The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this Report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward looking statements.
Overview and History
We were incorporated on March 20, 2014, in the State of Nevada. On May 1, 2014,
we entered into an exclusive Technology License Agreement with Medicine Man
Denver, Inc., f/k/a Medicine Man Production Corporation, a Colorado corporation
("Medicine Man Denver") whereby Medicine Man Denver granted us a license to use
all of their proprietary processes they have developed, implemented and
practiced at its cannabis facilities relating to the commercial growth,
cultivation, marketing and distribution of medical and recreational marijuana
pursuant to relevant state laws and the right to use and to license such
information, including trade secrets, skills and experience (present and future)
(the "License Agreement") in consideration for the issuance of 5,331,000 shares
of our Common Stock. See Notes 2 and 3 to our financial statements. Medicine Man
Denver is owned by some of our affiliates. See "Part III, Item 13, Certain
Relationships and Related Transactions."
We commenced our business on May 1, 2014, and currently generate revenues
derived from licensing agreements with cannabis related entities, as well as
sponsoring seminars offered to the cannabis industry. See "Part I, Item I,
Business." On February 27, 2017, we entered into a Merger Agreement with Pono
Publications Ltd. ("Pono"), as well as a Share Exchange Agreement with Success
Nutrients, Inc. ("Success Nutrients"), each a Colorado corporation, in order to
facilitate our acquisition of both of these entities. Upon ratification of these
two agreements by our shareholders, which is expected to occur at our annual
shareholder meeting to be held in May 2017, and the filing of various documents
in Nevada and Colorado these agreements will become effective. The agreements
provide for an effective date of March 1, 2017 for accounting purposes. See
"Part I, Item 1, Business - Acquisition of Pono Publications and Success
Nutrients."Upon effectiveness of these acquisitions we expect to generate
revenue from the sale of plant nutrients and book sales.
We have never been subject to any bankruptcy proceeding. Our executive offices
are located at 4880 Havana Street, Suite 200, Denver, Colorado 80239, telephone
(303) 371-0387. Our website address is www.medicinemantechnologies.com.
Results Of Operations
Comparison of Results of Operations for our fiscal years ended December 31, 2016
During our fiscal year ended December 31, 2016, we generated revenues of
$631,456, including licensing fees of $589,721 and seminar fees of $41,735,
compared to revenues of $835,777 during 2015, including licensing fees of
$766,957 and seminar fees of $68,820, a decrease of $204,321. Revenues decreased
during 2016 as a result of fewer clients, which we believe is a result of fewer
new states adopting cannabis as a legal commodity and the related initial
consulting work required to be successful in securing clients in these emerging
markets. At the end of 2016 we had 27 active clients compared to 29 clients in
2015. Seminar revenues decreased due to a decrease in the number of scheduled
seminars from 11 in 2015 to four in 2016, as we shifted our focus to the
development of new business lines in addition to adding individual consultations
which we believe will potentially replace all but the larger seminar events.
Though we do not view training seminars as a primary source of revenue, we have
found them to be a productive method to obtain new licensing clients.
While there are no assurances, we expect to see a significant increase in
revenue in 2017 as the billing cycle of several clients we have worked with in
the past will hit completion allowing us to recognize the revenues for the work
we have been engaged in for those clients in early 2017. In addition, the new
service lines provided by our acquisition of Pono and Success Nutrients are
expected to significantly increase revenues.
We recognize income for licensing revenues upon set milestones being achieved,
such as license approval or receiving the required business license. This can
cause certain billing periods to be lower if those milestones are not achieved
until after milestone is achieved, regardless of how close we may be to reaching
the milestone and completing billings.
During 2016 our cost of services was $462,182, compared to $209,745 during 2015,
an increase of $252,437. The primary cause of this increase was that we added
several additional employees as well as moved two employees from part time to
full time. In addition, we hired a subcontractor to assist us with several
clients during an application time period that was compressed related to
servicing our clients in Hawaii. We expect that our cost of goods sold will
continue to increase as our total revenues increase.
General and administrative expenses increased slightly from $372,869 in 2015, to
$382,641 in 2016. A portion of this increased cost was related to higher office
rents. We utilized a larger space for the entire year in 2016 whereas we had
used only a portion of the office space in 2015.
Operating expense also increased in 2016 compared to 2015. In 2016, we incurred
total operating expense of $1,321,363, compared to $535,879, an increase of
$785,484. This increase was primarily as a result of stock compensation expense,
which was $627,200 in 2016, compared to $79,725 in 2015, an increase of $547,475
(687%). Advertising expenses increased by 274% to $311,522 in 2016, from $83,285
in 2015, an increase of $228,237. We also invested heavily in marketing as well
as industry related event participation in FY 2016, participating in 14
different events as compared with 7 events in FY 2015. Our investment in brand
awareness in these events generated significant new business for us in late 2016
that we believe will add to our revenue growth moving into 2017. This increase
was expected as we continue to execute ours plan of becoming a brand warehouse.
We intend to continue to invest heavily to strengthen our brand awareness and
Other expenses increased in 2016 to $312,184, from other income of $8,071 in
2015, due to several factors. We earned $14,016 in interest income from the Funk
Sack note receivable in 2016 compared to interest income of $8,017 in 2015.
However,, we recognized a net loss of $9,950 in 2016 upon the liquidation of an
investment in a cannabis related stock. In 2016 we also recognized an aggregate
of $123,179 in interest expense, with $102,907 of that expense as well as the
entire $191,095 of loss on derivative liability being caused by the embedded
derivative related to the $810,000 in convertible debt that was raised in 2016.
Due to the provision in these notes that the price they will convert into stock
at is based upon the trading price of the stock, we recognized these expenses
though they have no cash impact. Excluding the noncash transactions related to
the convertible note imbedded derivative and stock based compensation, our net
loss would have been only $543,071.
As a result, we generated a net loss in 2016 of $1,464,273 (approximately $0.14
per share), compared to a net income of $85,749 ($0.01 per share) in 2015.
Liquidity and Capital Resources
As of December 31, 2016, we had cash and cash equivalents of $351,524.
Net cash used by operating activities was $741,477 during the year ended
December 31, 2016, compared to $301,843 earned in 2015, a decrease of $1,043,320
from 2015. While no assurances can be provided, we anticipate we will transition
back to generating positive cash flow from operations in 2017.
Cash flows provided by investing activities was $20,855 in 2016, compared to
cash used of $104,207 in 2015.
Cash flows from financing activities was $810,000 in 2016, compared to $10,000
in 2015. In 2016 we undertook a private offering of convertible debt wherein we
raised $810,000 by December 31, 2016. In 2015, we only sold shares of our Common
Stock for gross proceeds of $10,000 ($1.00 per share) to 1 "accredited"
investor, as that term is defined under the Securities Act of 1933.
This increase in debt was anticipated by management's forecast of operational
needs in the summer of 2016 as the result of our additional growth in our
staffing and marketing costs moving ahead to better position us as we completed
our acquisitions of Pono Publications and Success Nutrients.
From October 2016 through February 2017, we engaged in a private offering of
convertible notes to 11 accredited investors (as that term is defined under Rule
501, Regulation D of the Securities Act of 1933, as amended). These loans
provide for a fixed or VW AP conversion option, bear an annual interest rate of
12% (simple), with interest paid quarterly and mature on December 31, 2018. We
issued notes totaling $1,000,000. As of the date of this Report, Convertible
Notes aggregating $254,777 were converted to 155,687 shares of our Common Stock.
These conversions were computed at both the floor value of $1. 75 as well as at
a VW AP value as allowable under the terms of the conversion rights. See "Notes
to Financial Statements."
As we continue to grow we expect to continue to raise additional capital through
the issuance of debt, equity or the combination of the two. As of the date of
this report we have not identified any additional potential acquisition and as a
result, do not know the amount of additional capital we will need, if any, to
successfully consummate such an acquisition. We have no agreement with any third
party to provide us any additional financing and there can be no assurances that
we will be able to raise any capital, either debt or equity on commercially
reasonable terms, or at all. If we require additional capital and are unable to
raise the same, it could have a material negative impact on our continued
development and expansion. Separate from these potential acquisitions, we
currently expect to continue to grow revenues through the development of new
clients as additional states successfully adopt laws and regulations legalizing
medical and/or recreational marijuana.
Although our operations are influenced by general economic conditions, we do not
believe that inflation had a material effect on our results of operations during
the year ended December 31, 2016.
Critical Accounting Estimates
The 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 amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates based 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. Actual results may differ from these estimates under different
assumptions or conditions. The following represents a summary of our critical
accounting policies, defined as those policies that we believe are the most
important to the portrayal of our financial condition and results of operations
and that require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of matters
that are inherently uncertain.
Leases- We follow the guidance in SFAS No. 13 "Accounting for Leases," as
amended, which requires us to evaluate the lease agreements we enter into to
determine whether they represent operating or capital leases at the inception of
Recently Adopted Accounting Standards - Financial Accounting Standards Board, or
FASB, Accounting Standards Update, or FASB ASU 2016-15 "Statement of Cash Flows
(Topic 230)" - In August 2016, the FASB issued 2016-15. Stakeholders indicated
that there is a diversity in practice in how certain cash receipts and cash
payments are presented and classified in the statement of cash flows. ASU
2016-15 addresses eight specific cash flow issues with the objective of reducing
the existing diversity in practice. This ASU is effective for annual reporting
periods beginning after December 15, 2017, and interim periods within those
fiscal years. Early adoption is permitted. Adoption of this ASU will not have a
significant impact on our statement of cash flows.
FASB ASU 2016-12 "Revenue from Contracts with Customers (Topic 606)" - In May
2016, the FASB issued 2016-12. The core principle of the guidance is that an
entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. ASU
2016-12 provides clarification on assessing collectability, presentation of
sales taxes, noncash consideration, and completed contracts and contract
modifications. This ASU is effective for annual reporting periods beginning
after December 15, 2017, with the option to adopt as early as December 15, 2016.
We are currently assessing the impact of adoption of this ASU on our results of
operations, cash flows and financial position.
FASB ASU 2016-11 "Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815)" - In May 2016, the FASB issued 2016-11, which clarifies guidance on
assessing whether an entity is a principal or an agent in a revenue transaction.
This conclusion impacts whether an entity reports revenue on a gross or net
basis. This ASU is effective for annual reporting periods beginning after
December 15, 2017, with the option to adopt as early as December 15, 2016. We
are currently assessing the impact of adoption of this ASU on our results of
operations, cash flows and financial position.
FASB ASU 2016-10 "Revenue from Contracts with Customers (Topic 606)" - In April
2016, the FASB issued ASU 2016-10, clarify identifying performance obligations
and the licensing implementation guidance, while retaining the related
principles for those areas. This ASU is effective for annual reporting periods
beginning after December 15, 2017, with the option to adopt as early as December
15, 2016. We are currently assessing the impact of adoption of this ASU on our
results of operations, cash flows and financial position.
FASB ASU 2016-09 "Compensation - Stock Compensation (Topic 718)" - In March
2016, the FASB issued ASU 2016-09, which includes multiple provisions intended
to simplify various aspects of accounting for share-based payments. While aimed
at reducing the cost and complexity of the accounting for share-based payments,
the amendments are expected to significantly impact net income, earnings per
share, and the statement of cash flows. Implementation and administration may
present challenges for companies with significant share-based payment
activities. This ASU is effective for fiscal years beginning after December 15,
2016, including interim periods within those fiscal years. We are currently
evaluating the potential impact this standard will have on our financial
statements and related disclosures.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources and would be considered
material to investors.
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