Bots Inc (BTZI)

[lesgetrich]

ROTFLMAO. That article was written when mCig was trading at $.04/share. Totally bogus! If the author held on during the recent run-up he could be bankrupt by now. In any event he has no inside information so he can't possibly know whether Ron has exercised his option. From my comments on that article which appear at the end...

Another in a series of three hit pieces from an author who admits to profiting from his short position and insists on remaining anonymous. Perhaps he prefers anonymity because it's full of misinformation and faulty accounting.

First, There is no real point in claiming that mCig is exchanging consulting services with Green Leaf Farms except for it's value as innuendo. Keep in mind, both company's are in the MJ sector and don't have access to traditional bank loans. An exchange of services is a very smart and creative way for each company to get what it needs without expending precious cash. According to CFO Mike Hawkins in his June 28, conference call...

Earnings Call Transcript

"Now in the particular case of Greenleaf, we decided they could provide us some more marketing and promotional expertise that we think is critical to the spreading of the mCig name and awareness across the globe, that we believe that there were some promotional expertise that they could help us in our long term, we've elected to convert some of that profit into a project on our quid pro quo exchange of services.

These are services had they paid us, the profit on this project, we would have expended to develop this marketing and promotion anyways because we need to do that."

Among other things, PNTV is putting together a documentary about the construction project which will be used by mCig to market their construction and consulting services to new customers. Such a waste of money isn't it. According to PNTV's CEO Mark Bradley in his October 18th press release...

Green Leaf Farms to Begin Operations as Nevadans Vote to Legalize Recreational Marijuana

"The High Stakes docu-series is created by Michael Berk, creator of 5 television series including Baywatch, along with supervising producer Carole Joyce who has been a Hollywood documentary film maker for over 20 years and is also the fiscal sponsor for the documentary Hempsters: Plant the seed and over 30 award winning documentaries. Together with our staff and sponsors, the production team brings both the knowledge of the marijuana industry and producing skills to execute a promising film. The series will be distributed on Weed TV as a part of an original programming line up."

Yes, mCig gets to book $430,000 in revenue but it also books $430,000 in cost so it's a net wash on the financials and has no impact on EPS. Nevertheless, mCig still gets to book another $200,000 in consulting fees over and above the bartered services. From mCig's June 10th PR...

MCIG Announces Project Expansion

"Shareholders should note that by the numbers, the current Green Leaf project is priced at $1,695,000 with over $200,000 in consulting fees built into the construction project."

Next, the author correctly states that construction lost $87,000 last year. Yes, that's what happens when you have to pay management and sales expenses before the construction actually begins and you start collecting revenue. Duh!

The next section shows just how ignorant the author is about construction accounting.

"All third party equipment or services will be passed throughout exact cost with no markup."

In other words, third party equipment will be added to the project cost at cost, without any additional markup for mCig for placing and managing the order. mCig's profit comes from the markup on the total project cost. They aren't double dipping. As for...

"This arrangement works conveniently well with mCig's 'Cost-Plus' revenue recognition method (see p.26 of recent 10-K), which allows the company to record customers' costs as revenue (think of a real estate broker that earns a 3% commission but records the full house-sale price as revenue and then 97% of the sale price as cost of sales)."

Yes, real estate brokers don't get to record the cost of a house as revenue. That's because they didn't build the house and don't own it. The general contractor that built the house does record the sales price as revenue. THAT'S THE WAY THE CONSTRUCTION BUSINESS WORKS!!!! I would refer the reader to Wikipedia which gives a somewhat simple definition...

Wikipedia on Construction Costs

"Construction Costs

These are all cost related to construction process, right from materials, labor costs, consultancy and all management expenses. Construction accounting involves charging construction costs to the applicable contract. Costs fall into three categories. Direct costs are labor, material, and subcontracting costs,land. Indirect costs include indirect labor, supervision, tools, equipment costs, supplies, insurance, and support costs. Selling, general and administrative costs, are generally excluded from contract costs."

If you book the costs you have to book the revenue.

The author then turns to Ron Sassano, who is almost solely responsible for building this aspect of mCigs business...

"mCig does not own all of Scalable Solutions LLC, the new construction venture. Ron Sassano, via Zoha Development Inc., owns 60% of Scalable Solutions: 20% in shares plus an option to acquire an additional 40% at a 'nominal fee' (see page F-8 of the latest 10-K). So in reality, mCig only owns 40% of the company!"

...and...

"The majority status comes with an added bonus: By consolidating Scalable Solutions' financials, mCig gets to include the full 100% of Scalable Solutions' revenue on its financial statements."

The fact is, Ron Sassano doesn't currently own 60% of Scaleable Solutions. He only owns 20%. While he has an option to purchase another 40%, it's doubtful he would do so any time soon. He is also a major shareholder of mCig with over 1 million shares. He will probably also accumulate more shares over the coming year as construction revenue begins to flow and he can be paid in cash. With the recent run up in the mCig pps, he's made $100k in the past month on his million shares alone. Would he do better with an additional 40% ownership of Scaleable Solutions. Perhaps, and then perhaps not. He would have to weigh the tradeoff if he did anything that would damage the mCig pps.

As for revenue, one would have to ask whether customers are signing contracts with mCig or Scaleable Solutions. There's a lot more to these contracts than simply constructing facilities. They include consulting services. Consequently, if the customer signs a project agreement with mCig, the revenue still flows through mCig and Scaleable becomes a sub-contractor to the project.

As for Ron's salary, it's largely incentive based and dependent on how well he grows the business. The bonus cited doesn't get paid until the fiscal year end which is April 30 2017 and is less than 1% (.5% of revenue plus .25% of growth) of gross revenue and a 1.5% of net profit. They currently have $8.5 million in signed construction projects with $4 to $5 million scheduled for completion by year end. If we assume a 10% profit margin on $4.5 million in revenue, Ron would get .0075 x $4,500,000 = $33,750 plus .015 x $450,000 = $6,750 for a grand total of $40,500. Plenty of room for profit for mCig.

The contracts are all between the customer and mCig (not Scaleable Solutions). You can check this out on PNTV's 10-Q posted on May 27...

PNTV 10-Q

Consequently, on 4.5 million in construction revenue, mCig gets a minimum of $450,000 (assuming 10% margin, they've said a few projects will be 8%). On the flip side, they have to pay a bonus of $40,500 to Ron and another $40,500 to Mike Hawkins. The mCig 10-K makes clear that these bonuses are calculated as of April 30 and not due until September 30th of the same year. Consequently, they won't be booked until fiscal year 2018. The current salaries for Mike and Ron, even if paid in cash, still leave room for profit for mCig for the next two years. Any additional project contracts will just add to the earnings.

Moreover, all bonuses are paid in restricted shares. More information on salaries was covered in my post # 77800 & 79773.

mCig Post # 77800

mCig Post # 79773

The author next claims that the company is showing signs of being in trouble...

"While the endless chatter of new opportunities continues (latest here and here), the recent 10-K shows that the company has blown out of nearly all of its inventory (i.e. there are no products on hand to sell), ran down its receivables (suggesting sales have grinded to a halt) and ran up its payables (stopped paying its suppliers)."

No, these aren't signs of trouble. They aren't signs of anything. The company has a lot of overseas partners to whom they direct ship vitacig products from the factory. They currently have over $3.5 million in minimum order quantity contracts over the next three years and just booked a new $100,000 order from Canada. Until recently, they have been relying almost exclusively on overseas sales so there was no need for inventory.

One needs to take claims from this author with a huge dose of salt.