MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We were originally incorporated on October 9, 1995 in Texas under the name, Posh International, Inc.. On December 31, 2003, we changed our domicile from Texas to Nevada.
Our headquarters are in Coconut Creek, FL. We have experienced recurring losses and negative cash flows from operations since inception, including in our current business model. We anticipate that our expenses will increase as we ramp up our expansion, which likely will lead to additional losses, until such time that we approach profitability, or which there are no assurances. We have relied on equity and debt financing to fund operations. There can be no guarantee that we will ever become profitable, or that adequate additional financing will be realized in the future or otherwise may be available to us on acceptable terms, or at all. If we are unable to raise capital when needed, we would be forced to delay development of our operations. We will need to generate significant revenues to achieve profitability, of which there are no assurances.
Trends and Uncertainties
Our business is subject to the following trends and uncertainties:
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State and Federal laws regarding growing and processing industrial hemp; currently hemp is legal to be grown in all 50 States pursuant to the 2018 Farm Act signed into law in July of 2018.
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With the passing of the Farm Act, more growers have entered the market causing the price of refined hemp to drop; we believe this will continue to drop for another year before the market stabilizes
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Testing requirements have and will continue to evolve meaning less Biomass maybe available to refine designated as pharmaceutical grade
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Weather is a major factor, with wild climate swings taking place this could also cause a shortage in available Biomass.
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Going Concern
At September 30, 2021, we had a working capital deficit of $977,686. To date, we have yet to commence our Plan of Operations and continue to rely on advances from our officer to continue our day-to-day activities. As a result, there is substantial doubt regarding our ability to continue as a going concern. Our ability to continue operations depends on our ability to generate and grow revenue and results of operations as well as our ability to access capital markets when necessary to accomplish our strategic objectives.
We expect that we will continue to incur losses for the immediate future and will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities. Our future capital requirements for our operations will depend on many factors, including the ability to generate revenues and our ability to obtain capital. There is no assurance that we will be successful in any capital-raising efforts that we may undertake to fund our operations and implement our business plan
Our plans to implement our Plan of Operations include the following:
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Renting space in an area in Wisconsin where we can setup a processing lab to processing some of the Biomass harvested during 2019.
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Once the processing lab is set up, we will meet with farmers in the area growing hemp and seek to form a co-op with them, where they farm the crop, and we process the crop and sell the Isolate.
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The foregoing goals will increase expenses and lead to possible net losses. There is no assurance that we will ever be profitable or that debt or equity financing will be available to us. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern. There is no assurance we will be successful in any of these goals.
Results of Operations
The following information should be read in conjunction with the financial statements and notes appearing elsewhere in this Report. We have not generated any revenues from inception to date. We anticipate that we may not receive any significant revenues from operations until we begin our planned operations to process hemp or biomass into Cannabidiol (“CBD”) by establishing a processing plant in Wisconsin to supply manufacturers or pharmaceutical companies for their manufacture, distribution and sale of CBD related products such as edibles for human consumption, vitamins, and multi-vitamins, and topical products for human use such as oils, tinctures, creams, oils and salves, and vaping liquids. We also plan to promote and assist in the establishment of a co-op with local farmers for the purpose of establishing a consistent supply of biomass and enter into long term supply contracts.
For the Three Months Ended September 30, 2021 and September 30, 2020
Revenues
We had no revenues for the three months ended September 30, 2021 and 2020.
Operating Expenses
Our operating expenses for three months ended September 30, 2021 and 2020 totaled $80,996 and $46,950, respectively. The $34,046 increase in our operating expenses is due to a $29,354 increase in professional and legal fees and a $4,692 increase in general and administrative expenses compared to the 2020 period.
Other Income and Expenses
Total other expenses consisted of interest expense of $13,067 and $6,645 for the three months ended September 30, 2021 and 2020, respectively.
Net Loss
We recognized net losses of $94,063 and $53,595 for the three months ended September 30, 2021 and 2020, respectively. The net losses are due to the $80,996 and $46,950 in operating expenses, as well as the $13,067 and $6,645 in other expenses for years ended three months ended September 30, 2021 and 2020, respectively, as discussed above.
We anticipate losses from operations will increase during the next twelve months due to anticipated increased payroll expenses as we add necessary staff and increases in legal and accounting expenses associated with maintaining a reporting company. We expect that we will continue to have net losses from operations for several years until revenues from operating facilities become sufficient to offset operating expenses.
For the Nine Months Ended September 30, 2021 and September 30, 2020
Revenues
We had no revenues for the nine months ended September 30, 2021 and 2020.
Operating Expenses
Our operating expenses for nine months ended September 30, 2021 and 2020 totaled $258,263 and $212,594, respectively. The $45,669 increase in operating expenses is due to a $31,902 increase in professional and legal fees and a $13,767 increase in general and administrative expenses compared to the 2020 period.
Other Income and Expenses
Total other expenses consisted of interest expense of $33,330 and $17,766 for the nine months ended September 30, 2021 and 2020, respectively.
Net Loss
We recognized net losses of $291,593 and $230,360 for the nine months ended September 30, 2021 and 2020, respectively. The net losses are due to the $258,263 and $212,594 in operating expenses, as well as the $33,330 and $17,766 in other expenses for nine months ended September 30, 2021 and 2020, respectively, as discussed above.
We anticipate losses from operations will increase during the next twelve months due to anticipated increased payroll expenses as we add necessary staff and increases in legal and accounting expenses associated with maintaining a reporting company. We expect that we will continue to have net losses from operations for several years until revenues from operating facilities become sufficient to offset operating expenses.
Liquidity and Capital Resources
We have generated no revenues since inception. We have obtained cash for operating expenses mainly through advances and/or loans from affiliates and stockholders.
At September 30, 2021, we had a working capital deficit of $977,686 and have yet to commence our plan of operations. Our current liquidity resources are not sufficient to fund our anticipated level of operations. As a result, there is substantial doubt regarding our ability to continue as a going concern. Our ability to continue operations depends on our ability to generate and grow revenue as well as access capital markets when necessary to fund strategic objectives. We expect to continue to incur losses for the immediate future and will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities. There is no assurance that the Company will be successful in any capital-raising efforts that it may undertake to fund operations and implement our business plan in the future.
Net Cash Used in Operating Activities.
During the nine months ended September 30, 2021 and 2020, our net cash used in operating activities was $186,747 and $82,928, respectively. Cash flows used from operations mainly consists of net losses of $291,583 and $230,360 as discussed above, as well as an increase of $7,000 and $0 in prepaid expenses, partially offset by decreases of $111,846 and $147,432 in accounts payable and accrued expenses during the nine months ended September 30, 2021 and 2020, respectively. Our primary uses of funds in operations were payments made for legal and professional costs.
Net Cash Provided by Investing Activities.
We had no cash investing activities during the nine months ended September 30, 2021 and 2020.
Net Cash Provided by Financing Activities.
Net cash provided by financing activities during the three months ended September 30, 2021 and 2020 totaled $186,747 and $82,928, respectively. We received $25,664 and $23,215 in officer advances and $161,083 and $59,713 in proceeds from issuance of notes payable during the nine months ended September 30, 2021 and 2020, respectively.
Cash Position and Outstanding Indebtedness.
Our total indebtedness at September 30, 2021 and December 31, 2020 was $987,686 and $689,083, respectively, all of which are considered current liabilities. Current liabilities consist primarily of accounts payable and accrued expenses, advances from officer and notes payable.
At September 30, 2021 and December 31, 2020, we had $10,000 and $3,000 current assets and our working capital deficit was $977,686 and $686,093, respectively.
Off-Balance Sheet Arrangements
We have not and do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of establishing off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we do not believe we are exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
The following discussion should be read in conjunction with our consolidated financial statements and the related notes. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Plan of Operations
Once we commence our plan of operations, we anticipate that we will incur approximately $2.1 million of total expenses during the initial 12 months, including hiring personnel, purchasing lab equipment, and training over the first three months of our operations at a burn rate of $54,550 per month. During months 4 to 12 of our Plan of Operations, our burn rate is estimated at $232,216 per month. Based on our current working capital deficit and our absence of any historical revenues, we will have to rely on our sole officer and third-party financing to fund our operations. The initial 12-month Plan of Operations is contingent upon obtaining a minimum financing of at least $1,296,416.
There are no assurances that we will be able to obtain financing or on terms acceptable to us. Our Plan of Operations will begin four months after we receive financing, if ever. We have researched and identified the equipment needed to operate a plant capable of initially processing one acre per day that can be expanded to processing three to five acres per day; we have not yet purchased any equipment. We have not offered any services to local or out of state farmers at this time. It will take approximately four months to begin operations after the order and delivery of the processing equipment, after which we will introduce ourselves to the local farms in a hundred-mile radius around the plant, in an attempt to enter into multi-year processing agreements. We will also complete a website that will offer the finished product Isolate for sale by the liter and encourage buyers to enter into annual contracts for a minimum number of liters per month at a discount.