SEATTLE, Oct. 18, 2022 (GLOBE NEWSWIRE) -- Pervasip Corp. (OTCPK: PVSP) (“Pervasip” or the “Company”), a developer of companies and technologies in high value emerging markets, today announced the filing of its unaudited financial statements for its 3rd Quarter ended August 31, 2022.
“Q3 2022 shows material signs of improvement over Q2 2022 reflecting our ongoing operational focus. As stated before, we continue to pursue our strategic goals even during these difficult market conditions as evidenced by our recent agreements on terms for the acquisition of the Emerald City Cultivation and Dabco brands. Our operational and financial focus on rationalizing our business, shedding underperforming assets, and increasing production yields by our independent cultivators continues to proceed and have allowed us to continue with additional market share capture. Investing in Cannabis is not for the faint of heart and we believe we are building a solid foundation for years to come which takes time, patience, and relentless focus on fundamentals. In an industry that does not have access to traditional financing, our options are limited and expensive,” said German Burtscher, Pervasip’s CEO. “We slowed the rollout of our new concentrate brands which we licensed for Q3 deployment and instead focused on an outright acquisition as the opportunity became available. That resulted in not meeting the forecasted revenue from the new product lineup for Q3. We are also pursuing a conservative approach to working within the complicated tax environment our industry is confronted with. Ongoing work in support of the audit process and a recent court ruling that impacts the cannabis industry caused us to change our estimates for tax liability dating back to prior periods 2017 – 2020, which we booked in Q3.”
The Company continues to focus on moving available bulk inventory into higher margin brands with a focus on margin capture and is seeing promising early results.
Third Quarter 2022 Financial Results
Q3 2022 versus Q2 2022
Q3 2022 operating results improved over Q2 2022, tracking with ongoing efforts to shift bulk sales to higher margin brands combined with relative COGs reductions, even when adjusted for inventory.
| Three Months Ended | Three Months Ended | ||||||
| August 2022 | May 2022 | ||||||
| Revenue | $ | 4,342,561 | $ | 3,684,433 | |||
| Cost of Goods Sold | 2,948,244 | 3,514,094 | |||||
| Gross Profit | 1,394,317 | 170,339 | |||||
| Gross Profit adjusted for Inventory | 1,184,249 | 565,082 | |||||
| 27.27% | 15.34% | ||||||
SG&A expenses are slightly reduced, reflecting more of the ongoing restructuring of the business.
| Costs and expenses: | |||||||
| Payroll expenses | 612,734 | 654,887 | |||||
| Office and professional fees | 134,815 | 196,903 | |||||
| Insurance | 108,816 | 97,912 | |||||
| Occupancy | 14,107 | 248,013 | |||||
| Advertising | 36,576 | 27,686 | |||||
| Business taxes and licensing | 99,297 | 86,366 | |||||
| General and administrative | 56,956 | 76,552 | |||||
| Total costs and expenses | 1,063,300 | 1,388,319 | |||||
| Income (loss) from operations | 331,017 | (1,217,980 | ) | ||||
Q3 2022 versus Q3 2021
The key to a meaningful comparison of end of period August ’22 to August ’21 is to recognize that August ’21 was at the height of Pandemic exuberance, recording the highest monthly sales across the entire industry. A key comparison to better understand the challenge and how the company’s brands have been gaining market share is to look at weight sold in grams and compare resulting revenue. It shows a 42% increase in product sales but a 6% decrease in comparable revenue. The company has answered price pressures with a multi-faceted strategy which allows for share capture while introducing higher margin brands and product lines.
| Nine Months Ended | Change | Nine Months Ended | |||||
| August 2022 | August 2021 | ||||||
| Revenue | $ | 11,851,547 | -6% | $ | 12,576,819 | ||
| Cost of Goods Sold | 8,305,581 | 6%* | 7,830,775 | ||||
| Gross Profit | 3,545,966 | 4,746,044 | |||||
| Grams Sold | 6,231,702 | 16%* | 5,382,207 | ||||
| * A relative decrease in COGs per gram produced | |||||||
Onetime adjustments
The Company’s ongoing audit work has also produced several tax adjustments from prior years, dating back to 2017. Due to the net operating loss carryforward, Pervasip did not recognize income tax expense in the nine-month periods ended August 31, 2022, and 2021. However, the VIEs that are included in the consolidated financial statements, have recorded a tax expense and a current income tax liability. Recent court cases regarding the interpretation of IRC 280E have made it more likely than not that the net operating loss deduction in the VIEs would be disallowed. Consequently, the company recorded tax provisions for its VIEs. Rather than re-stating prior years the Company decided to account for all adjustments in this quarter. Of the $1,503,376 booked in the Income Statement, $686,688 is tax and penalties from previous years and the rest estimated taxes for 2022 year to date.
In addition, $589,485 in Other Expenses in the Income Statement, includes a $342,000 tax adjustment from 2017 legacy payroll tax and a $163,718 charge from Pervasip which is from loss on debt conversion with Mammoth and derivatives.
Accrued expenses of $1,066,575 includes $254,549 in utility rebate contingency. That contingency will be lifted in Q4 as final commissioning by the utility was completed after the third quarter close and a full rebate of $288,000 was approved.
Key Highlights
- Instead of focusing on a rollout of licensed Dabs and Vape4Less brands, the Company pursued an outright acquisition of those brands plus others, achieving more beneficial long-term value but not yet realizing respective revenue gains as indicated earlier.
- Q3 shows margin improvement over Q2 as higher margin brands and products are coming online, a trend that will continue into Q4 2022.
- The Company continues to pursue additional operational, financial, and legal restructuring to further clean and strengthen its balance sheet.
- While expensive, the Company will continue to seek capital from available equity or debt sources.
The cannabis market on the Westcoast continues to see a dramatic post-pandemic retraction, creating a challenging environment for all producers, processors, and retailers. With an almost 18% contraction in retail revenues, massive oversupply, sustained downward price pressure and increasing costs, the industry is still months away from a recovery, although the bottom for pricing seems to have been reached.
Pervasip Corporation
Pervasip Corp., a developer of companies and technologies in high value emerging markets, owns Artizen Corporation and its subsidiary, Zen Asset Management LLC, a diversified asset management company founded to acquire, develop, and support companies and technologies in the cannabis industry. ZAM’s existing clients operate four licensed cannabis cultivation and one processing facility in Washington. Most of the biomass produced by these independent cultivators has been sold historically under the Artizen™ brand, including all-time top selling products in flower in Washington state. Additional information on Artizen-branded products is available online at www.artizencannabis.com. Pervasip additionally owns 5% of KRTL Biotech, Inc., a developer of biotechnologies with a focus on pharmaceutical applications of cannabinol and psilocybin. Additional information on KRTL is available online at www.krtlbiotech.com. Additional information on Pervasip can be found at www.pervasip.net.
Forward-Looking Statements
This news release contains statements and information that, to the extent that they are not historical fact, may constitute “forward-looking information” within the meaning of applicable securities legislation. Forward-looking information may include financial and other projections, as well as statements regarding future plans, objectives, or economic performance, or the assumption underlying any of the foregoing. In some cases, forward-looking statements can be identified by terms such as may, would, could, will, likely, except, anticipate, believe, intend, plan, forecast, project, estimate, outlook, or the negative thereof or other similar expressions concerning matters that are not historical facts. Examples of such statements include, but are not limited to, statements with respect to the objectives and business plans of the Company; ability to realize benefits from its recent corporate appointments; ability to retain its key personnel; the intention to grow the Company’s business and operations; the competitive conditions of the industries in which the Company operates; and laws and any amendments thereto applicable to the Company. Forward-looking information is based on the assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. The material factors and assumptions used to develop the forward-looking information contained in this news release include, but are not limited to, key personnel and qualified employees continuing their involvement with the Company; and the Company’s ability to secure financing on reasonable terms. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements expressed or implied by the forward-looking information, including, without limitation, risks relating to the future business plans of the Company; risks that the Company will not be able to retain its key personnel; risks that the Company will not be able to secure financing on reasonable terms or at all, as well as all of the other risks as described in the Company’s periodic disclosure statements. Accordingly, readers should not place undue reliance on any such forward-looking information. Further, any forward-looking information speaks only as of the date on which such statement is made. New factors emerge from time to time, and it is not possible for the Company’s management to predict all of such factors and to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The Company does not undertake any obligation to update any forward-looking information to reflect information or events after the date on which it is made or to reflect the occurrence of unanticipated events, except as required by law, including securities laws.
For further information, please contact:
T: 206-590-2408, Extension 102
E: info@pervasip.net
