Item 8.01 Other Events.
Question:
In May of this year, Sugarmade announced it had accumulated
approximately $10 million in purchase orders for non-medical personal protective supplies and other sanitary products.
What is the status of those purchase orders?
Answer:
Sugarmade still has a significant number
of purchase orders pending. As a point of clarification, the actual total value of the purchase orders received for non-medical
personal protective supplies and other sanitary products exceeds the stated amount of $10 million. The Company believes its staff
resources, importation capabilities, and financing abilities support a $10 million purchase order level. Thus, the Company has
limited the amount to purchase orders recognized to the $10 million level. Over the past weeks, we have filled approximately $886,000
in sales against the purchase orders. Our staff is working diligently to source products to fill as many other remaining orders
as is possible. Many of the types of products desired are on backorder and are difficult to obtain from the mainly Asian manufactures
that specialize in these areas.
Sugarmade sees a long term opportunity
to remain a valuable source for non-medical personal protective supplies.
Question:
Earlier this year, BudCars, in which Sugarmade
has invested, announced an expansion into the Los Angeles area. What is the status of the launch of delivery services in the Los
Angeles area?
And, what is the status of the second
delivery operation in the Los Angeles area?
Answer:
One of the Los Angeles sites is behind
schedule and the other is well ahead of schedule. We still expect both to become operational as soon as final issues are resolved.
We, and the BudCars staff, are very excited
about the Los Angeles expansions. We are actually expanding not into just a single LA location, but into two. The first of these
expansions was expected to go online during July and significant progress toward opening has taken place. Unfortunately, we are
getting delayed due to last-minute regulatory issues. For example, we are still working to get the security plan approved by local
authorities and we have a few minor issues relative to facilities build-out concerning the Americans with Disabilities Act (ADA).
As soon as these final issues are cleared, we plan to begin operations.
On the positive side, we are ahead of
schedule at the other Los Angeles site. We are happy to report the turn-up of this second site could occur sooner than was expected.
While the California regulatory environment is difficult to navigate and there could be further delays. We are now envisioning
both sites to be operational at the end of August. Of course, we see major business opportunities out of both sites once operations
begin. We will be sure to keep everyone updated. We are working hard daily on both sites.
Question:
What is Sugarmade’s ownership percentage
of the BudCars operations? Will this percentage also apply to the new Los Angeles delivery service to be operated by BudCars?
Answer
Sugarmade has acquired a 40% stake in
BudCars and has been granted an option to purchase an additional 30%, which could provide Sugarmade a controlling interest. Thus,
Sugarmade will share at the rate of 40% on all profits generated, if any, by the operations. Upon gaining a controlling interest,
if such an event ever occur, Sugarmade would be able to consolidate all the revenues of the operations and report all such revenues
on its financial statements.
The same ownership and option arrangement will also apply to the new Los Angeles business.
Question:
Is the delivery trend still strong in
the California marketplace?
Answer:
As we have announced on several occasions,
the market for cannabis delivery services is growing substantially. This is resulting in increases in the number of new customers
and in the average sale size on a per delivery customer basis. We see cannabis delivery continuing to accelerate. Certainly, the
Los Angeles market is especially robust relative to delivery services.
The above estimates may be subject to change upon accounting
adjustments. These estimates may not be reliable. Further, the Company may not be able to accurately forecast our growth rate predicated
upon these estimates. A significant portion of the Company’s and BudCars’ expenses is fixed, and we may not be able
to adjust our spending quickly enough if our sales are less than expected.
Our revenue growth may not be sustainable,
and our percentage growth rates may decrease. Our revenue and operating profit growth depends on the continued growth of demand
for the cannabis products and services offered by BudCars and our other business operations. In addition, BudCars and our business
are affected by general economic and business conditions. Our sales and operating results fluctuate for many reasons, including
BudCars and our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’
demands, our ability to offer products and services on favorable terms, manage inventory, and fulfill customer orders, the introduction
of competitive services, websites, products, and price decreases and risks described elsewhere in our filing of reports.
The
statements made herein are subject to change depending on numerous factors, including, but not limited to the following, 1) the
Company’s ability to obtain necessary final permitting to begin delivery services, 2) changes in cannabis industry regulations,
3) availability of financing to fund new operations, 4) consumer purchasing behaviors, and 5) other factors relating to conducting
business in the highly regulated California cannabis marketplace. Additionally, our business activities, sales and operating
results fluctuate for many reasons, including BudCars and our ability to retain and increase
sales to existing customers, attract new customers, and satisfy our customers’ demands, our ability to offer products and
services on favorable terms, manage inventory, and fulfill customer orders, the introduction of competitive services, websites,
products, and price decreases. There can be no assurance we will be successful in navigating the complexities discussed herein. Delays in implementing our business
plan, including instituting new delivery operations at planned sites, and numerous other factors, could affect our ability to produce
revenue and profits. Investors and other interest parties should reference our other filings with the U.S. Securities &
Exchange Commission, including our annual report on Form 10-K to review a full list of risk factors relating to our current business
operations and our stated future plans.
FORWARD-LOOKING STATEMENTS: This filing contains "forward-looking statements" within
the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements
also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and
representatives from time to time. These forward-looking statements are intended to provide management's current expectations or
plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified
by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe,"
"project," "estimate," "expect," "strategy," "future," "likely," "may,"
"should," "would," "could," "will" and other words of similar meaning in connection with
a discussion of future operating or financial performance. Examples of forward-looking statements include, among others, statements
relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.
At this time there are no assurances the Company’s efforts in begin new business operations will be successful.