MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Formation
We are a Nevada corporation formed on December 31, 2003 (although we were incorporated on October 9, 1995, in Texas under the name, Posh International, Inc. and on December 31, 2003, we changed our domicile from Texas to Nevada). On June 14, 2022, we changed our name from Integrated Cannabis, Inc. to Integrated Holdings, Inc. Our headquarters are in Coconut Creek, FL.
Overview
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, of 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 the development of our operations. We will need to generate significant revenues to achieve profitability, of which there are no assurances.
We are a Nevada corporation publicly traded company under the ticker “IGPK”. We were formed on December 31, 2003, and had nominal operations during the years ended December 31, 2021 and 2020. Under our prior business plan, we planned 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 planned 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. On May 21, 2019, the Company formed Integrated Farming Solutions, LLC as a limited liability company, in the state of Nevada. Integrated Farming Solutions, LLC is a wholly-owned subsidiary and has not yet begun operations.
On December 13, 2021, we completed an agreement with Consolidated Apparel to acquire 100% of Consolidated and pursue the athleisure apparel business, which has not yet closed.
On January 26, 2022, the Company’s wholly-owned subsidiary, Integrated Holding Solutions, Inc. entered into an Acquisition Agreement with GCTR Management, LLC and its Managing Member, a California Limited Liability Company in the business of managing cannabis companies providing for the Integrated Holding Solutions’ acquisition of 100% of GCTR. On March 17, 2022, the Company amended the January 26, 2022 agreement with GCTR providing for the Company’s purchase of 49.9% of the Seller with the Company’s option to purchase the remaining 50.1% of GCTR within 6 months of the date of the March 17, 2022, Agreement. The March 17, 2022 Agreement provides for an exchange of our Preferred B Shares with the Seller’s 598,800 Membership Units, as more specifically detailed in Note 8 below for the respective 49.9% and 50.1% purchases, respectively, which 49.9% exchange and corresponding 49.9% purchase of GCTR was executed on or about March 22, 2022, and represents the Company’s closing of its first acquisition upon issuance of the Series B Preferred shares.
No assurance can be provided that we will be successful in implementing and executing our business plans.
COVID-19 RELATED RISKS
The outbreak of the coronavirus may negatively impact our business, results of operations and financial condition.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely and negatively materially affect our business, results of operations, and financial condition.
Certain historical data regarding our business, results of operations, financial condition, and liquidity do not reflect the impact of the COVID-19 pandemic and related containment measures and therefore do not purport to be representative of our future performance
The information included in this Quarterly Report on Form 10-Q and our other reports filed with the SEC includes information regarding our business, results of operations, financial condition, and liquidity as of dates and for periods before and during the impact of the COVID-19 pandemic and related containment measures (including quarantines and governmental orders requiring the closure of certain businesses, limiting travel, requiring that individuals stay at home or shelter in place and closing borders). Therefore, certain historical information, therefore, does not reflect the adverse impacts of the COVID-19 pandemic and the related containment measures. Accordingly, investors are cautioned not to unduly rely on such historical information regarding our business, results of operations, financial condition, or liquidity, as that data does not reflect the adverse impact of the COVID-19 pandemic and therefore does not purport to be representative of the future results of operations, financial condition, liquidity or other financial or operating results of us, or our business.
Going Concern
On June 30, 2022, we had a working capital deficit of approximately $1,257,919 and we have yet to commence our plan of operations. Our current liquidity resources are not sufficient to fund its anticipated level of operations for at least the next 12 months from the date these financial statements were issued. As a result, there is substantial doubt regarding the Company’s ability to continue as a going concern.
Our ability to continue operations depends on its ability to generate and grow revenue and results of operations as well as its ability to access capital markets when necessary to accomplish its strategic objectives. We expect that we will continue to incur losses in 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 its operations will depend on many factors, including the ability to generate revenues and its ability to obtain capital. There is no assurance that we will be successful in any capital-raising efforts that it may undertake to fund operations and implement its business plan in the future.
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.
For the Three Months Ended June 30, 2022, and June 30, 2021
Revenues
We had no revenues for the three months ended June 30, 2022, and 2021.
Operating Expenses
Our operating expenses for the three months ended June 30, 2022, and 2021 totaled $88,518 and $106,211, respectively. The $17,693 decrease in our operating expenses is due to a $19,217 decrease in professional and legal fees, partially offset by a $1,524 increase in general and administrative expenses compared to the 2021 period.
Other Income and Expenses
Total other expenses consisted of interest expense of $14,890 and $11,179 for the three months ended June 30, 2022, and 2021, respectively.
Net Loss
We recognized net losses of $103,408 and $117,390 for the three months ended June 30, 2022 and 2021, respectively. The net losses are due to the $88,518 and $106,211 in operating expenses, as well as the $14,890 and $11,179 in other expenses for years ended three months ended June 30, 2022 and 2021, 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 Six Months Ended June 30, 2022 and 2021
Revenues
We had no revenues for the six months ended June 30, 2022, and 2021.
Operating Expenses
Our operating expenses for the six months ended June 30, 2022, and 2021 totaled $169,198 and $177,267, respectively. The $8,069 decrease in operating expenses is due to a $7,693 decrease in professional and legal fees and a $376 decrease in general and administrative expenses compared to the 2021 period.
Other Income and Expenses
Total other expenses consisted of interest expense of $28,770 and $20,263 for the six months ended June 30, 2022 and 2021, respectively.
Net Loss
We recognized net losses of $197,968 and $197,530 for the six months ended June 30, 2022, and 2021, respectively. The net losses are due to the $169,198 and $177,267 in operating expenses, as well as the $28,770 and $20,263 in interest expenses for the six months ended June 30, 2022, and 2021, 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.
On June 30, 2022, we had a working capital deficit of $1,257,919 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 in 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 six months ended June 30, 2022, and 2021, our net cash used in operating activities was $70,017 and $144,863, respectively. Cash flows used in operations mainly consist of net losses as discussed above, partially offset by increases of $117,951 and $52,584 in accounts payable and decreases of $10,000 and $83 in change in prepaid assets during the six months ended June 30, 2022, and 2021, 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 six months ended June 30, 2022, and 2021.
Net Cash Provided by Financing Activities.
Net cash provided by financing activities during the six months ended June 30, 2022, and 2021 totaled $70,017 and $144,863, respectively. We received $63,017 and $8,980 in officer advances and $7,000 and $135,883 in proceeds from the issuance of notes payable during the six months ended June 30, 2022, and 2021, respectively.
Cash Position and Outstanding Indebtedness.
Our total indebtedness on June 30, 2022, and December 31, 2021, was $1,257,919 and $1,069,951, 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 June 30, 2022 and December 31, 2021, we had $0 and $10,000 current assets and our working capital deficit was $1,257,919 and $1,059,951, 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 minimum financing of at least $1,296,416.