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packaging facility, but it is no longer active.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 December 31, 2022, Compared to the Three Months Ended
December 31, 2021:
Revenues
Revenues for the three months ended December 31, 2022, were approximately
$260,000, as compared to approximately $339,000 for the three months ended
December 31, 2021, a decrease of approximately $79,000, or 23%.
This decrease in revenues can be attributed to a slowing economy during the
current period, resulting in decreased demand. We expect our revenues to improve
in future periods as we plan to open new locations and expand our offerings.
Gross Profit and Margins
Gross profit for the three months ended December 31, 2022, was approximately
$110,000, as compared to approximately $132,000 for the three months ended
December 31, 2021. The $22,000 decrease, or 17%, in gross profit is less than
the decrease in revenues and is the result of our retail store front focusing on
selling more profitable products in 2022 as compared to sales during the
comparative period in 2021. Gross profit margin for the three months ended
December 31, 2022, was approximately 42%, as compared to approximately 39% for
the three months ended December 31, 2021. This change in gross profit margin
resulted from management identifying and focusing sales efforts on the most
popular and highest margin products during 2022. We believe that, subject to
factors outside of our control, gross margins of approximately 40% are likely to
be the norm.
Operating Expenses
Operating expenses for the three months ended December 31, 2022, were
approximately $173,000, as compared to approximately $108,000 for the three
months ended December 31, 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.
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Profit/Loss from Operations and Total Net Loss
Loss from operations for the three months ended December 31, 2022, was
approximately $63,000, as compared to a gain from operations of approximately
$23,000 for the three months ended December 31, 2021, a decrease of
approximately $87,000. The decrease in revenues during the current period were
compounded by an increase in staffing costs.
Total net loss for the three months ended December 31, 2022, was approximately
$69,000, as compared to a total net loss of approximately $164,000 for the three
months ended December 31, 2021, a change of approximately $95,000. The change
for the three months ended December 31, 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 $137,000, (iii) interest expenses of approximately
$3,000 in the current period compared to approximately $3,000 in the prior
period, (iv) amortization of debt discounts of $3,000 in the current period
compared to $-0- in the prior period, and (v) non-cash gains of approximately
$-0- related to the derivative liability compared to non-cash losses of
approximately $48,000 in the prior period. Derivative liabilities are associated
with 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 2024.
Nine Months Ended December 31, 2022, Compared to the Nine Months Ended December
31, 2021:
Revenues
Revenues for the nine months ended December 31, 2022, were approximately
$809,000, as compared to approximately $717,000 for the nine months ended
December 31, 2021, an increase of approximately $92,000, or 13%.
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 and expand our offerings.
Gross Profit and Margins
Gross profit for the nine months ended December 31, 2022, was approximately
$393,000, as compared to approximately $295,000 for the nine months ended
December 31, 2021. The $98,000 increase, or 33%, in gross profit is the result
of our retail store front focusing on selling more profitable products in 2022
as compared to sales during the comparative period in 2021. Gross profit margin
for the nine months ended December 31, 2022, was approximately 49%, as compared
to approximately 41% for the nine months ended December 31, 2021. This change in
gross profit margin resulted from management identifying and focusing sales
efforts on the most popular and highest margin products during 2022. We believe
that, subject to factors outside of our control, gross margins of approximately
40% are likely to be the norm.
Operating Expenses
Operating expenses for the nine months ended December 31, 2022, were
approximately $531,000, as compared to approximately $360,000 for the nine
months ended December 31, 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
Loss from operations for the nine months ended December 31, 2022, was
approximately $138,000, as compared to approximately $65,000 for the nine months
ended December 31, 2021, an increase of approximately $73,000. The increase in
revenues and gross margin during the current period were offset by an increase
in staffing costs.
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Total net income for the nine months ended December 31, 2022, was approximately
$28,000, as compared to a total net loss of approximately $264,000 for the nine
months ended December 31, 2021, a change of approximately $292,000. The change
for the nine months ended December 31, 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 $275,000 compared to a gain on settlement of
liabilities in the current period of approximately $140,000, (iii) interest
expenses of approximately $9,000 in the current period compared to approximately
$24,000 in the prior period, (iv) amortization of debt discounts of $13,000 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 $100,000 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 2024.
Liquidity and Capital Resources
Going Concern
We have incurred significant operating losses since inception and have negative
cash flow from operations. As of December 31, 2022, we had a stockholders'
deficit of approximately $15,742,000, a working capital deficit of approximately
$572,000, and incurred net income of approximately $28,000 for the nine months
ended December 31, 2022. Additionally, our operations utilized approximately
$73,000 in cash during the nine months ended December 31, 2022, while we
received approximately $60,000 in net 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 December 31, 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 financing. Due to market conditions and the early stage of our
operations, there is a considerable risk that we will not be able to raise such
financing 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 nine months ended December 31, 2022, our cash used in operating
activities amounted to an outflow of approximately $73,000, compared to cash
used during the nine months ended December 31, 2021, of approximately $84,000.
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 nine months ended December 31, 2022 and 2021, there was no cash used in
investing activities.
Cash Flows - Financing Activities
For the nine months ended December 31, 2022, our cash provided by financing
activities amounted to approximately $60,000, which includes approximately
$202,000 in proceeds from notes payable and repayments of notes payable totaling
approximately $142,000. Our cash provided by financing activities for the nine
months ended December 31, 2021, amounted to approximately $89,000, which
includes approximately $89,000 in proceeds from the issuance of common stock.
Off Balance Sheet Arrangements
As of December 31, 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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