform a risk assessment and map processes to control objectives and, where necessary, implement and document internal controls in accordance with COSO.

 

o Our entity-level controls are, generally, informal and we intend to evaluate current processes, supplement where necessary, and document requirements.

 

o While we have implemented procedures to identify, evaluate and record significant transactions, we need to formally document these procedures and evidence the performance of the related controls.

 

o We plan to evaluate system and manual controls, identify specific weaknesses, and implement a comprehensive system of internal controls.

 

Management understands that in order to remediate the material weaknesses, additional segregation of duties, changes in personnel and technologies are necessary. We will not consider these material weaknesses fully remediated until management has tested those internal controls and found them to be operating effectively.

 

This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Annual Report.

 

This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

We implemented no changes to our internal control over financial reporting during the year ended December 31, 2021.

 

  

ITEM 9B. OTHER INFORMATION

 

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PART III.

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our Board of Directors

 

The following table sets forth information regarding our current directors and each director as of December 31, 2021.

 

Name   Principal Occupation   Age   Director Since
Ellis Smith   Chief Development Officer, Director (1)     44       2014  
Terry Buffalo   Chief Executive Officer, Chief Financial Officer, Director (2)     57       2017  
Tad Mailander   Principal, Mailander Law Office, Inc., Director     66       2018  

 

(1) Mr. Smith was appointed as Chief Executive Officer and Chief Financial Officer on December 31, 2021.

(2) Mr. Buffalo resigned as director, Chief Executive Officer, and Chief Financial Officer on December 31, 2021.

 

Ellis Smith from June 2014 to the present; Ellis Smith has served as our Chief Development Officer and as a director since September 2014. In March 2013, Mr. Smith co-founded ACC, and from March 2013 to May 2014, Mr. Smith served as a Managing Director of ACC. From September 2010 to July 2013, Mr. Smith co-owned Colorado Kind Care LLC d/b/a The Village Green Society, a Colorado based Medical Marijuana Center, where he was responsible for managing the operations and protocols supporting the growth and production of medical marijuana. From 2008 to 2010, Mr. Smith founded and operated The Happy Camper Organics Inc., a medical marijuana company focused on the growth of wholesale cannabis for sale to medical marijuana businesses. From 2005 to 2010, Mr. Smith founded and operated Bluebird Productions, a video production company. Mr. Smith has been published and recognized for his horticultural experience and organic gardening in the cannabis industry, and he is known for assisting in identifying the Hemp Russet Mite and working with SKUNK magazine to educate the industry. Our Board believes Mr. Smith’s qualifications to serve as an executive of the Company and as a member of our Board include his past success in founding and operating businesses, his unique experience in horticultural and organic gardening, and his recognized qualifications in the emerging medical cannabis markets.

 

Terry Buffalo from June 1, 2017 through December 31, 2021; Mr. Buffalo is an executive in the financial services industry, with extensive experience including managing a hybrid FINRA broker-dealer and Registered Investment Advisor firm. Mr. Buffalo is regarded as an expert in these fields with publications in Financial Advisor Magazine and NAIFA’s Advisor Today, as well as being a featured interview in Boomer Market Advisor. Prior to founding Buffalo Financial Solutions, Mr. Buffalo was the Chief Executive Officer of a regional broker dealer for over 10 years, where he took an underperforming firm and revamped the business model from a corporate to an independent structure, with an emphasis on attracting brokers with established clienteles. While there, the firm consistently produced net profits of 7%, compared to industry average among peers that ranged between negative to 1.5%, while expanding the firm’s overall assets from $400 million to over $2 billion.

 

Tad Mailander is an attorney licensed to practice before all of the Courts in the State of California. Mr. Mailander has been in practice since 1991 and is a member of the State Bar of California, the bars of the United States District Court for the Southern District of California, and the United States Court of Appeal for the Ninth Circuit. Mr. Mailander is an independent director.

 

Our Executive Officers

 

We designate persons serving in the following positions as our named executive officers: our chief executive officer, chief financial officer, chief development officer, chief operating officer and chief technology officer. The following table sets forth information regarding our executive officers as of December 31, 2021.

 

Name   Principal Occupation   Age   Officer Since
Terry Buffalo(1)   Chief Executive Officer, Chief Financial Officer     57       2016  
Ellis Smith (2)   Chief Development Officer     45       2014  
Tyler A. Schloesser   Chief Operations Officer     31       2019  
Jon Workman   Vice President     58       2019

 

(1) Terry Buffalo, Chief Executive Officer; Chief Financial Officer. Mr. Buffalo’s biographical summary is included under “Our Board of Directors.” Mr. Buffalo was appointed our Chief Financial Officer August 14, 2020. Mr. Buffalo resigned as Chief Executive Officer and Chief Financial Officer on December 31, 2021.

 

(2) Ellis Smith, Chief Development Officer. Mr. Smith’s biographical summary is included under “Our Board of Directors.” Mr. Smith was appointed Chief Executive Officer and Chief Financial Officer December 31, 2021.

 

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Tyler A. Schloesser, Mr. Schloesser attended the University of Colorado at Boulder receiving a double major degree in Psychology and Philosophy. After graduation, Mr. Schloesser worked in the banking industry with Wells Fargo, U.S. Bank and Credit Union of Colorado. Mr. Schloesser’s functions with the Registrant. include developing and maintaining policies, procedures, processes and risk mitigation best practices as well as manage and perform day-to-day internal operational tasks required by the Registrant.

 

Jon Workman, Mr. Workman graduated from the University of Arkansas at Little Rock in 1989 and was awarded a Bachelor of Business Administration and Marketing. Mr. Workman is a member of the Arkansas Cannabis Industry Association and a Charter Member of the Arkansas Hemp Association. In 2017, the Arkansas Economic Development Commission certified Mr. Workman in its Lean Manufacturing program. Mr. Workman received his HACCP (Hazard Analysis Critical Control Point) & SQF Food Safety Certifications in 2016.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our executive officers and directors and persons who beneficially own more than 10% of our common stock to file initial reports of beneficial ownership and reports of changes in beneficial ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such persons.

 

Based solely on our review of such forms furnished to us, and written representations from certain reporting persons, we believe that all filing requirements applicable to our executive officers, directors and greater than 10% stockholders during the fiscal year ended December 31, 2021 were satisfied.


ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

 

The following table sets forth information concerning the compensation of our principal executive officer, our principal financial officer and each of our other executive officers during 2021.

 

Name and Principal Position   Year   Salary   Bonus  ($)   Bonus Stock Awards (in $)   Bonus Stock Awards  (in Shares)(4)   All Other Compensation ($)   Total ($)
David Godfrey, Chief Financial     2021       —         —         —         —         —         —    
Officer (1)     2020       52,307       —         2,463       57,567               54,770  
      2019       20,516       —         —         —         —         20,516  
Ellis Smith, Chief Development     2021       90,000       —         11,510       75,000       —         101,510  
Officer     2020       85,000       —         9,304       130,000       —         109,669  
      2019       87,600       —         22,069       —         —         87,600  
Terry Buffalo, Chief Executive     2021       150,000       —         11,510       75,000       -----        161,510  
Officer, Chief Financial Officer (1)     2020       80,000       —         7,177       100,000       —         87,177  
      2019       81,950       —         298,000       900,000       —         379,950  
Tyler A. Schloesser, Chief Operations     2021       80,000       —         3,836       25,000       —         83,836  
Officer     2020       72,000       —         3,632       50,000       —         75,632  
      2019       73,681       —         62,300       252,500       —         143,401  
Jon Workman, Vice President     2021       78,000       —         3,836       25,000       —         86,386  
Officer     2020       72,000       —         3,632       50,000       —         75,632  
      2019       71,970       —         18,000       100,000       3,145       93,115  

 

(1) Mr. Godfrey was terminated as CFO on August 14, 2020.

(2) Mr. Buffalo was appointed Chief Financial Officer on August 14, 2020. Mr. Buffalo resigned as Chief Executive Officer and Chief Financial Officer on December 31, 2021.

 

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Retirement Benefits

We do not currently provide our named executive officers with supplemental or other retirement benefits.

Equity Awards at December 31, 2021

As of December 31, 2021, we granted the following stock-based compensation awards pursuant to contracts, board of directors compensation, and our 2015 Equity Incentive Plan (“Plan”), as amended. The Plan is intended to promote the best interest of the Company and its stockholders by assisting the Company in the recruitment and retentions of person with ability and initiative and providing an incentive to such person to contribute to the growth of the Company’s business. Eligible person under the Plan include employees, directors and consultants of the Company or any affiliated of the Company. Unless earlier terminated, the Plan will remain in force unless a new Plan has been adopted by the Board of the Company. Ten million common shares are authorized under the Plan, and 7,689,792 are outstanding as at December 31, 2021.

Compensation of Directors & Executive Officers

 

The Board of Directors granted the following compensation for directors as at fiscal year ended December 31, 2021:

On December 30, 2021, the Company issued 50,000 shares to Ellis Smith under contract.

 

On December 30, 2021, the Company issued 25,000 shares to Ellis Smith as director compensation.

 

On December 30, 2021, the Company issued 50,000 shares to Terry L. Buffalo Revocable Living Trust under contract.

 

On December 30, 2021, the Company issued 25,000 shares to Terry L. Buffalo Revocable Living Trust as director compensation.

 

On December 30, 2021, the Company issued 50,000 shares to Tad Mailander as director compensation.

 

On December 30, 2021, the Company issued 50,000 shares to Tyler A. Schloesser under contract.

 

On December 30, 2021, the Company issued 50,000 shares to Jon Workman under contract.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of December 31, 2021 by (1) each stockholder who is known by us to beneficially own more than 5% of our common stock, (2) each of our directors, (3) each of our executive officers named in the Summary Compensation Table above, and (4) all of our directors and executive officers as a group.

 

    Number of    
    Shares    
    Beneficially    
Beneficial Owner(1)   Owned(2)   Percent(3)
Named Executive Officers and Directors:                
Ellis Smith     11,471,853       14 %
Terry Buffalo     1,380,000       1.68 %
Tad Mailander     250,000       0.3 %
Tyler A. Schloesser