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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