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 year ended December 31, 2019 as compared to the year ended December 31, 2018.

For the year ended December 31, 2019 and 2018, we had revenues of $15,060,840 and $25,583,761 respectively. This represents a decrease in revenue of $(10,522,921) or 41.1%. This decrease in revenue was due to distribution contraction as a result of the FDA Warning Letter, along with the paring and streamlining of the product lines in mid-2019.

Our Gross Profit from the sale of all products the year ended December 31, 2019 and 2018 was $4,816,604 and $8,959,433 respectively, or a decrease of 46.2%. 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 years ended December 31, 2019 and 2018 decreased to a Loss of $(3,367,831) from a Net Profit of $242,634 respectively, attributable to the decrease in gross profit.

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 year ended December 31, 2019 were $8,184,434 with interest expense being $334,139 compared to $8,716,799 with interest expense of $10,560 for the comparable period of 2018.

Liquidity and Capital Resources

Assets increased from $5,214,529 at the Company's fiscal year end of December 31, 2018 to $6,124,893 at December 31, 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 $4,082,194 as of December 31, 2018 to $5,907,000 as of December 31, 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 year ended December 31, 2019 was $(3,599,572) as compared to $(2,636,858) for the same period in 2018.






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Cash Flow from Investing Activities

Net cash provided by investing activities for the year ended December 31, 2019 was $2,453,389 as compared to $1,255,336 for the same period in 2018.

Cash Flow from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2019 was $632,339 as compared to $1,711,376 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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