Item 1. Business
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Overview
Our business is conducted through our wholly-owned subsidiaries, Humbly Hemp, Endo Brands, and Humble Water Company. Humbly Hemp sells and markets a line of hemp enhanced snack foods. Humble Water Company is in a partnership with Springhill Water Co. to develop a line of High Alkaline, Natural Mineral Water, and a bottling and packaging facility. Endo Brands creates and markets a line of CBD consumer products and through ENDO Labs, a joint venture with Centre Manufacturing, creates white label products and formulations for CBD brands. Right On Brands is at the focus of health and wellness. We create lasting brands with emerging functional ingredients, and our focus right now is industrial hemp, hemp derived CBD, and high alkaline water.
Product Line
Phase 1 (Current Portfolio)
Humbly Hemp Snack Bar:
The Humbly Hemp Snack Bar is a first of its kind hemp powered superfood bar. Our bar is certified vegan, and gluten free. We manufacture in a TOP 12 allergen free facility so NO Soy, and NON-GMO’s. From the research we have done with the current products on the market, it will be hard to find another bar that has as many health benefits, to as many dietary segments.
It retails at $2.99.
Flavors:
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Cocoa and Sea Salt
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Cinnamon Date
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Berry Vanilla
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ENDO BRANDS:
Endo Water (launched February 2018):
ENDO Water is one of a kind Wellness drink. Structured Water, CBSs, and Omegas are some of the biggest wants in the health and wellness market. ENDO Water is created to “Fuel Mind and Body” targeted to increase the performance of the Endo-Cannabanoid System. The
endocannabinoid system
(ECS) is a group of endogenous cannabinoid receptors located in the mammalian brain and throughout the central and peripheral nervous
systems
, consisting of neuromodulatory lipids and their receptors. Our water is lightly flavored, almost an essence, and infused with CBDs (Cannabidiol). CBD IS NON PHSYCOACTIVE. Our proprietary blend is Sugar Free, Naturally Flavored, has a high PH level and has emulsified CBD for increased bioavailability.
*The name ENDO Water is in process of being trademarked.
ENDO Drops (launched April 2018):
The easiest and most effective way to get your daily CBD supplementation. These daily drops are blended with amazing essential oils for a no junk taste.
ENDO BRANDS: (Phase 2)
ENDO Mist:
Endo Select Hemp oil infused into a superfood blend with other amazing essential oils and superfoods. We put this potion into a 2 floz spray bottle to make it easy to bring around and supplement anywhere
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ENDO Ease:
Topical Pain relief product, 200mg of Endo Select Hemp Oil infused with an easy pump distribution cap.
Target Market
Health and wellness is becoming a part of everyone’s lives, and eating right is usually the first step. What we have done to test the market for a products like this, is to take a look at the types of consumer that would be looking for our solution. The number of diets trends in America continues to grow, and hemp is the perfect solution for many of them.
Global Industries Analyst Report (GIA), states that the global market for foods developed for individuals with allergies or intolerances is expected to grow to 24.8 billion by 2020. Food allergies and intolerances are a growing public health problem causing higher demand of products that meet special dietary requirements. The biggest concerns:
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Wheat
- immune response to one or more proteins found in wheat, does not have to be gluten
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Lactose
- Approximately 65 percent of the human population has a reduced ability to digest lactose after infancy. Lactose intolerance in adulthood is most prevalent in people of East Asian descent, affecting more than 90 percent of adults in some of these communities.
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Dairy
- Individuals with a dairy allergy are allergic to either one or both of the milk proteins, casein and whey. Milk allergies are more common in children and some people grow out of them.
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Gluten
- Only 1% of Americans has celiac disease, but 1/3 of the population claim to be gluten sensitive, and is trying to live a gluten free lifestyle.
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Soy
- an exact percentage of Americans dealing with a soy allergy is unknown, but it is one of the "Big 8" food allergies
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Nut Allergy
- Hemp is a wonderful substitute for those with nut allergies
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Hemp is not only attractive to those with food allergens; individuals who follow a strict diet for any reason will be extremely attracted to hemp. Some of the more popular lifestyle diets include:
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Paleo
- based on Google trends, book sales, and website hits, the number of Americans following a paleo lifestyle is in the millions
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Vegetarianism
- “Vegetarianism in America” study, published by Vegetarian Times (vegetariantimes.com), shows that 3.2 percent of U.S. adults, or 7.3 million people, follow a vegetarian-based diet
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Veganism
- the Vegetarian Times study shows that 0.5 percent or 1 million people, follow an animal free vegan diet
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No GMO
- 80% of the food consumed by children in America today are genetically modified. The NO GMO tag is the fastest growing segment in health food
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Kosher
- it is estimated that 21% of the 5.3 million Jewish Americans keep kosher.
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Hemp based foods can be consumed by anyone in these segments. In 2014, the Hemp Industries Association (HIA), a non-profit trade association, released final estimates of the size of the U.S. retail market for hemp products. The estimated total retail value of hemp products sold in the U.S. in 2014 was at least $620 million. More importantly, the total retail sales of hemp food and body care products in the United States is estimated at $200 million.
Everyone can consume our hemp-based foods, but it is never smart to market a product that way. In order to pinpoint our ideal consumer, we have used research done by IRI and SPINS. In this study they broke down this new category of health CPG consumers into several segments. Those categories called “True Believers”, and “Enlightened Environmentalists” are the two main shopper segments for organic food. They make up 46% of organic food purchases. They each make up 9% of the shoppers, so 18% together.
True Believers:
Their main concern is to keep a healthy body. They buy only organic, they try new things, are college educated, and have a median income of $65,000.
Enlightened Environmentalists:
They care about the environment and buy products and live in a way that doesn’t hurt the environment. They specifically shop at places that carry mostly organic and environmentally friendly products; most of them have graduate school degrees and average 57 years of age. They have a median income of $57,000.
By taking these two groups we can highlight some main characteristics of our target consumer:
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Average Age: 35-57
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Education: College& Graduate School
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Income: $55,000-$70,000
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Where they shop: a mixture of online & Organic and Health based retail (Whole Foods)
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Competition
In the market we are going to occupy, we face four major competitors:
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Manitoba Hemp Foods:
Based in Canada, Manitoba looks to be the industry leader in this market. They have been selling hemp products since 1998 and have created a strong brand. They carry Hemp Hearts, Hemp Heart Bars, Hemp protein smoothies, Hemp protein powder, and Hemp oil.
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Evo Hemp:
Evo is a boulder based Hemp bar company. They are one of the newer hemp brands in the market. They only offer bars in their product line.
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Nutiva:
Nutiva is an organic superfood brand. They offer a wide range of products with, chia, red palm, coconut, and hemp. All of their products are non GMO, and USDA organic.
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Naturally Splendid:
Naturally Splendid is a multifaceted biotechnology company developing, commercializing, producing, selling, and licensing an entirely new generation of hemp-derived, high quality, nutrient-dense Omega foods, nutritional food enhancers, and related products.
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Our Potential Advantages
Our brands offer a new take on hemp products. Humbly Hemp snacks are positions to bring hemp into the daily routine of the “everyman”. Our branding and market position take the stigma and fear out of hemp, creating an approachable product for anyone to enjoy. ENDO Brands advantage in the market is our unique formulation, price point, high quality. We are one of the first in the CBD industry to have a testable, full spectrum CBD water product. Our in house formulator allows us to create our proprietary CBD ingredient and infuse our products at a fraction of the cost of other brands.
Marketing, Sales, and Distribution Strategies
Marketing Plan
Growth Hacking:
we utilize growth hacking to launch our brand. We promote through all social media channels to build brand awareness for our initial products. The first of these attempts will be sending products to popular Bloggers, Vlogers, and social media celebrities, for promotion on their channels. These techniques cost very little, and are extremely effective for Internet businesses. We will also use Google AdWords to push the product through online advertisements and SEO.
Online Marketing
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We tailor an online marketing campaign to attract the two market segments mentioned earlier in the target market segment. This position will assure that we are promoting to the most viable group of consumers.
Instagram
: Our goal on IG for our brands is to build an obsessed fan base and an engaged community. Hemp education is a vital part of these channels, we utilize the new stories feature to show daily life at Right On Brands as well as unique info on our products and drive traffic to the Ecommerce store.
Twitter
: The Key to twitter is communication. This will be the key to success on this social channel. The best twitter accounts today are ones that do not broadcast to the consumer, but engage the consumer with interesting content in the form of:
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Questions/Surveys
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Brand related news
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Customer Service
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Company News
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Follower Engagement
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Facebook:
Facebook has gone from being a publishing channel for brands, to now a landing page of brand identity. We utilize Facebook as a cornerstone of our online identity. We will be careful about being “too promotional” and we will be aiming for content that people will share. To achieve this we will:
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Plan Monthly Campaigns
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Find Creative way to use consumer generated content
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Invest In short catchy video content clips (Mini Ads)
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Utilize Facebook Ads for major campaigns
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Social Contests
: We have regular Social Media Channel contests that span from our website to every single channel we have. These range from, Photo contest, video contests, cooking contests, etc. These types of contests really boosts followership, sharing and all drive traffic directly back to the landing page. They are relatively cheap and the prizes we will give away consist of actual product, lifestyle related products, and company marketing materials.
Analysis and Execution
: We use Hootsuite to posts, and also analyze all of the social media channels. They are the industry leaders in the field, and it is an application that we have previous knowledge in.
Guerrilla Marketing:
Once we have scaled, and doing business with the big box retailers, we will use more traditional marketing techniques including; in store promotions, trade shows, festival, and Brand Ambassador Programs. We will begin this during the second Quarter of our initial year by hiring two college students located in Los Angeles. They will assist in Social Media Content Creation, Event Marketing, and In Store Promotions in the Los Angeles area. We will quickly expand this program and have 2 students in each state we launch into. This will allow us to get our key demographic engaged in the products on campus, creating lifelong fans of Humbly Hemp.
Consumer Outreach & Education:
The most important factor in the marketing of our products will be consumer education on the benefits of hemp. We use a page in our websites to promote this, and in our growth we will focus on this more and more. In the future we work on doing some co-branding with Hemp associations, Non Profit Groups that share our goals in keeping people and our planet healthy. Hemp History week is a big collaboration week for us. We have hosted pop ups, and plan on doing much more.
Sales Plan
Retail Distribution:
Our partnership with Statewide distribution will give us a leg up on the competition out of the gate. The ability to get our products into so many stores in Southern California is a huge win for our brands. We focus on Southern California and scale our growth from there. We are quickly moving into Northern California, Nevada, Oklahoma, Texas, Missouri, and Colorado next.
Online Sales:
Our website is extremely easy to use, and the process of making a purchase will is seamless. We worked with the best website designers to ensure that our marketplace is both beautiful and functional.
B2B Online Sales:
The number of online health food stores and especially health food subscription boxes is growing every day. They are always looking for quality products to stock their stores and monthly boxes. We have worked with groups like Sensibox, Gramsly, to bring our products into people monthly boxes.
Manufacturing and Distribution
Humbly Hemp
We are currently producing the Humbly Hemp Snack Bar with a world class co packer.
Endo Water
We are currently having our proprietary recipe manufactured and packed at a facility in Las Vegas. This will allow us to effectively distribute it along the west coast before a national rollout, and we will be bringing on a second manufacturer soon.
Humble Water Co.
Our partnership in Montana with the Springhill Water Co. allows us to sell our amazing natural water directly from the source in Cut Bank, Montana, at the foothills of Glacier National Park. We are currently working towards building our own bottling facility on site to bring untouched-by-hands bottled natural water to our channels.
Joint Venture with Centre Manufacturing, Inc.
Effective June 19, 2018, we formed a new company, Endo & Centre Venture, LLC (“Endo & Centre”), for the purposes of carrying out a joint venture with Centre Manufacturing, Inc. (“Centre Manufacturing”), a food and beverage manufacturer. Through Endo & Centre, we plan to pursue the manufacture, marketing, and sales of private label food and beverages. Centre Manufacturing will carry out the product manufacturing and, through our subsidiary Endo Brands, Inc., we will focus on marketing and sales of private-label food and beverage products. The joint venture with Centre Manufacturing is governed by the Operating Agreement for Endo & Centre, which is filed herewith as Exhibit 10.1. Our subsidiary, Endo Brands, Inc., owns 51% of Endo & Centre, and Centre Manufacturing owns a 49% membership interest. Profits and losses for the company will be shared on a 50/50 basis. Endo & Centre will be jointly managed by our President and CEO, Daniel Crawford, and the head of Centre Manufacturing, Ashok Patel.
Item 1A. Risk Factors
Risks Related to Our Company and Business
If we do not obtain additional financing, our business development plans will be delayed and we may not achieve profitable operations.
We will require significant additional capital to execute on our business development plans. We intend to seek additional funds through private placements of our common stock or other securities. Our business plan calls for incurring expenses for the purchase of products, website maintenance, and expenses for salary, legal, and administration. If no additional financing is secured, we may have to significantly curtail our plan of operations. If that is the case, our business will not grow as desired. Our ability to raise additional financing is unknown. We do not have any formal commitments or arrangements for the advancement of funds. Consequently, there can be no assurance that we will be able to obtain access to capital as and when needed or, if so, that the terms of any available financing will be commercially reasonable. If we are unable to raise suitable financing, our business development plans may be delayed and we may be unable to achieve profitable operations.
Since we have limited operating history and limited revenues to date in our Humbly Hemp line of business, we may be unable to achieve or maintain profitability. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a newer enterprise.
We have limited financial resources and have generated limited revenues to date in our Humbly Hemp business. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by an emerging growth company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history and lack a track record of consistent revenues in our Humbly Hemp business, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to fully meet our expenses and totally support our anticipated activities.
Our ability to continue as a business and implement our business plan will depend on our ability to raise sufficient funds. There is no assurance that any debt or equity offerings will be successful or that we will remain in business or be able to implement our business plan if the offerings are not successful.
If we are unable to develop a reliable systems for outside manufacturing and fulfillment, our ability to grow our business and achieve profitability will be severely adversely affected.
We have hired Dr. Ashok Patel to be the Director of New Product Development for our company. His experience in natural oils will allow us to make a breadth of amazing product base off our ENDO Select Hemp Oil. His facility is currently batching our select hemp oil for co packer use. We have our Endo Water bottled at one facility. If this facility does not continue to work with us in the future, we maybe unable to produce any more product. We rely upon Bar One, a private label health bar company, to produce our primary current product, the Humbly Hemp Snack Bar, and some of our additional products. In addition, we rely on Bar One to process our product orders and to ensure fulfillment of all product orders in concert with a third party manufacturer. Our ability to grow our business and customer base will depend upon smoothly functioning relationships with our manufacturing and fulfillment partners and our ability to integrate their roles with our marketing and customer service operations. If we are unable to smoothly integrate these third party operations into our business, or if we are unable to establish and maintain strong relationships with these key outside parties, our ability to successfully deliver quality products to our customer in a timely manner will be adversely affected, and our ability to achieve profitability will be severely impaired.
If we are unable to successfully market our products or our products do not perform as expected, our business and financial condition will be adversely affected.
We are subject to the risks generally associated with new product introductions and applications, including lack of market acceptance and failure of products to perform as expected. There can be no assurance that we will be successful in marketing our hemp-based snack bars to the public. Our success will depend on our ability to grow our wholesale distribution network and to develop additional sales channels on cost-effective terms. Our marketing efforts may not be sufficient to generate significant and ongoing sales. Further, if our products do not perform as expected by consumers, either in terms of flavor or perceived performance, our ability to expand our product distribution and grow overall sales will be severely impaired.
Because consumer preferences change frequently, our hemp-based snack bars will require periodic product introduction.
As a result of changing consumer preferences, many new snack bars and similar products are successfully marketed for a limited period of time. Even if our snack bars and other hemp-based food products show early signs of promise, there can be no assurance that our products will continue to be popular for an extended period of time. Our success will be dependent upon our ability to address the changing needs and tastes of the consumer market. Our failure to innovate over time and to adjust to consumer preferences on a regular basis could cause us to fail to achieve and sustain ongoing market acceptance could have a material adverse effect on our financial condition and results of operations.
Because of pressures from competitors with more resources, we may fail to implement our business strategy profitably.
The market for hemp-based snack bars, other foods, and related products is intensely competitive and we expect competition to increase in the future. We will compete with larger and more established companies that have longer operating histories, greater name recognition, access to larger customer bases and distribution networks, and significantly greater financial, technical and marketing resources than we do. As a result, they may be able to adapt more quickly to changes in customer preferences and to devote greater resources to the promotion and sale of their products than we will. In addition, they may have more firmly established financial, manufacturing, distribution, and sales relationships in the industry. Therefore, we cannot be sure that we will be able to successfully implement our business strategy in the face of such competition. If we cannot compete effectively, we may experience future price reductions, reduced gross margins and loss of market share, any of which will materially adversely affect our business, operating results and financial condition.
If we are unable to manage growth, our operations could be adversely affected.
Our progress is expected to require the full utilization of our management, financial and other resources, which to date has occurred with limited working capital. Our ability to manage growth effectively will depend on our ability to improve and expand operations, including our financial and management information systems, and to recruit, train and manage sales, management, and technical personnel. There can be no assurance that management will be able to manage growth effectively.
If we do not properly manage the growth of our business, we may experience significant strains on our management and operations and disruptions in our business. Various risks arise when companies grow quickly. If our business or industry grows too quickly, our ability to meet customer demand in a timely and efficient manner could be challenged. We may also experience development delays as we seek to meet increased demand for our products. Our failure to properly manage the growth we might experience could negatively impact our ability to execute on our operating plan and, accordingly, could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current or potential customers.
Our business and growth may suffer if we are unable to attract and retain key employees.
Our success depends on the expertise and continued service of our Founder and Chief Executive Officer, Daniel Crawford. Mr. Crawford’s ongoing efforts and oversight will be significant factor in our growth and ability to meet our business objectives. It may be difficult to find a sufficiently qualified and motivated individual to replace Mr. Crawford in the event of death, disability or resignation, resulting in our being unable to implement our business plan and even a complete cessation of our operations, which would likely result in the total loss of an investor's investment.
Furthermore, our ability to expand operations to accommodate our anticipated growth will also depend on our ability to attract and retain qualified media, management, finance, marketing, sales and technical personnel. However, competition for these types of employees is intense due to the limited number of qualified professionals. Our ability to meet our business development objectives will depend in part on our ability to recruit, train and retain top quality people with advanced skills who understand our business. We hope that we will be able to attract competent employees, but no assurance can be given that we will be successful in this regard. If we are unable to engage and retain the necessary personnel, our business may be materially and adversely affected.
Risks Related to Legal Uncertainty
If we are the subject of significant future product liability or related lawsuits, our business will likely fail.
Like all sellers of products for human consumption, we cannot eliminate the risk that our products may be subjection to contamination during the manufacturing or distribution process. We currently do not maintain product liability or general liability insurance and we may not be able to obtain such coverage in the future or such coverage may not be adequate to cover all potential claims. Moreover, even if we are able to maintain sufficient insurance coverage in the future, any successful claim could significantly harm our business, financial condition and results of operations.
The legal status of the main ingredient in our Endo Water line is uncertain.
Currently, even though many companies are selling food items enhanced with Cannabidiol (CBD), the legal status of CBD for use in food is uncertain. In July 2018, the Department of Public Health of the State of California issued a directive stating that CBD derived from industrial hemp, as is used in products like our ENDO Water line, is not approved for use in human or pet food. If this position is adopted by other states in the future, it could significantly harm our business, financial condition, and results of operations. Furthermore, the Food and Drug Administration has also not declared CBD Generally Recognized As Safe (GRAS) and, as such, it could issue a directive similar to the one issued by the State of California
Risks Related to Our Common Stock
Because we do not expect to pay dividends for the foreseeable future, investors seeking cash dividends should not purchase our common stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their own common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase our common stock.
If we undertake future offerings of our common stock, shareholders will experience dilution of their ownership percentage.
Generally, existing shareholders will experience dilution of their ownership percentage in the company if and when additional shares of common stock are offered and sold. In the future, we may be required to seek additional equity funding in the form of private or public offerings of our common stock. In the event that we undertake subsequent offerings of common stock, your ownership percentage, voting power as a common shareholder, and earnings per share, if any, will be proportionately diluted. This may, in turn, result in a substantial decrease in the per-share value of your common stock.
Because FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock, investors may not be able to sell their stock should they desire to do so
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In addition to the "penny stock" rules described below, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder's ability to resell shares of our common stock.
Because we are subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges or quoted on Nasdaq). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity in the secondary market for a security subject to the penny stock rules, and investors in our common stock may find it difficult to sell their shares.