$MCIG Form 10-K

Management’s Discussion and Analysis may contain various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-K, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company has adopted the most conservative recognition of revenue based on the most astringent guidelines of the SEC. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

Any future equity financing will cause existing shareholders to experience dilution of their interest in our Company. In the event we are not successful in raising additional financing, we anticipate that we will not be able to proceed with our business plan. In such a case, we may decide to discontinue our current business plan and seek other business opportunities in the resource sector. Any business opportunity would require our management to perform diligence on possible acquisitions.

During this period, we will need to maintain our periodic filings with the appropriate regulatory authorities and will incur legal and accounting costs. In the event no other such opportunities are available and we cannot raise additional capital to sustain operations, we may be forced to discontinue business. We do not have any specific alternative business opportunities in mind and have not planned for any such contingency.

The Company’s MD&A is comprised of significant accounting estimates made in the normal course of its operations, overview of the Company’s business conditions, results of operations, liquidity and capital resources and contractual obligations. The Company did not have any off balance sheet arrangements as of April 30, 2015 or 2014.

The discussion and analysis of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with generally accepted accounting principles generally accepted in the United States (or “GAAP”). The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of its financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Overview

mCig, Inc. (mCig) was incorporated in the State of Nevada on December 30, 2010 originally under the name Lifetech Industries, Inc. Effective August 2, 2013, the name was changed from “Lifetech Industries, Inc.” to “mCig, Inc.” reflecting the new business model. Since October 2013, we have positioned ourselves as atechnology company focused on two long-term secular trends:

(1) The decriminalization and legalization of marijuana for medicinal or recreational purposes – legalizing medicinal and recreational marijuana usage is steadily on the rise not only domestically but also internationally.

Marijuana has been decriminalized in over twenty countries, in over five continents. Twenty three states and the District of Columbia currently have laws legalizing marijuana in some form. Management believes that by 2016 it is very likely that many more states, including Alaska, California, Arizona, Maine, and Oregon, will legalize the use and sale of recreational marijuana the way Washington and Colorado have; and

(2) The adoption of electronic vaporizing cigarettes (commonly known as “eCigs”), as smokers move away from traditional cigarettes onto e-cigarettes. Smoking tobacco causes numerous health problems, including disease and death. Smoking becomes very addicting quickly, and the most difficult part is cessation. We contend that e-cigarettes offer a safer and healthier alternative to traditional tobacco cigarettes. E-cigarettes operate by heating a mixture of liquid nicotine and flavoring, which is then inhaled and exhaled in the same manner as a cigarette. However, e-cigarettes do not contain any tobacco or other dangerous additives. Scientific research has shown that the leading cause of cancer in smokers comes from the carcinogens in tobacco. As the movement towards personal health grows, smokers are trying to quit their harmful habits. Management believes that e-cigarettes provide a safe transition from harmful traditional cigarettes.

On January 23, 2014, we signed a Stock Purchase Agreement with Vapolution, Inc. which manufactures and retails home-use vaporizers. In accordance with this agreement mCig, Inc. acquired 100% of Vapolution, Inc.; as part of this transaction mCig, Inc. agreed to issue 5,000,000 shares to shareholders of Vapolution, Inc. The shareholders of Vapolution, Inc. retain the right to rescind the transaction, which expires on January 23, 2015 but was extended to May 23, 2015 based on an Amended Stock Purchase Agreement executed on May 23, 2014. Subsequently, on August 25, 2015, the final payment to the shareholders of Vapolution as extended to September 30, 2015 and the right to rescind the transaction was extended to March 26, 2016.

On January 23, 2014, Paul Rosenberg, CEO of mCig, Inc. has cancelled an equal amount (2,500,000 shares) of common shares owned by him resulting in a net non-dilutive transaction to existing mCig, Inc. shareholders. The remaining 2,500,000 of common shares owned by Paul Rosenberg will be cancelled to offset the 2,500,000 new shares issued from the treasury to complete the purchase of Vapolution, Inc.

Results of Operations

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation and contingencies.

We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We believe the following accounting policies are our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that may be uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.

Revenue Recognition

Revenues are presented net of discounts. In general, we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Where arrangements have multiple elements, revenue is allocated to the elements based on the relative selling price method and revenue is recognized based on our policy for each respective element. We generate revenue primarily from sales of the electronic cigarettes, components for electronic cigarettes and related accessories. We recognize revenue when the product is shipped.

Amounts billed or collected in excess of revenue recognized are recorded as deferred revenue.

Our operating results for the years ended April 30, 2015 and 2014 are summarized as follows:

                                              For the year ended April 30,
                                            2015                         2014
     Revenue                           $          509,957           $          358,947
     Cost of Goods Sold                           401,906                      149,311
     Gross Profit                                 108,051                      209,636
     Expenses                                   4,374,385                      324,857
     Net Loss from operations          $      (4,266,334)           $        (115,221)

Our revenue from continuing operations for the year ended April 30, 2015 was $509,957 compared to $358,947, an increase of $151,010 or approximately 42%, for the year ended April 30, 2014. Revenues consist primarily of results from the sales of the electronic vaporisers, the components for vaporisers and related accessories.

Cost of Goods Sold

Our cost of goods sold for the year ended April 30, 2015 was $401,906 compared to $149,311 for the year ended April 30, 2014. The increase is primarily due increase and sale and the purchase of better quality products.

Gross Profit

Our gross profit for the year ended April 30, 2015 was $108,051 compared to $209,636 for the year ended April 30, 2014. The gross profit of $108,051 for the year ended April 30, 2015 represents approximately 21% as a percentage of total revenue. The gross profit of $209,636 for the year ended April 30, 2014 represents approximately 58% as a percentage of total revenue. This decrease in the gross profit is primarily attributed to the higher costs of the better quality products.

Operating Expenses

Our operating expenses increased by $4,040,551 to $4,374,385 for the year ended April 30, 2015, from $324,857 for the year ended April 30, 2014.

The increase was primarily due to the increase in stock based compensation of $3,833,497, an increase in selling, general and administrative expenses of $167,901, and increase in professional fees of $9,792 and an increase in amortization and depreciation of $1,339.

Our total operating expenses for the year ended April 30, 2015 of $4,374,385 consisted of $4,022,967 of stock based compensation, $265,330 of selling, general and administrative expenses, $42,244 in professional fees, and $6,845 of amortization and depreciation expenses. Our general and administrative expenses consist of bank charges, telephone expenses, meals and entertainments, computer and internet expenses, postage and delivery, office supplies and other expenses.

Net loss

Our net loss increased by $4,747,882 to $4,869,448 for the year ended April 30, 2015 from $121,566 for the year ending April 30, 2014. The increase in net loss compared to the prior year is primarily a result of the increase in operating expenses of 4,049,528, the loss on investment for Vapolution of $625,000, the loss on investment for VitaCig of $13,658, offset by the income from discontinued operations of $35,544.

Liquidity and Capital Resources

Introduction

During the year ended April 30, 2015 because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of April 30, 2015 was $102,691. At April 30, 2015, the Company had a working capital surplus of $687,430.

Cash Requirements

We had cash available of $102,691 as of April 30, 2015. Based on our revenues, cash on hand and current monthly burn rate, around $25,000, we believe that our operations are sufficient to fund operations through September 2015.

Sources and Uses of Cash
Operations

We had net cash used in continuing operating activities of $212,005 for the year ended April 30, 2015, as compared to $5,859 for the year ended April 30, 2014. Cash used in discontinued operating activities was $35,545 for the year ended April 30, 2015, compared to $10,392 for the year ended April 30, 2014.

Net cash used in continuing operations consisted primarily of the net loss of $4,869,448 offset by non-cash expenses of $4,668,151 consisting of amortization of intangible assets of $6,846, $4,022,647 in common stock issued for services, and $638,658 loss on investments. Additionally, changes in assets and liabilities consisted of decreases in accounts receivable of $17,843, inventory of $21,649, prepaid expenses of $3,162, and accounts payable of $38,362, these decreases were partially offset by increases in other receivables of $15,000.

Investments

We had net cash used in investing activities of $4,872 for the year ended April 30, 2015, as compared to $11,560 for the year ended April 30, 2014. In the year ended April 30, 2015 the net cash used by investing activities related to the acquisition of property of $1,792 and website development costs of $3,080.

Financing

We had net cash used in continuing financing activities of $264 for the year ended April 30, 2015, as compared to $369,196 for the year ended April 30, 2014.
Our financing activities consisted primary of $100,000 in proceeds from the issuance of common stock for cash of $100,000 and proceeds from related party of $5,000 offset by advances to related party of $105,264.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we consider material.

Going Concern

Our financial statements are prepared using generally accepted accounting principles, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. Because the business is relatively new and has a short history and relatively few sales, no certainty of continuation can be stated. The accompanying consolidated financial statements for the year ended April 30, 2015 and 2014 have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has suffered losses from operations and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern