Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below, and elsewhere in this quarterly
report, are not related to historical results, and are forward-looking
statements. Forward-looking statements present our expectations or forecasts of
future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements frequently are accompanied by such words such as
"may," "will," "should," "could," "expects," "plans," "intends," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue," or the negative
of such terms or other words and terms of similar meaning. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
achievements, or timeliness of such results. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this quarterly report. Subsequent
written and oral forward looking statements attributable to us or to persons
acting in our behalf are expressly qualified in their entirety by the cautionary
statements and risk factors set forth in our annual report on Form 10-K filed
with the SEC on May 22, 2020, and in other reports filed by us with the SEC.
You should read the following description of our financial condition and results
of operations in conjunction with the financial statements and accompanying
notes included in this report.
Overview
We were incorporated in the State of Delaware on July 22, 2013 under the name
Digital Commerce Solutions, Inc. and changed our name to Results-Based
Outsourcing, Inc. on September 5, 2014. On August 29, 2018, Driven Deliveries,
Inc., a Nevada company ("Driven Nevada"), was acquired by Results-Based
Outsourcing as part of a reverse merger transaction. As consideration for the
merger, Results-Based Outsourcing issued the equity holders of Driven Nevada an
aggregate of 30,000,000 post-split shares of their common stock. Following the
merger, the Company adopted the business plan of Driven Nevada as a delivery
company focused on deliveries for consumers of legal cannabis products, in
California. The merger was accounted for as a recapitalization of the Company,
therefore the financial statements as presented in this report include the
historical results of Driven Nevada.
On September 6, 2018, we amended our Certificate of Incorporation to (i) changed
our name to Driven Deliveries, Inc., (ii) increase the number of our authorized
shares to 215,000,000, comprised of 200,000,000 shares of common stock, par
value $0.0001 per share and 15,000,000 shares of "blank check" preferred stock,
par value $0.0001 per share (the "Preferred Stock") and (iii) to effect a
forward split such that 12.35 shares of Common Stock were issued for every one
(1) share of Common Stock issued and outstanding immediately prior to the
amendment.
On January 24th, 2019 we changed our ticker symbol to DRVD.
In June 2019, we completed our acquisition of Ganjarunner, Inc. and Global
Wellness, LLC, which are engaged in the business of providing delivery services
of legal cannabis products to consumers.
In July 2019, we entered into an Asset Purchase Agreement with Mountain High
Recreation, Inc., in which the Company acquired certain assets from Mountain
High Recreation, Inc.
In September 2019, we entered into a Joint Venture with Budee, Inc. to expand
our operations and engage in the business of providing delivery services of
legal cannabis products to the consumer.
In February 2020, we completed an acquisition of Budee, Inc which allowed us to
consolidate all of the Budee, Inc. revenue, expand our delivery operations, and
unify our operations and technology into a single, scalable, and supportable
platform and infrastructure.
On April 9, 2020 our common stock became quoted on the OTCQB under the symbol
DRVD.
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Driven Overview
Driven is in stock and on-time! Founded by experienced technology, cannabis, and
logistics executives, Driven is one of the first licensed, United States
Exchange-traded, online cannabis retailer that is capable of servicing 92% of
California's adult population in less than 90 minutes. We aim to delight our
customers with the best cannabis delivery experience in the industry. Utilizing
our own shipping hubs, drivers, and proprietary technology, we delight our
customers with a cannabis delivery experience that is comparable to some of the
largest eCommerce retailers in the United States. Driven provides 2 different
service levels to our customers. An "Express" delivery with a limited product
selection that remains unsold in the Driver's vehicle usually delivered within
90 minutes or less, and a "Next Day" scheduled delivery from the larger
selection of 500+ products from a Driven fulfillment center. Currently,
customers are able to place online orders from our 2 core brands, Budee and
Ganjarunner. Additionally, we are participants in the growing cannabis ecosystem
by providing Brands the ability to transact with their customers using our
technology and platform.
From humble beginnings less than 3 years ago, Driven Deliveries has grown into a
company completing hundreds of thousands of deliveries per year with a customer
base of over 200,000 legal cannabis consumers. Driven's initial business was our
"Dispensary to Consumer" program, where Driven would provide the vehicle,
logistics, and infrastructure to complete deliveries on behalf of orders
processed by our partner dispensaries. The revenue from this model consisted of
charging a commission to the dispensary based on the amount of the delivered
order and miles traveled. However, due to changes in regulations, and despite
continued technological innovation and investment, the "Dispensary to Consumer"
business was ended in Q1 2020 to support our direct to consumer business.
In the first quarter of 2019 Driven began its transformation in fundamental
strategy by switching its core focus from "Dispensary to Consumer" to "Direct to
Consumer". The executive team at Driven determined that in order to compete and
be successful in California, Driven had to directly service the customer and own
the customer's experience. Neither of these was possible in the "Dispensary to
Consumer" model. As such Driven set out to build its own infrastructure to be
able to transact and deliver directly to the cannabis consumer. The executive
team began the process of buying and building this infrastructure.
In February 2019, Driven entered into a 2-year Operating Agreement within the
joint venture CA City Supply, LLC in an attempt to gain exposure in a new area
and create a location for operations out of California City, CA. Under Driven
management, CA City Supply was selected as 1 of 3 licensee applicants to receive
a non-storefront retail & delivery license in April of 2019. Unfortunately, all
members of the LLC have opted out of the Operating Agreement early and Driven
has withdrawn from ownership due to changes in local regulations.
In June 2019, the Company acquired Ganjarunner, Inc, an online retailer based
out of Sacramento with a small operation in Los Angeles that focused on "Next
Day" delivery from a fulfillment center. In addition to a functioning delivery
operation, Ganjarunner also came with a substantial amount of data and
intelligence on the cannabis consumers they had been servicing with cannabis
delivery for 5 plus years. Ganjarunner was focused on a more sophisticated
consumer with its target audiences falling between 30 and 55 years of age and
professionally employed who wanted specific products and brands and were willing
to wait for them to be delivered the next day. Ganjarunner used a heavily
modified commercially available eCommerce solution (WooCommerce) to complete the
next day deliveries throughout the state of California.
Simultaneously, the Company worked to find an online retailer specializing in
the "Express" cannabis delivery market. To continue planned growth in
California, Driven acquired certain assets of Mountain High Recreation to
include the brand & talent in July 2019. The "Express" cannabis consumer is
markedly different from the "Next Day" cannabis consumer as "Express" customers
are typically not brand conscious and are looking for "cheap weed fast." Thus,
an express provider is able to complete its deliveries faster but also at a
lower price point and lower order total.
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In August 2019, with the Ganjarunner acquisition and the Mountain High asset
purchases complete, we began to combine Express deliveries with Next Day using a
single technology and operations infrastructure. With this combination, cannabis
consumers are given a higher level of service as they can choose Express or Next
Day delivery while shopping online. Additionally, the Company sees increased
operational efficiencies as a single driver can complete both types of
deliveries.
In early September 2019, Driven entered into a Joint Venture with Budee, Inc. a
large on-demand retailer based out of Oakland, California. Budee, Inc had been
operating in the cannabis delivery space in California since 2015. Focusing
exclusively on growing and streamlining its Express cannabis delivery
operations, Budee became increasingly frustrated with the ability for commercial
software to support the express delivery model that was compliant with state
regulations. As such, Budee developed its own proprietary Budee Inventory
Management System, eCommerce system, Driver application, and back-office system.
The proprietary software combined with a relentless focus on margin improvement
allowed Budee to scale throughout California. During the integration of
Ganjarunner and Mountain High, plus the combination of the Express and Next Day
delivery options, Driven executive management was arriving at the same
conclusion that Budee had arrived at: custom software and infrastructure would
be required to scale. By establishing a joint venture with Budee, we were able
to take advantage of reviewing the software platform and determining if it would
work for our operations.
Throughout the first quarter of 2020, the Company continued to execute on its
growth plans within the State of California. Significant improvements were seen
in the financial performance of the online retail businesses ganjarunner and
Budee. Driven by the addition of over 13,000 new consumers to the platform, more
than 18 new cannabis brands were added to the menu and continued development of
the delivery network across the State. Fueling these accomplishments were
improvements to the majority of the marketing metrics including new customer
cost of acquisition (COA), existing customer retention, customer ratings, menu
reviews, as well as continued automation of the Company's marketing segments
which contributed to the success.
In mid March 2020 the Company's retail divisions saw major increases in demand
resulting from the shelter-in-place orders issued across the State of
California. Sales effectively doubled during the second half of March 2020. The
technology and marketing infrastructure that was developed internally then
implemented made it possible for Driven to capture the increased business while
maintaining existing operating costs.
Recent developments
On February 27, 2020 the Company completed its acquisition of Budee, Inc. which
allowed us to consolidate all of the Budee, Inc. revenue, expand our delivery
operations, and unify our operations and technology into a single, scalable, and
supportable platform and infrastructure.
On March 20, 2020, Governor Gavin Newsom and the California Bureau of Cannabis
Control identified cannabis companies as "essential" in the State of California
and as such we continued to operate through the shelter in place order due to
the COVID-19 pandemic.
Financial Results
We have a limited operating history. Therefore, there is limited historical
financial information upon which to base an evaluation of our performance. Our
prospects must be considered in light of the uncertainties, risks, expenses, and
difficulties frequently encountered by companies in their early stages of
operations. Our financials for the three months ended March 31, 2020, show a net
loss of $3,705,339. We expect to incur additional net expenses over the next
several years as we continue to expand our existing operations. The amount of
future losses and when, if ever, we will achieve profitability are uncertain.
29
Results of Operations
Results of Operations for the Three Months Ended March 31, 2020 compared to
Three Months Ended March 31, 2019.
Revenue
During the three months ended March 31, 2020, the Company recorded revenue in
the amount of $2,195,448. The revenue for the period ended March 31, 2020 was
comprised of dispensary cost reimbursements of $7,528 offsetting the dispensary
delivery income of $27,043, product sales of $2,130,167, and other revenue of
$45,766. This left the Company with a gross profit of $491,061 for the three
months ended March 31, 2020. The Company had negative revenue of $19,417 during
the three months ended March 31, 2019. The revenue for the period ended March
31, 2019 was comprised of dispensary cost reimbursements of $34,787 offsetting
the dispensary delivery income of $15,370. The change in revenue between the
three months ended March 31, 2020, and 2019 resulted from the Company expanding
its operations and acquisition of Ganjarunner in 2019, the acquisition of Budee
in 2020, and the Company's pivot to the a direct to consumer delivery service
and the acquisition of other cannabis delivery services.
During the three months ended March 31, 2020, the Company had cost of sales from
fulfilment and other of $592,848 and cost of sales from product costs of
$1,111,539. During the three months ended March 31, 2019, the Company had costs
of goods sold of $0 and cost of sales of $0.
Our primary source of revenue in Q1 and Q2 of 2019 was from the dispensary to
consumer delivery service. However, during Q3 and Q4 of 2019 the Company
transitioned to delivery of cannabis products directly to consumers with the
acquisition of Ganjarunner, Inc. From January 1, 2019 through June 24, 2019
Ganjarunner, Inc. operated independently of DRVD. On June 24, 2019 DRVD acquired
Ganjarunner Inc. and the results of operations from January 1, 2019 to June 23,
2019 is not included in the Company's financial reporting. However, revenue from
June 24, 2019 forward is included in the Company's financial.
On July 10, 2019 DRVD acquired the certain assets of Mountain High Recreation.
The asset purchase was designed to add Mountain High Recreation's Express
delivery on top of Ganjarunner's Next Day delivery service. Since MHR was an
asset purchase, its post asset purchase revenues are included in this report as
a part of Ganjarunner, Inc. On October 3, 2019 we entered into a joint venture
with Budee, Inc. to re-establish the Southern California operations of Budee out
of our Los Angeles facility.
On February 27, 2020 DRVD acquired Budee, Inc and the revenue from Budee, Inc.
from February 28, 2020 forward is included in this report. With the acquisition
of Budee, Inc. the joint venture with Budee, Inc. was ended on February 27,
2020.
The Company has combined Ganjarunner, Inc., the assets of Mountain High
Recreation, and Budee, Inc into a single operating entity responsible for all of
the Company's direct to consumer cannabis delivery operations. The operational
and technology integrations of these separate entities was more difficult than
expected. In addition to the ordinary challenges of implementing standard
operating procedures, uniform accounting processes, and standardizing and
building technology platforms, we also had to navigate extremely complex rules
and regulations guiding the sale of cannabis from the California Bureau of
Cannabis Control. We learned that customers are sensitive to not only front-end
technology interfaces but also operational and delivery hiccups. The entirety of
the first quarter was dedicated to integrating these companies and putting the
proper infrastructure in place.
30
Operating Expenses
During the three months ended March 31, 2020, we incurred a loss from operations
of $2,585,804. This is due to professional fees of $450,615, compensation of
$1,359,004 including stock-based compensation of $327,804, general and
administrative of $1,086,493 and sales and marketing of $180,753.
During the three months ended March 31, 2019, we incurred a loss from operations
of $924,578. This is due to professional fees of $167,757, compensation of
$537,183 including stock-based compensation of $347,694, general and
administrative of $178,864 and sales and marketing of $40,774.
The cost to operationally integrate and the inefficiencies created by having
multiple redundant personnel, drivers, routes, vehicles, software, and marketing
were higher than forecasted. By the middle of Q4 of 2019 and into Q1 of 2020 we
worked to remove redundancies and operational overhead to streamline processes
and the Company did not start to realize the savings and efficiencies until the
last month of Q1 2020. The cost of being public created significant additional
professional services fees for both legal, audit, and accounting services to
support not only the Company but also the acquisition targets.
Other Expenses
During the three months ended March 31, 2020, the Company incurred interest
expense of $262,892 which was comprised of an accrued interest expense of
$61,912 and a debt discount of $200,980, a loss on the sale of fixed assets of
$11,970, a gain on the extinguishment of debt of $810,518, and a loss on the
change in the fair value of derivative liabilities of $34,155.
During the three months ended March 31, 2019, the Company incurred interest
expense of $10,167 and a loss on extinguishment of debt of $225.
The increase in other income of $1,109,143 was the result of interest and the
amortization of debt discount on the Company's notes payable, the extinguishment
of debt, and derivative expense related to a note payable.
Net Loss
For the three months ended March 31, 2020, our net loss was $3,705,339 as
compared to net loss of $954,387 for the prior period March 31, 2019. The
increase in net loss of $2,750,952 was related primarily to the Company pivoting
to a new business model and the cost of integrating acquisitions and the gain on
the extinguishment of debt.
Fully Year 2019 Pro Forma Income with Budee, Inc. and Ganjarunner, Inc
Acquisitions
The results on this report do not provide a complete picture of the Company's
performance had the Budee, Inc. acquisition taken place at the beginning of
20202. From January 1, 2020, through February 27, 2020 Budee, Inc. operated
independently of the Company. On February 27, 2020, the Company acquired Budee
Inc., and only the revenue from February 28, 2020 forward is included in the
financial statements in this report.
The following presents the unaudited Pro-forma combined results of operations of
the Company with the Budee, Inc. 2 entities were combined on January 1, 2019.
Three Months Three Months
March 31, 2020 March 31, 2019
Gross Revenue $ 2,877,813 2,503,494
Gross Profit $ 1,173,426 1,512,628
Net loss $ (3,558,294 ) (1,255,634 )
Net loss per share $ (0.08 ) (0.03 )
Weighted average number of shares outstanding 45,726,329 44,290,295
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The unaudited pro-forma results of operations are presented for information
purposes only. The unaudited pro-forma results of operations are not intended to
present actual results or to project potential operating results as of any
future date or for any future periods. These are meant to show what would have
been attained had the acquisitions been completed as of January 1, 2019.
Liquidity and Capital Resources
We are a startup and anticipate that we will incur operating losses for the
foreseeable future. As of March 31, 2020, we had cash of $364,121 and working
capital deficit of $9,243,561. Based on its current forecast and budget,
management believes that its cash resources will not be sufficient to fund its
operations through the end of 2020. Unless the Company can generate sufficient
revenue from the execution of the Company's business plan, it will need to
obtain additional capital to continue to fund the Company's operations.
As of March 31, 2020, we had a working capital deficit of $9,243,561 as compared
to $4,011,527 as of December 31, 2019. There was an increase in working capital
deficit of $5,232,034.
Cash used in operating activities was $1,400,426 for the three months ended
March 31, 2020 and $687,252 for the prior period ended March 31, 2019. The
increase in cash used in operating activities was due to an increase in net
loss, an increase in accounts payable and accrued expenses, gain on
extinguishment of debt, and increase in stock based compensation, an increase in
amortization of debt discount, and an increase in inventory.
Cash used in investing activities during the three months ended March 31, 2020
and 2019 was $(20,678) and $29,346, respectively. The decrease in investing
activities was due to cash acquired in the acquisition and a decrease in the
purchase of fixed assets.
Cash provided by financing activities during the three months ended March 31,
2020 and 2019 was $1,447,000 and $1,077,021, respectively. The increase is a
result of an increase in the proceeds from loan payables offset by a decrease in
the sale of common stock.
Our ability to continue as a going concern is dependent upon raising capital
through financing transactions and future revenue. Our capital needs have
primarily been met from the proceeds of private placements of our security, as
we currently have not generated a net income.
The condensed consolidated financial statements have been prepared on a going
concern basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course of
business. The accompanying condensed financial statements do not reflect any
adjustments that might result if we are unable to continue as a going concern.
During the three months ended March 31, 2020, incurred a net loss of $3,705,339,
which was primarily associated with an increase in operating expenses, we had a
working capital deficit of $9,243,561 and a shareholders' equity of $5,204,251.
These factors, among others, raise substantial doubt about our ability to
continue as a going concern. Our independent auditors, in their report on our
audited financial statements for the year ended December 31, 2019, expressed
substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern ultimately is dependent on our ability to
generate revenue, which is dependent upon our ability to obtain additional
equity or debt financing, attain further operating efficiencies and, ultimately,
achieve profitable operations. We have historically obtained funds from our
shareholders through the sale of our securities. Management believes that we
will be able to continue to raise funds through the sale of our securities to
existing and new investors. Management believes that funding from existing and
prospective new investors and future revenue will provide the additional cash
needed to meet our obligations as they become due, and will allow the
development of our core business operations. There is no assurance that capital
in any form would be available to us, and if available, on terms and conditions
that are acceptable. If we are unable to obtain sufficient funds, we may be
forced to curtail and/or cease operations.
Off-Balance Sheet Arrangements
We have not entered into any 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 and would be considered
material to investors.
Critical accounting policies
Principles of consolidation
The consolidated condensed financial statements include the accounts of Driven
Deliveries, Inc, and its wholly owned subsidiaries, Ganjarunner, Inc., Global
Wellness, LLC, and Budee, Inc. All significant intercompany balances and
transactions have been eliminated in the consolidated condensed financial
statements.
32
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of
ASC 718, "Compensation-Stock Compensation", which requires the measurement and
recognition of compensation expenses related to the fair value of stock-based
compensation awards that are ultimately expected to vest. Stock based
compensation expenses recognized includes the compensation cost for all
stock-based payments granted to employees, officers, and directors based on the
grant date fair value estimated in accordance with the provisions of ASC 718.
ASC 718 is also applied to awards modified, repurchased, or canceled during the
periods reported.
The Company accounts for warrants and options issued to non-employees under ASU
2018-07, Equity - Equity Based Payments to Non-Employees, using the
Black-Scholes option-pricing model.
The Company stock based compensation expense was $327,804 and $347,694 for the
three months ended March 31, 2020 and 2019, respectively.
Debt Issued with Warrants
Debt issued with warrants is accounted for under the guidelines established by
ASC 470-20 - Accounting for Debt with Conversion or Other Options. We record the
relative fair value of warrants related to the issuance of convertible debt as a
debt discount or premium. The discount or premium is subsequently amortized to
interest expense over the expected term of the convertible debt.
Revenue Recognition
As of January 1, 2018, the Company adopted ASC 606. The adoption of ASC 606,
Revenue From Contracts With Customers, represents a change in accounting
principle that will more closely align revenue recognition with the delivery of
the Company's services and will provide financial statement readers with
enhanced disclosures. In accordance with ASC 606, revenue is recognized when a
customer obtains control of promised services. The amount of revenue recognized
reflects the consideration to which the Company expects to be entitled to
receive in exchange for these services. The Company used the
Modified-Retrospective Method when adopting this standard. There was no
accounting effect due to the initial adoption. To achieve this core principle,
the Company applies the following five steps:
1) Identify the contract with a customer
The Company sells retail products directly to customers. In these sales there is
no formal contract with the customer. These sales have commercial substance and
there are no issues with collectability as the customer pays the cost of the
goods at the time of purchase or delivery.
2) Identify the performance obligations in the contract
The Company sells its products directly to consumers. In this case these sales
represent a performance obligation with the sales and any necessary deliveries
of those products.
3) Determine the transaction price
The sales that are done directly to the customer have no variable consideration
or financing component. The transaction price is the cost that those goods are
being sold for plus any additional delivery costs.
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4) Allocate the transaction price to performance obligations in the contract
For the goods that the Company sells directly to customers, the transaction
price is allocated between the cost of the goods and any delivery fees that may
be incurred to deliver to the customer.
5) Recognize revenue when or as the Company satisfies a performance obligation
For the sales of the Company's own goods the performance obligation is complete
once the customer has received their product.
Disaggregation of Revenue
The following table depicts the disaggregation of revenue according to revenue
type.
Revenue for Revenue for
the three the three
months months
ended ended
March 31, March 31,
Revenue Type 2020 2019
Delivery Income $ 27,043 15,370
Dispensary Cost Reimbursements (7,528 ) (34,787 )
Delivery Income, net 19,515 (19,417 )
Product Sales 2,175,933 -
Total $ 2,195,448 (19,417 )
As part of the Company's former delivery business where the Company partnered
with dispensaries to deliver their products, the Company was responsible for
reimbursing the partnered dispensaries for the wages of the delivery couriers.
Due to this reduction of revenue from the reimbursement of wages for the
delivery couriers, the Company is presenting a net negative revenue for the
three months ended March 31, 2019 for Dispensary Delivery Income. The Company
discontinued the Dispensary Delivery business as of March 31, 2020.
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DRIVEN DELIVERIES, INC. 
