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
Right On Brands is at the intersection of health and wellness. We create lasting
brands with emerging functional ingredients, and our focus right now is
industrial hemp and hemp derived products. Our business has historically been
conducted through our wholly owned subsidiaries, Endo Brands and Humble Water
Company. 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packaging facility, but it is no longer active. Endo Brands creates and markets
a line of cannabinoid-based consumer products. All of our current business is
through Endo Brands.
Results of Operations
Three Months Ended June 30, 2022, Compared to the Three Months Ended June 30,
2021:
Revenues
Revenues for the three months ended June 30, 2022, were approximately $308,000,
as compared to approximately $141,000 for the three months ended June 30, 2021,
an increase of approximately $168,000, or 119%.
This increase in revenues can be attributed to the opening of the retail store
front in north Texas which continued to gain traction during the current period.
We expect our revenues to improve in future periods as we plan to open new
locations, global economic conditions continue to rebound, and consumer spending
increases.
Gross Profit and Margins
Gross profit for the three months ended June 30, 2022, was approximately
$181,000, as compared to approximately $114,000 for the three months ended June
30, 2021. The $67,000 increase, or 59%, in gross profit is the result of our
retail store front selling more products in 2022 as compared to sales during the
comparative period in 2021. Gross profit margin for the three months ended June
30, 2022, was approximately 59%, as compared to approximately 81% for the three
months ended June 30, 2021. This change in gross profit margin resulted from an
increase in costs from supply chain issues and inflation as compared to the
comparative period in 2021. We believe that, subject to factors outside of our
control, gross margins of approximately 40% are likely to be the norm.
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Operating Expenses
Operating expenses for the three months ended June 30, 2022, were approximately
$176,000, as compared to approximately $112,000 for the three months ended June
30, 2021. The increase was primarily due to an increase in staffing. We expect
that operating expenses will increase over the next 12 months as our long-term
growth strategy will require increases in personnel staffing and facility
expansion.
Profit/Loss from Operations and Total Net Loss
Income from operations for the three months ended June 30, 2022, was
approximately $5,000, as compared to approximately $2,000 for the three months
ended June 30, 2021, an increase of approximately $3,000. The increase in
revenues during the current period were offset by an increase in staffing costs.
Total net income for the three months ended June 30, 2022, was approximately
$194,000, as compared to a total net loss of approximately $122,000 for the
three months ended June 30, 2021, a change of approximately $316,000. The change
for the three months ended June 30, 2022, was as a result of (i) the change in
operations discussed above, (ii) a loss on settlement of liabilities in the
prior period of approximately $138,000 compared to a gain on settlement of
liabilities in the current period of approximately $140,000, (iii) interest
expenses of approximately $2,000 in the current period compared to approximately
$11,000 in the prior period, (iv) amortization of debt discounts of $1,000 in
the current period compared to $-0- in the prior period, and (v) non-cash gains
of approximately $52,000 related to the derivative liability compared to
non-cash gains of approximately $25,000 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 significant 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. Despite
management's focus on ensuring operating efficiencies, we expect to continue to
operate at a loss through fiscal 2023.
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Liquidity and Capital Resources
Going Concern
We have incurred significant operating losses since inception and have negative
cash flow from operations. As of June 30, 2022, we had a stockholders' deficit
of approximately $15,576,000, a working capital deficit of approximately
$410,000, and incurred net income of approximately $194,000 for the three months
ended June 30, 2022. Additionally, our operations utilized approximately $21,000
in cash during the three months ended June 30, 2022, while we received
approximately $8,000 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 June 30, 2022 and March 31, 2022, we had cash of approximately $15,000 and
$28,000, 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 three months ended June 30, 2022, our cash used in operating activities
amounted to an outflow of approximately $21,000, compared to cash used during
the three months ended June 30, 2021, of approximately $76,000. The decrease in
cash used in our operating activities is due to the positive performance of the
retail store front in the current period.
Cash Flows - Investing Activities
For the three months ended June 30, 2022 and 2021, there was no cash used in
investing activities.
Cash Flows - Financing Activities
For the three months ended June 30, 2022, our cash provided by financing
activities amounted to approximately $8,000, which includes approximately
$80,000 in proceeds from an advance and repayments of notes payable totaling
approximately $72,000. Our cash provided by financing activities for the three
months ended June 30, 2021, amounted to approximately $64,000, which includes
approximately $64,000 in proceeds from the issuance of common stock.
Off Balance Sheet Arrangements
As of June 30, 2022, and March 31, 2022, 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, 2022,
filed with the Securities and Exchange Commission on July 11, 2022.
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