SENTIENT BRANDS HOLDINGS INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Unless otherwise indicated, references to the "Company," "us" or "we" refer to
Special Note Regarding Forward-looking Statements
All statements other than statements of historical fact included in this Form 10-K including, without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-K, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of a number of factors, including those set forth under the risk factors and business sections in this Form 10-K.
Overview
Principal Products and Services
All of our proprietary formulations contain clean, vegan, ethically and environmentally responsible ingredients. The Company currently has one main product line, and another in development. The Company's current active product line is Oeuvre.
Oeuvre
Oeuvre - "A Body of Art" - is a next generation CBD luxury skin care line and
lifestyle brand. The foundation of our system of products is our proprietary
? Purifying Exfoliator ? Replenishing Facial Oil ? Ultra-Nourishing Face Cream ? RevitalizingEye Cream 27
Drawing inspiration from petals, leaves, roots, minerals and gemstones, Oeuvre celebrates the artistry of well-being and beauty, inside and out. Oeuvre products are non-toxic, ungendered products made with zero GMO, retinyl palmitate, petroleum, mineral oil, parabens, sulfates, and synthetic colors.
Oeuvre Target Market
Oeuvre is our luxury segment product line. With Oeuvre, we are targeting a large
and influential consumer class of individuals that are "HENRYs" -
High-Earners-Not-Rich-Yet. They have discretionary income and are highly likely
to be wealthy in the future. HENRYs earn between
We believe the benefit of onboarding this demographic to Oeuvre are twofold:
securing valuable present customers and building relationships and business with
those most likely to be amongst the most affluent consumers in the future. By
the year 2025, Millennials and Generation Z will represent more than 40% of the
overall luxury goods market, according to a 2019 report published by
On social media, we target the following audiences for our Oeuvre brand:
? Women aged 30+ ? Luxury Skincare Enthusiasts ? CBD Enthusiasts ?Crystal Lovers ? Wellness Audience ? Makeup Artists ? Art ? Beauty ? Influencers ? Bloggers Suppliers
The Company has several third-party suppliers and is not reliant on any particular supplier for its product offerings. Many of our products contain CBD derived from industrial hemp or cannabis which we obtain from third parties. Hemp cultivation can be impacted by weather patterns and other natural events, but we have not yet faced any supply issues to date with obtaining raw materials for our products.
Distribution
We have two primary methods through which we sell our products:
1. Direct to Consumer online e-commerce platform 2. Wholesale partners Marketing Strategy
We support our brand launches through social media and marketing campaigns, including utilizing influencers. Marketing and public relations firms are engaged by the Company to spearhead its launch of Oeuvre, and will likely be engaged for our future planned brand launches as well.
Growth Strategies
To grow our company,
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? Create a leading consumer packaged goods company;
? Partner with established distributers and retailers;
? Focus on operational excellence and product quality; and
? Establish ongoing communication with the capital markets
Our mission is to create the next generation of CBD/THC consumer brands. The Company believes it has assembled a highly accomplished team of branding and marketing professionals who have a combined experience and track record of successfully launching and operating major brands in the consumer market space, which the Company believes will provide it with it a competitive edge in its industry.
M&A Strategy
In Q3 2022, the Company launched an M&A strategy to identify high-margin, revenue generating businesses within above-average growth potential industry sectors as potential acquisition targets.
Customers
The Company launched its Oeuvre product line in the fourth quarter of 2021. The Company's sales channels are direct to consumer and wholesale.
Intellectual Property
The Company's Oeuvre brand is trademarked in
Competition
We have experienced, and expect to continue to experience, intense competition from a number of companies.
The current market for hemp-derived CBD products is highly competitive,
consisting of publicly-trade and privately-owned companies, many of which are
more adequately capitalized than the Company. The Company's current publicly
listed competitors include Charlotte's Web, CV Sciences, Elixinol, Abacus, and
Green Growth Brands, and private companies such as BeBoe,
Industry Overview
The market for products based on extracts of hemp and cannabis, is expected to
grow substantially over the coming years.
On
With the passage of the Farm Bill, hemp cultivation is broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law.
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Recent Developments
Covid-19
A novel strain of coronavirus ("Covid-19") emerged globally in
On
Government Regulation
Regarding its regulation of drugs, the FDA process requires a review that begins with the filing of an investigational new drug (IND) application, with follow on clinical studies and clinical trials that the FDA uses to determine whether a drug is safe and effective, and therefore subject to approval for human use by the FDA.
Aside from the
The FDA has not approved cannabis, marijuana, hemp or derivatives as a safe and
effective drug for any indication. As of the date of this filing, we have not,
and do not intend to file an Investigational New Drug Application (IND) with the
FDA, concerning any of our products that contain CBD derived from industrial
hemp or cannabis. Further, our products containing CBD derived from industrial
hemp are not marketed or sold using claims that their use is safe and effective
treatment for any medical condition subject to the
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Government Approvals
The Company does not currently require any government approvals for its
operations or product offerings. In
Research and Development
We are continuously in the process of identifying and/or developing potential new products to offer to our customers. Our expenditures on research and development have historically been small and immaterial compared to our other business expenditures. We are currently developing new formulations for additional product lines.
Employees
We believe that our success depends upon our ability to attract, develop and retain key personnel. We currently employ two full-time employees. The Company otherwise currently relies on the services of independent contractors. None of our employees are covered by collective bargaining agreements, and management considers relations with our employees to be in good standing. Although we continually seek to add additional talent to our work force, management believes that it currently has sufficient human capital to operate its business successfully.
Our compensation programs are designed to align the compensation of our employees with our performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.
The health and safety of our employees is our highest priority, and this is consistent with our operating philosophy. Since the onset of the COVID-19 pandemic, employees, including our specialized technical staff, are working from home or in a virtual environment unless they have a requirement to be in the office for short-term tasks and projects.
The primary mailing address for the Company is
Going Concern
We have a limited operating history, and our continued growth is dependent upon
the continuation of selling our products to our customers; hence generating
revenues and obtaining additional financing to fund future obligations and pay
liabilities arising from normal business operations. We had an accumulated
deficit of
Our ability to continue as a going concern is dependent upon our ability to carry out our business plan, achieve profitable operations, obtain additional working capital funds from our significant shareholders, and or through debt and equity financings. However, there can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if any.
The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in
We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or products have been sold, the purchase price is fixed or determinable and collectability is reasonably assured.
We sell CBD-infused products to our customers. Our customers place orders for our products pursuant to their purchase orders and we are paid by our customers pursuant to our invoices. Each invoice calls for a fixed payment in a fixed period of time. We recognize revenue by selling our products under our customers' purchase orders and our related invoices to our customers. Revenue related to the sales of our products to our customers is recognized as the products are sold and amounts are paid, using the straight-line method over the term of the sales transaction. Prepayments, if any, received from customers prior to the products being delivered are recorded as advance from customers. In these cases, when the products are sold, the amount recorded as advance from customers is recognized as revenue.
Income Taxes
We are governed by the income tax laws of
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis.
Stock-based Compensation
Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of Accounting Standards Codification ("ASC") 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
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Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the "measurement date." The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.
Recent Accounting Pronouncements
In
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Years Ended
Revenue
We did not generate significant revenue for the years ended
Operating Expenses
For the years ended
For the year ended December 31,
2022 2021
Advertising and Marketing $ 20,816 4,874
General and Administrative 93,250 57,632
Legal and Professional 336,660 293,070
Office rent 2,043 1,190
Management Fees 70,571 159,000
Product development cost - 6,343
TOTAL OPERATING EXPENSES $ 523,340 $ 522,109
? Our advertising and marketing expense mainly includes our costs of
branding, design and materials. The increase of $15,942 was primarily due
to the increased use of samples to promote the product which we did not
incur in 2021.
? Professional fees primarily consisted of the following:
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For the year ended December 31,
2022 2021
Accounting and Auditing $ 46,245 $ 33,700
Other advisory Services 171,000 141,638
Legal Fees 59,196 109,732
Social Media Consulting 60,219 8,000
$ 336,660 $ 293,070
? Professional fees as a whole increased by $43,590 or 15% primarily due to
increased accounting fees of approximately $12,500 , increased social media
consultants of approximately $52,000 and increased advisory services of
approximately $30,000 . These increases were offset by a decrease in legal
fees of approximately $50,000 .
? Management fees primarily consisted of compensation of our Chief Operating
officer and Chief Marketing Officer, and the President of our wholly owned
subsidiary, Cannavolve. Compared to the previous year Management fees
decreased by approximately $90,000 primarily due to the departure of one
of our management staff members. During the third quarter of 2022, the
remaining members waived any fees until the Company is more stable
financially.
? Our general and administrative costs have also increased by $35,618 or 62%
compared to the previous year primarily due to increased warehouse fees
for our product, SEC filing fees and travel and other costs associated
with fund raising and other strategic matters related to the future of our
Company.
Income (Loss) from Operations
As a result of the foregoing, for the year ended
Other Income (Expense)
Other income (expense) was (
Income Taxes
We did not have any income taxes expense for the years ended
Net Income (Loss)
Net loss for the years ended
Liquidity and Capital Resources
The consolidated financial statements have been prepared using generally
accepted accounting principles in
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To the extent we are successful in growing our business both organically and through acquisition, we continue to plan our working capital and the proceeds of any financing to finance such acquisition costs.
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations and otherwise operate on an
ongoing basis. At
Cash flows from Operating Activities
Operating activities used
Cash flows from Investing Activities
There are no Investing activities in for the year ended
Cash flows from Financing Activities
Cash flows provided by financing activities during the year ended
We will need to raise additional funds, particularly if we are unable to
generate positive cash flow as a result of our operations. We estimate that
based on current plans and assumptions, that our available cash will be
insufficient to satisfy our cash requirements under our present operating
expectations. Other than working capital and advance received from related
parties and funds received pursuant to securities purchase agreements, we
presently have no other significant alternative source of working capital. We
have used these funds to fund our operating expenses, pay our obligations and
grow our company. We will need to raise significant additional capital to fund
our operations and to provide working capital for our ongoing operations and
obligations. Therefore, our future operation is dependent on our ability to
secure additional financing. Financing transactions may include the issuance of
equity or debt securities, obtaining credit facilities, or other financing
mechanisms. However, the trading price of our common stock and a downturn in the
Going Concern
The Company's financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. During the year ended
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Off-balance Sheet Arrangements
We do not have 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 that is material to investors.
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