Effects of COVID-19
As of the date of this Quarterly Report, there remain significant uncertainties
regarding the current novel Coronavirus (COVID-19) pandemic, including the scope
of health issues, the possible duration of the pandemic and the extent of local
and worldwide social, political and economic disruption it may cause in the
future.
To date, the COVID-19 pandemic has had a discernable short-term negative impact
on the ability of our company to obtain capital needed to accelerate the
development of our business.
With respect to our business operations, while our product sales have increased
moderately since the initial impact of the COVID-19 pandemic due primarily to
our recently introducing hand sanitizer gel and spray products, we believe the
COVID-19 pandemic has had a discernable short-term negative impact on our
product sales, inasmuch as we and our distributors have been limited in
face-to-face sales meetings with respect to our products. We are unable to
predict when such limitations will ease.
Overall, our company is not of a size that has required us to implement
"company-wide" policies in response to the COVID-19 pandemic. Further, our
product manufacturing operations have experienced no negative consequences
attributable to the COVID-19 pandemic, inasmuch as these operations involve a
limited number of persons. However, as the states continue to re-open, re-close,
then re-open their economies, the scope and nature of the impacts of COVID-19 on
our company will evolve day-by-day, week-by-week.
The COVID-19 pandemic can be expect to continue to result in regional and local
quarantines, labor stoppages and shortages, changes in consumer purchasing
patterns, mandatory or elective shut-downs of retail locations, disruptions to
supply chains, including the inability of our suppliers to deliver materials on
a timely basis, or at all, severe market volatility, liquidity disruptions and
overall economic instability. It can be further expected that the COVID-19
pandemic will continue to have unpredictably adverse impacts on our business,
financial condition and results of operations. This situation is changing
rapidly and additional impacts may arise of which we are not currently aware.
We intend to continue to assess the evolving impact of the COVID-19 pandemic,
not only on our company, but on the operations of our customers, consumers and
supply chains, and intend to make adjustments accordingly. However, the extent
to which the COVID-19 pandemic may impact our business, financial condition and
results of operations will depend on how the COVID-19 pandemic and its impact
continues to impact the United States and, to a lesser extent, the rest of the
world, all of which remains highly uncertain and cannot be predicted at this
time.
In light of these uncertainties, for purposes of the discussion below, except
where otherwise indicated, the descriptions of our business, our strategies, our
risk factors and any other forward-looking statements, including regarding us,
our business and the market generally, do not reflect the potential impact of
the COVID-19 pandemic or our responses thereto.
Basis of Presentation
Our company was a "shell company" from 2014 through all of 2019. Effective
January 1, 2020, we acquired Black Bird Potentials Inc. ("Black Bird"), in a
transaction accounted for as a "reverse merger". This Management's Discussion
and Analysis of Financial Condition and Results of Operations section includes
financial results of Digital Development Partners, Inc., including its
subsidiaries, Black Bird, Big Sky American Dist., LLC and Black Bird Hemp
Manager, LLC.
Cautionary Statement
The following discussion and analysis should be read in conjunction with our
financial statements and related notes, beginning on page F-1 of this Quarterly
Report.
Our actual results may differ materially from those anticipated in the following
discussion, as a result of a variety of risks and uncertainties. We assume no
obligation to update any of the forward-looking statements included herein.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal
year, we qualify as an "emerging growth company", as defined in the Jumpstart
Our Business Startups Act of 2012 (the "JOBS Act"). As an emerging growth
company, we may take advantage of specified reduced disclosure and other
requirements that are otherwise applicable generally to public companies. These
provisions include:
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· Only two years of audited financial statements in addition to any required
unaudited interim financial statements with correspondingly reduced
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" disclosure.
· Reduced disclosure about our executive compensation arrangements.
· Not having to obtain non-binding advisory votes on executive compensation or
golden parachute arrangements.
· Exemption from the auditor attestation requirement in the assessment of our
internal control over financial reporting.
We may take advantage of these exemptions for up to five years or such earlier
time that we are no longer an emerging growth company. We would cease to be an
emerging growth company if we have more than $1.07 billion in annual revenue, we
have more than $700 million in market value of our stock held by non-affiliates,
or we issue more than $1 billion of non-convertible debt over a three-year
period. We may choose to take advantage of some but not all of these reduced
burdens. We have taken advantage of these reduced reporting burdens herein, and
the information that we provide may be different than what you might get from
other public companies in which you hold stock.
Critical Accounting Policies
In General. Our accounting policies are discussed in detail in the footnotes to
our financial statements beginning on page F-1. We consider our critical
accounting policies related to revenue recognition, inventory and fair value of
financial instruments.
Change in Accounting Principle. In August 2020, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2020-06-Debt-Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic
815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own
Equity. The ASU simplifies accounting for convertible instruments by removing
major separation models required under current GAAP. Consequently, more
convertible debt instruments will be reported as a single liability instrument
with no separate accounting for embedded conversion features. The ASU removes
certain settlement conditions that are required for equity contracts to qualify
for the derivative scope exception, which will permit more equity contracts to
qualify for it. The ASU also simplifies the diluted net income per share
calculation in certain areas. The new guidance is effective for annual and
interim periods beginning after December 15, 2021, and early adoption is
permitted for fiscal years beginning after December 15, 2020. The Company has
early adopted ASU 2020-06 for the year beginning January 1, 2021.
Overview and Outlook
With the acquisition of Black Bird effective January 1, 2020, Black Bird's
operations became the operations of our company.
Black Bird is the exclusive worldwide manufacturer and distributor of
MiteXstream, an EPA-registered plant-based biopesticide (EPA Reg. No. 95366-1)
effective in the eradication of spider mites, a pest that destroys crops,
especially cannabis, hops, coffee, and house plants, as well as molds and
mildew. Through Black Bird, we manufacture and sell CBD products, including CBD
Oils, gummies and pet treats, and CBD-infused personal care products, as well as
hand sanitizer gel and spray products, under the Grizzly Creek Naturals brand
name. In addition, Black Bird is a licensed grower of industrial hemp under the
Montana Hemp Pilot Program and has established "Black Bird American Hemp" as the
brand name under which these efforts will be conducted.
Principal Factors Affecting Our Financial Performance
Following our acquisition of Black Bird, our future operating results can be
expected to be primarily affected by the following factors:
· our ability to maintain the value proposition of MiteXstream, once
certified as a biopesticide, vis-a-vis other available pest control
products; and
· our ability to attract and retain customers for our Grizzly Creek
Naturals, and other, products;
· our ability to produce and sell hemp products;
· our ability to contain our operating costs.
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Results of Operations
Three Months Ended March 31, 2021 ("Interim 2021") and 2020 ("Interim 2020").
During Interim 2021, our business operations generated $2,207 (unaudited) in
revenues from sales of our Grizzly Creek Naturals products with a cost of goods
sold of $1,521 (unaudited), resulting in a gross profit of $686 (unaudited).
During Interim 2020, our business operations generated $5,903 (unaudited) in
revenues from sales of our Grizzly Creek Naturals products with a cost of goods
sold of $3,932 (unaudited), resulting in a gross profit of $1,971 (unaudited).
During Interim 2021, we incurred operating expenses of $183,463 (unaudited),
which were comprised of $39,347 (unaudited) in consulting services ($6,880
(unaudited) of which was paid by the issuance of common stock), $3,014
(unaudited) in website expenses, $38,673 (unaudited) in legal and professional
services, $1,334 (unaudited) for product license, $4,800 (unaudited) in rent,
$1,366 (unaudited) in advertising and marketing expense and $94,902 (unaudited)
in general and administrative expense, resulting in a net loss of $(208,233)
(unaudited).
During Interim 2020, we incurred operating expenses of $70,514 (unaudited),
which were comprised of $35,000 (unaudited) in consulting services ($8,000
(unaudited) of which was paid by the issuance of common stock), $878 (unaudited)
in website expenses, $23,325 (unaudited) in legal and professional services and
$11,311 (unaudited) in general and administrative expense, resulting in a net
loss of $(68,554) (unaudited).
We expect that our revenues will increase from quarter to quarter, beginning
with the second quarter of 2021.This expected increase in revenues is based on
the commencement of sales of MiteXstream during the second quarter of 2021, as
well as the expected continued growth of sales of Grizzly Creek Naturals CBD and
other products by Big Sky American. Nevertheless, we expect to incur operating
losses through at least September 30, 2021.
Further, because of our current lack of capital and the current lack of brand
name awareness of MiteXstream, Grizzly Creek Naturals and Black Bird American
Hemp, we cannot predict the levels of our future revenues. However, based on
informal testing done by, and discussions with, cannabis (marijuana and
industrial hemp) cultivation industry participants, our management believes that
MiteXstream will become the most dynamic, fastest growing part of our business.
Plan of Operation
MiteXstream. Pursuant to our agreement with Touchstone Enviro Solutions, Inc.
("Touchstone"), a company owned by three of our directors, Fabian G. Deneault,
Eric Newlan and L. A. Newlan, Jr., Black Bird possesses the exclusive rights,
even as to Touchstone, to manufacture, sell and distribute MiteXstream. The
exclusivity granted would be reduced to a status of non-exclusivity, should be
fail to manufacture at least 2,500 gallons of concentrate in any year during the
term of the MiteXstream Agreement; provided, however, that such minimum required
is deemed to have been satisfied through December 31, 2022. We are required to
pay Touchstone a royalty of $10 per gallon of MiteXstream manufactured by us or
by any sublicensee of ours. For no further consideration, we were granted the
rights to use the "MiteXstream" trademark and the "Harnessing the Power of
Water" trademark.
Based on informal testing done by, and discussions with, cannabis cultivation
industry participants, our management believes that MiteXstream will become the
most dynamic, fastest growing part of our business. However, no prediction can
be made in this regard.
Effective December 16, 2020, MiteXstream was approved as a biopesticide by the
U.S. Environmental Protection Agency (EPA Reg. No. 95366-1). We have begun to
seek approval for use of MiteXstream in the various states; the state approval
process takes between one and eight months, variously. To date, MiteXstream is
approved for sale in Nevada, Colorado and Montatna. Until we obtain the required
pesticide certification in a state, we will not sell any MiteXstream. In
addition, we intend to seek approval of MiteXstream in countries around the
world, although no specific time for such actions has been set.
We have begun to market MiteXstream through channels known to our management.
However, it is our intention to secure a small number of established
distributors through which to sell MiteXstream in the United States. There is no
assurance we will be successful in these efforts.
In March 2021, we entered into a distribution agreement with IFC Fulfillment
Company ("IFC"), a Los Angeles-based export firm, whereby IFC was appointed the
exclusive distributor for MiteXstream in China, Hong Kong and Taiwan. Our
Director, Jack Jie Qin, a Company director, facilitated the signing of the IFC
Agreement. As of the date of this Quarterly Report, IFC has not made a sales of
MiteXstream.
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CBD Products. We have created "Grizzly Creek Naturals" as the brand name for our
CBD-related products, which are manufactured by our company using CBD purchased
from third parties. Once we begin producing commercial quantities of industrial
hemp and extracting the CBD therefrom, we will begin to use all of our own CBD
and supplement it with CBD from third parties, as necessary.
We currently manufacture and sell have expanded our line of Grizzly Creek
Naturals CBD products, including CBD Oils and Gummies, CBD Topicals and CBD dog
treats. We also manufacture and sell hand sanitizer gel and spray products
(without CBD) under our Grizzly Creek Naturals brand to distributors, directly
to retail customers and directly to consumers through our website.
Distribution.
In-House Distribution. Since it began to manufacture and sell its CBD products
in mid-2019, Black Bird as self-distributed its products. In December 2020,
these distribution efforts we formalized with the formation of Big Sky American.
Big Sky American currently distributes the Grizzly Creek Naturals products to
approximately 50 retail locations in Western Montana. In February 2021, Big Sky
American purchased certain distribution-related assets associated with
approximately 200 retail locations in Western Montana for $200,000 in cash.
Website. We sell our products to consumers through our website:
www.grizzlycreeknaturals.com.
Third-Party Distributors. Since the third quarter of 2019, Black Bird has
entered into separate distribution agreements with four distributors. The only
one of these distributors who has significantly impacted our sales is Raghorn
Wholesale (Raghorn). Raghorn has become our largest customer. Raghorn does not
distribute our Grizzly Creek Naturals CBD products.
Hemp-Related Activities. We have formed a division of our company that focuses
on hemp-related business opportunities under the "Black Bird American Hemp"
brand name. Black Bird American Hemp currently seeks to develop industrial hemp
processing operations in the State of Montana. In this regard, while Black Bird
is a licensed hemp grower in Montana under the Montana Hemp Pilot Program, it is
not contemplated that Black Bird will, itself, become a significant grower of
hemp.
Proposed Hemp Processing Facility. Should we obtain a maximum offering
hereunder, we intend to establish a small hemp processing facility in Montana
capable of processing approximately 1,000 acres of hemp on an annual basis.
There is no assurance that we will ever possess sufficient funds with which to
establish the proposed hemp processing facility.
Products. Should the proposed hemp processing facility commence operations,
Black Bird American Hemp intends to sell, for its own account or for processing
customers' accounts, the products derived from the proposed hemp processing
facility's operations, including, without limitation, bast, hurd, hemp oil, hemp
seeds and hemp hearts. The potential applications and, thus, target markets for
Black Bird American Hemp's products include bast, hurd and hemp flower.
Sales and Distribution. Black Bird American Hemp will market hemp products
directly to end-users of such products and will seek distributors who are able
to demonstrate an ability to develop robust sales of Black Bird American Hemp's
products.
Financial Condition, Liquidity and Capital Resources
Capital Sources.
Third-Party Loans. In April 2020, our company obtained a total of $50,000 in
loans from two third parties ($25,000 from each). In consideration of each loan,
we issued a $25,000 face amount convertible promissory note that bears interest
at 10% per annum, with principal and interest due in January 2021. Each such
convertible promissory note may be converted into shares of our common stock at
the rate of one share for each $.001 of debt converted anytime after August 30,
2020. In November 2020, one of such $25,000 face amount convertible promissory
notes, including $3,000 in accrued interest, was paid in full. The remaining
$25,000 loan is past due, as of the date of this Quarterly Report.
In December 2020, our company obtained a loan from a third party which netted us
$50,000 in proceeds. In consideration of such loan, we issued a $58,600 face
amount convertible promissory note, with OID of $4,100, that bears interest at
10% per annum, with principal and interest due in September 2021. We have the
right to repay such convertible promissory note at a premium ranging from 120%
to 145% of the face amount. Such convertible promissory note may be converted
into shares of our common stock at a conversion price equal to the lower of 60%
of the market price of our common stock on the date of issuance of such
convertible promissory note and the date of conversion, any time after June 15,
2021.
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In January 2021, our company obtained a loan from a third party which netted us
$52,000 in proceeds. In consideration of such loan, we issued a $55,500 face
amount convertible promissory note that bears interest at 12% per annum, with
principal and interest due in January 2022. We have the right to repay such
convertible promissory note at a premium ranging from 125% to 145% of the face
amount. Such convertible promissory note may be converted into shares of our
common stock at a conversion price equal to the lower of 61% of the market price
of our common stock on the date of issuance of such convertible promissory note
and the date of conversion, any time after July 14, 2021.
In February 2021, our company obtained a loan from a third party which netted us
$106,000 in proceeds. In consideration of such loan, we issued a $121,000.00
face amount promissory note, with OID of $15,000, that bears interest at 9% per
annum, with principal and interest payable in eight equal monthly payments of
$15,125 beginning in August 2021. We have the right to repay such promissory
note at any time. Should we default on such promissory note, it becomes
convertible into shares of our common stock at a conversion price equal to the
lesser of the lowest closing bid price of our commons stock for the trading day
immediately preceding either (a) the delivery of a notice of default, (b) the
delivery of a notice of conversion resulting from such default or (c) the issue
date of such promissory note.
In February 2021, our company obtained a loan from a third party which netted us
$43,500 in proceeds. In consideration of such loan, we issued a $43,500 face
amount convertible promissory note that bears interest at 12% per annum, with
principal and interest due in February 2022. We have the right to repay such
convertible promissory note at a premium ranging from 125% to 145% of the face
amount. Such convertible promissory note may be converted into shares of our
common stock at a conversion price equal to the lower of 61% of the market price
of our common stock on the date of issuance of such convertible promissory note
and the date of conversion, any time after August 17, 2021.
In April 2021, our company obtained a loan from a third party which netted us
$68,750 in proceeds. In consideration of such loan, we issued a $68,750 face
amount convertible promissory note that bears interest at 12% per annum, with
principal and interest due in April 2022. We have the right to repay such
convertible promissory note at a premium ranging from 125% to 145% of the face
amount. Such convertible promissory note may be converted into shares of our
common stock at a conversion price equal to the lower of 61% of the market price
of our common stock on the date of issuance of such convertible promissory note
and the date of conversion, any time after October 22, 2021.
Regulation A Offering. In May 2020, our company filed an Offering Statement on
Form 1-A (File No. 254-11215) (the "Regulation A Offering") with SEC with
respect to 70,000,000 shares of common stock, as amended, which was qualified by
the SEC on August 4, 2020. For the three months ended March 31, 2021, we sold a
total of 4,875,000 shares of common stock for a total of $195,000 in cash, under
the Regulation A Offering.There is no assurance that we will further derive any
funds pursuant to the Regulation A Offering.
March 31, 2021. At March 31, 2021, our company had $75,788 (unaudited) in cash
and a working capital deficit of $134,700 (unaudited), compared to $52,974 in
cash and a working capital deficit of $7,609 at December 31, 2020. The change in
our working capital position from December 31, 2020, to March 31, 2021, is
attributable primarily to our applying $200,000 in available cash to the
purchase of distribution assets in February 2021.
Our company's current cash position of approximately $50,000 is adequate for our
company to maintain its present level of operations through the remainder 2021.
However, we must obtain additional capital from third parties to implement our
full business plans. There is no assurance that we will be successful in
obtaining such additional capital.
Inflation
We do not expect that inflation will significantly affect our results of
operations.
Seasonality
As sales of MiteXstream begin during the second quarter of 2021, we expect that
our operating results will be impacted by the seasonality of farming operations.
However, we are currently unable to predict the level to which such seasonality
will impact our business.
Off Balance Sheet Arrangements
As of March 31, 2021, and December 31, 2020, there were no off-balance sheet
arrangements. We have entered into operating leases for two facilities, as
follows:
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Address Description Use Yearly Rent Expiration Date
3505 Yucca Drive
Suite 115
Flower Mound, TX Corporate Office
75028 (160 sq. ft.) Administrative $ 7,200 March 2022
60600 US Highway
93 Warehouse
Ronan, Montana (1,000 sq. ft.)
59864 Manufacturing $ 18,000 December 2025
Contractual Obligations
To date, we have entered into a single long-term lease obligation that require
us to make monthly payments of $1,500 through 2025.
Capital Expenditures
We made capital expenditures of $206,000 during the three months ended March 31,
2021, which included the purchase of distribution assets ($200,000) used by Big
Sky American and the purchase of other distribution-related assets. Without
obtaining additional capital, we will not be able to make any capital
expenditures.
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BLACK BIRD BIOTECH, INC. 
