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 three months ended March 31, 2020 as compared to the period ended March 31, 2019.

For the three-month period ended March 31, 2020 and 2019 we had revenues of $2,305,507 and $6,183,000 respectively, a decrease of 62.7%.

Our Gross Profit from the sale of all products for the three-month period ended March 31, 2020 and March 31, 2019 was $1,352,880 and $2,547,000 respectively, or a decrease of 47%. Continued growth of the overall consumer market for CBD products and anticipated increases in competition are anticipated to continue to create pressure on revenues and gross profit margins.

Our Net Profit (Loss) for the three-month period ended March 31, 2020 compared to March 31, 2019 decreased to a Loss of ($12,378) from a Net Profit of $50,010 respectively, attributable to the decrease in revenues.

Operating expenses for the three-month period ended March 31, 2020 compared to March 31, 2019 decreased to $1,275,638 as compared to $2,418,000, a decrease of 47% attributable to a decrease in sales and marketing expense from $2,174,000 in the three months of 2019 to $489,395 during the same period in 2020.

Total expenses for the three-month period ended March 31, 2020 were $1,365,258 with interest expense being $89,620 compared to $2,497,110 with interest expense of $78,990 for the comparable period of 2019.

Liquidity and Capital Resources

As of March 31, 2020, we had $5,934,063 in total assets including cash and cash equivalents of $25,466, $649,312 in accounts receivable, and $5,259,285 in prepaid advances consisting of prepayments to our drop shipper, as compared to $6,124,893 in total assets on December 31, 2019 including cash and cash equivalents of $70,581, $5,070,696 in prepaid advances to our drop shipper, and $9,000 in other advances. The decrease in assets from December 31, 2019 to March 31, 2020 is 3%.

As of March 31, 2020, we had total liabilities of $5,636,028 consisting of accounts payable of $1,410,430, notes payable of $4,183,998 and an amount due a third party of $41,600. As of December 31, 2019, we had total liabilities of $5,907,000 including accounts payable of $1,673,501 and notes payable of $4,192,539 and an amount due a third party of $40,960. The decrease in total liabilities from December 31, 2019 to March 31, 2020 is 4.6 %.

Cash Flow from Operating Activities

Net cash from operations for the three-month period ended March 31, 2020 was ($129,734) as compared to $274,228 for the same period in 2019.

Cash Flow from Investing Activities

Net cash provided by investing activities for the three-month period ended March 31, 2020 was -0- as compared to -0- for the same period in 2019.

Cash Flow from Financing Activities

Net cash provided by financing activities for the three-month period ended March 31, 2020 was $84,620 as compared to 79,011 for the same period in 2019.






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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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