The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and
related notes thereto included elsewhere in this report. In addition to
historical financial information, the following discussion and analysis contains
forward-looking statements based upon current expectations that involve risks,
uncertainties, and assumptions, such as our plans, objectives, expectations, and
intentions. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial
results, or other developments. Forward-looking statements are based upon
estimates, forecasts, and assumptions that are inherently subject to significant
business, economic, and competitive uncertainties, and contingencies, many of
which are beyond our control and many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by us, or on our behalf.
We disclose any obligation to update forward-looking statements. Our actual
results and the timing of events could differ materially from those anticipated
in these forward-looking statements as a result of a number of factors. We use
words such as "anticipate," "estimate," "plan," "project," "continuing,"
"ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and
similar expressions to identify forward-looking statements.
Overview
Our business is conducted through our wholly owned subsidiaries, Humbly Hemp,
Endo Brands, and Humble Water Company. Humbly Hemp sells and markets a line of
hemp enhanced snack foods. Humble Water Company is in a partnership with
Springhill Water Co. to develop a line of High Alkaline, Natural Mineral Water,
and a bottling and packaging facility. Endo Brands creates and markets a line of
cannabinoid-based consumer products. Right On Brands is at the focus of health
and wellness. We create lasting brands with emerging functional ingredients, and
our focus right now is industrial hemp and hemp derived products.
Results of Operations
Three Months Ended September 30, 2020, Compared to the Three Months Ended
September 30, 2019:
Revenues
Revenues for the three months ended September 30, 2020, were $10,000, as
compared to $57,000 for the three months ended September 30, 2019, a decrease of
$47,000.
This decrease in revenues can be attributed to the decrease in consumer spending
arising from the COVID-19 pandemic, where we saw a noticeable decrease in both
retail and online sales. We expect our revenues to improve in future periods as
global economic conditions rebound, and consumer spending increases.
Gross Profit and Margins
Gross profit for the three months ended September 30, 2020, was $7,000, as
compared to $16,000 for the three months ended September 30, 2019. The $52,000
decrease in gross profit is the result of the decrease in revenues due to
reduced consumer demand as a result of the COVID-19 pandemic. Gross profit
margin for the three months ended September 30, 2020, was 78%, as compared to
28% for the three months ended September 30, 2019. This change in gross margin
loss resulted from a decrease in sales volume. We believe that, subject to
factors outside of our control, our historical gross margins of approximately
20%-40% are likely to remain the norm.
Operating Expenses
Operating expenses for the three months ended September 30, 2020, were $44,000,
as compared to $269,000 for the three months ended September 30, 2019. We expect
that operating expenses will increase over the next 12 months as our long-term
growth strategy will require increases in personnel and facilities, along with
increased development expenses to ensure that products are brought to market
quickly and effectively.
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Loss from Operations and Total Net Loss
Loss from operations for the three months ended September 30, 2020, was $37,000,
as compared to a loss from operations of $253,000 for the three months ended
September 30, 2019, a decrease in net loss from operations of $216,000. The
decrease in loss from operations for the three months ended September 30, 2020,
was as a result of (i) a reduction in gross revenues, resulting in a reduction
in gross profit, and (ii) a decrease in operating expenses due to the decrease
in revenues. Total net loss for the three months ended September 30, 2020, was
$603,000, as compared to a total net loss of $751,000 for the three months ended
September 30, 2019, a decrease in total net loss of $148,000. The decrease in
net loss for the three months ended September 30, 2020, was as a result of (i)
the change in operations discussed above, (ii) a $180,000 decrease in interest
expenses offset by an increase in amortization of debt discount of $94,000,
(iii) default penalties and financing costs of $16,000 and $97,000,
respectively, incurred during the three months ended September 30, 2020,
compared to $88,000 and $320,000, respectively, during the prior period, and
(iv) non-cash losses of $340,000 related to the derivative liability compared to
non-cash gains of $109,000 in the prior period. Derivative liabilities are
associated with loans that are convertible and have variable pricing on the
equivalent shares of Common Stock. At the end of each period, these derivative
liabilities are valued, and the net change is recorded as a gain or loss in
other expense and income.
We do not expect to realize net income in the near term as anticipated
operational expenses are expected to increase as our long-term growth strategy
will require increases in personnel and facilities, along with increased
development expenses to ensure that products are brought to market quickly and
effectively. Despite management's focus on ensuring operating efficiencies, we
expect to continue to operate at a loss through fiscal 2021.
Six Months Ended September 30, 2020, Compared to the Six Months Ended September
30, 2019:
Revenues
Revenues for the six months ended September 30, 2020, were $21,000, as compared
to $209,000 for the six months ended September 30, 2019, a decrease of $188,000.
This decrease in revenues can be attributed to the decrease in consumer spending
arising from the COVID-19 pandemic, where we saw a noticeable decrease in both
retail and online sales. We expect our revenues to improve in future periods as
global economic conditions rebound, and consumer spending increases.
Gross Profit and Margins
Gross profit for the six months ended September 30, 2020, was $10,000, as
compared to $71,000 for the six months ended September 30, 2019. The $71,000
decrease in gross profit is the result of the decrease in revenues due to
reduced consumer demand as a result of the COVID-19 pandemic. Gross profit
margin for the six months ended September 30, 2020, was 48%, as compared to 34%
for the six months ended September 30, 2019. This change in gross margin loss
resulted from a decrease in sales volume. We believe that, subject to factors
outside of our control, our historical gross margins of approximately 20%-40%
are likely to remain the norm.
Operating Expenses
Operating expenses for the six months ended September 30, 2020, were $252,000,
as compared to $477,000 for the six months ended September 30, 2019. We expect
that operating expenses will increase over the next 12 months as our long-term
growth strategy will require increases in personnel and facilities, along with
increased development expenses to ensure that products are brought to market
quickly and effectively.
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Loss from Operations and Total Net Loss
Loss from operations for the six months ended September 30, 2020, was $242,000,
as compared to a loss from operations of $406,000 for the six months ended
September 30, 2019, a decrease in net loss from operations of $164,000. The
decrease in loss from operations for the six months ended September 30, 2020,
was as a result of (i) a reduction in gross revenues, resulting in a reduction
in gross profit, and (ii) a decrease in operating expenses due to the decrease
in revenues. Total net loss for the six months ended September 30, 2020, was
$810,000, as compared to a total net loss of $1,523,000 for the six months ended
September 30, 2019, a decrease in total net loss of $713,000. The decrease in
net loss for the six months ended September 30, 2020, was as a result of (i) the
change in operations discussed above, (ii) a $449,000 decrease in interest
expenses offset by an increase in amortization of debt discount of $241,000,
(iii) default penalties and financing costs of $16,000 and $97,000,
respectively, incurred during the six months ended September 30, 2020, compared
to $202,000 and $320,000, respectively, during the prior period, and (iv)
non-cash losses of $173,000 related to the derivative liability compared to
non-cash losses of $97,000 in the prior period. Derivative liabilities are
associated with loans that are convertible and have variable pricing on the
equivalent shares of Common Stock. At the end of each period, these derivative
liabilities are valued, and the net change is recorded as a gain or loss in
other expense and income.
We do not expect to realize net income in the near term as anticipated
operational expenses are expected to increase as our long-term growth strategy
will require increases in personnel and facilities, along with increased
development expenses to ensure that products are brought to market quickly and
effectively. Despite management's focus on ensuring operating efficiencies, we
expect to continue to operate at a loss through fiscal 2021.
Liquidity and Capital Resources
Going Concern
We have incurred operating losses since inception and have negative cash flow
from operations. As of September 30, 2020, we had a stockholders' deficit of
$2,301,000, a working capital deficit of $2,296,000, and incurred a net loss of
$810,000 for the six months ended September 30, 2020. Additionally, our
operations utilized $133,000 in cash during the six months ended September 30,
2020, while we received $67,000 in cash from financing activities. As a result,
our continuation as a going concern is dependent on our ability to obtain
additional financing until we can generate sufficient cash flows from operations
to meet our obligations. We intend to continue to seek additional debt or equity
financing to continue our operations, but there can be no assurance that such
financing will be available on terms acceptable to us, if at all.
Our condensed consolidated financial statements have been prepared on a going
concern basis, which implies we may not continue to meet our obligations and
continue our operations for the next fiscal year. The continuation of our
Company as a going concern is dependent upon our ability to obtain necessary
debt or equity financing to continue operations until we begin generating
positive cash flow.
As of September 30, 2020 and March 31, 2020, we had cash of approximately $-0-
and $67,000, respectively. We estimate our operating expenses for the near- and
mid-term may continue to exceed the revenues that we may generate, and we may
need to raise capital through either debt or equity offerings to continue
operations. We are in the early stages of our business. We are required to fund
growth from financing activities, and we intend to rely on a combination of
equity and debt financings. Due to market conditions and the early stage of our
operations, there is considerable risk that we will not be able to raise such
financings at all, or on terms that are not overly dilutive to our existing
stockholders. We can offer no assurance that we will be able to raise such
funds. If we are unable to raise the funds we require for all of our planned
operations, we may be forced to reallocate funds from other planned uses and may
suffer a significant negative effect on our business plan and operations,
including our ability to develop new products and continue our current
operations. As a result, our business may suffer, and we may be forced to reduce
or discontinue operations.
There is no assurance that we will ever be profitable or that debt or equity
financing will be available to us in the amounts, on terms, and at times deemed
acceptable to us, if at all. The issuance of additional equity securities by us
would result in a significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, would increase our liabilities and future cash commitments. If we are
unable to obtain financing in the amounts and on terms deemed acceptable to us,
we may be unable to continue our business, as planned, and as a result may be
required to scale back or cease operations for our business, the result of which
would be that our stockholders would lose some or all of their investment. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result should we be
unable to continue as a going concern.
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Cash Flows - Operating Activities
For the six months ended September 30, 2020, our cash used in operating
activities amounted to an outflow of $133,000, compared to cash used during the
six months ended September 30, 2019, of $420,000. The decrease in cash used in
our operating activities is due to the reduction in operating activities during
the current period.
Cash Flows - Investing Activities
For the six months ended September 30, 2020, and 2019, there was no cash used in
investing activities.
Cash Flows - Financing Activities
For the six months ended September 30, 2020, our cash provided by financing
activities amounted to $67,000, which includes $68,000 in proceeds from the
issuance of notes payable and repayments of notes payable of $1,000. Our cash
provided by financing activities for the six months ended September 30, 2019,
amounted to $351,000, which includes $95,000 in proceeds received from the
issuances of our Common Stock and $256,000 in process from the issuance of
convertible debt.
Off Balance Sheet Arrangements
As of September 30, 2020, and March 31, 2020, we had 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 is material to stockholders.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make a number
of estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. We base our
estimates on historical experiences and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions and conditions. We
continue to monitor significant estimates made during the preparation of our
financial statements. On an ongoing basis, we evaluate estimates and assumptions
based upon historical experience and various other factors and circumstances. We
believe our estimates and assumptions are reasonable in the circumstances;
however, actual results may differ from these estimates under different future
conditions.
There have been no changes from the Summary of Significant Accounting Policies
described in our Annual Report on Form 10-K for the year ended March 31, 2020,
filed with the Securities and Exchange Commission on April 1, 2021.
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