UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Fiscal Year Ended March 31, 2018
¨ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from _________ to ________
Commission File Number: 000-55704
| Right on Brands, Inc. |
| (Exact name of registrant as specified in its charter) |
| Nevada |
| 45-1994478 | ||
| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) | ||
|
|
|
| ||
| 1925 Century Park East, Suite 1380, Los Angeles, CA |
| 90067 | ||
| (Address of principal executive offices) |
| (Zip code) | ||
| (424) 259-3521 (Registrant’s telephone number, including area code) | ||||
|
| ||||
| Securities registered under Section 12(b) of the Act: Not Applicable |
| None | N/A | |
| (Title of each class) | (Name of Exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value of $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
| (Do not check if a smaller reporting company) |
|
| |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Approximately $14,026,717 as of September 30, 2017, using an average of bid and asked prices of $0.35 per share.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 64,583,869 as of August 10, 2018.
| 2 |
| Table of Contents |
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Overview
Our business is conducted through our wholly-owned subsidiaries, Humbly Hemp, Endo Brands, and Humble Water Company. Humbly Hemp sells and markets a line of hemp enhanced snack foods. Humble Water Company is in a partnership with Springhill Water Co. to develop a line of High Alkaline, Natural Mineral Water, and a bottling and packaging facility. Endo Brands creates and markets a line of CBD consumer products and through ENDO Labs, a joint venture with Centre Manufacturing, creates white label products and formulations for CBD brands. Right On Brands is at the focus of health and wellness. We create lasting brands with emerging functional ingredients, and our focus right now is industrial hemp, hemp derived CBD, and high alkaline water.
Product Line
Phase 1 (Current Portfolio)
Humbly Hemp Snack Bar:
The Humbly Hemp Snack Bar is a first of its kind hemp powered superfood bar. Our bar is certified vegan, and gluten free. We manufacture in a TOP 12 allergen free facility so NO Soy, and NON-GMO’s. From the research we have done with the current products on the market, it will be hard to find another bar that has as many health benefits, to as many dietary segments.
It retails at $2.99.
Flavors:
|
| · | Cocoa and Sea Salt |
|
| · | Cinnamon Date |
|
| · | Berry Vanilla |
| 3 |
| Table of Contents |
ENDO BRANDS:
Endo Water (launched February 2018):
ENDO Water is one of a kind Wellness drink. Structured Water, CBSs, and Omegas are some of the biggest wants in the health and wellness market. ENDO Water is created to “Fuel Mind and Body” targeted to increase the performance of the Endo-Cannabanoid System. The endocannabinoid system (ECS) is a group of endogenous cannabinoid receptors located in the mammalian brain and throughout the central and peripheral nervous systems, consisting of neuromodulatory lipids and their receptors. Our water is lightly flavored, almost an essence, and infused with CBDs (Cannabidiol). CBD IS NON PHSYCOACTIVE. Our proprietary blend is Sugar Free, Naturally Flavored, has a high PH level and has emulsified CBD for increased bioavailability.
*The name ENDO Water is in process of being trademarked.
ENDO Drops (launched April 2018):
The easiest and most effective way to get your daily CBD supplementation. These daily drops are blended with amazing essential oils for a no junk taste.
ENDO BRANDS: (Phase 2)
ENDO Mist:
Endo Select Hemp oil infused into a superfood blend with other amazing essential oils and superfoods. We put this potion into a 2 floz spray bottle to make it easy to bring around and supplement anywhere.
ENDO Ease:
Topical Pain relief product, 200mg of Endo Select Hemp Oil infused with an easy pump distribution cap.
Target Market
Health and wellness is becoming a part of everyone’s lives, and eating right is usually the first step. What we have done to test the market for a products like this, is to take a look at the types of consumer that would be looking for our solution. The number of diets trends in America continues to grow, and hemp is the perfect solution for many of them.
Global Industries Analyst Report (GIA), states that the global market for foods developed for individuals with allergies or intolerances is expected to grow to 24.8 billion by 2020. Food allergies and intolerances are a growing public health problem causing higher demand of products that meet special dietary requirements. The biggest concerns:
|
| · | Wheat - immune response to one or more proteins found in wheat, does not have to be gluten |
|
| · | Lactose - Approximately 65 percent of the human population has a reduced ability to digest lactose after infancy. Lactose intolerance in adulthood is most prevalent in people of East Asian descent, affecting more than 90 percent of adults in some of these communities. |
|
| · | Dairy - Individuals with a dairy allergy are allergic to either one or both of the milk proteins, casein and whey. Milk allergies are more common in children and some people grow out of them. |
|
| · | Gluten - Only 1% of Americans has celiac disease, but 1/3 of the population claim to be gluten sensitive, and is trying to live a gluten free lifestyle. |
|
| · | Soy - an exact percentage of Americans dealing with a soy allergy is unknown, but it is one of the "Big 8" food allergies |
|
| · | Nut Allergy - Hemp is a wonderful substitute for those with nut allergies |
| 4 |
| Table of Contents |
Hemp is not only attractive to those with food allergens; individuals who follow a strict diet for any reason will be extremely attracted to hemp. Some of the more popular lifestyle diets include:
|
| · | Paleo - based on Google trends, book sales, and website hits, the number of Americans following a paleo lifestyle is in the millions |
|
| · | Vegetarianism - “Vegetarianism in America” study, published by Vegetarian Times (vegetariantimes.com), shows that 3.2 percent of U.S. adults, or 7.3 million people, follow a vegetarian-based diet |
|
| · | Veganism - the Vegetarian Times study shows that 0.5 percent or 1 million people, follow an animal free vegan diet |
|
| · | No GMO - 80% of the food consumed by children in America today are genetically modified. The NO GMO tag is the fastest growing segment in health food |
|
| · | Kosher - it is estimated that 21% of the 5.3 million Jewish Americans keep kosher. |
Hemp based foods can be consumed by anyone in these segments. In 2014, the Hemp Industries Association (HIA), a non-profit trade association, released final estimates of the size of the U.S. retail market for hemp products. The estimated total retail value of hemp products sold in the U.S. in 2014 was at least $620 million. More importantly, the total retail sales of hemp food and body care products in the United States is estimated at $200 million.
Everyone can consume our hemp-based foods, but it is never smart to market a product that way. In order to pinpoint our ideal consumer, we have used research done by IRI and SPINS. In this study they broke down this new category of health CPG consumers into several segments. Those categories called “True Believers”, and “Enlightened Environmentalists” are the two main shopper segments for organic food. They make up 46% of organic food purchases. They each make up 9% of the shoppers, so 18% together.
True Believers: Their main concern is to keep a healthy body. They buy only organic, they try new things, are college educated, and have a median income of $65,000.
Enlightened Environmentalists: They care about the environment and buy products and live in a way that doesn’t hurt the environment. They specifically shop at places that carry mostly organic and environmentally friendly products; most of them have graduate school degrees and average 57 years of age. They have a median income of $57,000.
By taking these two groups we can highlight some main characteristics of our target consumer:
|
| · | Average Age: 35-57 |
|
| · | Education: College& Graduate School |
|
| · | Income: $55,000-$70,000 |
|
| · | Where they shop: a mixture of online & Organic and Health based retail (Whole Foods) |
Competition
In the market we are going to occupy, we face four major competitors:
|
| ¨ | Manitoba Hemp Foods: Based in Canada, Manitoba looks to be the industry leader in this market. They have been selling hemp products since 1998 and have created a strong brand. They carry Hemp Hearts, Hemp Heart Bars, Hemp protein smoothies, Hemp protein powder, and Hemp oil. |
|
| ¨ | Evo Hemp: Evo is a boulder based Hemp bar company. They are one of the newer hemp brands in the market. They only offer bars in their product line. |
|
| ¨ | Nutiva: Nutiva is an organic superfood brand. They offer a wide range of products with, chia, red palm, coconut, and hemp. All of their products are non GMO, and USDA organic. |
|
| ¨ | Naturally Splendid: Naturally Splendid is a multifaceted biotechnology company developing, commercializing, producing, selling, and licensing an entirely new generation of hemp-derived, high quality, nutrient-dense Omega foods, nutritional food enhancers, and related products. |
| 5 |
| Table of Contents |
Our Potential Advantages
Our brands offer a new take on hemp products. Humbly Hemp snacks are positions to bring hemp into the daily routine of the “everyman”. Our branding and market position take the stigma and fear out of hemp, creating an approachable product for anyone to enjoy. ENDO Brands advantage in the market is our unique formulation, price point, high quality. We are one of the first in the CBD industry to have a testable, full spectrum CBD water product. Our in house formulator allows us to create our proprietary CBD ingredient and infuse our products at a fraction of the cost of other brands.
Marketing, Sales, and Distribution Strategies
Marketing Plan
Growth Hacking: we utilize growth hacking to launch our brand. We promote through all social media channels to build brand awareness for our initial products. The first of these attempts will be sending products to popular Bloggers, Vlogers, and social media celebrities, for promotion on their channels. These techniques cost very little, and are extremely effective for Internet businesses. We will also use Google AdWords to push the product through online advertisements and SEO.
Online Marketing: We tailor an online marketing campaign to attract the two market segments mentioned earlier in the target market segment. This position will assure that we are promoting to the most viable group of consumers.
Instagram: Our goal on IG for our brands is to build an obsessed fan base and an engaged community. Hemp education is a vital part of these channels, we utilize the new stories feature to show daily life at Right On Brands as well as unique info on our products and drive traffic to the Ecommerce store.
Twitter: The Key to twitter is communication. This will be the key to success on this social channel. The best twitter accounts today are ones that do not broadcast to the consumer, but engage the consumer with interesting content in the form of:
|
| - | Questions/Surveys |
|
| - | Brand related news |
|
| - | Customer Service |
|
| - | Company News |
|
| - | Follower Engagement |
Facebook: Facebook has gone from being a publishing channel for brands, to now a landing page of brand identity. We utilize Facebook as a cornerstone of our online identity. We will be careful about being “too promotional” and we will be aiming for content that people will share. To achieve this we will:
|
| - | Plan Monthly Campaigns |
|
| - | Find Creative way to use consumer generated content |
|
| - | Invest In short catchy video content clips (Mini Ads) |
|
| - | Utilize Facebook Ads for major campaigns |
| 6 |
| Table of Contents |
Social Contests: We have regular Social Media Channel contests that span from our website to every single channel we have. These range from, Photo contest, video contests, cooking contests, etc. These types of contests really boosts followership, sharing and all drive traffic directly back to the landing page. They are relatively cheap and the prizes we will give away consist of actual product, lifestyle related products, and company marketing materials.
Analysis and Execution: We use Hootsuite to posts, and also analyze all of the social media channels. They are the industry leaders in the field, and it is an application that we have previous knowledge in.
Guerrilla Marketing: Once we have scaled, and doing business with the big box retailers, we will use more traditional marketing techniques including; in store promotions, trade shows, festival, and Brand Ambassador Programs. We will begin this during the second Quarter of our initial year by hiring two college students located in Los Angeles. They will assist in Social Media Content Creation, Event Marketing, and In Store Promotions in the Los Angeles area. We will quickly expand this program and have 2 students in each state we launch into. This will allow us to get our key demographic engaged in the products on campus, creating lifelong fans of Humbly Hemp.
Consumer Outreach & Education: The most important factor in the marketing of our products will be consumer education on the benefits of hemp. We use a page in our websites to promote this, and in our growth we will focus on this more and more. In the future we work on doing some co-branding with Hemp associations, Non Profit Groups that share our goals in keeping people and our planet healthy. Hemp History week is a big collaboration week for us. We have hosted pop ups, and plan on doing much more.
Sales Plan
Retail Distribution: Our partnership with Statewide distribution will give us a leg up on the competition out of the gate. The ability to get our products into so many stores in Southern California is a huge win for our brands. We focus on Southern California and scale our growth from there. We are quickly moving into Northern California, Nevada, Oklahoma, Texas, Missouri, and Colorado next.
Online Sales: Our website is extremely easy to use, and the process of making a purchase will is seamless. We worked with the best website designers to ensure that our marketplace is both beautiful and functional.
B2B Online Sales: The number of online health food stores and especially health food subscription boxes is growing every day. They are always looking for quality products to stock their stores and monthly boxes. We have worked with groups like Sensibox, Gramsly, to bring our products into people monthly boxes.
Manufacturing and Distribution
Humbly Hemp
We are currently producing the Humbly Hemp Snack Bar with a world class co packer.
Endo Water
We are currently having our proprietary recipe manufactured and packed at a facility in Las Vegas. This will allow us to effectively distribute it along the west coast before a national rollout, and we will be bringing on a second manufacturer soon.
Humble Water Co.
Our partnership in Montana with the Springhill Water Co. allows us to sell our amazing natural water directly from the source in Cut Bank, Montana, at the foothills of Glacier National Park. We are currently working towards building our own bottling facility on site to bring untouched-by-hands bottled natural water to our channels.
| 7 |
| Table of Contents |
Joint Venture with Centre Manufacturing, Inc.
Effective June 19, 2018, we formed a new company, Endo & Centre Venture, LLC (“Endo & Centre”), for the purposes of carrying out a joint venture with Centre Manufacturing, Inc. (“Centre Manufacturing”), a food and beverage manufacturer. Through Endo & Centre, we plan to pursue the manufacture, marketing, and sales of private label food and beverages. Centre Manufacturing will carry out the product manufacturing and, through our subsidiary Endo Brands, Inc., we will focus on marketing and sales of private-label food and beverage products. The joint venture with Centre Manufacturing is governed by the Operating Agreement for Endo & Centre, which is filed herewith as Exhibit 10.1. Our subsidiary, Endo Brands, Inc., owns 51% of Endo & Centre, and Centre Manufacturing owns a 49% membership interest. Profits and losses for the company will be shared on a 50/50 basis. Endo & Centre will be jointly managed by our President and CEO, Daniel Crawford, and the head of Centre Manufacturing, Ashok Patel.
Risks Related to Our Company and Business
If we do not obtain additional financing, our business development plans will be delayed and we may not achieve profitable operations.
We will require significant additional capital to execute on our business development plans. We intend to seek additional funds through private placements of our common stock or other securities. Our business plan calls for incurring expenses for the purchase of products, website maintenance, and expenses for salary, legal, and administration. If no additional financing is secured, we may have to significantly curtail our plan of operations. If that is the case, our business will not grow as desired. Our ability to raise additional financing is unknown. We do not have any formal commitments or arrangements for the advancement of funds. Consequently, there can be no assurance that we will be able to obtain access to capital as and when needed or, if so, that the terms of any available financing will be commercially reasonable. If we are unable to raise suitable financing, our business development plans may be delayed and we may be unable to achieve profitable operations.
Since we have limited operating history and limited revenues to date in our Humbly Hemp line of business, we may be unable to achieve or maintain profitability. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a newer enterprise.
We have limited financial resources and have generated limited revenues to date in our Humbly Hemp business. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by an emerging growth company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history and lack a track record of consistent revenues in our Humbly Hemp business, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to fully meet our expenses and totally support our anticipated activities.
Our ability to continue as a business and implement our business plan will depend on our ability to raise sufficient funds. There is no assurance that any debt or equity offerings will be successful or that we will remain in business or be able to implement our business plan if the offerings are not successful.
If we are unable to develop a reliable systems for outside manufacturing and fulfillment, our ability to grow our business and achieve profitability will be severely adversely affected.
We have hired Dr. Ashok Patel to be the Director of New Product Development for our company. His experience in natural oils will allow us to make a breadth of amazing product base off our ENDO Select Hemp Oil. His facility is currently batching our select hemp oil for co packer use. We have our Endo Water bottled at one facility. If this facility does not continue to work with us in the future, we maybe unable to produce any more product. We rely upon Bar One, a private label health bar company, to produce our primary current product, the Humbly Hemp Snack Bar, and some of our additional products. In addition, we rely on Bar One to process our product orders and to ensure fulfillment of all product orders in concert with a third party manufacturer. Our ability to grow our business and customer base will depend upon smoothly functioning relationships with our manufacturing and fulfillment partners and our ability to integrate their roles with our marketing and customer service operations. If we are unable to smoothly integrate these third party operations into our business, or if we are unable to establish and maintain strong relationships with these key outside parties, our ability to successfully deliver quality products to our customer in a timely manner will be adversely affected, and our ability to achieve profitability will be severely impaired.
| 8 |
| Table of Contents |
If we are unable to successfully market our products or our products do not perform as expected, our business and financial condition will be adversely affected.
We are subject to the risks generally associated with new product introductions and applications, including lack of market acceptance and failure of products to perform as expected. There can be no assurance that we will be successful in marketing our hemp-based snack bars to the public. Our success will depend on our ability to grow our wholesale distribution network and to develop additional sales channels on cost-effective terms. Our marketing efforts may not be sufficient to generate significant and ongoing sales. Further, if our products do not perform as expected by consumers, either in terms of flavor or perceived performance, our ability to expand our product distribution and grow overall sales will be severely impaired.
Because consumer preferences change frequently, our hemp-based snack bars will require periodic product introduction.
As a result of changing consumer preferences, many new snack bars and similar products are successfully marketed for a limited period of time. Even if our snack bars and other hemp-based food products show early signs of promise, there can be no assurance that our products will continue to be popular for an extended period of time. Our success will be dependent upon our ability to address the changing needs and tastes of the consumer market. Our failure to innovate over time and to adjust to consumer preferences on a regular basis could cause us to fail to achieve and sustain ongoing market acceptance could have a material adverse effect on our financial condition and results of operations.
Because of pressures from competitors with more resources, we may fail to implement our business strategy profitably.
The market for hemp-based snack bars, other foods, and related products is intensely competitive and we expect competition to increase in the future. We will compete with larger and more established companies that have longer operating histories, greater name recognition, access to larger customer bases and distribution networks, and significantly greater financial, technical and marketing resources than we do. As a result, they may be able to adapt more quickly to changes in customer preferences and to devote greater resources to the promotion and sale of their products than we will. In addition, they may have more firmly established financial, manufacturing, distribution, and sales relationships in the industry. Therefore, we cannot be sure that we will be able to successfully implement our business strategy in the face of such competition. If we cannot compete effectively, we may experience future price reductions, reduced gross margins and loss of market share, any of which will materially adversely affect our business, operating results and financial condition.
If we are unable to manage growth, our operations could be adversely affected.
Our progress is expected to require the full utilization of our management, financial and other resources, which to date has occurred with limited working capital. Our ability to manage growth effectively will depend on our ability to improve and expand operations, including our financial and management information systems, and to recruit, train and manage sales, management, and technical personnel. There can be no assurance that management will be able to manage growth effectively.
If we do not properly manage the growth of our business, we may experience significant strains on our management and operations and disruptions in our business. Various risks arise when companies grow quickly. If our business or industry grows too quickly, our ability to meet customer demand in a timely and efficient manner could be challenged. We may also experience development delays as we seek to meet increased demand for our products. Our failure to properly manage the growth we might experience could negatively impact our ability to execute on our operating plan and, accordingly, could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current or potential customers.
| 9 |
| Table of Contents |
Our business and growth may suffer if we are unable to attract and retain key employees.
Our success depends on the expertise and continued service of our Founder and Chief Executive Officer, Daniel Crawford. Mr. Crawford’s ongoing efforts and oversight will be significant factor in our growth and ability to meet our business objectives. It may be difficult to find a sufficiently qualified and motivated individual to replace Mr. Crawford in the event of death, disability or resignation, resulting in our being unable to implement our business plan and even a complete cessation of our operations, which would likely result in the total loss of an investor's investment.
Furthermore, our ability to expand operations to accommodate our anticipated growth will also depend on our ability to attract and retain qualified media, management, finance, marketing, sales and technical personnel. However, competition for these types of employees is intense due to the limited number of qualified professionals. Our ability to meet our business development objectives will depend in part on our ability to recruit, train and retain top quality people with advanced skills who understand our business. We hope that we will be able to attract competent employees, but no assurance can be given that we will be successful in this regard. If we are unable to engage and retain the necessary personnel, our business may be materially and adversely affected.
Risks Related to Legal Uncertainty
If we are the subject of significant future product liability or related lawsuits, our business will likely fail.
Like all sellers of products for human consumption, we cannot eliminate the risk that our products may be subjection to contamination during the manufacturing or distribution process. We currently do not maintain product liability or general liability insurance and we may not be able to obtain such coverage in the future or such coverage may not be adequate to cover all potential claims. Moreover, even if we are able to maintain sufficient insurance coverage in the future, any successful claim could significantly harm our business, financial condition and results of operations.
The legal status of the main ingredient in our Endo Water line is uncertain.
Currently, even though many companies are selling food items enhanced with Cannabidiol (CBD), the legal status of CBD for use in food is uncertain. In July 2018, the Department of Public Health of the State of California issued a directive stating that CBD derived from industrial hemp, as is used in products like our ENDO Water line, is not approved for use in human or pet food. If this position is adopted by other states in the future, it could significantly harm our business, financial condition, and results of operations. Furthermore, the Food and Drug Administration has also not declared CBD Generally Recognized As Safe (GRAS) and, as such, it could issue a directive similar to the one issued by the State of California
Risks Related to Our Common Stock
Because we do not expect to pay dividends for the foreseeable future, investors seeking cash dividends should not purchase our common stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their own common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase our common stock.
| 10 |
| Table of Contents |
If we undertake future offerings of our common stock, shareholders will experience dilution of their ownership percentage.
Generally, existing shareholders will experience dilution of their ownership percentage in the company if and when additional shares of common stock are offered and sold. In the future, we may be required to seek additional equity funding in the form of private or public offerings of our common stock. In the event that we undertake subsequent offerings of common stock, your ownership percentage, voting power as a common shareholder, and earnings per share, if any, will be proportionately diluted. This may, in turn, result in a substantial decrease in the per-share value of your common stock.
Because FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock, investors may not be able to sell their stock should they desire to do so.
In addition to the "penny stock" rules described below, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder's ability to resell shares of our common stock.
Because we are subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges or quoted on Nasdaq). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity in the secondary market for a security subject to the penny stock rules, and investors in our common stock may find it difficult to sell their shares.
Item 1B. Unresolved Staff Comments
None.
Our corporate headquarters are at 1925 Century Park East, Suite 1380, Los Angeles, CA 90067.
The property is sufficient for our current business size.
We are not currently party to any material legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
| 11 |
| Table of Contents |
Market Information
Our common stock is quoted under the symbol “RTON” on the OTCQB tier of the over-the-counter electronic quotation system operated by OTC Markets Group, Inc. The following tables set forth the range of high and low prices for our common stock for the each of the periods indicated as reported by the OTC Markets quotation system. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Fiscal Year Ended March 31, 2018
| Quarter Ended |
| High $ |
|
| Low $ |
| ||
| March 31, 2018 |
|
| 0.65 |
|
|
| 0.182 |
|
| December 31, 2017 |
|
| 0.42 |
|
|
| 0.1751 |
|
| September 30, 2017 |
|
| 0.731 |
|
|
| 0.30 |
|
| June 30, 2017 |
|
| 0.745 |
|
|
| 0.40 |
|
Fiscal Year Ended March 31, 2017
| Quarter Ended |
| High $ |
|
| Low $ |
| ||
| March 31, 2017 |
|
| 0.89 |
|
|
| 0.30 |
|
| December 31, 2016 |
|
| 0.80 |
|
|
| 0.35 |
|
| September 30, 2016 |
|
| 0.80 |
|
|
| 0.0575 |
|
| June 30, 2016 |
|
| 0.19 |
|
|
| 0.045 |
|
On July 20, 2018, the last sales price per share of our common stock was $0.1399
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
| 12 |
| Table of Contents |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Holders of Our Common Stock
As of August 10, 2018, we had 64,583,869 shares of our common stock issued and outstanding, held by approximately 89 shareholders of record.
Dividends
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1. we would not be able to pay our debts as they become due in the usual course of business, or;
2. our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
Item 6. Selected Financial Data
A smaller reporting company is not required to provide the information required by this Item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017
During the year ended March 31, 2018, we generated revenue of $9,343. Our cost of goods sold was $7,424, resulting in gross profit of $1,919. We incurred total operating expenses of $800,691, consisting of consulting fees of $315,468, general and administrative expenses of $199,910, legal and professional fees of $73,773, executive compensation of $83,042, advertising and promotion costs of $75,987, and depreciation and amortization of $24,600. In addition, we incurred interest expense of $5,374. Our net loss for the year ended March 31, 2018 was $804,147.
By comparison, during the year ended March 31, 2017, we generated revenue of $587. We incurred total operating expenses of $166,151, consisting of general and administrative expenses of $44,097, legal and professional fees of $46,722, executive compensation of $30,000, advertising and promotion costs of $24,582, depreciation and amortization of $20,000, and consulting fees of $750. In addition, we incurred interest expense of $2,264 and a loss on extinguishment of debt in the amount of $2,770,451. The loss on extinguishment of debt reflects the issuance common stock in exchange for outstanding debt of $129,549. Our net loss for the year ended March 31, 2017 was $2,938,279.
| 13 |
| Table of Contents |
Our expenses increased during the year ended March 31, 2018, as compared to the prior year, largely as a result of increased costs for compensation and marketing and sales. As we continue with the development and marketing of our new health food and planned bottled water products, we expect that our expenses, as well as our revenues, will increase significantly over the current fiscal year.
Liquidity and Capital Resources
As of March 31, 2018, we had current assets in the amount of $1,305,966, consisting of cash in the amount of $47,506, accounts receivable of $2,897, prepaid expenses – current portion of $16,546, inventory of $14,044, deposits of $2,000, and prepaid stock compensation – current portion of $16,546. The figure for prepaid stock compensation reflects the value of shares issued as compensation for services to be rendered after the March 31, 2018 fiscal year.
As of March 31, 2018, we had current liabilities of $68,223, consisting of convertible debts, net of discounts, in the amount of $46,890, accounts payable of $16,711, and accrued interest of $4,622.
We have funded our operations to date through the issuance of common stock in offerings exempt under Rule 506, as well as through the issuance of convertible notes:
· During the year ended March 31, 2018, we issued a total of 4,025,000 shares of common stock to fifteen investors for proceeds of $445,000. As of March 31, 2018, we had yet to issue one investor 50,000 shares which were subscribed for $10,000, resulting in a recorded $10,000 common stock payable at fiscal year-end. · On November 21, 2017, we received $20,000 in financing under a convertible promissory note. The unsecured note bears interest at 6% per annum and is due on May 21, 2018. This note is convertible at $0.20 per share and can be converted on or before the maturity date. · Subsequent to the reporting period, On April 27, 2018, we received $125,000 in financing from investor Alain Salem under a Convertible Promissory Note. The Note bears interest at a rate of twelve percent (12%) per year, and is due in six months. The Note is convertible to shares of our common stock at a price equal to 50% of the market price. Market price for purposes of the Note is defined as the average of the two lowest trading prices for our common stock in the twenty trading days preceding the conversion date. Conversions by the noteholder are limited such that no conversion may be made to the extent that the shares held by the noteholder following the conversion would exceed 9.99% of our issued an outstanding common stock.
Our ability to successfully execute our business plan is contingent upon us obtaining additional financing and/or upon realizing sales revenue sufficient to fund our ongoing expenses. Until we are able to sustain our ongoing operations through sales revenue, we intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.
Off Balance Sheet Arrangements
As of March 31, 2018 there were no off balance sheet arrangements.
Going Concern
We have experienced recurring losses from operations and had an accumulated deficit of $4,100,945 as of March 31, 2018. To date, we have not been able to produce sufficient sales to become cash flow positive and profitable on a consistent basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.
| 14 |
| Table of Contents |
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that the following accounting policies currently fit this definition.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Right On Brands, Inc. and its wholly owned subsidiaries (Humbly Hemp, Inc., Endo Brands, Inc. and Humble Water Company). Intercompany accounts and transactions have been eliminated upon consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the straight-line method over the useful lives of the related assets, from three to five years.
The cost of building the Company’s website has been capitalized and amortized over a period of three years. Expenditures for minor enhancements and maintenance are expensed as incurred.
Inventory
Inventories are stated at the lower of cost (average cost) or market (net realizable value). Inventory consists of raw materials, work in process inventory and finished goods inventory of $0, $0 and $14,044, respectively as of March 31, 2018. Inventory consists of raw materials, work in process inventory and finished goods inventory of $26,144, $0 and $0, respectively as of March 31, 2017.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Long-lived Assets
The Company's long-lived assets and other assets (consisting of property and equipment) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360," Property, Plant, and Equipment", and FASB ASC Topic 205 " Presentation of Financial Statements ". The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through March 31, 2018 and 2017, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company's products or services will continue, which could result in an impairment of long-lived assets in the future.
| 15 |
| Table of Contents |
Stock Based Compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Revenue Recognition
The Company expects to recognize revenues in accordance with the guidelines of the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 104 "Revenue Recognition".
Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured.
Revenue was recorded when the products were shipped to the customers.
Income Taxes
The Company is subject to income taxes in the U.S. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In accordance with FASB ASC Topic 740, “Income Taxes,” the Company provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company accounts for income tax under the provisions of FASB ASC Topic 740, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Fair Value of Financial Instruments
The Company applies the provisions of accounting guidance, FASB Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2018 and 2017 the fair value of cash and accounts payable, approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.
Convertible Instruments
The Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
| 16 |
| Table of Contents |
Recently Issued Accounting Pronouncements
Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a material effect on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
| 17 |
| Table of Contents |
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
| 18 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Right On Brands, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Right On Brands, Inc. (the “Company”) as of March 31, 2018 and March 31, 2017 and the related consolidated statements of operations, stockholders’ (deficit), and cash flows for each of the years in the two-year period ended March 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2018 and March 31, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ AMC Auditing
AMC Auditing
We have served as the Company’s auditor since 2017
Las Vegas, Nevada
August 10, 2018
| F-1 |
| Table of Contents |
| RIGHT ON BRANDS, INC. | ||||||||
| formerly known as HEALTHTALK LIVE, INC. | ||||||||
|
| ||||||||
|
|
| March31, |
|
| March 31, |
| ||
|
|
| 2018 |
|
| 2017 |
| ||
|
|
|
|
|
|
|
| ||
| ASSETS | ||||||||
| Current assets |
|
|
|
|
|
| ||
| Cash |
| $ | 47,506 |
|
| $ | 130,787 |
|
| Accounts receivable |
|
| 2,897 |
|
|
| - |
|
| Prepaid expense - current portion |
|
| 16,546 |
|
|
| 8,833 |
|
| Prepaid stock compensation - current portion |
|
| 1,222,973 |
|
|
| - |
|
| Inventory |
|
| 14,044 |
|
|
| 26,144 |
|
| Deposit |
|
| 2,000 |
|
|
| 2,000 |
|
| Total current assets |
|
| 1,305,966 |
|
|
| 167,764 |
|
|
|
|
|
|
|
|
|
|
|
| Non-current assets |
|
|
|
|
|
|
|
|
| Property and equipment, net pf depreciation |
|
| 12,237 |
|
|
| 13,159 |
|
| Intangible assets, net of amortization |
|
| 870 |
|
|
| 1,024 |
|
| Prepaid expense, net of current portion |
|
| 93,681 |
|
|
| - |
|
| Prepaid stock compensation, net of current portion |
|
| 1,635,484 |
|
|
| - |
|
| Total non-current assets |
|
| 1,742,272 |
|
|
| 14,183 |
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
| $ | 3,048,238 |
|
| $ | 181,947 |
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
| Accounts payable |
| $ | 16,711 |
|
| $ | 10,154 |
|
| Accrued executive compensation |
|
| - |
|
|
| 9,869 |
|
| Accrued interest payable |
|
| 4,622 |
|
|
| 3,927 |
|
| Convertible debt, net of discount |
|
| 46,890 |
|
|
| 68,000 |
|
| Total current liabilities |
|
| 68,223 |
|
|
| 91,950 |
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
| 68,223 |
|
|
| 91,950 |
|
|
|
|
|
|
|
|
|
|
|
| Stockholders' equity (deficit) |
|
|
|
|
|
|
|
|
| Series A Preferred stock; 10,000,000 shares authorized of $.001 par value; |
|
| 5,000 |
|
|
| 5,000 |
|
| 5,000,000 and 5,000,000 shares issued March 31, 2018 and 2017, respectively |
|
|
|
|
|
|
|
|
| Common stock; par value $.001; 100,000,000 shares authorized |
|
|
|
|
|
|
|
|
| 63,543,869 and 50,215,585 shares issued March 31, 2018 and 2017, respectively |
|
| 63,544 |
|
|
| 50,216 |
|
| Additional paid-in capital |
|
| 6,513,979 |
|
|
| 2,867,580 |
|
| Common stock payable |
|
| 474,000 |
|
|
| 464,000 |
|
| Accumulated deficit |
|
| (4,100,945 | ) |
|
| (3,296,799 | ) |
| Total Right On Brands stockholders' (deficit) |
|
| 2,955,578 |
|
|
| 89,997 |
|
| Noncontrolling interest |
|
| 24,437 |
|
|
| - |
|
| Total stockholders' equity (deficit) |
|
| 2,980,015 |
|
|
| 89,997 |
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities and stockholders' equity (deficit) |
| $ | 3,048,238 |
|
| $ | 181,947 |
|
See Accompanying Notes to Financial Statements.
| F-2 |
| Table of Contents |
| RIGHT ON BRANDS, INC. | ||||||||
| formerly known as HEALTHTALK LIVE, INC. | ||||||||
|
| ||||||||
|
|
| Year ended |
|
| Year ended |
| ||
|
|
| March 31, |
|
| March 31, |
| ||
|
|
| 2018 |
|
| 2017 |
| ||
|
|
|
|
|
|
|
| ||
| Revenue |
| $ | 9,343 |
|
| $ | 587 |
|
| Cost of goods sold |
|
| 7,424 |
|
|
| - |
|
| Gross profit |
|
| 1,919 |
|
|
| 587 |
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
| 24,600 |
|
|
| 20,000 |
|
| General and administrative |
|
| 199,910 |
|
|
| 44,097 |
|
| Advertising and promotion |
|
| 75,987 |
|
|
| 24,582 |
|
| Legal and professional |
|
| 73,773 |
|
|
| 46,722 |
|
| Executive compensation |
|
| 83,042 |
|
|
| 30,000 |
|
| Consulting |
|
| 315,468 |
|
|
| 750 |
|
| Inventory impairment |
|
| 15,225 |
|
|
| - |
|
| Research and development |
|
| 12,686 |
|
|
| - |
|
| Total operating expenses |
|
| 800,691 |
|
|
| 166,151 |
|
|
|
|
|
|
|
|
|
|
|
| Other expenses |
|
|
|
|
|
|
|
|
| Interest expense |
|
| (5,374 | ) |
|
| (2,264 | ) |
| Loss on extinguishment of debt |
|
| - |
|
|
| (2,770,451 | ) |
| Total other expenses |
|
| (5,374 | ) |
|
| (2,772,715 | ) |
|
|
|
|
|
|
|
|
|
|
| Net loss including noncontrolling interest |
|
| (804,146 | ) |
|
| (2,938,279 | ) |
|
|
|
|
|
|
|
|
|
|
| Net (loss) attributable to noncontrolling interest |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Net loss attributable to Right On Brands, Inc. |
| $ | (804,146 | ) |
| $ | (2,938,279 | ) |
|
|
|
|
|
|
|
|
|
|
| Loss per share |
|
|
|
|
|
|
|
|
| Basic and diluted loss per share |
| $ | (0.01 | ) |
| $ | (0.07 | ) |
|
|
|
|
|
|
|
|
|
|
| Basic and diluted weighted average shares outstanding |
|
| 54,781,653 |
|
|
| 40,793,184 |
|
See Accompanying Notes to Financial Statements.
| F-3 |
| Table of Contents |
| RIGHT ON BRANDS, INC. | ||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Paid |
|
| Common |
|
|
|
|
|
|
|
| Stockholders' |
| |||||||||
|
|
| Preferred Shares |
|
| Common Shares |
|
| In |
|
| Stock |
|
| Accumulated |
|
| Noncontrolling |
|
| Equity |
| |||||||||||||||
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Interest |
|
| (Deficit) |
| |||||||||
| Balance, March 31, 2016 |
|
| - |
|
| $ | - |
|
|
| 32,577,585 |
|
| $ | 32,578 |
|
| $ | 243,180 |
|
| $ | - |
|
| $ | (358,520 | ) |
| $ | - |
|
| $ | (82,762 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for cash |
|
| - |
|
|
| - |
|
|
| 40,000 |
|
|
| 40 |
|
|
| 2,560 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for acquisition |
|
| 5,000,000 |
|
|
| 5,000 |
|
|
| 12,048,000 |
|
|
| 12,048 |
|
|
| (78,610 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (61,562 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for debt settlement |
|
| - |
|
|
| - |
|
|
| 4,200,000 |
|
|
| 4,200 |
|
|
| 2,431,800 |
|
|
| 464,000 |
|
|
| - |
|
|
| - |
|
|
| 2,900,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for cash |
|
| - |
|
|
| - |
|
|
| 1,350,000 |
|
|
| 1,350 |
|
|
| 268,650 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 270,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,938,279 | ) |
|
| - |
|
|
| (2,938,279 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2017 |
|
| 5,000,000 |
|
| $ | 5,000 |
|
|
| 50,215,585 |
|
| $ | 50,216 |
|
| $ | 2,867,580 |
|
| $ | 464,000 |
|
| $ | (3,296,799 | ) |
| $ | - |
|
| $ | 89,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for cash |
|
| - |
|
|
| - |
|
|
| 4,025,000 |
|
|
| 4,025 |
|
|
| 430,975 |
|
|
| 10,000 |
|
|
| - |
|
|
| - |
|
|
| 445,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conversion of debt to common stock |
|
| - |
|
|
| - |
|
|
| 1,850,784 |
|
|
| 1,851 |
|
|
| 39,938 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 41,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for services |
|
| - |
|
|
| - |
|
|
| 7,452,500 |
|
|
| 7,452 |
|
|
| 3,195,923 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,203,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beneficial conversion feature on convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (24,437 | ) |
|
| - |
|
|
| - |
|
|
| 24,437 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (804,146 | ) |
|
| - |
|
|
| (804,146 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2018 |
|
| 5,000,000 |
|
| $ | 5,000 |
|
|
| 63,543,869 |
|
| $ | 63,544 |
|
| $ | 6,513,979 |
|
| $ | 474,000 |
|
| $ | (4,100,945 | ) |
| $ | 24,437 |
|
| $ | 2,980,015 |
|
See Accompanying Notes to Financial Statements.
| F-4 |
| Table of Contents |
| RIGHT ON BRANDS, INC. | ||||||||||
| formerly known as HEALTHTALK LIVE, INC. | ||||||||||
|
| ||||||||||
|
|
| Year ended |
|
| Year ended |
| ||||
|
|
| March 31, |
|
| March 31, |
| ||||
|
|
| 2018 |
|
| 2017 |
| ||||
|
|
|
|
|
|
|
| ||||
| Cash flows (used in) operating activities |
|
|
|
|
|
| ||||
| Net loss |
| $ | (804,146 | ) |
| $ | (2,938,279 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
| ||
| Depreciation and amortization |
|
| 24,600 |
|
|
| 20,000 |
| ||
| Loss on extinguishment of debt |
|
| - |
|
|
| 2,770,451 |
| ||
| Amortization of prepaid stock compensation |
|
| 344,917 |
|
|
| - |
| ||
| Amortization of debt discount |
|
| 2,890 |
|
|
| - |
| ||
| (Increase) decrease in assets |
|
|
|
|
|
|
|
| ||
| Accounts receivable |
|
| (2,897 | ) |
|
| - |
| ||
| Prepaid expense |
|
| (101,393 | ) |
|
| (8,833 | ) | ||
| Inventory |
|
| 12,100 |
|
|
| (26,144 | ) | ||
| Deposit |
|
| - |
|
|
| (2,000 | ) | ||
| Increase (decrease) in liabilities |
|
|
|
|
|
|
|
| ||
| Accounts payable |
|
| 6,557 |
|
|
| 5,271 |
| ||
| Accrued interest payable |
|
| 2,484 |
|
|
| 2,263 |
| ||
| Accrued executive compensation |
|
| (9,869 | ) |
|
| 5,000 |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Net cash (used in) operating activities |
|
| (524,757 | ) |
|
| (172,271 | ) | ||
|
|
|
|
|
|
|
|
|
| ||
| Cash flows (used in) investing activities |
|
|
|
|
|
|
|
| ||
| Purchase intangible assets |
|
| - |
|
|
| (1,024 | ) | ||
| Purchase automobile |
|
| (13,596 | ) |
|
| - |
| ||
| Purchase tenant improvements |
|
| (8,606 | ) |
|
| (2,528 | ) | ||
| Purchase office equipment |
|
| (1,322 | ) |
|
| (1,780 | ) | ||
|
|
|
|
|
|
|
|
|
| ||
| Net cash (used in) investing activities |
|
| (23,524 | ) |
|
| (5,332 | ) | ||
|
|
|
|
|
|
|
|
|
| ||
| Cash flows provided by financing activities |
|
|
|
|
|
|
|
| ||
| Cash acquired at merger |
|
| - |
|
|
| 18,971 |
| ||
| Proceeds from due to officers |
|
| - |
|
|
| 16,850 |
| ||
| (Repayments) on due to officers |
|
| - |
|
|
| (3,050 | ) | ||
| Proceeds from convertible debt |
|
| 20,000 |
|
|
| - |
| ||
| Proceeds from issuances of common stock |
|
| 445,000 |
|
|
| 272,600 |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Net cash provided by financing activities |
|
| 465,000 |
|
|
| 305,371 |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Increase (decrease) in cash |
|
| (83,281 | ) |
|
| 127,768 |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Cash-beginning of period |
|
| 130,787 |
|
|
| 3,019 |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Cash-end of period |
| $ | 47,506 |
|
| $ | 130,787 |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Supplemental cash flow information |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
| Cash paid for interest |
| $ | - |
|
| $ | - |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Cash paid for income taxes |
| $ | - |
|
| $ | - |
| ||
|
|
|
|
|
|
|
|
|
| ||
| Non-cash investing and financing activities |
|
|
|
|
|
|
|
| ||
| Accounts payable assigned to former officers and directors |
| $ | - |
|
| $ | 10,000 |
| ||
| Convertible debt converted into common stock |
| $ | 41,789 |
|
| $ | 129,549 |
| ||
See Accompanying Notes to Financial Statements.
| F-5 |
| Table of Contents |
RIGHT ON BRANDS, INC.
Formerly known as HEALTHTALK LIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
| Formation and Business Activity | |
|
|
|
| HealthTalk Live, Inc. was formed on April 1, 2011 in the State of Nevada and operations commenced immediately. On August 10, 2017, the Company amended is articles of incorporation and changed its name to Right On Brands, Inc. (“Right On Brands”)(“the Company”) | |
|
|
|
| Right On Brands formerly HealthTalk Live, Inc. was created to spread the importance of natural health and wellness throughout North America and the world. Since inception, the website HealthTalkLive.com has received visitors from North America, Canada, South America, Europe, Asia and Australia. With its soon-to-be-launched real-time interactive website, HealthTalkLive.com anticipates becoming one of the primary information websites available in the world. In partnership with naturopathic practitioners, dieticians and medical doctors, HealthTalkLive.com strives to provide healthy options for all, whether taking prescription drugs or preferring a total, natural health approach to well-being. Information is disseminated through the live chat forum, reference center, news, E-newsletters and email. This provides for a common sense approach to health and wellness, diet, exercise, cleanses and complete regimens, all created individually based upon each person’s unique requirements. | |
|
|
|
| During the year ended March 31, 2017, the Company acquired Humbly Hemp, Inc. as a wholly owned subsidiary and now operates in two segments in accordance with accounting guidance Financial Accounting Standards Board (“FASB”) ASC Topic 280, Segment Reporting. Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280. |
| F-6 |
| Table of Contents |
| 1. | SUMMARY OF BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
|
|
| Acquisition of Humbly Hemp, Inc. | |
|
|
|
| Effective September 9, 2016, our former majority shareholders of Right On Brands, Inc. (“Right On Brands”), Johnie M. Yawn and Vicki L. Yawn transferred 22,800,000 of their shares of Right on Brands’ common stock to Daniel Crawford for a purchase price of $125,000 and pursuant to a Stock Purchase Agreement between the parties. The purchase price was paid by Mr. Crawford in the form of Secured Promissory Note (the “Note”) in favor of Dr. and Mrs. Yawn. The Note is due in full on or before December 9, 2016 and bears no interest except in case of default. The Note is secured, by a pledge of the shares purchased, under the terms of a Securities Pledge Agreement (the “Pledge”) between the parties. As a result of this transaction, a change in control of the company has occurred, and Mr. Crawford is the owner of approximately 70% of the issued and outstanding common stock of Right On Brands. In connection with the change in control, Mr. Crawford was appointed as our new sole officer and director. In the event of Mr. Crawford’s future uncured default under the Note, Dr. and Mrs. Yawn would be entitled to foreclose on the shares purchased pursuant to the terms of the Pledge. There are no other arrangements known to the company, the operation of which may, at a subsequent date, result in a change in control of the registrant. | |
|
|
|
| On October 1, 2016, Right On Brands entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Humbly Hemp, Inc., a private Nevada corporation (“Humbly Hemp”), and our subsidiary formed for the purposes of the transaction, Humble Merger Sub, Inc. (the “Merger Sub”). Pursuant to the Merger Agreement, Humbly Hemp merged with and into the Merger Sub, which resulted in Humbly Hemp becoming our wholly-owned subsidiary (the “Acquisition”). Humbly Hemp is a start-up company planning to offer a line of energy and snack bars featuring all-natural hemp and other healthy ingredients. Going forward, we intend to continue developing the business of Humbly Hemp, as well as our existing line of business. The sole officer, director, and controlling shareholder of Humbly Hemp was our own CEO and controlling shareholder, Daniel Crawford. | |
|
|
|
| In addition, pursuant to the terms and conditions of the Merger Agreement: |
|
| - | The holders of all of the common stock of Humbly Hemp issued and outstanding immediately prior to the closing of the Acquisition exchanged their shares on a pro-rata basis for a total of 12,048,000 shares newly-issued shares of Right on Brands’ common stock. |
| F-7 |
| Table of Contents |
| 1. | SUMMARY OF BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
|
|
| Acquisition of Humbly Hemp, Inc. (continued) |
|
| - | Daniel Crawford, the holder of 10,000,000 shares of Series A Preferred Stock in Humbly Hemp, exchanged all of his shares of preferred stock in Humbly Hemp for 5,000,000 shares of our newly-designated Series A Preferred Stock in Right On Brands. Our new Series A Preferred Stock is convertible to Right On Brands’ common stock at a rate of five (5) shares for every share held and votes together with our common stock at a rate of sixteen (16) votes for every share held. The Series A Preferred Stock ranks equally, on an as-converted basis, to our common stock with respect to rights upon winding up, dissolution, or liquidation. The Series A Preferred Stock does not have any special dividend rights. |
|
|
|
|
|
| - | Right On Brands assumed certain outstanding Convertible Promissory Notes issued by Humbly Hemp, and agreed that such notes shall be convertible to Right On Brands’ common stock at the same prices, and on the same terms and conditions, as set forth therein. |
| Upon the closing of the share exchange with the Right On Brands and Humbly Hemp, Humbly Hemp will become a wholly owned subsidiary of the Company. The acquisition will be treated as a business combination. However, since Humbly Hemp was owned and controlled by Daniel Crawford, an officer and director of the Company, the assets will not be adjusted to fair value and will carry over as book value. | |
|
|
|
| The Company may be subject to segment reporting in accordance with ASC 280-10 in future filings. | |
|
|
|
|
| Addition of New Wholly Owned Subsidiary, Humble Water Company |
|
|
|
|
| On May 11, 2017, the Company formed a wholly owned subsidiary, Humble Water Company. (“Humble”) Humble was formed to handle the joint venture with Spring Hill Water Co. As of March 31, 2018, the Company has invested $101,470 in the joint venture and no significant activity has occurred during the year ended March 31, 2018. |
|
|
|
|
| Addition of New Wholly Owned Subsidiary, Endo Brands, Inc. |
|
|
|
|
| On June 27, 2017, the Company formed a wholly owned subsidiary, Endo Brands, Inc. (“Endo”). Endo Brands will have products in the CBD and hemp oil marketplace. During the year ended March 31, 2018, the Company launched Endo Water, a wellness drink that is infused with CBD. |
| F-8 |
| Table of Contents |
| 1. | SUMMARY OF BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
|
|
| Principles of Consolidation | |
|
|
|
| The consolidated financial statements of the Company include the accounts of Right On Brands, Inc. and its wholly owned subsidiaries and majority owned business (Humbly Hemp, Inc., Endo Brands, Inc., Humble Water Company and Springhill Water Co). Intercompany accounts and transactions have been eliminated upon consolidation. | |
|
|
|
|
| Cash and Cash Equivalents |
|
|
|
|
| The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. |
|
|
|
|
| Property and Equipment |
|
|
|
|
| Property and equipment are stated at cost. Depreciation is provided by the straight-line method over the useful lives of the related assets, from three to five years. |
|
|
|
|
| The cost of building the Company’s website has been capitalized and amortized over a period of three years. Expenditures for minor enhancements and maintenance are expensed as incurred. |
|
|
|
|
| Inventory |
|
|
|
|
| Inventories are stated at the lower of cost (average cost) or market (net realizable value). Inventory consists of raw materials, work in process inventory and finished goods inventory of $0, $0 and $14,044, respectively as of March 31, 2018. Inventory consists of raw materials, work in process inventory and finished goods inventory of $26,144, $0 and $0, respectively as of March 31, 2017. |
|
|
|
|
| Use of Estimates |
|
|
|
|
| The preparation of consolidated statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
| F-9 |
| Table of Contents |
| 1. | SUMMARY OF BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
|
|
| Long-lived Assets | |
|
|
|
| The Company’s long-lived assets and other assets (consisting of property and equipment) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360,” Property, Plant, and Equipment”, and FASB ASC Topic 205 “ Presentation of Financial Statements “. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through March 31, 2018 and 2017, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived assets in the future. | |
|
|
|
|
| Stock Based Compensation |
|
|
|
|
| The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50. |
|
|
|
| Revenue Recognition | |
|
|
|
| The Company expects to recognize revenues in accordance with the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition”. | |
|
|
|
| Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured. | |
|
|
|
| Revenue was recorded when the products were shipped to the customers. |
| F-10 |
| Table of Contents |
| 1. | SUMMARY OF BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
|
|
| Income Taxes | |
|
|
|
| The Company is subject to income taxes in the U.S. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In accordance with FASB ASC Topic 740, “Income Taxes,” the Company provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company accounts for income tax under the provisions of FASB ASC Topic 740, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the consolidated financial statements or tax returns. Deferred income taxes are recognized for all significant temporary differences between tax and consolidated financial statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. | |
|
|
|
| Fair Value of Financial Instruments | |
|
|
|
| The Company applies the provisions of accounting guidance, FASB Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2018 and 2017 the fair value of cash and accounts payable, approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates. | |
|
|
|
| Convertible Instruments | |
|
|
|
| The Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. | |
|
|
|
| Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. |
| F-11 |
| Table of Contents |
| 1. | SUMMARY OF BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
|
|
| Fair Value of Financial Instruments (continued) | |
|
|
|
| Convertible Instruments (contined) | |
|
|
|
| The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. | |
|
|
|
| Recent Accounting Pronouncements | |
|
|
|
| The Company has evaluated new accounting pronouncements that have been issued and are not yet effective for the Company and determined that there are no such pronouncements expected to have an impact on the Company’s future consolidated financial statements. | |
|
|
|
| 2. | GOING CONCERN |
|
|
|
| The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended March 31, 2018, the Company had an accumulated deficit of approximately $4,100,000, had net losses of approximately $804,000, and net cash used in operating activities of approximately $525,000, with approximately $9,000 revenue earned, and a lack of operational history. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. | |
|
|
|
| While the Company is attempting to generate greater revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. The Company has completely an acquisition in hopes to increase revenue and profitability. Management intends to raise additional funds by way of additional public and/or private offerings of its stock. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues. | |
|
|
|
|
| The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. |
| F-12 |
| Table of Contents |
| 3. | PREPAID EXPENSE |
|
|
|
| As of March 31, 2018 and 2017, the Company had prepaid expenses totaling $110,227 and $8,833, respectively. For 2018, the prepaid expenses consist of prepaid lease and prepaid inventory. The prepaid expenses will be amortized based on life of the lease and when the inventory is received. For 2017, the prepaid expenses consist of prepaid insurance. |
|
|
| As of March 31, 2018 |
|
| As of March 31, 2017 |
| ||
|
|
|
|
|
|
|
| ||
| Prepaid expense – current |
| $ | 16,546 |
|
| $ | 8,833 |
|
| Prepaid expense – non current |
|
| 93,681 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Ending Balance |
| $ | 110,227 |
|
| $ | 8,833 |
|
| 4. | PROPERTY AND EQUIPMENT |
|
|
| As of March 31, 2018 |
|
| As of March 31, 2017 |
| ||
|
|
|
|
|
|
|
| ||
| Website development |
| $ | 88,965 |
|
| $ | 88,965 |
|
| Automobile |
|
| 13,596 |
|
|
| - |
|
| Studio and office equipment |
|
| 26,966 |
|
|
| 25,644 |
|
| Tenant improvements |
|
| 11,135 |
|
|
| 2,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 140,662 |
|
|
| 117,138 |
|
| Less: accumulated depreciation and amortization |
|
| (128,425 | ) |
|
| (103,979 | ) |
|
|
|
|
|
|
|
|
|
|
| Ending Balance |
| $ | 12,237 |
|
| $ | 13,159 |
|
| Depreciation and amortization expense for the years ended March 31, 2018 and 2017 were $24,600 and $20,000, respectively. |
| F-13 |
| Table of Contents |
| 5. | NONCONTROLLING INTEREST |
|
|
|
| Investments in partnerships, joint ventures and less-than-majority-owned subsidiaries in which we have significant influence are accounted for under the equity method. | |
|
|
|
| As of March 31, 2018, the Company’s consolidated financial statements includes a venture for the development of a commercial bottled water operation near Browning, Montana. The new venture will be operated through Spring Hill Water Company, LLC, a Nevada limited liability company (“Spring Hill”). Spring Hill is 49% owned by our newly-formed subsidiary corporation, Humble Water Company, and 51% owned by Doore, LLC. Doore, LLC, which will serve as the Manager of Spring Hill, has contributed the land and water source to be used in the new operation through a Land & Water Lease Agreement under which Spring Hill will have the use of 2 acres of land and no less than 5 acre-feet of water for an initial term of 25 years and at a lease rate of $1 per year. Through Humble Water Company, our initial capital contribution to Spring Hill will be approximately $100,000 to be used in commencing operations. In addition, we have committed to provide additional capital to be used for a bottling facility and equipment, in an amount up to $530,000, within the next 3 years. Should we fail to provide this additional capital within the next 3 years, our ownership percentage in Spring Hill will be reduced from 49% to 20%. Although we hold a minority ownership percentage in Spring Hill, we will have voting control over the company with 75% of the voting membership units. Further, 100% of the losses, expenditures, and deductions from Spring Hill will be allocated to our subsidiary, Humble Water Company. The activity of Spring Hill is accounted for under the voting interest method and we consolidate 100% of the business activity and record 25% of noncontrolling interest on the balance sheet and 0% of the net losses based on the terms of the agreement. As of March 31, 2018, we recorded noncontrolling interest of $24,437. | |
|
|
|
| As of March 31, 2018, our total investment into Spring Hill to date was $101,470. During the year ended March 31, 2018, there have been no significant operations or expenditures in the joint venture except for the amortization of the rent on the prepaid lease. | |
|
|
|
| 6. | CONVERTIBLE DEBT |
|
|
|
| During September 2016, the Company agreed to allow four unrelated noteholders holding a total of $129,549 in debt to convert into 5,000,000 shares of common stock which is a conversion rate of approximately $0.03 per share. There is no maturity date and no interest rate. The debt was acquired from John and Vicki Yawn, former officers and former majority shareholders of the Company. | |
|
|
|
| During October 2016, the Company extinguished $129,549 of debt in exchange for 5,000,000 shares of newly issued common stock. A total of 4,200,000 shares were issued to three of the four noteholders. As of December 31, 2016, the remaining balance of 800,000 shares of common stock, which is due to one noteholder, is recorded in common stock payable at the fair value of the common stock of $464,000. The Company recorded a loss on extinguishment of debt of $2,770,451. As of March 31, 2018, none of the shares have not been issued and included in the balance of common stock payable. |
| F-14 |
| Table of Contents |
| 6. | CONVERTIBLE DEBT (CONTINUED) |
|
|
|
| The Company acquired convertible debt from the acquisition of Humbly Hemp as described above. | |
|
|
|
| On February 1, 2016, the Company issued a convertible promissory note with an entity for $5,000. The unsecured note bears interest at 8% per annum and is due on January 31, 2017. This note is convertible at $0.01 per share and can be converted on or before the maturity date. The Company and lender mutually agreed to extend the maturity date of the note to March 10, 2017. During the year ended March 31, 2018, the entire principal amount was converted into 500,000 shares of common stock. | |
|
|
|
| On February 8, 2016, the Company issued a convertible promissory note with an entity for $8,000. The unsecured note bears interest at 8% per annum and is due on February 7, 2017. This note is convertible at $0.02 per share and can be converted on or before the maturity date. The Company and lender mutually agreed to extend the maturity date of the note to March 10, 2017. During the year ended March 31, 2018, the entire balance of principal amount of $8,000 and accrued interest of $822 and was converted into 441,118 shares of common stock. | |
|
|
|
|
| On April 11, 2016, the Company issued a convertible promissory note with an entity for $10,000. The unsecured note bears interest at 8% per annum and is due on February 7, 2017. This note is convertible at $0.01 per share and can be converted on or before the maturity date. The Company and lender mutually agreed to extend the maturity date of the note to March 10, 2017. During the year ended March 31, 2018, the principal amount of $7,000 was converted into 700,000 shares of common stock.
On July 7, 2016, the Company issued a convertible promissory note with an entity for $25,000. The unsecured note bears interest at 6% per annum and is due on January 7, 2017. This note is convertible at $0.10 per share and can be converted on or before the maturity date. The Company and lender mutually agreed to extend the maturity date of the note to April 30, 2017. As of the date of this filing, the note is in default.
On July 13, 2016, the Company issued a convertible promissory note with an entity for $20,000. The unsecured note bears interest at 6% per annum and is due on January 13, 2017. This note is convertible at $0.10 per share and can be converted on or before the maturity date. The Company and lender mutually agreed to extend the maturity date of the note to April 30, 2017. During the year ended March 31, 2018, the entire balance of principal amount of $20,000 and accrued interest of $967 and was converted into 209,666 shares of common stock.
On November 21, 2017, the Company issued a convertible promissory note with an entity for $20,000. The unsecured note bears interest at 6% per annum and is due on May 21, 2018. This note is convertible at $0.20 per share and can be converted on or before the maturity date. |
| F-15 |
| Table of Contents |
| 6. | CONVERTIBLE DEBT (CONTINUED) |
|
|
|
| During the year ended March 31, 2018 interest expense was $5,374 including amortization of debt discount of $2,889. As of March 31, 2018, the balance of accrued interest was $4,622. | |
|
|
|
| During the year ended March 31, 2017 interest expense was $2,264. As of March 31, 2017, the balance of accrued interest was $3,927. | |
|
|
|
| 7. | DUE TO FORMER OFFICERS |
|
|
|
| During the six months ended September 30, 2016, John and Vicki Yawn, former officers and former majority shareholders of the Company, were repaid $3,050 and loaned the Company an additional $13,850, resulting in a net balance due them of $129,549. During September 2016, John and Vicki Yawn sold their debt of $129,549 to four noteholders and there was a remaining balance of $0 due to them as of September 30, 2016. (See Note 6) | |
|
|
|
| 8. | EARNINGS PER SHARE |
|
|
|
| FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations. | |
|
|
|
| Basic earnings (loss) per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. | |
|
|
|
| The Company had no potential additional dilutive securities outstanding for the years ended March 31, 2018 and 2017, except for the 650,000 and 2,350,000, respectively, shares of common stock from the convertible debt. |
| F-16 |
| Table of Contents |
| 8. | EARNINGS PER SHARE |
|
|
|
| The following table sets forth the computation of basic and diluted net income per share: |
|
|
| Year Ended March 31, 2018 |
|
| Year Ended March 31, 2017 |
| ||
|
|
|
|
|
|
|
| ||
| Net loss attributable to the common stockholders |
| $ | (804,147 | ) |
| $ | (2,938,279 | ) |
|
|
|
|
|
|
|
|
|
|
| Basic weighted average outstanding shares of common stock |
|
| 54,781,653 |
|
|
| 40,793,184 |
|
| Dilutive effect of common stock equivalent |
|
| - |
|
|
| - |
|
| Diluted weighted average common stock and common stock equivalents |
|
| 54,781,653 |
|
|
| 40,793,184 |
|
|
|
|
|
|
|
|
|
|
|
| Earnings (loss) per share: |
|
|
|
|
|
|
|
|
| Basic and diluted |
| $ | (0.01 | ) |
| $ | (0.07 | ) |
| 9. | STOCKHOLDERS’ EQUITY |
|
|
|
| Series A Preferred Stock | |
|
|
|
| During October 2016, the Company designated Series A Preferred Stock. The Series A Preferred Stock is convertible to common stock at a rate of five shares for every share held and votes together with our common stock at a rate of sixteen votes for every share held. Our new Series A Preferred Stock ranks equally, on an as-converted basis, to our common stock with respect to rights upon winding up, dissolution, or liquidation. Our Series A Preferred Stock does not have any special dividend rights. | |
|
|
|
| On October 1, 2016, the Company issued 5,000,000 shares of our newly-designated Series A Preferred Stock to Daniel Crawford in exchange for 10,000,000 shares of Series A Preferred Stock in Humbly Hemp. | |
|
|
|
| Common Stock | |
|
|
|
| During the year ended March 31,2017, the Company issued a total of 40,000 shares of common stock to one investor for cash of $2,600. | |
|
|
|
| On October 1, 2016, the Company issued 12,048,000 shares of common stock for the acquisition of Humbly Hemp, Inc. |
| F-17 |
| Table of Contents |
| 9. | STOCKHOLDERS’ EQUITY (CONTINUED) |
|
|
|
| On October 17, 2016, the Company issued a total of 4,200,000 shares of common stock to three lenders for the extinguishment of debt. There was 800,000 shares recorded to common stock payable and the shares will be issued upon request from the noteholder. The principal amount of the debt was $129,549 and the loss on extinguishment was $2,770,451. | |
|
|
|
| During the year ended March 31, 2017, the Company issued a total of 1,350,000 shares of common stock to eight investors for cash of $270,000. | |
|
|
|
| During the year ended March 31, 2018, the Company issued a total of 4,025,000 shares of common stock to fifteen investors for cash of $445,000. As of March 31, 2018, the Company has to issue an investor a total of 50,000 shares and $10,000 were recorded to common stock payable. | |
|
|
|
| During the year ended March 31, 2018, the Company issued a total of 1,850,784 shares of common stock to four lenders for debt converted of $41,789 including $40,000 of principal and $1,789 in accrued interest. | |
|
|
|
| During the year ended March 31, 2018, the Company issued a total of 7,452,500 shares of common stock for a lock up agreement of $39,000 and for services of $3,164,375. During the year ended March 31, 2018, the Company recorded $305,918 of consulting services and the balance of prepaid stock compensation of $2,858,457. | |
|
|
|
| During the year ended March 31, 2018, the Company recorded $4,000 to additional paid in capital for the beneficial conversion feature on the convertible debt. | |
|
|
|
| 10. | INCOME TAXES |
|
|
|
| The provision (benefit) for income taxes for the years ended March 31, 2018 and 2017 assumes a 20% and 34%, respectively, effective tax rate for federal income taxes. |
|
|
| March 31, 2018 |
|
| March 31, 2017 |
| ||
|
|
|
|
|
|
|
| ||
| Current tax provision: |
|
|
|
|
|
| ||
| Federal |
| $ | (160,000 | ) |
| $ | (57,000 | ) |
| State |
|
| (1,000 | ) |
|
| (1,000 | ) |
| Taxable income – Federal and State |
| $ | (800,000 | ) |
| $ | (168,000 | ) |
|
|
|
|
|
|
|
|
|
|
| Deferred tax provision |
| $ | 161,000 |
|
| $ | 58,000 |
|
| F-18 |
| Table of Contents |
| 10. | INCOME TAXES |
|
|
|
| The Company had deferred income tax assets as of March 31, 2018 and 2017 are as follows: |
|
|
| March 31, 2018 |
|
| March 31, 2017 |
| ||
|
|
|
|
|
|
|
| ||
| Loss carryforwards |
| $ | 309,000 |
|
| $ | 148,000 |
|
| Less – valuation allowance |
|
| (309,000 | ) |
|
| (148,000 | ) |
| Total net deferred tax assets |
| $ | -- |
|
| $ | -- |
|
| The Company provided a valuation allowance equal to the deferred income tax assets for the fiscal years ended March 31 2018 and 2017, respectively, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards. | |
|
|
|
|
| At March 31, 2018, the Company had approximately $309,000 in federal and state tax loss carryforwards that can be utilized in future periods to reduce taxable income, and begin to expire in 2027. Pursuant to Internal Revenue Code Section 382, the future utilization of our net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future.
The Company did not identify any material uncertain tax positions on tax returns that will be filed. The fiscal years ended March 31, 2018, 2017, 2016, 2015, 2014 and 2013 are open for potential examination. |
| F-19 |
| Table of Contents |
| 11. | SUBSEQUENT EVENTS |
|
|
|
| On April 6, 2018, the Company sold 40,000 units consisting of 40,000 shares of common stock, 40,000 warrants with an exercise price of $0.75 and 40,000 warrants with an exercise price of $1.25 in exchange for cash of $10,000. The warrants are exercisable at any time for a period of 2 years.
On April 16, 2018, the Company entered into an operating agreement with Centre Manufacturing, Inc. (“Centre”) and agreed to form an LLC. The LLC will be owned 51% by the Company and 49% owned by Centre, but all income and losses will be split evenly. The owner of Centre is shareholder of the Company. On June 19, 2018, the Company formed a majority owned subsidiary, Endo & Centre Venture LLC.
On April 26, 2018, the Company executed a convertible promissory note for $125,000 with a lender that is a shareholder of the Company. The note bears interest at 12% per annum with default interest at 24% per annum and is due in 6 months. The note is convertible at a discount of 50% of the market price based on the average of the two lowest daily trading prices over the last 20 day trading period. | |
|
|
|
|
| On June 1, 2018, the Company sold 1,000,000 shares of common stock for $50,000. In addition, the investor will get the right to purchase 100,000 shares of Series B Preferred Stock. As of the date of this filing, the designation has not been determined. Additionally, in the event a business combination between the Company and American Midwest Distributors, LLC (“AMD”) does not close within 6 months, then the investor will receive 1,000,000 shares of common stock as a penalty.
On June 11, 2018, the Company loaned an officer of AMD a total of $50,000. The funds were repaid and any interest earned was waived. |
| F-20 |
| Table of Contents |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
No events occurred requiring disclosure under Item 307 and 308 of Regulation S-K during the fiscal year ending March 31, 2018.
Item 9A. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year ended March 31, 2018. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2018 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of March 31, 2018, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending March 31, 2019: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
None
| 19 |
| Table of Contents |
Item 10. Directors, Executive Officers and Corporate Governance
The following information sets forth the names, ages, and positions of our current directors and executive officers as of August 10, 2018.
| Name |
| Age |
| Present Positions |
| Daniel Crawford |
| 27 |
| President, Chief Executive Officer, Chief Financial Officer, and sole Director |
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Daniel Crawford – President, Chief Executive Officer, Chief Financial Officer and sole Director
Mr. Crawford has worked with both large and small brands, and has had experience launching a consumer packaged goods company in early stages. During his time in business development with Revolver Brewing in Dallas, Texas, he grew the business by over 100% percent and learned while wearing many hats for the organization. In this environment, he gained a lot of knowledge in consumer packaged goods and worked with major retailers like Kroger, Whole Foods, HEB, and Albertson's.
Daniel graduated from the Rawls College of Business, at Texas Tech University. This is where Daniel realized that his skill set and interests centered on building brands. During his time at school he worked for GMR marketing, launching the shows Girls, and Game of thrones for their client HBO. This role taught him the ins and outs of guerrilla and social media marketing, two very important areas in modern marketing. He gained some initial consumer packaged goods experience working for Pura Vida Tequila, holding promotions and representing them in West Texas.
Term of Office
Our Directors are appointed for a one year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
| 20 |
| Table of Contents |
Committees of the Board
We do not currently have a compensation committee, executive committee, or stock plan committee.
Audit Committee
We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K. We believe that, at our current size and stage of development, the addition of a special audit committee financial expert to the Board is not necessary.
Nomination Committee
Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.
When evaluating director nominees, our directors consider the following factors:
|
| -The appropriate size of our Board of Directors; |
|
|
|
|
| -Our needs with respect to the particular talents and experience of our directors; |
|
|
|
|
| -The knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board; |
|
|
|
|
| -Experience in political affairs; |
|
|
|
|
| -Experience with accounting rules and practices; and |
|
|
|
|
| -The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members. |
Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.
| 21 |
| Table of Contents |
Code of Ethics
As of March 31, 2018, we had not adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Currently, our sole executive officer, Daniel Crawford, receives a base salary of $72,000 per year under an employment contract dated April 1, 2017. The original term of the agreement was one year, but it renews for successive one year terms in the absence of any other action by the company or the executive. Any bonus compensation is at the discretion of the board, or the compensation committee.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended March 31, 2018 and March 31, 2017.
| SUMMARY COMPENSATION TABLE | ||||||||||||||||||||||||||||||||||||
| Name and principal position |
| Year |
|
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) |
|
| Nonqualified Deferred Compensation Earnings ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||||||
| Daniel Crawford, CEO, |
| 2018 |
|
| $ | 83,042 |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
| $ | 83,042 |
| |
| CFO, and Director |
| 2017 |
|
| $ | 30,000 |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
| $ | 30,000 |
| |
| George W. Carter, |
| 2018 |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
| |
| former officer |
| 2017 |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
| |
| Johnnie Yawn, |
| 2018 |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
| |
| former officer |
| 2017 |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
| |
| Vickie Yawn, |
| 2018 |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
| |
| former officer |
| 2017 |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
| |
Narrative Disclosure to the Summary Compensation Table
Our sole executive officer received, or was accrued, the cash compensation set forth above.
Stock Option Grants
We have not granted any stock options to the executive officers or directors since our inception.
| 22 |
| Table of Contents |
Outstanding Equity Awards at Fiscal Year-End
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of March 31, 2018.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | ||||||||||||||||||||||||||||||||||||
| OPTION AWARDS |
|
| STOCK AWARDS |
| ||||||||||||||||||||||||||||||||
| Name |
| Number of Securities Underlying Unexercised Options (#) Exercisable |
|
| Number of Securities Underlying Unexercised Options (#) Unexercisable |
|
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
|
| Option Exercise Price ($) |
|
| Option Expiration Date |
|
| Number Of Shares or Shares of Stock That Have Not Vested (#) |
|
| Market Value of Shares or Shares of Stock That Have Not Vested ($) |
|
| Equity Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
|
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
| |||||||||
| Daniel Crawford, CEO, CFO, and Director |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Director Compensation
The table below summarizes all compensation of our directors for our last completed fiscal year.
| DIRECTOR COMPENSATION | ||||||||||||||||||||||||||||
| Name |
| Fees Earned or Paid in Cash ($) |
|
| Stock Awards ($) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) |
|
| Non-Qualified Deferred Compensation Earnings ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||||
| Daniel Crawford |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Narrative Disclosure to the Director Compensation Table
We did not provide compensation to directors for their service as directors during our last fiscal year.
Employment Agreements with Current Management
Currently, our sole executive officer, Daniel Crawford, receives a base salary of $72,000 per year under a year-to-year employment contract dated April 1, 2017. Any bonus compensation is at the discretion of the board, or the compensation committee.
| 23 |
| Table of Contents |
The following table sets forth, as of July 13, 2018, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of the our common stock and by the executive officers and directors as a group. Except as otherwise indicated, all shares are owned directly. The voting power shown is based on a total of 143,583,869 shares, consisting of 63,583,869 shares of common stock issued and outstanding, and 80,000,000 votes that may be cast by holders of our Series A Preferred Stock. Class ownership percentages for the class of common stock are based on 88,583,869 shares, consisting of 63,583,869 shares of common stock and 25,000,000 of common stock issuable upon conversion of all shares of our Series A Preferred Stock.
| Title of class |
| Name and address of beneficial owner |
| Amount of beneficial ownership |
|
| Percent of class |
|
| Percent Voting Power |
| |||
| Common |
| Daniel Crawford 2667 32nd St. Santa Monica, CA 90405 |
|
| 48,507,536 | (1) |
|
| 54.76 | % |
|
| 72.09 | % |
| Common |
| Total all executive officers and directors |
|
| 48,507,536 |
|
|
| 54.76 | % |
|
| 72.09 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common |
| Other 5% Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| None. |
|
|
|
|
|
|
|
|
|
|
|
|
| Series A Preferred Stock |
| Daniel Crawford 2667 32nd St. Santa Monica, CA 90405 |
|
| 5,000,000 |
|
|
| 100 | % |
|
| 100 | % |
________
(1) Consists of 23,507,536 shares of common stock and 5,000,000 shares of Series A Preferred Stock convertible to 25,000,000 shares of common stock. Shares of Series A preferred stock vote on a 16 for 1 basis.
As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since our incorporation or in any presently proposed transaction which, in either case, has or will materially affect us:
1. During the six months ended September 30, 2016, former officers and directors John and Vicki Yawn were repaid $3,050 and loaned the Company an additional $13,850, resulting in a net balance due them of $129,549. During September 2016, John and Vicki Yawn sold their debt of $129,549 to four noteholders and there was a remaining balance of $0 due to them as of September 30, 2016.
2. Our sole executive officer, Daniel Crawford, receives a base salary of $72,000 per year under an employment contract dated April 1, 2017. The original term of the agreement was one year, but it renews for successive one year terms in the absence of any other action by the company or the executive. Any bonus compensation is at the discretion of the board, or the compensation committee.
| 24 |
| Table of Contents |
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we do not believe that we currently have any independent directors.
Item 14. Principal Accountant Fees and Services
The following table presents the aggregate fees billed for each of the last two fiscal years by the Company’s independent registered public accounting firm, AMC Auditing and KBL, LLP, in connection with the audit of the Company’s consolidated financial statements and other professional services rendered.
| Year Ended: |
| Audit Services |
|
| Audit Related Fees |
|
| Tax Fees |
|
| Other Fees |
| ||||
| March 31, 2018 |
| $ | 14,046 |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
| March 31, 2017 |
| $ | 33,097 |
|
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
Audit fees represent the professional services rendered for the audit of the Company’s annual consolidated financial statements and the review of the Company’s consolidated financial statements included in quarterly reports, along with services normally provided by the accounting firm in connection with statutory and regulatory filings or other engagements. Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning. All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other categories.
| 25 |
| Table of Contents |
Item 15. Exhibits, Financial Statements Schedules
(a) Financial Statements and Schedules
The following financial statements and schedules listed below are included in this Form 10-K.
Financial Statements (See Item 8)
(b) Exhibits
| Exhibit Number |
| Description |
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| Operating and Management Agreement of Spring Hill Water Company, LLC (4) | |
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
| 101** |
| The following materials from the Company’s Annual Report on Form 10-K for the year ended March 31, 2018 formatted in Extensible Business Reporting Language (XBRL). |
| 101.INS |
| XBRL Instance Document |
| 101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
| 101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
| 101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
| 101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
| 101.SCH |
| XBRL Taxonomy Extension Schema |
_________
| (1) | Incorporated by reference to Registration Statement on Form S-1 filed July 1, 2013. |
| (2) | Incorporated by reference to Current Report on Form 8-K filed October 5, 2016. |
| (3) | Incorporated by reference to Current Report on Form 8-K filed May 10, 2017. |
| (4) | Incorporated by reference to Current Report on Form 8-K filed June 1, 2017. |
| (5) | Incorporated by reference to Annual Report on Form 10-K filed July 14, 2017. |
| (6) | Incorporated by reference to Current Report on Form 8-K filed July 17, 2017 |
| (7) | Incorporated by reference to Current Report on Form 8-K filed July 27, 2017 |
| (8) | Incorporated by reference to Current Report on Form 8-K filed August 31, 2017 |
| (9) | Incorporated by reference to Current Report on Form 8-K filed May 1, 2018 |
| (10) | Incorporated by reference to Current Report on Form 8-K filed June 29, 2018 |
| * | Filed herewith |
**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
| 26 |
| Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Right on Brands, Inc. | |||
| August 10, 2018 | By: | /s/ Daniel Crawford | |
|
|
| Daniel Crawford | |
| President, Chief Executive Officer, Chief Financial Officer, and Director | |||
|
| |||
|
|
|
|
|
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| August 10, 2018 | By: | /s/ Daniel Crawford | |
|
|
| Daniel Crawford | |
| President, Chief Executive Officer, Chief Financial Officer, and Director | |||
|
|
|
|
|
| 27 |