This section of this Form 10-Q includes a number of forward-looking statements
that reflect our current views with respect to future events and financial
performance. Forward-looking statements are often identified by words like
believe, expect, estimate, anticipate, intend, project and similar expressions,
or words which, by their nature, refer to future events. You should not place
undue certainty on these forward- looking statements. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from our predictions.
Overview
The primary business of PotNetwork Holdings, Inc. ("POTN") is conducted through
its primary subsidiary, First Capital Venture Co., whose subsidiary, Diamond
CBD, Inc. ("Diamond CBD") is engaged in the development and sales of
hemp-derived CBD oil containing products. The Company also owns and operates
PotNetwork Media Group, Inc., operator of the informational website to the
cannabis and CBD industry, PotNetwork.com.
Results of Operations
Results of Operations during the nine months ended September 30, 2019 as
compared to the period ended September 30, 2018.
For the nine-month period ended September 30, 2019 and 2018 we had revenues of
$14,157,742 and $17,967,189 respectively.
Our Gross Profit from the sale of all products for the nine-month period ended
September 30, 2019 and September 30, 2018 was $5,600,056 and $7,695,108
respectively, or a decrease of 27.2%. Continued growth of the overall consumer
market for CBD products and anticipated increases in competition are anticipated
to continue to create pressure on gross profit margins.
Our Net Profit (Loss) for the nine-month period ended September 30, 2019
compared to September 30, 2018 decreased to a Loss of ($384,025) from a Net
Profit of $357,963 respectively, attributable to the decrease in revenues.
Operating expenses for the nine-month period ended September 30, 2019 compared
to September 30, 2018 decreased to $5,736,099 as compared to $7,325,012, a
decrease of 21.7% attributable to a decrease in sales and marketing expense from
$6,615,125 in the first nine months of 2018 to $5,108,343 during the same period
in 2019.
Total expenses for the nine-month period ended September 30, 2019 were
$5,984,081 with interest expense being $247,982 compared to $7,337,145 with
interest expense of $12,133 for the comparable period of 2018.
Liquidity and Capital Resources
Assets increased from $5,214,530 at the Company's fiscal year end of December
31, 2018 to $6,332,571 at September 30, 2019. The increase in the assets is
attributable to an increase in accounts receivable and an increase in prepaid
expenses, primarily an increase in advances paid to the drop shipper.
Liabilities increased from $4,082,195 as of December 31, 2018 to $5,188,236 as
of September 30, 2019. The increase is mainly attributed to loans to the Company
for its operating activities.
Cash Flow from Operating Activities
Net cash from operations for the nine-month period ended September 30, 2019 was
($2,374,977) as compared to ($4,919,238) for the same period in 2018.
Cash Flow from Investing Activities
Net cash provided by investing activities for the nine-month period ended
September 30, 2019 was $396,025 as compared to $2,444,714 for the same period in
2018.
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Cash Flow from Financing Activities
Net cash provided by financing activities for the nine-month period ended
September 30, 2019 was $1,463,002 as compared to $2,138,495 for the same period
in 2018.
Results of Operations during the three months ended September 30, 2019 as
compared to the period ended September 30, 2018.
For the three-month period ended September 30, 2019 and September 30, 2018, we
generated revenues of $3,629,621 and $5,923,161, respectively, a 38.7% decrease
year over year.
Our Gross Profit from the sale of all products for the three-month period ended
September 30, 2019 and September 30, 2018 was $1,447,819, and $2,953,934
respectively, or a decrease of 51%. Sales and marketing expenses decreased from
$2,551,862 for the three-month period ended September 30, 2018 to $1,695,562 for
the three-month period ended September 30, 2019, a decrease of 33.6%, and
overall total operating expenses decreased for the same period from $2,908,394
to $1,868,023, a decrease of 35.8%. Our Net Profit (Loss) for the three-month
period ended September 30, 2019 and September 30, 2018 decreased from a Net
Profit of $41,320 in 2018 to a Loss of ($504,968) in 2019 respectively,
attributable primarily to a decrease in total revenues.
Liquidity and Capital Resources
As of September 30, 2019, we had $6,332,571 in total assets including cash and
cash equivalents of $68,476 and $563,414 in accounts receivable and $5,700,681
in prepaid advances including $4,876,880 prepaid to our drop shipper and
$823,801 in other advances, as compared to $5,214,530 in total assets on
December 31, 2018 including cash and cash equivalents of $584,426 and $4,289,928
in prepaid advances to our drop shipper and $220,902 in other advances. The
increase in assets from December 31, 2018 to September 30, 2019 is 33.4%.
As of September 30, 2019, we had total liabilities of $5,188,236 consisting of
accounts payable of $171,008, notes payable of $4,976,908 and an amount due a
third party of $40,320. As of December 31, 2018, we had total liabilities of
$4,082,195 including accounts payable of $469,821 and notes payable of
$3,573,974 and an amount due a third party of $38,400, an overall year over year
increase of 27.1 %.
Cash Flow from Operating Activities
Net cash from operations for the three-month period ended September 30, 2019 was
($314,743) as compared to ($88,243) for the same period in 2018.
Cash Flow from Investing Activities
Net cash provided by investing activities for the three-month period ended
September 30, 2019 was $9,875 as compared to $0 for the same period in 2018.
Cash Flow from Financing Activities
Net cash provided by financing activities for the three-month period ended
September 30, 2019 was $268,972 as compared to $2,514 for the same period in
2018.
Off-balance sheet arrangements
There are 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, expenses, results of operations, liquidity,
capital expenditures or capital resources.
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