The following discussion should be read in conjunction with our condensed
consolidated financial statements and notes to our financial statements included
elsewhere in this report. This discussion contains forward-looking statements
that involve risks and uncertainties. Actual results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors discussed elsewhere in this report.
Overview
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 2021, we continued under 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. In 2020,
our efforts had been devoted to phase one of our development of all
HUSTLER®-branded products, which led us to generating revenue during 2020 for
the first time in several years.
17
Results of Operations for the Three and Six Months Ended June 30, 2021, Compared
to the Three and Six Months Ended June 30, 2020
Sales and Cost of Sales
During the three months ended June 30, 2021 and 2020, we had net sales of
$700,656 and $528,232, respectively, and cost of sales of $262,411 and $195,838,
respectively, for gross profit of $438,245 and $332,394, respectively. During
the six months ended June 30, 2021, we had net sales of $1,320,055 and $530,314,
respectively, and cost of sales of $464,059 and $197,319, respectively, for
gross profit of $855,996 and $332,995, respectively. The net sales for the three
months ended June 30, 2021, consisted of product sales, which increased about
33% in the later year. For the six months ended June 30, 2021, net sales
included revenue received in the first quarter of 2021 related to our agreement
to develop and distribute certain HUSTLER® branded product, which was
approximately 147% higher than net sales for the corresponding period in the
previous year. The gross profit was approximately equal as a percentage of net
sales for all reporting periods.
Operating Expenses
During the three months ended June 30, 2021 and 2020, employee costs were
$135,077 and $0, respectively, and selling, general, and administrative expenses
were $359,297 and $78,884, respectively, representing an increase in operating
expenses of $415,490, or 527%, in the current period. During the six months
ended June 30, 2021 and 2020, employee costs were $268,965 and $0, respectively,
and selling, general, and administrative expenses were $638,595 and $161,544,
respectively, representing an increase in operating expenses of $746,016, or
462%, in the current period. The increase in operating expenses period over
period is the result of substantially increased activities attributable to the
development of products under the HUSTLER® brand name in 2020.
Other Income and Expense
Other income and expenses during the three months ended June 30, 2021 and 2020,
consisted of $168,726 and $156,568 in interest expense; a gain of $13,131 and a
loss of $289,050 on derivative valuation; and other income of $0 and $2,000,
respectively. Other income and expenses during the six months ended June 30,
2021 and 2020, consisted of $335,214 and $312,635 in interest expense; a loss on
disposal of equipment of $0 and $9,771, a loss of $114,660 and $358,264 on
derivative valuation; and other income of $0 and $42,000, respectively. The
decrease in other expenses period over period is the result of a decrease in
interest expense and a decrease to our loss on derivative valuation.
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 was $78.5 million and $77.9
million at June 30, 2021, and December 31, 2020, respectively. As of June 30,
2021, and December 31, 2020, we had current assets of $1,160,811 and $942,442,
respectively, and current liabilities of $38.8 million and $38.1 million,
respectively, creating working capital deficits of approximately $37.6 million
and $37.1 million, respectively, as of June 30, 2021, and December 31, 2020.
Operating Activities
We have only nominal cash or short-term assets, while our current liabilities
aggregated $38.8 million as of June 30, 2021. During the six months ended June
30, 2021, operations used $81,207 of net cash, comprised of a loss from
continuing operations of $501,438, noncash items totaling $153,367 consisting
primarily of losses recognized from the changes in fair values of derivative
liabilities and debt discount amortization, repayment expenses paid by related
parties on our behalf of $199,909, and changes in working capital totaling
$466,763. During the six months ended June 30, 2020, operations generated
$205,592 of net cash, comprised of a net loss from continuing operations of
$467,219, noncash items totaling $431,049 consisting of losses recognized from
the changes in fair values of derivative liabilities and expense paid by related
parties on our behalf, and changes in working capital totaling $241,762.
18
Financing Activities
During the six months ended June 30, 2021, financing activities used $8,663 of
cash, compared to using $103,261 of cash during the six months ended June 30,
2020. Cash used in financing activities during the six months ended June 30,
2021, consisted of proceeds from convertible loans payable and repayments of
related-party loans. Cash used in financing activities during the six months
ended June 30, 2020, consisted of advances from convertible debentures totaling
$15,000, repayments of bank overdrafts of $1,611, repayments on related-party
payables of $262,350, advances from related parties of $10,700, advances from
loans payable of $156,000, and repayments on loans payable $21,000.
Our Capital Resources and Anticipated Requirements
Our monthly operating costs total approximately $143,000 per month, excluding
approximately $50,000 of accruing interest expense and capital expenditures. We
are generating sales revenue under our Exclusive Manufacturing and Distribution
Agreement with GloBrands, LLC. Currently, we do not have enough cash on hand to
sustain our business operations, and we expect to access external capital
resources in the near future.
In conjunction with our efforts to commercialize new products, we are actively
seeking infusions of capital from investors. In our current financial condition,
it is unlikely that we will be able to obtain additional debt financing. Even if
we did acquire additional debt, we would be required to devote additional cash
flow to servicing the debt and securing the debt with assets.
Accordingly, we are looking to obtain equity financing to meet our anticipated
capital needs. We cannot assure that we will be successful in obtaining such
capital. If we were to issue additional shares for debt and/or equity, this
would dilute the value of our common stock and existing stockholders' positions.
We also have no authorized but unissued capital available.
Convertible Debentures
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 $1.5 million as of June 30, 2021. We also have four
additional convertible debentures with Tekfine with maturity dates ranging from
December 8, 2021, through 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.
Going Concern
These interim unaudited financial statements have been prepared on the going
concern basis, which assumes that adequate sources of financing will be obtained
as required and that our assets will be realized and liabilities settled in the
ordinary course of business. Accordingly, the interim unaudited financial
statements do not include any adjustments related to the recoverability of
assets and classification of assets and liabilities that might be necessary
should we not be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
We have identified the policies outlined below as critical to our business
operations and an understanding of our results of operations. Refer to Note 2 -
Summary of Significant Accounting Policies for discussion.
19
© Edgar Online, source Glimpses