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, 2022, our business activities generated
revenue of $1,719,358. In 2020, we completed phase one and two of our
development of all HUSTLER®-branded products, which enabled us to generate
revenue of $2,923,269 during the year ended December 31, 2021, 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.
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, 2022 and 2021
Sales and Cost of Sales
We had revenues of $1,719,358 and $2,923,269 during the years ended December 31,
2022 and 2021, respectively, a decrease of $1,203,911 or 41.2%. We had cost of
sales of $696,548 and $1,024,444, respectively, for gross profit of $1,022,810
and $1,898,825, respectively. Revenues are derived from the design, manufacture,
and delivery of certain licensed products in accordance with our
GloBrands-HUSTLER® distribution agreement. The decrease in revenue in the
current period is due to a decrease in the sale of Vape products in California
due to their ban on flavored tobacco.
Operating Expenses
During the year ended December 31, 2022, selling, general, and administrative
expenses and employee costs were approximately $1,596,000, as compared to
approximately $2,127,000 for the same period in 2021, a decrease of $531,000 or
25%. Selling, general, and administrative expenses were $1,004,003 and
$1,630,592, respectively, a decrease of $626,589 or 38.4%. The decrease in
operating expenses period over period is the result of substantially increased
activities attributable to the development of products under the HUSTLER® brand
name and selling certain tobacco products in states with lower or no excise tax
in the first quarter. We also recognized a accrued tax liability expense in the
current year of $50,888.
11
Other Income and Expense
Other income and expenses during the year ended December 31, 2022, consisted of
interest expense of approximately $709,000 and a loss on the fair value of
derivative liabilities of approximately $66,000.
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 $72,000 and other income of approximately $1,000.
As a result of the foregoing, we had a net loss of approximately $1,349,000 from
continuing operations, as compared to $838,000 in the prior year.
Liquidity and Capital Resources
We have had a history of losses from operations, as our expenses have been
greater than our revenue. Our accumulated deficit is approximately $79.3 million
at December 31, 2022.
Operating Activities
During the year ended December 31, 2022, operations generated $159,304 of net
cash, comprised of a loss from continuing operations of $1,502,091, noncash
items totaling $337,367 consisting primarily of losses recognized from the
changes in fair values of derivative liabilities, debt discount amortization and
discontinued operations. Changes in working capital totaled $1,273,140. During
the year ended December 31, 2021, operations generated $344,458 of net cash,
comprised of income from continuing operations of $126,212, a $964,685 loss from
discontinued operations and other noncash items totaling $51,373. Changes in
working capital of approximately $1.1 mil.
During the year ended December 31, 2022, we used approximately $147,000 of net
cash from financing activities mainly comprised of repayments on related-party
loans that totaled $155,000 and proceeds from related-party loans of $8,000.
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.
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 has a total outstanding principal balance of $2.4 million, with
accrued interest of $1.7 million as of December 31, 2022. 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 $8,137 and $5,000 during
the years ended December 31, 2022 and 2021, respectively, as well as making
repayments on related-party loans of $154,832 and $448,335 during the years
ended December 31, 2022 and 2021, respectively.
Critical Accounting Policies
Refer to Note 2 of our financial statements contained elsewhere in this Form
10-K for a summary of our critical accounting policies and recently adopting and
issued accounting standards.
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