UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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 | |||
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) | (I.R.S. Employer Identification No.) | |
|
|
(303)
(303) 974-4770
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
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] [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 [X] No [ ]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] [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] [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 | Accelerated filer [ ] | Non-accelerated filer [ ] (Do not check if a | Smaller reporting company |
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 a 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 o [ ] No ý [x]
The aggregate market value of common equity held by non-affiliates of the Registrant as ofDecember 31, 20152023, was approximately $19,779,249$1,671,477.
As of April 13, 2016, 45,642,064December 31, 2023, 171,402,938 shares of common stock, par value $0.00001, were issued and outstanding. On May 8, 2024, shares of common stock, par value $0.00001, were issued and outstanding.
TABLE OF CONTENTS
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”“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 its subsidiary is a publicly listed company quoted on the OTC Markets OTCQB Trading Tier under the symbol “AMMJ”.“AMMJ.” We are based in Denver,Colorado Springs, Colorado, and operate a fully-integratedfully 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-criminalizeddecriminalized 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 bothoffering exclusive and non-exclusive customer products commonly used in the industry. We also are licensed operators of two 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., which became Pursuant to a merger transaction on March 13, 2013, the Company changed its name to Brazil Interactive Media, Inc. (“BIMI”) on March 13, 2013 pursuant to a merger transaction that resulted in the Company becoming, and operated as the owner of a Brazilian interactive television technology and television production company named BIMI, Inc. We became American Cannabis Company, Inc. on September 29, 2014, pursuantPursuant to an Agreement and Plan of Merger dated May 15, 2014, (the “Merger Agreement”) between the Company, Cannamerica Corp. (“Merger Sub”), a wholly-owned subsidiary of BIMI, and Hollister & Blacksmith, Inc. d/b/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, (the “Reverse Merger”), 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.
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The foregoing descriptions of the Merger Agreement and Separation Agreement do not purport to be complete and are qualified in their entirety by the terms of such agreements, which are filed as exhibits to the Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on October 3, 2014.
Industry and Regulatory Overview
As of March 14, 2016, 23the date of this filing, thirty-nine states, andincluding the state of Colorado, the District of Columbia, allow their citizens toand four U.S. Territories, currently have laws broadly legalizing cannabis in some form for either medicinal or recreational use medicalgoverned by state-specific laws and regulations. Although legalized in some states, cannabis through de-criminalization. Voters inis a “Schedule 1” drug under the States of Oregon, Colorado, Washington, and Alaska have legalized cannabis for adult recreational use; Oregon’s law took effect on July 1, 2015; Alaska’s law was effective February 24, 2015; both the Colorado and Washington programs were enacted as of December 31, 2014. In 2016, Nevada California, Vermont, Arizona, Connecticut and Michigan have legislative bills in various stages of progress concerning cannabis legalization.
Additionally, there are active efforts by many advocacy groups seeking to expand the legalization of cannabis, including, but not limited to the Marijuana Policy Project, a leading advocate for major state-level marijuana policy reforms that have resulted in successful efforts to pass 10 of the 15 most recent state medical marijuana laws (in Arizona, Delaware, Illinois, Maryland, Michigan, Minnesota, Montana, New Hampshire, Rhode Island, and Vermont) and five of the seven most recent decriminalization laws (in Delaware, Maryland, Massachusetts, Rhode Island, and Vermont).
These advocacy groups and others are devoting significant resources to ending prohibition in 12 more states by 2019, including in the States of Arizona, California, Massachusetts, and Nevada, as well as lobbying and building coalitions to regulate marijuana in several states that do not have the option of voter initiatives, including in: Delaware, Illinois, Maryland, New Hampshire, Rhode Island, Texas, and Vermont and are also advocating for medical marijuana-related bills in several other states, including Georgia, Pennsylvania, Texas, and West Virginia.
These noted state laws, both proposed and enacted, are in conflict with the federal Controlled Substances Act which makes cannabis use(21 U.S.C. § 811) (“CSA”) and possessionis illegal on a national level. However, onunder federal law.
On August 29, 2013, the U.S.The Department of Justice issued a memorandum providingset out its prosecutorial priorities in light of various states legalizing cannabis for medicinal and/or recreational use. The “Cole Memorandum” provided that wherewhen states and local governments enact laws authorizing cannabis-related use, and implementhave 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 will rely upon states and localmay seek to challenge the regulatory structure itself in addition to continuing to bring individual enforcement agencies to address cannabis activity through the enforcement of their own state and local narcotics laws. The memorandum further stated that the U.S Justice Department’s limited investigative and prosecutorial resources will beactions, including criminal prosecutions, focused on eight priorities to prevent unintended consequences of the state laws, including distribution of cannabis to minors, preventing the distribution of cannabis from states where it is legal to states where it is not, and preventing money laundering, violence and drugged driving.those harms.
On December 11, 2014, the U.S. Department of JusticeJanuary 4, 2018, Attorney General Jeff Sessions issued anothera memorandum with regard to its position and enforcement protocol with regard to Indian Country, stating that the eight priorities in the previous federal memo would guide thefor all United States Attorneys'Attorneys concerning cannabis enforcement efforts in Indian Country. On December 16, 2014, as a component ofunder the federal spending bill, the Obama administration enacted regulations that prohibitCSA. 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.” This amendment prohibits the Justice Department from using federal funds to prosecute state-basedprevent 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.” Before 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 is the chemical compound found in cannabis that produces the psychoactive intoxicant 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 repeat offenses.
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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 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, which 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).
The fall of 2022 saw several key developments in federal and state marijuana regulation. In October 2022, President Biden granted clemency to certain low-level federal marijuana offenders and directed the Attorney General to review the status of marijuana under federal law. While some observers consider President Biden’s grant of clemency to represent a significant change in federal marijuana policy, as a legal medical cannabis programs. matter, it did little to alter the growing disparity between federal and state marijuana regulation. Then, in November 2022, voters in five states considered ballot initiatives to legalize recreational marijuana at the state level, two of which were adopted. Congress also subsequently enacted the Medical Marijuana and Cannabidiol Research Expansion Act, which aims to facilitate research on marijuana and cannabidiol (CBD). Legislators and commentators have proposed a number of other legal reforms that would alter federal marijuana regulation and potentially reduce the divergence between federal and state law.
As of March 9, 2015,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 additionstate cannabis licenses altogether or have enacted regulations that 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 23 statesCompany’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 District of Columbia which had already passed legislation allowing citizens to use cannabis in some form, an additional 13 states had pending legislation or ballot measures to legalizerecreational and medical cannabis.markets.
Business Overview
We now primarily operate within two divisions within the regulated cannabis industry:industry with three operation divisions: (i) consulting and professional services; and, (ii) the sale of products and equipment commonly utilized in the cultivation, processing, transportation, or retail sale of cannabis. We do not hold any ownership interests, direct or indirect,cannabis; and (iii) our licensed owner-operator medical marijuana dispensaries and cultivation facilities located in businesses which hold a licenseColorado Springs, Colorado under the trade name “Naturaleaf.” Our operations are limited to produceonly those state jurisdictions where medical and/or sell cannabis. We do not sell, cultivate, manufacture, or transact cannabis.recreational cannabis business has been legalized.
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Consulting Services
We offer consulting services for companies associated with the cannabis industry in all stages of development. Our service offerings include the following:
● | Cannabis Business Planning. Our commercial cannabis 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. |
● | Cannabis 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 |
● | 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. |
● | 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. |
● | 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. |
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● | Cannabis 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. |
● | Cannabis 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. |
Equipment and Supplies
In addition to professional consulting services, we operate an equipment and supplies division for customers in the cannabis industry, including through American Cultivator CO, ourindustry. Our Group Purchasing Organization, thatAmerican Cultivator CO., enables customers to procure commonly used cultivation supplies at low prices associated with high volume purchases.competitive prices. Our major product offerings include the following:
● | 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. | |
● | 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. |
● | 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. |
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● | 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. |
● | 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 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. |
Naturaleaf |
On December 16, 2020, the Company announced that it executed a non-binding letter of intent to purchase the assets of Naturaleaf, a long-standing licensed operator in the Colorado Springs medical cannabis market since 2009. The Satchel™assets include three (3) retail dispensaries located throughout the city and 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 owned 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.
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”):
● | Medihemp and SLAM’s and Medical Cannabis’ respective Medical Marijuana Center licenses; |
● | Medical Cannabis’ Medical Marijuana Infused Product Manufacturer license; and, |
● | 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.
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.
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On April 29, 2022, the Company and Naturaleaf amended the promissory note to restructure the payment schedule ("First Amendment"). The Satchel was inventedparties agreed that in response to regulatory changes in Colorado and elsewhere that require child-proof 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 requirementsconsideration of the Consumer Products Safety Commission (“CPSC”), making it compliantCompany's payment of $550,000 and outstanding interest of $110,000, a new promissory note with a maturity date of April 29, 2023, in the principal amount of $550,000 and 12% interest accruing annually, would resolve all states. It is also testedCompany payments of the purchase price. The parties entered into the First Amendment, and approvedthe Company paid the consideration of $550,000 in principal and $110,000 in interest.
On June 8, 2023, the Company and Naturaleaf amended the promissory note ("Second Amendment") to restructure the remaining payments due to be made by the American Society for TestingCompany under the amended Note, totaling principal and Supplies (“ASTM”interest of $651,162.50 ("Second Amendment"). 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 February 23, 2016 we announced we received notice from the U.S. Patent Office that our claims for the Satchel™ patent application were deemed allowable by the U.S. Patent and Trademark Office, and our patent application for the Satchel™ will now move on to issuance.
On May 31, 2023, the Company sold Colorado State License No. 402-01065 (Medical Marijuana Store) and City of vertical space, with racks installed verticallyColorado Springs License No. 0850714L in exchange for $100,000. As of May 31, 2023, the Company discontinued its associated operations at Palmer Park Boulevard, Ste. A, Colorado Springs, CO, and placed on horizontal tracking to eliminate multiple isles and create multiple levelsas of space with which to grow plants. The High Density Racking System allows customers to increase production capacityJune 30, 2023, its lease obligation terminated without the need to add additional square footage to the operation.
liquidated damages.
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 asto more new 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-timetime 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: theto The Satchel™, Cultivation Cube™, So-Hum Living Soils™Soils®, and the HDCS™. Costs associated with the development of new products are expensed as occurred as research and development operating expenses. During the yearyears ended December 31, 2015,2023, and 2022 our research and development costs were $51,115 as compared to $12,863 for the fiscal year ended December 31, 2014.de minimis.
Significant Customers
For the year ended December 31, 20152023, eleven customers accounted for 84.13% of the Company's total revenues from its retail and wholesale sales, consulting, soil, and product revenue lines. At December 31, 2014, in the aggregate, three2022, eight customers and two customers, respectively, accounted for 74% and 52%87.33% of the Company’s total revenues for each respective period.from its consulting, soil, and product revenue lines.
On a geographical basis, for the year endedAt December 31, 2015, approximately 91% and 9%2023, three customers accounted for 98.21% of accounts receivable, net, consisting of customers of our total revenues were generated from the United Statesretail and Canada, respectively. For the year endedwholesale sales, consulting services, and soil and products revenue streams. At December 31, 2014, approximately 70%2022, three customers accounted for 84.76% of accounts receivable, net, consisting of customers for our products, soil, and 30% of our total revenues for the period were generated from the United States and Canada, respectively.consulting services product streams.
Intellectual Property
On February 23,March 29, 2016, we announced that the U.S. Patent and Trademark Office informed us thatissued patent number 9,296,524 B2 for The Satchel™, our child-proof container invented in response to meet state-mandated regulatory requirements, was deemed allowable, and that our patent applicationexit package solution for the Satchel™ will now move on to issuance.We may fileregulated cannabis industry. On March 14, 2015, the U.S. Patent and Trademark Office issued trademark #86574785 for additional patent protection as we deem appropriate to protect new products. We also had 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 wordtwo-word marks and the logo associated with SoHumSo-Hum Living Soil.Soil®.
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Competition
Competition |
Our competitors include professional services firms dedicated toand cannabis dispensaries in the regulated cannabis industry, as well as suppliers of equipment and supplies commonly utilized in the cultivation, processing, or retail sale of cannabis. We compete in markets where cannabis has been legalized and regulated, which includes various states within the United States, it’sits 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 industry matures. 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 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 |
Employees
As of December 31, 2015,2023, we have 4 full-time and 9 full-timepart-time employees all of whom are U.S based, primarily in our Colorado at our Denver headquarters.Springs, Colorado dispensaries and cultivation facility. None of our U.SU.S. employees are represented by a labor union.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters are locatedsituated at 1004 Tejon Street in Denver, Colorado whereSprings, CO. Below are details regarding the lease agreement for our corporate headquarters, which coincides with one of our Naturaleaf locations
As a result of our acquisition of Naturaleaf, we lease office space under a contract effective July 28, 2015, expiring on July 31, 2020.assumed the following leases and contingent extensions:
● | 1004 S. Tejon Street, Colorado Springs, CO 80903; The Company assumed a lease originally entered into on February 12, 2016, which was the subject of a extension agreement dated April 5, 2022. The term of the lease was extended from May 1, 2022 until April 30, 2027. The Company's monthly rental payments from January 1, 2022 to May 1, 2022 was $3,700. From May 1, 2022 through the year ended December 31, 2022, monthly rent was $3,875. Remaining rental payments due for the extended period are: May 1, 2022 to April 30, 2023 $3,875 May 1, 2023 to April 30, 2024 $4,050 May 1, 2024 to April 30, 2025 $4,225 May 1, 2025 to April 30, 2026 $4,400 May 1, 2026 to April 30, 2027 $4,575 |
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● | 2727 Palmer Park Blvd. Suite A, Colorado Springs, CO 80909 subject to a one-year term expiring June 30, 2023 with a monthly rent of $5,000. On May 31, 2023, the Company sold Colorado State License No. 402-01065 (Medical Marijuana Store) and City of Colorado Springs License No. 0850714L in exchange for $100,000. As of May 31, 2023, the Company discontinued its associated operations at Palmer Park Boulevard, Ste. A, Colorado Springs, CO, and at June 30, 2023, its lease obligation terminated without the Company incurring penalties, interest, or liquidated damages. |
● | 5870 Lehman Drive Suite 200, Colorado Springs, CO 80918 The Company and landlord previously entered into a lease in 2017 which expired December 31, 2022. At December 31, 2022, the Company's monthly rent was $2,732. On April 26, 2022, the Company and landlord entered into an extension agreement which extended the tenancy from January 1, 2023 through January 1, 2027. Rental payments due for the extended period are: January 1, 2023 $2,898 January 1, 2024 $2,985 January 1, 2025 $3,075 January 1, 2026 $3,167 January 1, 2027 $3,262 |
● | 2611 Durango Drive, CO Springs, CO. The Company and landlord entered into a lease on March 10, 2021, which terminated on May 31, 2022. On June 23, 2021, the Company and landlord entered into an extension of the lease for a term of thirty-six months, beginning June 1, 2022 and terminating June 1, 2024. At December 31, 2022, monthly rent was $11,000. Rental payments due for the extended period are: June 1, 2022 to June 1, 2023 $11,000 June 1, 2023 to June 1, 2024 $11,880 June 1, 2025 to June 1, 2025 $12,830 |
Our corporate headquarters associated with our Colorado Springs, Colorado dispensary and cultivation leases are adequate for our operations as of the date of this filing, providing productive capacity and complete utilization for our business.
ITEM 3. LEGAL PROCEEDINGS
On January 20, 2016, we were named as a defendant in a civil suit entitled: Anthony Baroud vs. Hollister & Blacksmith, Inc., dba American Cannabis Company filed in the Circuit Court of Cook County, Illinois. The lawsuit seeks damages of $100,000 related to an employment contract. The Company filed a motion to compel contractual arbitration that has yet to be ruled on by the Court.None.
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 OTCQB. On October 10, 2014, we changed ourOTC Markets OTCQB Trading Tier under the ticker symbol from “BIMI” to “AMMJ”.“AMMJ.” As of December 31, 2015,2023, there were 500501 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:
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2015 | High | Low | ||||||||
Quarter ended December 31 | $ | 0.15 | $ | 0.15 | ||||||
Quarter ended September 30 | $ | 0.09 | $ | 0.08 | ||||||
Quarter ended June 30 | $ | 0.33 | $ | 0.28 | ||||||
Quarter ended March 31 | $ | 0.40 | $ | 0.38 |
2014 | High | Low | ||||||||
Quarter ended December 31 | $ | 1.00 | $ | 0.49 | ||||||
Quarter ended September 30 | $ | 1.45 | $ | 0.65 | ||||||
Quarter ended June 30 | $ | 1.50 | $ | 0.11 | ||||||
Quarter ended March 31 | $ | 0.76 | $ | 0.05 |
2023 | High | Low | |||||
Quarter ended December 31 | $ | 0.02 | $ | 0.01 | |||
Quarter ended September 30 | $ | 0.05 | $ | 0.01 | |||
Quarter ended June 30 | $ | 0.02 | $ | 0.01 | |||
Quarter ended March 31 | $ | 0.03 | $ | 0.02 |
2022 | High | Low | |||||
Quarter ended December 31 | $ | 0.05 | $ | 0.02 | |||
Quarter ended September 30 | $ | 0.05 | $ | 0.03 | |||
Quarter ended June 30 | $ | 0.06 | $ | 0.03 | |||
Quarter ended March 31 | $ | 0.07 | $ | 0.04 |
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.
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”“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-goingongoing 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.
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Background
Background |
American Cannabis Company, Inc. and its subsidiary is a publicly listed company quoted on the OTC Markets OTCQB Trading Tier under the symbol “AMMJ”.“AMMJ.” We are based in Denver,Colorado Springs, Colorado, and operate a fully-integrated business model that features end-to-end solutions for businesses operating inwithin the regulated cannabis industry with four operation divisions: (i) consulting and professional services; (ii) the sale of products and equipment commonly utilized in statesthe cultivation, processing, transportation or retail sale of cannabis; and, countries(iii) 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 cannabis is regulatedmedical and/or recreational cannabis business has been de-criminalized for medical use and/or legalized for recreational use. We provide advisorylegalized. 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 ("Medihemp"), and consulting services specific to this industry, design industry-specific productsits wholly-owned subsidiary SLAM Enterprises, LLC ("SLAM"), and facilities,Medical Cannabis Caregivers, Inc. ("Medical Cannabis"), each an entity organized and sell both exclusive and non-exclusive customer products commonly used inoperating under the industry.
The Company was incorporated inlaws of the State of Delaware on September 24, 2001 under the name “Naturewell, Inc.” On March 13, 2013, the Company completed a merger transaction whereby it acquired Brazil Interactive Media, Inc. (“BIMI”), a Brazilian interactive television companyColorado, and television production company. The Company’s Articles of Incorporation were amended to reflect a new name: Brazil Interactive Media, Inc. On May 15, 2014 the Company entered into an Agreement and Plan of Merger with Cannamerica Corp. (the “Merger Sub”), a wholly-owned subsidiary of BIMI, and Hollister & Blacksmith, Inc.all doing business as American“Naturaleaf” operating in the medicinal cannabis industry in Colorado.
Medihemp and SLAM, respectively, owned fixed assets and operate two retail Medical Marijuana Centers in Colorado Springs, Colorado. Medical Cannabis Consulting (“American Cannabis Consulting”). The mergeralso 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, and the Company purchased and was completed on September 29, 2014, resulting in American Cannabis Consulting being merged with and into the Merger Sub (the “Reverse Merger”). The Company subsequently amended its Articles of Incorporation to change its name to “American Cannabis Company, Inc.” Upon the closingassignee of the Reverse Merger,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.
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.
On April 30, 2022, the Company and Medihemp, SLAM, and Medical Cannabis amended the material definitive agreement to restructure the remaining payments due to be made by the Company under the Note. The parties agreed that in consideration of the Company's payment of $550,000 and outstanding interest of $110,000, a new promissory note in the principal amount of $550,000 and 12% interest accruing annually, due April 29, 2023, resolved all of the Company’s officersCompany's payment obligations for the purchase price. The parties executed the amendment, and directors appointed designee officers and directors from American Cannabis Consulting and resigned. Consistent with the Merger Agreement, the Company consummated a complete divestiturepaid the consideration of BIMI, Inc., a Delaware corporation$550,000 in principal and wholly-owned subsidiary of the Company, pursuant to a Separation and Exchange Agreement dated May 16, 2014 (the “Separation Agreement”) between the Company, BIMI, Inc., and Brazil Investment Holding, LLC (“Holdings”), a Delaware limited liability company. On October 10, 2014, the Company changed its stock symbol from BIMI to AMMJ.$110,000 in interest.
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The foregoing descriptions of the Merger Agreement and Separation Agreement do not purport to be complete and are qualified in their entirety by the terms of such agreements, which are filed as exhibits to the Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on October 3, 2014.
Results of Operations
Year ended December 31, 20152023 compared to year ended December 31, 20142022
The following table presents our operating results for the year ended December 31, 20152023, compared to December 31, 2014:2022:
AMERICAN CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended | ||||||||||||
December 31, | December 31, | Increase | ||||||||||
2023 | 2022 | (Decrease) | ||||||||||
Revenues | ||||||||||||
Consulting Services | $ | 695,089 | $ | 475,837 | 219,252 | |||||||
Product & Equipment | 1,024,091 | 17,539,377 | (16,515,186 | ) | ||||||||
Cannabis Products | 756,905 | 793,331 | (36,426 | ) | ||||||||
Total Revenues | 2,476,185 | 18,808,545 | (16,332,360 | ) | ||||||||
Cost of Revenues | ||||||||||||
Cost of Consulting Services | 115,085 | 61,246 | 53,839 | |||||||||
Cost of Products and Equipment | 724,921 | 15,230,648 | (14,505,727 | ) | ||||||||
Cost of Cannabis Products | 594,296 | 979,437 | (385,411 | ) | ||||||||
Total Cost of Revenues | 1,434,302 | 16,271,331 | (14,837,029 | ) | ||||||||
Gross Profit | 1,041,882 | 2,537,214 | (1,495,332 | ) | ||||||||
Operating Expenses | ||||||||||||
General and Administrative | 1,650,498 | 2,833,140 | (1,182,642 | ) | ||||||||
Selling and Marketing | 154,470 | 225,950 | (71,480 | ) | ||||||||
Bad Debt Expense | 20,933 | 5,438 | 15,495 | |||||||||
Goodwill impairment | 1,332,113 | — | 1,332,331 | |||||||||
Stock Based Compensation Expense | 1,735,021 | 78,342 | 1,656,679 | |||||||||
Total Operating Expenses | 4,893,035 | 3,142,870 | 1,750,165 | |||||||||
Loss from Operations | (1,851,152 | ) | (605,656 | ) | 3,027,224 | |||||||
Other Income (Expense) | ||||||||||||
Interest (expense) | (113,609 | ) | (78,086 | ) | 35,523 | |||||||
Debt Forgiveness | — | — | — | |||||||||
Other income | 304,405 | 50,550 | 253,795 | |||||||||
Total Other (Expense)Income | 190,736 | (27,537 | ) | 218,272 | ||||||||
Net Loss | (3,660,416 | ) | (633,193 | ) | 22,889 | |||||||
Income Tax Expense | — | — | — | |||||||||
NET LOSS | $ | (610,303 | ) | $ | (663,192 | ) | 22,889 |
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Revenues
Total revenues were $2,476,185 for the year ending December 31, 2023, compared to $18,808,545 for the year ending December 31, 2022. The decrease in total revenue of $16,332,360 for the year ended December 31, 2015 and December 31, 2014, were $2,799,887 and $1,259,012, respectively, an increase of $1,540,875. This increase2023, was primarily due to growtha result of a decrease of $16,515,186 in our client baseproduct and volume of operations as our business has matured following commencement of business operations in April 2013, specifically the establishment of our in-house product offerings and 3rd party equipment sales were major contributing factors. Forassociated with the design and build projects for which the Company offers the design, management, and installation of associated products sold for the construction of cultivation and dispensary facilities. The Company's cannabis product sales from its licensed dispensaries and cultivation facility for the year ended December 31, 2015 and December 31, 2014, consulting services revenue was $693,225 and $677,633, respectively. For2023, were $756,905, as compared to $793,331 for the year ended December 31, 2015 and December 31, 2014, products and equipment revenue were $2,106,662 and $581,379, respectively. During2022, reflecting the years ended December 31, 2015 and December 31, 2014, the company generated revenue from the sale of productsgeneral decline in the amount of $25,214 and $0, respectively, to a Director.market for Cannabis in Colorado that began in 2022.
Costs of Revenues
Costs of revenues primarily consist of labor, travel, cost of equipment and soil sold, and other costs directly attributable to providing services or soil products. ForCosts of revenues related to our cannabis products include cultivation costs, including labor, utilities, supplies and cultivation facility rent. During the year ended December 31, 2015 and December 31, 2014,2023, our total costs of revenues were $2,000,1131,434,302, as compared to $16,271,331 for the year ended December 31, 2022, a decrease of $14,837,029. The decrease was due to costs incurred purchasing equipment for projects which the Company sold in conjunction with its design, management and $771,476, respectively. The increase ininstallation of associated products for the construction of cultivation and dispensary facilities. Our costs of revenues was primarily due to the increase in operating expenses related to overhead and salaries as well as sales volume discussed above. Asour cannabis products also decreased from $594,296 for the year ended December 31, 2023, compared to $979,437 for the year ended December 31, 2022, a percentagedecrease of total$385,411, reflecting the general decline in the market for Cannabis in Colorado that began in 2022.
Consulting Services
Consulting service revenues for the year ended December 31, 2023, were $695,089, compared to $475,837 for the year ended December 31, 2022, an increase of $219,252. The increase was due to changesthree states legalizing cannabis during fiscal 2022 and other activities for consulting services clients whose projects are in development.
Costs of consulting services were $115,085 for the year ended December 31, 2023, as compared to $61,246 for the year ended December 31, 2022, an increase of $53,839. The increase was due to the growth in consulting activity during the period.
Product and Equipment Revenues
Our product and equipment revenues for the year ended December 31, 2023, were $1,024,091 as compared to $17,539,377 for the year ended December 31, 2022, a decrease of $16,515,186. The decrease in product mix,and equipment sales was primarily the result of the termination of a contract that the company first secured in 2021. Under this contract, the Company was retained to provide equipment sales, design, management, and installation services for the construction of multiple cultivation and dispensary facilities throughout the fiscal year ending December 31, 2022. The termination of the aforementioned contract had a significant impact on our product and equipment revenues for the fiscal year ended December 31, 2023, with the Company experiencing a substantial reduction in project-related sales and service revenues as compared with equipment sales and facility construction services provided during the previous fiscal year.
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Costs of Products and Equipment were $724,921 for the fiscal year ending December 31, 2023, compared to $15,230,648 for the year ending December 31, 2022, a decrease of $14,505,727. Costs associated with products and equipment which havedecreased as a lower gross margin compared to consulting and advisory services, made up a higher percentageresult of revenues and costs ofdecreased equipment sales during the year ended December 31, 2023.
Cannabis Product Revenues
Cannabis product revenues during the year ended December 31, 20152023, were $756,905, as compared to December 31, 2014. For$793,330 for the year ended December 31, 2015, consulting related costs were $182,161 or 6.5%2022, a decrease of $36,426. The decrease was due to the general decline in the market for Cannabis in Colorado in 2023 and 2022, with Colorado's annual 2023 total revenues and costs related with costssales of $1.5 billion representing a 16% decline from 2022's $1.76 billion sales total.
Costs associated with cannabis products consist of those costs incurred in the cultivation of the plants and equipment were $1,817,952 or 64.9%the retail sale of total revenues. Forthe products. During the year ended December 31, 2014, consulting related2023, such costs were $322,134, or 25.6% of total revenue, and costs associated with products and equipment were $449,342, or 35.7% of total revenue.
Gross Profit
For$594,296, as compared to $979,437 for the year ended December 31, 20152022, a decrease of $426,101. This decrease was due to the elimination of costs associated with improvements, including upgrading and December 31, 2014,replacing machinery and equipment in the Company's Colorado Springs cultivation facility and maintenance to the Company's Colorado Springs dispensary facilities.
Gross Profit
Total gross profit was $799,774 and $487,536, respectively. This increase was primarily due to growth in our client base and volume of operations including product sales as our business has matured following commencement of business operations since 2013. As a percentage of total revenues, gross profit was 28.6% and 38.7%$1,041,882 for the years ended December 31, 2015 and December 31, 2014, respectively. This decrease was primarily due to the year ended December 31, 2015 having a higher proportion2023, comprised of total revenues from productconsulting services gross profit of $580,004, products and equipment salesgross profit of $299,170, and cannabis products gross profit of $162,609, as compared to $2,537,214 for the year ended December 31, 2022, comprised of consulting services as productgross profit of $414,591, products and equipment sales havegross profit of $2,308,729, and a lowergross profit margin compared to revenues generated by consulting and advisory services.(loss) of ($186,107) for cannabis products.
Operating Expenses
Total operating expenses were $48,93,035 for the yearsyear ended December 31, 2015 and2023, compared with $3,142,870 for the year ended December 31, 2014 was $1,352,740 and 3,878,340, respectively. This decrease2022, an increase of $2,525,600 was$1,750,165. The increase is mainly attributed to stock-baseda reduction in general and administrative expenses of $1,182,642, offset by the impairment of goodwill and increase stock based compensation expense of $319,187 in 2015 versus $3,370,128 in 2014. The decrease in Stock-based compensation expense reflected grants for whichduring the awards were vested. A higher amount was reflected in 2014 due to the Reverse Merger activities during 2014. In addition, we experienced an increase in investor relations which was $307,069 during 2015 versus $23,132 incurred in 2014 as the company began working with investor funding opportunities.year.
Other Income (Expense)
Other income (expense) for the yearsyear ended December 31, 2015 and December 31, 20142023 was income of $37,313 and expense of $228,388, respectively. This increases in other income was due$190,736 compared to less interest incurred during 2015, $35,458 versus $263,388 of interest expense attributed to initial amortization of the discount on our convertible notes payable. In addition,$(27,356) for December 31, 2015 and December 31, 2014 we had a gain on debt extinguishment of $72,771 and $35,000, respectively, which was attributed to negotiations with legal counsel in the forgiveness of debt, which was deemed fully satisfied as an aspect of the issuance of convertible notes payable.
Income Tax Expense (Benefit)
We did not have any income tax expense or benefit for the years ended December 31, 2015 and December 31, 2014, respectively. Although our tax status changed from a non-taxable pass-through entity (S-Corporation) to a taxable entity (C-Corporation) during the year ended December 31, 2014,2021. The increase is a direct result of increases in interest expenses resulting from travel and miscellaneous referral fees due to cumulative losses since we became a C-Corporation, we recorded a valuation allowance against our related deferred tax asset which netted our deferred tax assetfor the sale of products and benefit for income taxes to zero. We were an S-Corporation throughout the period from Inception (March 5, 2013) through December 31, 2013, and accordingly, no provision or benefit for income taxes was applicable. The years 2010 to 2015 remain subject to examination by the Company’s major tax jurisdictions.equipment.
Net Income (Loss)Loss
As a result of the factors discussed above, net
Net loss for the year ended December 31, 2015 and2023, was $3,660,416 as compared to $633,192 for the year ended December 31, 2014 was net loss of $515,653 and $3,619,192, respectively. For December 31, 2015 and December 31, 2014, these net2022. The decrease in losses represented a 18.4% and 287.5% of total revenues fordirectly results from the respective periods.decline in cannabis product sales.
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2015 and December 31, 2014,2023, our primary internal sources of liquidity were our working capital, which included cash and cash equivalents of $555,780$21,085 and $165,213, respectively. We also have the ability to raise additional capital as needed through external equity financing transactions. For the years ended December 31, 2015 and December 31, 2014, the Company had a sourceaccounts receivable of cash from operations of $149,225 and $34,062, respectively. For December 31, 2015 and December 31, 2014 we generated non-cash expenses of $124,099 and $3,320,398, respectively related to stock-based compensation which contributed to our net cash derived from operating activities. This non-cash expense offset net losses of $515,653 and $3,619,192 for December 31, 2015 and December 31, 2014. Due to this factor, and$234,330. Additionally, considering that our fixed overhead costs are relatively low, we have the ability to issue stock to compensate employees and management, andmanagement. Management believes that it will need to raise short-term capital to mitigate any periodic delays in receipt of accounts receivable, as payments from third-party vendors are scheduled on a less-than-periodic timetable. Management believes this strategy will adequately provide the level of future revenue we expect to generate from executed client contracts, we believe ournecessary liquidity and capital resources to be adequate to fund our operational and general, and administrative expenses for at least the next 12 months.
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During the year ended December 31, 2023, the Company issued 79,250,000 common shares.
Operating Activities
Net cash providedused by operating activities for the year ended December 31, 20152023, was $149,225, which consists of net loss for the period of $515,653 which was offset by a non-cash adjustments used$49,792, compared to reconcile net loss for stock-based compensation to employees, a reduction in deposits and accrued and other liabilities. Net cash provided by operating activities$198,965 for the year ended December 31, 2014 $34,062, was primarily due to the net loss for the period2022. Increases in cash used were a result of $3,619,192, which was offset by a non-cash adjustment for stock-based compensation to employeeincreases in accrued and providers of $3,320,328.other current liabilities, and an increase in operating lease liability.
Investing Activities
For the years ended December 31, 20152023, and December 31, 2014, net cash used in2022, investing activities was $8,658 and a source ofused cash of $82,504,39,103 and $103,675, respectively. ForThe decrease represents less cash spent for the year ended December 31, 2015, the cash used in investing was attributed to the purchase of equipment for operations. For the year ended December 31, 2014 the cash provided of $82,504 was primarily the result of $90,181 net cash received in connection with the reverse merger with Brazil Interactive Media Inc., which went effective on September 29, 2014 and resulted in our becoming a public Company and SEC registrant. These funds represented the residual remaining balance of cash that Brazil Interactive Media, Inc. held after it raised $395,000 from convertible notes payable and paid down expenses. We also spent $7,677 on purchases of property and equipment.
Financing Activities
For the years ended December 31, 2015 and December 31, 2014, financing activities were a source of cash of $250,000 and $31,050, respectively. For December 31, 2015 the cash provided from financing activities was attributed to proceeds from the issuance of common shareholders to founders. ForDuring the year ended December 31, 2014,2023, cash used in financing activities were $14,567 compared to $250,236 for the cash source was due to a use of $4,000 for distributions to owners, which was substantially offset by $35,000 from the issuance of short-term notes payable during the period, which was offset when we repaid the short-term notes payable in full. .
For the yearsyear ended December 31, 2015 and2022. The Funds used during the year ended December 31, 2014 we had cash and cash equivalents of $555,780 and $165,213, respectively. We believe our liquidity and capital resources to be adequate to fund our operational and general and administrative expenses for at least the next 12 months.2023 werefrom paymest made onnotes payable.
Off BalanceOff-Balance Sheet Arrangements
As of December 31, 20152023, and December 31, 2014,2022, we did not have any off balanceoff-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Non-GAAP Financial Measures
We use Adjusted EBITA, a non-GAAP metric, to monitor our overall business performance. We define Adjusted EBITA as net income (loss) before interest expense, net, provision for (benefit from) income taxes, stock-based compensation and certain non-recurring expenses, which for the year ended December 31, 2014 were limited to costs associated with the Reverse Merger. We believe that such adjustments to arrive at Adjusted EBITA provides us with a more comparable measure for managing our business. We also believe that it is a useful measure for securities analysts, investors, and other interested parties in the evaluation of our Company.
A reconciliation of net incomeincome(loss) to Adjusted EBITAEBITDA is provided below.below:
Year ended December 31, 2015 | Year ended December 31, 2014 | |||||||
Adjusted EBITA reconciliation: | ||||||||
Net loss | $ | (515,653 | ) | $ | (3,619,192 | ) | ||
Interest expense, net | 35,458 | 263,388 | ||||||
Tax expense (benefit) | 0 | 0 | ||||||
Stock-based compensation expense | 319,187 | 3,370,128 | ||||||
Reverse merger-related expenses | 0 | 105,542 | ||||||
Adjusted EBITA | $ | (161,008 | ) | $ | 119,866 |
Year Ended | Year Ended | |||||||
December 31, 2023 | December 31, 2022 | |||||||
Adjusted EBITDA reconciliation: | ||||||||
Net loss | $ | (3,660,416 | ) | $ | (633,192 | ) | ||
Bad Debt Expense | 20,933 | 5,438 | ||||||
Depreciation and Amortization | 241,781 | 57,631 | ||||||
Interest Expense | 113,609 | (78,806 | ) | |||||
Stock-based compensation to employees | 1,735,022 | 32,135 | ||||||
Stock issued for services | — | — | ||||||
Adjusted EBITDA | $ | (1,549,071 | ) | $ | (459,182 | ) |
As of December 31, 2015 and December 31, 2014, our remaining convertible notes payable had a net face value of $60,252 and $24.551, respectively. For December 31, 2015 our convertible notes payable had a face value of $71,500 and a discount of $11,258, for a net carrying amount of debt of $60,252. For December 31, 2014 our convertible notes payable had a face value of $71,500 and a discount of $46,949, for a net carrying amount of debt of$24,551. As of April 11th, 2016, the maturity date on this note was renegotiated to April 24th, 2018. On April 12, 2016, the Company received notice of partial conversion of this note in the amount of $58,000 convertible into 725,000 shares of restricted common stock at a price of $0.08 per share.
Under the terms of our agreement with the manufacturer of our exit packing product, the SatchelTM, we were committed to the purchase of a total of 500,000 units. During 2015 the Company met its purchase obligation, and on September 2015 the Company exercised its contractual right to purchase additional units at a negotiated price. With the exception of our lease for office space for a five-year term, we had no other contractual obligations as of December 31, 2015.
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 the 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, the 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.
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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.
Restricted Cash
Restricted cash is recorded at cost, which approximates fair value. There was no restricted cash included in current assets on our consolidated balance sheets as of December 31, 2015 and December 31, 2014. Restricted cash previously related to remaining proceeds from a short-term note entered into on March 21, 2014 and fully satisfied on May 15, 2014 (see Note 7. “Convertible Notes Payable” of Item 8 “Financial Statements and Supplementary Data” to this form 10-K for further information).
Inventory
Inventory is primarily comprised of products and equipment to be sold to end-customers.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, 20152023, and December 31, 2014,2022, our inventory's market values of all of our inventory were greater than cost, and accordingly, no such valuation allowances waswere recognized. As of December 31, 2015 and December 31, 2014, the Company had capitalized $57,170 and $40,051 of costs associated with the construction of demo inventory, including but not limited to parts for the assembly of scalable cultivation systems; this asset had yet to be placed into service as of December 31, 2015 and as of December 31, 2014, and accordingly, no amortization or depreciation expense was recorded related to this asset for each year, then ended.
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 isare 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 deemsdeem 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, 20152023, and December 31, 20142022, our allowance for doubtful accounts was $8,419$4,071 and $9,338,$64,344, respectively. For December 31, 20152023, and December 31, 2014,2022, we recorded bad debt expenseexpenses of $30,753$20,933 and $9,338, respectively, which$5,438, respectively.
Operating Leases Right-of-use Assets
The Company recognizes its leases in accordance with ASC 842 - Leases. Under ASC 842, operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. The initial lease liability equals the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate on a secured basis. The lease term includes option renewal periods and early termination payments when it is reflectedreasonably certain that the Company will exercise those rights. The initial measurement of the ROU asset equals the initial lease liability plus any initial direct costs and prepayments, less any lease incentives. The Company elected the short-term lease exemption for contracts with lease terms of 12 months or less. The Company accounts for the lease and non-lease components of its leases as a componentsingle lease component. Lease expense is recognized on a straight-line basis over the lease term. The Company had no leases as of generalDecember 31, 2023, and administrative expenses on the consolidated statement of operations.2022 that had financing components.
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Property and Equipment, net
Property and Equipment isare 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 isare 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, 20152023, and as of December 31, 2014.2022.
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, the 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, 20152023, and December 31, 2014.2022.
Beneficial Conversion Feature
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ACF”) Topic 470-20Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and we amortize the discount to interest expense over the life of the debt using the effective interest method.
Revenue Recognition
We 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 recognizedderived 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 FASB ASC Topic 605,606 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. |
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(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 Client 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 Client deposits are recognized as revenue as we meet specified performance obligations as detailed in the contract.
Product and Equipment Sales
Revenue Recognition. We recognize revenuefrom product and equipment sales, including delivery fees, is recognized when persuasive evidence of an arrangement exists,order has been obtained from the related services are rendered or delivery has occurred,customer, the price is fixed orand determinable when the order is placed, the product is delivered, the title has been 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 the customer or us under FASB ASC Topic 606. During the years ended December 31, 2023, and 2022, sales returns were $0.
Consulting Services
We also generate revenues from professional services consulting agreements. These arrangements are generally entered intointo: (1) on a timean hourly basis for a fixed-feefixed fee or (2) on a contingent fee basis. Generally, we require a prepaymentcomplete
We utilize and rely upon the proportional performance method for hourly-based fixed-fee service contracts, which recognize revenue as services are completed. Under this method, to determine the amount of revenue to be recognized, we calculate the amount of completed work compared to the total services to be provided under the arrangement or retainer prior to performing services.
Revenuesdeliverable. We segregate upon entry into a contract any advances or retainers received from time-based engagements are recognizedclients 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 hours.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.
Revenues fromOccasionally, our fixed-fee hourly engagements are recognized under the completed or proportional performance methods. We reviewmethod. Some fixed fee arrangements to determine whether or notare for the fixed-fee is forcompletion of a final deliverable or act which is significant to the arrangement asarrangement. These engagements do not generally exceed a whole.one-year term. If itthe 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. Revenue recognized under the proportional performance method is recognized as services are performed. Under this method, in order to determine the amount of revenue to be recognized, we estimate the amount of completed work in comparison to the total services to be provided under the arrangement or deliverable.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 the local government, and the level of client involvement. Losses, if any, on fixed-fee engagements are recognized in the period in whichwhen 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 yearyears ended December 31, 20152022, and December 31, 2014,2021, we incurred no such losses have occurred.from fixed fee engagements that terminate prior to completion. We believe that if an engagement terminates prior to completion, we can recover the costs incurred related to the services provided.
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We occasionallyprimarily 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 withper our accounting policies for the elements as described above.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 andor do not include provisions for refunds relating to services provided.
Differences between the timing of billings and the recognition of revenue are recognized as either unbilled revenue (a component of accounts receivable) or deferred revenue on our consolidated balance sheet. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled revenue.
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 areis 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 inrecognized as liabilities and paid to the statementappropriate government entities.
Cannabis Sales
Revenues consist of operations on a net basis.
Revenue from productthe retail sale of cannabis and equipment sales, including delivery fees,related products. Revenue is recognized when an order has been obtained,at the pricepoint of sale for retail customers. Payment is fixed and determinable,typically due upon transferring the product is shipped, title has transferred and collectability is reasonably assured. Generally, our suppliers’ drop-ship orders to our clients with shipping-point or destination terms. For any shipments with destination terms, the Company defers revenue until deliverygoods to the customer. Duringcustomer or within a specified time period permitted under the yearCompany’s credit policy. Sales discounts were not material during the years ended December 31, 20152023, and December 31, 2014, sales returns were not significant and as such, no sales return allowance had been recorded as of December 31, 2015 and December 31, 2014. During the year ended December 31, 2015, the Company generated revenue from the sale of products to an entity managed by a Director of the Company.2022.
Costs of Revenues
Our policy is to recognize costs of revenue in the same manner in conjunction withas revenue recognition. Cost of revenues includeincludes 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 expenseexpenses and are expensed as incurred. During the year ended December 31, 20152023, and December 31, 2014,2022, these costs were $79,989$154,470 and $29,858,$225,950 respectively.
Shipping and Handling Costs
For product and equipment sales, shipping and handling costs are included as a component of the cost of revenues.
Stock-Based Compensation
Restricted shares are awarded to employees and service providers 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 the 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, 20152023, and December 31, 2014,2022, stock-based compensation expenseexpenses for restricted shares was $319,187for Company employees were $17,021 and $3,370,128,$78,342, respectively. Compensation expense for warrants and options is based on the fair value of the instruments on the grant date, which is determined using the Black-Scholes valuation model and areis expensed over the expected term of the awards. During the year ended December 31, 20152023, and December 31, 2014, compensation expense for2022, no warrants and options was $0 and $146,551, respectively.were issued as stock compensation.
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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, 20152023 and December 31, 2014,2022, 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, 20152023, and December 31, 2014,2022, 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 20152023 remain subject to examination by the Company’s major tax jurisdictionsjurisdictions.
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 the product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.
Net Income (Loss)Loss Per Common Share
We report a net income (loss)loss per common share in accordance with FASB ASC 260, “Earnings per Share”.Share.” This statement requires a dual presentation of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share computations. Basic net income (loss)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 affecteffect on earnings.
Related Party Transactions
We follow FASB ASC subtopic 850-10, “Related Party Transactions”,Transactions,” for the identification ofidentifying related parties and disclosure ofdisclosing 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-sharingprofit 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 relatedMaterial-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)include (a) the nature of the relationship(s) involved; b)(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)(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)(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. During the year ended December 31, 2015, the Company generated revenue from the sale of products managed by a Director of the Company.
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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
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
American Cannabis Company, Inc.
Denver, ColoradoOpinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsheets of American Cannabis Company, Inc. (the “Company”)Company) as of December 31, 20152023, and the related consolidated statements of operations, changes in stockholders'shareholders’ equity, and cash flows for each of the year then ended.years in the two-year period ended December 31, 2023, 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, 2023 and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
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 a working capital deficit, has generated net losses since its inception and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These consolidatedfactors raise substantial doubt about its ability to continue as a going concern. 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 on 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 Company'sCompany’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audit.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 auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).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.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. Our audit included considerationAs part of our audits, we are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Cannabis Company, Inc. as of December 31, 2015 and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Pritchett, Siler and Hardy PC
Farmington Utah
April 11, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
American Cannabis Company, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of American Cannabis Company, Inc. (formerly Brazil Interactive Media, Inc.) and subsidiary company (collectively the “Company”) as of December 31, 2014, and the related consolidated statements of operations, movement in stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
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 supportingregarding the amounts and disclosures in the financial statements, assessingstatements. 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 statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matters
InThe 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 consolidated financial statements, referredtaken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to above present fairly, in all material respects,which they relate. We have determined that there were no critical audit matters.
/s/ Hudgens CPA, PLLC
www.hudgenscpas.com
We have served as the financial position of American Cannabis Company, Inc. (formerly Brazil Interactive Media, Inc.) and subsidiary company as of December 31, 2014, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.Company’s auditor since 2022.
Firm ID: 6849
Houston, Texas
May 8, 2024
22
AMERICAN CANNABIS COMPANY, INC.
Cutler & Co, LLCCONSOLIDATED BALANCE SHEETS.
Wheat Ridge, Colorado
April 13, 2015
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and Equivalents | $ | 21,085 | $ | 117,547 | ||||
Accounts Receivable, Net | 234,330 | 469,111 | ||||||
Deposits | — | 9,595 | ||||||
Inventory | 586,206 | 352,971 | ||||||
Prepaid Expenses and Other Current Assets | 58,757 | 73,933 | ||||||
Total Current Assets | 900,378 | 1,023,157 | ||||||
Property and Equipment - Net | 410,344 | 427,669 | ||||||
Other Assets | ||||||||
Intangible Assets | 1,037,909 | 1,223,242 | ||||||
Goodwill | — | 1,332,113 | ||||||
Right of Use Assets - Operating Leases, net | 474,472 | 604,020 | ||||||
Long Term Deposits | 6,000 | 6,000 | ||||||
Total Other Assets | 1,518,381 | 3,165,375 | ||||||
TOTAL ASSETS | $ | 2,829,083 | $ | 4,616,201 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts Payable | $ | 1,010,698 | $ | 679,163 | ||||
Advances from Clients | 162,414 | 280,075 | ||||||
Accrued and Other Current Liabilities | 467,495 | 233,348 | ||||||
Stock payable | 17,021 | 74,343 | ||||||
Right of Use Liabilities, all current | 199,891 | 181,661 | ||||||
Litigation Settlement, current | 10,000 | 100,000 | ||||||
Note payable, current | 300,000 | 550,000 | ||||||
Total Current Liabilities | 2,167,519 | 2,099,220 | ||||||
LONG TERM LIABILITIES | ||||||||
Litigation Settlement | — | 75,000 | ||||||
Right of Use Liabilities, LT | 274,581 | 422,359 | ||||||
LTD Note Payable | 385,433 | 150,000 | ||||||
Total Long Term Liabilities | 660,014 | 612,960 | ||||||
TOTAL LIABILITIES | 2,827,533 | 2,712,180 | ||||||
Shareholders' Equity | ||||||||
Preferred Stock, $ | par value, shares authorized; shares issued and outstanding at December 31, 2022 and 2021— | — | ||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding at December 31, 2023 and 2022, respectively1,714 | 922 | ||||||
Additional paid-in capital | 13,740,961 | 11,949,409 | ||||||
Accumulated deficit | (13,741,125 | ) | (10,080,709 | ) | ||||
Total Shareholders' Equity | 1,550 | 1,869,622 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 2,829,083 | $ | 4,616,201 |
AMERICAN CANNABIS COMPANY, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
AS OF DECEMBER 31, 2015 AND 2014 | ||||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and equivalents | $ | 555,780 | $ | 165,213 | ||||
Accounts receivable, net | 48,285 | 57,642 | ||||||
Deposits | 9,345 | 181,941 | ||||||
Inventory | 67,435 | 44,606 | ||||||
Prepaid expenses and other current assets | 32,117 | 12,325 | ||||||
Total Current Assets | 712,962 | 461,727 | ||||||
Property and Equipment | ||||||||
Property and equipment - Cost | 18,585 | 9,927 | ||||||
Accumulated depreciation | (5,137 | ) | (1,562 | ) | ||||
Property and equipment - net | 13,448 | 8,365 | ||||||
Other Assets | ||||||||
Deposits | 4,500 | 0 | ||||||
Total Other Assets | 4,500 | 0 | ||||||
TOTAL ASSETS | $ | 730,910 | $ | 470,092 | ||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 218,334 | $ | 62,136 | ||||
Advances from clients | 220,966 | 173,528 | ||||||
Convertible note, net of discount | 60,252 | 24,551 | ||||||
Accrued and other current liabilities | 93,468 | 125,518 | ||||||
Total Current Liabilities | 593,020 | 385,733 | ||||||
Total Liabilities | 593,020 | 385,733 | ||||||
Commitments and contingencies | ||||||||
Shareholder's equity | ||||||||
Common stock, $0.00001 par value; 100,000,000 shares authorized; 44,808,731 and 44,518,750 issued and outstanding at December 31, 2015 and December 31, 2014, respectively | 448 | 446 | ||||||
Common stock to be issued, 898,940 and 30,000 shares, respectively | — | |||||||
Additional paid-in capital | 4,268,708 | 3,699,526 | ||||||
Accumulated deficit | (4,131,266 | ) | (3,615,613 | ) | ||||
Total Shareholder's equity | 137,890 | 84,359 | ||||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $ | 730,910 | $ | 470,092 |
The accompanying notes are an integral part of these consolidated financial statements
23
AMERICAN CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended | ||||||||
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
Revenues | ||||||||
Consulting Services | $ | 695,089 | $ | 475,837 | ||||
Product & Equipment | 1,024,191 | 17,539,377 | ||||||
Cannabis Products | 756,905 | 793,330 | ||||||
Total Revenues | 2,476,185 | 18,808,545 | ||||||
Cost of Revenues | ||||||||
Cost of Consulting Services | 115,085 | 61,246 | ||||||
Cost of Products and Equipment | 724,921 | 15,230,648 | ||||||
Cost of Cannabis Products | 594,296 | 939,437 | ||||||
Total Cost of Revenues | 1,434,302 | 16,271,331 | ||||||
Gross Profit | 1,0141,882 | 2,537,214 | ||||||
Operating Expenses | ||||||||
General and Administrative | 1,650,498 | 2,833,140 | ||||||
Selling and Marketing | 154,470 | 225,950 | ||||||
Bad Debt Expense | 20,933 | 5,438 | ||||||
Goodwill Impairment | 1,332,113 | — | ||||||
Stock Based Compensation Expense | 1,735,021 | 78,342 | ||||||
Total Operating Expenses | 4,893,035 | 3,142,870 | ||||||
Loss from Operations | (3,851,152 | ) | (605,656 | ) | ||||
Other Income (Expense) | ||||||||
Interest (expense) | (113,609 | ) | (78,086 | ) | ||||
Debt Forgiveness | — | — | ||||||
Other income | 304,345 | 50,550 | ||||||
Total Other (Expense) Income | 190,736 | 27,537 | ||||||
Net Loss | (3,660,416 | ) | (633,193 | ) | ||||
Income Tax Expense | — | — | ||||||
NET LOSS | $ | (3,660,416 | ) | $ | (633,193 | ) | ||
Basic and diluted net loss per common share | $ | (0.03 | ) | $ | (0.01 | ) | ||
Basic and diluted weighted average common shares outstanding | 109,911,842 | 85,727,938 |
The accompanying notes are an integral part of these consolidated financial statements.
AMERICAN CANNABIS COMPANY, IN. | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 | ||||||||
2015 | 2014 | |||||||
Revenues | ||||||||
Consulting Services | $ | 693,225 | $ | 677,633 | ||||
Products and equipment | 2,106,662 | 581,379 | ||||||
Total Revenues | 2,799,887 | 1,259,012 | ||||||
Cost of Revenues | ||||||||
Cost of consulting services | 182,161 | 322,134 | ||||||
Cost of products and equipment | 1,817,952 | 449,342 | ||||||
Total Cost of Revenues | 2,000,113 | 771,476 | ||||||
Gross Profit | 799,774 | 487,536 | ||||||
Operating expenses | ||||||||
General and administrative | 687,082 | 3,652,181 | ||||||
Investor Relations | 307,069 | 23,132 | ||||||
Selling and marketing | 307,474 | 190,164 | ||||||
Research and development | 51,115 | 12,863 | ||||||
Total Operating expenses | 1,352,740 | 3,878,340 | ||||||
Loss from Operations | (552,966 | ) | (3,390,804 | ) | ||||
Other Income (expense) | ||||||||
Gain on extinguishment of debt | 72,771 | 35,000 | ||||||
Interest Income (expense) | (35,458 | ) | (263,388 | ) | ||||
Total Other Income (expense) | 37,313 | (228,388 | ) | |||||
Loss before taxes | (515,653 | ) | (3,619,192 | ) | ||||
Income Tax expense (benefit) | 0 | 0 | ||||||
NET LOSS | ($ | 515,653 | ) | ($ | 3,619,192 | ) | ||
Basic and diluted net income (loss) per common share | ($ | 0.01 | ) | ($ | 0.11 | ) | ||
Basic and diluted weighted average common shares outstanding | 44,637,046 | 32,545,546 |
AMERICAN CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended | ||||||||
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (3,660,416 | ) | $ | (633,192 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Allowance for Bad Debt Expenses | — | 63,344 | ||||||
Depreciation and amortization | 241,781 | 227,533 | ||||||
Stock-based compensation to employees | 1,735,022 | 266,207 | ||||||
Litigation Settlement Expense | — | — | ||||||
Operating Lease Expense | 129,548 | 192,432 | ||||||
Goodwill impairment | 1,332,113 | — | ||||||
Debt Forgiveness | — | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 234,781 | (522,139 | ) | |||||
Inventory | (233,235 | ) | (74,363 | ) | ||||
Prepaid expenses and other current assets | 24,771 | (29,282 | ) | |||||
Accounts Payable | 331,535 | 436,484 | ||||||
Advances from Clients | (118,291 | ) | 168,813 | |||||
Accrued and other current liabilities | 234,147 | 71,630 | ||||||
Litigation Settlement Liability | (165,000 | ) | ||||||
Operating Lease Liability | (129,548 | ) | (192,432 | ) | ||||
Net Cash Used In Operating Activities | $ | (42,972 | ) | $ | (198,965 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (39,103 | ) | (103,675 | ) | ||||
Net Cash (Used in) Provided by Investing Activities | $ | (39,103 | ) | $ | (103,675 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Principal payment of note payable | (250,000 | ) | (550,000 | ) | ||||
Proceeds from LTD Note Payable | 235,433 | 150,000 | ||||||
Proceeds from sale of common stock | — | 149,764 | ||||||
Net Cash Provided by Financing Activities | $ | 14,567 | $ | (250,236 | ) | |||
NET (DECREASE) INCREASE IN CASH | (96,462 | ) | (552,876 | ) | ||||
CASH AT BEGINNING OF PERIOD | 117,547 | 670,423 | ||||||
CASH AT END OF PERIOD | $ | 21,085 | $ | 117,547 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for income taxes | $ | — | $ | — | ||||
Cash paid for interest | $ | — | $ | — | ||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Initial recognition of lease | $ | — | $ | 700,300 | ||||
Stock issued from stock payable | $ | 74,344 | $ | — |
The accompanying notes are an integral part of these consolidated financial statements
25
AMERICAN CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Additional | Total | |||||||||||||||||||
Common Stock | Paid-In | Accumulated | Shareholders | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, December 31, 2021 | 81,902,938 | $ | 819 | $ | 11,565,679 | $ | (9,447,517 | ) | $ | 2,118,981 | ||||||||||
Stock-based compensation | 2,000,000 | 20 | 46,206 | — | 46,226 | |||||||||||||||
Stock issued for services | 4,750,000 | 48 | 169,931 | — | 169,979 | |||||||||||||||
Stock issued for cash | 2,500,000 | 25 | 117,603 | — | 117,628 | |||||||||||||||
Stock issued for consultant | 1,000,000 | 10 | 49,990 | — | 50,000 | |||||||||||||||
Net Loss | — | — | — | (633,192 | ) | (633,192 | ) | |||||||||||||
Balance, December 31, 2022 | 92,152,938 | $ | 922 | $ | 11,949,409 | $ | (10,080,709 | ) | $ | 1,869,622 |
AMERICAN CANNABIS COMPANY, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASHFLOWS | ||||||||
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 | ||||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (515,653 | ) | $ | (3,619,192 | ) | ||
Adjustments to reconcile net (loss ) to net cash (used in ) | ||||||||
operating activities: | ||||||||
Depreciation | 3,575 | 1,077 | ||||||
Amortization of discount on convertible notes payable | 35,701 | 263,215 | ||||||
Stock-based compensation to employees | 124,099 | 3,320,328 | ||||||
Stock-based compensation to service providers | 195,088 | 49,800 | ||||||
Gain on extinguishment of debt | (72,771 | ) | (35,000 | ) | ||||
Bad debt expenses | 30,753 | 9,338 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (21,396 | ) | (65,730 | ) | ||||
Deposits current and non-current | 168,096 | (181,941 | ) | |||||
Inventory | (22,829 | ) | (44,606 | ) | ||||
Prepaid expenses and other current assets | (19,792 | ) | (7,807 | ) | ||||
Advances from clients | 47,438 | 162,419 | ||||||
Accrued and other current liabilities | 40,720 | 120,381 | ||||||
Accounts payable | 156,196 | 61,780 | ||||||
Net Cash provided Operating Activities | 149,225 | 34,062 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Cash assumed from Brazil Interactive Media, Inc., net of expenses | 0 | 90,181 | ||||||
Purchases of property and equipment | (8,658 | ) | (7,677 | ) | ||||
Net Cash provided (Used in) Investing Activities | (8,658 | ) | 82,504 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of common shares to founders | 250,000 | 0 | ||||||
Distributions to stockholders | 0 | (4,000 | ) | |||||
Proceeds from stock-based compensation | 0 | 50 | ||||||
Proceeds from short-term notes payable | 0 | 35,000 | ||||||
Net Cash Provided by Financing Activities | 250,000 | 31,050 | ||||||
NET INCREASE IN CASH | 390,567 | 147,616 | ||||||
CASH AT BEGINNING OF PERIOD | 165,213 | 17,597 | ||||||
CASH AT END OF YEAR | $ | 555,780 | $ | 165,213 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 261 | ||||||
Cash paid (received) during the period for income taxes, net | $ | — | ||||||
Supplemental disclosure of non-cash transactions | ||||||||
Convertible notes payable assumed from Brazil Interactive Media, Inc., | ||||||||
net of accumulated discount amortization | $ | — | $ | (84,836 | ) |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-In' | Accumulated | Shareholders | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, December 31, 2022 | 92,152,938 | $ | 922 | $ | 11,949,409 | $ | (10,080,709 | ) | $ | 1,869,622 | ||||||||||
Shares issued for compensation | 79,250,000 | 792 | 1,791,522 | — | 1,792,344 | |||||||||||||||
Net Loss | — | — | — | (3,660,416 | ) | (3,660,416 | ) | |||||||||||||
Balance, December 31, 2023 | 171,402,938 | $ | 1,714 | $ | 13,470,961 | $ | (13,741,125 | ) | $ | 1,550 |
The accompanying notes are an integral part of these consolidated financial statements.statements
AMERICAN CANNABIS CORPORATION | ||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY | ||||||||||||||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 | ||||||||||||||||||||||||
Common | ||||||||||||||||||||||||
Stock Shares | Common Stock | Additional Paid-In | Retained | Total Stockholder's | ||||||||||||||||||||
Issuable | Share | Amount | Capital | Deficit | Equity | |||||||||||||||||||
Balance as of December 31, 2013 | 25,368,502 | $ | 254 | $ | 546 | $ | 7,579 | $ | 8,379 | |||||||||||||||
Distribution to stockholders | ($ | 4,000 | ) | ($ | 4,000 | ) | ||||||||||||||||||
Stock-based compensation granted prior to reverse merger | 6,342,126 | $ | 64 | $ | 3,133,009 | $ | 3,133,073 | |||||||||||||||||
Recapitalization upon reverse merger | 8,714,372 | $ | 87 | $ | 5,258 | $ | 5,345 | |||||||||||||||||
Stock-based compensation - restricted shares | $ | 40,903 | $ | 40,903 | ||||||||||||||||||||
Stock-based compensation warrants | $ | 146,551 | $ | 146,551 | ||||||||||||||||||||
Common shares issuable for services to related party | 30,000 | $ | 18,300 | $ | 18,300 | |||||||||||||||||||
Common shares issued for services | 50,000 | $ | 1 | $ | 31,499 | $ | 31,500 | |||||||||||||||||
Conversion of convertible notes payable into common shares | 4,043,750 | $ | 40 | $ | 323,460 | $ | 323,500 | |||||||||||||||||
Net Loss for the period ended December 31, 2014 | ($ | 3,619,192 | ) | ($ | 3,619,192 | ) | ||||||||||||||||||
Balance as of December 31, 2014 | 30,000 | 44,518,750 | $ | 446 | $ | 3,699,526 | ($ | 3,615,613 | ) | $ | 84,359 | |||||||||||||
Shares issued for services | 35,607 | 250,000 | $ | 2 | $ | 195,085 | $ | 195,087 | ||||||||||||||||
Shares issued for cash | 833,333 | $ | 250,000 | $ | 250,000 | |||||||||||||||||||
Stock-based compensation granted to employees | 164,981 | $ | 2 | $ | 124,097 | $ | 124,099 | |||||||||||||||||
Recension and cancellation of common shares | (125,000 | ) | ($ | 2 | ) | ($ | 2 | ) | ||||||||||||||||
Net Loss for the period ended December 31, 2015 | ($ | 515,653 | ) | ($ | 515,653 | ) | ||||||||||||||||||
Balance as of December 31, 2015 | 898,940 | 44,808,731 | $ | 448 | $ | 4,268,708 | ($ | 4,131,266 | ) | $ | 137,890 |
The accompanying notes are an integral part of these consolidated financial statements.
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 and 20142023 AND 2022
Note 1. Description of the BusinessBusiness.
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 Springs, Colorado and operate a fully-integratedfully 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.
AmericanOn 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 Company,Caregivers, Inc. is a publicly listed Company quoted on the OTCQB, each an entity organized and operating under the symbol “AMMJ”.
American Cannabis Company, Inc. was incorporated inlaws of the State of Delaware on September 24, 2001 underColorado, and all doing business as “Naturaleaf” in the name Naturewell, Inc.medicinal cannabis industry in Colorado.
Naturaleaf agreed to develop and market clinical diagnostic products using immunology and molecular biologic technologies.
On March 13, 2013, Naturewell, Inc. completed a merger transaction whereby it acquired 100% of issued and outstanding share capital of Brazil Interactive Media, Inc. (“BIMI”), which operated as a Brazilian interactive television company and television production company through its wholly owned Brazilian subsidiary company EsoTV Brasil Promoção Publicidade Licenciamento e Comércio Ltda. (“EsoTV”). Naturewell’s Articles of Incorporation were amended to reflect a new name: Brazil Interactive Media, Inc.
On May 15, 2014, BIMI entered into a merger agreement (“the Merger Agreement”) to acquire 100% of the issued and outstanding shares of American Cannabis Consulting while simultaneously disposing of 100% of the issued share capital EsoTV (“the Separation Agreement”). Both the merger with American Cannabis Consulting and disposal of EsoTV were completed on September 29, 2014. BIMI subsequently amended its Articles of Incorporation to change its name to American Cannabis Company, Inc. On October 10, 2014, American Cannabis Company, Inc changed its stock symbol from BIMI to AMMJ.
The foregoing descriptions of the Merger Agreement and Separation Agreement do not purport to be complete and are qualified in their entirety by the terms of such agreements, which are filed as exhibitssell or assign to the Current Report on Form 8-K filed byCompany 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 withexpanded its business model to include the U.S. Securitiescultivation and Exchange Commission (“SEC”) on October 3, 2014.retail sale of cannabis in the medicinal cannabis industry.
Immediately following the completion of the Merger Agreement, former shareholders of American Cannabis Consulting owned 31,710,628 shares of American Cannabis Company, Inc.’s common stock representing 78.44% of American Cannabis Company, Inc.’s issued and outstanding share capital. Accordingly, American Cannabis Consulting was deemed to have been the accounting acquirer in a Reverse Merger which resulted in a recapitalization of the Company. Consequently, the Company’s financial statements reflect the results of American Cannabis Consulting since Inception (March 5, 2013) and of American Cannabis Company, Inc. (formerly BIMI) from September 29, 2014 to December 31, 2014.
See Note 14. “Stockholders’ Equity” for further information regarding the accounting related to the Reverse Merger.
Note 2.Basis of Presentation and Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements areof 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, 2023 and 2022 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.
27
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Going Concern
Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern("U.S. GAAP"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 preparing a detailed cash forecast that included all projected cash inflows and outflows. During 2023, we continued 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 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 are dependent on market conditions and the terms and conditions upon which investors would be required 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 can 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 successfully accessed capital markets in the past, and we are confident in our ability to access capital markets again if needed.
The Company has electedan accumulated deficit and recurring losses and expects continuing future losses. These factors raise substantial doubt about the Company’s ability to continue as a fiscal year endinggoing concern. The Company’s primary source of operating funds in 2023 and 2022 has been funds generated from proceeds from the sale of common stock and operations. The Company has experienced net losses from operations since its inception. The Company has an accumulated deficit at December 31, 2023, and requires additional financing to fund future operations.
The Company’s existence depends upon management’s ability to develop profitable operations and obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of its 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 December 31.a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
28
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Use of Estimates in Financial Reporting
The preparation of consolidated financial statements in conformity with U.S.US GAAP requires management to make estimates and assumptions that affect amountsthe amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the 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: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;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 ofpreparing 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;operations if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements.
Segment Information
Accounting Standards Codification subtopic Segment Reporting 280-10 ("ASC 280-10") establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The following table represents the Company’s Naturaleaf business.
Naturaleaf
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Schedule of Segment Reporting Information, by Segment
For the Years ended | ||||||||
Dec 31, 2023 | Dec 31, 2022 | |||||||
Revenues | $ | 756,905 | $ | 793,331 | ||||
Cost of Goods Sold | 594,296 | 979,437 | ||||||
Gross Profit | 162,609 | (186,106 | ) | |||||
Expense | ||||||||
Depreciation Expense | 737 | 19,811 | ||||||
Stock-based Compensation | — | — | ||||||
Selling and Marketing | 44,758 | 66,205 | ||||||
Payroll and Related expenses | 213,870 | 222,496 | ||||||
General and Admin Expenses | 553,050 | 231,341 | ||||||
Total Expense | 767,657 | 539,853 | ||||||
Net Loss from Operations | $ | (605,051 | ) | $ | (87,041 | ) |
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less original maturities to be cash equivalents. Cash and cash equivalents are held in operating accounts at a major financial institution.
The company maintains its cash Cash balances in three national financial institutions. Accounts at these institutions aremay exceed federally insured by Federal Deposit Insurance Corporation insurance for up to $250,000 per institution. For the years ended December 31, 2015 and 2014, the Company had uninsured balances of $267,238 and $0, respectively.limits. Management believes thatthe financial risk associated with these financial institutions are financially soundbalances is minimal and the risk of loss is minimal.
Restricted Cash
Restricted cash is recorded at cost, which approximates fair value. There was no restricted cash included in current assets on our balance sheets as of December 31, 2015 and December 31, 2014. Restricted cash previously relatedhas not experienced any losses to remaining proceeds from a short-term note entered into on March 21, 2014 and fully satisfied on May 15, 2014 (see Note 7. Convertible Notes Payable).
Inventory
Inventory is comprised of products and equipment owned by the Company to be sold to end-customers. Inventory is valued at cost, based on the specific identification method, unless and until the market value for the inventory is lower than cost, in which case an allowance is established to reduce the valuation to market value.date. As of December 31, 2014, market values of all of the Company’s inventory were greater than cost,2023, and accordingly, no such valuation allowances was recognized. As of December 31, 2015 and December 31, 2014,2022, the Company had capitalized $57,170 and $40, 051 of costs associated with the construction of demo inventory, including but not limited to parts for the assembly of scalable cultivation systems; and accordingly,had no amortization or depreciation expense was recorded related to this asset for each year, then ended.cash equivalents
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Deposits
Deposits is comprised of advance payments made to third parties, primarily for inventory for which the Company has not yet taken title. When the Company takes title to inventory for which deposits are made, the related amount is classified as inventory, then recognized as a cost of revenues upon sale (see “Costs of Revenues” below).
AMERICAN CANNABIS COMPANY, INC.
Prepaid Expenses and Other Current AssetsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Prepaid expenses and other current assets is primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Accounts Receivable, net
Accounts receivable are recorded at the net value of face amount less an allowance for doubtful accounts. On a periodic basis, theThe Company evaluates its accounts receivable and,periodically based on a method of specific identification of any accounts receivable for which itthe Company deems the net realizable value to be less than the gross amount of accounts receivable recorded, establishesrecorded; 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, 20152023, and December 31, 2014 our2022, the Company’s allowance for doubtful accounts was $8,419$4,071 and $9,338,$54,071, respectively. For December 31, 2015 and December 31, 2014, weThe Company recorded bad debt expense of $30,753 and $9,338, respectively, which is reflected as a component of general and administrative expenses onduring the consolidated statement of operations.
Significant Customers
On a geographical basis, for the yearyears ended December 31, 2015, approximately 91%2023, and 9%2022 of our total$0 and $20,933, respectively.
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 and 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, 2023, and 2022, market values of all the Company’s inventory were generatedgreater 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 United Statesfirst in first out method. Costs are capitalized to cultivated inventory until substantially ready for sale. Costs include direct and Canada, respectively. 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, 2023, 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.
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AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Significant Clients and Customers
For the year ended December 31, 2014, approximately 70%2023, 11 customers accounted for 84.13% of the Company's total revenues from its retail and 30%wholesale sales, consulting, soil, and products revenue lines for the period.
At December 31, 2023, 3 customers accounted for 98.21 % of accounts receivable, net, consisting of customers of our total revenues for the period were generated from the United Statesretail and Canada, respectively.wholesale sales, consulting services, and soil and products revenue streams.
On a geographical basis, for the year ended December 31, 2015, approximately 91% and 9% of our total revenues were generated from the United States and Canada, respectively. For the year ended December 31, 2014, approximately 70% and 30% of our total revenues for the period were generated from the United States and Canada, respectively.
Property and Equipment, net
Property and Equipment isare 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 ofCosts associated with in-progress construction are capitalized construction in progress costs, a component of propertyas incurred, and equipment, net, beginsdepreciation is consummated once the underlying asset is placed into service. Property and equipment isare reviewed for impairment as discussed below under “Accounting for the Impairment of Long-Lived Assets.” The Company haddid not capitalizedcapitalize any interest as of December 31, 20142023, and 2013.2022.
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.
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. Step two must be performed if the carrying value exceeds the estimated fair value. Step two compares the reporting unit's carrying value 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. At December 31, 2023, the Company evaluated the goodwill related to the acquisition of the Naturaleaf entity acquired in 2021 and determined that a full impairment of goodwill was necessary.
Intangible Assets, net
Definite life intangible assets as of December 31, 2023, include licenses, trademarks, and brand names recognized as part of the Naturaleaf Acquisition. Intangible assets are recorded at cost. Licenses, trademarks, 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, 2023, the Company recognized an amortization expense of $185,333.
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AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
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, the 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 didhad not recordrecorded any impairment charges related to long-lived assets during the year endedas of December 31, 20152023, and December 31, 2014.2022.
Beneficial Conversion FeatureFair Value Measurements
If
Fair value is defined as the conversion featuresexchange 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 conventional convertible debt providesobservable 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 a rate of conversionidentical assets or liabilities.
Level 2 – Inputs other than Level 1 that is beloware 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 value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded bydata for substantially the Company as a debt discount pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ACF”) Topic 470-20Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded netfull term of the discountassets 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 BCF,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, and (c) Cannabis sales division. The majority of our revenue is derived from distinct performance obligations, such as time spent delivering a service or the Company amortizesdelivery 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 discount to interest expense over the life of the debt using the effective interest method. customer.
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Revenue Recognition
Revenue is recognized
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
We recognize revenue in accordance with FASB ASC Topic 605,606 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 Recognition. The Company recognizes revenuefrom product and equipment sales, including delivery fees, is recognized when persuasive evidence of an arrangement exists,order has been obtained from the related services are rendered or delivery has occurred,customer, the price is fixed orand 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 primarily generatesrealizes 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 the customer or us under FASB ASC Topic 606. During the years ended December 31, 2023, and 2022, sales returns were $0.
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AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Consulting Services
We also generate revenues from professional services consulting agreements. These arrangements are generally entered intointo: (1) on a timean hourly basis for a fixed-feefixed fee or (2) on a contingent fee basis. Generally, we require a complete or partial prepayment or retainer is required prior to performing services.
Revenues We utilize and rely upon the proportional performance method for hourly-based fixed-fee service contracts, which recognize 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 time-based engagementsclients 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 hoursopinion that such arrangements are incurred bynot an indicator of a vendor or customer-based significant financing that would materially change the Company.amount of revenue we recognize under the contract or would otherwise contain a significant financing component under FASB ASC Topic 606.
Revenues fromOccasionally, our fixed-fee hourly engagements are recognized under the completed performance method. Some fixed fee arrangements are for the completion of a final deliverable or proportionalact that is significant to the arrangement. These engagements do not generally exceed a one-year term. If the performance methods. Management reviews arrangement to determine whether or not the fixed-fee is for a final deliverable or act, which is significant to the arrangement as a whole. If it is,we recognize revenue is recognized under the completed performance method, in which revenue is recognized once the final act or deliverable is performed or delivered. Revenue recognized under the proportional performance method is recognized as services are performed. Under this method, the Company estimates the amount of completed work in comparison to the total services to be provided under the arrangement or deliverable in order to determine the amount of revenue to be recognized.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 the 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 yearyears ended December 31, 20152023, and December 31, 2014,2022, we incurred no such losses have occurred. The Company believes iffrom fixed fee engagements that terminated prior to completion. If an engagement terminates prior tobefore completion, itwe can recover the costs incurred related to the services provided.
The Company occasionally entersWe 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.
The Company’sOur 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 the Company’sour accounting policies for the elements as described above.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 the Companyfixed and determinable as we also sellssell 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 andor do not include provisions for refunds relating to services provided.
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Differences between the timing of billings and the recognition of revenue are recognized as either unbilled revenue (a component of accounts receivable) or deferred revenue on the consolidated balance sheet. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled revenue.AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
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 areis 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 inrecognized as liabilities and paid to the statementappropriate government entities.
Cannabis Sales
Revenues consist of operations on a net basis.
Revenue from productthe retail sale of cannabis and equipment sales, including delivery fees,related products. Revenue is recognized when an order has been obtained,at the pricepoint of sale for retail customers. Payment is fixed and determinable,typically due upon transferring the product is shipped, title has transferred and collectability is reasonably assured. Generally, our suppliers’ drop-ship orders to our clients with origin terms. For any shipments with destination terms, the Company defers revenue until deliverygoods to the customer. Duringcustomer or within a specified time period permitted under the yearCompany’s credit policy. Sales discounts were not material during the years ended December 31, 20152023, and December 31, 2014, sales returns were not significant2022.
Loyalty Reward Program
The Company offers a loyalty reward program to its dispensary customers that provides a discount on purchases based on the total amount of a purchase at the time of purchase. Management has determined that there is no separate performance obligation to the reward program, i.e., the accumulation and redemption of points, and as such, no sales return allowance had been recorded as of December 31, 2015 nor at December 31, 2014. During the year ended December 31, 2015, the Company generatedrecognizes the revenue fromat the saletime of products to a company managed by a Director of the Company.purchase.
Costs of Revenues
The Company’s policy is to recognize costs of revenue in the same manner in conjunction withas 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 expenseexpenses as incurred.
Advertising and Promotion Costs
Advertising and promotionPromotion costs are included as a component of selling and marketing expenseexpenses and are expensed as incurred. During the yearyears ended December 31, 20152023, and December 31, 2014,2022, these costs were $79,989$154,470 and $29,858,$225,950, respectively.
Shipping and Handling Costs
For product and equipment sales, shipping and handling costs are included as a component of the cost of revenues.
Restricted shares are awarded to employees and service providers 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 the 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, 20152023, and December 31, 2014,2022, stock-based compensation expenseexpenses for restricted shares was $319,187for Company employees were $17,021 and $3,370,128,$78,342, respectively. Compensation expenseexpenses for warrants and options isare 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, 20152023, and 2022, 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, 2014, compensation expense2023 and 2022, our research and development costs were de minimis.
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AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Income Taxes
The following table displays a reconciliation from the U.S. statutory rate to the effective tax rate and the provision for warrants(benefit from) income taxes for the years ended December 31, 2023, and options was $02022, respectively:
Schedule of Components of Income Tax Expense (Benefit)
For the Years Ended | ||||||||
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
Income Tax Provision (Benefit) | $ | 63,916 | $ | 428,083 | ||||
Non-deductible expenses including non-deductible pre-merger losses | 159,539 | 187,711 | ||||||
Change in valuation allowance | (223,454 | ) | (615,794 | ) | ||||
Total Income Tax Benefit | $ | — | $ | — |
Deferred tax assets (liabilities) consisted of the following:
Schedule of Deferred Tax Assets and $146,551, respectively.Liabilities
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
Total Deferred Tax Liabilities | ||||||||
$ | — | $ | — | |||||
Total Deferred Tax Assets | ||||||||
Net operating loss carryforwards | 1,163,725 | 1,152,244 | ||||||
— | — | |||||||
Allowance for Doubtful Accounts | 1,040 | 1,040 | ||||||
Net Deferred Tax Assets | 1,164,765 | 1,153,284 | ||||||
Valuation Allowance | (1,164,765 | ) | (1,153,284 | ) | ||||
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 years ended December 31, 2023 and 2022. Federal and state operating loss carryforwards are $4,278,452 and $4,368,664 as of December 31, 2023, and 2022, respectively, and can be carried forward indefinitely until used. The years 2020, 2021, and 2022 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. The Company is subject to Section 280(e ) since it sells cannabis with THC. As such, certain non-THC operating expenses that are ordinary and necessary business expenses are not allowed to be deducted for Federal income tax purposes.
Income Taxes
Our
The Company’s corporate status changed from an S-Corporation,S Corporation, which it had been since inception, to a C-CorporationC Corporation during the year ended December 31, 2014. As provided in Section 1361 of the Internal Revenue Code, for income tax purposes, S-CorporationsS Corporations are not subject to corporate income taxes; instead,taxes;. Instead, the owners are taxed on their proportionate share of the S-Corporation’sS 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 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, 2015 and December 31, 2014,2023, 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, 20152023, and December 31, 2014,2022, 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
Due to 2015 remainits cannabis operations, the Company is subject to examination by the Company’s major tax jurisdictionslimitations 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.
The Company reports net income (loss)loss per common share in accordance with FASB ASC 260, “Earnings per Share”.Share.” This statement requires a dual presentation of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share computations. Basic net income (loss)loss per share is computed by dividing net incomeloss 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 no potential dilatable instruments would have an anti-dilutive effect on earnings. Diluted net income (loss)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 ofidentifying related parties and disclosure ofdisclosing related party transactions.
Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company;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;entity; c) trusts for the benefit of employees, such as pension and profit-sharingprofit sharing trusts that are managed by or under the trusteeship of management;management; d) principal owners of the Company;Company; e) management of the Company;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;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.
36
Material related party transactions are required
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the current coronavirus (“COVID-19”) outbreak to be discloseda 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 on many sectors of the economy, including retail commerce.
In response to state and local measures and for the protection of both employees, the Company made required changes to operations, which did not have a material impact on operations or the financial condition of the Company.
While the state and local governments have significantly 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 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 statementsfuture. The Company is not required in those statements. The disclosures shall include: a) the natureaware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the relationship(s) involved; b) a descriptioncarrying value of the transactions, including transactions to which no amountsits assets 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 partiesliabilities as of the date of each balance sheet presented and, if not otherwise apparent, the terms and mannerissuance of settlement. During the year ended December 31, 2015,these consolidated financial statements.
Recent Accounting Pronouncements
Recent accounting pronouncements that the Company generated revenue fromhas adopted or that will be required to adopt in the sale of products to a company managed by a Director of the Company.future are summarized below.
See Note 10. Related Party Transactions for associated disclosures.
Reclassifications
Certain balance sheet reclassifications have been made to prior period balances to reflect the current period’s presentation format; such reclassifications had no impact on the Company’s consolidated statements of operations or consolidated statements of cash flows and had no material impact on the Company’s consolidated balance sheets.
Recent Accounting Pronouncements
In August 2014,December 2019, the FASB issued ASU 2014-15 “Presentation2019-12, “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 the consistent application of Financial Statements – Going Concern (Subtopic 205-40): Disclosureand simplifies GAAP for other areas of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). By incorporatingTopic 740 by clarifying and expanding upon certain principles that are currently in U.S. auditing standards, ASU 2014-15 requires management to assess whether there is substantial doubt about the entity’s ability to continue as a going concern . Specifically, ASU 2014-15 (1) provides a definition of the term substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15amending existing guidance. This standard is effective for the annual period endingfiscal years beginning after December 15, 2016, and for annual periods and interim periods thereafter. Early application is2020, with early adoption permitted. The Company has adopted the standard and there was not elected to early adopt the provisions of ASU 2014-15, and accordingly, the requirements of ASU 2014-15 will apply beginning with the year ended December 31, 2016. The Company is currently evaluating the effects, if any, that the application of ASU 2014-15 will havean impact on disclosures associated with its consolidated financial statements.
In May 2014,January 2020, the FASB issued ASU 2014-9 “Revenue from ContractsNo. 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 Customers (Topic 606)” (“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 2014-9”), which provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. This guidance isNo. 2020-01 are effective for annual reporting and interim periodsfiscal years beginning after December 15, 20162020, and allows for either full retrospective or modified retrospective application,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 permitted. Accordingly, the standard becomes effective for the Company on January 1, 2017.yet been issued. The Company is currently evaluating the adoption method it will applyhas adopted thee standard and thethere was not an impact that this guidance will have on its consolidated financial statements and related disclosures.statements.
37
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
The results of operations of Naturaleaf for the period from December 31, 2022, through December 31, 2023, are included in the Company's consolidated financial statements as of December 31, 2023 (also see Note 1: Segment Information).
Note 3. Accounts Receivable netand Advance from Clients
Accounts receivable net, was comprised of the following:
December 31, 2015 | December 31, 2014 | |||||||
Gross accounts receivable | $ | 56,704 | $ | 66,980 | ||||
Less: allowance for doubtful accounts | (8,419 | ) | (9,338 | ) | ||||
Accounts receivable, net | $ | 48,285 | $ | 57,642 |
ForSchedule of Accounts, Notes, Loans and Financing Receivable
December 31, 2023 | December 31, 2022 | |||||||
Accounts Receivable – Trade | $ | 234,330 | $ | 469,111 | ||||
Less: Allowance for Doubtful Accounts | (4,071 | ) | (4,071 | ) | ||||
Accounts Receivable, net | $ | 230,259 | $ | 465,040 |
The Company had allowances for bad debt expenses of $20,933 and $5,438, respectively, during the years ended December 31, 20152023, and December2022.
38
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014,2023 AND 2022
Our Advances from Clients had the Company had bad debt expense of $30,753 and $9,338, respectively.following activity for 2023
Deposit type
Amount | ||||
December 31, 2021 | $ | 111,892 | ||
Additional deposits received | 691,769 | |||
Less: Deposits recognized as revenue | (522,663 | ) | ||
December 31, 2022 | $ | 280,705 |
Amount | ||||
December 31, 2022 | $ | 280,705 | ||
Additional deposits received | 659,790 | |||
Less: Deposits recognized as revenue | (778,081 | ) | ||
December 31, 2023 | $ | 162,414 |
Note 4. DepositsInventory
Deposits was comprisedInventory consisted of the following asfollowing:
Schedule of December 31, 2015 and 2014:inventory
December 31, 2015 | December 31, 2014 | |||||||
Inventory deposits | $ | 9,345 | $ | 179,941 | ||||
Operating lease deposits | 0 | 2,000 | ||||||
Deposits | $ | 9,345 | $ | 181,941 |
Inventory deposits reflect down payments made to suppliers or manufacturers under inventory purchase agreements.
Note 5. Inventory
Inventory as of December 31, 2015 and December 31, 2014 of $67,435 and $44,606 was comprised of finished goods in-transit to customers and also costs associated with the construction of demo inventory, including but not limited to parts for the assembly of scalable cultivation systems. The cost of this demo inventory was 57,170 as of December 31, 2015 and $40,051 as of December 31, 2014.
December 31, 2023 | December 31, 2022 | |||||||
Raw Materials | $ | 75,300 | $ | 38,464 | ||||
Work In Process | 444,532 | 206,306 | ||||||
Finished Goods – Soil | 0 | 66,557 | ||||||
Finished Goods – Cannabis Retail | 66,374 | 41,464 | ||||||
Total Inventory | $ | 586,206 | $ | 352,971 |
Note 6. 5. Property and Equipment, net
Property and equipment, net, was comprised of the following:
Schedule of property and equipment
December 31, 2015 | December 31, 2014 | December 31, 2023 | December 31, 2022 | |||||||||||||
Office equipment | $ | 7,472 | $ | 5,742 | $ | 47,380 | $ | 47,380 | ||||||||
Furniture and fixtures | 8,777 | 2,935 | ||||||||||||||
Machinery and equipment | 2,336 | 1,250 | ||||||||||||||
Software | 13,204 | 13,204 | ||||||||||||||
Furniture and Fixtures | 2,328 | 2,328 | ||||||||||||||
Machinery and Equipment | 517,510 | 478,407 | ||||||||||||||
Leasehold Improvements | ---- | — | ||||||||||||||
Property and equipment, gross | 18,585 | 9,927 | $ | 580,422 | $ | 541,319 | ||||||||||
Less: accumulated depreciation | (5,137 | ) | (1,562 | ) | ||||||||||||
Less: Accumulated Depreciation | (170,099 | ) | (113,650 | ) | ||||||||||||
Property and equipment, net | $ | 13,448 | $ | 8,365 | $ | 410,324 | $ | 427,669 |
For
During the year ended December 31, 20152023 and December 31, 2014,2022, the Company recordedacquired additional machinery equipment for a total cost of $39,103 and $103,675, respectively, The Company recognized depreciation expense of $3,575$56,448 and $1,077,$57,731, respectively.
39
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Note 7. Convertible Notes Payable6. Intangible Assets
On April 24, 2014, Brazil Interactive Media, Inc. issued convertible notes payable in the totalA significant amount of $395,000. The convertible notes payable have a maturity date of April 24, 2016, pay zero interest, and are convertible until maturity at the holders’ discretion into shares of the Company’s common stock at $0.08 per share. Brazil Interactive Media, Inc.’s share pricecurrent identified intangible assets were assumed upon consummation of the Naturaleaf acquisition on April 24, 2014 was $0.24 and accordingly, the intrinsic value30, 2021. The Company has incurred capitalizable costs in connection with patent applications that it started work on. Identified intangible assets consisted of the beneficial conversion feature attached to these convertible notes payable was $590,000. However, as the amount of debt discount to be recognized cannot exceed the face value of the convertible notes payable, the convertible notes payable were discounted by the maximum permissible amount of $395,000 due to the intrinsic value of the beneficial conversion option.
During the period from April 24, 2014 through the effective date of the Merger, September 29, 2014, no convertible notes payable were converted into shares of Brazil Interactive Media, Inc. common stock and $84,836 debt discount was amortized during the period. Accordingly asfollowing at the effective datedates indicated below:
Schedule of the Reverse Merger, September 29, 2014, a total of $395,000 of convertible notes payable and unamortized debt discount of $310,164 was recognized in the Company’s consolidated financial statements.intangible assets
December 31, 2023 | ||||||||||||||||
Gross carrying amount | Accumulated amortization | Carrying value | Estimated useful life | |||||||||||||
Licenses | $ | 800,000 | ($ | 187,866 | ) | $ | 612,114 | 15 years | ||||||||
Brand | $ | 660,000 | ($ | 252,699 | ) | $ | 407,311 | 5 years | ||||||||
Patent Applications | $ | 18,464 | — | $ | 18,464 | — | ||||||||||
Total intangible assets, net | $ | 1,478,464 | ($ | 440,555 | ) | $ | 1,037,909 |
During theThe weighted average amortization period from September 29, 2014 to December 31, 2014, $323,500 of the convertible notes payable were converted into 4,043,750 shares of common stock and $263,215 of debt discounted was amortized in the period. The balance of unamortized debt discount outstanding in respect of convertible notes payable that converted into shares of American Cannabis Company, Inc. common stock was amortized in full at the date of conversion.
As of December 31, 2015, the convertible notes payable had a $71,500 face value and a discount of $11,248, for a net carrying value of $60,252 which is reflected on the Company’s balance sheet as convertible notes payable, net. As of December 31, 2014, the convertible notes payable had a $71,500 face value and a discount of $46,949, for a net carrying value of $24,551 that is reflected on the Company’s balance sheet as Convertible notes payable, net. The convertible notes payable are convertible into 893,750 shares of American Cannabis Company, Inc. common stock. As of April 11th, 2016, the maturity date on this note has been renegotiated to April 24th, 2018. On April 12, 2016, the Company received notice of partial conversion of this note in the amount $58,000 convertible into 725,000 shares of restricted common stock at a price of $0.08 per share.,
On May 15, 2014, as a result of the issuance of the convertible notes payable, a secured promissory note that American Cannabis Consulting had originally entered into on March 21, 2014 was deemed to be fully satisfied. This secured promissory note had a principal amount of $35,000 and an interest rate of 5% per annum. The Company recorded interest expense related to this note of $260intangible assets we acquired during the year ended December 31, 2014. The Company recorded a gain on debt extinguishment of $35,000 during2023, was approximately 11.47 years.
Amortization expenses for intangible assets were $186,000 and $186,000 for the yearyears ended December 31, 2014.2023, and 2022, respectively. The total estimated amortization expense for our intangible assets for the years 2023 through 2027 is as follows:
Schedule of estimated amortization expense
Year Ended December 31, 2023 | ||||||
2023 | $ | 186,000 | ||||
2024 | $ | 186,000 | ||||
2025 | $ | 186,000 | ||||
2026 | $ | 145,997 | ||||
2027 | $ | 54,000 | ||||
Thereafter | $ | 463,781 |
Note 8. 7. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
Schedule of accrued and other current liabilities
December 31, 2023 | December 31, 2022 | |||||||
Accrued Interest | $ | 135,213 | $ | 39,130 | ||||
Accrued Payroll | 11,711 | 22,029 | ||||||
Sales Tax Payable | 8,319 | 3,931 | ||||||
Other Accrued Expenses & Payables | 312,252 | 168,258 | ||||||
Accrued and other current liabilities | $ | 467,495 | $ | 233,348 |
Note 8. Stock Payable
The following summarizes the changes in common stock payable:
Schedule of stock payable
Amount | ||||
December 31, 2022 | $ | 74,344 | ||
Shares issued | (74,344 | ) | ||
Accrued stock compensation | 17,021 | |||
December 31, 2022 | $ | 17,021 |
December 31, 2015 | December 31, 2014 | |||||||
Accrued legal fees | $ | 0 | 0 | |||||
Accrued payroll liabilities | 18,185 | 11,522 | ||||||
Accrued accounting fees | 0 | 5,000 | ||||||
Due to directors | 0 | 1,999 | ||||||
Accrual for inventory products sold and shipped (in transit) | 64,050 | 0 | ||||||
Other | 11,233 | 5,488 | ||||||
Accrued and other current liabilities | $ | 93,468 | $ | 125,518 |
40
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Note 9. Net Income (Loss) per Common ShareOperating Lease Right-of-Use Asset/Operating Lease Liability
Our headquarters are located at 1004 Tejon Street, Colorado Springs, CO.
The followingCompany leases property under various operating leases. Property leases include office, retail and cultivation space with fixed rent payments and lease terms ranging from one to two years. The Company is a reconciliation of weighted common shares outstanding usedobligated 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 calculationmeasurement of basicthe lease asset or lease liability. These expenses are recognized as variable rent expenses when incurred.
The Company’s lease portfolio consists of the following.
● | 1004 S. Tejon Street, Colorado Springs, CO 80903; The Company assumed a lease originally entered into on February 12, 2016, which was the subject of a extension agreement dated April 5, 2022. The term of the lease was extended from May 1, 2022 until April 30, 2027. The Company's monthly rental payments from January 1, 2022 to May 1, 2022 was $3,700. From May 1, 2022 through the year ended December 31, 2022, monthly rent was $3,875. Remaining rental payments due for the extended period are: May 1, 2022 to April 30, 2023 $3,875 May 1, 2023 to April 30, 2024 $4,050 May 1, 2024 to April 30, 2025 $4,225 May 1, 2025 to April 30, 2026 $4,400 May 1, 2026 to April 30, 2027 $4,575 |
● | 2727 Palmer Park Blvd. Suite A, Colorado Springs, CO 80909. As of May 31, 2023, the Company discontinued its associated operations at Palmer Park Boulevard, Ste. A, Colorado Springs, CO, and at year-end, its lease obligation terminated without the Company incurring penalties, interest or liquidated damages. |
● | 5870 Lehman Drive Suite 200, Colorado Springs, CO 80918 The Company and landlord previously entered into a lease in 2017 which expired December 31, 2022. At December 31, 2022, the Company's monthly rent was $2,732. On April 26, 2022, the Company and landlord entered into an extension agreement which extended the tenancy from January 1, 2023 through January 1, 2027. Rental payments due for the extended period are: January 1, 2023 $2,898 January 1, 2024 $2,985 January 1, 2025 $3,075 January 1, 2026 $3,167 January 1, 2027 $3,262 |
● | 2611 Durango Drive, CO Springs, CO. The Company and landlord entered into a lease on March 10, 2021, which terminated on May 31, 2022. On June 23, 2021, the Company and landlord entered into an extension of the lease for a term of thirty-six months, beginning June 1, 2022 and terminating June 1, 2024. At December 31, 2022, monthly rent was $11,000. Rental payments due for the extended period are: June 1, 2022 to June 1, 2023 $11,000 June 1, 2023 to June 1, 2024 $11,880 June 1, 2025 to June 1, 2025 $12,830 |
41
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
On May 1, 2020, as part of the Naturaleaf Acquisition, the Company entered into leases for grow facilities and diluted net income (loss) per common share:dispensaries. These leases were determined to be operating leases under ASC 842, and such leases were capitalized. It was determined that the Tejon lease, due to its short-term nature, met the criteria of ASC 842-20-25-2, and as such, it was not necessary to capitalize the lease; rent would be recognized on a straight-line basis.
Year Ended | Year Ended | |||||||
December 31, 2015 | December 31, 2014 | |||||||
Net income (loss) | $ | (515,653 | ) | $ | (3,619,192 | ) | ||
Weighted average shares used for basic net income (loss) per common share | 44,637,046 | 32,542,940 | ||||||
Incremental diluted shares | — | — | ||||||
Weighted average shares used for diluted net income (loss) per common share | 44,637,046 | 32,542,940 | ||||||
Net income (loss) per common share: | ||||||||
Basic | $ | (0.11 | ) | $ | (0.01 | ) | ||
Diluted | $ | (0.11 | ) | $ | (0.01 | ) |
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, 2023 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 has been recognizing rents as they become payable.
As of December 31, 2015, no potentially dilutive shares2023, the aggregate remaining annual lease payments of operating lease liabilities are as follows:
Schedule of operating leases liabilities
Operating Leases | |||||
2023 | $ | 474,472 | |||
Total | 474,472 | ||||
Less: amount representing interest | - | ||||
Present value of future minimum lease payments | 474,472 | ||||
Less: current obligations under leases | 199,891 | ||||
Long-term lease obligations | $ | 274,581 |
As of December 31, 2023, the aggregate remaining minimal annual lease payments under these operating leases were issued or outstanding. Asas follows:
Schedule of remaining minimal annual lease payments
2023 | $ | 474,472 | ||||
Total | $ | 474,472 |
Note 10. 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 resultnote payable with a bank under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP loan”) in the amount of $109,914. This loan payable matured 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 and is unsecured and guaranteed by the SBA. On March 1, 2021, the Company applied for and received forgiveness of the net lossprincipal of $109,914 and interest of $632.01 on the PPP loan.
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.
42
AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Amendment to Naturaleaf Seller Note
On April 29, 2022, the Company and Medihemp, LLC, and its wholly owned subsidiary, SLAM Enterprises, LLC, and Medical Cannabis Caregivers, Inc., all collectively doing business as "Naturaleaf," (hereafter, "Naturaleaf") entered into an amendment to the previously disclosed material definitive agreement dated March 11, 2021.
The original material definitive agreement disclosed the Company's acquisition of assets from Naturaleaf, including, but not limited to, Naturaleaf's fixed assets, Medical Marijuana Center licenses, a Medical Cannabis’ Medical Marijuana-Infused Product Manufacturer license, a Medical Marijuana Optional Premises Cultivation license, customer accounts, intellectual property, goodwill, and leases. As consideration for the period,purchase, the Company excluded 681,569 totalagreed to pay an aggregate purchase price of $2,200,000 in cash and 3,000,000 shares from its calculation of diluted net income (loss) perRegistrant's common sharestock.
The parties agreed to a payment schedule, requiring the Company first to pay an initial non-refundable payment of $20,000, credited against the purchase price. Thereafter, upon the party's completion of due diligence and their receipt of contingent approval letters for the year ended December 31, 2014 because their effect would have been antidilutive. These shares were comprisedtransfer of 38,255the Cannabis Licenses from the Colorado Marijuana Enforcement Division and the City of Colorado Springs (the "Closing"), the Company agreed to pay Naturaleaf $1,080,000 and issue Naturaleaf, or its designees, 3,000,000 shares of the Company's restricted common stock, 26,289stock. The balance of warrantsthe purchase price of $1,100,000 was payable based upon a promissory note issued by the Company, which included 10% interest. The note was due one year after Closing. On April 30, 2021, the Closing occurred, and 617,055the Company paid Naturaleaf $1,080,000 and issued 3,000,000 shares of share equivalents associated with convertible notes payable.restricted stock.
Pursuant to the amendment, the parties agreed to restructure the remaining payments due to be made by the Company under the note. The parties agreed that in consideration of the Company's payment of $550,000, and outstanding interest of $110,000, a new promissory note in the principal amount of $550,000 and 12% interest accruing annually, due April 29, 2023, resolves all Registrant's payments of the purchase price. The parties entered into the amendment, and the Registrant paid the consideration of $550,000 in principal and $110,000 in interest.
Note 10. 11. Related Party Transactions
Previously,On November 22, 2022, the Company purchased inventory and equipment from Baroud Development Group,issued a promissory note to Ellis Smith in which Anthony Baroud,exchange for $150,000. Interest on the Company’s former Chief Technology Officernote is 15% per annum. The note has a maturity date of May 21, 2023. If not paid within ten days of maturity, the note contains default interest of 18% per annum and a former Directorlate charge penalty of 5% of the Company, is an owner. During the year ended December 31, 2014, such purchases totaled $40,715. No such transactions occurred during 2015. For the year ended December 31, 2015, the Company generated revenue from the sale of products to an entity controlled by a Director.principal amount due.
During the year ended December 31, 2014, prior to the Reverse Merger, the Company distributed a total of $4,000 to its co-founders and owners, Corey Hollister and Ellis Smith.
During the year ended December 31, 2015 and December 31, 2014, the Company incurred $38,360 and $30,227, respectively, of expense payable to New Era CPAs, an accounting firm in which Antonio Migliarese, the Company’s former Chief Financial Officer, was a partner.
During the year ended December 31, 2015 and December 2014, the Company sold $25,214 and $0, respectively, of equipment and supplies to a customer managed by a Director of the Company. As of December 31, 2015 and December 2014, the Company was owed $17,512 and $0, respectively, from this customer.
Note 11. Commitments and Contingencies
Under the terms of our agreement with the manufacturer of our exit packing product, the SatchelTM, we were committed to the purchase of a total of 500,000 units. During 2015 the Company met its purchase obligation, and on September 2015 the Company exercised its contractual right to purchase additional units at a negotiated price.
Under the terms of the Company’s various consulting agreements with clients, the Company is obligated to perform certain future services.
On January 20, 2016, we were named as a defendant in a civil suit entitled: Anthony Baroud vs. Hollister & Blacksmith, Inc., dba American Cannabis Company filed in the Circuit Court of Cook County, Illinois. The lawsuit seeks damages of $100,000 related to an employment contract. The Company filed a motion to compel contractual arbitration that has yet to be ruled on by the Court.
On April 14, 2014, the Company entered into a 106 day lease of office space to house its corporate offices which converted to a month to month lease at the end of the lease term. Under the terms of the lease, payments were $2,000 during the lease term and $4,000 per month after the lease term expired.
On July 28, 2015, the Company entered into a 5 year lease for 6,500 square feet of office space to house its corporate offices. Under the terms of the lease, payments are $4,500 per month for the first 36 months of the lease, and escalate thereafter.
The following table summarizes the Company’s future lease obligations:
Year | Amount | |||||
2016 | $ | 54,000 | ||||
2017 | $ | 54,000 | ||||
2018 | $ | 54,000 | ||||
2019 | $ | 56,320 | ||||
2020 | $ | 33,610 | ||||
Total | $ | 251,930 |
During the years ended December 31, 2015 and 2014, the company incurred $53,800 and $20,933, respectively, in rent expense.
During the years ended December 31, 2015 and December 31, 2014, the Company recorded a total of $319,187 and $3,370,128, respectively, of stock-based compensation expense, which was the result of the following activity:
Restricted Shares
From time to time, the Company grants certain employees and independent contractors restricted shares of its common stock to provide further compensation in-lieuin lieu of wages and to align the employee’s interests with the interests of its stockholders. Because vesting is based on contractual commitments and/or 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.
The following table summarizes the Company’s restricted share award activity during the year ended December 31, 2015:
Restricted Shares | Weighted Average | |||||||||
Common Stock | Grant Date Fair Value | |||||||||
Outstanding unvested at December 31, 2014 | — | $ | — | |||||||
Granted | 150,000 | 0.94 | ||||||||
Vested restricted shares | — | — | ||||||||
Forfeited | — | — | ||||||||
Outstanding unvested at December 31, 2015 | 150,000 | 0.94 | ||||||||
Granted | 164,981 | 0.21 | ||||||||
Vested restricted shares | (100,000 | ) | 0.94 | |||||||
Forfeited | (50,000 | ) | 0.94 | |||||||
Outstanding unvested at December 31, 2015 | 164,981 | $ | 0.94 |
During the year ended December 31, 2015,2023, the Company granted 164,98114,425,000 restricted shares and recognized $124,099$17,021 in associated employee stockbasedstock-based compensation expense. There were 150,000 restricted shares granted as of December 31, 2014 and recognized $40,903 in associated employee stockbased compensation expense.expenses. The fair value of the restricted stock unitsunit is determined based on the quoted closing price of the Company’s common stock on the date of grant.granted.
Warrants
In connection with his appointment to the Company’s board of directors, the Company granted its independent board member, Vincent “Tripp” Keber, warrants to purchase up to two hundred and fifty thousand (250,000) shares of common stock at an exercise price of sixty-three cents ($0.63) per share, exercisable within five (5) years of the date of issuance on November 19, 2014. Additionally, Mr. Keber shall be eligible to receive options for 400,000 shares of common stock under the Company’s incentive plan, as and when duly approved by the Board of Directors.
The Company uses the Black-Scholes valuation model to determine the fair value of warrants as of the grant date. Assumptions used in this calculation for the warrant award to purchase 250,000 shares of common stock include expected volatility of 160.7%, based on an average of historical data of the Company’s stock price and the stock prices of three comparable companies that are also included in the marijuana index, a risk-free rate of 1.62%, based on U.S. Treasury yields as published by the Federal Reserve, a dividend yield of 0.0%, as the Company has not historically paid dividends nor does it have any plans to do so in the foreseeable future, and an expected term of five years. The grant date fair value of the warrants, as calculated based on these assumptions, was $0.59 per share.
During 2015 and 2014, the Company had the following warrant activity:
Common Stock Warrants | Weighted Average Grant Date Fair Value | |||||||
Outstanding unvested at December 31, 2013 | — | $ | — | |||||
Granted | 250,000 | 0.59 | ||||||
Exercised | — | — | ||||||
Expired or forfeited | — | — | ||||||
Outstanding unvested at December 31, 2014 | 250,000 | 0.59 | ||||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Expired or forfeited | — | — | ||||||
Outstanding unvested at December 31, 2015 | 250,000 | $ | 0.59 | |||||
Vested at December 31, 2015 | 250,000 | $ | 0.59 | |||||
Unvested at December 31, 2015 | — | $ | — |
Compensation expense associated with warrants was $146,551 for the year ended December 31, 20152023, the Company issued a total of 66 million restricted shares to service providers and consultants for services rendered and recognized expenses of $37,699.10. The fair value of restricted stock is reflecteddetermined based on the consolidated statementquoted closing price of operations as a componentthe Company’s common stock on the date granted.
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AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of general and administrative expenses. No warrants were issued orcommon shares outstanding during 2015,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 accordingly, there wascommon 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 Company believes that it has no compensation expense associated with warrants forinstruments that may, in the future, have a dilutive effect on earnings per share:
Warrants
During the year ended December 31, 2015.2023, the Company did not issue or approve any warrants.
As of December 31, 2015, the exercise price per share exceeded the price per share of our common shares. There was no aggregate intrinsic value of outstanding warrants.
Note 13. Income TaxesShareholders’ Equity
As part of the Reverse Merger, the Company’s corporate status changed from an S-Corporation, which it had been since inception, to a C-Corporation. 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, the Company was not subject to income tax for the year ended December 31, 2015 and was only subject to income taxes for a portion of the year ended December 31, 2014.
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, 2015 and 2014, respectively:
December 31, 2015 | December 31, 2014 | |||||||
Tax benefit at the US statutory rate of 34% | $ | 175,322 | $ | 1,230,525 | ||||
State income tax benefit | 23,875 | $ | 167,569 | |||||
Non-deductible expenses including non-deductible pre-merger losses | (773 | ) | (2,057 | ) | ||||
Change in valuation allowance | (198,424 | ) | (1,396,037 | ) | ||||
Total income tax benefit | $ | — | $ | — |
Deferred tax assets (liabilities) consisted of the following:
December 31, 2015 | December 31, 2014 | |||||||
Net operating loss carryforwards | $ | 76,630 | $ | 16,361 | ||||
Stock based compensation | 1,402,777 | 1,278,414 | ||||||
Beneficial conversion feature accumulated amortization | 13,791 | — | ||||||
Valuation allowance | (1,493,199 | ) | (1,294,775 | ) | ||||
Total deferred tax assets | $ | — | $ | — |
Due to cumulative net losses since the change in our corporate status to a C-Corporation, 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, 2015 and December 31, 2014. As of December 31, 2014, the carrying value of the Company’s deferred tax assets was zero due to the valuation allowance. Federal and state operating loss carry forwards of $198,369 as of December 31, 2016 begin expiring on 2034. The years 2010 to 2015 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.
Note 14. Stockholders’ Equity
Preferred Stock
The American Cannabis Company, Inc. is authorized to issue 5,000,000 shares of preferred stock at $0.01 par value.
No shares of preferred stock were issued and outstanding during the year endedon December 31, 2015 or the period from Inception (March 5, 2013) to December 31, 2013.2023, and 2022, respectively.
Common Stock
In connection with the September 29, 2014 Reverse Merger as described in Note 1. “Description of the Business”, American Cannabis Consulting was deemed to have been the accounting acquirer in accordance with U.S. GAAP. Consequently, the Company’s consolidated financial statements reflect the results of American Cannabis Consulting since Inception (March 5, 2013) and of American Cannabis Company, Inc. (formerly BIMI) from September 29, 2014 to December 31, 2014.
As a reverse triangular merger, the Reverse Merger resulted in a recapitalization of American Cannabis Company, Inc. (formerly BIMI). This recapitalization included retrospective restatement of all stock issuance by American Cannabis Consulting from Inception (March 5, 2013), whereby the issued and outstanding shares of American Cannabis Consulting common stock were retrospectively restated for a 1:3,171.0628 forward share split to recognize the exchange ratio associated with the Reverse Merger, and for the change in the par value of shares issued in connection with the Reverse Merger.
On the date of the Reverse Merger, an additional 8,714,372 shares were issued, and accordingly, $87 of common stock was recorded (8,714,372 shares issued multiplied by the $0.00001 par value) and additional paid-in capital of $5,258 was recorded, reflecting the net assets assumed from Brazil Interactive Media, Inc. in connection with the Reverse Merger.
As a result of the transactions described above, as of December 31, 2015, the balances of common stock and additional paid-in capital were $448 and $4,268,708, respectively. As a result of the transactions described above, as of December 31, 2014, the balances of common stock and additional paid-in capital were $446 and $3,699,526, respectively. American Cannabis Company, Inc. is authorized to issue 100,000,000 common shares at $0.00001 par value per share and 5,000,000 shares of preferred stock at $0.01 par value.
Note 15. Reportable Segments
The Company has no reportable segments as it only operates in the regulated cannabis industry, as a provider of professional consulting services, products and equipment.
Note 16. Subsequent Events
We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported.
As of December 31, 2015, the convertible notes payable had a $71,500 face value and a discount of $11,248, for a net carrying value of $60,252 which is reflected on the Company’s balance sheet as convertible notes payable, net. As of December 31, 2014, the convertible notes payable had a $71,500 face value and a discount of $46,949, for a net carrying value of $24,551 that is reflected on the Company’s balance sheet as Convertible notes payable, net. The convertible notes payable are convertible into 893,750 shares of American Cannabis Company, Inc. common stock. As of AprilJanuary 11,th, 2016, the maturity date on this note has been renegotiated to April 24th, 2018. On April 12, 2016, 2023, the Company received noticeissued a total of partial conversion of this note in the amount of $58,000 convertible into 725,0002,175,000 shares of restricted common stock atto directors and officers under contract during 2022.
On August 24, 2023, the Company issued 41,000,000 shares of registered common stock to consultants under contract.
On August 24, 2023, the Company issued a total of 12,250,000 shares of restricted common stock to directors and officers under contract.
On August 29, 2023, the Company issued 25 million shares of restricted common stock to consultants under contract.
On August 30, 2023, the Company issued 1 million restricted shares to a service provider to settle an outstanding amount due under contract.
The fair value of common stock issued is determined based on the closing price of $0.08 per share.the Company's common stock on the date granted.
Note 14. Commitments and Contingencies
Legal
In the ordinary course of its business, the Company becomes involved in various legal proceedings involving various matters. As of December 31, 2023, there are no pending legal proceedings involving the Company. The Company's expenses are legal fees in the period they are incurred.
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Our management has determined that other than as disclosed above, there were no reportable subsequent events to be disclosed. AMERICAN CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTARY DATAFOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
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 DISCLOSURENote 15. Subsequent Events
On February 12, 2015,January 8, 11, 17, and March 6, 2024, the Company notified Bongiovanni & Associates, PA ("Bongiovanni"), its independent registered public accounting firm, that it was dismissing Bongiovanni as its independent registered public accounting firm, effective asissued a total of that date. During14,397,977 shares of common stock resulting from the period from Inception (March 5, 2013) through December 31, 2013 and subsequent interim period through February 12, 2015, there were no disagreements (as defined in Item 304(a)(1)(iv)conversion of Regulation S-K) with Bongiovanni on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Bongiovanni, would have caused Bongiovanni to make reference on the subject mattera promissory note entered June 29, 2023. As a result of the disagreementsconversions, the note was fully satisfied and paid in its reports. Also on February 12, 2015, thefull.
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SUPPLEMENTARY DATA
The Company engaged Cutler & Co., LLC ("Cutler"),is a smaller reporting Company as its new independent registered public accounting firm for the fiscal year ending December 31, 2014. Cutler will also conduct reviewsdefined by Rule 12b-2 of the Company's unaudited quarterly financial statements on an ongoing basis thereafter.In October, 2015Exchange Act and is not required to provide the firm of Pritchett, Siler and Hardy PC acquired the audit practice of Cutler & Co., LLC, and the Company appointed Pritchett, Siler and Hardy PC as its independent registered accounting firm. During the period when the Company engaged Cutler & Co., LLC as its independent registered accounting firm, there were no disagreements (as defined in Item 304(a)(1)(4) of Regulation S-K) with Cutler & Co., LLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Cutler & Co., LLC, would have caused Cutler & Co., LLC to make reference on the subject matter of the disagreements in its reports.information required under this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ManagementEvaluation of the Company is responsible for maintainingDisclosure 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 financial information required to be disclosed in theour reports that the Company files or submitsfiled under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the timeframestime periods specified in the Securities and Exchange Commission’s rules and forms consistent with Items 307 and 308 of Regulation S-K.
In addition, the disclosure controls and procedures must ensure that such financial information is accumulated and communicated to the Company’sour management, including itsour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.disclosure.
As of December 31, 2015,We carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, and other persons carrying out similar functions for the Company. Based on the evaluation of the Company’seffectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023, the Company concluded that duringend of the period covered by this report, suchReport. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.effective at the reasonable assurance level due to the material weaknesses discussed below.
The Company continues to employ and refine a structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews by accounting personnel. In addition, the Company evaluates and assesses its internal controls and procedures regarding its financial reporting, utilizing standards incorporating applicable portions of the Public Company Accounting Oversight Board’s 2009 Guidance for Smaller Public Companies in Auditing Internal Controls OverControl over Financial Reporting as necessary
Our management is responsible for establishing and on an on-going basis.
Because of its inherent limitations,maintaining adequate internal control over financial reporting cannotas 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 absolutereasonable 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:
● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets. |
● | 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, |
● | 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. |
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Because of our inherent limitations, our internal control over financial reporting may not prevent or detection ofdetect misstatements. In addition, projectionsTherefore, 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:
● | 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. |
● | we have not performed a risk assessment and mapped our processes to control objectives. |
● | we have not implemented comprehensive entity-level internal controls. |
● | we have not implemented adequate system and manual controls; and |
● | we do not have sufficient segregation of duties. |
Our management assessed the effectiveness of internal control over financial reporting as of December 31, 2023. 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 this 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, 2023.
Remediation of Material Weaknesses
We intend to implement specific remediation initiatives described below:
● | 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. |
● | Our entity-level controls are, generally, informal and we intend to evaluate current processes, supplement where necessary, and document requirements. |
● | 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. |
● | 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 and 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 Annual Report on Form 10-K does not include an attestation report of the Company’sour independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.Report.
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Changes in Internal Controls OverControl over Financial Reporting
The Company hasWe implemented no reportable changes to itsour internal controlscontrol over financial reporting forduring the period covered by this report.year ended December 31, 2023.
The Company will continually enhance and test its internal controls over financial reporting on a continuing basis. Additionally, the Company’s management, under the control of its Chief Executive Officer and Chief Financial Officer, will increase its review of its disclosure controls and procedures on an ongoing basis. Finally, the Company plans to designate, in conjunction with its Chief Financial Officer, individuals responsible for identifying reportable developments and the process for resolving compliance issues related to them. The Company believes these actions will focus necessary attention and resources in its internal accounting functions.
ITEM 9B. OTHER INFORMATION
Not applicable.
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 nominee, as of December 31, 2015.2023.
Name | Principal Occupation | Age | Director Since | Principal Occupation | Age | Director Since | ||||||||||||||
Corey Hollister | CEO & Chairman of the Board, American Cannabis Company, Inc. | 40 | 2014 | |||||||||||||||||
Ellis Smith | Chief Development Officer, American Cannabis Company, Inc. | 39 | 2014 | Director | 47 | 2014 | ||||||||||||||
Vincent “Tripp” Keber | Chief Executive Officer, Dixie Brands, Inc. | 47 | 2014 | |||||||||||||||||
Tad Mailander | Director | 68 | 2017 |
Corey Hollister has served as our Chief Executive Officer (CEO) and as a director since May 2014. In March 2013, Mr. Hollister co-founded American Cannabis Company, Inc. (“ACC”), and from March 2013 to May 2014, Mr. Hollister served as a Managing Director of ACC. From September 2010 to July 2013, Mr. Hollister co-owned and was director of Colorado Kind Care LLC d/b/a The Village Green Society, a Colorado-based Medical Marijuana Center. From October 2007 to September 2009, Mr. Hollister owned and operated Built-to-Last Fitness, a private health and wellness company focused on exercise and nutritional guidance for individuals, companies and schools. Prior to this, Mr. Hollister was based in Boston, MA and worked in Marketing and Advertising. Our Board believes Mr. Hollister’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 leadership and corporate management experience, and his unique experience in Colorado and across the country advising clients in emerging medical cannabis markets.
Ellis Smithfrom June 2014 to the present,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-basedColorado 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.
Vincent “Tripp” KeberTad Mailander is an attorney licensed to practice before all of the Courts in the State of California. Mr. Mailander has served asbeen in practice since 1991 and is a member of our boardthe State Bar of directors since November 2014. Mr. Keber is a co-founder and Chief Executive Officer of Dixie Elixirs & Edibles, a Colorado licensed medical marijuana infused products manufacturer. He is a founding directorCalifornia, the bars of the National Cannabis Industry Association, and, since 2013, has served as a director of the Marijuana Policy Project. He is also an advisory board member of the Medical Marijuana Industry Group in Colorado. In his current role as CEO of Dixie, Mr. Keber is responsibleUnited States District Court for the overall strategy, licensing, marketing, brandingSouthern District of California, and expansion efforts related to the Dixie brand, both domestically and internationally.United States Court of Appeal for the Ninth Circuit. Mr. Keber has been featured on CBS’s 60 Minutes and CNBC. Since June 2014, Mr. Keber has also served as a Director of MassRoots, Inc. Prior to joining Dixie, Mr. Keber served as Chief Operating Officer for Bella Terra Resort Development Company, and EVP of Business Development for Sagebrush Realty Development. Mr. Keber has a Bachelor of Science in Political Science from Villanova University. Mr. KeberMailander is involved in several charitable organizations located within the Aspen and Denver communities, and assists in the research and development of cannabis support for veterans suffering from post-traumatic stress disorder. Mr. Keber was selected to serve as a director because of his extensive experience, knowledge and leadership in the legal cannabis industry, as well as his success as a business leader and entrepreneur.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,and chief operating officer and chief technology officer. The following table sets forth information regarding our executive officers as of December 31, 2015.2023.
Name | Principal Occupation | Age | Officer Since | |||||||
Corey Hollister | CEO & Chairman of the Board, American Cannabis Company, Inc. | 40 | 2014 | |||||||
Ellis Smith | Chief Development Officer, American Cannabis Company, Inc. | 39 | 2014 | |||||||
Antonio Migliarese | Chief Financial Officer, American Cannabis Company, Inc. | 33 | 2014 | |||||||
Jesus M Quintero | Chief Financial Officer, American Cannabis Company, Inc. | 54 | 2016 |
Name | Principal Occupation | Age | Officer Since | |||||||
Ellis Smith | Chief Executive Officer, Chief Financial Officer | 47 | 2018 | |||||||
Tyler A. Schloesser1 | Chief Operations Officer | 33 | 2019 |
Corey Hollister’sEllis Smith, Chief Executive Officer, Chief Financial Officer. Mr. Smith’s biographical summary is included under “Our Board of Directors.”
Ellis Smith’sbiographical summary is included under “Our Board of Directors.”
Antonio Migliarese Mr. Smith was a contractor that we have engaged for accountingappointed Chief Executive Officer and reporting services since June 2013 and served as our Chief Financial Officer since November 2014. By letter dated January 27, 2016, Mr. Migliarese, resigned his position. Mr. Migliarese and the Company agreed that Mr. Migliarese would provide transitional support regarding the Company’s engagement of a new Principal Financial Officer, and in anticipation of the Company’s filing on Form 10-K for the fiscal year ended December 31, 2015. 2021.
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Tyler A. Schloesser, Chief Operations Officer. Mr. Migliarese wasSchloesser attended the University of Colorado at Boulder receiving a co-founder ofdouble major degree in Psychology and has been a partner of a San Diego-based tax, accounting, and financial consultancy firm where he worked with start-up cannabis and non-cannabis businesses in the both private and public sectors. From 2008 to 2012,Philosophy. After graduation, Mr. Migliarese was the financial reporting manager for a mid-sized technology company, where he oversaw the accounting close process, financial planning and analysis, preparation of financial statements in accordance with U.S. GAAP, financial statements audits, and implementation of accounting and operational processes. Prior to 2008, Mr. MigliareseSchloesser worked in the assurance groupbanking industry with Wells Fargo, U.S. Bank and Credit Union of a national Big 4 accounting firm, where he obtained his CPA license (active). He has experienceColorado. Mr. Schloesser received professional certificates from Dartmouth College in Retail & Omnichannel Management (2021); UC Berkeley in Blockchain Fundamentals (2021), and Columbia University in Corporate Finance (2022); Mr. Schloesser’s functions with SOX compliance, financial derivatives, complex inventory environments, corporate restructurings, consolidations,the Registrant include developing and corporate governance. Mr. Migliarese attended Oregon State University, from which he earned a BS in Business Administration with an emphasis in Accounting. Our board of directors believes Mr. Migliarese’s qualifications to serve as an executive of the Company include his knowledgemaintaining policies and experience in both U.S. GAAP accountingprocedures, processes and financial reportingrisk mitigation best practices as well as financial forecastingmanage and modeling.perform day-to-day internal operational tasks required by the Registrant.
Jesus M Quintero, Chief Financial Officer from February 2016 to present1 The Company terminated Mr. Quintero also serves as Chief Financial officer of Massroots Inc, and has served as Brazil Interactive Media’s Chief Financial Officer. He has previously served as a financial consultant to several multimillion dollar businesses in Florida.Schloesser on September 29, 2023. The decision was not based on any disagreement with Mr. Quintero has extensive experience in public company reporting and SEC/SOX compliance, and held senior finance positions with Avnet, Inc., Latin Node, Inc., Globetel Communications Corp. and Telefonica of Spain. His prior experience also includes tenure with PricewaterhouseCoopers and Deloitte & Touche. Mr. Quintero earned a B.S. in Accounting from St. John’s University and is a certified public accountant. He is fluent in English and Spanish, and conversant in Brazilian Portuguese.Schloesser regarding his services rendered.
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 also require such persons 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, and company counsel, we believe that all filing requirements applicable to our executive officers, directors, and greater than 10% stockholders during the fiscal year ended December 31, 20152023, 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 2015.2023.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||
Corey Hollister, | 2015 | 84,346 | 1,500 | ― | ― | ― | 85,846 | |||||||||||||||||||
Chief Executive | 2014 | 73,513 | 2,000 | ― | ― | ― | 75,403 | |||||||||||||||||||
Officer | 2013 | 22,092 | ― | ― | ― | ― | 22,092 | |||||||||||||||||||
Antonio Migliarese, | 2015 | 9,615 | ― | ― | ― | ― | 9,615 | |||||||||||||||||||
Chief Financial | 2014 | ― | ― | 18,300 | ― | 30,227 | 48,527 | |||||||||||||||||||
Officer (2) | 2013 | ― | ― | ― | ― | ― | ― | |||||||||||||||||||
Jesus Quintero, | 2015 | ― | ― | ― | ― | ― | ― | |||||||||||||||||||
Chief Financial | 2014 | ― | ― | ― | ― | 8,650 | 8,650 | |||||||||||||||||||
Officer(3) | 2013 | ― | ― | ― | ― | ― | ― | |||||||||||||||||||
Ellis Smith, | 2015 | 79,808 | 1,500 | ― | ― | ― | 81,308 | |||||||||||||||||||
Chief Development | 2014 | 75,249 | 1,917 | ― | ― | ― | 77,166 | |||||||||||||||||||
Officer | 2013 | 23,828 | ― | ― | ― | ― | 23,828 | |||||||||||||||||||
�� | ||||||||||||||||||||||||||
Anthony Baroud, | 2015 | ― | ― | ― | ― | ― | ― | |||||||||||||||||||
Chief Technology | 2014 | 24,734 | 1,917 | ― | ― | ― | 26,651 | |||||||||||||||||||
Officer | 2013 | ― | ― | ― | ― | ― | ― | |||||||||||||||||||
Trent Woloveck, | 2015 | 35,015 | ― | ― | ― | ― | 35,015 | |||||||||||||||||||
Chief Operations | 2014 | 17,234 | 1,917 | ― | ― | ― | 19,151 | |||||||||||||||||||
Officer | 2013 | ― | ― | ― | ― | ― | ― | |||||||||||||||||||
Terry Buffalo, | 2015 | ― | ― | $ | 1,590 | ― | ― | 1,590 | ||||||||||||||||||
Chief Operations | 2014 | ― | ― | ― | ― | ― | ― | |||||||||||||||||||
Officer | 2013 | ― | ― | ― | ― | ― | ― |
Name and Principal Position | Year | Salary | Bonus ($) | Bonus Stock Awards (in $) | Bonus Stock Awards (in Shares) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
Ellis Smith, CEO, CFO | 2023 | 150,000 | — | 200,000 | 10,000,000 | — | 350,000 | |||||||||||||||||||||
2022 | 130,000 | — | 11,510 | 75,000 | 101,510 | |||||||||||||||||||||||
2021 | 90,000 | — | 9,304 | 130,000 | — | 109,669 | ||||||||||||||||||||||
Tyler A. Schloesser, COO | 2023 | 111,249 | — | 30,000 | 1,500,000 | — | 141,249 | |||||||||||||||||||||
2022 | 100,000 | — | 3,836 | 25,000 | — | 83,836 | ||||||||||||||||||||||
2021 | 90,000 | — | 3,632 | 50,000 | — | 75,632 | ||||||||||||||||||||||
Jon Workman, VP Sales | 2023 | 78,000 | — | 10,000 | 500,000 | — | 88,000 | |||||||||||||||||||||
2022 | 78,000 | — | 3,836 | 25,000 | — | 86,386 | ||||||||||||||||||||||
2021 | 78,000 | — | 3,632 | 50,000 | — | 75,632 |
Retirement Benefits
We do not currently provide our named executive officers with supplemental or other retirement benefits.
Outstanding Equity Awards at December 31, 20152023
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As of December 31, 2015,2022, we had not granted anythe 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 retention of persons with ability and initiative and providing an incentive to such persons to contribute to the growth of the Company’s business. Eligible persons under the Plan include employees, directors, and consultants of the Company or any affiliated of our named executive officers.the Company. Unless earlier terminated, the Plan will remain in force unless a new Plan has been adopted by the Board of the Company.
Compensation of Directors & Executive Officers
The Board of Directors granted the following table sets forth information concerning the compensation earned during 2015 by each individual who servedfor directors as a non-employee director at any time during the fiscal year:year ended December 31, 2023:
Effective December 19, 2022, issued January 11, 2023, the Company issued 500,000 shares to Ellis Smith under contract.
2015 DIRECTOR COMPENSATION
Effective December 19, 2022, issued January 11, 2023, the Company issued 100,000 shares to Jon Workman under contract.
Name | Fees Earned or Paid in Cash ($) |
Stock Awards(1) ($) |
Total ($) | |||||||||
Vincent “Tripp” Keber | 20,000 | 0 | 20,000 |
Effective December 19, 2022, issued January 11, 2023, the Company issued 250,000 shares to Tyler A. Schloesser under contract.
Effective December 19, 2022, issued January 11, 2023, the Company issued 500,000 shares to Tad Mailander as director compensation.
On August 24, 2023, the Company issued 10,000,000 shares to Ellis Smith as director bonus compensation.
On August 24, 2023, the Company issued 500,00 shares to Tyler A. Schloesser as bonus compensation.
On August 24, 2023, the Company issued 500,000 shares to Jon Workman as bonus compensation.
On August 24, 2023, the Company issued 150,000 shares to Benjamin Teekel as bonus compensation.
On August 24, 2023, the Company issued 1,000,000 shares to Tad Mailander as as bonus compensation.
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, 20152023 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.
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Beneficial Owner(1) | Number of Shares Beneficially | Percent(3) | ||||||
5% Stockholders: | ||||||||
Dutchess Opportunity Fund II, L.P. | 3,477,371 | 7.8 | ||||||
Anthony Baroud | 4,756,594 | 10.7 | ||||||
Named Executive Officers and Directors: | ||||||||
Corey Hollister | 12,684,251 | 28.6 | ||||||
Ellis Smith | 12,684,251 | 28.6 | ||||||
Trent Woloveck | 951,319 | 2.1 | ||||||
Antonio Migliarese(4) | 30,000 | (5) | * | |||||
Jesus Quintero(5) | 50,000 | * | ||||||
All executive officers and directors as a group (6 persons) | 26,399,821 | 59.3 |
Number of | ||||||||
Shares | ||||||||
Beneficially | ||||||||
Beneficial Owner(1) | Owned(2) | Percent(3) | ||||||
Named Executive Officers and Directors: | ||||||||
Ellis Smith | 22,662,790 | 13.22 | % | |||||
Tad Mailander | 18,000,000 | 10.52 | % | |||||
Tyler A. Schloesser | 2,250,055 | 1.31 | % | |||||
Jon Workman | 850,000 | 0.50 | % | |||||
All executive officers and directors as a group | 43,762,845 | 25.53 | % |
Number of | ||||||||
Shares | ||||||||
Beneficially | ||||||||
Beneficial Owner(1) | Owned(2) | Percent(3) | ||||||
5% Beneficial Owners: | ||||||||
Kristian Kvavik | 16,250,000 | 9.48 | % | |||||
Thomas Stray | 16,250,000 | 9.48 | % | |||||
All 5% Beneficial Owners as a group | 32,500,000 | 18.96 | % |
(1) |
(2) | Under SEC rules, a person is deemed to be the beneficial owner of shares that can be acquired by such person within 60 days upon the exercise of |
Calculated based on |
Equity Compensation Plan Information
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) |
Weighted-average exercise price of outstanding options, warrants and rights(2) | Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a))(3) | |||||||||
Equity compensation plans approved by security holders | — | — | — | |||||||||
Equity compensation plans not approved by security holders | 250,000 | $ | 0.63 | — | ||||||||
Total | 250,000 | $ | 0.63 | — |
(1) | Historically, the Company has granted restricted shares that are subject to forfeiture. |
(2) | Historically, the Company has granted restricted shares that are subject to forfeiture. |
(3) | The Company equity compensation grants to date have been approved on a grant-by-grant basis, as opposed to under an umbrella equity compensation plan establishing a total number of grants available. |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Since InceptionOn November 22, 2022, the Company issued a promissory note to Ellis Smith in exchange for $150,000. Interest on March 5, 2013, therethe note is 15% per annum. The note has a maturity date of May 21, 2023. If not been,paid within ten days of maturity, the note contains default interest of 18% per annum and there is not currently proposed, any transaction or seriesa late charge penalty of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family ofprincipal amount due. The Company used the foregoing persons had or will have a direct or indirect material interest. Refer to Footnote 10. “Related Party Transactions” to our consolidated financial statements in item 8 of the Company’s Form 10-Kfunds for the year ended December 31, 2014 for further disclosure of related party transactions. We believe that we have executed all of the transactions described therein on terms no less favorable to us than we could have obtained from unaffiliated third parties.operating capital.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees billed to us for the fiscal year ended December 31, 20152023, by Pritchett, Siler and Hardy PC and December 31, 2014 by Cutler & Co, LLC:Hudgens CPA, PLLC from the date of engagement on June 24, 2022:
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2015 | 2014 | |||||||
Audit fees(1) | 37,000 | 19,050 | ||||||
Audit-related fees(2) | ― | ― | ||||||
Tax fees(3) | 5,000 | 5,000 | ||||||
All other fees(4) | ― | ― |
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
Audit fees (1) | $15,000 | $15,000 | ||||||
Audit-related fees (2) | ― | ― | ||||||
Tax fees (3) | ― | ― | ||||||
All other fees (4) | ― | ― |
(1) | Audit fees consist of fees billed for professional services rendered for the audit of our annual financial statements, the review of the interim financial statements included in quarterly reports and services that are normally provided |
(2) |
(3) | Tax fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning (domestic and international). These services include assistance regarding federal, state, and international tax compliance, acquisitions and international tax planning. |
(4) | All other fees consist of fees for products and services other than the services reported above. |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following consolidated financial statements of American Cannabis Company, Inc. are included in “Item 8. Financial Statements and Supplementary Data.”
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Statements
(a)(2) Financial Statement Schedules
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None.
(a)(3) Exhibits
Exhibit No | Exhibit Title | Filed Herewith | Form | Filing Date | ||||||||
2 | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Recession | 14A | 5/16/2000 | |||||||||
2.1 | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Recession | 14c | 4/16/2013 | |||||||||
2.2 | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Recession | 14c | 9/09/2014 | |||||||||
3(i) | Articles of Incorporation | SB-2 | ||||||||||
3(i)(a) | ||||||||||||
Amendment to Articles of Incorporation | 14A | 5/16/2000 | ||||||||||
3(i)(b) | Amendment to Articles of Incorporation | 14c | 4/16/2013 | |||||||||
3(i)(c) | Amendment to Articles of Incorporation | 14c | 9/09/2014 | |||||||||
3(i)(c) | Amendment to Articles of Incorporation | 8-K | 10/3/2014 | |||||||||
3(i)(c) | Amendment to Articles of Incorporation | 8-K | ||||||||||
3(ii) | By Laws | SB-2 8-K | 10/ 6/5/2017 | |||||||||
10 | Material Contracts | 14c 8-K | 9/09/2014 10/ | |||||||||
16 | ||||||||||||
Letter RE Change in Certifying Public Accountant | 8-K 8-K 8-K 8-K 8-K | 02/17/2015 11/5/2015 6/12/2017 8/23/2018 1/7/2020 | ||||||||||
17 | Disclosures on Departures of Directors | 8-K 14c 8-K 8-K | 10/03/2014 9/09/2014 1/25/2018 6//2017 | |||||||||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) | X | ||||||||||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) | X | ||||||||||
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X |
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* In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 8, 2024 | ||||
By: |
Ellis Smith |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Corey Hollister and Jesus M Quintero and each of them,Terry Buffalo, with full power of substitution and re-substitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date |
/s/ | ||
/s/ | ||
Tad Mailander | ||