U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 00-24723
ROGUE ONE, INC.
(Exact name of registrant as specified in its charter)
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THIS IS THE QUARTERLY REPORT ON FORM 10-Q FOR THE THREE-MONTH QUARTERLY PERIOD ENDING SEPTEMBER 30, 2021, FOR ROGUE ONE, INC., A NEVADA CORPORATION (THE “QUARTERLY REPORT”).
Statement Regarding Forward Looking Statements
This Quarterly Report for the Period Ended on September 30, 2021, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For this purpose, any statements contained herein that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "scheduled," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results could differ materially from those expressed or forecasted in any such forward-looking statements as a result of certain factors. Such factors are set forth in "Risk Factors," in this Form for the Quarterly Report includes, among others, risks and uncertainties related to:
| • | the impact of the COVID-19 pandemic on our business, results of operations and financial condition; |
| • | the success of third parties in marketing our products; |
| • | our reliance on third party suppliers and collaborative partners; |
| • | our dependence on key personnel; |
| • | our dependence upon a number of significant suppliers and others over which we have no control; |
| • | competitive conditions in our industry; |
| • | our limited alcoholic beverage product line and the intense competition that we face from large, diversified alcoholic beverage companies that possess far greater managerial and financial resources than we have currently and will likely have for the foreseeable future; |
| • | our ability to market and sell our existing and future products successfully; |
| • | expansion of our international operations; |
| • | the impact of alcoholic and other regulation on our business; |
| • | the success of our acquisitions and other strategic development opportunities; |
| • | our ability to develop, commercialize and gain market acceptance of our products; |
| • | cybersecurity incidents and related disruptions and our ability to protect our stakeholders’ privacy; |
| • | product returns or liabilities; |
| • | volatility of our stock price; |
| • | our ability to avoid bankruptcy, insolvency and otherwise manage the new business that we acquired on June 30, 2021 when we acquired Human Brands International, Inc. |
Readers are cautioned not to place undue reliance on these forward-looking statements.
Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect the passage of time, any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as otherwise required by applicable securities laws. These forward-looking statements apply only as of the date of this Period Ended on September 30, 2021.
As used herein, the term “we,” “us,” “our,” and the “Company” refers to Rogue One, Inc., a Nevada corporation, and subsidiaries unless otherwise noted.
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Item 1A. Supplement & Risk Factors
1.A(1) Supplement
Our primary operations are conducted by and through our wholly owned subsidiary, Human Brands International, Inc. (the “Subsidiary” or “Human Brands”) that we acquired on June 30, 2021. Our Subsidiary was incorporated in late 2014 and it focuses its limited financial and managerial resources on those segments of the market that it believes may have stronger potential in the retail alcoholic beverage industry if our financial circumstances and market conditions allow.
Based on our own internal assessments developed without any external or professional evaluation, we believe that global tequila market may have significant future growth potential. Some have projected that growth may continue for an extended period-of-time however the Company has relied upon other sources that it believes are reliable.
We employ what we call a ‘ground to glass’ strategy with the goal of controlling sales and assets along every level of the tequila sales chain; from the agave plants in the ground to the cocktail at the bar. We believe that on a long-term basis this will best serve our interests however, our business plan and our strategy has been evaluated internally only by our Board of Directors without the benefit of any third-party evaluation.
As an integral part of this strategy and if circumstances allow, we seek to build a foundation through investment, acquisition, and relationships at each level. If we are to implement this strategy, we anticipate that we will need to raise a significant amount of additional capital. We cannot assure you that we will be successful in these efforts or if we are successful in implementing our business plans, that we will also achieve and sustain profitability or even sales growth for any period of time. In many respects we are attempting to implement and grow a new business and in that respect, there can be assurance that, like any new business, that we will
The ‘ground’ level of the Subsidiary’s foundation is agave plants. Tequila cannot be made without the agave plant. If we can obtain sufficient financing and on terms that are reasonable, our strategy is to plant and own as many agave plants as possible. We believe that the dramatic increase in demand for tequila has made the supply of agave plants more valuable. By our own informal assessment, the price of agave has increased roughly 694% since 2016. However, there can be no assurance that these trends will continue or if they do continue, that they can be sustained or otherwise result in any benefit to our business.
Through the Subsidiary, we currently own or manage an aggregate of approximately 400,000 agave plants and we hope that if circumstances allow, we may be able to plant or manage more agave plants in coming years. Once the plants mature the Company will harvest them. Our strategy is to sell the plants creating significant revenue for the Company or to use in our bulk production to produce tequila which may allow us, if favorable market conditions allow, an ability to better manage our costs.
The next level is the bulk tequila production level. This is the most significant piece of our business. We currently have a production partnership and ownership interest in Hacienda Capellania, a top 15 rated tequila distillery. Their distillery is located at the global epicenter of the tequila industry in the highly regarded highlands region of Jalisco, Mexico.
Our partnership with Capellania includes supply contracts with well-known and award-winning tequila brands, large distilleries, celebrities, athletes, restaurant groups, and retailers. This partnership, under ideal conditions, produces 100,000 to 250,000liters of 100% tequila monthly and if market conditions and our cash resources allow, we hope that we may be able to grow to one (1) million liters of production per month. The timing and extent that these plans may be achieved is subject to significant external risks and our ability to fully implement our business and financial plans.
We are aware that there are roughly only 150 tequila distilleries in the world. If worldwide demand for tequila increases, we anticipate that distillery supply of tequila and value of that tequila product supply will continue to increase. However, we face significant competition from many well-established competitors who possess significantly greater financial and managerial resources than we currently have and likely will have in the foreseeable future.
Our third level involves our control and sale of assets is the brand level. Our Subsidiary owns multiple brands including, Tequila Armero, Fervor Mezcal, Profano Mezcal, 88 West Rum, and Nevele. We believe that our ability to “brand” our products may allow us to achieve at least a modest level of marketing control in the future.
We are aware that Armero and Fervor were recently launched into the U.S. market with an initial focus on the New York and DC markets. The Company utilizes the NY and DC markets as a launch platform for its brands. Over the past few years, through the launch of Shinju Japanese Whisky, our Subsidiary has been able to build a significant customer base in these two markets. This customer base may allow us an ability to develop and brand other products in the future which in turn may allow us to gain a greater market presence in certain markets, if circumstances, market conditions, and our financial resources allow. In that event and if these and other factors are favorable, we may seek to increase sales revenues from the sale of these and related products. AS circumstances allow, we may be able to expand into one or more geographic markets in the United States with the goal of selling the brands at a national level.
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If market conditions are favorable and if sufficient financial resources are available, we may launch new products, namely, Profano, 88 West, and Nevele under the same strategy in the future. These branded products may provide us with some degree of diversification and possibly profit potential.
We are also employing a strategy of taking ownership interest in brands to make the tequila for third parties. With the growth and profile of tequila intensifying, the demand for private-label production is increasing, especially from celebrities and influencers. Currently, a significant part of the Subsidiary’s business is producing and developing brands for third parties. If circumstances allow, we may seek to retain partial ownership in those brands.
We are aware that launching a product brand is an intensely competitive and difficult strategy and there can be no guarantee of success or, if it later becomes successful, that it is not preceded by heavy losses and negative cash flow for an extended period of time. But we believe that such efforts may be entirely worthwhile. We have noted that in recent years some have sold their branded product lines to other, larger market competitors.
The fourth level of our Subsidiary’s business is the import/export level. In general, for a brand of liquor to be imported and be sold in the United States, that brand must be sold through a licensed importer. Our Subsidiary’s subsidiary, CapCity Beverage (“CapCity”), is a U.S. licensed importer and distributor. Because of the way the U.S. liquor laws are set up, an importer is generally the conduit between the brand owner and the distribution customer. Importers will generally buy the product from the brand owner, bring the product into the U.S and then sell directly to distributors. Importers will usually add anywhere from a 5% to 15% margin on the sale.
We believe that having a licensed import company allows our Subsidiary to not only bring in its own products, but it may, if circumstances allow, also include others. Based on our own internal management assessments, undertaken without the benefit of any professional third-party evaluation, this may give our us another layer of potential sales revenue generating opportunities.
Currently, CapCity imports and sells, or has the right to sell, Shinju Japanese Whisky, Copa Imperial, Mazeray, Cote’ Or, Armero, Fervor, Profano, 88 West, Nevele, and Canelo Alvarez’ No Boxing No Life.
A large portion of CapCity’s current focus is on Shinju. Shinju has gained significant traction in the U.S. The Brand is currently sold by CapCity into fifteen U.S. states, many being the largest markets, covering over 60% of the U.S. population. Shinju is also sold on many of the largest online, direct-to-consumer platforms like ReserveBar and Drizly. Currently liquor on these platforms can be sold directly to consumers in 35 U.S. states.
The final level of our Subsidiary’s business is the ‘hospitality’ level. This level allows the Subsidiary an opportunity to sell directly to the end-user. It also has the potential to grow product sales in bars, restaurants, and hotels if our financial condition and favorable market conditions allow.
We also currently own an 18% stake in one of the most popular restaurants in Guadalajara, Mexico, Santo Coyote Real. The group of Santo Coyote restaurants have been a staple, and major tourist attraction, in Guadalajara for over twenty years.
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We also recently opened an offshoot of Santo Coyote, called Santa Cantina. Santa Cantina is a smaller version that is more centered on the bar/cocktail piece of the business. Santa Cantina focuses on the craft cocktail aspect and has over 1000 tequilas to choose from. Human owns 51% of Santa Cantina.
Overall, our strategy is to refine our bar/restaurant concepts in Guadalajara and, if we are successful and if market conditions and our financial condition allows, we may look to expand locations into the U.S. and other major Mexico cities. We currently lease in place for Cancun and Puerto Vallarta. Both were put on hold during the Covid pandemic.
Despite the heavy managerial requirements, we believe that having ownership interests in the hospitality segment may provide value to us in the product market. This may allow us to gain valuable marketing data and influence in the marketplace by allowing us to have direct interaction with end product buyers (and retail buyers) that may give us a distinct advantage.
It also may allow us to introduce its brands directly to the consumer; consumers who may have otherwise never thought to try one of our brands.
We are convinced that one of the hardest parts of launching a brand is getting consumers to try the brand. Most consumers have firm buying habits where they’ll order the same brands over and over, unless given a reason to try something new. Our ability to directly interact with them, through our retail locations, may give potential customers a reason to try our brands. Over the past couple years, we’ve also seen firsthand this interaction change buying habits where consumers have switched and become loyal to our brands.
Our hospitality market segment activity has also allowed us, on a limited basis, to better understand market data as follows: competitive data, buying data, consumer data, industry data, and brand data. Interacting at this level has allowed us to the Company to gain insight on what’s happening within the industry from a competitor level and a consumer level. This important data has allowed us to make better marketing decisions.
Our Corporate Plans
Following the incorporation of our Subsidiary in 2014, it focused on building out the foundation first and foremost, with less of a focus on sales growth. Our management always believed if the foundation was built properly then there is a greater likelihood that sales growth will be achieved provided that we have sufficient financial resources to fund working capital, salaries and capital expenditures. However, we have limited managerial resources and limited financial resources and we cannot assure you that we can successfully execute our corporate strategy and if are successful, that our common stockholders will not incur significant dilution.
We anticipate that we will need to acquire suitable assets that can directly produce salable product. This includes the purchase of agave plants, land, ownership in distilleries, equipment, ownership in brands, licenses, as well as intellectual property and trademarks.
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Our Strategy & Our Assessment
We shifted most of our focus on the tequila/mezcal market as we came to understand what we believe are favorable opportunities in this market. While currently, tequila only makes up 3% of the global spirits market, we noted that it is the second-fastest growing spirit only behind Irish whisky. Our assessment and all of our decisions regarding our strategy and plans have been made without the benefit of any professional third-party evaluation. For these and other reasons we may discover that our strategy and plans may need to be amended or revised after these decisions were made and we therefore incur significant additional costs, losses and other related problems.
Currently we believe that together, the U.S. and Mexico currently consume nearly 85% of all the tequila produced based on our own internal assessments. We also believe that tequila consumption was up 8.5% in the U.S. last year and is expected to grow at a 5.6% CAGR through 2028. On top of that, Mezcal consumption was up 34%. While these consumer and market trends may change and we have no ability to influence consumer tastes and preferences, we are hopeful that these trends will continue.
Overall, our own internal assessment is that all four expressions of tequila; blanco, repsado, anejo, and extra anejo, continue to increase in consumption year over year and we are hopeful that these consumer preferences and trends continue. However, we are fully aware that we lack product line diversification and we will not likely achieve any product line diversification in the near future.
If the U.S. market continues to grow, we believe that we may have, if circumstances allow, better opportunities in other potential geographic markets.
We believe that tequila is under-represented in the alcoholic beverage market. In Australia alone tequila sales grew by 12% last year. According to the IWSR that growth occurred because tequila was transitioning away from the stereotypical consumption as a ‘party shot’.
Up until 2008 China had a ban on tequila imports. That ban was lifted, but because of the ban tequila is still relatively unknown to most of China. As the population continues to learn about and try tequila the growth in consumption increases. It is projected that the tequila market in China will grow by 20% over the next decade.
Outside of the US and Mexico, sales of tequila are increasing and the global market outside of these two countries recorded growth of almost 4% last year.
Global consumption of tequila will continue to grow through the education of tequila in new markets. Some of the largest tequila companies ar utilizing their vast resources to help educate markets and grow the consumption of tequila. Diageo, a U.K. based company, made a billion-dollar bet on Casamigos. And it’s our belief that bet wasn’t made with just the U.S. market in mind.
If worldwide consumption of tequila increases, we may be able to achieve our objectives but to do so, we will likely need to overcome the intense competition from larger, well-established and well-capitalized competitors that possess significantly greater managerial and financial resources than we currently have and are likely to have for the foreseeable future.
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Our Strategy
While the barriers to entry into the tequila market are not insurmountable, we know that we face many significant and some very challenging risks given market uncertainty and the skills and resources of competitors that have enormous financial and financial resources. Overall, we face intense and significant competition from many experienced, well-managed, and well-funded competitors and we likely will face these obstacles for many years in the future.
But we know that as world consumption continues to increase, the tequila must come from somewhere. But unlike vodka, whisky, gin, and others, where you can set up a distillery almost anywhere, tequila is heavily regulated and must be grown and produced in only certain regions of Mexico. This means that tequila for the entire world market can only come from a small area of Mexico. And that is where Human Brands’ foundation has been built.
We hope that if we can implement our business plan that we may be able to use our distillery and certain agave farms. Tequila cannot be produced without agave, and it cannot be produced without a distillery in a certified region of Mexico. Human Brands has both, and it intends to expand both.
As the demand for tequila increases, the need for more agave increases. This is why the Company continues to acquire and plant more agave.
In the past the supply and demand science has often created fluctuations in agave prices. When tequila demand would tick up agave farmers would plant more, which eventually led to an increase in supply which would bring prices back down. Because tequila is currently growing at such a fast rate, the supply is having a hard time keeping up, which has led to a stabilization of prices at a much higher level than historically. It is widely viewed that the worldwide growth is going to continue to keep pressure on the supply for the next decade or more.
The Company is seeing this and believes this, which is why one of its key priorities is planting, or acquiring, as many plants as possible. The Company currently controls over 400,000 plants. At maturity the Company can sell those plants at a conservative MEX$20 per kilo (agave was at MEX$30/kilo in 2020). Each plant at maturity is roughly 35 kilos, meaning the 400,000 plants are currently worth roughly USD 14M in sales to the Company.
The Company’s goal is to not sit on 400,000 plants, but to increase that to millions of plants. The Company intends to do this two ways, through planting more on its own land and acquiring more from current farms.
Through its established presence on the ground in Mexico the Company believes there’s a big opportunity to partner with small agave farmers. Many of these small agave farmers have hundreds of thousands of plants, but the maintenance costs while waiting for the plants to mature makes it very difficult for them to survive. The Company has a strategic plan in place where it will partner with these small farmers, cover the maintenance and land costs, and in turn take a majority ownership in the plants. By utilizing this plan, the Company believes it can get to two million plants by 2023.
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The second way the Company may, if circumstances allow, is to develop and implenmen t one or more distillery partnerships. As stated, tequila can only come from distilleries in certain regions of Mexico. This means that every liter for worldwide consumption must come from one area. There are only roughly 150 tequila distilleries in Mexico, meaning the entire world consumption will come from these 150 distilleries.
The demand for tequila, and limited number of distilleries, is putting a strain on the supply. This is doing two things, creating a great opportunity for our distillery, and increasing tequila prices. This is where the Company plans to capitalize.
As of 2021, the Company’s primary distillery is ranked as the 14th best distillery in the world (according to Tequila MatchMaker), but the capacity is relatively small at this time. The distillery had a production capacity of 100,000 liters per month at the start. The Company recently made investments to increase that capacity to 250,000 liters per month. As of August 1st, 2021 the distillery capacity could produce up to 250,000 liters per month.
With the rising demand for tequila many global brands are in desperate need for more tequila. Currently our Subsidiary’s distillery has production contracts which equate to 500,000 liters per month. We are hopeful that we can expand capacity if circumstances allow.
If we are successful, we may be able to position the Company to exploit potential worldwide tequila sales growth.
Some analysts in recent years weren’t sure where tequila would sit in the global alcoholic beverage market chain. Many believed that the tequila product would likely remain a product that would remain marketed only in Mexico. But, we believe that the past ten years has shown that tequila is not only here to stay, but may, over the next ten years, offer significant market potential outside of Mexico. However, we remain cautious in evaluating these and other optimistic assessments and we cannot assure you that any such projections will be realized.
The Management Team
Currently, our management team consists of the following:
Joe E. Poe Jr. – CEO Rogue One, Inc. & Director
Mr. Poe has worked in the securities industry since 1987, currently working in compliance of customer securities deposits. He currently serves on several Charity Boards, including Chairman of the Oklahoma City Pow Wow Club. Mr. Poe graduated from the University of Texas at Austin in 1986, where he was a member of its intercollegiate swimming team. Joe’s experience in public companies, and compliance of public companies, plays a vital role within the Company.
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Ryan Dolder – CEO Human Brands Intl, Inc, CFO Rogue One, Inc. & Director
Mr. Dolder has significant beverage industry experience, having worked with leading international brands and bar/restaurant groups responsible for managing, purchasing and negotiating with global distributors.
Amongst others, he held management positions with both Rande Gerber’s Midnight Oil Group from 2002 - 2003, which launched Casamigos Tequila with George Clooney, and with Bortz Entertainment Group from 2003 - 2006.
Mr. Dolder founded Human Brands in 2014, which has now become a subsidiary of the Company and he graduated as a double major in marketing and computer science from the University of Notre Dame.
Janon Costley – COO Human Brands Intl, Inc., COO Rogue One, Inc. & Director
Mr. Costley brings more than two decades of experience in operations, business development and sales and marketing. Initially starting out in the fashion industry, Janon worked with leading brands including Converse, Sketchers, FIFA, MCM and Pony in both supplier and licensing partner capacities from 2000 - 2013.
Mr. Costley co-founded The Brand Liaison in 2012, which ultimately led him to the beverage industry. He subsequently served as CEO of Village Tea Company in 2014, founded Affinity Beverage Group, STI Signature Spirits Group and CapCity Beverage LLC all between 2013 - 2017.
Daniel Bouquet de Grau – President Mexico Operations & Director
Mr. Daniel Bouquet de Grau is a Certified Master Tequila Distiller. He is the founder of Armero Tequila and Boludo Bar & Grill. He is also the CEO of Hacienda Capellania (Tequila Distillery) and Turasu S de PR de RL (Agave Company), both happening in 2020.
Mr. Bouquet de Grau is responsible for managing all of the Subsidiary’s operations and he is experienced in all aspects of tequila, including agave cultivation, bulk production, brand development, marketing, and sales.
Miguel Monroy Diaz – Mexico Director and President of Mexico Hospitality
Mr. Miguel Monroy Diaz, is a restaurateur with decades of experience in managing, operating, and owning restaurants. He founded the original Santo Coyote, with his father, 22 years ago. Well known in Guadalajara for being one of the best restaurant operators.
He also has since opened a second Santo Coyote, Santo Coyote Real, and has another three in the works – Santo Cantina, Santo Coyote at Tlaquepaque, and Santo Coyote Cancun.
Igor Meno – Tequila Chemist and VP Distillery Operations
Mr. Igor Meno is experienced in making tequila. He has over 20 years of experience in the tequila industry – everything from creating recipes, producing tequila, and launching brands.
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His principal responsibilities include designing, creating, and producing some of the best tequila that the Company can bring to the market.
Diego Antezana – Head of Agave Operations
Mr. Diego Antezana holds a bachelor’s degree in Supply Chain Management and a master’s degree in Public Accountancy. He brings broad knowledge from the biotech and consulting industries that he’s been able to utilize in the tequila industry.
He has been running an active distillery at capacity for over five years, specializing in the purchasing, production, and commercialization of the product. Diego also operates and manages a number of agave plantations.
Robert Montgomery – VP of Sales Human Brands
Robert Montgomery has over 20 years of experience in sales, brand building and entertainment marketing. He worked with Don Modesto Spirits from 2010 - 2012. He also founded Empire Feature which co-produced ‘Notorious’. Robert leads Human’s Brand sales and is based in the New York City market.
Our business is subject to many significant business risks that are largely beyond our control. We caution you that the following important factors, among others, could cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements. We have not attempted to rank any of the risks shown below but we caution you that any investment in our Company involves a substantially high risk of loss. You should carefully consider the risks described below, before you make any investment decision regarding our Company. Additional risks and uncertainties, including those generally affecting the market in which we operate or that we currently deem immaterial, may also impair our business. If any such risks actually materialize, our business, financial condition and operating results could be adversely affected. In such case, the trading price of our common stock could decline.
The following risk factors are not exhaustive and the risks discussed herein do not purport to be inclusive of all possible risks but are intended only as examples of possible investment risks. To facilitate understanding of the various business risks applicable to our Company and the strategic alliance companies through which we intend to operate our business during the foreseeable future, the risk factors discussed herein address our Company together with the risks applicable to our operations that we intend to conduct with our strategic alliance partners.
1A. Risk Factors
Risks Related to our Business and Industry
WE ARE SUBJECT TO THE RISKS INHERENT IN A NEW BUSINESS VENTURE.
We are subject to substantially all the risks inherent in a new business venture. Because of our history of changing our business plan combined with several changes in management, we have no comparable history of operations that would allow an investor to evaluate our past performance with comparable products in a similar business. We are also a small company and we have limited capital compared to many others that operate with sophisticated business models developed with sophisticated business analytics. As a result, we are particularly susceptible to adverse effects of changing economic conditions and consumer tastes, competition, and other contingencies or events beyond our control. We are also aware that because of our acquisition of Human Brands International, Inc. on June 30, 2021, that our business, assets, and operations have changed. We also know that consumer tastes are changing, and we do not have the market research capabilities to fully understand and anticipate these and other changes in the marketplace.
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WE HAVE NO HISTORY OF PROFITABILITY AND GENERATING POSITIVE CASH FLOW.
We have no history of generating profits and positive cash flow. As a result any purchase of our Common Stock is subjects the investor to total loss of their investment resulting from insolvency, bankruptcy, or some other action by our present and future creditors since our common stock (and our preferred stock) is and will be subordinate to the rights of our existing and future creditors.
UNCERTAIN CASH FLOW.
We do not have any history of generating and sustaining our operations with a positive cash flow. That is, our operations have been characterized by negative cash flows whereby our cash disbursements have exceeded our cash receipts. For these and other reasons, any person who acquires our Common Stock faces a significant risk of loss of their entire investment.
SUBSTANTIAL LIKELIHOOD OF IMMEDIATE AND SUBSTANTIAL DILUTION.
While we have no present plans to raise capital and no prospect that any additional capital can be raised in sufficient amounts, on a timely basis, and on reasonable terms, in the event that any significant additional capital is raised, holders of our common stock face a substantial likelihood of immediate and substantial dilution of their interests in the company.
IMPACT OF COVID-19 PANDEMIC ON OUR OPERATIONS AND BUSINESS
Since March of 2020, our operations and those of others who market and sell Tequila and other alcoholic beverages have been adversely impacted by the COVID-19 pandemic. The results of operations for the six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the full year or any future period, particularly in light of the COVID-19 pandemic and its effects on the domestic and global economies.
Beginning in the first quarter of 2020, to limit the spread of COVID-19, governments took various actions including the issuance of stay-at-home policies and social distancing procedures and guidelines, causing some businesses to adjust, reduce or suspend business and operating activities. The stay-at-home policies deployed early in 2020 to combat the spread of COVID-19 resulted in a decrease in the sale of alcoholic beverages at retail bars and restaurants and otherwise negatively impacted the operations and sales of Human Brands International, Inc. which we acquired on June 30, 2021 (“Human Brands”). Beginning in the second quarter of 2020, certain local, state and federal governments began to ease the stay-at-home policies and allowed more businesses and facilities to re-open, leading to a limited recovery in sales and associated demand for the Tequila products of Human Brands. In some part, and of different degrees depending on the geography, due to the introduction and acceptance of COVID-19 vaccines, restrictions have eased in many of the market areas in which we operate. While this trend is encouraging, with the rise in COVID-19 variants, the extent to which the continuation, or additional waves, of COVID-19, or an outbreak of other health epidemics could impact our business, results of operations and financial condition, including the potential for write-offs or impairments of assets and suspension of capital investments, will depend on future developments. We are unable to predict with certainty the effects of the COVID-19 pandemic on our customers, suppliers, and vendors, as well as the actions of governments, and when and to what extent normal economic and operating conditions can resume; these effects may differ from those assumed in our projected estimates. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business, mainly in our ability to effectively market and sell the alcoholic products of Human Brands, as a result of any economic impact that may occur in the future.
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ABSENCE OF CONTROL AND AUTHORIZED “BLANK CHECK” PREFERRED STOCK.
Any person who acquires our Common Stock will not have any real ability to elect any Director to our Board of Directors or otherwise influence or control the policies or direction of the Company since we previously issued shares of preferred stock to Joe E. Poe, Jr. and these shares possess super-voting rights that allows Joe E. Poe, Jr. the unfettered to elect all Directors to our Board of Directors and thereby control the Company. Our Articles of Incorporation authorize the Company’s Board of Directors to authorize and issue one or more series of our Preferred Stock each with such rights and privileges as our Board of Directors determines without the necessity of obtaining any consent or approval of our common stockholders. As a result, holders of our Common Stock have no real ability to control or influence the Company at any time in the future.
COMMON STOCK SUBORDINATE TO CLAIMS OF EXISTING AND FUTURE CREDITORS.
All of our Common Stock is subordinate to the claims and interests of our existing and future creditors and as a result, any person who acquires our Common Stock is subject to a high risk of the total loss of their investment.
LIMITED AND SPORADIC TRADING MARKET FOR OUR COMMON STOCK.
Our Common Stock is traded only on a limited and sporadic basis as an unlisted security on the OTC Market and there is no likelihood that any liquid trading market will ever develop or if it does develop that any such market can be sustained. As a result, holders of our Common Stock may find it very difficult to undertake any re-sale of their holdings without incurring a prolonged delay and likely at a significant discount to observed prices. For these reasons our Common Stock should not be considered a liquid investment and it is entirely unsuitable for investors who seek to make only liquid investments.
NO LIKELIHOOD OF DIVIDENDS.
We have no history of achieving and sustaining profitability and, for that matter, we have no history of paying any dividends. In the unlikely event that we generate profits, if any, we anticipate that all such profits will be reinvested into the Company.
ABSENCE OF WORKERS’ COMPENSATION INSURANCE AND LIMITED INSURANCE COVERAGE.
We do not have any workers’ compensation insurance coverage. As a result, in the event that any employee of the Company suffers any personal injury or any property damage while in the employ of the Company or in any capacity as an employee of the Company, we may be exposed to claims under applicable state laws involving tort claims for personal injury and property damage. The extent of these claims could range from several tens of thousands of dollars to tens of millions of dollars. In addition, we may be exposed to claims from the Oklahoma Department of Insurance as well. As a result, the Company is exposed to existential claims that could result in insolvency and bankruptcy with the further result that persons who acquire our Common Stock could lose their entire investment.
LIMITED MANAGERIAL RESOURCES; LACK OF “KEY MAN” INSURANCE.
Currently we have three officers each of whom is also a director. As a result, our ability to manage our business effectively is constrained by the limited amount of our managerial resources and there can be no assurances that we can retain the services of our three officers/directors in the future and otherwise attract and retain other experienced, talented, and skilled management talent necessary to execute our business plan. We have not entered into any employment agreement with any of them and we have no present plans to enter into any such agreement. Further, we do not have any “key man” life insurance on the life of each of our three officers and directors and we do not anticipate obtaining any such insurance at any time in the future. The loss of the services of any or all of our three officers would likely result in protracted and serious financial losses with the high likelihood that stockholders would lose all or nearly all of their investment.
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It may be more difficult for the Company to prepare for and respond to these types of risks and the risks described elsewhere in this Form 10-Q than for a company with an established business and operating cash flow. If the Company is not able to manage these risks successfully, the Company’s operations could be negatively impacted. Due to changing circumstances, the Company may be forced to change dramatically, or even terminate, its planned operations.
RISKS ASSOCIATED WITH IMPLEMENTATION OF BUSINESS PLAN.
We acquired Human Brands International, Inc. (“Human Brands”) on June 30, 2021 and while we believe that the business of Human Brands and its Tequila products may have commercial promise, we continue to face substantial risks, uncertainties, expenses, and difficulties in our efforts to implement our business plan. The extent of these risks are not known and we have no demonstrable record of operations of any substance upon which anyone can evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. For these and many other reasons, we cannot assure any purchaser of our common stock or our preferred stock that we will be successful in implementing our business plan or otherwise achieving our objectives.
CHANGES IN CONSUMER PREFERENCES AND DISCRETIONARY SPENDING MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUE, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We are subject to shifting and uncertain consumer preferences away from the Tequila products that are currently produced and marketed by our subsidiary, Human Brands. Consumer tastes and preferences change frequently, and we have no ability to influence these changing tastes and preferences. In that respect, we face a clear risk that we may be unable to develop new products that appeal to consumers, or changes in our product mix that eliminate items popular with some consumers could harm our business. Also, the Tequila and any other alcoholic beverage offered by our subsidiary, Human Brands, will be subject to the level of discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in revenue during economic downturns or during periods of uncertainty. Any material decline in the amount of discretionary spending could have a material adverse effect on our sales, results of operations, business and financial condition.
FLUCTUATIONS IN VARIOUS COMMODITY, PACKAGING AND SUPPLY COSTS, COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
We are aware that the prices of the main ingredients of our existing Tequila products (manufactured and marketed by our subsidiary, Human Brands) can be highly volatile. Supplies and prices of the various products used to produce Tequila can be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics and economics in the producing countries. An increase in pricing of any major ingredients that we use in our products could have a significant adverse effect on our profitability. In addition, higher diesel prices have, in some cases, resulted in the imposition of surcharges on the delivery of commodities to distributors. Additionally, higher diesel and gasoline prices may affect our supply costs and may affect our sales going forward. To help mitigate the risks of volatile commodity prices and to allow greater predictability in pricing, we hope to enter into fixed price or to-be-fixed priced purchase commitments. We cannot assure you that these activities will be successful or that they will not result in our paying substantially more than would have been required absent such activities. We do not presently have any multi-year pricing agreements (with fixed processing costs), and none with guaranteed volume commitments.
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WE MAY NOT BE ABLE TO PREVENT OTHERS FROM USING OUR INTELLECTUAL PROPERTY, AND MAY BE SUBJECT TO CLAIMS BY THIRD PARTIES THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY.
While the Tequila products marketed and sold by Human Brands, our subsidiary uses proprietary formulations, neither Human Brands nor the Company has any registered patents. Preventing and policing the unauthorized use of our intellectual property is often difficult and any steps we take may not, in every case, prevent the infringement by unauthorized third parties. Further, there can be no assurance that our efforts to enforce our rights and protect our intellectual property will be successful. We may need to resort to litigation to enforce our intellectual property rights, which may result in substantial costs and diversion of resources and management attention.
Further, although management does not believe that our products infringe on the intellectual rights of others, there is no assurance that we will not be the target of infringement or other claims. Such claims, even if not true, could result in significant legal and other costs and may be a distraction to our management or interrupt our business.
LITIGATION AND PUBLICITY CONCERNING PRODUCT QUALITY, HEALTH AND OTHER ISSUES, WHICH CAN RESULT IN LIABILITIES AND ALSO CAUSE CONSUMERS TO AVOID OUR PRODUCTS, WHICH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, BUSINESS AND FINANCIAL CONDITION.
We are aware that the beverage and food service businesses (including our business in selling Tequila alcoholic beverages) can be adversely affected by litigation and complaints from consumers or government authorities resulting from food and beverage quality, illness, injury or other health concerns or operating issues stemming from one retail location or a limited number of retail locations. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging consumers from buying our products. We could also incur significant liabilities, if a lawsuit or claim results in a decision against us, or litigation costs, regardless of the result. We do not carry any product liability and other related insurance and we have no present plans to do so. As a result, we will be directly exposed to all such claims and any related claims alleging losses due to our products and any asserted related losses with the consequential result that holders of our Common Stock and our Preferred Stock could easily suffer the total loss of their investment.
BEVERAGE AND FOOD SAFETY CONCERNS AND INSTANCES OF FOOD-BORNE ILLNESSES COULD HARM OUR CONSUMERS, RESULT IN NEGATIVE PUBLICITY AND CAUSE THE TEMPORARY CLOSURE OF SOME CONSUMERS’ STORES AND, IN SOME CASES, COULD ADVERSELY AFFECT THE PRICE AND AVAILABILITY OF FRUITS, ANY OF WHICH COULD HARM OUR BRAND REPUTATION, RESULT IN A DECLINE IN SALES OR AN INCREASE IN COSTS.
We consider food and beverage safety a top priority and will dedicate substantial resources towards ensuring that consumers enjoy high-quality, safe and wholesome products. However, we cannot guarantee that controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, reliance on third-party suppliers and distributors increases the risk that food-borne illness incidents (such as E. coli, Hepatitis A, Salmonella or Listeria) could occur outside of our control and at multiple locations. We intend to utilize High Pressure Processing (HPP) whenever possible to mitigate these risks.
Instances of food-borne illnesses, whether real or perceived, and whether at our consumers’ stores or those of our competitors, could harm consumers and otherwise result in negative publicity about us or the products we serve, which could adversely affect sales. If there is an incident involving consumers’ C-stores and other approved channels serving contaminated products, consumers may be harmed, our sales may decrease, and our brand name may be impaired. If consumers become ill from food- borne illnesses, we could be forced to temporarily suspend some operations. If we react to negative publicity by changing our products or other key aspects of the Fresh Promise experience, we may lose consumers who do not accept those changes and may not be able to attract enough new consumers to produce the revenue needed to make our operations profitable. In addition, we may have different or additional competitors for our intended consumers as a result of making any such changes and may not be able to compete successfully against those competitors. Food safety concerns and instances of food-borne illnesses and injuries caused by food contamination have in the past, and could in the future, adversely affect the price and availability of affected ingredients and cause consumers to shift their preferences, particularly if we choose to pass any higher ingredient costs along to consumers. As a result, our costs may increase, and our sales may decline. A decrease in consumer traffic as a result of these health concerns or negative publicity, or as a result of a change in our products or smoothie experience or a temporary suspension of any of our consumer operations, could materially harm our business.
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THE ALCOHOLIC BEVERAGE INDUSTRY AND THE FOOD SERVICE INDUSTRY HAS INHERENT OPERATIONAL RISKS THAT MAY NOT BE ADEQUATELY COVERED BY INSURANCE.
We currently do not have any product liability insurance or any related insurance. If we later acquire any such insurance, we cannot assure you or any holder of our Common Stock that we will carry sufficient insurance against all risks or that our insurers will pay a particular claim. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our operations. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we may receive indemnity insurance coverage for tort liability. Our insurance policies may also contain deductibles, limitations and exclusions which, although we may believe are standard in the food service industry, may nevertheless increase our costs.
WE FACE UNCERTAINTY IN OUR EFFORTS TO GAIN AND SUSTAIN ANY RETAIL DISTRIBUTION OF OUR EXISTING ALCOHOLIC BEVERAGE PRODUCTS AND THOSE THAT WE MAY SEEK TO MARKET IN THE FUTURE.
We have not determined if we can achieve and sustain the existing wholesale and retail distribution of the Tequila products that we acquired upon our acquisition of Human Brands International, Inc. (“Human Brands”) on June 30, 2021. In the event that that we are successful in overcoming these and other significant challenges, we are aware that our future results depend on various factors, including successful selection of new markets, market acceptance of our brands, consumer recognition of the quality of our products and willingness to pay our prices (which reflect our often-higher ingredient costs,) the quality and performance of our equipment and general economic conditions. In addition, as with the experience of other retail food and beverage concepts who have tried to expand nationally, we may find that our product concepts have limited or no appeal to consumers in new markets or we may experience a decline in the popularity of our brands. We are also aware that any newly opened stores may not succeed, future markets may not be successful and average store revenue may not meet expectations. Moreover, we anticipate that we may incur losses and negative cash flow for several years, at a minimum. As a result, investors who acquire our Common Stock should be prepared to lose their entire investment.
OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD HARM OUR BUSINESS AND OPERATING RESULTS.
We are hopeful that the Tequila and other products marketed by our subsidiary, Human Brands International, Inc. (“Human Brands”) can be sustained and that the operations of Human Brands and the Company can be conducted profitably and with positive cash flow. However, we cannot assure you that we can achieve these objectives for any period of time. The Tequila and other alcohol products marketed by Human Brands face intense marketing and pricing pressures from many large, well- established competitors who each possess far greater managerial and financial resources that we have currently and likely will have at any time in the foreseeable future.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND COULD FALL BELOW THE EXPECTATIONS OF INVESTORS DUE TO VARIOUS FACTORS.
Our operating results may fluctuate significantly because of various factors, including:
1. The impact of inclement weather, natural disasters and other calamities, such as earthquakes and/or hurricanes, which could cause a delay in getting our products to our consumers;
2. Unseasonably cold or wet weather conditions could cause a delay in getting our products to our consumers;
3. Profitability of our operations where our products are sold, especially in new markets;
4. Adverse international trade restrictions with respect to the operations that Human Brands conducts in Mexico and our ability to import the Tequila products produced by Human Brands into the United States;
5. Variations in general economic conditions, including those relating to changes in diesel and gasoline prices;
6. Negative publicity about the ingredients we use or the occurrence of food-borne illnesses or other problems at stores where our products are available;
7. Changes in consumer preferences and discretionary spending and particularly with respect to the consumption of alcoholic beverages;
8. Increases in infrastructure costs; and
9. Fluctuation in supply prices for our existing Tequila product line and any product extensions that we may later develop.
Because of these factors, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year. Average consumers’ store revenue or comparable store revenue in any particular future period may decrease. In the future, our operating results may fall below the expectations of investors. In that event, the value of our Common Stock or other securities would likely decrease.
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OUR CONSUMERS AND SUPPLIERS COULD TAKE ACTIONS THAT HARM OUR REPUTATION AND REDUCE OUR PROFITS.
Consumers and suppliers are separate entities and are not our employees. Further, we do not exercise control over the day-to-day operations of our consumers and suppliers. Any operational shortcomings of our consumers and suppliers are likely to be attributed to our system-wide operations and could adversely affect our reputation and have a direct negative impact on our profits.
OUR REVENUE IS SUBJECT TO VOLATILITY BASED ON WEATHER AND VARIES BY SEASON.
Seasonal factors could also cause our revenue to fluctuate from quarter to quarter. Our revenue may be lower during the winter months and the holiday season and during periods of inclement weather and higher during the spring, summer and fall months. Our revenue will likely also vary from quarter to quarter as a result of the number of trading days, that is, the number of days in a quarter when stores are open.
WE COULD FACE LIABILITY FROM OUR CONSUMERS, SUPPLIERS OR GOVERNMENT.
A consumer, supplier or government agency may bring legal action against us based on the consumer/ supplier relationships. Various state and federal laws govern our relationship with consumers and suppliers. If we fail to comply with these laws, we could be liable for damages to consumers or suppliers and fines or other penalties. Expensive litigation with our consumers/suppliers or government agencies may adversely affect both our profits and our important relations with our consumer/suppliers.
WE MAY NOT BE ABLE TO RAISE ADDITIONAL CAPITAL ON ACCEPTABLE TERMS.
We are aware that our business may require significant capital in the future each year and for many years even if we can implement our business plans. We are also aware that any business that grows typically has negative cash flow as funds are needed to support higher levels of inventory and receivables together with higher advertising and marketing expenditures. As a result of these and related circumstances and even if we are successful in implementing our business plan, any person who acquires our Common Stock or our Preferred Stock will likely suffer significant and immediate dilution and otherwise become subordinate to the rights and claims of creditors. In addition, any financing that we obtain may not, however, be available on terms favorable to us, or at all. Our ability to obtain additional funding will be subject to various factors, including market conditions, our operating performance, lender sentiment and our ability to incur additional debt in compliance with other contractual restrictions, such as financial covenants under our credit facility. These factors may make the timing, amount, terms and conditions of additional financings unattractive. Our inability to raise capital could impede our growth.
THE MARKETING AND SALE OF OUR TEQUILA PRODUCT AND ANY OTHER CONSUMER PRODUCT EXPOSES US TO SIGNIFICANT RISK OF LITIGATION TOGETHER WITH THE DISTRACTION OF OUR LIMITED MANAGEMENT, INCREASING OUR EXPENSES OR SUBJECTING US TO MATERIAL MONEY DAMAGES AND OTHER REMEDIES.
The marketing of Tequila and any other consumer product is highly risky. We are aware that consumers could file complaints or lawsuits against us alleging that we are responsible for some illness or injury their consumers suffered at or after a visit to their stores, or that we have problems with food quality or operations. We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters, and we could become subject to class action or other lawsuits related to these or different matters in the future. Regardless of whether any claims against us are valid, or whether we are ultimately held liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation or prospects, which in turn could adversely affect our results. The food and beverage services industry has been subject to a growing number of claims based on the nutritional content of food products they sell and disclosure and advertising practices. We have no present plans to obtain insurance coverage for these risks or any risks associated with or arising out of any product that we plan to market and sell in the future. As a result, in the event that we incur costs and liabilities as a result of or associated with our planned offering and sale of our products, we likely will face protracted and significant financial costs and protracted losses thereby with the result that anyone who acquires our Common Stock, or our Preferred Stock likely will lose their entire investment.
WE MAY ALSO INCUR COSTS RESULTING FROM OTHER SECURITY RISKS WE MAY FACE IN CONNECTION WITH OUR ELECTRONIC PROCESSING AND TRANSMISSION OF CONFIDENTIAL CONSUMER INFORMATION.
In the event that we are able to implement our business plan then we are likely to face the risks from using commercially available software and other technologies to provide security for processing and transmission of consumer credit card data. Our systems could be compromised in the future, which could result in the misappropriation of consumer information or the disruption of systems. Either of those consequences could have a material adverse effect on our reputation and business or subject it to additional liabilities with consequential and significant financial losses arising thereby.
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WE ARE EXPOSED TO INCREASED COSTS AND RISKS ASSOCIATED WITH COMPLIANCE WITH CHANGING LAWS, REGULATIONS AND STANDARDS IN GENERAL, AND SPECIFICALLY WITH INCREASED AND NEW REGULATION OF CORPORATE GOVERNANCE AND DISCLOSURE STANDARDS.
We expect to spend an increased amount of management time and external resources to comply with existing and changing laws, regulations and standards in general, and specifically relating to corporate governance. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires management to annually review and evaluate all of our internal control systems, and file attestations of the effectiveness of these systems by our management and by our independent auditors. This process may require us to hire additional personnel and use outside advisory services and result in additional accounting and legal expenses. If in the future our chief executive officer, chief financial officer or independent auditors determine that our controls over financial reporting are not effective as defined under Section 404, investor perceptions may be adversely affected and could cause a decline in the value of our stock. If our independent auditors are unable to provide an unqualified attestation of management’s assessment of our internal control over financial reporting, or disclaim an ability to issue an attestation, it could result in a loss of investor confidence in our financial reports, adversely affect our stock value and our ability to access the capital markets or borrow money. Failure to comply with other existing and changing laws, regulations and standards could also adversely affect the Company.
THE REPORT OF OUR INDEPENDENT AUDITORS INDICATES UNCERTAINTY CONCERNING OUR ABILITY TO CONTINUE AS A GOING CONCERN AND THIS MAY IMPAIR OUR ABILITY TO RAISE CAPITAL TO FUND OUR BUSINESS PLAN.
Our independent auditors have raised substantial doubt about our ability to continue as a going concern. We cannot assure you that this will not impair our ability to raise capital on attractive terms. Additionally, we cannot assure you that we will ever achieve significant revenues and therefore remain a going concern.
COMPETITORS WITH MORE RESOURCES MAY FORCE US OUT OF BUSINESS.
We are aware that the Tequila product marketed and sold by our subsidiary, Human Brands International, Inc. (and any other products that we may sell competes with many large and well-established companies, food and beverage service, C-stores and other approved channels and otherwise, on the basis of taste, quality and price of product offered, consumer service, atmosphere, location and overall guest experience. Aggressive pricing by our competitors or the entrance of new competitors into our markets could reduce our revenue and profit margins and otherwise result in significant financial losses that could result in insolvency or bankruptcy.
WE ARE EXPOSED TO INCREASED COSTS AND RISKS ASSOCIATED WITH COMPLIANCE WITH CHANGING LAWS, REGULATIONS AND STANDARDS IN GENERAL, AND SPECIFICALLY WITH INCREASED AND NEW REGULATION OF CORPORATE GOVERNANCE AND DISCLOSURE STANDARDS.
We expect to spend an increased amount of management time and external resources to comply with existing and changing laws, regulations and standards in general, and specifically relating to corporate governance. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires management to annually review and evaluate all of our internal control systems, and file attestations of the effectiveness of these systems by our management and by our independent auditors. This process may require us to hire additional personnel and use outside advisory services and result in additional accounting and legal expenses. If in the future our chief executive officer, chief financial officer or independent auditors determine that our controls over financial reporting are not effective as defined under Section 404, investor perceptions may be adversely affected and could cause a decline in the value of our stock. If our independent auditors are unable to provide an unqualified attestation of management’s assessment of our internal control over financial reporting, or disclaim an ability to issue an attestation, it could result in a loss of investor confidence in our financial reports, adversely affect our stock value and our ability to access the capital markets or borrow money. Failure to comply with other existing and changing laws, regulations and standards could also adversely affect the Company.
THE REPORT OF OUR INDEPENDENT AUDITORS INDICATES UNCERTAINTY CONCERNING OUR ABILITY TO CONTINUE AS A GOING CONCERN AND THIS MAY IMPAIR OUR ABILITY TO RAISE CAPITAL TO FUND OUR BUSINESS PLAN.
Our independent auditors have raised substantial doubt about our ability to continue as a going concern. We cannot assure you that this will not impair our ability to raise capital on attractive terms. Additionally, we cannot assure you that we will ever achieve significant revenues and therefore remain a going concern.
COMPETITORS WITH MORE RESOURCES MAY FORCE US OUT OF BUSINESS.
We are aware that the Tequila product marketed and sold by our subsidiary, Human Brands International, Inc. (and any other products that we may sell competes with many large and well-established companies, food and beverage service, C-stores and other approved channels and otherwise, on the basis of taste, quality and price of product offered, consumer service, atmosphere, location and overall guest experience. Aggressive pricing by our competitors or the entrance of new competitors into our markets could reduce our revenue and profit margins and otherwise result in significant financial losses that could result in insolvency or bankruptcy.
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WE MAY NOT BE ABLE TO ACHIEVE AND SUSTAIN PROFITABILITY WITHOUT SIGNIFICANT ADDITIONAL FINANCING WHICH MAY BE UNAVAILABLE.
To date, we have funded our operations with minimal financial resources, and we have not generated sufficient cash from operations to be profitable or to maintain sufficient inventory. Unless we are successful in generating sufficient revenues to finance operations as a going concern while also achieving profitability and positive cash flow, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force the Company to cease operations if additional financing is not available.
THE COST TO MEET OUR REPORTING AND OTHER REQUIREMENTS AS A PUBLIC COMPANY SUBECT TO THE EXCHANGE ACT OF 1934 WILL BE SUBSTANTIAL AND MAY RESULT IN US HAVING INSUFFICIENT FUNDS TO EXPAND OUR BUSINESS OR EVEN MEET ROUTINE BUSINESS OBLIGATIONS.
Subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, we will incur ongoing expenses associated with professional fees for accounting, legal, and a host of other expenses for annual reports and proxy statements that could limit our ability to invest in inventory, accounts receivable, marketing, product development, and other necessary expenditures.
WE MAY HAVE DIFFICULTY IN ATTRACTING AND RETAINING MANAGEMENT AND OUTSIDE INDEPENDENT MEMBERS TO OUR BOARD OF DIRECTORS AS A RESULT OF THEIR CONCERNS RELATING TO THEIR INCREASED PERSONAL EXPOSURE TO LAWSUITS AND STOCKHOLDER CLAIMS BY VIRTUE OF HOLDING THESE POSITIONS IN A PUBLICLY HELD COMPANY.
We are aware that directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims, as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws imposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management are also becoming increasingly concerned with the availability of directors’ and officers’ liability insurance to pay on a timely basis the costs incurred in defending such claims. We currently do not carry directors’ and officers’ liability insurance. Directors’ and officers’ liability insurance has recently become much more expensive and difficult to obtain. If we are unable to provide directors’ and officers’ liability insurance at affordable rates or at all, it may become increasingly more difficult to attract and retain qualified outside directors to serve on our board of directors.
We may lose potential independent board members and management candidates to other companies that have greater directors’ and officers’ liability insurance to insure them from liability or to companies that have revenues or have received greater funding to date which can offer more lucrative compensation packages. The fees of directors are also rising in response to their increased duties, obligations and liabilities as well as increased exposure to such risks. As a company with a limited operating history and limited resources, we will have a more difficult time attracting and retaining management and outside independent directors than a more established company due to these enhanced duties, obligations and liabilities.
WE MAY NOT ACHIEVE RESULTS SIMILAR TO ANY CURRENT OR FUTURE FINANCIAL PROJECTIONS.
Projections and estimated financial results are based on estimates and assumptions that are inherently uncertain and, though considered reasonable by us, are subject to significant business, economic, and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that the projected results will be realized or that actual results will not be significantly lower than projected. Neither we nor any other person or entity assumes any responsibility for the accuracy or validity of the projections.
Risks Related to an Investment in our Common Stock
OUR DIRECTORS HAVE THE RIGHT TO AUTHORIZE THE ISSUANCE OF ADDITIONAL SHARES OF OUR PREFERRED STOCK.
Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series. Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock.
IF THERE IS A MARKET FOR OUR SECURITIES IN THE FUTURE, OUR STOCK PRICE MAY BE VOLATILE AND ILLIQUID.
We can make no assurance that there will be a public market for our common Stock in the future. If there is a market for our Common Stock in the future, we anticipate that such market may be illiquid and might be subject to wide fluctuations in response to several factors, including, but not limited to the following factors:
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(1) actual or anticipated variations in our results of operations;
(2) our ability or inability to generate new revenue;
(3) our ability to anticipate and effectively adapt to a developing market;
(4) our ability to attract, retain and motivate qualified personnel;
(5) consumer satisfaction and loyalty;
(6) increased competition; and
(7) conditions and trends in the market for organic and natural products.
CONVERSION OF OUR PROMISSORY NOTES OR SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC MARKET BY SELLING SHAREHOLDERS MAY CAUSE A REDUCTION IN THE PRICE OF OUR STOCK AND PURCHASERS WHO ACQUIRE SHARES FROM THE SELLING SHAREHOLDERS MAY LOSE SOME OR ALL OF THEIR INVESTMENTS.
If a market for our shares develops, sales of a substantial number of shares of our Common Stock in the public market could cause a reduction in the price of our Common Stock. If selling Shareholders resell a substantial portion of the issued and outstanding shares of our Common Stock it could have an adverse effect on the price of our Common Stock. As a result of any such decreases in the price of our Common Stock, purchasers who acquire shares from Selling Shareholders may lose some or all of their investment.
OUR EXISTING SHAREHOLDERS WILL EXPERIENCE SUBSTANTIAL AND IMMEDIATE DILUTION.
In the event that we are able to implement our business plan, we will need to raise significant additional capital from the sale of debt, equity, or both. Any funds that we receive from the sale of our debt or equity may not be available on favorable terms, or at all. Furthermore, if we issue debt or equity securities to raise additional funds, our existing shareholders will experience substantial and immediate dilution, and the new debt or equity securities may have rights, preference, and privileges senior to those of our existing shareholders. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated consumer requirements.
There is no assurance that we will be profitable, and we may not be able to successfully develop, manage or market our products and services. We may not be able to attract or retain qualified executives and technological personnel and our products and services may become obsolete. Government regulation may hinder our business. Additional dilution in outstanding stock ownership will be incurred due to the issuance of more shares, stock options, or the exercise of stock options, and other risks inherent in our business.
CURRENTLY, THERE IS A PUBLIC MARKET FOR OUR SECURITIES, BUT THERE CAN BE NO ASSURANCES THAT THE PUBLIC MARKET WILL DEVELOP FURTHER AND, IF DEVELOPED FURTHER, IT IS LIKELY TO EXPERIENCE SIGNIFICANT PRICE FLUCTUATIONS.
We have a trading symbol for our common stock, namely ‘ROAG’. There can be no assurances as to whether:
● the market for our shares will continue to develop; or
● the prices at which our common stock will trade.
Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these risk factors, investor perception of our Company and general economic and market conditions.
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WE ARE SUBJECT TO THE PENNY SOCK RULES WHICH WILL MAKE OUR COMMON STOCK MORE DIFFICULT TO SELL.
We are subject to the SEC’s “penny stock” rules because our securities sell below $5.00 per share. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker- dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
Furthermore, the penny stock rules require that prior to a transaction, 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 agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for our securities. As long as our securities are subject to the penny stock rules, the holders of such securities will find it more difficult to sell their securities.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE.
The sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered. In addition, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, under Securities and Exchange Commission Rule 144 or otherwise could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital at that time through the sale of our securities.
STATUS OF “PENNY STOCK” AND IMPACT ON MARKET LIQUIDITY.
Trading in our Common Stock is limited. Consequently, a shareholder may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, our Common Stock. In the absence of a security being quoted on NASDAQ, or the Company having $2,000,000 in net tangible assets, trading in the Common Stock is covered by Rule 3a51-1 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended for non-NASDAQ and non-exchange listed securities. Under such rules, broker/dealers who recommend such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse) must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are also exempt from this rule if the market price is at least $5.00 per share, or for warrants, if the warrants have an exercise price of at least $5.00 per share. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure related to the market for penny stocks and for trades in any stock defined as a penny stock. The Commission has adopted regulations under such Act which define a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market price or exercise price of less than $5.00 per share and allow for the enforcement against violators of the proposed rules. In addition, unless exempt, the rules require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule prepared by the Commission explaining important concepts involving a penny stock market, the nature of such market, terms used in such market, the broker/dealer's duties to the customer, a toll-free telephone number for inquiries about the broker/dealer's disciplinary history, and the customer's rights and remedies in case of fraud or abuse in the sale. Disclosure also must be made about commissions payable to both the broker/dealer and the registered representative, current quotations for the securities, and, if the broker/dealer is the sole market maker, the broker/dealer must disclose this fact and its control over the market. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. While many NASDAQ stocks are covered by the proposed definition of penny stock, transactions in NASDAQ stock are exempt from all but the sole market-maker provision for (i) issuers who have $2,000,000 in tangible assets has been in operation for at least three years ($5,000,000 if the issuer has not been in continuous operation for three years), (ii) transactions in which the customer is an institutional accredited investor, and (iii) transactions that are not recommended by the broker/dealer. In addition, transactions in a NASDAQ security directly with the NASDAQ market maker for such securities, are subject only to the sole market-maker disclosure, and the disclosure with regard to commissions to be paid to the broker/dealer and the registered representatives. The Company's securities are subject to the above rules on penny stocks and the market liquidity for the Company's securities could be severely affected by limiting the ability of broker/dealers to sell the Company's securities.
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LIKELIHOOD OF GOVERNMENTAL APPROVAL OF OUR PRINCIPAL PRODUCTS.
Companies have been the target of class action lawsuits and other proceedings alleging, among other things, violations of federal and state workplace and employment laws. Proceedings of this nature, if successful, could result in our payment of substantial damages. And because the operations of our subsidiary, Human Brands International, Inc. are largely conducted in Mexico, we are exposed to ever-changing labor and other laws of Mexico.
Our results of operations may be adversely affected by legal or governmental proceedings brought by or on behalf of employees or consumers. In recent years, a number of companies, including companies that produce and market alcoholic beverages, have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law. A number of these lawsuits have resulted in the payment of substantial awards by the defendants. Although we are not currently a party to any material class action lawsuits, we could incur substantial damages and expenses resulting from lawsuits, which would increase the cost of operating the business and decrease the cash available for other uses.
WE ARE SUBJECT TO GOVERNMENT AND INDUSTRY REGULATION.
Since we sell and market Tequila, we are subject to various federal, state and local regulations and we likely will face greater regulations in the future. Our products are subject to state and local regulation by health, sanitation, food and workplace safety and other agencies. We may experience material difficulties or failures in obtaining the necessary licenses or approvals for new products which could delay planned execution of our business plan. We are subject to the U.S. Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas. We may in the future have to modify office and warehouse space, for example by adding access ramps or redesigning certain architectural fixtures, to provide service to or make reasonable accommodations for disabled persons. The expenses associated with these modifications could be material. Our operations are also subject to the U.S. Fair Labor Standards Act, which governs such matters as minimum wages, over-time and other working conditions, along with the U.S. Americans with Disabilities Act, family leave mandates and a variety of similar laws enacted by the states that govern these and other employment law matters. In addition, federal proposals to introduce a system of mandated health insurance and flexible work time and other similar initiatives could, if implemented, adversely affect our operations. In recent years, there has been an increased legislative, regulatory and consumer focus on nutrition and advertising practices in the food industry. As a result, we may in the future become subject to initiatives in the area of nutrition disclosure or advertising, such as requirements to provide information about the nutritional content of our products, which could increase our expenses.
AS A PUBLIC COMPANY, WE ARE SUBJECT TO COMPLEX LEGAL AND ACCOUNTING REQUIREMENTS THAT WILL REQUIRE US TO INCUR SIGNIFICANT EXPENSES AND WILL EXPOSE US TO RISK OF NON-COMPLIANCE.
As a public company, we are subject to numerous legal and accounting requirements that do not apply to private companies. The cost of compliance with many of these requirements is material, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Our relative inexperience with these requirements may increase the cost of compliance and may also increase the risk that we will fail to comply.
Failure to comply with these requirements can have numerous adverse consequences including, but not limited to, our inability to file required periodic reports on a timely basis, loss of market confidence and/or governmental or private actions against us. We cannot assure you that we will be able to comply with all of these requirements or that the cost of such compliance will not prove to be a substantial competitive disadvantage vis-à-vis our privately held and larger public competitors.
WE MAY BE SUBJECT TO SHAREHOLDER LITIGATION, THEREBY DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR PROFITABILITY AND RESULTS OF OPERATIONS.
As discussed in the preceding risk factors, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may become the target of similar litigation. Securities litigation will result in substantial costs and liabilities and will divert management’s attention and resources.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROGUE ONE, INC
CONSOLIDATED BALANCE SHEET
FOR THE PERIOD ENDED ON SEPTEMBER 30, 2021 (Unaudited)
| For the Nine-Month Ended on September 30 | For the Twelve-Months ended on December 31 | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 44,342 | $ | 111 | ||||
| Accounts receivable | 826,297 | |||||||
| Inventory | 6,996,553 | |||||||
| Other assets | 128,080 | |||||||
| Fully controlled companies | 8,400 | |||||||
| Associated companies | 703,740 | |||||||
| Shares publicly traded - SRSG - | 7,432,862 | |||||||
| Total current assets | 16,140,274 | 111 | ||||||
| Property and equipment, net of $16,870 depreciation | 314,976 | |||||||
| Loans | 50,000 | |||||||
| Intangible Assets | 94,411 | |||||||
| Goodwill | 10,804,239 | |||||||
| Assets pledged | 246,102 | |||||||
| Total noncurrent assets | 11,509,728 | |||||||
| Total assets | $ | 27,650,002 | $ | 111 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,785,337 | 165,466 | |||||
| Other liabilities | 1,678,775 | 1,555,862 | ||||||
| Payroll liabilities | 346,020 | |||||||
| Related party loans | 351,233 | |||||||
| Loans and Notes payable | 526,768 | |||||||
| Notes payable third party | 12,500 | |||||||
| Notes payable related party | 6,055 | 4,505 | ||||||
| Convertible notes payable | 1,485,948 | 1,559,803 | ||||||
| Convertible notes payable - accrued interest - | 743,643 | |||||||
| Derivative liabilities | 2,934,454 | 2,298,820 | ||||||
| Bank overdraft | 179 | |||||||
| Total current liabilities | 9,870,910 | 5,584,456 | ||||||
| Lease liabilities | ||||||||
| SBA loan | 155,972 | |||||||
| Other liabilities | ||||||||
| Total liabilities | 10,026,882 | 5,584,456 | ||||||
| Commitments and Contingencies | ||||||||
| Common Stock to be Issued | 378,439 | |||||||
| Preferred Shares Series E to be Issued | ||||||||
| Preferred Shares Series E Conversion rights | 225,000 | |||||||
| APIC on Shares to be Issued | 18,843,105 | |||||||
| Noncontrolling interest | 3,408,995 | |||||||
| Stockholders' equity | — | |||||||
| Preferred stock - Series A, $0.00001 par value. 69,999,990 shares authorized; 10,000,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 100 | 100 | ||||||
| Preferred stock - Series D, $0.00001 par value. 1 share authorized; zero 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| — | ||||||||
| Preferred stock - Series E, $0.00001 par value. 50 shares authorized; 48 and 20 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| — | ||||||||
| Common stock, $ par value. shares authorized; and shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| 131,683 | 101,925 | |||||||
| Additional paid-in capital | 10,536,740 | 8,984,757 | ||||||
| Accumulated other comprehensive loss | (15,900,941 | ) | (14,670,127 | ) | ||||
| Total stockholders' equity | 17,623,120 | (5,583,345 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 27,650,002 | $ | 111 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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ROGUE ONE, INC
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD ENDED ON
SEPTEMBER 30, 2021 (Unaudited)
| For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 1,198,434 | $ | $ | 1,198,434 | $ | ||||||||||
| Cost of Goods Sold | 1,019,678 | 1,019,678 | ||||||||||||||
| Gross Profit | 178,755 | 178,755 | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Board member fees | 15,000 | 45,000 | ||||||||||||||
| General and administrative | 300,986 | 43,678 | 688,529 | 61,429 | ||||||||||||
| Professional fees | 9,000 | 76,935 | ||||||||||||||
| Depreciation | 16,870 | 16,870 | ||||||||||||||
| Total operating expenses | 317,857 | 67,678 | 705,400 | 183,364 | ||||||||||||
| Profit (Loss) from operations | (139,101 | ) | (67,678 | ) | (526,644 | ) | (183,364 | ) | ||||||||
| Derivative liability expense | (27,713 | ) | (129,961 | ) | ||||||||||||
| Gain (Loss) on change in value of derivative liabilities | (187,035 | ) | (137,316 | ) | (635,633 | ) | (2,730,012 | ) | ||||||||
| Interest expense | (72,189 | ) | (76,212 | ) | (212,513 | ) | (199,153 | ) | ||||||||
| Other income (expenses) | (4,842 | ) | ||||||||||||||
| Assets impairment | (14,418 | ) | (14,418 | ) | ||||||||||||
| Liabilities write-off | 163,236 | 163,236 | ||||||||||||||
| Assets write-off | ||||||||||||||||
| Total others | (110,406 | ) | (241,241 | ) | (704,170 | ) | (3,059,126 | ) | ||||||||
| Net profit (loss) | (249,507 | ) | (308,919 | ) | (1,230,814 | ) | (3,242,490 | ) | ||||||||
| Net profit (loss) attributable to noncontrolled interest | ||||||||||||||||
| Tequila Armero S.A de C.V | ||||||||||||||||
| Industrias Naturales de Tequilas S.A de C.V | 19,080 | 19,080 | ||||||||||||||
| Tequila Copter S.A., de C.V | 20,426 | 20,426 | ||||||||||||||
| Sobre Todo Alimentacion S.A., de C.V | 3,773 | 3,773 | ||||||||||||||
| Turasu SPR de RL | 18,706 | 18,706 | ||||||||||||||
| Total Net (profit) loss attributable to noncontrolled interest | 61,985 | 61,985 | ||||||||||||||
| — | ||||||||||||||||
| Net profit (loss) attributable to common shareholders | $ | (187,523 | ) | $ | (308,919 | ) | $ | (1,168,829 | ) | $ | (3,242,490 | ) | ||||
| Net income (loss) per share applicable to common stockholders - basic | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.03 | ) | ||||
| Net income (loss) per share applicable to common stockholders - diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.03 | ) | ||||
| Weighted average number of common shares outstanding - basic | 115,739,401 | 97,081,861 | 115,739,401 | 97,081,861 | ||||||||||||
| Weighted average number of common shares outstanding - diluted | 115,739,401 | 97,081,861 | 115,739,401 | 97,081,861 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ROGUE ONE, INC
Condensed Consolidated Statements of Stockholders' (Deficit) (Unaudited)
| Preferred Stock | Common Stock | Additional paid-in-capital | Noncontrolling interest | Commitments and Contingencies | Accumulated Deficit | Total Shareholders' Deficit | |||||||
| Series A | Series D | Series E | |||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | ||||||
| BALANCE, March 31, 2020 | 10,000,000 | $ 100 | 1 | $ | 12 | $ | 86,386,660 | $ 86,387 | $ 8,894,467 | $ | $ | $ 14,121,407) | $ (5,140,453) |
| Net loss | (2,916,070) | (2,916,070) | |||||||||||
| Conversion of Series D preferred stock for common stock | (1) | - | 8,700,000 | 8,700 | (8,700) | ||||||||
| Issuance of Series E preferred stock to an officer as compensation | 8 | 17,500 | 17,500 | ||||||||||
| BALANCE, June 30, 2020 | 10,000,000 | $ 100 | $ | 20 | $ | 95,086,660 | $ 95,087 | $ 8,903,267 | $ | $ | $ (17,037,477) | $ (8,039,023) | |
| Issuance of common stock in exchange for fees and servces rendered | 2,000,000 | $ 2,000 | $ 38,000 | 40,000 | |||||||||
| Net incom (loss) | $ (308,919) | (308,919) | |||||||||||
| BALANCE, September 30, 2020 | 10,000,000 | $ 100 | $ | 20 | $ | 97,086,660 | $ 97,087 | $ 8,941,267 | $ | $ | $ (17,346,396) | $ (8,307,941) | |
| Net Incom (Loss) | 2,676,269 | 2,676,269 | |||||||||||
| Issuance of Series E preferred stock to an officer as compensation | 4 | 4,843,334 | 4,838 | 43,490 | 48,328 | ||||||||
| BALANCE, December 31, 2020 | 10,000,000 | $ 100 | $ | 24 | $ | 101,925,194 | $ 101,925 | $ 8,984,757 | $ | $ | $ (14,670,127) | $ (5,583,344) | |
| Return of common stock issued in connection with the acquisition of a business | (2,000,000) | (2,000) | 2,000 | ||||||||||
| Conversion of Series E preferred stock for common stock | (3) | 1,200,000 | 1,200 | (1,200) | |||||||||
| Issuance of Series E preferred stock in connection with sales made under private or public offerings | 2 | 40,000 | 40,000 | ||||||||||
| Issuance of Series E preferred stock as compensation to employees, officers and/or directors | 6 | 100,000 | 100 | 89,900 | 90,000 | ||||||||
| Issuance of Series E preferred stock as compensation to employees, officers and/or directors | 15 | 250,000 | 250 | 224,750 | 225,000 | ||||||||
| Issuance of Series E preferred stock in exchange for fees and services rendered | 4 | - | 125,000 | 125,000 | |||||||||
| Issuance of common stock in connection with sales made under private or public offerings | 1,666,667 | 1,667 | 98,333 | 100,000 | |||||||||
| Conversion of convertible notes payabe and accrued interest into common stock | 999,999 | 1,000 | 10,001 | 11,001 | |||||||||
| Net profit (loss) | (530,248) | (530,248) | |||||||||||
| BALANCE, March 31, 2021 | 10,000,000 | $ 100 | $ | 48 | $ | 104,141,860 | $ 104,142 | $ 9,573,541 | $ | $ | $ (15,200,375) | $ (5,522,591) | |
| Net loss | (461,239) | (461,239) | |||||||||||
| Human Brands International, Inc - Merge | 3,408,995 | 19,244,877 | 22,653,872 | ||||||||||
| Issuance of Series E preferred stock in connection with sales made under private or public offerings | 2 | 20,000 | 20,000 | ||||||||||
| Issuance of common stock in connection with sales made under private or public offerings | 3,250,714 | 3,250 | 96,130 | 99,380 | |||||||||
| Conversion of convertible debentures and accrued interest into common stock | 15,800,000 | 15,800 | 664,649 | 680,449 | |||||||||
| BALANCE, June 30, 2021 | 10,000,000 | $ 100 | $ | 50 | $ | 123,192,574 | $ 123,192 | $ 10,354,320 | $ 3,408,995 | $ 19,244,877 | $ (15,661,614) | $ 17,469,871 | |
| Net profit (loss) | (249,507) | (249,507) | |||||||||||
| Not issued Series E preferred stock in connection with sales made under private or public offerings | (2) | ||||||||||||
| Not Issued common stock in connection with sales made under private or public offerings | |||||||||||||
| Adjustment | 2 | ||||||||||||
| Third parties’ investment closing pending | 201,667 | 201,667 | |||||||||||
| Issuance of common stock in connection with sales made under private or public offerings | |||||||||||||
| Conversion of convertible notes payabe and accrued interest into common stock | 8,485,508 | 8,486 | 182,420 | 10,180 | 201,086 | ||||||||
| BALANCE, September 30, 2021 | 10,000,000 | 100 | 48 | 131,678,082 | 131,683 | 10,536,740 | 3,408,995 | 19,446,544 | (15,900,941) | 17,623,120 | |||
See accompanying notes to the condensed consolidated financial statements
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ROGUE ONE, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended September 30 | Twelve Month Ended December 31 | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,230,814 | ) | $ | (566,221 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 16,870 | |||||||
| Amortization of debt discount | 35,000 | 49,450 | ||||||
| Common stock issued in exchange for fees and services | 40,000 | |||||||
| Preferred stock issued as compensation to employees, officers and/or directors | 90,000 | |||||||
| 125,000 | — | |||||||
| Prepaid expenses and other current assets | (145,000 | ) | ||||||
| Preferred stock issued in exchange for fees and services | 129,961 | |||||||
| (Gain) loss on change in value of derivative liabilities | 635,634 | (104,386 | ) | |||||
| Accounts receivable | (258,600 | ) | ||||||
| Inventory | 25,745 | |||||||
| Other investments - Associated companies | ||||||||
| Other current assets | 234 | |||||||
| Assets impairement | 14,418 | |||||||
| Account payable | (520,382 | ) | ||||||
| Accrued liabilities | 1,718,718 | 345,438 | ||||||
| Other liabilities | 114,514 | |||||||
| Related party loans | 4,350 | |||||||
| Payroll liabilities | 190,629 | |||||||
| Other current liabilities | (110 | ) | ||||||
| Contingencias and Commitments | 201,667 | |||||||
| Net cash used in operating activities | 1,013,523 | (101,408 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Cash received from merger transaction | 179,815 | |||||||
| Goodwill | 14,418 | |||||||
| Net cash used in investing activities | 194,233 | |||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | 227,713 | 20,000 | ||||||
| Loan receivable | (50,000 | ) | ||||||
| Proceeds from issuance of preferred stock | 60,000 | |||||||
| Notes payable | (50,787 | ) | ||||||
| Proceeds from short term loans | (1,364,501 | ) | ||||||
| Related party loans | 1,550 | |||||||
| Proceeds from short term loans | 12,500 | |||||||
| Proceeds from promissory note | (0 | ) | 81,500 | |||||
| Net cash provided by financing activities | (1,163,526 | ) | 101,500 | |||||
| Net increase (decrease) in cash and cash equivalents | 44,231 | 92 | ||||||
| Cash and cash equivalents, beginning of period | 111 | 19 | ||||||
| Cash and cash equivalents, end of period | $ | 44,342 | $ | 111 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-Cash Investing and Financing Activities | ||||||||
| Common stock issued to reduce convertible promissory notes payable | $ | 892,536 | $ | |||||
| Series E preferred stock issued in lieu of cash for accrued officer compensation | $ | 225,000 | $ | |||||
| Common stock issued in connection with the acquisition of a business | $ | 8,467,377 | $ | |||||
| Preferred stock issued in connection with the acquisition of a business | $ | 10,777,500 | $ | |||||
| Conversion of related party debt | $ | $ | ||||||
| Capital lease additions to fixed assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ROGUE ONE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED ON SEPTEMBER 30, 2021
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Rogue One, Inc. (“Rogue One” or the “Company”) is a consumer products and marketing company focused on the high-margin, multi-trillion-dollar alcoholic beverages sector.
On June 27, 2017, Creative Edge Nutrition, a Nevada corporation ("CEN") and Rogue One executed an asset purchase agreement whereby the Company purchased the assets and liabilities of CEN's subsidiary, Giddy Up Energy Products, Inc. ("Giddy"). As consideration, the Company agreed to exchange 47,197,601 shares of its common stock. On January 24, 2018, the Company completed the distribution of its common shares to the CEN shareholders to consummate the acquisition of Giddy. On December 7, 2020, the Company and Giddy entered into a Settlement Agreement, Waiver and Release of Claims whereby each party warranted and represented that they sought to fully and mutually rescind the purchase agreement dated June 27, 2017 and, in so doing, for Giddy to acquire the assets previously sold and, at the same time, for each of the parties to waive and release all claims, both known and unknown, and to indemnify and hold all other parties harmless. In addition, the parties agreed to enter into an exclusive licensing agreement for the Giddy Up brand in the category of alcoholic beverages.
On September 23, 2020, the Company entered into a Merger Agreement and Plan of Reorganization with Human Brands International, Inc., a private corporation organized pursuant to the laws of the State of Nevada (“Human Brands”), pursuant to which, at the effective time, Human Brands shareholders will exchange 100% of the equity in Human Brands in exchange for a majority controlling interest in the Company. On June 30, 2021, the Acquisition Agreement was made effective pending certain closing conditions. Under the terms of the Acquisition Agreement, the Company agreed to issue an aggregate of shares of its Series D preferred stock and an aggregate of shares of its common stock to acquire all of the outstanding capital stock of Human Brands.
Human Brands operating divisions currently own and manage over 250,000 agave plants, several premium spirit brands, and hold exclusive import and export rights for a variety of spirit brands. Its core foundation is built upon its bulk tequila production operations. Human Brands currently has supply contracts with well- known tequila brands, celebrities, and athletes.
On April 7, 2021, the Company effected a 1-for-100 reverse split which as preceded by a filing of an amendment to its Articles of Incorporation that the Company completed with the Nevada Secretary of State on February 13, 2021. On April 7, 2021, the Company also amended its Articles of Incorporation to change its name to Rogue One, Inc.
On June 30, 2021, the Company entered into that certain Merger Agreement and Plan of Reorganization (the “Acquisition Agreement”) with each of the stockholders of Human Brands International, Inc., a Nevada corporation (the “Acquired Company” or “Human Brands”), finishing the merger initiated on September 23, 2020.
Under the terms of the Acquisition Agreement, the Company agreed to issue an aggregate of forty-seven (47) shares of Series D Preferred Stock (par value $0.001) (the “Preferred Shares”) and an aggregate of One Hundred Seventy-Six Million Seven Hundred Seventy-One Thousand Nine Hundred Sixty-Two (176,771,962) shares of Common Stock (par value $0.001) (the “Common Shares”) to acquire all of the outstanding capital stock of the Acquired Company.
26
The Acquisition Agreement was the product of several months of meetings and due diligence conducted by the Company’s officers and directors that resulted in successful negotiations with the officers and directors of the Acquired Company and the stockholders of the Acquired Company.
The Company did not employ or utilize the services of any investment banker, advisor, or other third party in connection with the Acquisition Agreement, the transactions underlying the Acquisition Agreement or both of them. As a result, the Company did not incur or pay any fees to any investment banker, advisor, or other third party but may ignored critically important aspects of the business conducted by the Acquired Company that we may later discover with materially adverse consequences to the Company’s financial condition for an indefinite period of time.
All of the Preferred Shares and all of the Common Shares that were issued in accordance with the Acquisition Agreement are “unregistered securities” in that they were issued pursuant to claims of exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the Securities and Exchange Commission thereunder as well as certain claims to the qualification requirements under state securities laws in the states wherein the holders of all of the outstanding capital stock of the Acquired Company. Moreover, all of the Preferred Shares and all of the Common Shares that were issued pursuant to the Acquisition Agreement were issued with a restricted securities legend and only then after we received certain additional written assurances from the stockholders of the Acquired Company.
Human Brands was founded in late 2014 with a plan to capitalize in perceived growth prospects in the consumer alcoholic products industry. In recent years Human Brands has focused on the tequila products segment within that industry as management believes that the tequila products segment may offer stronger sales growth opportunities relative to other consumer alcoholic segments. The management of Human Brands follows a “ground to glass” strategy that, in practical terms, means that management attempts to control marketing, sales, and assets throughout the selection of raw materials (the agave plants) and the operation of the manufacturing process. The strategy also involves selection and constant management of the marketing channels, advertising programs, and target marketing strategies. Human Brands has had to confront ever-rising costs for raw materials as agave prices have increased by about 694% since 2016.
Currently Human Brands has approximately 400,000 agave plants and has adopted a strategy to grow more agave plants to ensure that the company has a stable supply of raw materials and at price levels that may serve to insulate the company from excessive price increases in the market. The company has adopted a two-part strategy: (a) sell agave plants to generate revenues; and (b) at the same time, use agave produced by the company’s own agave plants as raw material for the company’s tequila products. The Company believes that, if circumstances allow, this strategy may serve to insulate the company from some of the excessive cost pressures in the raw agave market.
Cautionary Statement on Forward-Looking Statements
All statements, other than statements of current or historical fact, contained in this filing are forward-looking statements. Without limiting the foregoing, forward-looking statements often use words such as "believe," "anticipate," "plan," "expect," "estimate," "intend," "seek," "target," "goal," "may," "will," "would," "could," "should," "can," "continue" and other similar words or expressions (and the negative thereof). Rogue One, Inc., and its subsidiaries (Rogue, the Company, our or we) intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe-harbor provisions. In particular, these statements include, without limitation, statements about our future operating or financial performance, market opportunity, growth strategy, competition, expected activities in completed and future acquisitions, including statements about the impact of our recently completed acquisition of Human Brands International, Inc., and its subsidiaries (the Human Brands Acquisition), and future acquisitions, investments and the adequacy of our available cash resources. These statements may be found in the various sections of this filing, such as Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations." and Part II, These forward-looking statements reflect our current views with respect to future events and are based on numerous assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, business strategies, operating environments, future developments and other factors we believe appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties and are subject to change because they relate to events and depend on circumstances that will occur in the future, including economic, regulatory, competitive and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions.
All forward-looking statements included in this Notes are based on information available to us on the date of this filing. Except as may be otherwise required by law, we undertake no obligation to update or revise the forward-looking statements included in this filing, whether as a result of new information, future events or otherwise, after the date of this filing. You should not place undue reliance on any forward-looking statements, as actual results may differ materially from projections, estimates, or other forward-looking statements due to a variety of important factors, variables and events including, but not limited to:
| • | The impact of COVID-19 on global markets, economic conditions, the healthcare industry and our results of operations and the response by governments and other third parties. |
| • | The risk that regulatory or other approvals required for the HBI Acquisition may be delayed or not obtained or are obtained subject to conditions that are not anticipated that could require the exertion of management's time and our resources or otherwise have an adverse effect on us. |
| • | The possibility that certain conditions to the consummation of the HBI Acquisition will not be satisfied or completed on a timely basis and accordingly the HBI Acquisition may not be consummated on a timely basis or at all. |
| • | Uncertainty as to the expected financial performance of the combined company following completion of the HBI Acquisition. |
| • | The possibility that the expected synergies and value creation from the HBI Acquisition will not be realized or will not be realized within the applicable expected time periods. |
| • | The exertion of management's time and our resources, and other expenses incurred, and business changes required, in connection with complying with the undertakings in connection with any regulatory, governmental or third-party consents or approvals for the HBI Acquisition. |
| • | The risk that unexpected costs will be incurred in connection with the completion and/or integration of the HBI Acquisition or that the integration of its subsidiaries will be more difficult or time consuming than expected. |
| • | The risk that potential litigation in connection with the HBI Acquisition may affect the timing or occurrence of the HBI Acquisition or result in significant costs of defense, indemnification and liability. |
| • | A downgrade of the credit rating of our indebtedness, which could give rise to an obligation to redeem existing indebtedness. |
| • | The inability to retain key personnel. |
| • | Disruption from the announcement, pendency and/or completion and/or integration of the HBI Acquisition or the integration of the subsidiaries, or similar risks from other acquisitions we may announce or complete from time to time, including potential adverse reactions or changes to business relationships with customers, employees, suppliers or regulators, making it more difficult to maintain business and operational relationships. |
| • | Our ability to accurately predict and effectively manage health benefits and other operating expenses and reserves, | |
| • | Competition. | |
| • | Membership and revenue declines or unexpected trends. |
| • | Changes in the beverage industry practices, new technologies, and advances in processing and distillation methods. |
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| • | Increased feedstock costs. |
| • | Changes in economic, political or market conditions. |
| • | Changes in federal or state laws or regulations, including changes with respect to income tax reform or government beverage industry programs as well as changes with and any regulations enacted thereunder that may result from changing political conditions, the new administration or judicial actions. |
| • | Our ability to adequately price products. |
| • | Tax matters. |
| • | Disasters or major epidemics. |
| • | Changes in expected contract start dates. |
| • | Provider, state, federal, foreign, and other contract changes and timing of regulatory approval of contracts. |
| • | The difficulty of predicting the timing or outcome of pending or future legal and regulatory proceedings or government investigations. |
| • | Challenges to our contract awards. |
| • | Cyber-attacks or other privacy or data security incidents. |
| • | The possibility that the expected synergies and value creation from acquired businesses, including businesses we may acquire in the future, will not be realized, or will not be realized within the expected time period. |
| • | The exertion of management's time and our resources, and other expenses incurred, and business changes required in connection with complying with the undertakings in connection with any regulatory, governmental or third-party consents or approvals for acquisitions. |
| • | Disruption caused by significant completed and pending acquisitions making it more difficult to maintain business and operational relationships. |
| • | The risk that unexpected costs will be incurred in connection with the completion and/or integration of acquisition transactions. |
| • | Changes in expected closing dates, estimated purchase price and accretion for acquisitions. |
| • | The risk that acquired businesses will not be integrated successfully. |
| • | Restrictions and limitations in connection with our indebtedness. |
| • | Availability of debt and equity financing, on terms that are favorable to us. |
| • | Inflation; and |
| • | Foreign currency fluctuations. |
This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other factors that may affect our business operations, financial condition and results of operations, in our filings with the Securities and Exchange Commission (SEC), including quarterly reports on Form 10-Q and current reports on Form 8-K. Item 1A. "Risk Factors" of Part I of this Notes contains a further discussion of these and other important factors that could cause actual results to differ from expectations. Due to these important factors and risks, we cannot give assurances with respect to our future performance, including without limitation our ability to maintain adequate premium levels or our ability to control our future cultivation, harvesting, distillation and selling, general and administrative costs.
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Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these financial statements. On a consolidated basis, the Company has incurred significant operating losses since inception.
Because the Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company will need to raise additional funds and is currently exploring alternative sources of financing. Historically, the Company has raised capital through the issuance of convertible debt as a measure to finance working capital needs. The Company will be required to continue to do so until such time that its consolidated operations become profitable.
Basis of Presentation
S-X 4-01(a)(1) requires financial statements filed with the SEC to be presented in accordance with US GAAP, unless the SEC has indicated otherwise (e.g., foreign private issuers are permitted to use IFRS as issued by the IASB). Regulation S-K Item 10(e) prohibits the inclusion of non-GAAP information in financial statements filed with the SEC.
In practice, some reporting entities choose to provide a “Basis of Presentation,” or similarly titled footnote to disclose that the financial statements are presented in accordance with US GAAP. Other reporting entities choose to include this information in a “Significant Accounting Policies” footnote, as described in FSP 1.1.4.
The Company has prepared the accompanying condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The Company believes these condensed consolidated financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for a fair presentation of its condensed consolidated financial position and consolidated results of operations for the periods presented.
Disclosure of accounting policies
ASC 235, Notes to Financial Statements, states the following regarding accounting policy disclosures:
ASC 235-10-50-3: Disclosure of accounting policies shall identify and describe the accounting principles followed by the entity and the methods of applying those principles that materially affect the determination of financials position, cash flows, or results of operations. In general, the disclosure shall encompass important judgments as to appropriateness of principles relation to recognition of revenue and allocation of asset costs to current and future periods; in particular, it shall encompass those accounting principles and methods that involve any of the following:
| I. | A selection form existing acceptable alternative. |
| II. | Principles and methods peculiar to the industry in which the entity operates, even if such principles and methods are predominantly followed in that industry. |
| III. | Unusual or innovative applications of GAAP. |
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Reporting entities are required to describe all significant accounting policies in the financial statements. Determining which accounting policies are considered “significant” is a matter of management judgment. Management might consider materiality of the related account, as well as the requirements of users, such as investors, analysts, financial institutions, and other constituents.
ASC 235 permits flexibility in matters of format (including the location) of the policy footnote, as long as it is an integral part of the financial statements.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of 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. The Company bases its estimates on historical experience, known or expected trends and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash and Cash Equivalents
Pursuant to the FASB Codification Master Glossary, cash includes currency on hand and demand deposits with banks or other financial institutions. Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. For purposes of classification in the statement of cash flows, the Master Glossary defines cash equivalents as short-term, highly liquid investments that have both of the following characteristics: (1) they are readily convertible to known amounts of cash, and (2) are so near to maturity that they represent insignificant risk of changes in value due to changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition.
Cash and cash equivalents are typically included as a current asset in a classified balance sheet, unless they are (1) restricted as to the withdrawal or use for other than current operations, (2) designated for expenditure in the acquisition or construction of non-current assets, or (3) segregated for the liquidation of long-term debts. Note that, even though they have not been set aside in special accounts, funds that are clearly to be used in the near future for the liquidation of long-term debts, payments to sinking funds, or similar purposes should not be included in current assets, unless the funds can offset maturing debt that has properly been set up as a current liability. A bank overdraft should be classified as a current liability unless it can be offset against free cash balances in the same bank.
Except for the requirement that restricted cash not be classified as a current asset, there are no specific GAAP requirements relating to compensating- balance arrangements. The SEC, however, requires certain disclosures and, if these are significant, they are generally included in the notes to financial statements of all companies-privately held as well as publicly held entities.
The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000, when located in the United States of America. In Mexico, the original bank deposit protection fund, Fobaproa, was replaced by the current bank savings protection institute known as IPAB, who protects money up to the value of 400,000 UDIs equivalent to USD 137,400 (as of July 3, 2022) in savings accounts, checking accounts, debit cards, payroll accounts, and certain investment accounts such as term deposits and certificates of deposit.
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On September 30, 2021, and December 31, 2020, the Company did not have bank balances exceeding the FDIC and IPAB insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
Fair Value of Financial Instruments
The Company uses the market approach to measure fair value for its financial instruments. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet financial instruments approximates its fair value. These financial instruments include cash, related party payables, accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since they are short term in nature, and they are receivable or payable on demand.
Entities with simple capital structures (i.e., those with only common stock and no potential common stock) are required to present on the face of the income statement basic BPS for income from continuing operations and for net income. The caption "income from continuing operations" encompasses income before the cumulative effect of an accounting change when the cumulative effect of an accounting change is present. Entities with complex capital structures (i.e., those with both common stock and potential common stock) must present on the face of the income statement basic and diluted BPS for the same captions. BPS amounts should also be presented, either on the face of the income statement itself or in the notes to the financial statements, for discontinued operations. Whether such BPS amounts are reported before or net-of-tax should be disclosed. Basic BPS, and if applicable, diluted BPS should be shown for each class of common stock outstanding. Disclosure of cash flow per share amounts is prohibited. BPS data are required for all periods for which income statements or summaries of earnings are presented. If diluted BPS is reported for any period, it must also be presented for all periods-even if diluted BPS is the same amount as basic BPS. If basic 'and diluted BPS are the same for all periods, they may be presented as one line item in the income statement. Note that the terms "basic BPS" and "diluted BPS" may be described differently. The terms such as "earnings per common share" and ''earnings per common share-assuming dilution" are acceptable.
The following disclosures are required for each period for which an income statement is presented:
| · | A reconciliation of the numerators and the denominators of the basic and diluted per share computations for income from continuing operations (or other applicable caption when the cumulative effect of an accounting change is present). The reconciliation should include the individual in- come and share amount impact of all securities that affect earnings per share. |
| · | The effect that has been given to preferred dividends in arriving at income available to common stockholders in computing basic BPS. |
| · | Securities, including those issuable pursuant to contingent stock agreements, that could potentially dilute basic BPS in the future that were included in the computation of diluted BPS because their effects antidilutive. |
For the latest periods for which an income statement is presented, a description. should be provided of any transactions occurring subsequent to the end period but before the financial statements are issued (or available for issue) would have materially changed the number of common shares or potential common shares outstanding, had such transactions taken place before the end of the period. Examples of such transactions include:
| · | The issuance or acquisition of common shares |
| · | Resolution of a contingency pursuant to a contingent stock agreement |
| · | Conversion or exercise of potential common shares. |
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In the period in which a dropdown transaction occurs, disclosure, in narrative form, should be made by a master limited partnership regarding how the rights to the earnings (losses) of the transferred net assets differ before and the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method. When prior BPS amounts have been restated in compliance with an accounting standard requiring restatement, the per share effect of the restatement should be disclosed. Likewise, if, because of a stock split or dividend; retroactive adjustments to prior BPS amounts are made, that fact should be disclosed.
Note that if an entity that is not otherwise required to present BPS chooses to disclose such amounts, they must (1) be computed in accordance with the, guidance in FASB ASC 260, (2) be disclosed only in notes to financial statements, and (3) indicate whether the per-share amounts are presented pretax or net of tax.
Sources: FASB ASC 260-10-45 and FASB ASC 260-10-50.
| Nine Months Ended on September 30 | ||||||||
| 2021 | 2020 | |||||||
| Numerator | ||||||||
| Net income (loss) applicable to common shareholders | (1,230,814 | ) | $ | (3,242,490 | ) | |||
| Denominator | ||||||||
| Weighted average common shares outstanding, basic | 115,739,401 | 97,081,861 | ||||||
| Convertible preferred stock | 250,000,000 | 100,000,000 | ||||||
| Convertible promissory notes | ||||||||
| Weighted average common shares outstanding, diluted | 365,739,401 | 197,081,861 | ||||||
| Net Income per share - Basic | (0.01 | ) | $ | (0.03 | ) | |||
| Income per shares - Diluted | (0.00 | ) | $ | (0.02 | ) | |||
ASC 718, Compensation – Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The subsidiaries merged into the Company used this type of compensation for a significant amount of received services, minimizing, then the use of cash-flow.
Income Taxes
The Company accounts for income taxes pursuant to the provisions of ASC 740-10, Accounting for Income Taxes, which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provisions of the ASC 740-10, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions will be highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
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The Company has adopted ASC 740-10-25, Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. Management has not filed tax returns for the years ended December 31, 2014 through 2020.
Recent Accounting Pronouncements
Except for rules and interpretive releases of the SEC under the authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company’s present or future financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. The Company is evaluating the impact of this amendment on its consolidated financial statements.
In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.
On March 30, 2021, the FASB issued Accounting Standards Update (ASU) 2021-03, Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events. The amendments in ASU 2021-03 provide private companies and not-for-profit (NFP) entities with an accounting alternative to perform the goodwill impairment triggering event evaluation as required in FASB Accounting Standards Codification (FASB ASC) 350-20, Intangibles—Goodwill and Other—Goodwill, as of the end of the reporting period, whether the reporting period is an interim or annual period. An entity that elects this alternative is not required to monitor for goodwill impairment triggering events during the reporting period but, instead, should evaluate the facts and circumstances as of the end of each reporting period to determine whether a triggering event exists and, if so, whether it is more likely than not that goodwill is impaired.
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On January 7, 2021, the FASB issued ASU 2021-01, which refines the scope of ASC 848 and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest (PAI) in connection with reference rate reform activities under way in global financial markets (the “discounting transition”). The discounting transition may also affect collateralized bilateral derivative transactions, not all of which are indexed to a rate that will be discontinued as a result of reference rate reform. ASU 2021-01 is intended to reduce diversity in practice related to accounting for (1) modifications to the terms of affected derivatives and (2) existing hedging relationships in which the affected derivatives are designated as hedging instruments.
On October 2020 the FASB issued ASU- 2020-10, which is effective for fiscal years beginning after December 15, 2020 including interim periods within those fiscal years. The amendments in Section B of this Update improve the Codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the Disclosure Section of the Codification. That reduces the likelihood that the disclosure requirement would be missed. The Board does not anticipate that the amendments in Section B will result in any changes to current GAAP.
The amendments in Section C of this Update are varied in nature and may affect the application of the guidance in cases in which the original guidance may have been unclear. The amendments in Section C clarify guidance so that an entity can apply the guidance more consistently.
On September 2020 the FASB issued ASU-2020-09, which was effective on January 4, 2021, but voluntary compliance is permitted in advance of the effective date. This ASU revises certain SEC paragraphs of the FASB’s Accounting Standards Codification (ASC) to reflect, as appropriate, the amended financial statement disclosure requirements in SEC Release 33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities. Such ASC amendments address the requirements in:
| · | Regulation S-X Rule 13-01 regarding disclosures about guarantors and issuers of guaranteed securities registered or being registered |
| · | Regulation S-X Rule 13-02 regarding disclosures about a registrant’s affiliates whose securities collateralize any class of securities registered or being registered and the related collateral arrangement |
NOTE 2 – GOING CONCERN
The Company’s condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating cost and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
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The Company incurred a net loss of $1,230,814 for the nine months ended September 30, 2021. Because of the “Amended and Restated Merger Agreement and Plan of Reorganization” dated on June 30, 2021, amending and restating the agreement of September 23, 2021, with Human Brands International, Inc., the Company changed from a working capital deficit to a working capital positive of $6,269,364 on September 30, 2021, and has accumulated losses of $ 15,900,941since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
To continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company include, obtaining debt or equity capital from various lenders, institutions, and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – GENERAL BALANCE SHEET CONSIDERATIONS
FASB ASC does not require an entity to present a classified balance sheet or mandate a particular order of balance sheet accounts. However, FASB ASC 210-10-05-4states that entities usually present a classified balance sheet to facilitate calculation of working capital.
ASC210-10-05-5 indicates that in the statements of manufacturing, trading, and service entities, assets and liabilities are generally classified and segregated. The FASB ASC glossary includes definitions of current assets and current liabilities for when an entity presents a classified balance sheet. FASB ASC 210-10-45 provides additional guidance to determining these classifications.
Cash and Cash Equivalents
Rules 5-02-1 of Regulation S-X states that separate disclosure should be made of the cash and cash items that are restricted regarding withdrawal or usage. The Company didn’t recognize any restriction on the cash and cash equivalents assets as of September 30, 2021, has $44,342 and $111 as of December 31, 2020.
Current Receivables
FASB ASC 310 states that allowance for credit losses should be deducted from the related receivables and appropriately disclosed. FASB ASC 310-10-50-4 requires as applicable, any unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs to be disclosed in the financial statements. Under FASB ASC 825, fair value disclosure is not required for trade receivables when the carrying amount of the trade receivable is due in one year or less. As of September 30, 2021, the Company had Accounts Receivable of $826,297 and $0 as of December 31, 2020. The Company is not expecting any credit losses.
Accounts receivable aged balances
| Company | Current | 1 - 30 | 31 - 60 | 61 - 90 | 91 and over | Total | ||||||||||||||||||
| Rogue One, Inc | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Human Brands International, Inc | 245,988 | 133,000 | 250 | 379,238 | ||||||||||||||||||||
| CapCity Beverage, L.L.C | 39,065 | 41,568 | 5,555 | 26,192 | 25,370 | 137,750 | ||||||||||||||||||
| Turasu SPR de RL | 13,026 | 49,176 | 40,215 | 206,892 | 309,309 | |||||||||||||||||||
| TOTAL | $ | 298,079 | $ | 174,568 | $ | 54,731 | $ | 66,657 | $ | 232,262 | $ | 826,297 | ||||||||||||
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Inventory
Rule 5-02.6 of Regulation S-X requires separate presentation in the balance sheet or notes of the amounts of major classes of inventory, such as finished goods, work in process, raw materials, and supplies. Additional disclosures are required for amounts related to long-term contracts or programs.
| Finished Products | Supplies | Biological Assets | Total USD | |||||||||||
| Location | ||||||||||||||
| CapCity Beverages, LLC | $ | 7,276 | $7,276 | |||||||||||
| Tequila Armero S.A de CV | 94,171 | 94,171 | ||||||||||||
| Industrias Naturales de Tequilas S.A de CV | 5,487,607 | 5,487,607 | ||||||||||||
| Sobre Todo Alimentacion | 5,976 | 5,976 | ||||||||||||
| Turasu S de PR de RL | 1,401,523 | 1,401,523 | ||||||||||||
| $ | 13,253 | $ | 94,171 | $ | 6,889,130 | $6,996,553 | ||||||||
Marketable Securities
In March 2018, FASB released Accounting Standard Update (ASU) No 2018-04, Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980). This update supersedes FASB ASC 320-10-S55-1 and 320-10-599-1. FASB ASC 810-10-S00-1 is added along with paragraphs 980-810-S45-1. No additional disclosure requirements are listed.
FASB ASC 320-10-50 includes detailed disclosure requirements for various marketable securities, including matters such as the nature and risks of the securities, cost, fair value, contractual maturities, impairment of securities, and certain transaction information. FASB ASC 321-10-50 provides additional disclosure requirements for marketable securities classified as equity securities.
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Property, Plant and Equipment
Are the long-lived physical assets of the Company acquired for use in the Company’s normal business operation and not intended for resale by the Company. FASB ASC 360, Property, Plant and Equipment states that these assets are initially recorded at historical cost, which includes the cost necessarily incurred to bring them to the condition and location necessary for their intended use. FASB ASC 835-20 establishes standards for capitalizing interest cost as part of the historical cost of acquiring assets constructed by the Company for its own use or produced for the Company by others for which deposits or progress payments have been made.
FASB ASC 210-10-45-4 indicates that property, plant and equipment, should be classified as noncurrent when a classified balance sheet is presented. Under FASB ASC 805-20-55-37, some use rights acquired in a business combination may have characteristics of tangible, rather than intangible assets.
The Company had $ 315,300 (net of $16,870 depreciation) and $ 0 as of December 31, 2020 respectively in Property, Plant and Equipment, all as a consequence of the business combination, and such assets were valued as fair market value, starting in service for the Company as of July 1, 2021.
| Account | Balance as Servicing date - June 30, 2021 | Depreciation | Net Value as of September 30, 2021 | |||
| Expenses 2021-Q3 | Accumulated Depreciation as of September 30, 2021 | |||||
| Equipment | $ 51,057 | $ 2,546 | $ 2,546 | $ 48,511 | ||
| Furniture & Equipment | 27,515 | 1,372 | 1,372 | 26,143 | ||
| Vehicles | 253,274 | 12,953 | 12,953 | 240,321 | ||
| Total | $ 331,846 | $ 16,870 | $ 16,870 | $ 314,976 | ||
Other current Assets
Despite of Rule 5-02-8 of Regulation S-X requires that any amount of current assets in excess of 5% of total current assets be stated separately on the balance sheet or disclosed in the notes, Management decided the present the respective breakdown in the following chart:
| Concept | ||||
| Prepayments | $ | 120,000 | ||
| Security Deposits - Energy company | 2,195 | |||
| Security Deposits - Rent | 3,903 | |||
| Janon Costley | 1,250 | |||
| Creditable paid IVA | 129 | |||
| Creditable paid IEPS | 151 | |||
| IVA pending | 42 | |||
| IEPS pending | 410 | |||
| Total | $ | 128,080 | ||
Other Noncurrent Assets
On September 30, 2021, and December 31, 2020, other noncurrent assets were $0 and $0. The current balance of $0 compared to the balance of $145,000 as of December 31, 2020, is because the Company applied ASC-850-10-05-4, based on the “Amended and Restated Merger Agreement and Plan of Reorganization” dated on June 30, 2021, and then intercompany transactions are offset in both companies, Rogue One, Inc., and Human Brands International, Inc.
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Goodwill
The Company besides the Goodwill recognized on the acquisition of Human Brands International, Inc., part of the acquired assets was Goodwill Human Brands International, Inc., recognized on the acquisition of its subsidiaries now part of Rogue One, Inc.
The Company didn’t calculate any adjustment in the Goodwill of the companies listed in the chart below, however the Company will review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. If required, recoverability of these assets is determined by comparison of their carrying value to the estimated future undiscounted cash flow the assets are expected to generate over their remaining estimated useful lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their estimated fair value determined by either a quoted market price, if any, or a value determined by utilizing a discount cash flow technique.
| All subsidiaries goodwill | ||||
| Mezcal Arte | $ | 294,118 | ||
| Sobre Todo Alimentacion | 655,719 | |||
| Tequila Armero SA | 568,998 | |||
| Tequila Copter | 814,000 | |||
| Turasu S de PR | 2,044,466 | |||
| Human Brands International, Inc | 6,426,939 | |||
| Total | $ | 10,804,239 | ||
The Company keeping a highly conservative criteria in its asset’s measurement, decreased the goodwill on Turasu S de PR in $ 14,418 against Assets Impairment.
Noncontrolling Interests
Common securities held by the noncontrolling interests that do not include put arrangements exercisable outside of the Company’s control are recorded in equity, separate from the Company stockholders’ equity.
The purchase or sale of additional ownership in an already controlled subsidiary is recorded as an equity transaction with no gain or loss recognized in net income (loss) or comprehensive income (loss) as long as the subsidiary remains a controlled subsidiary.
The following chart reflects the breakdown on noncontrolling interests:
| Company Subsidiary | Amount | |||||
| Mezcal Arte | $144,118 | |||||
| Industrias Naturales de Tequilas S.A de CV | 519,185 | |||||
| Tequila Armero S.A de CV | 418,719 | |||||
| Sobre Todo Alimentacion S.A de CV | 228,515 | |||||
| Tequila Copter S.A de CV | 365,767 | |||||
| Turaso S de PR de RL | 1,732,692 | |||||
| Total: | $3,408,995 | |||||
NOTE 4 – HUMAN BRANDS INTERNATIONAL, Inc. - Amended and Restated Merger Agreement and Plan of Reorganization” dated on June 30, 2021
On May 19, 2022, the Company filed with the SEC the Form 8-K related to the completion of acquisition or disposition of assets. As previously reported and on June 30, 2021, the Company entered into that certain Merger Agreement and Plan of Reorganization (the “Acquisition Agreement”) with each of the stockholders of Human Brands International, Inc., a Nevada corporation (the “Acquired Company” or “Human Brands”).
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Under the terms of the Acquisition Agreement, the Company agreed to issue an aggregate of forty-seven (47) shares of Series D Preferred Stock (par value $0.001) (the “Preferred Shares”) and an aggregate of One Hundred Seventy-Six Million Seven Hundred Seventy-One Thousand Nine Hundred Sixty-Two (176,771,962) shares of the Company’s Common Stock (par value $0.001) (the “Common Shares”) to acquire all of the outstanding capital stock of the Acquired Company.
The Acquisition Agreement was the product of several months of meetings and due diligence conducted by the Company’s officers and directors that resulted in successful negotiations with the officers and directors of the Acquired Company and the stockholders of the Acquired Company.
The Company did not employ or utilize the services of any investment banker, advisor, or other third party in connection with the Acquisition Agreement, the transactions underlying the Acquisition Agreement or both of them. As a result, the Company did not incur or pay any fees to any investment banker, advisor, or other third party but the Company may ignored critically important aspects of the business conducted by the Acquired Company that the Company may later discover with materially adverse consequences to the Company’s financial condition for an indefinite period of time.
All of the Preferred Shares and all of the Common Shares that were issued in accordance with the Acquisition Agreement are “unregistered securities” in that they were issued pursuant to claims of exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the Securities and Exchange Commission thereunder as well as certain claims to the qualification requirements under state securities laws in the states wherein the holders of all of the outstanding capital stock of the Acquired Company. Moreover, all of the Preferred Shares and all of the Common Shares that were issued pursuant to the Acquisition Agreement were issued with a restricted securities legend and only then after we received certain additional written assurances from the stockholders of the Acquired Company.
Human Brands was founded in late 2014 with a plan to capitalize in perceived growth prospects in the consumer alcoholic products industry. In recent years Human Brands has focused on the tequila products segment within that industry as management believes that the tequila products segment may offer stronger sales growth opportunities relative to other consumer alcoholic segments. The management of Human Brands follows a “ground to glass” strategy that, in practical terms, means that management attempts to control marketing, sales, and assets throughout the selection of raw materials (the agave plants) and the operation of the manufacturing process. The strategy also involves selection and constant management of the marketing channels, advertising programs, and target marketing strategies. Human Brands has had to confront ever-rising costs for raw materials as agave prices have increased by about 338% since 2016.
Currently Human Brands has approximately 400,000 agave plants and has adopted a strategy to grow more agave plants to ensure that the company has a stable supply of raw materials and at price levels that may serve to insulate the company from excessive price increases in the market. The company has adopted a two-part strategy: (a) sell agave plants to generate revenues; and (b) at the same time, use agave produced by the company’s own agave plants as raw material for the company’s tequila products. The Company believes that, if circumstances allow, this strategy may serve to insulate the company from some of the excessive cost pressures in the raw agave market.
Transaction definition: Human Brands International, Inc’s management understand that all transactions have taken place are “Business Acquisition”, under ASC 805 because acquired assets and assumed liabilities, significantly contribute to the ability to create output.
The accounting for a business combination is based on two key principles, which ASC 805 calls the recognition principle and the measurement principle. The objective of the principles is to provide guidance that an acquirer can apply when ASC 805 does not contain specific recognition or measurement guidance for a particular asset or liability.
Under the recognition principle in ASC 805-20-25-1, an acquirer must “recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.”
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NCI is defined in the Master Glossary of the Codification as “The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.” For example, Company in our case Human Brands International, Inc., acquires a 51% interest in the common stock of the companies listed in the chart above, (which is accounted for as a Business Acquisition), there remains a 49% NCI in Human Brands International, Inc’s consolidated financial statements.
The FASB’s guidance on accounting for business combinations and NCIs reflects the FASB’s view that a consolidated entity represents a single economic unit. When accounting for a business combination, the net assets acquired are recorded as if there was an acquisition of 100% of the target. This is the case regardless of whether 51% or 100% (or any percent in between) of the target is acquired by Human Brands International, Inc. In addition, the net assets acquired are measured predominantly at fair value in accordance with ASC 805. As such, in cases in which less than 100% of the target is acquired by the buyer, in this case Human Brands International, Inc., must also recognize the fair value of the NCI.
Finally in these cases, despite of the business combination effected primarily by exchanging equity interests, and Human Brands International, Inc., is the entity that issues its equity interests, the existent Company’s stockholders at the date of acquisition, still have the control of the Company, therefore is not applicable the commonly called reverse acquisitions, the issuing entity is the acquiree. Subtopic 805-40 provides guidance on accounting for reverse acquisitions; however, such guidance is not complying with the transactions considered hereto.
Transaction Economics
For general information the acquired companies and subsidiaries have recorded sales in the following periods:
| Company | Nine Months Ended on September 30, 2021 | Twelve Month ended on December 31, 2020 | Twelve Month ended on December 31, 2019 | |||||||||
| Human Brands International, Inc | $ | 1,081,871 | $ | 1,878,805 | $ | |||||||
| CapCity Beverages, LLC | 105,354 | 52,498 | 110,244 | |||||||||
| Sobre Todo Alimentacion S.A de CV | ||||||||||||
| Turasu S de PR de RL | 11,208 | |||||||||||
| $ | 1,198,434 | $ | 1,931,303 | $ | 110,244 | |||||||
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Sales within this reporting period are included in the Statement of Operations.
Under the terms of the Acquisition Agreement, the Company agreed to issue an aggregate of forty-seven (47) shares of Series D Preferred Stock (par value $0.001) (the “Preferred Shares”) and an aggregate of One Hundred Seventy-Six Million Seven Hundred Seventy-One Thousand Nine Hundred Sixty-Two (176,771,962) shares of the Company’s Common Stock (par value $0.001) (the “Common Shares”) to acquire all of the outstanding capital stock of the Acquired Company.
| 1. | Common stock 176,771,962 – (par value $0.001) – Market Value as of September 30, 2021[1] $0.0479 = $ 8,467,377 |
| 2. | Preferred Series D 45 shares – (par value $0.00001) – This shares have a conversion right of 5,000,000 : 1 common shares, therefore it implies a potential conversion up to 225,000,000 shares of common stock , which as of September 30, 2021 has a Market Value of $0.0479 then equal to $10,777,500 |
| 3. | Based on the foregoing the Company recorded as Commitments and Contingencies as follows: |
| Shares Quantity | Shares par value | Allocated to Common Stock once Issued | Market Value | Allocated to APIC once Issued | ||
| Shares of Common Stock | $ | $ 176,772 | $ 0.0479 | $ 8,290,605 | ||
| Preferred Shares Series D | 0.00 | 0 | ||||
| Conversion Right on Series D | 225,000 | 10,552,500 | ||||
| $ 18,843,105 | ||||||
Acquired Companies and Holdings
|
||||
| Company Name | Holding % | |||
| Human Brands International, INC | 100 | |||
| Cap City Beverages, LLC | 100 | |||
| Tequila Armero S.A de CV | 51 | |||
| Industrias Naturales de Tequilas S.A de CV | 60 | |||
| Tequila Copter S.A de CV | 55 | |||
| Sobre Todo Alimentacion S.A de CV | 55 | |||
| Turaso S de PR de RL | 51 | |||
| Mezcal Arte | 51 | |||
Besides the above-mentioned companies where Rogue One, Inc., holds a controlling majority, included in the acquisition the following companies
| Company Name | Holding % | |||
| Sabores de la Historia S.A de CV | 18.00 | |||
| Milestone Beverages HK, Ltd. | 3.75 | |||
| Hacienda Capellania S.A de CV | 1.00 | |||
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The invested amount for the foregoing is disclosed in the financials as Associated companies with a total of $ 703,740
Foreign Currency
The Company applies ASC 830 for all financials recorded in other than United States Dollars currency. Such rule applies to the following companies, whose transactions are in Mexican Pesos (M$), and those companies are:
| Company Name | ||
| Tequila Armero S.A de CV | ||
| Industrias Naturales de Tequilas S.A de CV | ||
| Tequila Copter S.A de CV | ||
| Sobre Todo Alimentacion S.A de CV | ||
| Turaso S de PR de RL | ||
| Mezcal Arte | ||
The Company adopted the exchange rate every working day published in the following URL: for Mexican Pesos; https://dof.gob.mx/indicadores_detalle.php?cod_tipo_indicador=158&dfecha=30%2F06%2F2021&hfecha=30%2F06%2F2021#gsc.tab=0 this publication is made through the “Diario Oficial de la Federacion (Mexicana)” which is the equivalent to the United States Office of the Federal Register (OFR) and for Sterling pound https://www.exchange-rates.org › Rate › USD › 9-30-2021 1£ = 1.347 USD.
The Company reported the foreign currency accordingly to FASB 830-30-45-3, which literally says “…a. For assets and liabilities, the exchange rate at the balance sheet date shall be used.….” , which as of September 30, 2021 was M$ 19.815700 = 1 USD and 1£ = 1.347 USD.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
The following tables set forth the components of the Company’s convertible notes at September 30, 2021 and December 31, 2020:
Schedule of convertible notes payable
| September 30 | December 31, | |||||||
| 2021 | 2020 | |||||||
| Principal value of convertible notes: | 1,316,584 | $ | 1,595,553 | |||||
| Unamortized loan discounts | — | (35,750 | ) | |||||
| Other convertibles | 169,364 | — | ||||||
| Total convertible notes, net | 1,485,948 | $ | 1,559,803 | |||||
The following table sets forth a summary of change in our convertible notes payable for the six months ended September 30, 2021:
| Beginning balance, January 1, 2021 | $ | 1,559,803 | ||
| Amortization of debt discounts | 33,750 | |||
| Issuance of new convertible notes | ||||
| Conversion of principal amounts outstanding into common stock of the Company | (276,969 | ) | ||
| Other convertibles | 169,364 | |||
| Ending balance September 30, 2021 | $ | 1,485,948 |
On January 28, 2014, the Company converted $11,000 of a $22,000 convertible note to 245 common shares. The note had been purchased from a former officer of the Company based on the contractual conversion terms per agreement. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $8,263 and $7,119.50 respectively.
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On January 5, 2015, the Company executed a promissory note for $20,000. The note bears interest at 6% and has a maturity date of January 5, 2016. It can be converted into common stock at a discount of 30% off the conversion price. The conversion price is the average bid price on the 3 days prior to the date of conversion, but no less than $0.0001. This note was sold to a third party on August 21, 2015 and the terms of the notes were modified. The new note bears interest at 8% and has a maturity date of August 20, 2017. It can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the average of the three lowest bid prices during the 10 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $20,000 and $12,597 respectively.
On January 26, 2015, the Company executed a promissory note for $28,000. The note bears interest at 12% and has a maturity date of January 26, 2016. The note can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is the average of the three lowest bid prices during the 10 trading days prior to the date of conversion, but no less than $0.0001. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $28,000 and $0 respectively.
On February 10, 2015, the Company executed a promissory note for $52,500. The note bears interest at 12% and has a maturity date of February 10, 2016. The note can be converted into common stock at a discount of 55% off of the conversion price. The conversion price is the average bid price on the 3 days prior to the date of conversion, but no less than $0.0001. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $52,500 and $76,432 respectively.
On February 10, 2015, its holder sold dated June 30, 2014, a promissory note for $88,500 to a third-party investor and the terms of the note were modified. The note bears interest at 8% and has a maturity date of February 10, 2016. It can be converted into common stock at a discount of 55% off the conversion price. The conversion price is the average bid price on the 3 days prior to the date of conversion, but no less than $0.0001. On March 1, 2021, the holder converted $4,849 in note principal and $6,152 in accrued interest into 999,999 shares of the Company’s common stock. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $0 and $0 respectively.
On February 13, 2015, the Company executed a promissory note for $50,000. The note bears interest at 8% and has a maturity date of February 13, 2016. The note can be converted into common stock at a discount of 30% off the conversion price. The conversion price is the average bid price on the 3 days prior to the date of conversion, but no less than $0.0001. This note was sold to a third party on August 21, 2015, and the terms of the notes were modified. The new note bears interest at 8% and has a maturity date of August 20, 2017. It can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the average of the three lowest bid prices during the 10 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $20,000 and $ 33,795 respectively.
On March 17, 2015, the Company executed a promissory note for $28,000. The note bears interest at 12% and has a maturity date of March 17, 2016. The note can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the average of the three lowest bid prices during the 10 trading days prior to the date of conversion, but no less than $0.0001. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $0 and $ 37,507 respectively.
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On March 27, 2015, the Company executed a promissory note for $15,000. The note bears interest at 6% and has a maturity date of March 27, 2016. The note can be converted into common stock at a discount of 40% off the conversion price. The conversion price is the average closing bid price on the three (3) days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $11,000 and $ 3,539 respectively.
On April 1, 2015, the Company executed a promissory note for $12,000. The note bears interest at 6% and has a maturity date of March 27, 2016. The note can be converted into common stock at a at a rate equivalent to the average closing bid price on the 3 days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $12,000 and $ 6,062 respectively.
On May 28, 2015, the Company executed a promissory note for $23,000. The note bears interest at 12% and has a maturity date of February 28, 2016. The note can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the average of the three lowest bid prices during the 20 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $23,000 and $ 30,378 respectively.
On August 7, 2015, its holder sold two promissory notes aggregating $46,705 and originating in 2014 to a third-party investor and the terms of the notes were modified. The new note bears interest at 6% and has a maturity date of August 6, 2017. It can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the average of the three lowest bid prices during the 20 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $46,705 and $ 26,622 respectively.
On August 21, 2015, the Company executed a promissory note for $30,000. The note bears interest at 6% and has a maturity date of August 21, 2016. The note can be converted into common stock at a discount of 40% off of the conversion price. The conversion price is the average closing bid price on the 3 days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $30,000 and $ 14,208 respectively.
On August 24, 2015, the Company executed two (2) promissory notes, each in the principal amount of $15,000, for an aggregate $30,000. The notes bear interest at 6% and have a maturity date of August 24, 2016. The notes can be converted into common stock at a discount of 40% off of the conversion price. The conversion price is the average closing bid price on the 3 days prior to the date of conversion. The balance of this two notes was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $30,000 and $ 14,188 respectively.
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On September 2, 2015, the Company executed a promissory note for $51,414. The note bears interest at 12% and has a maturity date of February 28, 2016. The note can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is the average of the three lowest bid prices during the 20 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $51,414 and $ 63,616 respectively.
On October 27, 2014, the Company executed a promissory note for $52,500. The note bears interest at 12% and has a maturity date of September 4, 2017. It can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the average of the three lowest bid prices during the 10 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $52,500 and $ 49,988 respectively.
On January 1, 2018, the Company executed three promissory notes aggregating $693,819 to settle a legal matter. See Note 9 – Commitments and Contingencies. The notes bear interest at 12% and have a maturity date of July 10, 2018. The notes can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the lowest bid price during the 25 trading days prior to the date of conversion. On March 6, 2020, one of the holders entered into a note purchase and assignment agreement whereby $50,000 of note principal was sold to a third-party investor. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $648,877 and $ 220,386 respectively.
On December 12, 2018, the Company issued a convertible promissory note for $25,000. The note bears interest at 8% and has a maturity date of December 12, 2020. The note can be converted into common stock at a discount of 40% off of the conversion price. The conversion price is equal to the lowest bid price during the five trading days prior to the date of conversion. The balance of this note was $25,000 as of September 30, 2021.
On August 8,2014, as described above, a third-party investor purchased $50,000 in note principal from an existing noteholder pursuant to a note purchase and assignment agreement. On October 21, 2020, the holder converted $4,825 in note principal and $4,605 in accrued interest into 3,310,000 shares of the Company’s common stock. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $35,000 and $ 14,000 respectively.
On April 3, 2020, the Company issued a convertible promissory note for $35,000. The note bears interest at 12% and has a maturity date of December 31, 2020. The note can be converted into common stock at a discount of 45% off the conversion price. The conversion price is the lowest bid price during the 25 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $35,000 and $ 11,475 respectively.
On May 26, 2020, the Company issued a convertible promissory note for $15,000. The note bears interest at 12% and has a maturity date of February 26, 2021. The note can be converted into common stock at a discount of 50% off of the conversion price. The conversion price is equal to the lowest bid price during the 30 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $15,000 and $ 4,395 respectively.
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On June 8, 2020, the Company issued a convertible promissory note for $11,200. The note was issued with an original issue discount of $1,200, or an effective interest rate of 12%, and has a maturity date of June 8, 2021. The note can be converted into common stock at a discount of 50% off the conversion price. The conversion price is equal to the lowest bid price during the 20 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $11,200 and $ 0 respectively.
On August 12, 2020, the Company issued a convertible promissory note for $24,000. The note was issued with an original issue discount of $2,500, or an effective interest rate of 11.6%, and has a maturity date of August 12, 2021. The note can be converted into common stock at a discount of 50% off the conversion price. The conversion price is equal to the lowest bid price during the 20 trading days prior to the date of conversion. The balance of this note was posted in the Balance Sheet, account Convertible notes payable for principal and Convertible notes payable – accrued interest -, for interest, the balance as of September 30, 2021, for principal and interest was $24,000 and $ 0 respectively.
As of September 30, 2021, most of the Company’s convertible promissory notes were in default of payment per the terms of their contractual maturity dates. To the best of its knowledge, the Company has not received any formal notices of default, demands for payment or other forms of claim because of these defaults. The Company is accruing interest on these convertible promissory notes at default rates ranging between 12% and 24%.
All the convertible notes were analyzed at the time of their issuance for derivative accounting consideration. In some instances, the Company concluded that a derivative liability existed. The derivative liabilities were measured using the commitment-date stock price. As of September 30, 2021, and December 31, 2020, the Company determined that the fair value of these derivative liabilities totaled $2,934,454 and $2,298,820, respectively.
The value of the derivative liabilities was determined using the following Black-Scholes methodology:
Schedule of fair value of assumptions used
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Expected dividend yield (1) | % | % | ||||||
| Risk-free interest rate (2) | – % | – % | ||||||
| Expected volatility (3) | – % | – % | ||||||
| Expected life (in years) | – | – | ||||||
| (1) | The Company has no history or expectation of paying cash dividends on its common stock. |
| (2) | The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the promissory notes in effect at the time of issuance. |
| (3) | The volatility of the Company’s common stock is based on trading activity for the previous contractual term ended at each promissory note issuance date. |
In accordance with ASC 470-20, Debt with Conversion and Other Options the Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt or preferred stock instruments that have conversion features that are in-the-money when issued. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the convertible security.
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As of September 30, 2021, the Company did not have any debt discounts related to beneficial conversion features.
As of September 30, 2021, the number of shares of common stock underlying these convertible debentures totaled 168,703,929 shares.
NOTE 6 – STOCKHOLDERS’ EQUITY (DEFICIT)
Series A Preferred Stock
The authorized Series A preferred stock of the Company consists of 69,999,990 shares with a par value $0.00001. As of September 30, 2021, and December 31, 2020, the Company had 10,000,000 shares of its Series A preferred stock issued and outstanding. The majority of the Series A preferred stock entitles the stockholders to 67% overall voting rights.
Series D Preferred Stock
In April 2018, the Company designated and issued one (1) share of its preferred stock as “Series D”. The share is convertible into 8.70% of the Company’s then outstanding common stock, but no less than 8,500,000 shares of common stock subject to the satisfaction of certain conditions precedent. The holder is entitled to vote with the Company’s common stockholders, entitled to dividends, and certain liquidation rights. The Company, with the holder’s consent, may redeem the preferred share.
On May 26, 2021, the Company amended the certificate of designation of its Series D to include a conversion feature whereby each holder of Series D preferred stock shall have the right to convert one share of Series D preferred stock into 5,000,000 shares of the Company’s common stock.
Series E Preferred Stock
The authorized Series E preferred stock of the Company consists of 48 shares with a par value $0.00001. As of September 30, 2021 and December 31, 2020, the Company had 50 and 48 shares of its Series E preferred stock issued and outstanding, respectively.
On February 10, 2021, the Company issued 15 shares of Series E convertible preferred stock and 250,000 shares of common stock valued at $225,000 in lieu of cash for unpaid salary amounts to its chief executive officer. Additionally, the Company issued two of its officers an aggregate 6 shares of Series E convertible preferred stock and 100,000 shares of common stock valued at $90,000 as compensation.
On February 11, 2021, the Company issued 4 shares of Series E convertible preferred stock valued at $125,000 to a contractor for services rendered.
On March 1, 2021, the Company issued 2 shares of Series E convertible preferred stock pursuant to subscription agreements with accredited investors for proceeds of $40,000.
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On June 14, 2021, the Company received funding but didn’t issue the 2 shares of Series E convertible preferred stock and 200,000 shares of common stock pursuant to subscription agreements with accredited investors for proceeds of $20,000.
Common Stock
The authorized common stock of the Company consists of 1,000,000,000 shares with a par value $0.001. As of September 30, 2021 and December 31, 2020, the Company had 131,678,082 and 101,929,993 shares of its common stock issued and outstanding, respectively.
On December 7, 2020, the Company and Giddy entered into a Settlement Agreement, Waiver and Release of Claims whereby each party warranted and represented that they sought to fully and mutually rescind the purchase agreement dated June 27, 2017 and, in so doing, for Giddy to acquire the assets previously sold and, at the same time, for each of the parties to waive and release all claims, both known and unknown, and to indemnify and hold all other parties harmless. On January 20, 2021, Giddy returned 2,000,000 shares of the Company’s common stock in connection with the agreement.
On February 11, 2021, the Company issued 1,200,000 shares of common stock to its chief executive officer in connection with the conversion of three (3) shares of Series E convertible preferred stock.
During the nine months ended September 30, 2021, the Company issued 4,917,381 shares of common stock pursuant to subscription agreements with accredited investors for proceeds of $199,380.
During the nine months ended September 30, 2021, the company issued 16,799,999 shares of common stock in connection with the conversion of $185,852 in principal and $505,598 in accrued interest related to its convertible promissory notes.
These issuances were exempt from registration under rule 144.
NOTE 7 – INCOME TAXES
As of September 30, 2021, the Company had net operating loss carry forwards of approximately $17.4 million that may be available to reduce its tax liability through tax year 2039. The Company estimates the benefits of this loss carry forward at $3.6 million if it produces sufficient taxable income. No adjustments to the financial statements have been recorded for this potential tax benefit. The Company has no provisions from income tax in 2020, due to current period losses and full valuation allowance on deferred tax assets.
For the nine months ended September 30, 2021, and 2020, a reconciliation of the federal statutory rate of 21% to the Company’s effective tax rate is as follows:
| Nine Months Ended September 30 | ||||||||
| 2021 | 2020 | |||||||
| Expected expense (benefit) (21%) | $ | (1,402,488 | ) | $ | (3,242,490 | ) | ||
| Income tax provision (benefit) | (1,402,488 | ) | (3,242,490 | ) | ||||
| State income taxes, net of federal benefit | ||||||||
| Valuation allowance | 1,402,488 | 3,242,490 | ||||||
| Accrued expense (benefit) | $ | $ | ||||||
The cumulative tax effect at the expected rate of 21% of significant items comprising the Company’s net deferred tax amount is as follows as of September 30, 2021, and December 31, 2020:
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Schedule of deferred tax
| Deferred tax asset attributable to: | September 30 | December 31 | ||||||
| 2021 | 2020 | |||||||
| Net operating loss carryover | $ | 5,072,195 | $ | 3,080,727 | ||||
| Less: valuation allowance | (5,072,195 | ) | (3,080,727 | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
Tax net operating loss carryforwards may be limited pursuant to the IRS Section 382 in the event of certain ownership changes.
NOTE 8 – FAIR VALUE MEASUREMENTS
The Company has adopted the guidance under ASC 820, Fair Value Measurements, for financial instruments measured on a fair value on a recurring basis. ASC 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. Further authoritative accounting guidance (ASU No. 2009- 05, Measuring Liabilities at Fair Value) under ASC 820, provides clarification that in circumstances in which a quoted price in an active market for the identical liabilities is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update.
The standard describes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
• Level 1 – Quoted prices in active markets for identical assets and liabilities.
• Level 2 – Input other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liabilities.
• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. Derivative liabilities are operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the over- all fair value of the financial instruments. In addition, the fair value of free-standing derivative instruments such as warrant and option derivatives are valued using the Black-Scholes model adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations.
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair value were determined by using the Black Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
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The following table summarizes the change in the Company’s financial assets and liabilities measured at fair value as of December 31, 2020:
Schedule of Fair Value of Liabilities Measured on Recurring Basis
| Fair Value Measurements at Reporting Date Using | ||||||
| Quoted prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||
| December 31 | ||||||
| Description | 2020 | (Level 1) | (Level 2) | (Level 3) | ||
| Convertible promissory notes embedded conversion option | $ 2,298,820 | $ 2,298,820 | ||||
| Total | $ 2,298,820 | $ 2,298,820 | ||||
| Fair Value Measurements at Reporting Date Using | ||||||
| Quoted prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||
| September 30 | ||||||
| Description | 2021 | (Level 1) | (Level 2) | (Level 3) | ||
| Convertible promissory notes embedded conversion option | ||||||
| Total | ||||||
The following table sets forth a summary of change in fair value of the Company’s derivative liabilities for the six months ended September 30, 2021:
| Schedule of Changes in Derivative Liabilities at Fair Value | ||||
| Beginning balance, January 1, 2021 | ||||
| Change in fair value of embedded conversion features of convertible promissory notes included in earnings | ||||
| Embedded conversion option liability recorded in connection with the issuance of convertible promissory notes | ||||
| Ending balance, September 30, 2021 | ||||
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NOTE 9 – COMMITMENTS AND CONTINGENCIES
On September 23, 2020, the Company entered into a Merger Agreement and Plan of Reorganization (the “Acquisition Agreement”) with Human Brands International, Inc., a private corporation organized pursuant to the laws of the State of Nevada (“Human Brands”), pursuant to which, at the effective time, Human Brands shareholders will exchange 100% of the equity in Human Brands in exchange for a majority controlling interest in the Company. The agreement requires the Company to receive FINRA’s approval of a reverse stock split of its common stock. The agreement contains customary terms and conditions including completion of due diligence by the parties and approval by most of the Company’s shareholders and Human Brands shareholders.
On June 30, 2021, the Acquisition Agreement was made effective pending certain closing conditions. Under the terms of the Acquisition Agreement, the Company agreed to issue an aggregate of 45 shares of its Series D preferred stock and an aggregate of 176,771,962 shares of its common stock to acquire all the outstanding capital stock of Human Brands.
NOTE 10 – SUBSEQUENT EVENTS TO SEPTEMBER 30, 2021
In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2021 to the date these condensed consolidated financial statements were issued, and has determined that it does not have any material subsequent events.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.
1. Executive Overview and Outlook
Rogue One, Inc., (together with its subsidiaries, the “Company” or “Rogue”) The Company’s primary operations are conducted by and through its wholly owned subsidiary, Human Brands International, Inc. (the “Subsidiary” or “Human Brands”). The Subsidiary was incorporated in late 2014 and it focuses its limited financial and managerial resources on those segments of the market that it believes may have stronger potential in the retail alcoholic beverage industry. In recent years the Company has honed its focus on the fast-growing retail tequila market.
Based on the Company’s own internal assessments developed without any external or professional evaluation, the Company believes that global tequila market has significant future growth potential. Some have projected that growth may continue for an extended period of time however the Company has relied upon other sources that it believes are reliable.
We employ what we call a ‘ground to glass’ strategy with the goal of controlling sales and assets along every level of the tequila sales chain; from the agave plants in the ground to the cocktail at the bar. We believe that on a long-term basis this will best serve our interests however, our business plan and our strategy has been evaluated internally only by our Board of Directors without the benefit of any third-party evaluation.
As an integral part of this strategy and if circumstances allow, we seek to build a foundation through investment, acquisition, and relationships at each level. If we are to implement this strategy, we anticipate that we will need to raise a significant amount of additional capital. We cannot assure you that we will be successful in these efforts or if we are successful in implementing our business plans, that we will also achieve and sustain profitability or even sales growth for any period of time. In many respects we are attempting to implement and grow a new business and, in that respect, there can be assurance that, like any new business, that we will.
Operationally, the Company is organized along geographic lines with management teams having responsibility for the business and financial results in each region, the United Mexican States and the United States of America. In general, for a brand of liquor to be imported and be sold in the United States, that brand must be sold through a licensed importer. Our Subsidiary’s subsidiary, CapCity Beverage (“CapCity”), is a U.S. licensed importer and distributor. Because of the way the U.S. liquor laws are set up, an importer is generally the conduit between the brand owner and the distribution customer. Importers will generally buy the product from the brand owner, bring the product into the U.S and then sell directly to distributors. Importers will usually add anywhere from a 5% to 15% margin on the sale.
We believe that having a licensed import company allows our Subsidiary to not only bring in its own products, but it may, if circumstances allow, also include others. Based on our own internal management assessments, undertaken without the benefit of any professional third-party evaluation, this may give our us another layer of potential sales revenue generating opportunities.
Currently, CapCity imports and sells, or has the right to sell, Shinju Japanese Whisky, Copa Imperial, Mazeray, Cote’ Or, Armero, Fervor, Profano, 88 West, Nevele, and Canelo Alvarez’ No Boxing No Life.
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A large portion of CapCity’s current focus is on Shinju. Shinju has gained significant traction in the U.S. The Brand is currently sold by CapCity into fifteen U.S. states, many being the largest markets, covering over 60% of the U.S. population. Shinju is also sold on many of the largest online, direct-to-consumer platforms like ReserveBar and Drizly. Currently liquor on these platforms can be sold directly to consumers in 35 U.S. states.
The
‘ground’ level of the Subsidiary’s foundation is agave plants. Tequila cannot be made without the agave plant. Part
of our strategy is to plant and own as many agave plants as possible. We believe that the dramatic increase in demand for tequila has
made the supply of agave plants more valuable. By our own informal assessment, the price of agave has increased roughly 338% since 2016.
However, there can be no assurance that these trends will continue or if they do continue, that they can be sustained or otherwise result
in any benefit to our business.
Source: Development of a Predictive Model for Agave Prices Employing Environmental, Economic, and Social Factors: Towards a Planned Supply Chain for Agave-Tequila Industry, National Library of Medicine- Authors: Walter M. Warren-Vega, et.al. Arun K Bhunia, Academic Editor
Through the Subsidiary, we currently own or manage an aggregate of approximately 400,000 agave plants and we hope that if circumstances allow, we may be able to plant or manage more agave plants in coming years. Once the plants mature the Company will harvest them. Our strategy is to sell t
he plants creating significant revenue for the Company or to use in our bulk production to produce tequila which may allow us, if favorable market conditions allow, an ability to better manage our costs.
The next level is the bulk tequila production level. This is the most significant piece of our business. We currently have a production partnership and ownership interest in Hacienda Capellania, a top 15 rated tequila distillery. Their distillery is located at the global epicenter of the tequila industry in the highly regarded highlands region of Jalisco, Mexico.
Our partnership with Capellania includes supply contracts with well-known and award-winning tequila brands, large distilleries, celebrities, athletes, restaurant groups, and retailers. This partnership, under ideal conditions, produces 100,000 to 250,000liters of 100% tequila monthly and if market conditions and our cash resources allow, we hope that we may be able to grow to one (1) million liters of production per month. The timing and extent that these plans may be achieved is subject to significant external risks and our ability to fully implement our business and financial plans.
We are aware that there are roughly only 150 tequila distilleries in the world. As worldwide demand for tequila increases, the distillery supply and value of that supply will continue to increase. However, we face significant competition from many well-established competitors who possess significantly greater financial and managerial resources than we currently have and likely will have in the foreseeable future.
Our third level involves our control and sale of assets is the brand level. Our Subsidiary owns multiple brands including, Tequila Armero, Fervor Mezcal, Profano Mezcal, 88 West Rum, and Nevele. We believe that our ability to “brand” our products may allow us to achieve at least a modest level of marketing control in the future.
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Armero and Fervor were recently launched into the U.S. market with an initial focus on the New York and DC markets. The Company utilizes the NY and DC markets as a launch platform for its brands. Over the past few years, through the launch of Shinju Japanese Whisky, our Subsidiary has been able to build a significant customer base in these two markets. This customer base may allow us an ability to develop and brand other products in the future which in turn may allow us to gain a greater market presence in certain markets, if circumstances, market conditions, and our financial resources allow. In that event and if these and other factors are favorable, we may seek to increase sales revenues from the sale of these and related products. AS circumstances allow, we may be able to expand into one or more geographic markets in the United States with the goal of selling the brands at a national level.
If market conditions are favorable and if sufficient financial resources are available, we may launch new products, namely, Profano, 88 West, and Nevele under the same strategy in the future. These branded products may provide us with some degree of diversification and possibly profit potential.
We are also employing a strategy of taking ownership interest in brands to make the tequila for third parties. With the growth and profile of tequila intensifying, the demand for private-label production is increasing, especially from celebrities and influencers. Currently, a significant part of the Subsidiary’s business is producing and developing brands for third parties. If circumstances allow, we may seek to retain partial ownership in those brands.
We are aware that launching a product brand is an intensely competitive and difficult strategy and there can be no guarantee of success or, if it later becomes successful, that it is not preceded by heavy losses and negative cash flow for an extended period of time. But we believe that such efforts may be entirely worthwhile. We have noted that in recent years some have sold their branded product lines to other, larger market competitors.
The fourth level of our Subsidiary’s business is the import/export level. In general, for a brand of liquor to be imported and be sold in the United States, that brand must be sold through a licensed importer. Our Subsidiary’s subsidiary, CapCity Beverage (“CapCity”), is a U.S. licensed importer and distributor. Because of the way the U.S. liquor laws are set up, an importer is generally the conduit between the brand owner and the distribution customer. Importers will generally buy the product from the brand owner, bring the product into the U.S and then sell directly to distributors. Importers will usually add anywhere from a 5% to 15% margin on the sale.
2. Discussion on Results of Operations
Worldwide Net sales were $ 1,198,434 for the nine-months ended on September 30, 2021, and no sales were in the same period as of September 30, 2021. The reason for that was the merge with Human Brands, including its subsidiaries, was concluded on June 30, 2021.
It is important to include into the considerations on commercial activities in the US that, more than 110,000[1] eating and drinking establishments closed in 2020 and additional 80,000[2] have temporarily or permanently closed in 2021.
3. Discussion of Segment Results
The Company markets its products in two countries, Mexico and the US in two products segments: Alcoholic beverages and finished bulk lot tequila. The Company evaluates segment performance based on several factors, including Operating profit.
| Alcoholic beverages and finished bulk lot tequila | |
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| For the Nine-Months ended on September 30, 2021 | ||||
| Mexico | ||||
| Wholesale market | $ | 1,081,871 | ||
| Retail market | 11,208 | |||
| USA | ||||
| Wholesale market | 105,354 | |||
| Total: | $ | 1,198,434 | ||
| Operating profits | 178,755 | |||
| % of Net Sales | 14.92 | % | ||
4. Non-GAAP Financial Measure
Generally, the Company uses non-GAAP measures for internal budgeting, segment evaluation and understanding of overall performances. However, related to Sales the Company adopted ASC 605 and ASC 606 for all measurement and analysis, therefore the Company believes that no reconciliation of Net Sales (GAAP) is needed to non-GAAP measures for the Company.
5. Liquidity and Capital Resources
The Company expects cash flow from operations and debt issuances will be not enough to meet foreseeable business operating and recurring cash needs (including costs emerging from the June 30, 2021, Merger Agreement and Plan of Reorganization – the “Acquisition Agreement” -). To solve this bottleneck the Company is negotiating with private investors, interested on acquiring shares of the Company common stock.
Cash Flow
Net cash provided by operations as of the nine-month period ended on September 30, 2021, $ 1,013,523 compared to ($101,408) used as of December 31, 2020. Net cash provided by operations for the nine-month period ended on September 30, 2021, increase due to strong operating earnings (partially offset by the impact of the Net profit attributable to noncontrolled interest) and the increase in the extended payments facilities provided by vendors in the normal course of business. The short period from the Acquisition Agreement, and the nine-month period ended on September 30, 2021, does not allow further comments.
6. Off-Balance Sheet Arrangements
The Company does not have off-balance sheet financing or unconsolidated special purpose entities.
7. Managing Foreign Currency, Interest Rate, Commodity Prices and Credit Risk Exposure
The Company is exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations. Volatility relating to these exposures is managed in both countries (Mexico and USA) by utilizing a number of techniques, including working capital management, selling price increases, selective borrowings in local currencies and entering into selective derivative instrument transactions, issued with standard features, in accordance with the Company’s treasury and risk management policies. The Company’s treasury and risk management policies prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose.
The sensitivity of our financial instruments to market fluctuations is discussed hereto, see Note 1 Sub-Section Basis of Presentation and Disclosure of accounting policies and Fair Value of Financial Instruments and Note 8 Fair Value Measurements.
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8. Critical Accounting Policies and Use of Estimates
In certain instances, accounting principles generally accepted in the United States of America allow for the selection of alternative accounting methods. The Company’s significant policies that involve the selection of alternative methods are accounting for shipping and handling costs and inventories. The Company reports such costs, primarily related to outbound freight in the Consolidated Statements of Income as a component of Operational Expenses. Accordingly the Company’s Gross profit margin is not comparable with the gross profit margins of those companies that include shipping and handling in cost of sales. If such cost had been included in Cost of Sales, Gross profit margin would have decreased by 21 bps.
The Company accounts for inventories on ready-to-market products using the first-in-, first-out (“FIFO”) method. There would have been no material impact on reported earnings for the nine-month period ended on September 30, 2021, had all inventories been accounted for under the FIFO method.
As of September 30, 2021, the Company has 377,105 agave plants in the ground. This number does not include the additional “hijuelos” which are baby agave shoots that grow around the main plant. We do not include the hijuelos as part of the assets on our balance sheet, but they are viable agave plants and can be sold in the future.
The Company’s subsidiaries acquired plants, or planted agave, between the years of 2018-2020. The Company will look to harvest and sell much of the agave planted in 2018 and early 2019 in the 2022 calendar year. The Company intends to do this not only as a source of revenue, but primarily to help pay down a majority of its liability owed to its agave partner in its subsidiary of Comercializadora Agave Weber SA de CV.
When valuing our agave plants, we take into account multiple factors:
| • | When the plant was planted – the age |
| • | The size (based on its age) |
| • | The average price per kilogram in the market |
The price, or value of an agave plant, is based on its weight – a cost per kilogram. As a plant is in the ground it continues to grow, increasing in weight and value. This is a factor we take into consideration when placing a value on our plants.
The growth of a plant can vary over its lifecycle. Once harvested the weight of a plant can be anywhere from 36kgs to 136kgs. Many factors play into this – the soil, climate, how they are farmed, etc.
The argument for ‘when’ the agave should be harvested is a much-debated topic in the tequila industry. It has been a generally accepted opinion that the agave used in tequila should not be harvested until it has been in the ground for 6 – 8 years. However, because of the growth in demand for tequila, and the lack of supply to keep up, many farmers are now harvesting the plants at 4 – 5 years.
In our calculations, we factor in an average growth rate per year and subsequently per quarter. We derived this rate by taking the average weight of the plant at harvest (32kgs) and divided it by the ‘standard’ number of years the agave is in the ground (7 years).
Using a seven-year standard, along with the average weight, we calculate that our agave plants grow at an average of 4.5kgs per year. The 4.5kgs per year is used in our calculations, which breaks down to 1.125kgs per quarter.
The final piece in our value calculation, and the key piece, is the price per kilogram. Prices can fluctuate due to the supply/demand economic forces. In making our value calculations we generally use a per year average price, using the most conservative price based on what the industry pays on an average basis.
Through multiple industry data points the current price per kilogram average sits at MX$29/kg.
Depending on having the proper funding, the Company will look to continue to plant agave each year to backfill the plants being sold. If proper capital is not available, the Company may hold off on making new investment in plants and put its time and capital on quicker revenue generating opportunities like bulk tequila production.
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With the continued growth in the demand for tequila, the Company foresees a continuing need for supply of agave, which should maintain the higher prices paid by customers for the plants. The Company sees this as a very valuable opportunity, but sufficient capital will be needed to sustain this model.
9. Goodwill Impairment
To comply with the requirements of S-K303(a)(3)(ii), the Company understand that shareholders may requires a description of, at the time this filing is made, some known uncertainties, and at the same time ensuring that investors are provided with information that allows for an assessment of the probability of a future material impairment charge.
While best efforts were made to move forward with both “Tequila Copter” to develop a re-launch the Museo project in Puerto Vallarta, Mexico and the “Boludo” project in Guadalajara, Mexico, the effects of the global pandemic made it extremely difficult to move forward with both projects as planned as of 2021-Q3. There are still opportunities move forward with similar projects with each entity, which the Company is currently exploring.
Based on the foregoing the Company understand that a Goodwill impairment would be recorded in an estimated amount of $1,677,116.
10. The Company’s Performance and Goals
With limited funding the Company must rely on partnerships with active distilleries to produce and supply its bulk tequila turns. The downside to having to rely on a partnership is the distillery partner receives a majority of the profit from a turn. The Company’s long-term goal, with adequate funding, is to eventually own a distillery outright. This would provide the Company with more control over the production timing and give the Company 100% of the margin/profit on a bulk sale.
In 2021, in order to diversify and expand its production capabilities, the Company partnered with a second distillery, El Patriota. This gave the Company access to more available turns.
On one bulk production turn, roughly 25,000 liters, the cost to produce that turn is on average $120,000. This includes all costs that go into making 25,000 liters, including the agave, utilities, labor, water, among others. Economic forces can make these costs more or less expensive.
On a 25,000 liter turn it generally takes on average 30-45 days from start to sale. This timeline can vary, quicker or longer, based on some factors out of our control. For example, the CRT (Tequila Regulatory Commission) monitors and regulates all sale of tequila. There are times when their schedule and availability plays a role in how fast a sale can happen. Although the CRT can cause delays on the timing of a sale, having the CRT, by law, involved in the process ensures a fair, safe, and equitable process for both the seller and buyer. This process ensures that we will be paid on each turn.
To date the Company has been funding its bulk turns through private financing. With limited funding available the Company has averaged 1-3 turns per month. The Company has the availability to do more turns, but additional financing is needed. The Company’s goal, with additional financing, would be to have 5-6 turns producing each month.
Although the profit margins are small, the sales can happen quickly and on a large scale. If additional funding is available the Company will look to increase its production to a consistent number of turns per month which would generate significant revenue for the Company.
Going forward, the Company has a goal of establishing its own distillery. This would allow the Company to take 100% of the profits from each bulk sale. Currently, based on market prices, the net profit is roughly $55,000 per turn.
In Q3 Armero and Fervor were well-received in the market as the Company’s limited inventory sold out within two months. With its initial success the Company sees a greater opportunity with these brands, but additional funding is needed to continue sales of these brands in the market. The first production run of Amero and Fervor was limited as it was seen as a ‘market test’. A much larger production run will be needed to fill the initial demand in the market and additional capital is needed to do the production. Along with that, more marketing dollars will be needed to support the brands. If the Company cannot obtain the necessary funding for the brands, the Company will have to put further expansion and sales of these brands on hold.
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The Company understands that margins as an importer are slim. An importer must rely heavily on moving a large volume of product through its level for it to be profitable. Currently CapCity is only importing Shinju on a larger scale and Armero and Fervor on a smaller scale. The volume is still not at the levels for CapCity to be consistently profitable.
The Company understands this and if in the future the model is not sustainable the Company will look to close CapCity. However, having a Federal Import License is valuable and gives the Company additional control over the full process on the sale of liquor into the United States. As an importer the Company can minimize and control certain costs that occur on the importation of its own brands. The Company believes this is a valuable piece that many brands do not have.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. Except as set forth above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on April 21, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 14, 2021, the Company issued 4,900,000 shares of common stock to a note holder upon the conversion of $147,185 of accrued interest on a convertible note.
On April 16, 2021, the Company issued 525,714 shares of common stock pursuant to subscription agreements and received proceeds of $18,400. On April 16, 2021, the Company issued 125,000 shares of common stock pursuant to subscription agreements and received proceeds of $4,990. On April 21, 2021, the Company issued 1,275,000 shares of common stock pursuant to subscription agreements and received proceeds of $51,000.
On May 5, 2021, the Company issued 10,900,000 shares of common stock to a note holder upon the conversion of $181,003 in convertible note principal and $352,262 of accrued interest.
On May 13, 2021, the Company issued 125,000 shares of common stock pursuant to subscription agreements and received proceeds of $4,990.
On June 2, 2021, the Company issued an aggregate 1,000,000 shares of common stock pursuant to subscription agreements and received proceeds of $20,000.
On June 14, 2021, the Company issued 200,000 shares of common stock and 2 shares of Series E preferred stock pursuant to subscription agreements and received proceeds of $20,000.
The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe is exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder.
Item 3. Defaults upon Senior Securities
None.
Item 5. Other Information
None.
[1] https://finance.yahoo.com/quote/ROAG/history?period1=1625011200&period2=1625097600&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunder duly authorized.
ROGUE ONE, INC.
February 14, 2023, By: /s/ Joe E. Poe, Jr.
Name: Joe E. Poe, Jr.
Title: Chief Executive Officer (Principal Executive Officer)
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