Company Quick10K Filing
Results Based Outsourcing
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 51 $-0
10-Q 2019-11-19 Quarter: 2019-09-30
10-Q 2019-08-20 Quarter: 2019-06-30
10-Q 2019-08-20 Quarter: 2019-03-31
10-K 2019-04-15 Annual: 2018-12-31
10-Q 2018-12-20 Quarter: 2018-09-30
10-Q 2018-08-10 Quarter: 2018-06-30
10-Q 2018-08-10 Quarter: 2018-03-31
10-K 2018-06-15 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-04-13 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
8-K 2019-07-10 Enter Agreement, Exhibits
8-K 2019-06-21 Enter Agreement, Exhibits
8-K 2019-05-03 Officers
8-K 2019-04-09 Officers
8-K 2019-03-12 Officers
8-K 2019-03-04 Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-02-15 Officers, Other Events, Exhibits
8-K 2018-12-28 Officers, Exhibits
8-K 2018-09-07 Enter Agreement, M&A, Sale of Shares, Control, Officers, Amend Bylaw, Shell Status, Exhibits
RBOI 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Nature of Business
Note 2 - Going Concern Analysis
Note 3 - Summary of Significant Accounting Policies
Note 4 - Merger Agreement
Note 5 - Notes Payable
Note 6 - Stockholders' Deficit
Note 7 - Commitments and Contingencies
Note 8 - Related Party Transactions
Note 9 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 f10q0919ex31-1_drivendeliver.htm
EX-31.2 f10q0919ex31-2_drivendeliver.htm
EX-32.1 f10q0919ex32-1_drivendeliver.htm
EX-32.2 f10q0919ex32-2_drivendeliver.htm

Results Based Outsourcing Earnings 2019-09-30

RBOI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CNHC 12,949 11,626 877 0 149 771 5,714 0% 7.4 1%
RMES 1 1 0 0 -0 -0 -0 0.5 -13%
TCT 210 12 13 0 11 11 -200 0% -18.3 5%
VDI 1,766 1,288 779 0 465 632 222 0% 0.4 26%
POYE 0 0 0 0 -0 -0 -0 0.0 -1,973%
SCTF 0 0 0 0 -0 -0 -0 3.0 -33%
SEK 302,033 283,794 0 0 0 0 -0 0%
DAVEY 570 398 1,095 98 32 97 161 9% 1.7 6%
SLDV 25 6 2 0 13 19 -1 0% -0.0 53%
MBCC 216 243 112 0 -7 10 215 0% 21.5 -3%

10-Q 1 f10q0919_drivendeliveries.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

FORM 10-Q

 

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2019

 

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _________to___________

 

Commission File Number: 333-209836

  

Driven Deliveries, Inc.

(Exact name of registrant as specified in its charter)

  

Delaware   32-0416399
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

5710 Kearny Villa Road, Ste 205 San Diego, CA 92123

 (Address of Principal Executive Office)

 

(833) 378 6420

Registrant’s Telephone Number Including Area Code

  

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
N/A   N/A   N/A

 

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging Growth Company

  

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

 

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

 

As of November 19, 2019, there were 44,157,671 shares of the issuer’s common stock outstanding.

 

 

 

 

 

 

Driven Deliveries, Inc.

Form 10-Q Report

For the Fiscal Quarter Ended September 30, 2019

 

TABLE OF CONTENTS

 

    Page
Part I. Financial Information 1
     
Item 1 Financial Statements: 1
     
  Condensed Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018 1
     
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited) 2
     
  Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited) 4
     
  Notes to Consolidated Condensed Financial Statements (unaudited) 5
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 3 Quantitative and Qualitative Disclosures about Market Risk 23
     
Item 4 Controls and Procedures 23
     
Part II. Other Information 24
     
Item 1 Legal Proceedings 24
     
Item 1A  Risk Factors 24
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 24
     
Item 3 Defaults upon Senior Securities 24
     
Item 4 Mine Safety Disclosures 24
     
Item 5 Other Information 24
     
Item 6 Exhibits 25
     
Signatures 26

 

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

DRIVEN DELIVERIES, INC. & SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

 

   September 30,  December 31,
   2019  2018
   (Unaudited)   
ASSETS      
       
CURRENT ASSETS      
Cash  $353,811   $5,249 
Accounts receivable   6,393    400 
Right of use asset   163,424    -   
Inventory   246,696    -   
           
TOTAL CURRENT ASSETS   770,324    5,649 
           
Prepaid debt issuance costs   205,738    -   
Intangible assets   3,433,017    -   
Excess purchase price over net liabilities acquired   3,014,832    -   
Right of use asset - long term   166,322    -   
Fixed assets, net   73,837    24,344 
Deposit   3,920    3,920 
           
TOTAL ASSETS  $7,668,035   $33,913 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
           
Accounts payable and accrued expenses  $1,268,980   $219,137 
Accrued taxes   168,766    -   
Notes payable, net of debt discount   45,959    150,000 
Notes payable - related party   58,000    11,705 
Deferred Rent   -      4,900 
Lease liability   173,145    -   
Derivative liability   581,437    -   
Contingent liability   2,015,824    -   
           
TOTAL CURRENT LIABILITIES   4,312,111    385,742 
           
Lease liability - long term   166,322    -   
Contingent liability - long term   1,399,003    -   
           
TOTAL LIABILITIES   5,877,436    385,742 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS’ EQUITY          
Preferred stock, $0.0001 par value, 15,000,000 shares authorized, no shares issued and outstanding   -      -   
Common stock, $0.0001 par value, 200,000,000 shares authorized, 44,157,671 and 39,000,000 shares issued and outstanding   4,416    4,088 
Additional paid in capital   13,649,585    2,425,275 
Accumulated deficit   (11,863,402)   (2,681,192)
Stock subscription receivable   -      (100,000)
TOTAL STOCKHOLDERS’ EQUITY   1,790,599    (351,829)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $7,668,035   $33,913 

 

See accompanying notes to the condensed consolidated financial statements.

 

1

 

 

DRIVEN DELIVERIES, INC. & SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

 

   For the Three Months Ended  For the Three Months Ended  For the Nine Months Ended  For the Nine Months Ended
   September 30,
2019
  September 30,
2018
  September 30,
2019
  September 30,
2018
   (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
REVENUE            
Sales  $1,064,619   $(30,173)  $1,098,252   $(47,201)
Other revenue   148,044    -      160,818    -   
Cost of goods sold   555,775    2,278    604,169    2,313 
Gross Profit (Loss)   656,888    (32,451)   654,901    (49,514)
                     
OPERATING EXPENSES                    
Professional fees   296,735    147,978    805,605    218,310 
Compensation   5,691,843    105,692    7,188,496    169,464 
General and administrative expenses   709,536    38,647    1,122,968    105,713 
Sales and marketing   134,142    6,775    227,419    50,786 
Total Operating Expenses   6,832,256    299,092    9,344,488    544,273 
                     
NET LOSS FROM OPERATIONS   (6,175,368)   (331,543)   (8,689,587)   (593,787)
                     
OTHER EXPENSES                    
Interest expense   (52,318)   (1,878)   (63,176)   (5,334)
Gain on extinguishment of debt   23,727    -      25,582    -   
Derivative expense   (807,250)   -      (807,250)   -   
Change in fair value of derivative liability   521,387    -      521,387    -   
Total Other Expenses   (314,545)   (1,878)   (323,4457)   (5,334)
                     
Net loss before provision for income taxes   (6,489,822)   (333,421)   (9,013,044)   (599,121)
                     
Provision for Income Taxes   169,166    -      169,166    -   
                     
NET LOSS  $(6,658,988)  $(333,421)  $(9,182,210)  $(599,121)
                     
Net loss per share - basic and diluted  $(0.12)  $(0.01)  $(0.19)  $(0.05)
                     
Weighted average number of shares outstanding during the period - basic and diluted   54,222,493    37,939,560    48,886,493    11,018,676 

  

See accompanying notes to the condensed consolidated financial statements.

 

2

 

 

DRIVEN DELIVERIES, INC. & SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED September 30, 2019 AND 2018

(Unaudited)

 

                Additional           Stock     Total  
    Common           Paid-in     Accumulated     Subscription     Stockholders’  
    Shares     Par     Capital     Deficit     Receivable     Deficit  
                                     
For the nine months ended September 30, 2018                                    
Balance December 31, 2017     -     $ -     $ -     $ (52,375 )   $ -     $ (52,375 )
                                                 
Net loss     -       -       -       (111,386 )     -       (111,386 )
                                                 
Balance March 31, 2018     -     $ -     $ -     $ (163,761 )   $ -     $ (163,761 )
                                                 
Issuance of Founders’ shares     28,340,000       2,295       -       -       -       2,295  
                                                 
Contribution of capital     -       -       15,705       -       -       15,705  
                                                 
Sale of common stock     2,850,000       231       149,769       -       -       150,000  
                                                 
Net loss     -       -       -       (135,024 )     -       (135,024 )
                                                 
Balance June 30, 2018     31,190,000     $ 2,526     $ 165,474     $ (298,785 )   $ -     $ (130,785 )
                                                 
Recapitalization due to merger and forward stock split     6,310,000       1,224       (1,224 )     -       -       -  
                                                 
Contribution of capital     -       -       15,000       -       -       15,000  
                                                 
Sale of common stock     1,000,000       100       199,900       -       -       200,000  
                                                 
Issuance of common stock for services     500,000       50       99,950       -       -       100,000  
                                                 
Net loss     -       -       -       (352,711 )     -       (352,711 )
                                                 
Balance September 30, 2018     39,000,000     $ 3,900     $ 479,100     $ (651,496 )   $ -     $ (168,496 )
                                                 
For the nine months ended September 30, 2019                                                
                                                 
Balance December 31, 2018     40,875,014     $ 4,088     $ 2,425,275     $ (2,681,192 )   $ (100,000 )   $ (351,829 )
                                                 
Sale of common stock     5,060,000       506       1,011,494       -       -       1,012,000  
                                                 
Issuance of options for services     -       -       244,062       -       -       244,062  
                                                 
Issuance of warrants for services     -       -       103,632       -       -       103,632  
                                                 
Issuance of common stock and warrants for cancellation of debt     375,000       37       53,823       -       -       53,860  
                                                 
Proceeds from stock subscription receivable     -       -       -       -       100,000       100,000  
                                                 
Net loss     -       -       -       (954,387 )     -       (954,387 )
                                                 
Balance March 31, 2019     46,310,014     $ 4,631     $ 3,838,286     $ (3,635,579 )   $ -     $ 207,338  
                                                 
Sale of common stock     3,005,000       301       960,700       -       -       961,001  
                                                 
Issuance of options for services     -       -       106,986       -       -       106,986  
                                                 
Issuance of warrants for services     -       -       516,953       -       -       516,953  
                                                 
Issuance of common stock for conversion of debt     261,665       26       52,307       -       -       52,333  
                                                 
Issuances of common stock for acquisition     1,000,000       100       499,900       -       -       500,000  
                                                 
Net loss     -       -       -       (1,568,835 )     -       (1,568,835 )
                                                 
Balance June 30, 2019     50,576,679     $ 5,058     $ 5,975,132     $ (5,204,414 )   $ -     $ 775,776  
                                                 
Sale of common stock     1,320,000       132       659,868       -       -       660,000  
                                                 
Cancellation of stock from legal settlement     (12,272,616 )     (1,227 )     (121,499 )     -       -       (122,726 )
                                                 
Cancellation of stock from debt     (2,500,000 )     (250 )     -       -       -       (250 )
                                                 
Issuance of options for services     -       -       118,065       -       -       118,065  
                                                 
Issuance of warrants for services     -       -       4,890,181       -       -       4,890,181  
                                                 
Issuance of common stock for conversion of warrants     5,072,812       507       (507 )     -       -       -  
                                                 
Warrants issued with notes     -       -       418,541       -       -       418,541  
                                                 
Issuances of common stock for acquisition     1,960,796       196       1,709,804       -       -       1,710,000  
                                                 
Net loss     -       -       -       (6,658,988 )     -       (6,658,988 )
                                                 
Balance September 30, 2019     44,157,671     $ 4,416     $ 13,649,585     $ (11,863,402 )   $ -     $ 1,790,599  

 

See accompanying notes to the condensed consolidated financial statements.

 

3

 

 

DRIVEN DELIVERIES, INC. & SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 

   For the Nine Months Ended  For the Nine Months Ended
   September 30,
2019
  September 30,
2018
   (Unaudited)  (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss  $(9,182,210)  $(599,121)
Adjustments to reconcile net loss to net cash used in operating activities          
Gain on extinguishment of debt   (25,582)   -   
Stock based compensation   5,979,629    102,295 
Amortization of right-of-use asset   57,764    -   
Amortization of debt discount   45,959    -   
Depreciation expense   123,229    3,228 
Change in fair value of derivative liability   (521,387)   -   
Derivative expense   807,250    -   
Changes in operating assets and liabilities          
Inventory   (107,679)   -   
Accounts payable and accrued compensation   388,475    99,222 
Accrued taxes   168,766    -   
Accounts receivable   (5,993)   -   
Cash paydowns of lease liability   (53,565)   -   
Net Cash Used In Operating Activities   (2,325,344)   (394,376)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Cash acquired in acquisition   123,088    -   
Cash used in acquisition   (150,000)   -   
Cash outlay for deposit   -      (3,920)
Purchase of fixed assets   (40,537)   (28,472)
Contingent liability   (320,000)   -   
Cash used in the acquisition of intangible assets   (200,000)   -   
Net Cash Used In Investing Activities   (587,449)   (32,392)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Contribution of capital   -      30,705 
Proceeds from stock receivable   100,000    -   
Proceeds from loan payable   508,333    50,000 
Repayments of loan payable   (50,000)   (25,000)
Proceeds from loan payable - related party   78,726    -   
Repayments of loan payable - related party   (8,705)   -   
Common Stock issued for cash   2,633,001    350,000 
Net Cash Provided By Financing Activities   3,261,355    405,705 
           
NET DECREASE IN CASH   348,562    (21,063)
           
CASH AT BEGINNING OF PERIOD   5,249    38,184 
           
CASH AT END OF PERIOD  $353,811   $17,121 
           
Supplemental cash flow information:          
Cash paid for income taxes  $-     $-   
Cash paid for interest expense  $-     $-   
           
NON-CASH INVESTING AND FINANCING ACTIVITIES          
Common stock and contingent consideration - business combination  $5,944,827   $-   
Issuance of common stock and warrants for cancellation of debt  $106,193   $-   
Lease liability recognized from right of use asset  $266,869   $-   
Debt discount on conversion feature  $295,575   $-   

  

See accompanying notes to the condensed consolidated financial statements.

 

4

 

 

DRIVEN DELIVERIES, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

September 30, 2019 AND 2018

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

Overview

 

Driven Deliveries Inc. (formerly Results-Based Outsourcing Inc) (the “Company” or “Driven”), formed on July 22, 2013, is engaged in providing delivery services of legal cannabis products to consumers in California.

 

On August 29, 2018, Driven Deliveries, Inc., a Nevada company (“Driven Nevada”), was acquired by Results-Based Outsourcing as part of a reverse merger transaction. As consideration for the merger, Results-Based Outsourcing issued the equity holders of Driven Nevada an aggregate of 30,000,000 post-split shares of their common. Following the merger, the Company adopted the business plan of Driven Nevada as a delivery company focused on deliveries for consumers of legal cannabis products, in California. The merger was accounted for as a recapitalization of the Company, therefore the financial statements as presented in this report include the historical results of Driven Nevada. 

 

In June 2019, the Company completed its acquisition of Ganjarunner, Inc. and Global Wellness, LLC, which are engaged in the business of providing delivery services of legal cannabis products to consumers. See Note 4 – Merger Agreement below for more information on the acquisition.

 

In July 2019, the Company entered into an Asset Purchase Agreement with Mountain High Recreation, Inc., in which the Company acquired certain assets from Mountain High Recreation, Inc. See Note 7 – Commitments and Contingencies below for more information on the asset purchase.  

 

Risks and Uncertainties

 

The Company’s business and operations are sensitive to general business and economic conditions in the U.S. along with local, state, and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include: changes in cannabis regulatory environment and competition from larger more well-funded companies. These adverse conditions could affect the Company’s financial condition and the results of its operations.

 

NOTE 2 – GOING CONCERN ANALYSIS

 

Going Concern Analysis

 

For the nine months ended September 30, 2019, the Company had a net loss of $9,182,210 and working capital deficit of $3,541,787. The Company will require additional capital in order to continue its operations in the normal course of business. Management has concluded that due to these conditions, there is substantial doubt about the company’s ability to continue as a going concern. The accompanying consolidated condensed financial statements have been prepared assuming that the Company will continue as a going concern.

 

Management’s plans include raising capital though the sale of debt and/or equity. The Company’s ability to continue as a going concern is dependent upon its ability to raise capital to implement the business plan, generate sufficient revenues and to control operating expenses. While we believe in the viability of our strategy to generate sufficient revenue, control costs and the ability to raise additional funds, there can be no assurances that our strategy will be successful. The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein.  

 

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NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

  

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC” for interim financial information. In the opinion of the Company’s management, the accompanying condensed financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim period ended September 30, 2019. Although management believes that the disclosures in these unaudited condensed financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.

 

The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s financial statements for the year ended December 31, 2018, which contains the audited financial statements and notes thereto, for the year ended December 31, 2018 included within the Company’s Form 10-K filed with the SEC on April 15, 2019. The interim results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ended December 31, 2019 or for any future interim periods. The December 31, 2018 Balance Sheet is derived from the Company’s audited financial statements but does not include all necessary disclosures for full U.S. GAAP presentation.

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

 

Concentrations of Credit Risk

 

The Company maintains its cash accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation. At times, the Company may have deposits in excess of federally insured limits.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of September 30, 2019, the Company did not have any cash equivalents.

 

Equipment

 

Equipment is stated at cost less accumulated depreciation. Cost includes expenditures for vehicles and computer equipment. Maintenance and repairs are charged to expense as incurred. When assets are sold, retired, or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. The cost of equipment is depreciated using the straight-line method over the estimated useful lives of the related assets which is three years for computer equipment and five years for vehicles. Depreciation expense was $9,397 and $3,228 for the nine months ended September 30, 2019 and 2018, respectively.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value. Inventory is determined to be salable based on demand forecast within a specific time horizon. Inventory in excess of salable amounts and inventory which is considered obsolete. At the point of recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost basis. Inventory is costed on the FIFO basis.

 

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Intangible Assets

 

The Company’s intangible assets include the right to use all trademarks and intellectual property associated with the Mountain High brand and the unallocated excess purchase price over net liabilities acquired from the acquisition of Ganjarunner, Inc. and Global Wellness, LLC. The Company acquired $3,546,849 in intangible assets from the asset purchase agreement with Mountain High Recreation, Inc. and the unallocated excess purchase price over net liabilities acquired of $3,014,832   from the acquisition of Ganjarunner, Inc. and Global Wellness, LLC. There was no impairment recorded to intangible assets as of September 30, 2019. Amortization expense was $113,832 and $0 for the nine months ended September 30, 2019 and 2018, respectively.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation costs under the provisions of ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or canceled during the periods reported.

 

Stock-Based Compensation for Non-Employees

 

The Company accounts for warrants and options issued to non-employees under ASU 2018-07, Equity – Equity Based Payments to Non-Employees, using the Black-Scholes option-pricing model.

  

Fair Value Measurements

 

ASC 820, “Fair Value Measurements and Disclosure,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

 

The three levels are described below:

 

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;

Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

 

The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable and accrued expenses approximate their fair value because of the short maturity of those instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

The assets or liability’s fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. The following table provides a summary of financial instruments that are measured at fair value as of September 30, 2019.

 

   Carrying   Fair Value Measurement Using 
   Value   Level 1   Level 2   Level 3   Total 
                          
Derivative liabilities  $(581,437)  $-     $-     $(581,437)  $(581,437)
                          

 

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2019:

 

   For the Nine Months Ended 
   September 30, 2019 
Balance, December 31, 2018   -   
Initial recognition of conversion feature   1,102,824 
Change in fair value of derivative liabilities   (521,387)
Balance, September 30, 2019  $581,437 

  

Derivative Liability

 

The Company evaluates its options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10-05-4 and 815-40-25. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the condensed consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair value is reclassified to equity.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date. The pricing model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time of comparable companies equal to the remaining contractual term of the instrument granted.

 

Revenue Recognition

 

As of January 1, 2018, the company adopted ASC 606. The adoption of ASC 606, Revenue From Contracts With Customers, represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. Revenue is recorded gross of taxes related to taxable sales transactions, such as sales tax, use tax, or other government fees. The Company used the Modified-Retrospective Method when adopting this standard. There was no accounting effect due to the initial adoption. To achieve this core principle, the Company applies the following five steps:

 

1) Identify the contract with a customer

 

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay.

 

The Company has six contracts with different customers with the same terms. All of these qualify as contracts since they have been approved by both parties, have identifiable rights and payment terms regarding the services to be transferred, have commercial substance, and it is probable that the entity will collect the consideration in exchange for the services.

 

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The Company also sells directly to customers through their Ganjarunner website. The Company takes customer orders through the website and delivers directly to the customer. In these sales the Company does not enter into a formal contract but sells directly to the customer as a retailer.

 

2) Identify the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.

 

The Company’s performance obligations are to (1) deliver cannabis in compliance with California law, (2) provide a platform to sell the retailer’s products, and (3) sell directly to customers through the Ganjarunner website. These items represent performance obligations since they are distinct services and products and are distinct in the context of the contract.

 

3) Determine the transaction price

 

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of September 30, 2019 contained a significant financing component. Determining the transaction price requires significant judgment, which is discussed by revenue category in further detail below.

 

The Company provides delivery services in exchange for a flat fee per delivery and an additional charge per mile. As mandated by the California Bureau of Cannabis Control, delivery drivers are required to be on the payroll of a licensed retailer. In order to fulfill the performance obligation, delivery drivers are included on the payroll of the customer, and the Company reimburses the customer for the drivers’ wages at a premium. The cost of paying the drivers are considered a cost to fulfill a contract for which the Company receives no benefit, so it is consideration payable to the customer, which is considered in determining the transaction price. In addition, the Company currently nets the amounts owed by the customers for deliveries with the amounts owed to the customers for drivers’ wages. As such, the company reduces the delivery fee by the drivers’ wages to determine the transaction price. These elements of the transaction price are based on variable consideration determined to be constrained and are recognized as of the later of when the service is rendered or when the Company pays or promises to pay the consideration, which will generally be on a monthly basis. If the cost of the drivers’ wages exceeds the total fees for delivery, the Company would present a net negative revenue. For the three months ended September 30, 2018 and the nine months ended September 30, 2019 and 2018, the Company had net negative revenue related to delivery of cannabis.

 

The transaction price of the commissions is variable consideration as the price is determined to be 10% of a delivered sale from an order generated on the Company’s online platform. The variable consideration is also constrained as the amount of the consideration is dependent on the cost of the products purchased; and is further constrained as the company has little history to predict the amount to be recognized. The transaction price for the commissions will be determined as the company satisfies the performance obligation.

 

The direct sales made through the Ganjarunner website do not have a variable consideration and are accounted for as product sales.

 

 

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4) Allocate the transaction price to performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

 

The Company will allocate the transaction price of the delivery fees and to the deliveries that they perform separately for the customer. The transaction price of the commissions will be allocated per each sale that the Company generates for a retailer that is delivered. There are no discounts to allocate and there have been no changes in the transaction price to allocate.

 

For the sales made through the Ganjarunner website, the transaction price is allocated to the product and the delivery fees associated with the sale.

 

5) Recognize revenue when or as the Company satisfies a performance obligation

 

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.

 

Both performance obligations are satisfied at a point in time, and as such revenue will be recognized when the delivery is completed. The revenue will not be recognized for orders not fulfilled, but the delivery fee is earned even if the delivery is rejected or the person who placed the order is not present or available at the time of delivery. The consideration payable to the customer for drivers’ wages is recognized over time based on the inputs to determine the drivers’ wage obligations, but the net transaction price is known and therefore recognized by the end of each reporting period.

 

For the sales made through the Ganjarunner website, the performance obligation is satisfied at a point in time, and as such revenue will be recognized when the delivery is completed.

 

Disaggregation of Revenue

 

The following table depicts the disaggregation of revenue according to revenue type.

 

Revenue Type  Revenue for the three months ended
September 30,
2019
   Revenue for the three months ended
September 30,
2018
   Revenue for the nine months ended
September 30,
2019
   Revenue for the nine months ended
September 30,
2018
 
Delivery Income  $53,496    14,088   $87,869    27,248 
Dispensary Cost Reimbursements   (36,007)   (48,527)   (99,353)   (79,691)
Delivery Income, net   17,489    (34,439)   (11,484)   (52,443)
Product Sales   1,046,866    -    1,109,473    - 
Commission Income   264    4,266    293    5,242 
Other Revenue   148,044    -    160,818    - 
Total  $1,212,663    (30,173)  $1,259,070    (47,201)

 

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Due to this reduction of revenue from the reimbursement of wages for the delivery couriers, the Company is presenting a net negative delivery income for the three months ended September 30, 2018 and the nine months ended September 30, 2019 and 2018.

 

Leases

 

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases primarily consisting of office space with remaining lease terms of 11 months to 28 months. Current facility leases include our offices in Las Vegas, Nevada, Long Beach, California, San Diego, California, Glendale, California, and Sacramento, California. Lease costs were $148,021 for the nine months ended September 30, 2019. There was no sublease rental income for the nine months ended September 30, 2019.

 

Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, we combine the lease and non-lease components in determining the lease liabilities and right of use (“ROU”) assets.

 

Our lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. We used the incremental borrowing rate on December 31, 2018 for all leases that commenced prior to that date.

 

Lease Costs

 

   Nine Months 
Ended
September 30,
2019
 
Components of total lease costs:    
Operating lease expense  $148,021 
Total lease costs  $148,021 

 

   Three Months 
Ended 
September 30,
2019
 
Components of total lease costs:    
Operating lease expense  $51,313 
Total lease costs  $51,313 

 

Lease Positions as of September 30, 2019

 

ROU lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheet as follows:

 

   September 30,
2019
 
Assets    
Right of use asset – short term  $163,424 
Right of use asset – long term   166,322 
Total assets  $329,746 
      
Liabilities     
Operating lease liabilities – short term   173,145 
Operating lease liabilities – long term  $166,322 
Total lease liability  $339,467 

 

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Lease Terms and Discount Rate

 

Weighted average remaining lease term (in years) – operating lease   2.38 
Weighted average discount rate – operating lease   10.91%

 

Cash Flows

 

   Nine Months 
Ended 
September 30,
2019
Cash paid for amounts included in the measurement of lease liabilities:   
ROU amortization  $57,764 
Cash paydowns of operating liability  $(53,565)
Supplemental non-cash amounts of lease liabilities arising from obtaining     
ROU assets  $(387,510)
Lease Liability  $393,032 

  

The future minimum lease payments under the leases are as follows:

 

2019 (three months)  $122,153 
2020   156,916 
2021   44,851 
2022   39,535 
2023   3,303 
Total future minimum lease payments   366,758 
Lease imputed interest   27,291 
Total  $339,467 

  

Basic and Diluted Net Loss per Common Share

 

Basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for each period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of September 30, 2019, common stock equivalents are comprised of 16,643,750 warrants and 9,222,959 options.

 

Recent Accounting Pronouncements

  

The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.

 

NOTE 4 – MERGER AGREEMENT

 

On June 21, 2019, the Company, GR Acquisition, Inc. (“GRA”), a Nevada corporation, Ganjarunner, Inc. (“Ganjarunner”), a California corporation, and Global Wellness, LLC (“GW”), a California limited liability company, (Ganjarunner and GW are hereafter referred to collectively as “GR/GW”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which GR/GW shall merge with and into GRA, with GRA continuing as the surviving entity and wholly-owned subsidiary of the Company (the “Merger”). The Merger closed on June 24, 2019 (the “Closing Date”). Pursuant to the Merger Agreement, the Company agreed to pay to GR/GW $450,000, $150,000 of which has already been paid to GR/GW with the remaining $300,000 to be paid in two equal tranches of $150,000 whereby each tranche is subject to GRA’s achievement of certain milestones. Additionally, the Company shall pay to GR/GW (i) $350,000 at the earlier to occur of the 6-month anniversary of the Closing Date or upon the Company raising additional funding of at least $2,000,000 and (ii) $300,000 at the end of the 24-month anniversary of the Closing Date. In addition, as further consideration, the Company issued to GR/GW’s founders 1,000,000 shares of the Company’s common stock on the Closing Date and shall make two additional issuances of 2,000,000 shares of common stock on the 12-month and 24-month anniversaries of the Closing Date, with each respective issuance contingent upon GRA’s achievement of certain milestones as set forth in the Merger Agreement.

 

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Following the closing of the transaction, Ganjarunner’s financial statements as of the Closing were consolidated with the Consolidated Financial Statements of the Company. These amounts are provisional and may be adjusted during the measurement period.

 

The following presents the unaudited pro-forma combined results of operations of the Company with the Ganjarunner Business as if the entities were combined on January 1, 2018.

 

   Nine Months
Ended
  Nine Months
Ended
   September 30,
2019
  September 30,
2018
Gross Revenue  $2,856,759    1,422,933 
Gross Profit  $1,468,819    660,118 
Net loss  $(9,162,491)   (774,387)
Net loss per share  $(0.19)   (0.07)
Weighted average number of shares outstanding   48,886,493    11,018,676 

  

The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisitions been completed as of January 1, 2018 or to project potential operating results as of any future date or for any future periods.

 

The Company consolidated Ganjarunner as of the closing date of the Merger Agreement, and the results of operations of the Company include that of Ganjarunner.

 

The following presents the consideration paid for the acquisition of Ganjarunner and the preliminary purchase price allocation. These amounts are provisional and may be adjusted during the measurement period.

 

Purchase Price      
Cash consideration   $ 150,000  
Future cash consideration     903,886  
Stock consideration     500,000  
Future stock consideration     1,194,092  
Total purchase price   $ 2,747,978  
         
Allocation of purchase price        
Cash   $ 123,088  
Inventory     139,017  
Fixed assets, net     18,353  
ROU asset     125,541  
Lease Liability     (126,163 )
Accounts payable     (546,690 )
Goodwill and intangible assets     3,014,832  
Total allocation of purchase price   $ 2,747,978  

 

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NOTE 5 – NOTES PAYABLE

 

On November 7, 2017 the Company issued a promissory note for $75,000 that accrues interest of 6% annually. The promissory note is due on the earlier of January 31, 2018 or in the event of default, as such term is defined in the agreement. The terms of the promissory note provide that the principal amount of the note is convertible into the same security that is sold and issued in the next Qualified Financing Round completed by the Company, except that the conversion price shall be at a ten percent (10%) discount to the equity price per share raised in such Qualified Financing Round. Qualified Financing Round is defined as an equity financing of the Company that is consummated during the term of the promissory note which results in gross proceeds of not less than $925,000. The note was in default but as of the date of this report, has been fully paid off.

 

On February 1, 2018, the Company entered into a convertible bridge loan agreement providing for a loan in the principal amount of $50,000 to the Company. The loan bears interest at the rate of 6% annually and is convertible into shares the Company’s common stock at a 10% discount to the equity price per share that is sold and issued in the next Qualified Financing Round completed by the Company. Qualified Financing Round is defined as an equity financing of the Company that is consummated during the term of the loan which results in gross proceeds of not less than $925,000. In connection with the loan, the Company issued to the lender a three-year warrant to purchase 12,500 shares of common stock of the Company at an exercise price of $0.50 per share. The bridge loan was due on March 31, 2018. In March 2019, the Company entered into a debt cancellation agreement with the lender pursuant to which the Company agreed to issue to the lender 375,000 shares of the Company’s common stock and a three year warrant to purchase 25,000 shares of the Company’s common stock at an exercise price of $0.20. The Company recorded a loss on extinguishment of debt of $225 related to the cancellation.

 

On October 25, 2018, the Company issued a convertible promissory note in the principal amount of $50,000 which is convertible into shares the Company’s common stock at a price of $0.20 per share. This note accrues interest of 8% annually and has a maturity date of October 25, 2019. During the second quarter of 2019, the note was converted into 261,665 shares of the Company’s common stock.

 

On August 28, 2019, the Company issued a senior convertible note (“Note”) to M2 Equity Partners (“Holder”), pursuant to which the Holder agreed to advance the Company $1,000,000 in three equal installments, with the final installment to be advanced on October 30, 2019. The Note matures on August 28, 2020 and is a senior obligation of the Company. The Note’s principal balance of $1,000,000 bears interest at a rate of 10% per annum and interest payments are payable on a monthly basis. The funds from this loan will be distributed in three parts with $333,333 being issued on August 30, 2019, September 30, 2019 and October 30, 2019. As of September 30, 2019, the Company has received $503,333 of the funds. Pursuant to the Note, the Holder has the right to convert all or part of the Note to shares of common stock or preferred stock of the Company at a price equivalent to a value of $0.50 per share of common stock on an as-converted basis. As additional consideration, the Company issued to the Holder a three-year warrant to purchase 1,500,000 shares of the Company’s common stock at an exercise price of $0.50. Additionally, in connection with the issuance of the Note, the Company’s chief financial officer surrendered to the Company 2,500,000 shares of the Company’s common stock for cancelation. The company also recognized a derivative liability in connection with the note valued at $581,437 as of September 30, 2019.

 

In addition, as an inducement to enter into the Note and to fund each advance thereunder, the Company entered into a security agreement with the Holder executed concurrently with the Note (the “Security Agreement”). Pursuant to the Security Agreement, the Company granted the Holder a first priority security interest in certain assets of the Company (the “Collateral”) for the benefit of the Holder to secure the Company’s obligations under the Note. The occurrence of any event of default under the Note, as well as the Company’s failure to observe or perform its obligations under the Security Agreement and such failure goes uncured for five days after receiving notice, constitutes and event of default under the Security Agreement, If an event of default under the Security Agreement occurs, the Holder is entitled to certain rights, including the right to take possession of the Collateral and the right to operate the business of the Company using the Collateral. The Security Agreement terminates when all payments under the Note have been made in full.

 

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NOTE 6 - STOCKHOLDERS’ DEFICIT

  

Common Stock

 

The Company is authorized to issue 200,000,000 shares of common stock, par value $0.0001 per share.

 

During the nine months ended September 30, 2019, the company issued 9,385,000 shares of common stock for cash of $2,633,001, 636,665 shares of common stock for conversion or cancellation of debt, 1,000,000 shares related to the acquisition of Ganjarunner, 1,960,796 shares related to the Purchase Agreement (as defined in Note 7) entered into with Mountain High, 5,072,812 shares from the exercise of warrants, and 14,772,616 shares were cancelled. 

 

Preferred Stock

 

The Company is authorized to issue 15,000,000 shares of preferred stock, par value $0.0001 per share. The preferred stock may be issued from time to time in one or more series as the Company’s Board may authorize. None of the preferred stock have been designated and none are issued and outstanding.  

 

Warrants

 

A summary of warrant issuances are as follows:

 

   Number   Weighted Average Exercise Price   Weighted Average Remaining Contractual Life 
Warrants            
Outstanding January 1, 2018   18,750   $0.50    2.85 
Granted   9,112,500    0.19    3.83 
Outstanding December 31, 2018   9,131,250    0.19    3.83 
Granted   15,058,000    0.39    5.72 
Forfeited   (7,545,500)   0.34    4.73 
Outstanding September 30, 2019   16,643,750   $0.30    5.83 

 

During the first quarter of 2019, the Company issued warrants to purchase an aggregate of 1,558,000 shares of common stock of the Company at an exercise price of $0.10 per share. The warrants may be exercised on a cashless basis and have a term of seven years. The warrants were issued for consulting services.

 

During the second quarter of 2019, the Company issued warrants to purchase an aggregate of 2,500,000 shares of common stock of the Company at an exercise price of $0.20 per share. The warrants may be exercised on a cashless basis and have a term of seven years. The warrants were issued for consulting services.

 

During the third quarter of 2019, the Company issued warrants to purchase an aggregate of 11,000,000 shares of common stock of the Company at varying exercise prices of $0.20 and $0.50 per share. The warrants may be exercised on a cashless basis and have a term of three or seven years. The warrants were issued for consulting services and in connection with a note.

 

The company recognized a stock compensation expense of $4,890,181 and $5,510,766 respectively for the three and nine months ended September 30, 2019, related to warrants.

 

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Options

 

A summary of options issuances are as follows:

 

   Number   Weighted Average Exercise Price   Weighted Average Remaining Contractual Life   Weighted Average Grant Date Fair Value 
Options                
Outstanding January 1, 2018   -   $-    -   $- 
Granted   4,854,692    0.04    3.00    0.19 
Outstanding December 31, 2018   4,854,692    0.04    3.00    0.19 
Granted   6,210,022    0.24    6.52    0.30 

Forfeited  

   (1,841,755)   0.04    2.42    0.04 
Outstanding September 30, 2019   9,222,959   $0.18    4.68   $0.26 

 

Nonvested Shares  Shares 
Nonvested at January 1, 2018   - 
Granted   4,854,692 
Vested   (1,213,673)
Forfeited   - 
Nonvested at December 31, 2018   3,641,019 
Granted   6,210,022 
Vested   (2,305,128)
Forfeited   (1,841,755)
Nonvested at September 30, 2019   5,704,158 

 

During the first quarter of 2019, the Company issued stock options to purchase an aggregate of 3,922,522 shares of common stock of the Company at an exercise price of $0.10 per share. The options have a term of seven years. The company recognized a stock compensation expense of $245,344 related to the issuance of these options for the three months ended March 31, 2019.

 

During the second quarter of 2019, the Company issued stock options to purchase an aggregate of 1,687,500 shares of common stock of the Company at an exercise price of $0.10 to $0.50 per share. The options have a term of seven years. The company recognized a stock compensation expense of $106,985 related to the issuance of these options for the three months ended September 30, 2019.

 

During the third quarter of 2019, the Company issued stock options to purchase an aggregate of 600,000 shares of common stock of the Company at an exercise price of $0.50 per share. The options have a term of seven years. The company recognized a stock compensation expense of $118,065 related to the issuance of these options for the three months ended September 30, 2019.

 

The company recognized a stock compensation expense of $118,065 and $470,394 respectively for the three and nine months ended September 30, 2019, related to stock options.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

On May 15, 2018, the Company entered into a three (3) year lease to rent office space for its principal executive office, with an effective date of June 1, 2018. The lease provides for monthly rent of $2,800 per month for the first year of the lease, $3,780 per month for the second year and $3,920 per month for the third year. The Company is also required to pay a monthly common area maintenance fee of $420.

 

On February 1, 2019, the Company entered into a twelve-month lease for office space in Las Vegas, Nevada. The lease requires a monthly payment of $1,764 and terminates on February 14, 2020.

 

The Company assumed a three (3) year lease, with an effective date of February 5, 2019, from a related party. The Company paid $20,839 upon signing the assignment. The lease provides for monthly rent of $5,345 per month through June 30, 2019, $5,880 per month through June 30, 2020 and $6,468 per month through June 30, 2021. The Company is also required to pay a monthly common area maintenance fee of $695.

 

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The Company assumed a five (5) year lease, with an effective date of June 24, 2019, the acquisition of Ganjarunner. The lease provides for monthly rent of $3,113 per month through July 31, 2021, $3,206 per month through July 31, 2022 and $3,302 per month through July 31, 2023.

 

On February 22, 2019, the Company entered into a consulting agreement for public and media relations services. As part of this agreement the Company will pay $4,000 per month to the consultant.

 

On March 7, 2019, the Company entered into a consulting agreement for business advisory services. Pursuant to the terms of the consulting agreement, the Company agreed to pay cash compensation of $10,417 per month. The Company also agreed to pay a one-time payment of $5,000 within 5 days of the execution of the agreement. The Company also agreed to issue the consultant 125,000 options to purchase shares of the Company’s common stock, which options will vest quarterly over a 3 year period.

 

On April 1, 2019 the Company entered into a consulting agreement for business advisory services. As part of this agreement the Company will pay the consultant $20,000 per month. Additionally, the Company agreed to issue 500,000 warrants to purchase shares of its common stock. These warrants have an exercise price of $0.20 and a term of 7 years. On July 1, 2019, the agreement was amended. As part of this amendment the Company will issue a total of 6,000,000 warrants to purchase the Company’s stock. These warrants have a seven year term and an exercise price of $0.50 per share. On August 27, 2019, the agreement was amended to extend the term of the agreement to March 31, 2020. Additionally, as part of this amendment the Company will issue of 2,500,000 warrants to purchase the Company’s stock. These warrants have a three year term and an exercise price of $0.50 per share.

 

During the second quarter of 2019, the Company entered into three delivery contractor agreements with retailers. As part of these contracts the Company will offer delivery services in exchange for a delivery fee from each of these retailers.

 

During the nine months ended September 30, 2019, the Company entered into ten employment agreements. As part of these agreements the Company will issue options to purchase an aggregate of 2,287,500 shares of the Company’s common stock. These options vest quarterly over two or three years.

 

On July 10, 2019 (the “Closing Date”), the Company and Mountain High Recreation, Inc. (“MH”), a California corporation, entered into an Asset Purchase Agreement (the “Purchase Agreement”), pursuant to which the Company acquired certain assets from MH as specified in the Purchase Agreement, which included (i) the option to purchase to MH’s California Cannabis - Retailer Nonstorefront License (ii) the option to purchase a certain real property lease located at 8 Light Sky Ct, Sacramento, CA 95828 associated with that certain license, (iii) the right to use all trademarks and intellectual property associated with the MH brand (the “Assets”). The Company assumed no liabilities of MH. The transactions contemplated by the Purchase Agreement closed on July 10, 2019 (the “Closing”).

 

Pursuant to the Pursuant Agreement, the Company agreed to pay to MH the following: $200,000 at Closing, $150,000 on or before December 20, 2019, $150,000 on or before March 31, 2020, $250,000 at the end of the twelfth (12th) month (on a rolling basis) following the Closing Date and $250,000 at the end of the twenty-fourth (24th) month (on a rolling basis) following the Closing Date. In addition, at the Closing, the Company issued to MH 1,000,000 shares of its common stock. At the end of the twelfth month (on a rolling basis) from the Closing Date, the Company agreed to issue to MH warrants to purchase 2,000,000 shares of the Company’s Common Stock with an exercise price equal to the per share purchase price paid by investors of the Company’s then most recent private placement and exercisable for a period of three (3) years from the date of issuance (the “2020 Warrants”). At the end of the twenty-fourth month (on a rolling basis) from the Closing Date, the Company shall issue to MH warrants to purchase 2,000,000 shares of the Company’s Common Stock with an exercise price equal to the per share purchase price paid by investors of the Company’s then most recent private placement price, exercisable for a period of three (3) years from the date of issuance (the “2021 Warrants”). The 2020 Warrants and 2021 Warrants are subject to adjustment, based on the amount of gross revenue the Company recognized in connection with the Assets. On October 4 2019, the Company amended this agreement (See Note 9).

 

On September 27, 2019, the Company entered into a settlement agreement with Chris Boudreau, the Company’s former chief executive officer, pursuant to which the Company agreed to repurchase 12,272,616 shares of the Company’s common stock from Mr. Boudreau at a per share purchase price of approximately $0.12, totaling an aggregate purchase price of $122,726 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay Mr. Boudreau in twelve monthly installments of $10,227 starting October 1, 2019. Additionally, Mr. Boudreau will also forfeit options to purchase an aggregate of 1,538,910 shares of the Company’s common stock and warrants to purchase an aggregate of 2,000,000 shares of the Company’s common stock. Mr. Boudreau also forfeited a $23,726 loan to the Company resulting in a gain on extinguishment of debt.

 

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On September 30, 2019, the Company entered into a joint venture agreement (the “JV Agreement”) with Budee, Inc., (“Budee’), a privately-held company involved in the delivery of cannabis-related products, pursuant to which the parties formed a joint venture company, GanjaBudee Inc., a Nevada Corporation (“GB”), in anticipation of a merger between the parties (the “GanjaBudee Merger’). GB is a separate and independent entity from either party with its own management team and Board of Directors and is owned 51% by the Company and 49% by Budee. Pursuant to the JV Agreement, no GanjaBudee Merger will be effective until the final resolution of certain pending litigation. The term of GB will continue until such GanjaBudee Merger is effective or any definitive agreement for such GanjaBudee Merger is terminated but in any case will not be for a period of more than sixty months, subject to a mutual extension agreed to by the parties.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

  

During the year ended December 31, 2018, the Company entered into a loan agreement with the Company’s chief financial officer (“CFO”), Brian Hayek, pursuant to which Mr. Hayek extended an interest free loan to the Company in the amount of $30,705. As of September 30, 2019, the amount due on this loan was $3,000.

 

On January 16, 2019, the Company appointed Jerrin James as the Company’s chief operating officer (“COO”). Pursuant to the terms of the agreement with Mr. James, the Company agreed to issue 2,897,522 shares of the Company’s common stock to Mr. James, in the form of stock options with a vesting period of 25% immediately upon his appointment as COO and the remainder vesting quarterly over three years.

 

On March 5, 2019, the Company appointed Adam Berk as a Director to the Company. In connection with his appointment, the Company agreed to issue to Mr. Berk, options to purchase 450,000 shares of common stock which vest immediately upon grant.

 

On April 3, 2019, the Company appointed Christian Schenk as a Director to the Company. In connection with his appointment the Company agreed to issue to Mr. Schenk, warrants to purchase 1,500,000 shares of common stock which will vest immediately upon grant. The Company also agreed to issue warrants to purchase 500,000 shares of common stock of the Company after the close of the merger with Ganjarunner (see below for details on the business combination), and issue warrants to purchase 1,000,000 shares of common stock of the Company after successfully closing the Company’s pending business arrangement with a cannabis B2B transportation provider or other business as determined by the Board of Directors.

 

During the nine months ended September 30, 2019, the Company entered into a loan agreement with the Company’s CFO, Brian Hayek, pursuant to which Mr. Hayek extended a loan to the Company in the amount of $55,000 with an interest rate of 10%. As of September 30, 2019, the amount due on this loan was $55,000.

 

NOTE 9 - SUBSEQUENT EVENTS

 

Subsequent to the third quarter of 2019, the Company sold 150,000 shares of common stock at a purchase price of $0.50 per share for an aggregate of $75,000.

 

On October 4 ,2019, the Company amended the Asset Purchase Agreement with Mountain High Recreation, Inc. As part of this amendment, the Company will issue 5,000,000 warrants to purchase shares of the Company’s common stock to Mountain High Recreation, Inc. These warrants have a term of three years and an exercise price of $0.50. These warrants will replace the previously agreed upon share consideration.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below, and elsewhere in this quarterly report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K filed with the SEC on April 15, 2019, and in other reports filed by us with the SEC.

 

You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this report. 

 

Overview

 

We were formed on July 22, 2013 and are engaged in the business of delivering legal cannabis products to consumers in California.

 

On August 29, 2018, Driven Deliveries, Inc., a Nevada company (“Driven Nevada”), was acquired by Results-Based Outsourcing as part of a reverse merger transaction. As consideration for the merger, Results-Based Outsourcing issued the equity holders of Driven Nevada an aggregate of 30,000,000 post-split shares of their common. Following the merger, the Company adopted the business plan of Driven Nevada as a delivery company focused on deliveries for consumers of legal cannabis products, in California. The merger was accounted for as a recapitalization of the Company, therefore the financial statements as presented in this report include the historical results of Driven Nevada. 

 

In July 2019, the Company entered into an Asset Purchase Agreement with Mountain High Recreation, Inc., in which the Company acquired certain assets from Mountain High Recreation, Inc.

 

Financial Results

 

We have a limited operating history. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations. Our financials for the nine months ended September 30, 2019, show a net loss of $9,182,210. We expect to incur additional net expenses over the next several years as we continue to expand our existing operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain.

 

Results of Operations

 

Revenue

 

During the nine months ended September 30, 2019, the Company recorded revenue in the amount of $1,259,070. The revenue for the period ended September 30, 2019 was comprised primarily of dispensary cost reimbursements of $99,353 offsetting the delivery income of $87,869, product sales of $1,109,473, and other revenue of $160,818. This left the Company with a gross profit of $654,901 for the nine months ended September 30, 2019. The Company had negative revenue of $47,201 during the nine months ended September 30, 2018. The revenue for the period ended September 30, 2018 was comprised of dispensary cost reimbursements of $79,691 offsetting the delivery income of $27,248. The change in revenue between the nine months ended September 30, 2019 and 2018 resulted from the Company expanding its operations and acquisition of Ganjarunner in 2019.

 

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During the three months ended September 30, 2019, the Company recorded revenue in the amount of $1,212,663. The revenue for the period ended September 30, 2019 was comprised primarily of dispensary cost reimbursements of $36,007 offsetting the delivery income of $53,496, product sales of $1,046,866, and other revenue of $148,044. This left the Company with a gross profit of $656,888 for the three months ended September 30, 2019. The Company had negative revenue of $30,173 during the three months ended September 30, 2018. The revenue for the period ended September 30, 2018 was comprised of dispensary cost reimbursements of $48,527 offsetting the delivery income of $14,088. The change in revenue between the nine months ended September 30, 2019 and 2018 resulted from the Company expanding its operations and acquisition of Ganjarunner in 2019.

 

Operating Expenses

 

During the nine months ended September 30, 2019, we incurred a loss from operations of $8,689,587. This is due to professional fees of $805,605, compensation of $7,188,496 including stock-based compensation of $5,979,629, general and administrative of $1,122,968, and sales and marketing of $227,419.

 

During the nine months ended September 30, 2018, we incurred a loss from operations of $593,787. This is due to professional fees of $218,310, compensation of $169,464 including stock-based compensation of $102,295, general and administrative of $105,713, and sales and marketing of $50,786.

 

During the three months ended September 30, 2019, we incurred a loss from operations of $6,175,368. This is due to professional fees of $296,735, compensation of $5,691,843 including stock-based compensation of $5,007,996, general and administrative of $709,536, and sales and marketing of $134,142.

 

During the three months ended September 30, 2018, we incurred a loss from operations of $331,543. This is due to professional fees of $147,978, compensation of $105,692 including stock-based compensation of $100,000, general and administrative of $38,647, and sales and marketing of $6,775.

 

The increase in operating expenses between the nine months ended September 30, 2019 and 2018 are due to the Company expanding operations and acquisition of Ganjarunner. The increase in professional fees is primarily due to an increase in legal fees, business development fees, accounting fees, and consulting fees. The increase in compensation is primarily due to the increase in stock-based compensation. The increase in general and administrative expenses is primarily due to rent expense and IT consulting expense. The increase in sales and marketing is primarily due to increases in public relations expense, marketing dues and subscriptions, and marketing expenses. 

 

Other Expenses

 

During the nine months ended September 30, 2019, the Company incurred interest expense of $63,176 compared to interest expense of $5,334 in the nine months ended September 30, 2018. During the nine months ended September 30, 2019, the Company had a gain on extinguishment of debt of $25,582, a derivative expense of $807,250, and a gain in the change in fair value of derivative liability of $521,387.

 

During the three months ended September 30, 2019, the Company incurred interest expense of $52,318 compared to interest expense of $1,878 in the three months ended September 30, 2018. During the three months ended September 30, 2019, the Company had a gain on extinguishment of debt of $23,727, a derivative expense of $807,250, and a loss in the change in fair value of derivative liability of $521,387.

 

Liquidity

 

We are a startup and anticipate that we will incur operating losses for the foreseeable future. As of September 30, 2019, we had cash of $353,811 and working capital deficit of $3,541,787. Based on our current forecast and budget, management believes that its cash resources will be sufficient to fund its operations through the end of 2019. Unless the Company can generate sufficient revenue from the execution of the Company’s business plan, it will need to obtain additional capital to continue to fund the Company’s operations. There is no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable. If we are unable to obtain sufficient funds, we may be forced to curtail and/or cease operations.

 

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Operating activities used $2,325,344   in cash for the nine months ended September 30, 2019. This was comprised of a net loss of $9,182,210, $107,679 increase in inventory, a change in the fair value of derivative liabilities of $521,387, and a $53,565 cash paydown of the lease liability that was offset by $5,979,629 in stock-based compensation, $57,764 amortization of the right of use asset, a $388,475 increase in accounts payable and accrued expenses, a derivative expense of $807,250, and a $168,766 increase in accrued taxes.

 

Operating activities used $394,376 in cash for the nine months ended September 30, 2018. This is comprised of a net loss of $599,121 was offset by a $99,222 increase in accounts payable and accrued expenses.

 

Investing activities used $587,449 in cash for the nine months ended September 30, 2019 due to $123,088 in cash acquired in an acquisition offset by $150,000 in cash used in an acquisition, $200,000 in cash used in the acquisition of intangible assets, $320,000 in contingent liabilities, and $40,537 in the purchase of fixed assets.

 

Investing activities used $32,392 in cash for the nine months ended September 30, 2018 due to $28,472 in the purchase of fixed assets and $3,920 for cash outlay for deposits.

 

Financing activities provided $3,261,355 in cash for the nine months ended September 30, 2019 due to cash from repayment of loan payable of $50,000, proceeds of stock receivable of $100,000, common stock issued for cash of $2,633,001, and $508,333 in proceeds for loan payable.

 

Financing activities provided $405,705 in cash for the nine months ended September 30, 2018 due to proceeds from loan payable of $50,000 and common stock issued for cash of $350,000.

 

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.

 

Critical accounting policies

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation costs under the provisions of ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, directors and non-employees based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or canceled during the periods reported.

  

Debt Issued with Warrants

 

Debt issued with warrants is accounted for under the guidelines established by ASC 470-20 – Accounting for Debt with Conversion or Other Options. We record the relative fair value of warrants related to the issuance of convertible debt as a debt discount or premium. The discount or premium is subsequently amortized to interest expense over the expected term of the convertible debt. The value of the warrants issued with the debt was $719,812 for the nine months ended September 30, 2019.

 

Revenue Recognition

 

As of January 1, 2018, the company adopted ASC 606. The adoption of ASC 606, Revenue From Contracts With Customers, represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. Revenue is recorded gross of taxes related to taxable sales transactions, such as sales tax, use tax, or other government fees. The Company used the Modified-Retrospective Method when adopting this standard. There was no accounting effect due to the initial adoption. To achieve this core principle, the Company applies the following five steps:

 

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1) Identify the contract with a customer

 

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay.

 

The Company has six contracts with different customers with the same terms. All of these qualify as contracts since they have been approved by both parties, have identifiable rights and payment terms regarding the services to be transferred, have commercial substance, and it is probable that the entity will collect the consideration in exchange for the services.

 

The Company also sells directly to customers through their Ganjarunner website. The Company takes customer orders through the website and delivers directly to the customer. In these sales the Company does not enter into a formal contract but sells directly to the customer as a retailer.

 

2) Identify the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.

 

The Company’s performance obligations are to (1) deliver cannabis in compliance with California law, (2) provide a platform to sell the retailer’s products, and (3) sell directly to customers through the Ganjarunner website. These items represent performance obligations since they are distinct services and products and are distinct in the context of the contract.

 

3) Determine the transaction price

 

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of September 30, 2019 contained a significant financing component. Determining the transaction price requires significant judgment, which is discussed by revenue category in further detail below.

 

The Company provides delivery services in exchange for a flat fee per delivery and an additional charge per mile. As mandated by the California Bureau of Cannabis Control, delivery drivers are required to be on the payroll of a licensed retailer. In order to fulfill the performance obligation, delivery drivers are included on the payroll of the customer, and the Company reimburses the customer for the drivers’ wages at a premium. The cost of paying the drivers are considered a cost to fulfill a contract for which the Company receives no benefit, so it is consideration payable to the customer, which is considered in determining the transaction price. In addition, the company currently nets the amounts owed by the customers for deliveries with the amounts owed to the customers for drivers’ wages. As such, the Company reduces the delivery fee by the drivers’ wages to determine the transaction price. These elements of the transaction price are based on variable consideration determined to be constrained and are recognized as of the later of when the service is rendered or when the Company pays or promises to pay the consideration, which will generally be on a monthly basis. If the cost of the drivers’ wages exceeds the total fees for delivery, the Company would present a net negative revenue. For the three months ended September 30, 2018 and the nine months ended September 30, 2019 and 2018, the Company had net negative revenue related to delivery of cannabis.

 

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The transaction price of the commissions is a variable consideration as the price is determined to be 10% of a delivered sale from an order generated on the Company’s online platform. The variable consideration is also constrained as the amount of the consideration is dependent on the cost of the products purchased; and is further constrained as the company has little history to predict the amount to be recognized. Transaction price for the commissions will be determined as the company satisfies the performance obligation.

 

The direct sales made through the Ganjarunner website do not have a variable consideration and are accounted for as product sales.

 

4) Allocate the transaction price to performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

 

The Company will allocate the transaction price of the delivery fees and to the deliveries that they perform separately for the customer. The transaction price of the commissions will be allocated per each sale that the Company generates for a retailer that is delivered. There are no discounts to allocate and there have been no changes in the transaction price to allocate.

 

For the sales made through the Ganjarunner website, the transaction price is allocated to the product and the delivery fees associated with the sale.

 

5) Recognize revenue when or as the Company satisfies a performance obligation

 

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.

 

Both performance obligations are satisfied at a point in time, and as such revenue will be recognized when the delivery is completed. The revenue will not be recognized for orders not fulfilled, but the delivery fee is earned even if the delivery is rejected or the person who placed the order is not present or available at the time of delivery. The consideration payable to the customer for drivers’ wages is recognized over time based on the inputs to determine the drivers’ wage obligations, but the net transaction price is known and therefore recognized by the end of each reporting period.

 

For the sales made through the Ganjarunner website, the performance obligation is satisfied at a point in time, and as such revenue will be recognized when the delivery is completed.

 

Disaggregation of Revenue

 

The following table depicts the disaggregation of revenue according to revenue type.

 

Revenue Type  Revenue for the three months ended
September 30,
2019
   Revenue for the three months ended
September 30,
2018
   Revenue for the nine months ended
September 30,
2019
   Revenue for the nine months ended
September 30,
2018
 
Delivery Income  $53,496    14,088   $87,869    27,248 
Dispensary Cost Reimbursements   (36,007)   (48,527)   (99,353)   (79,691)
Delivery Income, net   17,489    (34,439)   (11,484)   (52,443)
Product Sales   1,046,866    -    1,109,473    - 
Commission Income   264    4,266    293    5,242 
Other Revenue   148,044    -    160,818    - 
Total  $1,212,663    (30,173)  $1,259,070    (47,201)

 

Due to this reduction of revenue from the reimbursement of wages for the delivery couriers the Company is presenting a net negative delivery income for the three months ended September 30, 2018 and the nine months ended September 30, 2019 and 2018.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Material Weakness in Internal Control Over Financial Reporting

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

The material weakness we identified is described below:

 

1)We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

This material weaknesses could result in a material misstatement to the annual or interim consolidated condensed financial statements that would not be prevented or detected.

  

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the quarter covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Part II: Other Information

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

 

During the three months ended September 30, 2019, the Company sold a total of 1,320,000 shares of its common stock to ten (10) accredited investors, for an aggregate purchase price of $660,000.

 

During the three months ended September 30, 2019, the Company issued a total of 5,072,812 shares of its common stock in connection with the exercise of warrants.

 

During the three months ended September 30, 2019, pursuant to the Purchase Agreement, the Company issued a total of 1,960,796 shares of its common stock to Mountain High Recreation, Inc.

 

During the three months ended September 30, 2019, as part of a convertible note issued the Company issued to the holder of the note a three-year warrant to purchase 1,500,000 shares of the Company’s common stock at an exercise price of $0.50. Additionally, in connection with the issuance of the convertible note, the Company’s chief financial officer surrendered to the Company 2,500,000 shares of the Company’s common stock for cancelation.

 

During the three months ended September 30, 2019, the Company issued stock options to purchase an aggregate of 600,000 shares of common stock of the Company at an exercise price of $0.50 per share. The options have a term of seven years.

 

During the three months ended September 30, 2019, the Company issued warrants to purchase an aggregate of 9,500,000 shares of common stock of the Company at varying exercise prices of $0.20 and $0.50 per share. The warrants may be exercised on a cashless basis and have a term of three or seven years.

 

The shares above were offered and sold in reliance upon an exemption from the registration requirements under Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering of the shares.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

On August 28, 2019, the Company issued a senior convertible note (“Note”) to M2 Equity Partners (“Holder”), pursuant to which the Holder agreed to advance the Company $1,000,000 in three equal installments, with the final installment to be advanced on October 30, 2019. The Note matures on August 28, 2020 and is a senior obligation of the Company. The Note’s principal balance of $1,000,000 bears interest at a rate of 10% per annum and interest payments are payable on a monthly basis. Pursuant to the Note, the Holder has the right to convert all or part of the Note to shares of common stock or preferred stock of the Company at a price equivalent to a value of $0.50 per share of common stock on an as-converted basis. As additional consideration, the Company issued to the Holder a three-year warrant to purchase 1,500,000 shares of the Company’s common stock at an exercise price of $0.50. Additionally, in connection with the issuance of the Note, the Company’s chief financial officer surrendered to the Company 2,500,000 shares of the Company’s common stock for cancelation

 

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In addition, as an inducement to enter into the Note and to fund each advance thereunder, the Company entered into a security agreement with the Holder executed concurrently with the Note (the “Security Agreement”). Pursuant to the Security Agreement, the Company granted the Holder a first priority security interest in certain assets of the Company (the “Collateral”) for the benefit of the Holder to secure the Company’s obligations under the Note. The occurrence of any event of default under the Note, as well as the Company’s failure to observe or perform its obligations under the Security Agreement and such failure goes uncured for five days after receiving notice, constitutes and event of default under the Security Agreement, If an event of default under the Security Agreement occurs, the Holder is entitled to certain rights, including the right to take possession of the Collateral and the right to operate the business of the Company using the Collateral. The Security Agreement terminates when all payments under the Note have been made in full.

 

On September 27, 2019 and pursuant to the Settlement Agreement entered into by and between the Company and its former chief executive officer, Chris Boudreau, the Company canceled warrants, previously held by Mr. Bourdreau, to purchase 2,000,000 shares of the Company’s common stock at a price of $0.20. Additionally, on October 15, 2019, the Company repurchased 12,272,616 shares of common stock from Mr. Boudreau, paid him the first of twelve installments of $10,227 and returned the 12,272,616 shares of common stock to be cancelled.

 

On September 30, 2019, the Company entered into a joint venture agreement (the “JV Agreement”) with Budee, Inc., (“Budee’), a privately-held company involved in the delivery of cannabis-related products, pursuant to which the parties formed a joint venture company, GanjaBudee Inc., a Nevada Corporation (“GB”), in anticipation of a merger between the parties (the “GanjaBudee Merger’). GB is a separate and independent entity from either party with its own management team and Board of Directors and is owned 51% by the Company and 49% by Budee. Pursuant to the JV Agreement, no GanjaBudee Merger will be effective until the final resolution of certain pending litigation. The term of GB will continue until such GanjaBudee Merger is effective or any definitive agreement for such GanjaBudee Merger is terminated but in any case will not be for a period of more than sixty months, subject to a mutual extension agreed to by the parties.

 

Item 6. Exhibits

 

The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

 

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

 

Exhibit Number   Description
31.1   Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2   Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
32.1   Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
32.2   Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

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SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Driven Deliveries, Inc.
   
Date: November 19, 2019 /s/ Christian Schenk
  Name: Christian Schenk
  Title:   Chairman and Chief Executive Officer
  (Principal Executive Officer)

 

Date: November 19, 2019 /s/ Brian Hayek
  Name: Brian Hayek
  Title:   Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

 

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