RTON 10-Q
Right On Brands, Inc. (RTON)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
|
|
For the quarterly period ended December 31, 2021 | |
|
|
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 | |
|
|
For the transition period from __________ to __________ | |
|
|
Commission File Number: | |
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
(Address of principal executive offices) |
( |
(Registrant's telephone number) |
|
____________________________N/A_______________________________ |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/A |
Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of February 7, 2022, there were
TABLE OF CONTENTS
|
|
| Page |
|
|
|
|
|
|
|
|
|
|
|
| 3 |
| ||
Management's Discussion and Analysis of Financial Condition and Results of Operations |
| 4 |
| |
| 8 |
| ||
| 8 |
| ||
|
|
|
|
|
|
|
|
|
|
| 9 |
| ||
| 9 |
| ||
| 9 |
| ||
| 9 |
| ||
| 9 |
| ||
| 9 |
| ||
| 10 |
| ||
2 |
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Our financial statements included in this Form 10-Q are as follows:
F-1 | Condensed Consolidated Balance Sheets as of December 31, 2021 (unaudited) and March 31, 2021; |
F-2 | |
F-3 | |
F-4 | |
F-5 | Notes to Condensed Consolidated Financial Statements (unaudited). |
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended December 31, 2021, are not necessarily indicative of the results that can be expected for the full year.
3 |
| Table of Contents |
RIGHT ON BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| December 31, |
|
| March 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (audited) |
| ||
Assets |
| |||||||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Inventory |
|
|
|
|
|
| ||
Other current assets |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
Property and equipment, net of depreciation |
|
|
|
|
|
| ||
Right of use asset |
|
|
|
|
|
| ||
Total non-current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit | ||||||||
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ |
|
| $ |
| ||
Accrued interest payable |
|
|
|
|
|
| ||
Accrued expenses |
|
|
|
|
|
| ||
Lease liability, current portion |
|
|
|
|
|
| ||
Notes payable |
|
|
|
|
|
| ||
Convertible debt, net of discount |
|
|
|
|
|
| ||
Derivative liability |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Lease liability, non-current |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
|
|
Series A Preferred stock; |
|
|
|
|
|
| ||
Common stock; par value $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Common stock payable |
|
|
|
|
|
| ||
Accumulated deficit |
|
| (15,776,875 | ) |
|
| ( | ) |
Total Right On Brands stockholders' deficit |
|
| ( | ) |
|
| ( | ) |
Noncontrolling interest |
|
|
|
|
|
| ||
Total stockholders' deficit |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-1 |
| Table of Contents |
RIGHT ON BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Advertising and promotion |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Legal and professional |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Executive compensation |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impairment expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amortization of debt discount |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Change in fair value of derivative liability |
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||
Financing costs |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Default penalty |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Loss on extinguishment of liabilities |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Total other income (expense) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss including noncontrolling interest |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Net loss attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss attributable to Right on Brands, Inc. |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-2 |
| Table of Contents |
RIGHT ON BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED DECEMBER 31, 2021 AND 2020
UNAUDITED
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in |
|
| Common Stock |
|
| Accumulated |
|
| Noncontrolling |
|
|
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Interest |
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balances, March 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt and interest |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt and interest |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt and interest |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for service |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of accounts payable |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of warrant dispute |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of debt dispute |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for service |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of debt |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
| Table of Contents |
RIGHT ON BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
|
| For the nine months ended |
| |||||
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Right of use asset impairment |
|
|
|
|
|
| ||
Amortization of debt discount |
|
|
|
|
|
| ||
Financing costs |
|
|
|
|
|
| ||
Stock issued for services |
|
|
|
|
|
| ||
Change in fair value of derivative liability |
|
| ( | ) |
|
|
| |
Loss on extinguishment of liabilities |
|
| 274,938 |
|
|
|
| |
Default penalty |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
| ||
Inventory |
|
|
|
|
|
| ||
Accounts payable |
|
| ( | ) |
|
| ( | ) |
Accrued interest payable |
|
|
|
|
|
| ||
Accrued expenses |
|
|
|
|
| ( | ) | |
NET CASH USED IN OPERATING ACTIVITIES |
|
| (83,500 | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
|
|
|
|
| ||
Repayment of convertible debt |
|
|
|
|
| ( | ) | |
Proceeds from issuance of common stock |
|
|
|
|
|
| ||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
| $ |
|
| $ | ( | ) | |
CASH, BEGINNING OF PERIOD |
|
|
|
|
|
| ||
CASH, END OF PERIOD |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
CASH PAID FOR INCOME TAXES |
| $ |
|
| $ |
| ||
CASH PAID FOR INTEREST |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Common stock issued for conversion of debt and interest |
| $ |
|
| $ |
| ||
Common stock issued for settlement of liabilities |
| $ |
|
| $ |
| ||
Right of use asset and liability, office lease |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS |
Formation and Business Activity
Right on Brands, Inc. (“we” or “the Company” or “Right on Brands”) was incorporated under the laws of the State of Nevada on April 1, 2011, as HealthTalk Live, Inc. On August 10, 2017, the Company amended is articles of incorporation and changed its name to Right On Brands, Inc. On August 31, 2017 the Company common shares commenced trading under the new stock symbol RTON. The Company’s primary business is the sale of health and wellness products.
The Company has the following wholly owned subsidiaries:
| · | Humbly Hemp, Inc. |
| · | Endo Brands, Inc. |
| · | Humble Water Company |
The Company has the following majority owned subsidiaries:
| · | Endo & Centre Venture LLC (51% owner) |
As disclosed in our 10-K for the year ended March 31, 2021, the Company, through its subsidiaries Humble Water Company and Endo & Centre Venture LLC, had joint ventures with no activity. The Company has discontinued these joint ventures and Humble Water Company and Endo & Centre Venture LLC contain no assets, liabilities, or operations.
The Company continues to sell health and wellness products focused in the hemp marketplace through online and in-person retail sales at our retail location in Rowlett, Texas.
NOTE 2 – GOING CONCERN |
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the period ended December 31, 2021, the Company had an accumulated deficit of approximately $
While the Company is attempting to generate greater revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds by way of additional public and/or private offerings of its stock. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate revenues.
The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and the interim reporting rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
| F-5 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Principles of Consolidation
The condensed consolidated financial statements of the Company include the accounts of Right On Brands, Inc. and its wholly owned subsidiaries and majority owned business (Humbly Hemp, Inc., Endo Brands, Inc., Humble Water Company, Springhill Water Co, and Endo & Centre Venture LLC). Intercompany accounts and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company has defined cash and cash equivalents as all cash in banks and highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2021 or March 31, 2021.
The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC provides coverage of up to $
Accounts Receivable
The Company performs periodic credit evaluations of its customers’ financial condition and extends credit to virtually all of its customers on an uncollateralized basis. Credit losses to date have been insignificant and within management’s expectations. The Company provides an allowance for doubtful accounts that is based upon a review of outstanding receivables, historical collection information, and existing economic conditions.
Inventory
Inventories are stated at the lower of cost (average cost) or market (net realizable value). Cost includes materials related to the purchase of finished goods to be sold to retail customers. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the straight-line method over the useful lives of the related assets, ranging from one to five years.
The cost of building the Company's website has been capitalized and amortized over a period of three years. Expenditures for minor enhancements and maintenance are expensed as incurred.
| F-6 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recoverability of Long-Lived Assets
The Company's long-lived assets and other assets (consisting of property and equipment) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, "Property, Plant, and Equipment," and FASB ASC Topic 205 "Presentation of Financial Statements". The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through December 31, 2021 and 2020, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company's products or services will continue, which could result in an impairment of long-lived assets in the future.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when management assesses that it is probably that a liability has been incurred and the amount can be reasonable estimated.
Income Taxes
In accordance with FASB ASC Topic 740, "Income Taxes," the Company provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
In addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes. If the Company has interest or penalties associated with insufficient taxes paid, such expenses are reported in income tax expense.
Revenue Recognition
We recognize revenue when our performance obligation is satisfied. Our primary performance obligation (the distribution and sales of hemp products) is satisfied upon the shipment or delivery of products to our customers, which is also when control is transferred. The transfer of control of products to our online customers is typically based on sales terms that do not allow for a right of return after 7 days from the date of purchase. The transfer of control of products to our in-store customers is typically based on sales terms that do not allow for a right of return.
Our products are sold for cash with payments received at pickup or before shipping.
Share Based Compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 718.
| F-7 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Fair Value Measurement
ASC Topic 820, “Fair Value Measurement”, requires that certain financial instruments be recognized at their fair values at our balance sheet dates. However, other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but Generally Accepted Accounting Principles in the United States (“GAAP”) provides an option to elect fair value accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they are recognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires the disclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instruments recognized in income or other comprehensive income. For financial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Financial Instruments.”
Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in the Company’s balance sheets. GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of such assets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, if such an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or loss recognized in income in the period the remeasurement occurred.
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company did not have any Level 1 or Level 2 assets and liabilities at December 31, 2021 or March 31, 2021. The Derivative liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities during the nine months ended December 31, 2021:
Balance at March 31, 2021 |
| $ |
| |
Settlement |
|
| ( | ) |
Change in fair value |
|
| ( | ) |
Balance at December 31, 2021 |
| $ |
|
During prior years, the Company entered into several convertible note agreements (Note 6). These notes are convertible at a fraction of the stock closing price near the conversion date. Additionally, the conversion price, as well as other terms including interest rates, adjust if any future financings have more favorable terms. The conversion features of these notes meet the definition of a derivative which therefore requires bifurcation and are accounted for as a derivative liability.
At March 31, 2021, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible promissory notes based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock of $
At December 31, 2021, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible promissory notes based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock of $
| F-8 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, receivables, payables, and debt and are accounted for under the provisions of ASC Topic 825, “Financial Instruments”. The carrying amount of these financial instruments, with the exception of discounted debt, as reflected in the consolidated balance sheets approximates fair value.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 "Derivatives and Hedging Activities".
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. Proceeds from these convertible notes are reported under the financing section of the statements of cash flows. Changes to the fair value of the derivative liability are reported as adjustments to reconcile net loss to net cash used in operating activities in the accompanying statement of cash flows.
Basic and Diluted Loss Per Share
Basic net loss/income per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options, warrants and convertible notes. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented.
Recently Issued Accounting Standards
During the period ended December 31, 2021, and subsequently, there were several new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
Subsequent Events
The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
| F-9 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 – INVENTORY |
At December 31, 2021 and March 31, 2021, inventory consisted of the following:
|
| December 31, 2021 |
|
| March 31, 2021 |
| ||
|
|
|
|
| ||||
Finished goods |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
NOTE 5 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS |
The Company’s property and equipment consisted of the following at the respective balance sheet dates:
|
| December 31, 2021 |
|
| March 31, 2021 |
| ||
|
|
|
|
| ||||
Website development |
| $ |
|
| $ |
| ||
Automobile |
|
|
|
|
|
| ||
Studio and office equipment |
|
|
|
|
|
| ||
Tenant improvements |
|
|
|
|
|
| ||
Intangible assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
|
| $ |
|
| $ |
| ||
Depreciation expense of property and equipment for the nine months ended December 31, 2021 and 2020 was $
NOTE 6 – DEBT |
Notes Payable
During October 2016, the Company extinguished $
On November 22, 2019, the Company issued a $
| F-10 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On May 9, 2020, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Company received a two-year loan for $
During the period ended December 31, 2021, the Company incurred interest expenses related to notes payable totaling $
Convertible Debt
At December 31, 2021, the Company's convertible debt and derivative liability related to the notes which can be converted at variable discounted rates are summarized as follows:
Noteholder |
| Origination |
| Maturity |
| Interest rate |
|
| Variable conversion discount |
|
| Principal balance |
|
| Debt discount |
|
| Net amount of liabilities presented |
|
| Corresponding derivative balance |
| ||||||
Noteholder 10 |
|
|
|
| % |
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noteholder |
| Origination |
| Maturity |
| Interest rate |
|
| Fixed conversion rate |
|
| Principal balance |
|
| Debt discount |
|
| Net amount of liabilities presented |
|
| Corresponding derivative balance |
| ||||||
Noteholder 9 |
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Noteholder 13 |
|
|
|
| % |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
At March 31, 2021, the Company's convertible debt and derivative liability related to the notes which can be converted at variable discounted rates are summarized as follows:
Noteholder |
| Origination |
| Maturity |
| Interest rate |
|
| Variable conversion discount |
|
| Principal balance |
|
| Debt discount |
|
| Net amount of liabilities presented |
|
| Corresponding derivative balance |
| ||||||
Noteholder 2 |
|
|
|
| % |
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Noteholder 8 |
|
|
|
| % |
| See below |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Noteholder 10 |
|
|
|
| % |
|
| % |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noteholder |
| Origination |
| Maturity |
| Interest rate |
|
| Fixed conversion rate |
|
| Principal balance |
|
| Debt discount |
|
| Net amount of liabilities presented |
|
| Corresponding derivative balance |
| ||||||
Noteholder 9 |
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Noteholder 13 |
|
|
|
| % |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
During the period ended December 31, 2021, the Company incurred interest expenses related to convertible debt totaling $
| F-11 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On July 10, 2020, the Company and Noteholder 8 agreed to amend the conversion terms of the $
On October 20, 2021, the Company and Noteholder 8 reached an agreement resolving an ongoing dispute related to Noteholder 8’s convertible note payable. As part of the agreement, the Company issued
The convertible debt held by noteholders 9, 10 and 13 are in default at December 31, 2021.
Future Maturities
The Company’s future maturities of notes payable and convertible debt are as follows:
Year ending |
|
| ||
March 31, |
| Amount |
| |
2022 |
| $ |
| |
|
| $ |
| |
Amortization of Debt Discount
During the nine months ended December 31, 2021 and 2020, the Company recorded amortization of debt discounts totaling $-
NOTE 7 – NONCONTROLLING INTEREST |
Investments in partnerships, joint ventures and less-than-majority-owned subsidiaries in which we have significant influence are accounted for under the equity method.
As of March 31, 2018, the Company's consolidated financial statements includes a venture for the development of a commercial bottled water operation near Browning, Montana. The new venture will be operated through Spring Hill Water Company, LLC, a Nevada limited liability company ("Spring Hill"). Spring Hill is
As of December 31, 2021 and March 31, 2021, the noncontrolling interest was $
| F-12 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 – EARNINGS PER SHARE |
FASB ASC Topic 260, “Earnings Per Share,” requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations.
Basic earnings (loss) per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
The Company had no potential additional dilutive securities outstanding at December 31, 2021 or March 31, 2021, except as follows:
|
| December 31, 2021 |
|
| March 31, 2021 |
| ||
Preferred stock |
|
|
|
|
|
| ||
Warrants |
|
|
|
|
|
| ||
Options |
|
|
|
|
|
| ||
Convertible debt |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
NOTE 9 – STOCKHOLDERS’ EQUITY |
Series A Preferred Stock
The Series A Preferred Stock is convertible to common stock at a rate of five shares for every share held and the holder(s) have the right to cast a total of fifty-percent (50%) plus one votes on all matters submitted to a vote of holder of the Company’s common stock. Our Series A Preferred Stock ranks equally, on an as-converted basis, to our common stock with respect to rights upon winding up, dissolution, or liquidation.
On June 6, 2019 the Board of Directors agreed to amend the certificate of designation for the Series A Preferred stock to have the right to cast a total of fifty-percent (50%) plus one votes on all matters submitted to a vote of holder of the Company’s common stock, including the election of directors, and all other matters as required by law. There is no right to cumulative voting in the election of directors. The holders of Series A Preferred Stock shall vote together with all other classes and series of common stock of the Company as a single class on all actions to be taken by the common stock holders of the Company except to the extent that voting as a separate class or series is required by law. Our Series A Preferred Stock does not have any special dividend rights.
On October 1, 2016, the Company issued
Common Stock
From April to July 2021, the Company issued several subscription agreements for the purchase of common stock by various investors. A total of
During May 2021, the Company and Noteholder 3 entered into a settlement and mutual release agreement to settle a dispute over the dilution of
During June 2021, the Company issued
| F-13 |
| Table of Contents |
RIGHT ON BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During August 2021, the Company issued 1,500,000 shares of common stock for services provided to the Company.
Stock Options and Warrants
A summary of the status of the Company’s option and warrant grants as of December 31, 2021, and the changes during the period then ended is presented below.
|
| Shares |
|
| Weighted Avg Exercise Price |
| ||
Outstanding, March 31, 2021 |
|
|
|
| $ |
| ||
Granted |
|
| - |
|
| $ |
| |
Exercised |
|
| - |
|
| $ |
| |
Expired |
|
| ( | ) |
| $ |
| |
Outstanding, December 31, 2021 |
|
| - |
|
| $ |
| |
Exercisable, December 31, 2021 |
|
| - |
|
| $ |
| |
NOTE 10 – RELATED PARTY TRANSACTIONS |
During December 2017, the Company entered into a consulting agreement with Dr. Ashok Patel, who served as CEO until September 2019, to serve as Director of Product Development. Consideration for services under the agreement provided for the issuance of
The trustee of La Dulce Vita Trust, Noteholder 8, is the aunt of Daniel Crawford, a related party. The trust is a noteholder as detailed in Note 6.
At December 31, 2021, the Company had accounts payable totaling $
NOTE 11 – COMMITMENTS AND CONTINGENCIES |
On April 1, 2019, the Company entered into an office and warehouse lease in Carrollton, Texas. At the inception of the lease, the Company adopted ASC 842 requiring the recording of assets and liabilities related to leases on the balance sheet. The Company records rent on straight-line basis over the terms of the underlying lease. As a result of the ongoing COVID-19 pandemic, the lease was abandoned during May 2020. The Company impaired the right-of-use asset related to the lease, resulting in a $
On March 17, 2021, the Company entered into a storefront lease agreement in Rowlett, Texas. At the inception of the lease, the Company recorded a right of use asset and lease liability of $
Year Ending March 31, |
| Amount |
| |
2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
|
| $ |
| |
During December 2021, the Company was listed as defendant on a complaint from Noteholder 10 seeking repayment of amounts due under the February 2020 convertible note payable (Note 6). The Company has recorded all unpaid principal and interest due to Noteholder 10 through December 31, 2021.
NOTE 12 – SUBSEQUENT EVENTS |
On January 31, 2022, the Company entered into a loan agreement totaling $
| F-14 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2021, Compared to the Three Months Ended December 31, 2020:
Revenues
Revenues for the three months ended December 31, 2021, were approximately $339,000, as compared to approximately $3,000 for the three months ended December 31, 2020, an increase of approximately $336,000.
This increase in revenues can be attributed to the opening of the retail store front in north Texas. 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 December 31, 2021, was approximately $132,000, as compared to approximately $2,000 for the three months ended December 31, 2020. The $130,000 increase in gross profit is the result of our recently-opened retail store front selling more products in 2021 as compared to sales during the comparative period in 2020. Gross profit margin for the three months ended December 31, 2021, was approximately 39%, as compared to approximately 54% for the three months ended December 31, 2020. This change in gross profit margin resulted from an increase in sales volume. We believe that, subject to factors outside of our control, gross margins of approximately 20%-40% are likely to be the norm.
Operating Expenses
Operating expenses for the three months ended December 31, 2021, were approximately $108,000, as compared to approximately $82,000 for the three months ended December 31, 2020. 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.
| 4 |
| Table of Contents |
Profit/Loss from Operations and Total Net Loss
Income from operations for the three months ended December 31, 2021, was approximately $23,000, as compared to a loss from operations of approximately $80,000 for the three months ended December 31, 2020, an increase of approximately $103,000. The increase in income from operations for the three months ended December 31, 2021, was as a result of an increase revenues and activities from the operations of our retail store front.
Total net loss for the three months ended December 31, 2021, was approximately $164,000, as compared to a total net loss of approximately $92,000 for the three months ended December 31, 2020, a change of approximately $72,000. The change for the three months ended December 31, 2021, was as a result of (i) the change in operations discussed above, (ii) approximately of $37,000 in default penalties in the prior period, (iii) interest expenses of approximately $3,000 in the current period compared to approximately $21,000 in the prior period, (iv) amortization of debt discounts of $-0- in the current period compared to approximately $55,000 in the prior period, (v) loss from extinguishment of liabilities of approximately $137,000 in the current period, and (vi) non-cash losses of approximately $48,000 related to the derivative liability compared to non-cash gains of approximately $101,000 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 2022.
Nine Months Ended December 31, 2021, Compared to the Nine Months Ended December 31, 2020:
Revenues
Revenues for the nine months ended December 31, 2021, were approximately $717,000, as compared to approximately $23,000 for the nine months ended December 31, 2020, an increase of approximately $694,000.
This increase in revenues can be attributed to the opening of the retail store front in north Texas. 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 nine months ended December 31, 2021, was approximately $295,000, as compared to approximately $11,000 for the nine months ended December 31, 2020. The approximately $284,000 increase in gross profit is the result of our recently-opened retail store front selling more products in 2021 as compared to sales during the comparative period in 2020. Gross profit margin for the nine months ended December 31, 2021, was approximately 41%, as compared to approximately 49% for the nine months ended December 31, 2020. This change in gross profit margin resulted from an increase in sales volume. We believe that, subject to factors outside of our control, gross margins of approximately 20%-40% are likely to be the norm.
Operating Expenses
Operating expenses for the nine months ended December 31, 2021, were approximately $360,000, as compared to approximately $333,000 for the nine months ended December 31, 2020. 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.
Profit/Loss from Operations and Total Net Loss
Loss from operations for the nine months ended December 31, 2021, was approximately $65,000, as compared to a loss from operations of approximately $322,000 for the nine months ended December 31, 2020, an decrease of approximately $257,000. The decrease in loss from operations for the nine months ended December 31, 2021, was as a result of the commencement of operations at our retail store front.
| 5 |
| Table of Contents |
Total net loss for the nine months ended December 31, 2021, was approximately $264,000, as compared to a total net loss of approximately $902,000 for the nine months ended December 31, 2020, a change of approximately $638,000. The change for the nine months ended December 31, 2021, was as a result of (i) the change in operations discussed above, (ii) approximately $97,000 in financing costs and approximately $53,000 in default penalties in the prior period, (iii) interest expenses of approximately $24,000 in the current period compared to approximately $62,000 in the prior period, (iv) amortization of debt discounts of $-0- in the current period compared to approximately $296,000 in the prior period, (v) loss from extinguishment of liabilities of approximately $275,000 in the current period, and (vi) non-cash gains of approximately $100,000 related to the derivative liability compared to non-cash losses of approximately $72,000 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 2022.
Liquidity and Capital Resources
Going Concern
We have incurred operating losses since inception and have negative cash flow from operations. As of December 31, 2021, we had a stockholders’ deficit of approximately $15,777,000, a working capital deficit of approximately $614,000, and incurred a net loss of approximately $264,000 for the nine months ended December 31, 2021. Additionally, our operations utilized approximately $84,000 in cash during the nine months ended December 31, 2021, while we received approximately $89,000 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 December 31, 2021 and March 31, 2021, we had cash of approximately $51,000 and $46,000, 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.
| 6 |
| Table of Contents |
Cash Flows – Operating Activities
For the nine months ended December 31, 2021, our cash used in operating activities amounted to an outflow of approximately $84,000, compared to cash used during the nine months ended December, 2020, of approximately $134,000. The decrease in cash used in our operating activities is due to the opening of the retail store front in the current period.
Cash Flows – Investing Activities
For the nine months ended December 31, 2021 and 2020, there was no cash used in investing activities.
Cash Flows – Financing Activities
For the nine months ended December 31, 2021, our cash provided by financing activities amounted to approximately $89,000, which includes approximately $89,000 in proceeds from the issuance of common stock. Our cash provided by financing activities for the nine months ended December 31, 2020, amounted to approximately $67,000, which includes approximately $68,000 in proceeds from the issuance of notes payable, and approximately $1,000 in repayments on convertible debt.
Off Balance Sheet Arrangements
As of December 31, 2021, and March 31, 2021, 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, 2021, filed with the Securities and Exchange Commission on August 4, 2021.
| 7 |
| Table of Contents |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2021. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Jerry Grisaffi and our Chief Financial Officer, A. David Youssefyeh. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the period ended December 31, 2021.
Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
| 8 |
| Table of Contents |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There is a dispute between the Company and the holder of a convertible note regarding the repayment of the balance due to the holder. On or about December 17, 2021, Norton Capital, LLC (“Norton”) filed suit against the Company in the United States District Court for the Northern District of Texas (Case No. 3:21-cv-03113-K), alleging that the Company breached a $100,000 promissory note issued by the Company to Norton on or about February 27, 2020, by failing to repay amounts due under the note due at maturity of the note, and seeking payment of amounts due to Norton under the note. The Company disputes Norton’s allegations and intends to vigorously defend the matter.
Item 1A. Risk Factors
A smaller reporting company is not required to include this information. For a description of the risk factors applicable to our business and operations, please refer to our Annual Report on Form 10-K for the year ended March 31, 2021, filed with SEC on August 4, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On or about October 20, 2021, the Company issued 225,910,000 shares of the Company’s common stock to a third-party debt holder for the settlement of a dispute.
The issuances of the foregoing securities were made in reliance on the exemption from registration provided by Rule 506(c) promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended, as the shareholders were accredited and/or financially sophisticated, as well as Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions with the shareholders did not involve a public offering.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
| 9 |
| Table of Contents |
Item 6. Exhibits
Exhibit Number |
| Description of Exhibit |
|
|
|
| ||
| ||
| ||
| Bylaws (incorporated by reference to Registration Statement on Form S-1 filed July 1, 2013) | |
| ||
| ||
| ||
101 |
| Interactive data files pursuant to Rule 405 of Regulation S-T. |
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| 10 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Right On Brands, Inc. |
| |
|
|
|
|
Date: February 7, 2022 | By: | /s/ Jerry Grisaffi |
|
| Name: | Jerry Grisaffi |
|
| Title: | Chief Executive Officer |
|
Date: February 7, 2022 | By: | /s/ A. David Youssefyeh |
|
| Name: | A. David Youssefyeh |
|
| Title: | Chief Financial Officer |
|
| 11 |