The following discussion and analysis of the financial condition and results of
operations of
43 OVERVIEW
We are a company engaged in the electronic cigarette and personal vaporizer industry. We own a portfolio of electronic cigarette and personal vaporizer patents which are the basis for our efforts to:
? Design, market and distribute a line of e liquids under the "HELIUM" brand; ? Design, market and distribute a line vaporizers for essential oils, concentrates, and dry herbs under the "HONEYSTICK" brand; ? Design, market and distribute a line of cannabidiol ("CBD") products under the "GOLD LINE" brand; ? Design, market and distribute electronic cigarettes and popular vaporizers under the KRAVE brand; ? Prosecute and enforce our patent rights; ? License our intellectual property; and ? Develop private label manufacturing programs.
For the fiscal years ended
Results of Operations
Results of Operations for the Year Ended
Revenues
Our revenue for the twelve months ended
Cost of Sales
Cost of sales for the year ended
Operating Expenses
Operating expenses for the year ended
44 Other Income (Expense)
Other expense decreased to
Net Income (Loss)
Net loss for the year ended
Liquidity and Capital Resources
The following table sets forth a summary of our net cash flows for the periods indicated: For the Years EndedDecember 31, 2022 2021
Net cash flows used in operating activities
The Company used cash in operating activities of
During the years ended
Assets
At
Liabilities
At
Going Concern
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the Company will continue to realize its assets and
discharge its liabilities in the normal course of business. The Company has a
working capital deficit of
45
The Company will be required to obtain additional financing and capital and expects to satisfy its cash needs primarily from the additional issuance of equity securities or indebtedness in order to sustain operations until it can achieve profitability and positive cash flows, if ever. There can be no assurances, however, that adequate additional funding will be available on favorable terms, or at all. If such funds are not available in the future, the Company may be required to delay, significantly modify or terminate its operations, all of which could have a material adverse effect on the Company.
Availability of Additional Funds
Our capital requirements going forward will consist of financing our operations until we are able to reach a level of revenues and gross margins adequate to equal or exceed our ongoing operating expenses. We do not have any credit agreement or source of liquidity immediately available to us.
Since inception, our operations have primarily been funded through proceeds from
equity and debt financing. At
In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our unitholders or that result in our unitholders losing all of their investment in our Company.
If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your units and could be at prices substantially below prices at which our units currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our unitholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.
Our audited financial statements included elsewhere in this Annual Report on
Form 10-K have been prepared in conformity with accounting principles generally
accepted in
Equity Purchase Agreement and Registration Statement
On
46
From time to time over the term of the Equity Purchase Agreement, commencing on the date on which a registration statement registering the Put Shares (the "Registration Statement") becomes effective, the Company may, in its sole discretion, provide the Selling Unitholder with a put notice (each a "Put Notice") to purchase a specified number of the Put Shares (each a "Put Amount Requested") subject to the limitations discussed below and contained in the Equity Purchase Agreement. Within one trading day of the date that the Put Notice is deemed delivered ("Put Date") pursuant to terms of the Equity Purchase Agreement, the Company shall deliver, or cause to be delivered, to the Selling Unitholder estimated Put Shares equal to the investment amount ("Investment Amount") indicated in the Put Notice divided by the Initial Pricing per share (the "Estimated Put Shares") as DWAC Shares. Within one trading day following the Put Date, Selling Unitholder shall pay the Investment Amount to the Company by wire transfer of immediately available funds to an escrow account to be established with the escrow agent for the benefit of the Company.
At the end of the five trading days following the clearing date associated with the applicable Put Notice ("Valuation Period"), the purchase price ("Purchase Price") shall be computed as 85% of the average daily volume weighted average price of the common units during the Valuation Period and the number of Put Shares shall be determined for a particular Put as the Investment Amount divided by the Purchase Price. If the number of Estimated Put Shares (Investment Amount divided by Initial Pricing) initially delivered to Selling Unitholder is greater than the number of Put Shares (Investment Amount divided by Purchase Price) purchased by the Selling Unitholder pursuant to such Put, then, within two trading days following the end of the Valuation Period, the Selling Unitholder shall deliver to the Company any excess Estimated Put Shares associated with such Put. If the number of Estimated Put Shares (Investment Amount divided by Initial Pricing) delivered to the Selling Unitholder is less than the Put Shares purchased by the Selling Unitholder pursuant to a Put, then within two trading days following the end of the Valuation Period the Company shall deliver to the Selling Unitholder the difference between the Estimated Put Shares and the Put Shares issuable pursuant to such Put.
The Put Amount Requested pursuant to any single Put Notice must have an
aggregate value of at least
In order to deliver a Put Notice, certain conditions set forth in the Equity Purchase Agreement must be met, as provided therein. In addition, the Company is prohibited from delivering a Put Notice if: (i) the sale of Put Shares pursuant to such Put Notice would cause the Company to issue and sell to Selling Unitholder, or Selling Unitholder to acquire or purchase, a number of shares of the Company's common units that, when aggregated with all shares of common units purchased by Selling Unitholder pursuant to all prior Put Notices issued under the Equity Purchase Agreement, would exceed the Maximum Commitment Amount; or (ii) the issuance of the Commitment Shares pursuant to a request for the Commitment Shares would cause the Company to issue and sell to Selling Unitholder, or Selling Unitholder to acquire or purchase, an aggregate number of shares of common units that would result in Selling Unitholder beneficially owning more than 4.99% of the issued and outstanding shares of the Company's common units.
On the Execution Date, the Company also entered into a registration rights agreement (the "Registration Rights Agreement") with Selling Unitholder pursuant to which the Company is obligated to file the Registration Statement to register the resale of the Put Shares. Pursuant to the Registration Rights Agreement, the Company must (i) file the Registration Statement within 30 calendar days from the Execution Date, (ii) use reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act within 90 calendar days after the filing thereof, and (iii) use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act until all of the Put Shares have been sold thereunder or pursuant to Rule 144.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
47
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with
We consider our recognition of revenues, accounting for the consolidation of operations, accounting for stock-based compensation, accounting for intangible assets and related impairment analyses, the allowance for doubtful accounts and accounting for equity transactions, to be most critical in understanding the judgments that are involved in the preparation of our consolidated financial statements.
Together with our critical accounting policies set out below, our significant
accounting policies are summarized in Note 2 of our audited financial statements
as of and for the year ended
Use of Estimates
The preparation of financial statements in conformity with
Accounts Receivable
The Company analyses the collectability of accounts receivable from continuing
operations each accounting period and adjusts its allowance for doubtful
accounts accordingly. A considerable amount of judgment is required in assessing
the realization of accounts receivables, including the creditworthiness of each
customer, current and historical collection history and the related aging of
past due balances. The Company evaluates specific accounts when it becomes aware
of information indicating that a customer may not be able to meet its financial
obligations due to deterioration of its financial condition, lower credit
ratings, bankruptcy or other factors affecting the ability to render payment. As
of
Inventory
Inventory consisting of finished products is stated at the lower of cost or net
realizable value. At each balance sheet date, the Company evaluates its ending
inventories for excess quantities and obsolescence. This evaluation primarily
includes an analysis of forecasted demand in relation to the inventory on hand,
among consideration of other factors. The physical condition (e.g., age and
quality) of the inventories is also considered in establishing its valuation.
Based upon the evaluation, provisions are made to reduce excess or obsolete
inventories to their estimated net realizable values. Once established,
write-downs are considered permanent adjustments to the cost basis of the
respective inventories. These adjustments are estimates, which could vary
significantly, either favorably or unfavorably, from the amounts that the
Company may ultimately realize upon the disposition of inventories if future
economic conditions, customer inventory levels, product discontinuances, sales
return levels or competitive conditions differ from the Company's estimates and
expectations. As of
Leases
In
48
Effective
The Company has an operating lease principally for warehouse and office space. Management evaluates each lease independently to determine the purpose, necessity to its future operations in addition to other appropriate facts and circumstances.
The Company adopted Topic 842 using a modified retrospective approach for its
existing lease at
Revenue Recognition
In
The new revenue standards became effective for the Company on
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of the Company's product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
49 Stock-Based Compensation
Share-based payments to employees, including grants of employee stock options are recognized as compensation expense in the financial statements based on their fair values, in accordance with FASB Accounting Standards Codification ("ASC") Topic 718. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented. The Company may issue shares as compensation in future periods for employee services.
The Company may issue restricted units to consultants for various services. Cost for these transactions will be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier of: (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty's performance is complete. The Company may issue shares as compensation in future periods for services associated with the registration of the common shares.
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