10-Q: Right On Brands, Inc. Reports Increased Revenue but Widens Net Loss in Q3 2024

Right On Brands, Inc. saw a revenue increase of 33% for the nine months ended December 31, 2023, but experienced a significant increase in net loss compared to the same period in the previous year.

Summary

• Right On Brands, Inc. reported its financial results for the third quarter of fiscal year 2024.
• Revenues for the three months ended December 31, 2023, increased by 32% to approximately $342,000, compared to $260,000 for the same period in 2022.
• The increase in revenue is attributed to a rise in wholesale revenue and improved in-store sales.
• Gross profit for the quarter increased by 67% to $183,000, with a gross profit margin of 54%.
• Operating expenses increased to $198,000 due to increased staffing.
• The loss from operations decreased to $15,000, compared to a loss of $63,000 in the prior year.
• However, the total net loss increased to $221,000, compared to a net loss of $69,000 in the prior year, due to increased interest expenses, amortization of debt discounts, and financing costs.
• For the nine months ended December 31, 2023, revenues increased by 33% to $1,077,000, compared to $809,000 in 2022.
• Gross profit for the nine-month period increased by 50% to $590,000, with a gross profit margin of 55%.
• The loss from operations for the nine months decreased to $74,000, compared to a loss of $138,000 in the prior year.
• The total net loss for the nine months was $392,000, compared to a net income of $28,000 in the prior year.
• The company has a going concern warning due to an accumulated deficit of approximately $16,153,000, a net loss of approximately $392,000, and net cash used in operating activities of approximately $51,000 for the nine months ended December 31, 2023.
• The company is seeking additional debt or equity financing to continue operations.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While revenue is increasing, the company is experiencing significant losses and faces a going concern risk. The need for additional financing adds uncertainty.

Positives

• The company experienced a significant increase in revenue for both the three and nine months ended December 31, 2023.
• Gross profit and gross profit margin improved for both the three and nine months ended December 31, 2023.
• Loss from operations decreased for both the three and nine months ended December 31, 2023.
• The company is actively seeking additional financing to support its operations and growth.

Negatives

• The company experienced a significant increase in net loss for the three and nine months ended December 31, 2023.
• The company has a going concern warning due to significant operating losses and negative cash flow from operations.
• The company has a stockholders deficit of approximately $16,153,000 as of December 31, 2023.
• The company's disclosure controls and procedures are not effective.

Risks

• The company's ability to continue as a going concern is dependent on obtaining additional financing.
• The company may not be able to raise financing on acceptable terms, if at all.
• The issuance of additional equity securities would result in dilution for existing stockholders.
• The company's operating expenses are expected to increase in the future.
• The company's disclosure controls and procedures are not effective.
• Several notes payable and convertible debts are in default.

Future Outlook

The company expects revenues to improve in future periods as they plan to partner with new locations for wholesaling and expand their offerings; however, they also anticipate that operating expenses will increase over the next 12-36 months as their long-term growth strategy will require increases in personnel and facility expansion, and they expect to continue to operate at a loss through fiscal 2024.

Management Comments

• Management believes the increase in staff will allow revenues to continue to increase.
• Management believes that, subject to factors outside of our control, gross margins of approximately 50% are likely to be the norm.

Industry Context

The company operates in the health and wellness industry, with a focus on industrial hemp and hemp-derived products, which is a growing market with increasing consumer demand.

Comparison to Industry Standards

• It is difficult to compare Right On Brands directly to industry standards due to its small size and specific focus on cannabinoid-based products.
• Larger companies in the health and wellness space, such as Neptune Wellness Solutions or Charlotte's Web, have significantly higher revenues and more established distribution networks.
• However, Right On Brands' growth in revenue and gross profit margin indicates potential for future success if they can secure additional funding and expand their operations effectively.

Related Party Transactions

• At December 31, 2023 and March 31, 2023, the Company owed Centre $14,154, respectively.
• Included in the issuance are 2,500,000 shares issued to the daughter of the Company's CEO.

Stakeholder Impact

• Shareholders face potential dilution if the company issues additional equity.
• Employees may be affected by potential cost-cutting measures if the company is unable to secure additional financing.
• Customers may benefit from expanded product offerings and distribution if the company's growth plans are successful.
• Creditors face increased risk if the company is unable to improve its financial performance.

Next Steps

• The company plans to partner with new locations for wholesaling and expand its offerings.
• The company intends to continue to seek additional debt or equity financing to continue its operations.
• The company is in negotiations with various major California hemp brands with the aim of creating partnerships whereby such brands will be offered to consumers via the Company's growing distribution network.

Key Dates

Keywords

revenue, net loss, financial results, going concern, financing, wholesale, retail, debt, equity, cannabinoid, hemp, Right On Brands