Except for the historical information, the following discussion contains
forward-looking statements that are subject to risks and uncertainties. We
caution you not to put undue reliance on any forward-looking statements, which
speak only as of the date of this report. Our actual results or actions may
differ materially from these forward-looking statements for many reasons,
including the risks described in "Risk Factors" and elsewhere in this annual
report. Our discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and
related notes and with the understanding that our actual future results may be
materially different from what we currently expect.
Introduction
Based on our diversified expertise in manufacturing, marketing, distribution,
and technology services in a wide variety of consumer products, including
tobacco products, medical devices, and beverages, around the world, we have an
innovative and consumer-focused approach to brand portfolio management, resting
on a strong understanding of consumers domestically, and we have established a
footprint in more than 50 key, international markets.
During the year ended December 31, 2021, our expanded business activities
generated revenue of $2,923,269. In 2020, we completed phase one and two of our
development of all HUSTLER®-branded products, which enabled us to generate
revenue of $1,732,625 during the year ended December 31, 2020, related to our
2019 five-year manufacturing and distribution agreement with an unrelated party
to manufacture, distribute, and sell condoms, electronic tobacco products,
cigars, energy drinks, water beverages, and related merchandise, all using the
HUSTLER® brand name.
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Going Concern
We have suffered substantial losses. The future of our company is dependent upon
our ability to continue to generate revenues sufficient to offset operating
costs or recover start-up costs under our GloBrands-HUSTLER® Exclusive
Manufacturing and Distribution Agreement signed in December 2019. Management
intends to seek additional capital through a private placement or public
offering of its common stock, if necessary. Our auditors have expressed a going
concern in their opinion, which raises substantial doubts about our ability to
continue as a going concern.
Results of Operations
Comparison of Years Ended December 31, 2021 and 2020
Sales and Cost of Sales
We had revenues of $2,923,269 and $1,732,625 during the years ended December 31,
2021 and 2020, respectively. Revenues during the years ended December 31, 2021
and 2020, were derived from the design, manufacture, and delivery of certain
licensed products in accordance with our GloBrands-HUSTLER® distribution
agreement. Costs of sales were $1,024,444, or 35% of revenue, and $896,273, or
51% of revenue, during 2021 and 2020, respectively. The improved margin in the
latter year reflects production and purchasing efficiencies as our operations
increased.
Operating Expenses
During the year ended December 31, 2021, selling, general, and administrative
expenses and employee costs were approximately $2,139,000, as compared to
approximately $758,000 for the same period in 2020, an almost three-fold
increase because of increased operations in 2021 from executing our business
plan.
Other Income and Expense
Other income and expenses during the year ended December 31, 2021, consisted of
interest expense of approximately $680,000, loss on the fair value of derivative
liabilities of approximately $16,000, gain on forgiveness of debt of
approximately $13,000, gains on the write-off of accounts payable of
approximately $1.2 million and other income of approximately $1,000. Other
income and expenses during the year ended December 31, 2020, consisted of
interest expense of approximately $658,000, a loss of disposal of equipment of
approximately $10,000, losses of the fair value of derivative liabilities of
approximately $23,000, gains on the write-off of accounts payable of
approximately $1.0 million, and other income of $42,000.
As a result of the foregoing, we had a net profit from continuing operations of
approximately $267,000 during the year ended December 31, 2021, as compared to
$453,000 during the year ended December 31, 2020.
Liquidity and Capital Resources
We had a history of losses from operations prior to 2020, as our expenses had
been greater than our revenues, which had ceased entirely several years earlier.
Our accumulated deficit was approximately $77.8 million at December 31, 2021.
For the year ended December 31, 2021, we used approximately $103,000 of cash in
operating, investing, and financing activities, compared to generating cash of
approximately $108,000 for the prior year from operating and financing
activities.
During the year ended December 31, 2021, we generated approximately $345,000 of
net cash in operations, comprised of net income from continuing operations of
approximately $114,000, income from discontinued operations of approximately
$153,500, noncash expenses of approximately $1.1 mil, and changes in working
capital of approximately $1.1 mil. The net change in working capital was
primarily driven by increase in accrued interest of approximately $574,000,
accounts payable of approximately $540,000 and accrued payroll and compensation
of approximately $357,000.
During the year ended December 31, 2020, we generated approximately $464,000 of
net cash in operations, comprised of net income from continuing operations of
$452,000, noncash expenses of approximately $866,000, changes in working capital
of approximately $1,000,000, and net cash used in discontinued operations of
approximately $115,000. The net change in working capital was primarily driven
by accrued interest of approximately $543,000 and accrued liabilities of
approximately $640,000.
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During the year ended December 31, 2021, we used approximately $443,000 of net
cash from financing activities mainly comprised of repayments on related-party
loans that totaled $448,000 and proceeds from non-related-party loans of $5,000.
During the year ended December 31, 2020, we used $337,520 of net cash from
financing activities mainly comprised of repayments on related-party loans that
totaled $467,409 and proceeds from non-related-party loans of $156,000.
Our Capital Resources and Anticipated Requirements
Our monthly operating costs are approximately $35,000 per month, excluding
approximately $50,000 of accruing interest expense and capital expenditures. We
continue to focus on generating revenue and reducing our monthly business
expenses through cost reductions and operational streamlining. We have only
recently begun to generate enough cash to sustain our day-to-day operations, and
we expect to access external capital resources in the future to fund any new
projects we may undertake. We cannot assure that we will be successful in
obtaining such capital.
If we seek infusions of capital from investors, it is unlikely that we will be
able to obtain additional debt financing. If we did incur additional debt, we
would be required to devote additional cash flow to servicing the debt and
securing the debt with assets.
Our issuance of additional shares for equity or for conversion of debt could
dilute the value of our common stock and existing stockholders' positions.
Convertible Debentures and Notes Payable
We currently have an outstanding amended, restated, and consolidated secured
convertible debenture with Tekfine, LLC, an unrelated entity, with a maturity
date of April 30, 2027, to the extent not previously converted. The amended
debenture had a total outstanding principal balance of $2.4 million, with
accrued interest of $1.6 million as of December 31, 2021. We also have four
additional convertible debentures with Tekfine with maturity dates ranging from
February 28, 2022, until May 30, 2022, totaling $275,000, unless earlier
converted. The convertible debentures and accrued interest are convertible into
shares of our common stock at the lower of $100 or $0.10 (depending on the
instrument) or the lowest bid price for the 20 trading days prior to conversion.
We have received advances from related parties totaling $5,000 and $11,500
during the years ended December 31, 2021 and 2020, respectively, as well as
making repayments on related-party loans of $448,335 and $467,409 during the
years ended December 31, 2021 and 2020, respectively. Additionally, related
parties paid expenses on our behalf of $1,940 during the years ended December
31, 2020. The advances are non-interest-bearing, due on demand, and are included
in current liabilities.
Critical Accounting Policies
The methods, estimates, and judgments we use in applying our accounting policies
have a significant impact on the results we report in our financial statements,
which we discuss under the heading "Results of Operations" in this Item 7. Some
of our accounting policies require us to make difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain.
We set forth below those material accounting policies that we believe are the
most critical to an investor's understanding of our financial results and
condition and that require complex management judgment.
Use of Estimates
The preparation of our financial statements in conformity with GAAP 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 financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Our periodic filings with the Securities and Exchange Commission
include, when applicable, disclosures of estimates, assumptions, and
uncertainties that could affect the financial statements and our future
operations.
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Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheets for cash, accounts payable,
and related-party payables approximate the respective fair values due to the
short maturities of these items. We do not hold any investments that are
available-for-sale.
Financial Accounting Standards Board ("FASB") Accounting Standard Codification
("ASC") Topic 820, Fair Value Measurements and Disclosures, defines fair value,
establishes a framework for measuring fair value under GAAP, and enhances
disclosures about fair value measurements. ASC 820 describes a fair value
hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value,
which are the following:
Level 1: Pricing inputs are quoted prices available in active markets for
identical assets or liabilities as of the reporting date
Level 2: Pricing inputs are quoted for similar assets or inputs that are
observable, either directly or indirectly, for substantially the full
term through corroboration with observable market data. Level 2
includes assets or liabilities valued at quoted prices adjusted for
legal or contractual restrictions specific to these investments.
Level 3: Pricing inputs are unobservable for the assets or liabilities; that is,
the inputs reflect the reporting entity's own assumptions about the
assumptions market participants would use in pricing the asset or
liability.
We do not currently have any financial instruments that we measure at fair
value.
Recently Issued Accounting Pronouncements
Recently issued accounting standards that have been issued or proposed by the
FASB or other standards-setting bodies that require adoption and that do not
require adoption until a future date are not expected to have a material impact
on our financial statements upon adoption.
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