The accompanying notes are an integral part of these unaudited consolidated financial statements
The accompanying notes are an integral part of these unaudited consolidated financial statements
The accompanying notes are an integral part of these unaudited consolidated financial statements
NOTES TO THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE
MONTHS ENDED MARCH 31, 2020 and 2019
Note 1.
Principles of Consolidation.
The
consolidated financial statements include the accounts of American Cannabis Company, Inc. and its wholly owned subsidiary, Hollister
& Blacksmith, Inc., doing business as American Cannabis Company, Inc. Intercompany accounts and transactions have been eliminated.
Note 2.
Description of Business.
American Cannabis
Company, Inc. and its wholly owned subsidiary Company, Hollister & Blacksmith, Inc., doing business as American Cannabis Consulting
(“American Cannabis Consulting”), (collectively “the “Company”) are based in Denver, Colorado and
operate a fully-integrated business model that features end-to-end solutions for businesses operating in the regulated cannabis
industry in states and countries where cannabis is regulated and/or has been de-criminalized for medical use and/or legalized
for recreational use. We provide advisory and consulting services specific to this industry, design industry-specific products
and facilities, and sell both exclusive and non-exclusive customer products commonly used in the industry.
Note
3. Summary of Significant Accounting Policies
Basis
of Accounting
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations.
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 interim periods presented. These financial statements should be read
in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2019
included in our Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2020 are not necessarily
indicative of results to be expected for the full fiscal year or any other periods.
The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make a number of estimates
and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures. Actual results may differ
from these estimates.
Use
of Estimates in Financial Reporting
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amount of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the 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 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, contingencies and litigation. The Company is subject to uncertainties, such as the impact of future events,
economic, environmental and political factors, and changes in the business climate; therefore, actual results may differ
from those estimates. When no estimate in a given range is deemed to be better than any other when estimating contingent liabilities,
the low end of the range is accrued. Accordingly, the accounting estimates used in the preparation of the Company's financial
statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's
operating environment changes. Changes in estimates are made when circumstances warrant. Such changes and refinements in estimation
methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed
in the notes to the financial statements.
Unaudited
Interim Financial Statements
The
accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial
information and with the instructions to Form 10-Q and Regulation SX. Accordingly, the unaudited consolidated financial statements
do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement
of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been
made in order to make the financial statements presented not misleading. The results of operations for such interim periods are
not necessarily indicative of operations for a full year.
Cash
and Cash Equivalents
The Company
considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash
equivalents are held in operating accounts at a major financial institution. 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 March 31, 2020, and December 31, 2019, the Company had cash balances in excess of FDIC insured limits of $250,000.
Accounts
Receivable
Accounts
receivable are recorded at the net value of face amount less an allowance for doubtful accounts. The Company evaluates its accounts
receivable periodically based on specific identification of any accounts receivable for which the Company deems the net realizable
value to be less than the gross amount of accounts receivable recorded; in these cases, an allowance for doubtful accounts
is established for those balances. In determining its need for an allowance for doubtful accounts, the Company considers historical
experience, analysis of past due amounts, client creditworthiness and any other relevant available information. However, the Company’s
actual experience may vary from its estimates. If the financial condition of its clients were to deteriorate, resulting in their
inability or unwillingness to pay the Company’s fees, it may need to record additional allowances or write-offs in future
periods. This risk is mitigated to the extent that the Company receives retainers from its clients prior to performing significant
services.
The
allowance for doubtful accounts, if any, is recorded as a reduction in revenue to the extent the provision relates to fee adjustments
and other discretionary pricing adjustments. To the extent the provision relates to a client's inability to make required payments
on accounts receivables, the provision is recorded in operating expenses. As of March 31, 2020, and December 31, 2019, the Company’s
allowance for doubtful accounts was $39,677. The Company recorded bad debt expense during the three months ended March 31, 2020
of $ 22,500 and $ 2,293 during the three months ended March 31, 2019.
Deposits
Deposits
are 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. Inventory is valued at cost using the
first-in first-out and specific identification methods, unless and until the market for the inventory is lower than cost, in which
case an allowance is established to reduce the valuation to net realizable value.
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.
Significant
Clients and Customers
For
the three months ended March 31, 2020, three customers accounted for 35.4 % of the Company’s total revenues for the period.
In comparison for the three months ended March 31, 2019, three customers accounted for 37.2 % of the Company’s total revenue
for the period.
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 March 31, 2020 and as of December
31, 2019.
Accounting
for the Impairment of Long-Lived Assets
The
Company evaluates long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing
the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying
amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. For long lived assets held for sale, assets are written down to fair
value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates,
depending upon the nature of the assets. The Company had not recorded any impairment charges related to long lived assets as of
March 31, 2020 or December 31, 2019.
Fair Value Measurements
Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value
hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 – Quoted prices in
active markets for identical assets or liabilities.
Level 2 – Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 – Unobservable inputs
that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets
or liabilities.
Our financial instruments include
cash, deposits, accounts receivable, accounts payables, advances from clients, accrued expense, and other current liabilities.
The carrying values of these financial instruments approximate their fair value due to their short maturities.
Revenue
Recognition
During the first quarter of 2018,
the Company follows accounting principles related to revenue recognition: (a) FASB ASU 2016-12 “Revenue from Contracts
with Customers (Topic 606).
Our service and product revenues
arise from contracts with customers. Service revenue includes Operations Divisions consulting revenue. Product revenue includes
(a) Operations Division product sales (So-Hum Living Soils) and (b) Equipment Sales
Division. The majority of our revenue is derived from distinct performance obligations, such as time spent delivering a
service or the delivery of a specific product.
We may also enter into
contracts with customers that identify a single, or few, distinct performance obligations, but that also have non-distinct,
underlying performance obligations. These contracts are typically fulfilled within one to three months. Only an
insignificant portion of our revenue would be assessed for allocation between distinct (contractual) performance obligations
and non-distinct deliverables between reporting
periods and, accordingly, we do not record a contract asset for completed, non-distinct performance obligations prior to invoicing
the customer.
We recognize revenue when the following
criteria are met:
The parties to the contract
have approved the contract and are committed to perform their respective obligations – our customary practice is
to obtain written evidence, typically in the form of a contract or purchase order.
Each party’s rights regarding
the goods or services have been identified – we have rights to payment when services are completed in accordance
with the underlying contract, or for the sale of goods when custody is transferred to our customers either upon shipment to or
receipt at our customers’ locations, with no right of return or further obligations.
The payment terms for the goods
or services have been identified – prices are typically fixed, and no price protections or variables are offered.
The contract has commercial
substance – our practice is to only enter into contracts that will positively affect our future cash flows.
Collectability is probable – we
typically require a retainer for all or a portion of the goods or services to be delivered, as well as continually monitoring
and evaluating customers’ ability to pay. Payment terms are typically zero to fifteen days within delivery of the
good or service.
Advances from Clients deposits
are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund
the amount received. Where possible, we obtain retainers to lessen our risk of non-payment by our customers. Advances
from Clients deposits are recognized as revenue as we perform under the contract.
Product
Sales
Revenue from
product and equipment sales, including delivery fees, is recognized when an order has been obtained from the customer, the price
is fixed and determinable when the order is placed, the product is delivered, title has transferred and collectability is reasonably
assured. Generally, our suppliers’ drop-ship orders to our clients with destination terms. The Company realizes revenue
upon delivery to the customer. Given the facts that (1) our customers exercise discretion in determining the timing of when they
place their product order; and, (2) the price negotiated in our product sales contracts is fixed and determinable at the time
the customer places the order, we are not of the opinion that our product sales indicate or involve any significant financing
that would materially change the amount of revenue recognized under the contract, or would otherwise contain a significant financing
component for us or the customer under FASB ASC Topic 606. During the three months ended March 31, 2020 and 2019, sales returns
were $ 0 comprised of product returns and replacement, respectively.
Consulting
Services
We
also generate revenues from professional services consulting agreements. These arrangements are generally entered into: (1) on
an hourly basis for a fixed fee; or, (2) on a contingent fee basis. Generally, we require a complete or partial prepayment or
retainer prior to performing services.
For
hourly based fixed fee service contracts, we utilize and rely upon the proportional performance method, which recognizes revenue
as services are performed. Under this method, in order to determine the amount of revenue to be recognized, we calculate the amount
of completed work in comparison to the total services to be provided under the arrangement or deliverable. We segregate upon entry
into a contract any advances or retainers received from clients for fixed fee hourly services into a separate “Advances
from Clients” account, and only recognize revenues as we incur and charge billable hours, and then deposit the funds earned
into our operating account. Because our hourly fees for services are fixed and determinable and are only earned and recognized
as revenue upon actual performance, we are of the opinion that such arrangements are not an indicator of a vendor or customer
based significant financing, that would materially change the amount of revenue we recognize under the contract or would otherwise
contain a significant financing component under FASB ASC Topic 606.
Occasionally,
our fixed-fee hourly engagements are recognized under the completed performance method. Some fixed fee arrangements are for completion
of a final deliverable or act which is significant to the arrangement. 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 affectedby a number
of factors that change the estimated amount of work required to complete the deliverable, such as changes in scope, timing, awaiting
notification of license award from local government, and the level of client involvement. Losses, if any, on fixed-fee engagements
are recognized in the period in which the loss first becomes probable and reasonably estimable. FASB ASC Topic 606 provides a
practical expedient to disregard the effects of a financing component if the period between payment and performance is one year
or less. As, our fixed fee hourly engagements do not exceed one year, no significant customer-based financing is implicated under
FASB ASC Topic 606. During the year ended March 31, 2020 and March 31, 2019, we have incurred no losses from fixed fee engagements
that terminate prior to completion. We believe if an engagement terminates prior to completion, we can recover the costs incurred
related to the services provided.
We
primarily enter into arrangements for which fixed and determinable revenues are contingent and agreed upon achieving a pre-determined
deliverable or future outcome. Any contingent revenue for these arrangements is not recognized until the contingency is resolved
and collectability is reasonably assured.
Our
arrangements with clients may include terms to deliver multiple services or deliverables. These contracts specifically identify
the services to be provided with the corresponding deliverable. The value for each deliverable is determined based on the prices
charged when each element is sold separately or by other vendor-specific objective evidence (“VSOE”) or estimates
of stand-alone selling prices. Revenues are recognized in accordance with our accounting policies for the elements as described
above (see Product Sales). The elements qualify for separation when the deliverables have value on a stand-alone basis and the
value of the separate elements can be established by VSOE or an estimated selling price.
While
assigning values and identifying separate elements requires judgment, selling prices of the separate elements are generally readily
identifiable as fixed and determinable as we also sell those elements individually outside of a multiple services engagement.
Contracts with multiple elements typically incorporate a fixed-fee or hourly pricing structure. Arrangements are typically terminable
by either party upon sufficient notice or do not include provisions for refunds relating to services provided.
Reimbursable
expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component
of revenues. Typically, an equivalent amount of reimbursable expenses is included in total direct client service costs. Reimbursable
expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense
is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities
are presented in the statement of operations on a net basis.
Costs
of Revenues
The
Company’s policy is to recognize costs of revenue in the same manner in conjunction with revenue recognition. Cost of revenue
includes the costs directly attributable to revenue recognition and includes compensation and fees for services, travel and other
expenses for services and costs of products and equipment. Selling, general and administrative expenses are charged to expense
as incurred.
Advertising
and Promotion Costs
Selling
and Marketing costs are included as a component of selling and marketing expense and are expensed as incurred. During the three
months ended March 31, 2020 and March 31, 2019, these costs were $6,000 and $10,212, 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 three months ended March 31, 2020 and 2019, stock-based compensation expense for restricted shares for Company employees
and service providers was $4,503 (included in Stock Payable on the consolidated balance sheet) and $43,744, 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.
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 three months ended March 31, 2020, our research
and development costs were $35 as compared to $196 for the three months ended March 31, 2019.
Income
Taxes
The
Company’s corporate status changed from an S Corporation, which it had been since inception, to a C Corporation during the
year ended December 31, 2014. As provided in Section 1361 of the Internal Revenue Code, for income tax purposes, S Corporations
are not subject to corporate income taxes; instead, the owners are taxed on their proportionate share of the S Corporation’s
taxable income. Accordingly, we are subject to income tax now that the Company is a C Corp. We recognize deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns
in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect
for the year in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred
tax assets to the amount expected to be realized. For the three months ended March 31, 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 March 31, 2020, and December 31, 2019, we had no liabilities related to federal or state income
taxes and the carrying value of our deferred tax asset was zero.
Net Loss
Per Common Share
The Company
reports net loss per common share in accordance with FASB ASC 260, “Earnings per Share”. This statement requires dual
presentation of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share computations.
Basic net loss per share is computed by dividing net income attributable to common stockholders by the weighted average number
of shares of common stock outstanding during the period and excludes the effects of any potentially dilutive securities. Diluted
earnings per share is equal to basic earnings per share because there are no potential dilatable instruments that would have an
anti-dilutive effect on earnings. Diluted net loss per share gives effect to any dilutive potential common stock outstanding during
the period. The computation does not assume conversion, exercise or contingent exercise of securities since that would have an
anti-dilutive effect on earnings.
Related
Party Transactions
The
Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and
disclosure of related party transactions.
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.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued its new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic
842). Under the new guidance, the following will be required to be recognized for all leases (with the exception of short-term
leases) as of the commencement date:
|
|
•
|
A
lease liability, which is a lessee obligation to make lease payments arising from a lease, measured on a discounted basis;
and
|
|
|
•
|
A
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term.
|
|
|
•
|
Under
the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary,
lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
|
|
|
•
|
The
new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize
lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.
|
Public
business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). The Company has adopted this pronouncement
as of January 1, 2019 and determined such adoption did not have a material effect in the Company’s consolidated financial
statements.
In
March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments
and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based
payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity
or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for
annual periods beginning after December 15, 2018, and interim periods within those annual periods. For private companies, the
amendments are effective for annual periods beginning after December 15, 2020, and interim periods within annual periods beginning
after December 15, 2019. Early adoption is permitted for any organization in any interim or annual period. The Company has adopted
this pronouncement as of January 1, 2019 and determined such adoption did not have a material effect in the Company’s consolidated
financial statements.
In
June 2018, FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvement
to Non-Employee Share Based Payment Accounting This
update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees
(for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock
Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued
to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees
will be substantially aligned. This standard will be effective for financial statements issued by public companies for the annual
and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The standard will be applied
in a retrospective approach for each period presented. Adoption of this ASU did not have a significant impact on our consolidated
financial statements and related disclosures.
In
August 2018, FASB issued Accounting Standards Update (ASU) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure of Fair
Value Measurement. The Company has adopted this pronouncement as of January 1, 2020 and determined such adoption did not have
a material effect on the Company’s consolidated financial statements.
Note 4. Accounts Receivable
and Advance from Clients
Accounts
receivable was comprised of the following:
|
|
|
March 31,
2020
|
|
December 31, 2019
|
|
Gross accounts receivable
|
|
$
|
155,273
|
|
|
$
|
135,332
|
|
|
Less: allowance for doubtful accounts
|
|
|
(39,677
|
)
|
|
|
(39,677
|
)
|
|
Accounts receivable, net
|
|
$
|
115,596
|
|
|
$
|
95,655
|
|
|
Our Advances from Clients had the following activity:
|
|
|
|
|
|
Amount
|
|
December 31, 2019
|
|
$
|
112,959
|
|
|
Additional deposits received
|
|
|
246,615
|
|
|
Less: Deposits recognized as revenue
|
|
|
(201,875
|
)
|
|
March 31, 2020
|
|
$
|
157,699
|
|
|
Note 5. Inventory
|
|
|
|
|
|
|
|
|
|
|
|
Inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31, 2019
|
|
Raw materials
|
|
$
|
49,369
|
|
|
$
|
23,091
|
|
|
Finished goods
|
|
|
31,661
|
|
|
|
30,219
|
|
|
Total
|
|
$
|
81,030
|
|
|
$
|
53,310
|
|
|
|
|
|
|
|
|
|
|
|
Note
6. Property and Equipment, net
Property
and equipment, net, was comprised of the following:
|
|
|
March 31,
2020
|
|
December 31, 2019
|
|
Office equipment
|
|
$
|
35,624
|
|
|
$
|
35,624
|
|
|
Furniture and fixtures
|
|
|
7,240
|
|
|
|
7,240
|
|
|
Machinery and equipment
|
|
|
7,796
|
|
|
|
7,796
|
|
|
Work In Progress
|
|
|
13,204
|
|
|
|
10,935
|
|
|
Property and equipment, gross
|
|
|
63,864
|
|
|
|
61,595
|
|
|
Less: accumulated depreciation
|
|
|
(24,553
|
)
|
|
|
(21,553
|
)
|
|
Property and equipment, net
|
|
$
|
39,311
|
|
|
$
|
40,042
|
|
|
Note 7. Accrued and Other Current Liabilities
|
|
|
|
|
|
Accrued and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31, 2019
|
|
Accrued Bonus
|
|
$
|
—
|
|
|
$
|
1,500
|
|
|
Accrued Payroll
|
|
|
5,496
|
|
|
|
16,173
|
|
|
Other Accrued Expenses & Payables
|
|
|
155,793
|
|
|
|
99,630
|
|
|
Accrued and other current liabilities
|
|
$
|
161,289
|
|
|
$
|
117,303
|
|
|
Note 8. Stock payable
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes the changes in common stock payable:
|
|
|
|
|
|
|
|
Amount
|
|
Number of Shares
|
|
December 31, 2019
|
|
$
|
49,406
|
|
|
|
537,011
|
|
|
Additional Expensed Incurred
|
|
|
4,503
|
|
|
|
—
|
|
|
Shares Issued for Expensed Incurred
|
|
|
(43,509
|
)
|
|
|
(478,261
|
)
|
|
March 31, 2020
|
|
$
|
10,400
|
|
|
|
58,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9.
Operating Lease Right-of-Use Asset/Operating Lease Liability
On July 28, 2015, we entered into
a commercial real estate lease for 6,500 square feet of retail space in Denver, CO, with an initial term of five years and, at
our option, one additional terms of five years. Rent is $6,000 per month, as well as our portion of real estate taxes and common
area maintenance. We determined the present value of the future lease payments using a discount rate of 6%, our incremental borrowing
rate based on outstanding debt, resulting in an initial right-of-use asset and lease liability of $221,932, which are being amortized
ratably over the term of the lease. As of March 31, 2020, the balance of the right-of-use asset was $21,756 and lease liability
was $22,056. As of December 31, 2019, the balance of the right-of-use asset was $34,418 and lease liability was $34,943.
Rent expense
was $13,500 and $13,500 for the three months ended March 31, 2020 and 2019, respectively.
In addition,
the Company entered into a new lease agreement for a one-year term for an amount of $2,895 per month commencing on June 1, 2020.
The new lease agreement is a 12-month lease, as such the Company has elected to use the practical expedient and therefore did
not record a right-to-use asset or liability.
Note
10. Related Party Transactions
The
Company has a related party entity, Tabular Investments, LLC (“Tabular”) which was set to assign the Company’s
interest in various equity partnerships. 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 we have provided no subordinated financial support to any project
Note
11. Stock Based Compensation
During
the three months ended March 31, 2020 and March 31, 2019, the Company issued stock-based compensation for employees and service
providers pursuant to its 2015 Equity Incentive Plan. As of March 31, 2019, the Company determined to issue employees and services
providers warrants instead of common stock. During the three months ended March 31, 2020 and March 31, 2019, the Company’s
expense for restricted shares to Company employees and service providers was $4,503 and $43,744, which was the result of the following
activity:
Restricted
Shares
From
time to time, the Company grants certain employees restricted shares of its common stock to provide further compensation in-lieu
of wages and to align the employee’s interests with the interests of its stockholders. Because vesting is based on continued
employment, these equity-based incentives are also intended to attract, retain and motivate personnel upon whose judgment, initiative
and effort the Company’s success is largely dependent.
During
the three months ended March 31, 2020, the Company granted 478,261 restricted shares which was part of the stock payable balance
as of December 31, 2019. During the three months ended March 31, 2019, the Company granted 89,708 restricted shares to Company
employees and service providers. The fair value of restricted stock units is determined based on the quoted closing price of the
Company’s common stock on the date of grant.
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:
Warrants
The Company
approved the cashless exercise of 489,408 warrants as of March 31, 2019 by employees and services providers for a total of $43,744.
As of March 31, 2020, the Company did not issue or approve any cashless warrants.
Note
11. Stockholders’ Equity
Preferred
Stock
American
Cannabis Company, Inc. is authorized to issue 5,000,000 shares of preferred stock at $0.01 par value. No shares of preferred stock
were issued and outstanding as of March 31, 2020, and December 31, 2019.
Common
Stock
In January
2020, the Company entered into employment agreements with existing executive and non-executive which include a total of 225,000
shares to be fully vested and issued in January 2021. In the event of termination, the Company will issue the shares to employees
on a pro-rata basis as of the date of termination. Therefore, the Company recognized $4,503 in stock-based compensation expenses
for such services incurred through March 31, 2020 on a pro-rata basis. None of these shares have been fully vested or issued as
of March 31, 2020.
Note 12. Commitments
and Contingencies
Legal
To the best of our knowledge and
belief, no material legal proceedings of merit are currently pending or threatened
Note 13.
COVID 19
On January
30, 2020, the World Health Organization (“WHO”) announced a global health emergency in response to a new strain of
a coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based
on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this
report. Management is actively monitoring the global situation and its effects on the Company’s industry, financial condition,
liquidity, and operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the
Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity
for fiscal year 2020. However, if the pandemic continues, it may have a material adverse effect on the Company’s results
of future operations, financial position, and liquidity in fiscal year 2020.
Note 14. Subsequent Events
On April 3,
2020, the Company’s Board of Directors approved by resolution the increase of the Company’s authorized shares from
one hundred million to five hundred million common shares, par value of $0.00001 per share. On April 17, 2020, shareholders of
the Company controlling 50.29 % of approved by written consent, pursuant to Title 8. Corporations Section 242, 228(a) and 103
of the General Corporation Law of the State of Delaware, an increase in the authorized shares of the company from one hundred
million to five hundred million of common shares, par value of $0.00001 per share.
