BOTS, Inc./PR - Quarter Report: 2016 October (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
[√] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2016
Commission file number: 333-175941 MCIG, INC. (Exact name of registrant as specified in its charter)
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NEVADA |
27-4439285 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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2831 St. Rose Parkway, Suite 200, Henderson, NV |
89052 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code |
570-778-6459 |
| |
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 [ ] 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 [ ] No | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. | |
Large accelerated filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [ ] |
Smaller reporting company [√] |
(Do not check if smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | |
Yes [ ] No [√] | |
As of November 15, 2016, the Company had 340,614,339 shares of common stock, $0.0001 par value outstanding. | |
Transitional Small Business Disclosure Format Yes [ ] No [√] | |
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mCig, Inc.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements |
3 |
Condensed Consolidated Balance Sheets as of October 31, 2016 (unaudited) and April 30, 2016 |
4 |
Condensed Consolidated Statements of Operations for the three months ended October 31, 2016 and 2015 and the six months ended October 31, 2016 and 2015 (unaudited) |
5 |
Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2016 (unaudited) |
6 |
Notes to Condensed Consolidated Financial Statements (unaudited) |
7 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
20 |
Item 4. Controls and Procedures |
20 |
PART II. OTHER INFORMATION |
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Item 1. Legal Proceedings |
21 |
Item 1A. Risk Factors |
21 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
21 |
Item 3. Defaults Upon Senior Securities |
21 |
Item 4. Mine Safety Disclosures |
21 |
Item 5. Other Information |
21 |
Item 6. Exhibits |
21 |
SIGNATURES |
22 |
2 |
PART I – FINANCIAL INFORMATIONItem 1. Financial Statements
Interim Condensed Financial Statements and Notes to Interim Financial Statements
General
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company’s annual report on Form 10-K for the year ended April 30, 2016. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended October 31, 2016 are not necessarily indicative of the results that can be expected for the year ending April 30, 2017.
3 |
mCig, Inc. | |||||||
and Subsidiaries | |||||||
Consolidated Balance Sheets | |||||||
(unaudited) | |||||||
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ASSETS | ||||||
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October 31, |
April 30, | |||||
|
2016 |
2016 | |||||
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Current Assets |
|
|
| |||
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Cash and cash equivalents |
$ 285,812 |
$ 80,542 | ||||
|
|
Accounts Receivable, Net |
38,414 |
|
6,120 | ||
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Inventory |
34,469 |
7,268 | ||||
|
|
Prepaid Expenses |
225,000 |
|
- | ||
|
Total Current Assets |
583,695 |
93,930 | ||||
|
Property, Plant and Equipment, Net |
5,979 |
|
1,334 | |||
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Due From Related Party |
- |
186,276 | ||||
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Cost Basis Investment |
243,979 |
|
67,500 | |||
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Intangible Assets, Net |
256,971 |
488 | ||||
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Total Assets |
$ 1,090,624 |
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$ 349,528 | |||
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
|
|||||||
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Accounts Payable and Accrued Expenses |
$ 66,752 |
$ 45,385 | ||||
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Due to Shareholder |
155,581 |
|
24,173 | ||
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Deferred Revenue |
59,177 |
6,502 | ||||
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|
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Total Current Liabilities |
281,510 |
|
76,060 | |
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Total Liabilities |
281,510 |
76,060 | ||||
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Stockholders' Equity |
||||||
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Preferred stock, $0.0001 par value; 50,000,000 shares authorized; |
2,200 |
2,300 | ||||
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17,000,000 and 23,000,000 shares issued and outstanding, as | ||||||
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of October 31, 2016 and April 30, 2016, respectively. |
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Common Stock, $0.0001 par value, voting; 560,000,000 shares |
33,843 |
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30,631 | ||
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authorized; 338,431,951 and 306,314,216 shares issued, and |
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|
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outstanding, as of October 31, 2016 and April 30, 2016, respectively. |
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Treasury stock |
(500) |
- | ||||
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Additional Paid In Capital |
7,606,873 |
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6,916,635 | ||
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Accumulated Deficit |
(6,810,064) |
(6,658,558) | ||||
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Total Stockholders' Equity |
832,352 |
|
291,008 | ||
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Non-Controlling Interest |
(23,238) |
(17,540) | ||||
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Total Equity |
809,614 |
|
273,468 | ||
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Total Liabilities and Stockholders' Equity |
$ 1,090,624 |
$ 349,528 | ||||
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See accompanying notes to unaudited consolidated financial statements. | ||||||
4 |
mCig, Inc. | |||||||||||
and Subsidiaries | |||||||||||
Consolidated Statements of Operations | |||||||||||
(unaudited)
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Three Months Ended October 31, |
Six Months Ended October 31, | ||||||||||
2016 |
2015 |
2016 |
2015 | ||||||||
Sales |
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|
$ 620,015 |
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$ 885,556 |
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$ 874,717 |
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$ 1,254,649 | ||
Total Cost of Sales |
399,864 |
783,880 |
581,265 |
1,026,029 | |||||||
Gross Profit |
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|
220,151 |
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101,676 |
293,452 |
|
228,620 | |||
Selling, general, and administrative |
57,914 |
504,331 |
85,526 |
1,288,672 | |||||||
Professional Fees |
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|
8,830 |
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16,000 |
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21,930 |
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19,681 | ||
Stock based compensation |
102,550 |
- |
270,850 |
- | |||||||
Consultant Fees |
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|
79,657 |
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- |
|
107,811 |
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- | ||
Amortization and Depreciation |
13,486 |
1,994 |
21,562 |
4,064 | |||||||
Total Operating Expenses |
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|
262,437 |
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522,325 |
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507,679 |
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1,312,417 | ||
Loss From Operations |
(42,286) |
(420,649) |
(214,227) |
(1,083,797) | |||||||
Other Income (Expense) |
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|
55,815 |
|
- |
|
57,023 |
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- | ||
Net Income(Loss) Loss Before Non-Controlling Interest |
13,529 |
(420,649) |
(157,204) |
(1,083,797) | |||||||
Income(Loss) Attributable to Non-Controlling Interest |
|
|
3,061 |
|
- |
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(5,698) |
|
- | ||
Net Income(Loss) Attributable to Controlling Interest |
$ 10,468 |
$ (420,649) |
$ (151,506) |
$ (1,083,797) | |||||||
Basic and Diluted Income(Loss) Per Share: |
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|
|
|
|
|
|
|
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Income(Loss) per share from Continuing Operations |
$ 0.00 |
$ (0.00) |
$ (0.00) |
$ (0.00) | |||||||
Income(Loss) Per Share |
|
|
$ 0.00 |
|
$ (0.00) |
|
$ (0.00) |
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$ (0.00) | ||
Weighted Average Shares Outstanding - Basic and Diluted |
325,653,281 |
289,389,488 |
320,718,798 |
284,871,028 | |||||||
See accompanying notes to unaudited consolidated financial statements. | |||||||||||
5 |
mCig, Inc. and Subsidiaries Statements of Cash Flows (unaudited)
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For the Six Months Ended October 31, | |||||||
2016 |
2015 | ||||||
Cash Flows From Operating Activities: |
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Net (Loss) |
$ (157,204) |
$ (1,083,797) | |||||
Adjustments to Reconcile Net Loss to Net |
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Cash Provided By (Used In) Operating Activities: |
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|
| |||
Depreciation and Amortization |
21,562 |
4,064 | |||||
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Common Stock Issued for Services |
- |
|
686,466 | ||
Amortization of Prepaid Stock Base Compensation |
- |
362,575 | |||||
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Decrease (Increase) in: |
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|
| |||
Accounts Receivable, Net |
(32,294) |
22,141 | |||||
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Receivable Other |
- |
|
(1,000) | ||
Inventories |
(27,201) |
(11,037) | |||||
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Prepaid Expenses and Other Current Assets |
(225,000) |
|
- | ||
Accounts Payable, Accrued Expenses and Taxes Payable |
21,367 |
246 | |||||
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Deferred Revenue |
52,675 |
|
9,947 | ||
Total Adjustment to reconcile Net Income to Net Cash |
(188,891) |
1,073,402 | |||||
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Net Cash used In Operating Activities |
(346,095) |
|
(10,395) | |
Cash Flows From Investing Activities: |
|||||||
Increase (Decrease) in: |
|||||||
|
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Net cash received from acquisition |
(176,479) |
|
- | ||
Acquisition of property, plant and equipment |
(5,066) |
- | |||||
|
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Acquisition of intangible assets |
(277,536) |
|
- | ||
Net cash used in investing activities |
(459,081) |
- | |||||
Cash Flows From Financing Activities: |
|
|
| ||||
Borrowing from related party |
317,684 |
- | |||||
|
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Advances from Related Party |
- |
|
28,803 | ||
Preferred Stock |
(100) |
- | |||||
|
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Common Stock |
3,212 |
|
- | ||
Treasury Stock |
(500) |
- | |||||
|
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Additional Paid-In Capital |
690,150 |
|
4,996 | ||
Net Cash Provided By (Used in) Financing Activities |
1,010,446 |
33,799 | |||||
Net Change in Cash |
205,270 |
|
23,404 | ||||
Cash at Beginning of Year |
80,542 |
102,691 | |||||
Cash at End of Period |
$ 285,812 |
|
$ 126,095 | ||||
Supplemental Disclosure of Cash Flows Information: |
|||||||
|
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Cash paid for interest |
$ - |
|
$ - | ||
Cash paid for income taxes |
$ - |
$ - | |||||
Non-cash Investing and Financing Activities: |
|
|
| ||||
Conversion of preferred stock to common stock |
$ 1,000 |
$ - | |||||
Inventory received for forgiveness of debt |
$ - |
|
$ 2,460 | ||||
Shares Issued for Acquisition of Vapolutions, Inc. |
$ - |
$ 67,500 | |||||
See accompanying notes to unaudited consolidated financial statements. |
6 |
MCIG, INC. Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Organization and Basis of Presentation
The accompanying unaudited financial statements of mCig, Inc., (the “Company”, “We”, “Our”), have been prepared in accordance with generally accepted accounting principles in the United States of America and the rules of the Securities and Exchange Commission (“SEC”).
The Company prepares its condensed financial statements in accordance with generally accepted accounting principles in the United States of America. The accompanying interim unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In management’s opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months and six months ended October 31, 2016 are not necessarily indicative of the results that may be expected for the year ending April 30, 2017. Notes to the unaudited interim condensed financial statements that would substantially duplicate the disclosures contained in the audited condensed financial statements for the year ended April 30, 2016 have been omitted; this report should be read in conjunction with the audited condensed financial statements and the footnotes thereto for the fiscal year ended April 30, 2016 included within the Company’s Form 10-K as filed with the Securities and Exchange Commission.
Description of Business
The Company was incorporated in the State of Nevada on December 30, 2010 originally under the name Lifetech Industries, Inc. Effective August 2, 2013, the name was changed from "Lifetech Industries, Inc." to "mCig, Inc." reflecting the new business model.
All agreements related to the Lifetech business were terminated and closed as of April 30, 2014. It will not have any impact on the current and future operations because all of these agreements are related to the previous business directions of the Company.
Since 2013, the Company manufactures, markets, and distributes electronic cigarettes, vaporizers, and accessories under the mCig brand name in the United States. It offers electronic cigarettes and related products through its online store mcig.org, as well as through the company’s wholesale, distributor, and retail programs.
In FY 2016 the Company expanded its products and services to include construction management. The Company continues to look at strategic acquisitions and product and service developments for future growth.
Subsidiaries of the Company
The Company's current business operations are conducted through three subsidiaries; Scalable Solutions, LLC, VitaCig, Inc., and mCig Internet Sales, Inc.
VitaCig, Inc.
We distribute and wholesale the VitaCig product lines – affordable loose-leaf eCigs. Designed in the USA – with unique formulas, trade secrets, VitaCig provides a smoking experience by heating plant material, waxes, and oils delivering a smoother inhalation experience.
On June 22, 2016 the Company acquired the business operations from VitaCig, Inc., in exchange for 172,500,000 shares of stock of VitaCig, Inc., owned by the Company and $91,276, which was a drawdown of the outstanding balance owed by VitaCig, Inc., to the Company.
Scalable Solutions, LLC
Scalable Solutions, LLC was organized by the Company on March 6, 2016, provides construction services in the cultivation and growing industry. Scalable began operations in December 2015, but was not officially incorporated until March 2016. The Company owns 80% of Scalable. Zoha Development, LLC maintains an option to acquire 40% of Scalable for a nominal fee. 7 |
mCig Internet Sales, Inc.
On June 1, 2016, the Company incorporated mCig Internet Sales, Inc., (“mCig Internet”) in order to consolidate all online retail sales from various websites and to provide streamlining of administrative and documentation services, consolidation of inventories, and support economy of scale.
Note 2 – Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the wholly owned subsidiaries of mCig Internet Sales, Inc., and VitaCig, Inc., and the majority owned subsidiary of Scalable Solutions, LLC for the quarter ended October 31, 2016. Significant intercompany balances and transactions have been eliminated.
Inventory
Inventory consists of finished product, mCig products valued at the lower of cost or market valuation under the first-in, first-out method of costing. |
October 31, 2016 |
April 30, 2016 | |||||
Finished goods |
|
$ |
34,469 |
|
$ |
7,268 |
Total inventory |
|
$ |
34,469 |
|
$ |
7,268 |
Accounts Receivable
The Company’s accounts receivable is primarily from its vendor tasked with accepting all credit card payments for purchases from its customers, and are held in escrow for potential chargebacks, and are reported at the amount due from the vendor. The Company did not report any accounts receivable from any of its retail customers.
Intangible Assets
The Company’s intangible assets consist primarily of certain website development costs and domain urls, and are amortized over their useful life.
Basic and Diluted Net Loss Per Share
The Company follows ASC Topic 260 to account for earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the three months. Diluted earnings per share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
There are 38,532,412 shares in warrants and 16,000,000 shares in stock options in dilutive security as of October 31, 2016 and zero dilutive security or April 30, 2016.
Concentration of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the clients that comprise our customer base and their dispersion across different business and geographic areas. We estimate and maintain an allowance for potentially uncollectible accounts and such estimates have historically been within management's expectations.
We rely almost exclusively on one Chinese factory as our principle supplier, for the manufacturing of mCig’s. Therefore, our ability to maintain operations is dependent on this third-party manufacturer.
Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company may occasionally maintain amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high quality financial institutions. The Company had no deposits in excess of federally insured limits at October 31, 2016 and April 30, 2016.
8 |
Cost-Basis Investments
The Company’s non-marketable equity investment in Vapolution, Inc., is recorded using the cost-basis method of accounting, and is classified within other long-term assets on the accompanying balance sheet as permitted by FASB ASC 325, “Cost Method Investments”. During the three months ended October 31, 2016 there were no impairment losses.
On September 30, 2015, the Company issued 2,500,000 shares of common stock valued at $67,500 for the second half of the Vapolution investment.
The Company accounts for its approximately 8% ownership of Omni Health, Inc., (fka VitaCig, Inc.) as an cost-basis investment. On October 31, 2016 the Company converted its Convertible Promissory Note into equity of Omni Health, Inc. As of October 31, 2016 and April 30, 2016, there is a net book value of $152,023 and 0, respectively of the ownership of Omni Health, Inc.
On June 22, 2016 the Company reduced its ownership of Omni Health, Inc., to 57,500,000 through a Separation and Transfer Agreement where the Company acquired the business operations of VitaCig in exchange for selling back to the treasury of Omni Health, Inc., 172,500,000 common shares. As a condition to the action, the Company’s shares are non-dilutive for a period of 12 months.
Warranties
Warranty reserves include management’s best estimate of the projected costs to repair or to replace any items under warranty, based on actual warranty experience as it becomes available and other known factors that may impact the Company’s evaluation of historical data. Management reviews mCig’s reserves at least quarterly to ensure that its accruals are adequate in meeting expected future warranty obligations, and the Company will adjust its estimates as needed. Initial warranty data can be limited early in the launch of a product and accordingly, the adjustments that are recorded may be material.. As a result, the products that can be returned as a warranty replacement are extremely limited. As a result, due to the Company’s warranty policy, the Company did not have any significant warranty expenses to report for the quarter ended October 31, 2016. Based on these actual expenses, the warranty reserve, as estimated by management as of October 31, 2016 and April 30, 2016 were at $0. Any adjustments to warranty reserves are to be recorded in cost of sales.
Segment Information
In accordance with the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company is required to report financial and descriptive information about its reportable operating segments. The Company identifies its operating segments as divisions based on how management internally evaluates separate financial information, business activities and management responsibility. In addition to the corporate segment, the Company segments and the subsidiaries associated with each segment are as follows: |
Segment |
Subsidiary |
Construction |
Scalable Solutions, Inc. |
Internet Sales |
mCig Internet Sales, Inc. |
Wholesale |
VitaCig, Inc. |
Note 3. Going Concern
The Company's financial statements are prepared using generally accepted accounting principles, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. Because the business is new and has a limited history and relatively few sales, no certainty of continuation can be stated. The accompanying financial statements for the three months and six months ended October 31, 2016 and 2015 have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has suffered losses from operations and has an accumulated deficit, which raise substantial doubt about its ability to continue as a going concern.
Management is taking steps to raise additional funds to address its operating and financial cash requirements to continue operations in the next twelve months. Management has devoted a significant amount of time in the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is not dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company will receive the necessary funding or generate revenue necessary to fund operations. The financial statements contain no adjustments for the outcome of this uncertainty. 9 |
Note 4. Notes Payable
On June 15, 2016, the Company issued a convertible promissory note in the amount of $25,000 for future legal work. The note is due on June 14, 2017 and bears interest at 10% per annum. The loan becomes convertible 180 days after date of the note. The loan can then be converted into shares of the Company’s common stock at a rate of 80% multiplied by the market price, which is the average of the closing price on the preceding five (5) trading days. On October 3, 2016 the Company entered into agreement with the Note Holder to convert the promissory note into restricted common shares of the Company at market price and without interest.
Note 5. Property, Plant and Equipment
During the six months ended October 31, 2016 the company acquired equipment for its Rollies operation, a service whereby the company provides onsite packing services at dispensaries where marijuana cigarettes are sold. The cost of the machine includes actual cost, transportation, travel for inspection and testing. The following is a detail of equipment at October 31, 2016 and April 30, 2016: |
October 31, 2016 |
April 30, 2016 | |||||
Office Furniture |
|
$ |
1,792 |
$ |
1,792 | |
Rollies Machine |
|
5,066 |
- | |||
Depreciation |
|
(879) |
(458) | |||
Total Property and Equipment |
|
$ |
5,979 |
$ |
1,334 |
Note 6. Intangible Assets:
Intangible assets, net consisted of the following: |
October 31, 2016 |
April 30, 2016 | |||||
Website Designs |
|
$ |
22,591 |
|
$ |
22,591 |
Domains |
|
247,500 |
|
- | ||
VitaCig Intangibles |
|
|
30,124 |
|
|
- |
Total Intangible Assets |
|
|
300,215 |
|
|
22,591 |
Less: Amortization |
|
(43,244) |
|
(22,103) | ||
Current Intangible Assets |
|
$ |
256,971 |
|
$ |
488 |
This summary reflects the Company's current segments, as described below.
Corporate
The parent company provides overall management and corporate reporting functions for the entire organization.
Construction
We develop, design, engineer, and construct modular buildings with unique and proprietary elements that assist cannabis growers in the market. Each modular building is uniquely designed for each customer. The Company began construction on its first contract in April 2016. We will continue to expand our offering in the construction and modular facilities in multiple facets as the industry continues to seek better and improved ways of production.
Internet Sales
The Company tracks all retail sales through the Internet through the consolidation of all online retail sales from various websites. It provides streamlining of administrative and documentation services, consolidation of inventories, and supports economy of scale.
Wholesale
The wholesale division works with mass distribution channels in eCig, wholesale CBD, marijuana cigarettes (Rollies), and all other operations not directly classified in the other reportable segments.
Information concerning the revenues and operating income (loss) for the three months and six months ended October 31, 2016 and 2015, and the identifiable assets for the segments in which the Company operates are shown in the following table:
10 |
For the Three Months Ended October 31, 2015 |
|
Construction |
|
Internet Sales |
|
Wholesale |
|
Corporate |
|
Total | |
Revenue |
$ - |
$ 132,833 |
$ 752,723 |
$ - |
$ 885,556 | ||||||
Segment Income (Loss) from Operations |
|
|
- |
|
33,553 |
|
68,123 |
|
(522,325) |
|
(420,649) |
Total Assets |
- |
- |
- |
384,790 |
384,790 | ||||||
Capital Expenditures |
|
|
- |
|
- |
|
- |
|
- |
|
- |
Depreciation and Amortization |
- |
- |
- |
1,994 |
1,994 | ||||||
For the Three Months Ended October 31, 2016 |
|
Construction |
|
Internet Sales |
|
Wholesale |
|
Corporate |
|
Total | |
Revenue |
$ 187,594 |
$ 83,820 |
$ 348,601 |
$ - |
$ 620,015 | ||||||
Segment Income (Loss) from Operations |
|
|
12,246 |
|
16,505 |
|
96,195 |
|
(114,478) |
|
10,468 |
Total Assets |
56,424 |
228,148 |
164,840 |
473,889 |
923,301 | ||||||
Capital Expenditures |
|
|
- |
|
- |
|
24,456 |
|
152,023 |
|
176,479 |
Depreciation and Amortization |
- |
13,215 |
181 |
90 |
13,486 | ||||||
For the Six Months Ended October 31, 2015 |
|
|
Construction |
|
Internet Sales |
|
Wholesale |
|
Corporate |
|
Total |
Revenue |
$ - |
$ 277,180 |
$ 977,469 |
$ - |
$ 1,254,649 | ||||||
Segment Income (Loss) from Operations |
|
|
- |
|
83,747 |
|
144,873 |
|
(1,312,417) |
|
(1,083,797) |
Total Assets |
- |
- |
- |
411,248 |
411,248 | ||||||
Capital Expenditures |
|
|
- |
|
- |
|
- |
|
- |
|
- |
Depreciation and Amortization |
- |
- |
- |
4,064 |
4,064 | ||||||
For the Six Months Ended October 31, 2016 |
|
|
Construction |
|
Internet Sales |
|
Wholesale |
|
Corporate |
|
Total |
Revenue |
$ 249,862 |
$ 176,282 |
$ 448,573 |
$ - |
$ 874,717 | ||||||
Segment Income (Loss) from Operations |
|
|
(31,551) |
|
32,560 |
|
110,977 |
|
(267,462) |
|
(151,506) |
Total Assets |
56,424 |
228,148 |
164,840 |
473,889 |
923,301 | ||||||
Capital Expenditures |
|
|
- |
|
247,500 |
|
29,522 |
|
107,743 |
|
384,765 |
Depreciation and Amortization |
- |
20,623 |
271 |
668 |
21,562 |
Note 8. Non-GAAP Accounting and GAAP Reconciliation – Net Income and EBITDA
The Company reports all financial information required in accordance with generally accepted accounting principles (GAAP). The Company believes, however, that evaluating its ongoing operating results will be enhanced if it also discloses certain non-GAAP information because it is useful to understand MCIG’s performance that many investors believe may obscure MCIG’s ongoing operational results.
For example, MCIG uses non-GAAP net income (Adjusted Net Income), which excludes stock-based compensation, amortization of acquired intangible assets, impairment of intangible assets, costs from acquisitions, restructurings and other infrequently occurring items, non-cash deferred tax provision and litigation and related settlement costs. MCIG uses EBITDA and Adjusted Net Income, which adjusts net income (loss) for amortization of intangible assets, impairment of intangible assets, stock-based compensation, costs related to acquisitions, restructuring and other infrequently occurring items, settlement of litigation, gains or losses on dispositions, pro forma adjustments to exclude lines of business that have been acquired during the periods presented, current cash tax provision, depreciation, and interest expense (income), net.
The company believes that excluding certain costs from Adjusted Net Income and EBITDA provides a meaningful indication to investors of the expected on-going operating performance of the company. Whenever MCIG uses such historical non-GAAP financial measures, it provides a reconciliation of historical non-GAAP financial measures to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measure.
The following tables reflect the non-GAAP Consolidated Statements of Operations for the three month period and six months ending October 31, 2016 and October 31, 2015, respectively. |
mCig, Inc. | |||||||
and Subsidiaries | |||||||
Adjusted Consolidated Statements of Operations | |||||||
(unaudited) | |||||||
| |||||||
Three Months Ended October 31, |
Six Months Ended October 31, | ||||||
2016 |
2015 |
2016 |
2015 | ||||
Sales |
$ 620,015 |
|
$ 885,556 |
|
$ 874,717 |
|
$ 1,254,649 |
Total Cost of Sales |
399,864 |
783,880 |
581,265 |
1,026,029 | |||
Gross Profit |
220,151 |
|
101,676 |
|
293,452 |
|
228,620 |
Selling, general, and administrative |
57,914 |
163,830 |
85,436 |
602,206 | |||
Professional Fees |
8,830 |
|
16,000 |
|
21,930 |
|
19,681 |
Consultant Fees |
79,657 |
- |
107,812 |
- | |||
Depreciation |
271 |
|
- |
|
910 |
|
- |
Total Operating Expenses |
146,672 |
179,830 |
216,088 |
621,887 | |||
Income (Loss) From Operations |
73,479 |
|
(78,154) |
|
77,364 |
|
(393,267) |
Other Income (Expense) |
53,915 |
- |
53,915 |
- | |||
Net Income (Loss) Before Non-Controlling Interest |
127,394 |
|
(78,154) |
|
131,279 |
|
(393,267) |
Income (Loss) Attributable to Non-Controlling Interest |
3,061 |
- |
(5,698) |
- | |||
Net Income (Loss) Attributable to Controlling Interest |
$ 124,333 |
|
$ (78,154) |
|
$ 136,977 |
|
$ (393,267) |
11 |
The following tables is a reconciliation of the EBITDA and Adjusted Net Income (non-GAAP measures) to the Net Income with the GAAP Consolidated Statements of Operations for the three month period and six months ending October 31, 2016 and October 31, 2015, respectively. |
For period ending October 31, |
Six Months ending October 31, | |||||||||||
RECONCILIATION |
2016 |
2015 |
2016 |
2015 | ||||||||
Net Income (Loss) |
|
$ |
10,468 |
|
$ |
(420,649) |
|
$ |
(151,509) |
|
$ |
(1,083,797) |
Interest |
(1,900) |
(3,108) |
||||||||||
Depreciation and Amortization |
|
|
13,486 |
|
|
1,994 |
|
|
21,654 |
|
|
4,064 |
EBITDA |
|
22,054 |
|
(418,655) |
|
(132,963) |
|
(1,079,733) | ||||
Adjustment for Non-Intangible Asset Depreciation |
|
|
(271) |
|
|
- |
|
|
(910) |
|
|
- |
Stock Based Compensation |
102,550 |
340,501 |
270,850 |
686,466 | ||||||||
Adjusted Net Income |
|
$ |
124,333 |
|
$ |
(78,154) |
|
$ |
136,977 |
|
$ |
(393,267) |
Note 9. Acquisitions
VitaCig, Inc.
On June 22 2016, the Company and VitaCig, Inc., entered into a Separation and Share Transfer Agreement whereby VitaCig transferred the assets and operations of the business of VitaCig, Inc., to Company in exchange for the return of 172,500,000 shares of VitaCig Common Stock to the treasury of VitaCig, Inc., and for a reduction of the amount owed to the Company in excess of $95,000.
The purchase price of VitaCig was $68,123. The purchase price was derived from the amount of the reduction in Due from VitaCig in excess of $95,000. In addition, the company returned 172,500,000 shares of VitaCig Common Stock which had no recorded net present value. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed, at the date of acquisition: |
Current assets |
$ |
58,189 | |
Inventory |
26,607 | ||
Intangible assets (domain, website, trademark, trade secrets) |
30,124 | ||
Total assets acquired |
|
114,920 | |
Current Liabilities |
12,923 | ||
Deferred Revenue |
31,874 | ||
Due to Related Party |
|
2,000 | |
Total liabilities assumed |
|
46,797 | |
Net assets acquired |
$ |
68,123 |
Gray Matter, LLC - Cherry Hemp Oil (CHO)
On August 15, 2016 the Company entered into an Asset Purchase Agreement with Gray Matter, LLC. The Agreement was consummated on September 1, 2016. The Company acquired all inventory and intellectual property in exchange for $35,000 in common stock. As a condition to this acquisition, the Company entered into a Consulting Agreement with John James Southard who became the President, mCig CBD Division.
The purchase price of Gray Matter, LLC – Cherry Hemp Oil was $30,000. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed, at the date of acquisition: |
Cash |
$ |
4,456 | |
Inventory |
3,545 | ||
Accounts Receivable |
87 | ||
Intangible assets (Website) |
24,457 | ||
Total assets acquired |
|
32,545 | |
Deferred Revenue |
545 | ||
Due to Related Party |
|
2,000 | |
Total liabilities assumed |
|
2,545 | |
Net assets acquired |
$ |
30,000 |
12 |
In accordance with ASC 805-10-50, the Company is providing the following unaudited pro-forma to present a summary of the combined results of the Company’s consolidated operations with the acquisitions as if the acquisitions had been completed as of the beginning of the reporting period. |
For period ending October 31, |
Six Months ending October 31, | ||||||||||
CONSOLIDATED STATEMENT of OPERATIONS: |
2016 |
2015 |
2016 |
2015 | |||||||
Sales |
$ |
631,722 |
|
$ |
897,263 |
|
$ |
1,261,837 |
|
$ |
1,333,392 |
Cost of Sales |
|
403,480 |
|
787,496 |
|
855,061 |
|
1,074,831 | |||
Gross Profit |
|
228,242 |
|
|
109,767 |
|
|
406,776 |
|
|
258,561 |
Operating Expenses |
|
337,633 |
|
597,521 |
|
758,749 |
|
1,429,695 | |||
(Loss) from Operations |
|
(109,391) |
|
|
(487,754) |
|
|
(351,703) |
|
|
(1,171,134) |
Other Income / (Expense) |
55,815 |
- |
57,023 |
- | |||||||
Net Loss Before Non-Controlling Interest |
$ |
(53,576) |
|
$ |
(487,754) |
|
$ |
(294,680) |
|
$ |
(1,171,134) |
Loss Attributable to Non-Controlling Interest |
(3,061) |
- |
(3,061) |
- | |||||||
Net Loss Attributable to Controlling Interest |
|
(56,637) |
|
|
(487,754) |
|
|
(297,741) |
|
|
(1,171,134) |
Note 10. Related Parties and Related Party Transactions
On May 1, 2016 the Company entered into a Line of Credit Agreement for up to $100,000 with Paul Rosenberg, the Chairman and CEO. The Company will utilize the Line of Credit as needed for day-to-day operations. During this quarter the company utilized $10,908 under the Line of Credit Agreement. Currently the Company owes $35,081 on the Line of Credit.
On September 1, 2016 the Company entered into an employment agreement with Michael Hawkins, the Chief Financial Officer and an employment agreement with Paul Rosenberg, the Chief Executive Officer of the Company (“employees”). Mr. Hawkins was the Interim Chief Financial Officer which agreement was scheduled to expire on September 6, 2016. Mr. Rosenberg has been the CEO since inception and served without an agreement. The terms of the Agreement are the same. The agreements call for $156,000 per year base salary with a three year term. Only $3,000 per month guaranteed to be paid in cash, while the remainder ($10,000 per month) is booked as a note due, which may be converted into shares of the company at then current price per share. The initial year’s conversion option was accrued upon entering into the agreement. The employees earn annual bonuses based upon gross sales, net profits, and annual increases in sales and profits. The Company and employees may elect to convert a portion of this salary into equity of the company. In addition, each employee was issued a seven year warrant to acquire four percent (4%) of the Company Stock at the market price as of September 1, 2016 with 25% vested immediately and 25% on each subsequent year anniversary of employment.
On October 31, 2016 the company’s Chief Financial Officer, Michael Hawkins, exercised a Warrant purchasing 4,800,000 shares of common stock at the price of $0.025, totaling $120,000. 1,000,000 shares of the stock bought was issued to Carl G. Hawkins, the son of Michael Hawkins.
Note 11. Stockholders’ Equity
Common Stock
On June 7, 2016, the Company issued 2,941,176 shares of common stock for services and 7,500,000 shares of common stock in exchange for the purchase of three domain urls. The common stock issued for services was recorded as Stock Based Compensation in the amount of $92,000. The common stock issued for the purchase of the domain urls was recorded as an Intangible Asset in the amount of $247,500.
On June 30, 2016, the Company issued 865,854 shares of common stock for services and was recorded as Stock Based Compensation in the amount of $35,500.
On July 31, 2016, the Company issued 966,667 shares of common stock for services and was recorded as Stock Based Compensation in the amount of $34,800.
On August 15, 2016, the Company issued 882,353 shares of common stock for the acquisition of Cherry Hemp Oil in the amount of $30,000.
On August 31, 2016, the Company issued 1,067,241 shares of common stock for services and was recorded as Stock Based Compensation in the amount of $30,950.
On September 1, 2016, the Company issued 2,000,000 shares of common stock for services and was recorded as Stock Based Compensation in the amount of $58,000.
On September 30, 2016, the Company issued 400,000 shares of common stock for services and was recorded as Stock Based Compensation in the amount of $13,600.
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock, at $0.0001 par value and 17,000,000 and 23,000,000 are issued and outstanding as of October 31, 2016 and April 30, 2016, respectively. Each share of the Preferred Stock has 10 votes on all matters presented to be voted by the holders of the Company’s common stock. All of the 23,000,000 shares of issued and outstanding preferred stock were granted to the Company’s Chief Executive Officer on September 23, 2013, which was valued at $2,300, the price of the common stock of $0.0001 exchanged in the transaction. On September 25, 2016 the Company’s CEO sold back to the Company 5,000,000 shares of Preferred Stock in exchange for $500 (par value). The Company’s CEO currently owns 16,000,000 shares of Series A Preferred on October 31, 2016.
On May 15, 2016, a shareholder elected to convert 400,000 shares of Series A Preferred Stock into 4,000,000 shares of common stock.
On June 8, 2016, Paul Rosenberg, the Company’s CEO and Chairman of the Board, converted 600,000 shares of Series A Preferred Stock into 6,000,000 shares of common stock. 13 |
Note 12 – Stock Option Plan
Under its Year 2016 Stock Option Plan (the “Plan”), the Company grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair market value of the shares at the date of grant.
Options granted under the Plan are exercisable at the exercise price of grant and, subject to termination of employment, expire three years from the date of issue, are not transferable other than on death, and vest in monthly installments commencing at various times from the date of grant. As of October 31, 2016, the Company recorded compensation cost of $0 within operating expenses related to stock options granted in 2016. As at October 31, 2016 total compensation cost related to non-vested awards not yet recognized was $0.
The weighted average fair value at date of grant for options granted during fiscal 2016 is $0.034 per option. The fair value of each option at date of grant utilized the closing price of the stock on the date of issue.
A summary of the Company’s stock option plan as of October 31, 2016 is presented below: |
|
|
|
|
Weighted |
| ||
|
|
|
|
Average |
| ||
|
|
|
|
Exercise |
| ||
|
|
Shares |
|
Price |
| ||
|
|
|
|
|
| ||
Options outstanding at beginning on period |
|
|
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
Granted |
|
|
16,000,000 |
|
|
0.034 |
|
Forfeited |
|
|
- |
$ |
- |
| |
Exercised |
|
|
- |
|
|
- |
|
Options outstanding at October 31, 2016 |
|
|
16,000,000 |
|
$ |
0.034 |
|
There are currently 34,000,000 unissued options under the 2016 Stock Option Plan.
The following table summarizes information for stock options outstanding at October 31, 2016:
|
|
|
Options Outstanding |
|
Options Exercisable |
| |||||||||||
|
|
|
|
Weighted- |
|
Weighted- |
|
|
|
Weighted- |
| |||||
Range of |
|
Number |
|
Average |
|
Average |
|
Number |
|
Average |
| |||||
Exercise |
|
Outstanding |
|
Remaining |
|
Exercise |
|
Exercisable |
|
Exercise |
| |||||
Prices |
|
@ 10/31/16 |
|
in years |
|
Price |
|
@ 10/31/16 |
|
Price |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
$0.034 - $0.034 |
|
|
16,000,000 |
|
|
2.92 |
|
$ |
0.034 |
|
|
2,800,000 |
|
$ |
0.034 |
|
Note 13. Warrants
A total of 43,332,412 warrants were issued on September 1, 2016 to various individuals/entities. These warrants were issued as a condition of employment agreements with the CEO and CFO. A total of 10,833,103 shares vest immediately with 10,833,103 vesting on the anniversary date for three years. The conversion price of the warrants is at $0.025.
A summary of warrant activity for period ended October 31, 2016 is as follows: |
|
|
|
|
Weighted |
| ||
|
|
|
|
Average |
| ||
|
|
|
|
Conversion |
| ||
|
|
Shares |
|
Price |
| ||
|
|
|
|
|
| ||
Warrants outstanding at April 30, 2016 |
|
|
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
4,800,000 |
$ |
0.025 |
| |
Granted |
|
|
43,332,412 |
|
$ |
0.025 |
|
Warrants outstanding at October 31, 2016 |
|
|
38,532,412 |
|
$ |
0.025 |
|
|
|
|
|
|
|
|
|
Note 14. Subsequent Events
On November 1, 2016, the Company issued 1,582,388 shares of common stock to two individuals to settle outstanding claims against the Company. The Company recorded the expense as settlement costs in the amount of $47,471.64.
On November 8, 2016 there was a purchase of 600,000 shares through the 2016 MCIG Stock Option Plan.
14 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended April 30, 2016.
Certain statements in this section contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report and not clearly historical in nature are forward-looking, and the words “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) generally are intended to identify forward-looking statements. Any statements in this report that are not historical facts are forward-looking statements. Actual results may differ materially from those discussed from time to time in the Company's Securities and Exchange Commission filings. The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made except as required by law.
Overview
mCig, Inc. (mCig) was incorporated in the State of Nevada on December 30, 2010 originally under the name Lifetech Industries, Inc. Effective August 2, 2013, the name was changed from "Lifetech Industries, Inc." to "mCig, Inc." reflecting the new business model. Since October 2013, we have positioned ourselves as a company focused on two long-term secular trends:
(1) the decriminalization and legalization of marijuana for medicinal or recreational purposes - legalizing medicinal and recreational marijuana usage is steadily on the rise not only domestically but also internationally. Marijuana has been decriminalized in over twenty countries, in over five continents.
On November 8, 2016, as management predicted, eight of the nine states who had referendums for the legalization of marijuana, either for medical purposes and recreational use passed. Management believes that due to these measure the marijuana industry will quadruple in size in a relatively short period of time.
(2) The adoption of electronic vaporizing cigarettes (commonly known as “eCigs”), as smokers move away from traditional cigarettes onto e-cigarettes. Smoking tobacco causes numerous health problems, including disease and death. Smoking becomes very addicting quickly, and the most difficult part is cessation. The Company contends that e-cigarettes offer a safer and healthier alternative to traditional tobacco cigarettes. E-cigarettes operate by heating a mixture of liquid nicotine and flavoring, which is then inhaled and exhaled in the same manner as a cigarette. However, e-cigarettes do not contain any tobacco or other dangerous additives. Scientific research has shown that the leading cause of cancer in smokers comes from the carcinogens in tobacco. As the movement towards personal health grows, smokers are trying to quit their harmful habits.
Since 2013, the Company manufactures, markets, and distributes electronic cigarettes, vaporizers, and accessories under the mCig brand name in the United States. It offers electronic cigarettes and related products through its online store mcig.org, as well as through the company’s wholesale, distributor, and retail programs.
Critical Accounting Policies and Estimates
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 ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation and contingencies.
We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
We believe the following accounting policies are our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that may be uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.
15 |
Revenue Recognition
Our revenue recognition policy is in accordance with generally accepted accounting principles, which requires the recognition of sales when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determined and the collectability of revenue is reasonably assured.
The Company recognizes revenue for sales online either direct to consumer or through our Wholesaler, Distributor, Reseller (WDR) program. For online sales, revenue is recognized by the Company at the time of order fulfillment. Since mCig collects payment for each online order at the time of sale, the point of shipping revenue recognition method ensures that the Company recognizes the revenue collected within 24-48 hours after the order is received and the funds are collected.
Amounts billed or collected in excess of revenue recognized are recorded as deferred revenue.
Operating Results
Our operating results for the three months ended October 31, 2016 and 2015 are summarized as follows: |
|
For the Three Months Ended October 31, | ||
|
2016 |
|
2015 |
Revenue |
$ 620,015 |
|
$ 885,556 |
Cost of Goods Sold |
399,864 |
|
783,880 |
Gross Profit |
220,151 |
|
101,676 |
Expenses |
262,437 |
|
522,325 |
Net Loss from operations |
(42,286) |
|
(420,649) |
Other income (expense) |
55,815 |
|
- |
Net Income (Loss) |
13,529 |
|
(420,649) |
Our operating results for the six months ended October 31, 2016 and 2015 are summarized as follows: |
|
For the Six Months Ended October 31, | ||
|
2016 |
|
2015 |
Revenue |
$ 874,717 |
|
$ 1,254,649 |
Cost of Goods Sold |
581,265 |
|
1,026,029 |
Gross Profit |
293,452 |
|
228,620 |
Expenses |
507,679 |
|
1,312,417 |
Net Loss from operations |
(214,227) |
|
(1,083,797) |
Other income (expense) |
57,023 |
|
- |
Net loss |
(157,204) |
|
(1,083,797) |
Adjusted Net Income
Our adjusted operating results for the three months ended October 31, 2016 and 2015 are summarized as follows: |
|
For the Three Months Ended October 31, | ||
|
2016 |
|
2015 |
Revenue |
$ 620,015 |
|
$ 888,556 |
Cost of Goods Sold |
399,864 |
|
783,880 |
Gross Profit |
220,151 |
|
101,676 |
Expenses |
146,672 |
|
179,830 |
Net Loss from operations |
73,479 |
|
(78,154) |
Other income (expense) |
53,915 |
|
- |
Adjusted Net Income (Loss) |
127,394 |
|
(78,154) |
Our adjusted operating results for the six months ended October 31, 2016 and 2015 are summarized as follows: |
|
For the Six Months Ended October 31, | ||
|
2016 |
|
2015 |
Revenue |
$ 874,717 |
|
$ 1,254,649 |
Cost of Goods Sold |
581,265 |
|
1,026,029 |
Gross Profit |
293,452 |
|
228,620 |
Expenses |
216,088 |
|
621,887 |
Net Loss from operations |
77,364 |
|
(393,267) |
Other income (expense) |
53,915 |
|
- |
Adjusted Net Income (Loss) |
131,279 |
|
(393,267) |
16 |
Results of Operations
Three Months Ended October 31, 2016 Compared to Three Months Ended October 31, 2015
Revenue
Our revenue from continuing operations for the three months ended October 31, 2016 was $620,015 compared to $885,556, a decrease of $265,541 or approximately 30%, for the three months ended October 31, 2015. This decrease is primarily due to the Company losing the distribution on its largest customer, which represented 50% of the sales for the quarter ending October 31, 2015. Revenues consist primarily of results from the sales of the electronic vaporisers, the components for vaporisers and related accessories, our CBD Products and construction.
Cost of Goods Sold
Our cost of goods sold for the three months ended October 31, 2016 was $399,864 compared to $783,880 for the three months ended October 31, 2015. The decrease is primarily due to the decrease in sales.
Gross Profit
Our gross profit for the three months ended October 31, 2016 was $220,151 compared to $101,676 for the three months ended October 31, 2015. The gross profit of $220,151 for the three months ended October 31, 2016 represents approximately 35% as a percentage of total revenue. The gross profit of $101,676 for the three months ended October 31, 2015 represents approximately 11% as a percentage of total revenue. This increase in the gross profit is primarily attributed to the elimination of the largest customer whose margins were extremely small, while increasing sales to other clients with better margins.
Operating Expenses
Our operating expenses decreased by $259,888 to $262,437 for the three months ended October 31, 2016, from $522,325 for the three months ended October 31, 2015.
The decrease was primarily due to the decrease in professional fees of $7,170 and in selling, general and administrative expenses of $264,210, with an increase in amortization and depreciation of $11,492.
Our total operating expenses for the three months ended October 31, 2016 of $262,437 consisted of $57,914 of selling, general and administrative expenses, $8,830 of professional fees, $102,550 of stock based compensation, $79,657 in consulting fee, and $13,486 of amortization and depreciation expenses. Our general and administrative expenses consist of bank charges, telephone expenses, meals and entertainments, computer and internet expenses, postage and delivery, office supplies and other expenses.
Net Income/Loss
We generated a net income of $13,529 for the three months ended October 31, 2016, while we generated a net loss of $420,649 for the three months ending October 31, 2015, a net increase of $434,178. The net improvement in net income compared to the prior period’s net loss is primarily a result of the decrease in operating expenses of $259,888, an increase in gross profit of $118,475, the gain from conversion of convertible promissory note of $53,915, and an increase in interest income of $1,900.
Six Months Ended October 31, 2016 Compared to Six Months Ended October 31, 2015
Revenue
Our revenue from continuing operations for the six months ended October 31, 2016 was $874,717 compared to $1,254,649, a decrease of $379,932 or approximately 30%, for the six months ended October 31, 2015. This decrease is primarily due to the Company losing the distribution on its largest customer, which represented 43% of the sales for the quarter ending October 31, 2015. Excluding this customer revenue increased by 13% overall.
Cost of Goods Sold
Our cost of goods sold for the six months ended October 31, 2016 was $581,265 compared to $1,026,029 for the six months ended October 31, 2015. The decrease is primarily due to a decrease in sales.
Gross Profit
Our gross profit for the six months ended October 31, 2016 was $293,452 compared to $228,620 for the six months ended October 31, 2015. The gross profit of $293,452 for the six months ended October 31, 2016 represents approximately 33% as a percentage of total revenue. The gross profit of $228,620 for the six months ended October 31, 2015 represents approximately 18% as a percentage of total revenue. This increase in gross profit is primarily attributed the elimination of our largest customer with small profit margins and an increase in sales with a higher profit margin.
Operating Expenses
Our operating expenses decreased by $804,738 to $507,679 for the six months ended October 31, 2016, from $1,312,417 for the six months ended October 31, 2015.
The decrease was primarily due to the decrease in selling, general and administrative expenses of $1,203,236. There was a decrease in professional fees of $2,249 and an increase in amortization and depreciation of $17,590.
Our total operating expenses for the six months ended October 31, 2016 of $507,682 consisted of $85,526 of selling, general and administrative expenses, $21,930 of professional fees, $270,850 of stock based compensation, $107,811 in consulting fees, and $21,562 of amortization and depreciation expenses. Our general and administrative expenses consist of professional fees, bank charges, telephone expenses, meals and entertainments, computer and internet expenses, postage and delivery, office supplies and other expenses.
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Net Loss
Our net loss decreased by $926,593 to $157,204 for the six months ended October 31, 2016 from $1,083,797 for the six months ending October 31, 2015. The decrease in net loss compared to the prior period is primarily a result of the decrease in operating expenses of $869,570 and the increase in gross profit of $64,832, the gain from conversion of convertible promissory note of $53,915, and an increase in interest income of $3,108.
Liquidity and Capital Resources
Introduction
During the six months ended October 31, 2016 we had a cash surplus of $149,844 in operating cash flows. Our cash on hand as of October 31, 2016 was $285,812. At October 31, 2016, the Company had a working capital surplus of $205,270.
Cash Requirements
We had cash available of $285,812 as of October 31, 2016. Based on our revenues, cash on hand we believe that our operations are sufficient to fund operations through April 2017.
Sources and Uses of Cash
Operations
We had net cash used in continuing operating activities of $346,095 for the six months ended October 31, 2016, as compared to cash used of $10,395 for the six months ended October 31, 2015. This is due to the reclassification of stock-based compensation as a financing activity.
Net cash used by continuing operations consisted primarily of the net loss of $157,204 offset by non-cash expenses of $21,562 consisting of depreciation and amortization of intangible assets of $21,652. Additionally, changes in assets and liabilities consisted of decreases in accounts receivable of $32,294 and accounts payable of $21,367, which were partially offset by increases in inventory of $27,201, prepaid expenses of $225,000 and deferred revenue of $52,675.
Investments
We had net cash used in continuing investing activities was $459,081 and $0 for the six months ended October 31, 2016 and October 31, 2015, respectively.
Financing
We had net cash provided by continuing financing activities of $1,010,446 for the six months ended October 31, 2015, as compared to net cash provided of $33,799 for the six months ended October 31, 2015. Our financing activities consisted primarily of $317,684 in borrowing from related parties and $690,150 in additional paid in capital.
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Results of Adjusted Operations
Three Months Ended October 31, 2016 Compared to Three Months Ended October 31, 2015
Revenue
Our revenue from continuing operations for the three months ended October 31, 2016 was $620,015 compared to $885,556, a decrease of $265,541 or approximately 30%, for the three months ended October 31, 2015. This decrease is primarily due to the Company losing the distribution on its largest customer, which represented 50% of the sales for the quarter ending October 31, 2015. Revenues consist primarily of results from the sales of the electronic vaporisers, the components for vaporisers and related accessories, our CBD Products and construction.
Cost of Goods Sold
Our cost of goods sold for the three months ended October 31, 2016 was $399,864 compared to $783,880 for the three months ended October 31, 2015. The decrease is primarily due to the decrease in sales.
Gross Profit
Our gross profit for the three months ended October 31, 2016 was $220,151 compared to $101,676 for the three months ended October 31, 2015. The gross profit of $220,151 for the three months ended October 31, 2016 represents approximately 35% as a percentage of total revenue. The gross profit of $101,676 for the three months ended October 31, 2015 represents approximately 11% as a percentage of total revenue. This increase in the gross profit is primarily attributed to the elimination of the largest customer whose margins were extremely small, while increasing sales to other clients with better margins.
Adjusted Operating Expenses
Our adjusted operating expenses decreased by $33,518 to $146,672 for the three months ended October 31, 2016, from $179,830 for the three months ended October 31, 2015.
The decrease was primarily due to the decrease in professional fees of $7,170 and in selling, general and administrative expenses of $26256, with an increase in amortization and depreciation of $271.
Our total adjusted operating expenses for the three months ended October 31, 2016 of $146,672 consisted of $57,914 of selling, general and administrative expenses, $8,830 of professional fees, $79,657 in consulting fee, and $271 of depreciation expenses. Our general and administrative expenses consist of bank charges, telephone expenses, meals and entertainments, computer and internet expenses, postage and delivery, office supplies and other expenses.
Adjusted Net Income/Loss
We generated an adjusted net income of $124,333 for the three months ended October 31, 2016, while we generated a net loss of $78,154 for the three months ending October 31, 2015, a net increase of $202,487. The net improvement in net income compared to the prior period’s net loss is primarily a result of the decrease in operating expenses of $33,518, an increase in gross profit of $118,475, the gain from conversion of convertible promissory note of $53,915, and an increase in interest income of $1,900.
Six Months Ended October 31, 2016 Compared to Six Months Ended October 31, 2015
Revenue
Our revenue from continuing operations for the six months ended October 31, 2016 was $874,717 compared to $1,254,649, a decrease of $379,932 or approximately 30%, for the six months ended October 31, 2015. This decrease is primarily due to the Company losing the distribution on its largest customer, which represented 43% of the sales for the quarter ending October 31, 2015. Excluding this customer revenue increased by 13% overall.
Cost of Goods Sold
Our cost of goods sold for the six months ended October 31, 2016 was $581,265 compared to $1,026,029 for the six months ended October 31, 2015. The decrease is primarily due to a decrease in sales.
Gross Profit
Our gross profit for the six months ended October 31, 2016 was $293,452 compared to $228,620 for the six months ended October 31, 2015. The gross profit of $293,452 for the six months ended October 31, 2016 represents approximately 33% as a percentage of total revenue. The gross profit of $228,620 for the six months ended October 31, 2015 represents approximately 18% as a percentage of total revenue. This increase in gross profit is primarily attributed the elimination of our largest customer with small profit margins and an increase in sales with a higher profit margin.
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Adjusted Operating Expenses
Our adjusted operating expenses decreased by $405,799 to $216,088 for the six months ended October 31, 2016, from $621,887 for the six months ended October 31, 2015.
The decrease was primarily due to the decrease in selling, general and administrative expenses of $408,958. There was an increase in professional fees of $2,249 and an increase in amortization and depreciation of $921.
Our total adjusted operating expenses for the six months ended October 31, 2016 of $507,682 consisted of $85,436 of selling, general and administrative expenses, $21,930 of professional fees, $107,812 in consulting fees, and $921 in depreciation expenses. Our general and administrative expenses consist of professional fees, bank charges, telephone expenses, meals and entertainments, computer and internet expenses, postage and delivery, office supplies and other expenses.
Adjusted Net Income/Loss
We generated an adjusted net income of $131,279 for the six months ended October 31, 2016, while we generated a net loss of $393,267 for the six months ending October 31, 2015, a net improvement of $524,546. The net improvement in net income compared to the prior period’s net loss is primarily a result of the decrease in operating expenses of $401,799 and the increase in gross profit of $64,832, the gain from conversion of convertible promissory note of $53,915, and an increase in interest income of $3,108.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we consider material.
Going Concern
Our financial statements are prepared using generally accepted accounting principles, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. Because the business is relatively new and has a short history and relatively few sales, no certainty of continuation can be stated. The accompanying financial statements for the three months and six months ended October 31, 2016 have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has suffered losses from operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company and therefore, we are not required to provide information required by this Item of Form 10-Q.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.
We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2016. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report because we did not document our Sarbanes-Oxley Act Section 404 internal controls and procedures.
As funds become available to us, we expect to implement additional measures to improve disclosure controls and procedures such as implementing and documenting our internal controls procedures.
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Changes in internal controls over financial reporting
There have been no changes in our internal control over financial reporting during the quarter ended October 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The Company’s management, including its Principal Executive Officer and its Principal Financial Officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below we are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the three months ended October 31, 2016, the Company did not issue any shares of common stock.
Item 3. Defaults Upon Senior Securities
There have been no events that are required to be reported under this Item.
Item 4. Mine Safety Disclosures
There have been no events that are required to be reported under this Item.
Item 5. Other Information
There have been no events that are required to be reported under this Item. Item 6. Exhibits |
31.1 |
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 * |
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Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 * |
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Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS |
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XBRL Instance Document | ||
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101.SCH |
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XBRL Taxonomy Extension Schema Document | ||
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document | ||
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document | ||
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document | ||
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document | ||
* Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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mCig, Inc. | |
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Dated: December 12, 2016 |
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/s/ Paul Rosenberg |
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By: |
Paul Rosenberg |
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Its: |
Chief Executive Officer (Principal Executive Officer) |
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Dated: December 12, 2016 |
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/s/ Michael W. Hawkins |
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By: |
Michael W. Hawkins |
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Its: |
Chief Financial Officer (Principal Financial Officer) |
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