UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission file number: 000-55164

858-210-4200

(Issuer’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if there is no disclosure of delinquent filers in responsepursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained in this form,herein, and no disclosure will not be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K or any amendment to this Form 10-K. ¨x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the voting and non-voting common equity on December 31, 20162018 held by non-affiliates of the registrant (based on the stock’s not having traded through that date) was $2,405,894.71,443,367. Shares of common stock held by each officer of the Company (or of its wholly-ownedwholly owned subsidiaries) and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determinationdete rmination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.

At September 25, 2017,24, 2019, there were 38,235,78374,023,310 shares outstanding of the issuer’s common stock, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Generation NEXT Franchise Brands, Inc. (formerly

(formerly known as Fresh Healthy Vending International, Inc.)

FORM 10-K

FOR THE YEAR ENDED JUNE 30, 20172019

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FORWARD LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K may containcontains certain 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”), which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of management for future operations, including plans and objectives relating to future resultsgrowth of Generation NEXT Franchise Brands, Inc. (formerly knownour business and availability of funds. Such forward-looking statements can be identified by the use of forward-looking terminology such as Fresh Healthy Vending International, Inc.) (including certain projections and business trends)“may,” “will,” “expect,” “intend,” “might,” “plan,” “believe,” “anticipate,” “estimate,” “could,” “would” “continue,” “pursue,” or “should” or the negative thereof or other variations or similar words or phrases. The forward-looking statements expressed or implied herein are based on current expectations that are “forward-looking statements.” Our actual results may differ materially from those projected as a result of certain risks and uncertainties. Theseinvolve numerous risks and uncertainties include, but are not limited to,identified in this Annual Report on Form 10-K, including, without limitation, statements that express orthe risks identified under the caption “Item 1A-Risk Factors.” Assumptions relating to the foregoing involve discussionsjudgments with respect to, predictions, expectations, beliefs, plans, projections, objectives,among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Suchunderlying the forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievementsare reasonable, any of the Company toassumptions could be materially different from any future results or achievements ofinaccurate and, therefore, there can be no assurance that the Companyforward-looking statements expressed or implied by such forward-looking statements. Such factors include, among others, those set forth herein and those detailed from timein this Annual Report on Form 10-K will prove to time in our other Securities and Exchange Commission (“SEC”) filings. These forward-looking statements are made only asbe accurate. In light of the date hereof, and we undertake no obligation to update or revisesignificant uncertainties inherent in the forward-looking statements whetherexpressed or implied herein, the inclusion of such information should not be regarded as a result of new information, future eventsrepresentation by us or otherwise, except as otherwise required by law. The Company cautions readersany other person that our objectives and plans will be achieved. Readers are cautioned not to place undue reliance on any such forward-looking statements. Forward-looking statements which speak only as of the date they are made. The Company disclaims any obligation subsequentlyWe do not undertake to revise any forward-looking statementsupdate them to reflect events or circumstanceschanges that occur after the date of such statements orthey are made, except to reflect the occurrence of anticipated or unanticipated events.extent required by applicable securities laws.

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Item 1 - Business

As used in this annual report, the terms “we”, “us”, “our”, “Gen Next”, and the “Company” means Generation NEXT Franchise Brands, Inc., a Nevada corporation, its wholly-owned subsidiaries Fresh Healthy Vending LLC, a California limited liability company, Fresh and Healthy Vending Corporation, a California corporation, Reis & Irvy’s, Inc., a Nevada corporation, 19 Degrees, Inc., a Nevada corporation, Generation Next Vending Robots, Inc., a Nevada corporation, or their management.Also as used in this annual report, the term “Gen Next” refers to Generation NEXT Franchise Brands, Inc., “FHV LLC” refers to Fresh Healthy Vending LLC, “R&I” refers to Reis & Irvy’s, Inc., “19 Degrees” refers to 19 Degrees, Inc., “Fresh and Healthy” refers to Fresh and Healthy Vending Corporation, and “GNVR” refers to Generation Next Vending Robots.

Business

We have beenGeneration Next Franchise Brands Inc. primarily develops and operates unattended retail platforms and related technology through franchise, licensing, wholesale, and corporate owned business models. Generally, the franchise business model allows other individuals or companies (franchisees) to own and operate businesses using the trademarks, intellectual property, expertise, ideas, and processes that are owned and developed by Generation Next or one of its subsidiaries, such as Reis & Irvy’s Inc., a Franchise Developmentfranchise concept involving robotic soft serve vending robots. The Company’s segments are Reis & Irvy’s, Print Mates, Inc., and 19 Degrees, Inc.

Not all of the Company’s business opportunities will strictly involve a franchise business model. In some instances, the Company may seek to license the rights to its unattended retail technology or seek revenue from a combination of the license and sale of unattended retail technology. To date, the Company has not yet received royalties from such agreement. In other instances, the Company may license the rights to another company to become the franchisor of the Company’s franchise concepts.

Previous to our focus on the current segments, we were a franchisor of vending machines and operator of Company-owned vending machines and micro markets that makesmade healthy eating more convenient through access to high quality healthy foods at high foot traffic vending destinations. We and our franchisees have operated over 3,000 vending machines and micro markets primarily offering natural, organic and healthy food and beverage products throughout North America, the Bahamas and Puerto Rico. Our obligations to each franchisee include securing locations for the healthy vending machines and micro markets they purchase. We offer thousands of healthy food and beverage products via an agreement with a national food distributor and we train each franchisee at our San Diego headquarters. We provide dedicated account management and ongoing customer service to our franchisees. As ofBy March 2016, we have discontinuedbegan to wind down the marketing our healthy vending franchises, although we continuecontinued to support our ongoing franchisees. Furthermore, weAs of September 28, 2018, FHV LLC has executed an Assignment for the Benefit of Creditors under California law, whereby all of the assets of FHV LLC have sold our corporate routebeen assigned to a third-party fiduciary who will liquidate such assets and no longer operate our own healthy vending machines.distribute the proceeds thereof to FHV LLC’s creditors pursuant to the priorities established and permitted by law.

During fiscal 2017, we obtained the exclusive rights in the USA (excluding Puerto Rico)We anticipate cultivating and Canada for a new frozen yogurt vending machine robot, branded Reis & Irvy’s. As of June 30, 2017, we have received approval to sell franchises in a number of U.S. states and Canada and have booked a net 731 units aggregating $27.1 million, prior to certain offset adjustments, which is included in deferred revenues. As of June 30, 2017, and through the date of this report, the Company has not yet delivered any frozen yogurt vending machines. The Company is in the process of redeveloping the next generation frozen yogurt robot and has spent $2.1 million in research and development expenses through June 30, 2017. The Company will continue to incur additional research and development expenses until at least December 2017.growing other concepts that complement our existing portfolio.

On December 29, 2016, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Robofusion, Inc. (“RFI”), whereby the Company acquired the intellectual property assets of RFI, a developer of robotic-kiosk vending technology, primarily frozen yogurt vending kiosks/cubes, using RFI's trademarked name of Reis & Irvy's (the “Acquisition”). Pursuant to the Agreement, the Company provided RFI, and its designees, a cash payment of $440,000, The Company also issued to RFI a three-year, $2 million note and a five-year common stock purchase warrant for 1,520,000 shares with a strike price of $0.50 per share. Furthermore, certain RFI Officers, Directors and Shareholders will be subject to a five-year, non-compete agreement. Also, the Agreement provides for indemnification and set off of up to $1 million, under certain circumstances.

As mentioned above, we will no longer market our vending machines and micro markets to new franchisees. We will however, continue to service and support our current FHV LLC franchisees.

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History

We are a public company traded on the OTC Markets under the symbol “VEND.” We were incorporated in the State of Nevada on June 8, 2011 as Green 4 Media, Inc. Prior to July 19, 2013, we were an eco-marketing and advertising company (“GEEM Business”). On July 22, 2013, we entered into the Indemnity Agreement and in connection with that agreement we transferred the GEEM Business to our former Chief Executive Officer. Effective August 8, 2013, we changed the name of our Company from Green 4 Media, Inc. to Fresh Healthy Vending International, Inc., and in March 2016, we changed the name of our Company to Generation NEXT Franchise Brands, Inc. In August 2019, shareholders approved a shortened name, Generation Next, to reflect the multiple go-to-market channels used by the Company.

FHV LLC was formed as a limited liability company in California in 2010, as a franchisor of healthy drinks and snack vending machines. Including the operating history of YoNaturals, whose assets were contributed to FHV LLC in August 2010, we have a combined nine-year operating history in vending machines providing food and beverages. Because it was determined the assets of FHV LLC are currently insufficient to satisfy FHV LLC’s obligations to creditors, as of September 28, 2018, FHV LLC has executed an Assignment for the Benefit of Creditors under California law, whereby all of the assets of FHV LLC have been assigned to a third party fiduciary who will expeditiously liquidate such assets and distribute the proceeds thereof to FHV LLC’s creditors pursuant to the priorities established and permitted by law.

On July 19, 2013 (the “Closing Date”) our wholly-owned subsidiary, FHV Acquisition Corp., completed a Reorganization and Asset Acquisition Agreement (the “Acquisition Agreement”) with FHV Holdings Corp, a California corporation (“FHV Cal”) (the “FHV Acquisition”). Pursuant to the terms of the Acquisition Agreement, we issued (i) 15,648,298 shares of our Company’s common stock (as adjusted for the Stock Split) to FHV Cal, in exchange for all FHV Cal’s assets as of the Closing Date. FHV Cal’s principal asset consisted of the operations and assets of Fresh Healthy Vending LLC, a California limited liability company. At the closing, FHV Cal distributed the Company’s common stock to the sole shareholder of FHV Cal, a trust affiliated with Nicholas Yates, our Chairman.Yates.

On July 19, 2013, we also completed the sale of 2,235,951 shares of our common stock to 18 investors (“Stock Sale”) in exchange for gross proceeds totaling $1,000,000 (approximately $996,000 net of estimated related costs in connection with the transaction). In addition, on July 19, 2013, we converted $210,000 of convertible notes payable into 552,418 shares of common stock. For accounting purposes, the transaction was determined to be and accounted for as a reverse merger.

In connection with the Acquisition Agreement, we entered into a Business Transfer and Indemnity Agreement dated July 22, 2013 (the “Indemnity Agreement”) with our former Chief Executive Officer Daniel Duval providing for:

We are a public company listed under the symbol “VEND.” We were incorporated in the State of Nevada on June 8, 2011 as Green 4 Media, Inc. Prior to July 19, 2013, we were an eco-marketing and advertising company (“GEEM Business”). On July 22, 2013, we entered into the Indemnity Agreement and in connection with that agreement we transferred the GEEM Business to our former Chief Executive Officer. Effective August 8, 2013, we changed the name of our Company from Green 4 Media, Inc. to Fresh Healthy Vending International, Inc., and in March 2016, we changed the name of our Company to Generation NEXT Franchise Brands, Inc.

FHV LLC was formed as a limited liability company in California in 2010, as a franchisor of healthy drinks and snack vending machines. Including the operating history of YoNaturals, whose assets were contributed to FHV LLC in August 2010, we have a combined nine year operating history in vending machines providing food and beverages.

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The Industry and the Overall MarketReis & Irvy’s Robotic Soft Serve Vending Robot

InOn December 29, 2016, the franchise market, 2012 sawCompany entered into an Asset Purchase Agreement (the “Agreement”) with Robofusion, Inc. (“RFI”), whereby the first positive growthCompany acquired the intellectual property assets of RFI, a developer of robotic-kiosk vending technology, primarily frozen yogurt and ice cream vending robots, using RFI's trademarked name of Reis & Irvy's (the “Acquisition”). The Company considered the guidance in ASC 805, Business Combinations, and determined the transaction was a purchase of an asset. As a result, the estimated fair of the assets acquired were capitalized. The intent of the purchase was to combine robotics and artificial intelligence platforms to facilitate the manufacture of an unattended robot in order to disrupt traditional frozen yogurt and ice cream retail establishments and, on a larger scale, establish ourselves as an industry leader in the numberemerging and fast-growing space of franchise establishments since 2008 accordingunattended retail. Since acquisition, we have developed a state-of-the art robotic soft serve vending robot that is a completely unique vending machine and entertainment experience. The robot accepts cash and credit cards. A proprietary software platform is utilized that allows us to readily monitor the IFA’s annual Franchise Business Economic Outlook report (compiled by HIS Global Insight). Upscale vending is taking over as consumers’ palates become more refinedsales of our franchisees’ and they gravitate toward a health-conscious lifestyle, according to Food Business News. Additionally,our corporate-owned machines, which assists our franchisees and us in facilitating the management and maintenance of the vending machine market is expectedrobot. In order to expand 1.5 percent by 2015 according to Food Business New. Theprotect the Company’s rights, several patents have been approved and granted. Our vending standards are UL (“Underwriters Laboratories”) (approval in process), NSF (“National Sanitation Foundation”) recognized (approved in August 2018), and National Automated Merchandising Association (“NAMANAMA”)”) estimates certified (approved in September 2018), which we believe are among the vending market is a $30 billion-a-yearhighest standards in the industry. NAMA also estimates that 100 million Americans will use one of seven million vending machines each day.

Frozen Yogurt Robot

We are in the process of manufacturing a state-of-the art frozen yogurt vending machine robot that is a completely unique vending machine and entertainment experience. The robot contains both a cash and cashless vending platform that allows us to readily monitor the sales of our franchisees’ and our corporate-owned machines. Our vending standards are UL (“Underwriters Laboratories”) and NSF (“National Sanitation Foundation”) recognized, which we believe are among the highest standards in the industry. This ensures food temperature compliance, which includes auto-contingency processes should electrical or hardware malfunction; it also ensures that ambient air stays within specified parameters at all times. Our third-party cashless payment technology provides the highest level of data and network security compliance while ensuring complete transparency. As a result, our frozen yogurtrobotic soft serve vending machine robots will contain minimal amounts of cash. All transactions are managed by third parties to facilitate financial compliance with local and national laws and regulations. Funds from all electronic transactions are collected by Reis & Irvy’s and remitted to the franchisee within ten days of the subsequent month.

Vending Technology

We have developedReis & Irvy’s sells franchise rights, generally a cash10-year term, for the use of its trademarks and cashlesstechnology, robotic soft serve vending platform to readily monitor the sales of our franchisees. We help ourrobots, and secures locations for franchisee robots. Potential franchisees to grow their business with onsiteare interviewed by salespeople and virtual management tools, including as an example, wireless remote monitoring telemetry software. As mentioned above, our vending standardscomplete a questionnaire. Those who meet certain financial criteria and deemed a good fit are UL recognized. All transactions are managed by third parties to facilitate financial compliance with local and national laws and regulations.

Micro Market Technology

We have developed a high-tech cashless self-checkout kiosk that boasts state-of-the-art point-of-sale technology currently utilizing an iOS operating system and iPad hardware. The system also includes a wireless remote monitoring telemetry software with inventory management. The kiosk is completely cashless and all transactions are managed by third parties to facilitate financial compliance with local and national laws and regulations.

Vending and Micro Market Products

We primarily provide a portfolio of fresh, organic and all-natural snacks and drinks. Most products are available via our Company’s agreement with a national distributor. We also create custom menus for each franchisee specific to each location typeprovided franchising information based on their guidelines, requestsrespective state’s franchise regulations, generally a Franchise Disclosure Document. After the cooling off period, approximately 14 calendar days, Reis & Irvy’s and demographics. We have developed customized menus that meetthe franchisee enter into a franchise agreement, which contains the term, sales price, location of the franchise, and exceed schooleach party’s rights and obligations. Reis & Irvy’s offers franchises in every state nutrition guidelines nationwide, facilitatingin the placementUnites States with the exception of machinesSouth Dakota. Master franchises are offered for certain large geographic locations. To date, the Company has entered into master franchise agreements in schools. Our suppliersAustralia, Canada, Israel, and Oman.

As of the date of this report, the Company sold 1,296 units representing approximately $58 million in vending machine sales and franchise fees. For the year ended June 30, 2019, the Company had recognized revenue on 426 kiosks equating to revenues of approximately $16.3 million from the sale of vending robots and $1.4 million in franchise fees, respectively. No non-franchise royalty revenues from licenses were earned or recognized. Further, the Company has contractual commitments for approximately 2,342 units representing approximately $92 million in potential revenue.

In order to assist franchisees with support and pay for certain administrative costs (e.g. merchant fees, software fees, etc.) Reis & Irvy’s charges a monthly royalty fee of 12% of gross receipts. For the year ended June 30, 2019, the company recognized approximately $315,000 in franchise royalty revenue.

Franchisees are responsible for obtaining all Federal, state and local health department licenses and certifications. Further, franchisees are responsible for all routine repairs and maintenance. However, a 1-year warranty for all parts is provided, and extended warranties are available to deliver products to our franchisees on a weekly basis and charge a fee of $35 with a minimum order of $500.for purchase from Reis & Irvy’s.

The micro market is a self-checkout kiosk that contains a similar portfolio of fresh, organic and all-natural snacks and drinks. The micro market also provides fresh full meal options such as salads, sandwiches, and wraps. The micro market is designed for implementation in corporate environments, hotel lobbies, auto dealerships and other retail environments.

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Frozen Yogurt and Ice Cream Products

The Company intends tohas set up national distribution partners to carry the consumable products required for the frozen yogurt and ice cream robots. Franchisees order consumable products directly from the distribution partners and are responsible for

those costs. If consumable products became unavailable from the Company’s distribution partners, the Company believes a replacement would be readily available due to the homogeneous nature of the product.

Competition

The vending industry is large and highly fragmented and consolidating as the market leaders acquire regional vending companies to fulfill their real-estate expansion plans or acquire privately-held service verticals.but consolidating. We believe we have laid the foundation for a national healthrobust network of vending operation with built-in, long-term service agreements and residual product and inventory sales. We believerobots for our franchisees by implementing a strong business model that offers the following competitive advantages including the following.advantages:

Our Principal Suppliers

The Company currently purchases substantiallyoutsources contract manufacturing services for the assembly of the robotic soft serve vending kiosks. The components used in the assembly are sourced from multiple domestic and international suppliers. The use of extended payment terms and interruptions in purchasing patterns due to cash flow constraints have strained supplier relationships; however, we expect all of its vending machines, and will purchase it frozen yogurt robots, as needed from a solecomponent supplier Automated Merchandising Systems Inc. (“AMS”), or its designated distributor. We believe that our relationship with our suppliers is excellent, and likelyrelationships to continue. In our view,Nonetheless, we maintain contact with alternative sources to both stay attuned to economic and technical advantages we may bring into the losskiosk. We are transitioning contract manufacturers after a planned exit from Flex in August 2019. We have prepared to mitigate disruptions from this change by accumulating 140 finished goods by the end of our relationship with our suppliers, should it occur, may result in short term disruptions not likelyAugust which will be used to be material. fill demand while the transition is completed.

The Company has identified several other suppliersalso entered into an agreement with comparable capabilities. The Company also purchases its micro markets from a single manufacturer and believes the loss of its supplier may result in short term disruptions not likelyDannon YoCream, for Dannon YoCream to be material.

Additionally, primarily on behalfa primary supplier of our healthy vending franchisees,all frozen desserts available within the Company has negotiated discounts withReis & Irvy’s Froyo Robots, including a national product distribution chain, United Natural Foods, Inc. (“UNFI”). We believe that our relationship with UNFI is excellent,wide assortment of frozen yogurts, sorbets and likely to continue. In our view, the loss of our relationship with UNFI, should it occur, may result in short-term disruptions not likely to be material. The Company has identified several other suppliers that stock the same or comparable products. Furthermore, our franchisees are able to purchase directly from UNFI.

Furthermore, the Company intends to set up similar arrangements with distributors of the frozen yogurt consumables.gelatos.

Governmental Regulation

We are required to comply with regulations governing the sale of franchises – the primary component of our business. Fifteen states directly regulate franchising and fourteen require pre-sale registration of a Franchise Disclosure Document (“FDD”), or offering prospectus, by the franchisor, normally with the state agency that oversees the sale of securities in that state, and pre-sale delivery of an FDD to a franchise candidate by a franchisor before the signing of a binding agreement or the payment of any money to the franchisor. Franchise sales in the remaining 35 states are generally subject to the Franchise Rule promulgated by the Federal Trade Commission (“FTC”), which requires the pre-sale delivery of an FDD to a franchise candidate before the signing of a binding agreement or the payment of any money to the franchisor. A franchisor that fails to properly register and maintain the registration of its FDD and disclose its franchisee candidates in the 15 registration states, unless exempt from registration under a few narrowly drawn exceptions to the registration requirements, is subject to legal action by its franchisees for damages and, under certain circumstances, for rescission of the franchise agreements, and to administrative, civil and criminal penalties that may be imposed as well. The FTC’s Franchise Rule does not require registration of an FDD with the FTC. Reis & Irvy’s offers franchises in each state within the United States, with the exception of South Dakota.

Reis & Irvy’s and franchisees are required to comply with all Federal, state and location regulations related to food handling.

Available Information

We file various reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are available through the SEC’s electronic data gathering, analysis and retrieval system (“EDGAR”) by accessing the SEC’s home page (http://www.sec.gov). The documents are also available to be read or copied at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, D.C., 20549. Information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

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Our Employees

We had approximately 4349 full-time employees as of June 30, 2017.2019. None of our employees are subject to collective bargaining agreements.

Seasonality

We do not expect that our business will experience significant seasonality other than that resulting from vending machine sales within schoolsdue to the number and at seasonallocation of the frozen yogurt venues.and ice cream robots.

Item 1A – Risk Factors

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Current Report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Notes Regarding Forward-Looking Statements” for a discussion of what types of statements are forward-looking statements as well as the significance of such statements in the context of this report.

RISKS RELATED TO OUR BUSINESS

Reis & Irvy’s

Risks Related to Competition, Evolving Technologies and Consumer Preferences in Our Industry

The termination, non-renewal or renegotiation on materially adverse terms of our contracts or relationships with one or morea significant collection of our significant franchisees, or retail locations could seriously harm our business, financial condition and results of operations.The success of our business depends in large part on our, and our franchisees’, ability to maintain contractual relationships with the providers of profitable locations in which Robotsvending robots are placed, including hospitals, entertainment venues, retail stores, shopping centers and the like. Certain contract provisions with these providers vary, including product and service offerings, the service fees we, and our franchisees’, are committed to pay, and the ability to cancel the contract upon notice after a certain period of time.notice. We typically enter into Robotvending robot installation agreements that give the retailer rights of termination. We strive to provide direct and indirect benefits to our location partners that are superior to, or competitive with, other providers or systems or alternative uses of the floor space that our Robots occupy. If we are unable to provide them with adequate benefits, we may be unable to maintain or renew our contractual relationships on acceptable terms, causing our business, financial condition and results of operations to suffer. The locations in which Robotsvending robots are placed may choose to replace our or our franchisees’ Robotsvending robots with competitor machines or not provide space for such machines at all deciding that floor space could be used for other purposes.

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Competitive pressures could seriously harm our business, financial condition and results of operations.Our Reis & Irvy’s business faces competition from other providers of frozen confections and other desert options, including some that may have more experience, better financing, and better relationships with preferred high traffic locations. We also face general competition from supermarkets, frozen yogurt stores, ice cream parlors/shops and other retail locations that provide ice cream, frozen yogurt and other frozen treats. We could also face competition from other newly created forms of similar or replacement kiosks/vending machines offering frozen treats. In addition, other ice cream/frozen yogurt retailers, some of which have significantly more resources than we do, may decide to enter the market.market, or expand their current market share.

If we cannot execute on our strategy and offer new automated retail products and services, our business could suffer.Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. To be competitive, we need to offer new product and service offerings that are accepted by the market and establish third-party relationships necessary to develop and commercialize such product and service offerings. We are exploring new businesses to enter, and new products and services to offer; however, the complexities and structures of these new businesses and products could create conflicting priorities, constrain limited resources, and negatively impact our core businesses. We may use our financial resources and management’s time and focus to invest in other companies offering automated retail services, such as our acquisition of the Reis & Irvy’s intellectual property, or we may seek to offer new products or services on our current Robots. We may enter into joint ventures through which we may expand our product offerings. Any new business opportunity also may have its own unique risks related to operations, finances, intellectual property, technology, legal and regulatory issues, corporate governance or other challenges, for which we may have limited or no prior experience. In addition, if we fail to timely establish or maintain relationships with significant retailers and suppliers, we may not be able to provide our consumers with desirable new products and services. Further, to develop and commercialize certain new products and services, we will need to create new Robots or enhance the capabilities of our current robots, as well as adapt our related networks and systems through appropriate technological solutions for an automated retail environment and establish market acceptance of such products or services. We cannot assure you that new products or services that we provide will be successful or profitable.

We depend upon third-party manufacturers, suppliers and service providers for key components and substantial support for our Robots.We conduct no manufacturing operations and depend on outside parties to manufacture and supply key components of our Robots. Any increase in the manufacturing costs, or our inability to lower our current manufacturing costs, could materially adversely impact our operations and financial condition.

We intend to continue to expand our installed base of Robots. Such expansion may be limited by the manufacturing capacity of our third-party manufacturers and suppliers. Third-party manufacturers may not be able to meet our manufacturing needs in a satisfactory and timely manner. Any delays in manufacturing could adversely affect our results of operations.results. If there is an unanticipated increase in demand for our Robots, or our manufacturing needs are not met in a timely and satisfactory manner, we may be unable to meet demand due to manufacturing limitations.

We currentlymay rely on a single manufacturer of the Robots.Robots or one or more of the parts used to assemble the Robot. We may be unable to continue to obtain an adequate supply of these components from our suppliers in a timely manner or, if necessary, from alternative sources. If we are unable to obtain sufficient quantities of components from our current suppliers or locate alternative sources of supply on a timely basis, we may experience delays in installing or maintaining our Robots, either of which could seriously harm our business, financial condition and results of operations.

In addition, we rely on third-party service providers for substantial support and service efforts that we currently do not provide directly. In particular, we contract with third-party providers to arrange for servicing of our Robots. We generally contract with a provider to service a particular region. We do not currently have, nor do we expect to have in the foreseeable future, the internal capability to provide back-up service in the event of a sudden disruption in service. Any failure by us to maintain our existing relationships or to establish new relationships on a timely basis or on acceptable terms could harm our business, financial condition and results of operations.

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Defects, failures or security breaches in and inadequate upgrades of, or changes to, our operating systems could harm our business.The operation of our Robots depends on sophisticated software, hardware, and computer networking and communication services that may contain undetected errors or may be subject to failures or complications. These errors, failures or complications may arise particularly when new, changed or enhanced products or services are added. In the past, there have been limited delays and disruptions resulting from upgrading or improving these operating systems. Future upgrades, improvements or changes that may be necessary to expand and maintain our business could result in delays or disruptions or may not be timely or appropriately made, any of which could seriously harm our operations.

Further, certain aspects of the operating systems relating to our business are provided by third parties, including telecommunications. Accordingly, the effectiveness of these operating systems is, to a certain degree, dependent on the actions and decisions of third parties over whom we may have limited control.

We may be unable to adequately protect our intellectual property rights.Our success in business is impacted by maintaining the confidentiality and proprietary nature of our intellectual property rights. Our ability to compete may be damaged, and our revenues may be reduced if we are unable to protect our intellectual property rights adequately. To protect these rights, we rely principally on a combination of:

	·	contractual arrangements providing for non-disclosure and prohibitions on use;
	·	patents and pending patent applications;
	·	trade secret, copyright and trademark laws; and
	·	certain built-in technical product features.

Patent, trade secret, copyright and trademark laws provide limited protection. The protections provided by laws governing intellectual property rights do not prevent competitors from developing, independently, products similar or superior to our products and technologies. In addition, effective protection of copyrights, trade secrets, trademarks, and other proprietary rights may be unavailable or limited in certain foreign countries. We may be unaware of certain non-publicly available patent applications, which, if issued as patents, could relate to our services and products as currently designed or as we may modify them in the future. Legal or regulatory proceedings to enforce our patents, trademarks or copyrights could be costly, time consuming, and could divert the attention of management and technical personnel.

Fresh Healthy Vending

The termination, non-renewal or renegotiation on materially adverse terms of our contracts or relationships with one or more of our significant franchisees, or retail locations could seriously harm our business, financial condition and results of operations. The success of our business depends in large part on our ability to maintain contractual relationships with the providers of profitable locations in which vending machines are placed, including schools, retail stores, shopping centers and the like. Certain contract provisions with these providers vary, including product and service offerings, the service fees we, and our franchisees, are committed to pay, and the ability to cancel the contract upon notice after a certain period of time. We typically enter into vending machine installation agreements that give the retailer rights of termination. We strive to provide direct and indirect benefits to our partners that are superior to, or competitive with, other providers or systems or alternative uses of the floor space that our vending machines occupy. If we are unable to provide them with adequate benefits, we may be unable to maintain or renew our contractual relationships on acceptable terms, causing our business, financial condition and results of operations to suffer. The retail locations in which vending machines are placed may choose to replace our or our franchisees’ vending machines with competitor machines or not provide space for such machines at all deciding that floor space could be used for other purposes.

Competition from other franchisors of vending machine and micro market businesses and franchisors of other businesses could impact franchise and vending machine and micro market sales and seriously harm our business, financial condition and results of operations. We strive to provide direct and indirect benefits to our franchisees that are superior to, or competitive with, other franchisors. In addition, we rely on our franchisees and the manner in which they operate their locations to attract future franchise and vending machine and micro market sales. If we are unable to provide our franchisees with adequate benefits, or if any significant number of our franchisees are not successful, we may be unable to sell franchises and vending machines and micro markets to new franchisees or maintain or renew our contractual relationships with existing franchisees, causing our business, financial condition and results of operations to suffer.

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The vending machine industry in which we operate is highly competitive and increased competition could reduce our sales and profitability. We compete in different markets within the vending machine industry on the basis of the uniqueness of our product offerings, the quality of our products, customer service, price and distribution. Our markets are highly competitive. Our competitors vary in size and many may have greater financial and marketing resources than we do. If we cannot maintain quality and pricing that are comparable or superior to our competitors, we may not be able to grow our revenues and operating profits and may lose market share. Competitive conditions could result in our experiencing reduced revenues, gross margins and operating results and could cause an investor in our Company to lose a substantial amount or all of their investment in our Company.

Defects, failures or security breaches in and inadequate upgrades of, or changes to, our vending machines and micro markets and its accompanying software could harm our business. The operation of our business depends on sophisticated software, hardware, computer networking and communication services that may contain undetected errors or may be subject to failures or complications. These errors, failures or complications may arise particularly when new, changed or enhanced products or services are added. Future upgrades, improvements or changes that may be necessary to expand and maintain our business could result in delays or disruptions or may not be timely or appropriately made, any of which could seriously harm our operations. Further, certain aspects of the operating systems relating to our business are provided by third parties, including telecommunications. Accordingly, the effectiveness of these operating systems is, to a certain degree, dependent on the actions and decisions of third parties over whom we may have limited control. In addition, our micro markets are open and unlocked displays with a self-checkout feature and, although we intend micro markets to be located in secure and/or controlled environments, such as corporate break rooms, hotel lobbies, and auto dealerships, there is no guarantee that products from micro markets will be consumed without customers utilizing the self-checkout feature.

Any interruption in delivery from our only machine suppliers could impair our ability to sell our products and generate revenues. We currently depend on a sole supplier, AMS or their authorized distributors, for the production and delivery of our primary vending machines. We also have one primary supplier of our micro markets. We issue purchase orders for equipment as needed and neither we, nor our manufacturers or authorized distributors, are obligated to minimum purchases or deliveries in the future. We are aware of other suppliers that could fulfill our equipment requirements; however, any interruption in the distribution from our sole suppliers could affect our ability to add new franchisees and satisfy our commitments with existing franchisees. If any interruption described herein takes place, it could have a material adverse impact on our revenues and results of operations until a replacement supplier is obtained.

Generation Next Franchising Brands

Failure to adequately comply with information security policies or to safeguard against breaches of such policies could adversely affect our operations and could damage our business, reputation, financial position and results of operations.In the process of making sales using consumer credit cards or other cashless options as a method of payment, we may handle and transfer such information as part of our business. These activities are subject to laws and regulations, as well as industry standards, in the United States and other jurisdictions in which our products and services are available. These requirements, which often differ materially and sometimes conflict among the many jurisdictions in which we operate, are designed to protect the privacy of consumers’ personal information and to prevent that information from being inappropriately used or disclosed. We maintain and review technical and operational safeguards designed to protect this information and generally require others with whom we work to do so as well. However, despite those safeguards, it is possible that hackers, employees acting contrary to our policies, third-party agents or others could improperly access relevant systems or improperly obtain or disclose data about our consumers, or that we may be determined not to be in compliance with applicable legal and/or regulatory requirements and industry standards for data security, such as the Payment Card Industry guidelines. A breach or purported breach of relevant security policies that compromises consumer data or determination of non-compliance with applicable legal and/or regulatory requirements and industry standards for data security could expose us to regulatory enforcement actions, card association or other monetary fines or sanctions, or contractual liabilities, limit our ability to provide our products and services, subject us to legal action and related costs and damage our business reputation, financial position, and results of operations.

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Litigation, arbitration, mediation, regulatory actions, investigations or other legal proceedings could result in material rulings, decisions, settlements, fines, penalties or publicity that could adversely affect our business, financial condition and results of operations.Our business has in the past been, and may in the future continue to be, party to regulatory actions, investigations, arbitration, mediation and other legal proceedings. The outcome of such proceedings is often difficult to assess or quantify. Plaintiffs, regulatory bodies or other parties may seek very large or indeterminate amounts of money from us or substantial restrictions on our business activities, or delay or inhibit the sale of new franchises and additional vending machines and micro markets and the results, including the magnitude, of lawsuits, actions, settlements, decisions, and regulatory investigations and delays may remain unknown for substantial periods of time. The cost to defend, settle or otherwise finalize lawsuits, regulatory actions, investigations, arbitrations, mediations or other legal proceedings may be significant and such proceedings may divert our management’s time. In addition, there may be adverse publicity associated with any such developments that could decrease consumer acceptance of our products and services, such as foodborne illness claims related to perishable foods. As a result, litigation, arbitration, mediation, regulatory actions or investigations involving us or our affiliates may adversely affect our business, financial condition and results of operations. For further description of certain material legal proceedings, please see Item 3 “Legal Proceedings” below.

We rely in part on our franchisees, and if our franchisees cannot develop or finance their businesses, our growth and success may be affected.We rely on our franchisees and the manner in which they operate their locations to develop and promote our business. Although we have developed criteria to evaluate and screen prospective franchisees, we cannot be certain that our franchisees will have the business acumen or financial resources necessary to operate successful franchises in their franchise areas and state franchise laws may limit our ability to terminate or modify these franchise arrangements. Moreover, despite our training, support and monitoring, franchisees may not successfully operate vending machine routes in a manner consistent with our standards and requirements or may not hire and train qualified servicing personnel. The failure of our franchisees to operate their franchises successfully could have a material adverse effect on us, our reputation, our brand and our ability to attract prospective franchisees and could materially adversely affect our business, financial condition or results of operations.

Franchisees may not have access to the financial or management resources that they need to launch and maintain routes and vending machines contemplated by their agreements with us or be able to find suitable sites on which to develop them, or they may elect to cease development for other reasons. Franchisees may not be able to negotiate or retain acceptable lease terms, including location royalties, for the sites, obtain the necessary permits and government approvals or meet opening schedules. Any of these problems could slow our growth and reduce our franchise revenues.

Additionally, a franchisee bankruptcy could have a substantial negative impact on our ability to collect payments due under such franchisee’s franchise arrangements. In a franchisee bankruptcy, the bankruptcy trustee may reject its franchise arrangements pursuant to Section 365 under the United States Bankruptcy Code, in which case there would be no further royalty payments from such franchisee, and there can be no assurance as to the proceeds, if any, that may ultimately be recovered in a bankruptcy proceeding of such franchisee in connection with a damage claim resulting from such rejection.

Changes in economic conditions could materially affect our ability to maintain or increase sales at our existing franchisees or secure new franchisees.Both the vending and the frozen yogurt industries depend on consumer discretionary spending. The United States in general or the specific markets in which we operate may suffer from depressed economic activity, recessionary economic cycles, higher fuel or energy costs, low consumer confidence, high levels of unemployment, reduced home values, increases in home foreclosures, investment losses, personal bankruptcies, reduced access to credit or other economic factors that may affect consumers discretionary spending. Economic conditions may remain volatile and may continue to depress consumer confidence and discretionary spending for the near term. Negative economic conditions might cause consumers to make changes to their discretionary spending behavior, including spending currently made in our or our franchisees’ vending machines. If such sales decrease, our profitability could decline as we spread fixed costs across a lower level of sales, and this could materially adversely affect our business, financial condition or results of operations.

A failure to maintain food safety throughout our supply chain and food-borne illness concerns may result in reputational harm and claims of illness or injury that could adversely affect us. Food safety is a top priority for our business. Claims of illness or injury relating to food quality or food handling are common in the food service industry generally, and a number of these claims may exist at any given time. Because food safety issues could be experienced at the source or by food suppliers or distributors, food safety could, in part, be out of our control. Regardless of the source or cause, any report of food-borne illness or other food safety issues such as food tampering or contamination at one of our vending locations could adversely impact our reputation, hindering our ability to renew contracts on favorable terms or to obtain new business, and have a negative impact on our sales. Even instances of food-borne illness, food tampering or contamination at a location served by one of our competitors could result in negative publicity regarding the food service industry generally and could negatively impact our sales. Future food safety issues may also from time to time disrupt our business. In addition, product recalls or health concerns associated with food contamination may also increase our raw materials costs.

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Changes in food and supply costs could adversely affect our results of operations. Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Shortages or interruptions in the availability of certain supplies caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather or other conditions could adversely affect the availability, quality and cost of our ingredients, which could harm our operations. Any increase in the prices of the food products most critical to our vending machine and micro market offerings could adversely affect our operating results. Although we try to manage the impact that these fluctuations have on our operating results, we remain susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, generalized infectious diseases, product recalls and government regulations.

If any of our distributors or suppliers performs inadequately, or our distribution or supply relationships are disrupted for any reason, our business, financial condition, results of operations or cash flows could be adversely affected. Although we enter into contracts for the purchase of food products and supplies, we do not have long-term contracts for the purchase of all of such food products and supplies. As a result, we may not be able to anticipate or react to changing food costs by adjusting our purchasing practices or vending machine pricing, which could cause our operating results to deteriorate. If we cannot replace or engage distributors or suppliers who meet our specifications in a short period of time, that could increase our expenses and cause shortages of food and other items in our machines. If that were to happen, affected machines could experience significant reductions in sales during the shortage or thereafter, if customers change their purchasing habits as a result. Our focus on a limited menu would make the consequences of a shortage of a key ingredient more severe. In addition, because we provide moderately priced food, we, or our franchisees, may choose not to, or may be unable to, pass along commodity price increases to consumers. These potential changes in food and supply costs could materially adversely affect our business, financial condition or results of operations.

Failure to receive frequent deliveries of the foods and beverages we offer could harm our operations.Our ability to maintain ours and our franchisees’ machines depends in part on our ability to acquire ingredients that meet our specifications from reliable suppliers. Shortages or interruptions in the supply of ingredients caused by unanticipated demand, problems in production or distribution, food contamination, which is especially significant with regard to perishable product offerings, inclement weather or other conditions could adversely affect the availability, quality and cost of our ingredients, which could harm our operations. If any of our distributors or suppliers performs inadequately, or our distribution or supply relationships are disrupted for any reason, our business, financial condition or results of operations could be adversely affected. If we cannot replace or engage distributors or suppliers who meet our specifications in a short period of time that could increase our expenses and cause shortages of food and other items that are expected to be stocked within our, our or our franchisees’ machines. If that were to happen, affected routes could experience significant reductions in sales during the shortage or thereafter, if customers change their purchasing habits as a result. Our focus on a limited menu of fresh and healthy offerings within machines would make the consequences of a shortage of one or key popular items more severe. Furthermore, certain frozen yogurt consumables may only be available from one manufacturer. This reduction in sales could materially adversely affect our business, financial condition or results of operations.

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REGULATORY RISKS

Franchising is a highly regulated industry.Compliance with regulatory procedures or regulatory delays, actions or inaction could delay franchise and machine sales and seriously harm our business, financial condition and results of operations. Fifteen states directly regulate franchising and fourteen require pre-sale registration of a Franchise Disclosure Document (“FDD”), or offering prospectus, by the franchisor, normally with the state agency that oversees the sale of securities in that state, and pre-sale delivery of an FDD to a franchise candidate by a franchisor before the signing of a binding agreement or the payment of any money to the franchisor. Franchise sales in the remaining 35 states are generally subject to the Franchise Rule promulgated by the Federal Trade Commission (FTC), which requires the pre-sale delivery of an FDD to a franchise candidate before the signing of a binding agreement or the payment of any money to the franchisor. A franchisor that fails to properly register and maintain the registration of its FDD and disclose its franchisee candidates in the 15 registration states, unless exempt from registration under a few narrowly drawn exceptions to the registration requirements, is subject to legal action by its franchisees for damages and, under certain circumstances, for rescission of the franchise agreements, and to administrative, civil and criminal penalties that may be imposed as well. The FTC’s Franchise Rule does not require registration of an FDD with the FTC.

Franchising is a highly competitive industry.Competition from other franchisors could impact franchise and machine sales and seriously harm our business, financial condition and results of operations. We strive to provide direct and indirect benefits to our franchisees that are superior to, or competitive with, other franchisors. In addition, we rely on our franchisees and the manner in which they operate their locations to develop future franchise and machine sales. If we are unable to provide our franchisees with adequate benefits, or if any significant number of our franchisees are not successful, we may be unable to sell franchises and machines to new franchisees or maintain or renew our contractual relationships with existing franchisees, causing our business, financial condition and results of operations to suffer.

As a franchisor, we are subject to federal and state regulations in the various jurisdictions in which we desire to sell franchises and have existing franchisees.We are required to register a Franchise Disclosure Document (FDD), or offering prospectus, in 14 states, normally with the state agency that oversees the sale of securities in that state, and provide detailed and complete pre-sale disclosures in our FDD to our franchisee candidates with whom we propose to enter into franchise agreements before we can sell our franchises and vending machines.

We have limited control over our franchisees and our franchisees could take actions that could harm our business.Franchisees are independent and are not our employees. We do not exercise control over their day-to-day operations. We provide training and support to franchisees, but the success and efficiency of operations may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate routes in a manner consistent with our standards and requirements, with practices spelled out by regulations of the jurisdictions in which they operate or may not hire and train qualified personnel. If franchisees do not meet our standards and requirements, our image and reputation, and the image and reputation of other franchisees, may suffer materially and system-wide sales could decline significantly.

Franchisees, as independent business operators, may from time to time disagree with us and our strategies regarding the business or our interpretation of our and their rights and obligations under franchise and development agreements. This may lead to disputes with our franchisees in the future. These disputes may divert the attention of our management and our franchisees from operating routes and affect our image and reputation and our ability to attract franchisees in the future, which could materially adversely affect our business, financial condition or results of operations.

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New information or attitudes regarding diet and health could result in changes in regulations and consumer consumption habits that could adversely affect our results of operations.Regulations and consumer eating habits may change as a result of new information or attitudes regarding diet and health. Such changes may include federal, state and local regulations that impact the ingredients and nutritional content of the food and beverages we offer or impact the manner or types of perishable products we can offer. The success of our, and our franchisees’, vending operations is dependent, in part, upon our ability to effectively respond to changes in any consumer health regulations and our ability to adapt our food and beverage offerings to trends in food consumption. If consumer health regulations or consumer eating habits change significantly, we may choose or be required to modify or delete certain offered items, which may adversely affect the attractiveness of our food and beverage offerings to customers on those routes. To the extent we are unwilling or unable to respond with appropriate changes to our food and beverage offerings, it could materially affect consumer demand and have an adverse impact on our business, financial condition or results of operations.

Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new information regarding the adverse health effects of consuming certain foods and the ingredients within them. These changes have resulted in, and may continue to result in, laws and regulations requiring us to disclose the nutritional content of our food offerings, and they have resulted, and may continue to result in, laws and regulations affecting permissible ingredients and menu offerings. An unfavorable report on, or reaction to, the freshness, taste, quality and perceived health promoting ingredients of our food and beverage offerings, or their nutritional content could negatively influence the demand for our offerings.

We have been under the scrutiny of state regulators overseeing franchising and could be subject to sanctions, costly litigation and requirements to refund amounts received for franchises sold in the past. In June 2014, we received an inquiry from the California Department of Business Oversight (“DBO”) related to the sale of 15 franchises that occurred between March 2014 and May 2014. On November 7, 2014, the DBO issued a Stop Order and Citation (“Stop Order”), which prohibited us from selling franchises in the state of California until November 7, 2016. The DBO found that we engaged in offers and sales of franchises in California without registration with respect to the three franchise sales we made in August and September 2012, that the sale of 15 franchises that occurred outside the state of California between March 2014 and May 2014 were made pursuant to a franchise disclosure document that contained omissions of material facts by failing to disclose the DBO’s prior stop order and the statement of charges and notice of intent to enter an order to cease and desist issued by the state of Washington, and that our prior management failed to exercise due diligence with regard to our registration and disclosure obligations and exposed prospective franchisees to unreasonable risk. The DBO also denied our registration application filed in California on October 3, 2013, imposed administrative penalties against us of $37,500, required us to pay attorneys’ fees of $18,200 and required us to again offer rescission and restitution to the 15 franchisees who purchased franchises between March 2014 and May 2014. Nine of the 15 franchisees accepted our offer of rescission and six either denied rescission or failed to respond. The total rescission payments, aggregating $934,500, were completed by July 2015. The independent monitor has issued his final compliance report, and the Stop Order has ended.

As required by the Stop Order, we developed and implemented a compliance program and engaged an independent monitor for the duration of the Stop Order to review and report to the DBO our compliance activities, including compliance with the Stop Order.

If we are required to refund amounts in excess of those that we have forecast, suffer substantial non-forecasted fines or other franchise offering restrictions from state regulators, are subject to expensive litigation or agree to enter into costly settlement agreements in order to discharge liabilities as a result of past business practices, we may be unable to marshal the resources to satisfy such obligations. This would adversely affect our business, financial condition and results of operations and an investor could suffer the loss of a substantial portion or all of his investment.

Periodically, we are contacted by other state franchise regulatory authorities and in some cases have been required to respond to inquiries or make changes to our franchise disclosure documents or franchise offer and sale practices. Management believes these communications from state regulators and corresponding changes in our franchise disclosure documents and practices are administrative in nature and do not indicate the presence of a loss or probable potential loss.

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FINANCIAL RISKS

If we cannot achieve profitable operations, we will need to raise additional capital to continue our operations, which may not be available on commercially reasonable terms, or at all, and which may dilute your investment.We incurred a net loss for the years ended June 30, 2019, 2018, 2017, 2016, 2015 and 2014. Returning to profitability will require us to increase our revenues and manage our product, operating and administrative expenses. We cannot guarantee that we will be successful in reestablishing profitability. If we are unable to generate sufficient revenues to pay our expenses and our existing sources of cash and cash flows are otherwise insufficient to fund our activities, we will need to raise additional funds to continue our operations. Additional funds, if needed, may not be available on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience significant dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we are unsuccessful in achieving profitability and we cannot obtain additional funds on commercially reasonable terms, or at all, we may be required to curtail significantly or cease our operations, which could result in the loss of all of your investment in our stock.

Our financial statements have been prepared assuming that the Company will continue as a going concern. We suffered a net loss for the years ended June 30, 2019, 2018, 2017, 2016, 2015 and 2014 and we had limited working capital on hand. Should we continue to experience net losses and should we lackwhile lacking sufficient working capital, this could raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan and an investor could suffer the loss of a significant portion or all of his investment in our Company.

Should we be successful in growing our revenues according to our operating plans, we may not be able to manage our growth effectively, which could adversely affect our operations and financial performance. The ability to manage and operate our business as we execute our growth strategy will require effective planning. Significant rapid growth could strain our internal resources, leading to a lower quality of customer service, reporting problems and delays in meeting important deadlines resulting in loss of market share and other problems that could adversely affect our financial performance. Our efforts to grow could place a significant strain on our personnel, management systems, infrastructure, liquidity and other resources. If we do not manage our growth effectively, our operations could be adversely affected, resulting in slower growth, critical shortages of cash and a failure to achieve or sustain profitability.

We do not expect to pay dividends for the foreseeable future, and we may never pay dividends and, consequently, the only opportunity for investors to achieve a return on their investment is if a trading market develops and investors are able to sell their shares for a profit, or if our business is sold at a price that enables investors to recognize a profit.We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends for 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. Currently, we are not aware of any agreement or contract that limits or restricts the payment of dividends. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.

Our net operating loss (“NOL”) carry-forwardcarryforward is limited. We have recorded a valuation allowance amounting to our entire net deferred tax asset balance due to our lack of a history of earnings, possible statutory limitations on the use of tax loss carry-forwardscarryforwards generated in the past and the future expiration of our NOL. This gives rise to uncertainty as to whether the net deferred tax asset is realizable. Internal Revenue Code Section 382, and similar California rules, place a limitation on the amount of taxable income that can be offset by carry-forwardscarryforwards after a change in control (generally greater than a 50% change in ownership). As a result of these provisions, it is likely that given our acquisition of FHV Cal, and current losses, future utilization of the NOL will be severely limited. Our inability to use our Company’s historical NOL, or the full amount of the NOL, would limit our ability to offset any future tax liabilities with its NOL.

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CORPORATE AND OTHER RISKS

Our executive officers, directors and principal stockholders beneficially own or control over 49%25% of our outstanding common stock, which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company.Additionally, this concentration of ownership could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium over the market price for his shares. A substantial portion of our outstanding shares of common stock is beneficially owned and controlled by a group of insiders, including our directors and executive officers. Accordingly, our principal stockholder together with our directors, executive officers and insider shareholders would have the power to control the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares of our common stock, you may have no effective voice in the management of our Company. Such concentrated control of our Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

Our Chief Executive Officer and Chief Financial Officer have limited experience as an Officer of a public company.To serve in the role of a Chief Executive Officer for a public company, an individual needs to be aware of responsibilities in addition to those shouldered by the leader of a private company. Among such additional responsibilities, the Chief Executive Officer must be able to communicate fairly and effectively with the stakeholders of a public company, be aware of the controls required to be maintained by a public company and act in accordance with the legal requirements incumbent upon such a leader. Our Chief Executive Officer’s lack of such experience could increase the danger that we fail to carry out these additional responsibilities effectively and thus materially prejudice our Company and shareholders’ financial interests.

We appointed our singleone new independent member ofDirector to our Board of Directors ineffective September 20132019, and we do not have an Audit Committee. and Compensation Committees.We have three inside directors and two managementindependent members and one independent member of our Board of Directors. Independent directors can act as a check on management and can advise and guide management on corporate actions and in good corporate governance practices. With our lackWithout a majority of multiple independent Board members,Directors, our management could make subjective decisions without the benefit of more measured independent guidance. An independent Audit Committee can assure procedural and administrative adherence to internal controls over transactions, financial reporting and the audit process. Among its functions, independent Audit Committees review the financial reporting, internal controls safeguarding Company assets, interact with auditors, may oversee material financial decisions and provide a sounding board for individuals who may question a company’s accounting policies and procedures. With our lack of an Audit Committee at this time, we run a greater risk that a significant error or irregularity could occur that could be materially damaging to our shareholders.

Issuances of our authorized preferred stock may make it more difficult for a third party to effectaffect a change-of-control.Our articles of incorporation authorizes the Board of Directors to issue up to 25,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

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We are dependent for our success on a few key employees and consultants. Our inability to retain these individuals and attract additional people that we will need to maintain and grow our business would impede our business plan and growth strategies. This would have a negative impact on our business and the value of your investment. Our success depends on the skills, experience and performance of key members of our management team. Each of those individuals may voluntarily terminate his employment with our Company at any time. Were we to lose one or more of these key individuals, we could be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We do not maintain a key man insurance policy on any of our employees or consultants.

Our operations willWe incur increased costs of being a public company.In reviewing our past operations and future prospects, investors Investors should recognize that we will incur significant legal, accounting and other expenses that we did not incur as a private company, particularly if we are no longer an “emerging growth company” as defined under the Jumpstart Our Business Startups Actresult of 2012 (the “JOBS Act”).being a public company. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated and to be promulgated thereunder (the “Dodd-Frank Act”), as well as under the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the JOBS Act, have created uncertainty for public companies and increased costs and time that boards of directors and management must devote to complying with these rules and regulations. The Sarbanes-Oxley Act and related rules ofregulations, including those promulgated by the U.S. Securities and Exchange Commission, or SEC, and the Nasdaq Global Select Market regulate corporate governance practices of public companies. We expect compliance with these rules and regulations to increase our legal and financial compliance costs and lead to a diversion of management time and attention from revenue generating activities. For example, we will beare required to adopt new internal controls and disclosure controls and procedures. In addition, we will incur additional expenses associated with our SEC reporting requirements.

For as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These exceptions provide for, but are not limited to, relief from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved and an extended transition period for complying with new or revised accounting standards. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We may remain an “emerging growth company” for up to five years. To the extent we do not use exemptions from various reporting requirements under the JOBS Act, we may be unable to realize our anticipated cost savings from those exemptions.

Pursuant to the JOBS Act, ourOur independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are not an “emerging growth company.” “accelerated filer” under SEC rules.Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we file with the SEC as a public company, and generally requires in the same report a report by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, under the recently enacted JOBSDodd-Frank Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer a “smaller reporting company” And not an “emerging growth company.” We could be an “emerging growth company” for up to five years.“accelerated filer” within the meaning of the SEC rules.

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CAPITAL MARKET RISKS

We have issued a substantial amount of equity and may need additional capital, and the sale of additional shares or other equity securities could result in additional dilution to our stockholders. In the future, we may raise additional capital for our business operations by issuing equity securities, resulting in the further dilution of the ownership interests of our present stockholders. Any future issuance of our equity securities may dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. We may need to raise additional capital through public or private offerings of our common stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Such issuances may have a further dilutive effect. Also, the future issuance of any such additional shares of common stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded.

Trading on the OTCQB tier of the OTC Markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares. Since October 24, 2016, our common stock has been quoted on the OTCQB tier of the electronic quotation system operated by OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the NYSE MKT.Nasdaq or American. Accordingly, shareholders may have difficulty reselling any of their shares and the lack of liquidity may negatively impact our ability to pursue strategic alternatives.

Penny stock rules will limit the ability of our stockholders to sell their stock. The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. 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 in a form prepared by the Securities and Exchange Commission, which 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 monthly account statements showing the market value of each penny stock held in the customer’s account. 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 effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, 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. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholder’s ability to buy and sell our stock. In addition to the penny stock rules described above, 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. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for its shares.

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Volatility of the market price of our common stock could adversely affect our shareholders and us. The market price of our common stock has been subject to fluctuations in the past and may be subject to wide fluctuations in response to numerous factors, including the following:

	·	actual Actual or anticipated variations in our quarterly operating results orof those of our competitors;
	·	announcements Announcements by us or our competitors of new and enhanced products;
	·	developments Developments or disputes concerningregarding proprietary rights;
	·	introduction Introduction and adoption of new industry standards;
	·	market Market conditions or trends in our industry;
	·	announcements Announcements by us or our competitors of significant acquisitions;
	·	entry into strategic partnerships or joint ventures Entry by us or our competitors into joint ventures or partnerships with our competitors;
	·	additions Additions or departures of key personnel;
	·	political and Political or economic conditions, such as a recession or interest rate or currency rate fluctuations or political events; and
	·	other Other events or factors in any of the countries in which we do business, including those resulting from war, incidents of terrorism, natural disasters, or responses to such events.

In addition, in recent years the stock market has been highly volatile. Many of these factors are beyond our control and may materially adversely affect the market price of our ordinary shares, regardless of our performance. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation relating to the stock trading and price volatility of the company in question. If we were involved in any securities litigation, it could result in substantial cost to us to defend and divert resources and the attention of management from our business.

We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock.Security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It will also likely make it more difficult to attract new investors at times when we require additional capital.

We may be unable to list our common stock on NASDAQ or on any securities exchange. Although we may apply to list our common stock on NASDAQthe Nasdaq Stock Market or on the NYSE MKT LLC, formerly known as the American Stock Exchange (“AMEX”)stock market, in the future, we cannot assure you that we will be able to meet the initial qualitative or quantitative listing standards, including the minimum per share price and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock on either of those or any other trading venue. Until such time as we qualify for listing on NASDAQ, the AMEX or another trading venue,a national securities exchange, our common stock will continue to trade on OTC Markets or another over-the-counter quotation system where an investor may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, rules promulgated by the SEC impose various practice requirements on broker-dealers who sell securities that fail to meet certain criteria set forth in those rules to persons other than established customers and accredited investors. Consequently, these rules may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. It would also make it more difficult for us to raise additional capital.

Future sales of our equity securities could put downward selling pressure on our securities, and adversely affect the stock price.There is a risk that this downward pressure may make it impossible for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.

We do not intend to pay cash dividends. Our policy is to retain earnings, if any, for use in our business and, for this reason, we do not intend to pay cash dividends on our shares of common stock in the foreseeable future.

Item 1B – Unresolved staff comments

None

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Item 2 – Properties

The Company leases corporate and warehouse facilities (the “Facility Leases”) in San Diego aggregating 8,654, square feet. Our corporate offices are located at 2620 Financial Court, Suite 100, San Diego, California 92117. This Facility Lease commenced in August 2015 and is for a term of 84 months. The current monthly rental payment, net of utilities and operating expenses for the Facility Lease, is approximately $12,979.$13,433.

Item 3 – Legal Proceedings

In Re: California Commissioner of Business Oversight v. Fresh Healthy Vending LLC, California Department of Business Oversight, File No. 993-6326. Order Entered November 7, 2014.

In June 2014, we received an inquiry fromDuring fiscal year 2018, the California Department of Business Oversight (“DBO” related to the sale of 15 franchises that occurred between March 2014 and May 2014. On November 7, 2014, the DBO issuedCompany began a Stop Order and Citation (“Stop Order”), which prohibits us from selling franchises in the state of California until November 7, 2016. The DBO found that we engaged in offers and sales of franchises in California without registrationvoluntary internal investigation into payments made with respect to the threeCompany’s primary stock sales and whether the payments complied with Section 15 of the Securities Exchange Act of 1934. The Company paid a bonus to certain members of its franchise sales we made in Auguststaff and September 2012,to the Company’s Chairman for any shares of the Company’s stock that potential franchisees purchased. In this regard, the saleCompany paid approximately $332,000 to its franchise sales staff and a matching bonus of 15 franchises that occurredapproximately $332,000 to its Chairman for the time period July 2017 to April 2018. The Company also paid an outside the state of California between March 2014 and May 2014 were madeservice provider pursuant to a written contract for franchise disclosure documentreengagement leads. The Company has determined that contained omissionsthe outside service provider had some involvement in generating reengagement leads of material facts by failingpotential franchisees who also may have had an interest in purchasing stock. These payments are in relation to disclose the DBO’s prior stop order and the statement$16.4 million (net of charges and notice of intent to enter an order to cease and desist issuedoffering costs) raised by the stateCompany during the fiscal year. Under oversight of Washington, and that our prior management failed to exercise due diligencethe Board Audit Committee, the Company engaged outside counsel, ceased making further payments with regard to our registration and disclosure obligations and exposed prospective franchisees to unreasonable risk. The DBO also denied our registration application filed in California on October 3, 2013, imposed administrative penalties against us of $37,500, required us to pay attorneys’ fees of $18,200 and required us to again offer rescission and restitution to the 15 franchisees who purchased franchises between March 2014 and May 2014. Nine of the 15 franchisees accepted our offer of rescission and six either denied rescission or failed to respond, and therefore lost their right of rescission due to the elapsed time as stipulated by the DBO. The total rescission payments, aggregating $934,500, were completed by July 2015. As required by the Stop Order, we developed and implemented a compliance program and engaged an independent monitor for the duration of the Stop Order to review and report to the DBO our compliance activities, including compliance with the Stop Order. The independent monitor has issued his final compliance report, and the Stop Order has ended.

Periodically, we are contacted by other state franchise regulatory authorities and in some cases have been required to respond to inquiries, or make changes to our franchise disclosure documents or franchise offer and sale practices. Management believes these communications from state regulators and corresponding changes in our franchise disclosure documents and practices are administrative in nature and do not indicate the presence of a loss or probable potential loss.

Slender Vender, LLC and John Coffin v. Fresh Healthy Vending, LLC; Alex Kennedy; Nicholas Yates; Todd William London; Mark Trotter; Jolly Backer; Maria Truong; Ryan Ball; and T.J. Rogers. (Case Number 37-2014-00017075-CU-FR-CTL, Superior Court of the State of California for the County of San Diego, filed May 28, 2014.)

On May 28, 2014, Slender Vender, LLC, and John Coffin, a former FHV franchisee and its owner (“Plaintiffs”), filed a complaint against FHV and certain of its current and former officers (“Defendants”) alleging violations of the California Franchise Investment Law, fraud, breach of contract, unfair competition, false advertising and violations of the California Labor Code in connection with the sale and purchase of Plaintiffs’ franchises. The complaint sought rescission of the franchise agreement, restitution, unpaid wages, and damages, including compensatory and punitive damages.

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On February 6, 2015, the California Labor Code violations were dismissed without leave to amend. In addition, Defendant London was dismissed from the action that same day. Defendants Truong, Rogers, and Ball were later dismissed from the action during trial. On February 20, 2015, Plaintiffs filed a first amended complaint against the remaining defendants alleging causes of action for rescission, fraud, breach of contract, unfair competition, and false advertising.

On September 23, 2016, a jury trial commenced in the action, and the jury found in favor of Plaintiffs. The jury returned a total compensatory damages verdict of $535,091 against all Defendants, and further returned a punitive damages verdict of $140,000 against Yates and $14,000 against Kennedy. The compensatory damages award was later reduced to $295,091 following post-trial motions and stipulation. In addition, following the jury trial, the court awarded Plaintiff attorneys fees of $565,386 against FHV and costs of $29,682 against FHV, Kennedy, Yates, Trotter, and Backer. Judgment was entered on February 21, 2017.

On March 22, 2017, Defendants filed a notice of appeal, and on March 30, 2017, Plaintiff filed a notice of cross-appeal. On June 21, 2017, the parties reached a global settlement.

Despite an initial award of $1.1million, under the terms of the confidential settlement Plaintiff agreed to cause the judgment to be set aside, to withdraw all claims for wage garnishments against any of the Defendants, and to cause the removal of all recorded abstracts of judgment and the removal of any financing statements. The parties agreed to dismiss their appeals and to grant one another full mutual general releases. In exchange, Defendants agreed to pay Plaintiff $500,000, over a 25 month period, as well as a guarantee of $200,000 of securities valued at $1 per share. GNFB has guaranteed the settlement.

On June 11, 2014, Seaga Manufacturing, the Company’s supplier of automatic merchandising equipment, filed a lawsuit in Illinois state court alleging one count of breach of contract claiming that the Company failed to make paymentsstock sales, and to meet the yearly minimum volume of purchases. On August 14, 2014, the Company filed its answer, affirmative defenses,took remedial measures (including oversight and counterclaims against Seaga. The counterclaims included claims for breach of contract, breach of express warranty, breach of implied warranties of merchantability and fitness for particular purpose, and indemnification. On May 1, 2015, the court granted Seaga’s motion to dismiss the Company’s implied warranty claims. On January 9, 2015, Seaga filed a third-party complaint against the manufacturer of the automatic merchandising equipment, Saeco Vending S.P.A., and on August 26, 2015, the court dismissed the third-party complaint. The Company intends to vigorously contest these allegations in court. On May 3, 2016, the parties entered into a stipulation to settle the matter. Neither side admitted wrongdoing or liability, and neither party paid compensation to the other. The court dismissed the action with prejudice on May 5, 2016.education).

The Company is also subject to normal and routine litigation and other legal actions by current or former franchisees, employees, and vendors. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews contingencies to determine the adequacy of the accruals and related disclosures. The amount of ultimate loss may differ from these estimates. Although we currently believe that the ultimate outcome of these matters will not have a material adverse effect on the results of operations, liquidity or financial position of the Company, it is possible they could be materially affected in any particular future reporting period by the unfavorable resolution of one or more of these matters or contingencies.

Item 4 – Mine Safety Disclosures

Not applicable.

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Part II

Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock trades publicly on the OTCQB under the symbol “VEND.” The OTCQB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTCQB securities are traded by a community of market makers that enter quotes and trade reports. This market is extremely limited, and any prices quoted may not be a reliable indication of the value of our common stock. On September 22, 2017,17, 2019, the closing price of our common stock as reported on the OTCQB was $1.00$0.40 per share. Our stock began trading on the OTCQB under the symbol “GEEM” on August 26, 2013 and was later changed to “VEND” on September 19, 2013.

		2019								2018
		High				Low				High				Low
First Quarter		$	2.68			$	0.91			$	1.08			$	0.88
Second Quarter		$	1.61			$	0.65			$	1.00			$	0.82
Third Quarter		$	0.82			$	0.51			$	2.06			$	0.81
Fourth Quarter		$	0.78			$	0.57			$	2.50			$	1.90

Holders of Record

As of September 25, 2017, 38,235,78324, 2019, 74,023,310 shares of our common stock were issued and outstanding and held by approximately 109282 stockholders of record.

Transfer Agent and Registrar

Our common shares are issued in registered form. VStock,Stock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598. Telephone: (212) 828-8436 is the registrar and transfer agent for our common shares.

Dividends

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our Board of Directors. We are not aware of any agreement or contract that limits or restricts the payment of dividends.

Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended June 30, 2019, the Company issued 171,129 shares aggregating approximately $71,000. Subsequent to June 30 and through the date of this report, the Company sold an additional 115,385 shares aggregating approximately $75,000.

In instances where we issued securities in reliance upon Regulation D, we relied upon Rule 506 of Regulation D. The parties who received the securities in such instances made representations that such party (a) is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) agrees not to sell or otherwise transfer the purchased shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) has knowledge and experience in financial and business matters such that the purchaser is capable of evaluating the merits and risks of an investment in us, (d) had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Management made the determination that the investors in instances where we relied on Regulation D are accredited investors (as defined in Regulation D) based upon management’s inquiry into their sophistication and net worth. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.

In instances where we indicate that we relied upon Section 4(a)(2) of the Securities Act in issuing securities, our reliance was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees, each of whom was deemed in our view to be an “accredited investor” within the meaning of federal securities laws; (c) there were no subsequent or contemporaneous public offerings of the securities by us; and (d) the securities were not broken down into smaller denominations.

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Purchase of Securities by issuer or Affiliates

None.

Securities Authorized for Issuance under Equity Compensation Plans

The table below sets forth information as of June 30, 2017,2019, with respect to compensation plans under which our common stock is authorized for issuance.

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On August 14, 2013, our Board of Directors approved the adoption of the 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan was approved by a majority of our shareholders (as determined by shareholdings) on September 4, 2013. The 2013 Plan provides for granting of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. The total number of shares of common stock that may be issued pursuant to stock awards under the 2013 Plan were initially not exceed in the aggregate 2,600,000 shares of the common stock of our Company. On July 13, 2015, the Company increased the total number of shares that may be issued under the 2013 Plan to 4,000,000 and on April 28, 2016, that number increased to 6,000,000.

Item 6 – Selected Consolidated Financial Data

Disclosure not required as a result of our Company’s status as a smaller reporting company.

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements that involve risks and uncertainties. Such factors include, among others, those set forth herein and those detailed from time to time in our other Securities and Exchange Commission (“SEC”) filings. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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A general description of our business is provided at the beginning of this filing. Our MD&A consists of the following sections:

OverviewFiscal Year 2019 Highlights

Historical discussions with respect to our Company’s operations included herein refer to our operations for the years ended June 30, 2017 and 2016. Effective as of July 19, 2013 our Company acquired all assets of FHV Cal which included FHV LLC in a transaction accounted for as a reverse acquisition. With the sale of the GEEM Business under the Indemnity Agreement effective July 22, 2013, our continuing operations are those of FHV LLC, The Fresh and Healthy Vending Corp, Reis & Irvy’s, Inc., Generation Next Vending Robots, Inc. and 19 Degrees, Inc. Forward looking information and discussion with respect to our Company’s operations subsequent to the FHV Acquisition is also included herein.

During fiscal 2017, we obtained the exclusive rights in the USA (excluding Puerto Rico) and Canada for a new frozen yogurt vending machine robot, branded Reis & Irvy’s. As of June 30, 2017, we have received approval to sell franchises in a number of U.S. states and Canada and have booked a net 731 units aggregating $27.1 million, prior to certain offset adjustments, which is included in deferred revenues. As of June 30, 2017, and through the date of this report, the Company has not yet delivered any frozen yogurt vending machines. The Company is in the process of redeveloping the next generation frozen yogurt robot and has spent $1.6 million in research and development expenses through June 30, 2017. The Company will continue to incur additional research and development expenses until at least December 2017.

On December 29, 2016, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Robofusion, Inc. (“RFI”), whereby the Company acquired the intellectual property assets of RFI, a developer of robotic-kiosk vending technology, primarily frozen yogurt vending kiosks/cubes, using RFI's trademarked name of Reis & Irvy's (the “Acquisition”). Pursuant to the Agreement, the Company provided RFI, and its designees, a cash payment of $440,000, The Company also issued to RFI a three-year, $2 million note and a five-year common stock purchase warrant for 1,520,000 shares with a strike price of $0.50 per share. Furthermore, certain RFI Officers, Directors and Shareholders will be subject to a five-year, non-compete agreement. Also, the Agreement provides for indemnification and set off of up to $1 million, under certain circumstances.

As mentioned above, we will no longer market our vending machines and micro markets to new franchisees. We will however, continue to service and support our current FHV LLC franchisees.

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We have effected changes to our operations in order to restore our previous levels of revenues enjoyed in prior years in the hope that such changes will also position our Company for future growth in fiscal 2018 and beyond. Among the changes implemented or in the process of being implemented wereyear 2019 the following through September 22, 2017:accomplishments were achieved:

However, there can be no assurances that all or some of the potential revenue from the franchise agreements stated above will be realized.

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Results of Operations

Revenues

Reis & Irvy’s

We had revenuesrevenue of $4,278,388approximately $18.1 million for the year ended June 30, 2017,2019, compared to revenues of $5,685,199approximately $175,000 revenue for the year ended June 30, 2016.2018. This represented a decreaserepresents an increase in revenues of $1,406,811 or 24.7%.approximately $17.9 million. The increase was primarily due to the frozen yogurt and ice cream robots entering mass production in July 2019. The revenue for the year ended June 30, 2018, was the result of the installation of the first 4 frozen yogurt and ice cream robots.

Print Mates

We had revenues of approximately $262,720 for the year ended June 30, 2019, compared to revenues of $0 for the year ended June 30, 2018. This decreaseincrease was primarily a result of decreased revenuesPrint Mates, Inc. acquiring the assets of Print Mates, LLC and recognizing revenue on 17 kiosks delivered from the installation of vending machines, as we wind down operations of our healthy vending franchise, As previously mentioned, we have discontinued sales of our healthy vending franchises, but continue to support our existing franchisees.acquired backlog.

Cost of revenues

Reis & Irvy’s

Cost of revenues was $1,960,074approximately $17.0 million for the year ended June 30, 2019, as compared to $120,000 cost of revenues for the year ended June 30, 2018. This represents an increase of approximately $16.9 million. Cost of revenues is directly proportional to revenues. As a result, the increase was due to the increase in installations of the frozen yogurt and ice cream robots during the year ended June 30, 20172019. Our cost of revenues was higher for the initial units shipped and installed as comparedthe manufacturing and installation costs included more fixed costs and lower productivity rates than the anticipated normal costs per unit. Year-to-date cost of revenues through March included $1.1 million of expense incurred as the result of engineering flaws, production delays, and manufacturing inefficiencies. These errors have been corrected and the Company does not expect this expense to $3,138,422recur. The Company has targeted a 22.0% reduction in per unit costs for Reis & Irvy’s robots which will be fully realized during the second half of fiscal year 2020 (January 1 1 to June 30, 2020).

Print Mates

Cost of revenues was approximately $110,000 during the year ended June 30, 2016. This represents a decrease of $1,178,348 or 37.5%.

Gross margin

Gross margin2019, as compared to approximately $0 for the year ended June 30, 20172018. Cost of revenues is directly proportional to revenues. As a result, this increase was $2,318,314 compared to $2,546,777a result of increased revenues from the installation of kiosks.

Gross profit

Reis & Irvy’s

Gross profit for the year ended June 30, 2016, representing a decrease of $228,463 or 9.0%. Gross margin percentage2019, was 54.2% and 44.8%approximately $1.1 million, compared to $55,000 for the yearsyear ended June 30, 2017 and 2016, respectively.2018, representing an increase of approximately $1.0 million. The increase inCompany has set a minimum gross margin percentagefor Reis & Irvy’s robots of 9.4% is primarily a result26% which it expects to achieve during its second half of increasedfiscal year 2020.

Print Mates

Gross profit for the year ended June 30, 2019 was approximately $152,000 or 58%. We anticipate the margin on vendingkiosks sales will remain relatively unchanged as well as the elimination of the Company’s corporate vending route, which produced lower margins.we purchase completed kiosks from a third-party manufacturer at a fixed price and have no plan to decrease our selling price.

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OperatingSelling, general and administrative expenses

Selling, general and administrative expenses for the year ended June 30, 2019 were approximately $19,928,000 representing an increase of approximately $2,356,000 from approximately $17,572,000 in the year ended June 30, 2018. The major components of selling, general and administrative expenses were as follows:

Personnel compensation increased $995,772approximately $1,093,000 to $4,062,660approximately $4,847,000 in fiscal 2017year 2019 as compared to $3,066,888approximately $3,753,000 in fiscal 2016,year 2018, representing an increase of 32.5%29%. The increase was primarily due to additional personnel for the increase in the number of franchisees, and an increase in commissions in connection with an increase in pre-bookingsbookings for our frozen yogurt robots.robotic soft serve vending kiosks. On August 8, 2019, The Company announced and implemented a cost reduction plan that eliminated approximately 40% of the current payroll expense.

Marketing and advertising increased $1,178,063,decreased approximately $2,846,000, or 106.0%63%, to $2,289,465approximately $1,646,000 in fiscal 2017year 2019 as compared to $1,111,402approximately $4,492,000 in fiscal 2016.year 2018. The increasedecrease was a result of an increasea reduction in overall marketing expenditures as well as an increase inspending on national radio advertising and Internetthe number of trade shows attended. A portion of those savings was allocated toward the internet marketing related tobudget, which provides the Company’s new franchise concept, Reis & Irvy’s frozen yogurt robots.

Rent expense increased $27,770 or 13.8% from $200,944 in fiscal 2016 to $ 228,714 in fiscal 2017. The increase was primarily the result of escalating rents in the Company’s new headquarter facility.same qualified leads at a lower customer acquisition cost.

Professional fees increased $737,827approximately $1,144,000 to $1,218,960approximately $1,688,000 in fiscal 2017year 2019 compared to $481,133approximately $544,000 in fiscal 2016.year 2018. The increase was primarily attributable to increased legal fees associated with franchise legal mattersmatters.

Stock compensation expense increased approximately $1,467,000 to approximately $2,947,000 in fiscal year 2019 as well as legal fees associated with the new Reis & Irvy’s franchise concept, including the acquisition of the Robofusion assets.compared to approximately $1,481,000 in fiscal year 2018. The increase was alsoprimarily attributable to legal feesoptions that were issued in February 2018 having stock compensation expense amortized over 12 months during fiscal year ending 2019, as opposed to 5 months during fiscal year ending 2018. Also, there was approximately 750,000 shares of stock options issued under the plan during fiscal year ending 2019, the expense associated with the Company’s fund-raising activities.these options was not present during fiscal year ending 2018. It should be noted that this is a non-cash expense.

Research and development fees increased 1,629,917decreased approximately $1,136,000 to $4,046,000 in fiscal 2017year 2019 compared to 7,567approximately $5,182,000 in fiscal 2016.year 2018. The increase was relateddecrease is primarily due to the complete redesignstable configuration attained during fiscal year 2019, and the ongoing development ofrequirements in the Company next generation frozen yogurt robot.prior year.

The provision for legal settlement increased 903,675approximately $389,000 to 1,056,629approximately $355,000 in fiscal 2017year 2019 compared to 152,954approximately negative $34,000 in fiscal 2016.year 2018. The increase is attributable to an increase in franchise refunds.

Other expenses increased approximately $1,956,000 from approximately $1,258,000 in fiscal year ended 2018 to approximately $3,214,000 in fiscal year ended 2019. The increase was primarily attributable to an increase in franchisee refunds associated withrelations, freight, travel and product warranty costs.

In total, selling and general administrative expenses excluding non-cash items decreased approximately $831,000 to $16,554,000 in fiscal year 2019 compared to approximately $17,386,000 in fiscal year 2018. The Company is exploring additional actions which can further reduce selling and general administrative expenses. On August 8, 2019, The Company announced and implemented a cost reduction plan that will eliminate 40% of the Fresh Healthy Vending franchise.current payroll expense as well as plans to streamline the marketing and research & development budgets, the benefits of which will start being realized by The Company in fiscal year 2020.

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Provision for income taxes

During the years ended June 30, 2017,2019, and 2016,2018, we incurred net losses and operated as a C-Corp for federal and state income tax purposes. Accordingly, we are subject to federal and state income taxes at the prescribed statutory rates. A valuation allowance has been recorded to eliminate the tax benefit arising from our net operating losses due to the substantial uncertainty about whether such benefit will ever be realized. We anticipate that our provision for income taxes in the future will be significantly higher should we operate profitably under our current structure.

Net loss

Our net loss was $11,269,295approximately $19 million for the year ended June 30, 20172019 compared to a net loss of $5,087,711approximately $19.5 million for the year ended June 30, 2016.2018. This represents an increasea decrease in net loss of $6,181,584approximately $626,000 million or 121.5%3.2%. Furthermore, the increase in net loss was offset by a decrease in other income (expense) including interest expense, accretion of discount on notes payable, and derivative liability loss aggregating $372,615.

Basic and diluted net loss per share for the years ended June 30, 20172019 and 20162018 was $.39$0.26 and $.19,$0.41, respectively.

Liquidity and Capital Resources

For the year ended June 30, 2017 the Company2019 we had a net loss of $11,269,295. We hadtotaling approximately $19 million with negative cash flows from operations totaling $339,848.approximately $13.5 million. Our unrestricted cash balance at June 30, 20172019 was $1,751,022. Since the dateapproximately $517,000. Through June 30, 2019 our production and installation of the closing of the Acquisition, our orders and installations of machines were lesskiosks have been slower than anticipated, due to delays caused by engineering and the resulting cash flows from franchisee sales was not sufficient to cover expenditures associated with our ongoing operations.manufacturing deficiencies, which have since been corrected. The impacts of production delays were decreased revenue recognition and less accounts receivable collections. Also, we have used cash on hand to retire liabilities associated with the franchiseefranchise rescissions, for research, development and engineering expenditures related to our robotic soft serve vending kiosks, for warranty expenses and for the purchase of robot inventory. The combined result of these events was a substantial decrease in California (see Legal above)our cash balances and other franchisee refunds. To provide adequatean increase in our outstanding liabilities. In order to ensure sufficient liquidity for our continuing operations, we need to obtainthe Company is actively pursuing additional capital in the form of either debt or equity financing (or a combination thereof) financing. Although. We anticipate generating a portion of our required capital resources from deposits on sales of new franchises, unit sales of kiosks for the Fund, royalties from existing and future franchise installs, and revenue from management fees earned under the Management Services Agreement with 19 Degrees Corporate Service, LLC. Management believes that it willthe additional funding required can be able to obtain such financingobtained on terms acceptable to the Company, no assurancealthough there can be givenno assurance that we will be successful in doing so.successful. If the Company is unsuccessful raising the required capital, then we are likely to pursue potentially transformative transactions which may include going private, change of control, merger, sale of assets, or further balance sheet restructuring to enable the Company to remain viable.

Our current plans include capitalresearch and development expenditures for the production of the next generation robot, payments required for the purchase of the Robofusion intellectual property (previous owner of the frozen yogurt robot intellectual property), expenditures for the purchase of corporate-owned and operated frozen yogurt robotsinventory for the manufacturing of robotic soft serve vending kiosks, as well as the option to repurchase of machines from, and refund payments to, franchisees and the ongoing production of robots for our franchisees.opting to rescind their franchise agreements. Given our current cash position, we may be forced to curtail our plans by delaying or suspendingdelay the production and purchase of robotsrobotic soft serve vending kiosks until such time that we may able to prepay for our corporate operations pending our receipt of added capital, electing to forego repurchasing machines from franchisees and slowing the ordering of production units.

As of June 30, 2017, the Company had $334,000 outstanding under the Initial Notes, $250,000 outstanding under the Financing Agreement, $300,000 outstanding under the Promissory Note, $353,000 outstanding under a loan agreement with its Chairman, approximately $297,000 under two Secured Promissory Notes, $345,000 outstanding under a bridge loan and $2 million under a loan related to the Robofusion acquisition.future robots.

During the fourth quarter of the fiscal year, ended Junewe issued convertible debt with principal balances aggregating to $2.9 million. Private placement memorandums were used for $2.2 million of the convertible debt. The maturities of these notes vary from 12 to 30 2017,months. These notes are convertible into common stock which would be subject to Section 144 selling restrictions. We used the Company raised equity proceeds aggregating $2.3 million (net of a $300,000 receivable). Furthermore, subsequentfrom this debt to June 30, 2017, through September 22, 2017, the Company raised an additional $1.7 in equity proceeds.fund kiosk production and operating expenses.

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Critical Accounting Estimates

We have identified the following as our most critical accounting estimates, which are those that are most important to the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Information regarding our other significant accounting estimates and policies are disclosed in Note 1 to our consolidated financial statements.

Revenue recognition — Our primary revenue generating transactions will come from the sale of franchises and frozen yogurt robotsrobotic soft serve vending kiosks to the franchisees. There are no franchise fees charged beyond the initial first year franchise fees. We receive ongoing royalty fees, which represent other revenuesroyalty revenue in the Company’s financial statements, as a percentage of either franchisees’ gross revenues or gross margins on vending machine sales. We also receive rebatescommission income on purchases of consumable products made by our franchisees.

We recognize revenues and associated costs in connection with franchisees (machines and franchise fees) at the time that we have substantially performed or satisfied all material services or conditions relating to the franchise agreement. We consider substantial performance to have occurred when: 1) no remaining obligations are unfulfilled under the franchise agreement; 2) there is no intent to refund any cash received or to forgive any unpaid amounts due from franchisees; 3) all of the initial services spelled out in the franchise agreement have been performed; and 4) we have met all other material conditions or obligations. Revenues and expenses from product sales to franchisees are roughly equivalent and are accounted for on a net basis in the accompanying consolidated statements of operations as agency sales, net. We recognize the commission when earned. The Company recognizes revenue on product sales of company-ownedCompany-owned machines when products are purchased; we receive electronic sales records on our company-ownedCompany-owned units. We recognize royalty fees as revenue when earned.

The Company records the deposit amount ofrequired under a franchise sale, machines and franchise fees,sales agreement as deferred revenuea contract liability until the conditions above have been met. Once the machineskiosks are installed,shipped, the Company records sales amounts related to the corresponding machinekiosk sale and franchise fee as revenue, on a pro rata basis based on the number of machines installed relative to the total machines purchased.revenue.

The Company records the value of company-owned machines as inventory when purchased. Once the machines are installed, the machine value is transferred to fixed assets and depreciated over its useful life.

It is not our policy to allow for returns, discounts or warranties to our franchisees. Our robotic soft serve vending kiosks include a one-year parts warranty from the Company. Extended parts warranties beyond the initial year may be purchased for an additional cost to the franchisee. Under certain circumstances, including as the result of regulatory action, our Company may become obligated to offer our franchisees amounts ina rescission and to reacquire their existing franchises, including machines.kiosks. Additionally, if our Company is unable to fulfill its obligations under a franchise agreement we may, at our sole discretion, agree to refund or reduce part or all of a franchiseesfranchisee’s payments or commitments to pay. Some rescission agreements require the Company to repurchase kiosks previously delivered to franchisees. We do not account for the repurchase of used kiosks as a product return, thus the transaction has no impact on revenue or cost of revenue. The gain or loss on the repurchase of used kiosks from rescission agreements is recorded on the statement of operations as provision for franchisee refund. Additional expenses included in the provision for franchisee refund include legal fees incurred by the franchisee and any other damages detailed in rescission agreements.

The company records liabilities associated with rescission agreements as a provision for franchisee rescissions and refunds. As of June 30, 2017,2019, and 2016,June 30, 2018, the Company’s provision for franchisee rescissions and refunds totaled $2,692,618was approximately $7,856,000 and $1,844,176,$1,924,000, respectively. ThereThe provision is based on executed termination agreements and an estimate of future terminations. A low level of refunds are vending warranties extended by the machine manufacturer and its distributors, but required repairs to the machines are the responsibilitya normal part of the business model; however, the aforementioned delays in production and kiosk delivery increased the requests for refunds from franchisees. ToExecuted termination agreements contain multi-month payment schedules to refund deposits made on robots, franchise fees, and location fees. Based on these schedules, the extent the vending machines remain under warranty, our franchisees transact directly with the manufacturer or its distributor. Our frozen yogurt robots include a one-year warranty from the Company. Extended parts warranties beyond the initial year maycurrent provision balance is expected to be purchased for an additional cost by the franchisee.

Vending & Micro Market Franchise contracts— We invoice franchisees in full at the time that we enter into contractual arrangements with them. Payment terms vary but usually a significant portion of the contract’s cash consideration (typically 40% of machines plus 100% of the franchise fees) is due at the time of signing, while remaining amounts outlined under the contract are generally due upon our locating 50% of the sites for the vending machines and micro markets.paid gradually through August 2020.

Reis & Irvy’s Franchise contracts — We invoice franchisees in full at the time that we enter into contractual arrangements with them. Payment terms vary but usually a significant portion of the contract’s cash consideration (typically 40% - 50% of machines plus 50% - 100% of the franchise fees) is due at the time of signing, while remaining amounts outlined under the contract are generally due upon the securing of locations and/or prior to shipment of the machines.

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Amounts invoiced to franchisees for which we have not met the criteria for revenue recognition as discussed above, are deferred until such conditions are met. Therefore, these amounts are accounted for as accounts receivable, deferred costs,contract assets – due from franchisees and customer advances and deferred revenues, respectively in the accompanying consolidated financial statements. As of June 30, 2017, the Company had accounts receivable, deferred costs and customer advances and deferred revenues totaling $12,947,611, $196,317 and $25,042,850, respectively. As of June 30, 2016, the Company had accounts receivable, deferred costs and customer advances and deferred revenues totaling $2,411,346, $394,563 and $8,062,982 respectively.

Accounts receivable, net— Accounts receivable arise primarily from invoices for customer deposits, product royalties and annual advertising fees and are carried at their estimated collectible amounts, net of any estimated allowances for doubtful accounts. We grant unsecured credit to our customers deemed credit worthy. Ongoing credit evaluations are performed, and potential credit losses estimated by management are charged to operations on a regular basis. At the time any particularan account receivable is deemed uncollectible, the balance is charged to the allowance for doubtful accounts. Our allowance for doubtful accounts aggregated $198,710 and $160,647approximately $174,000 at both June 30, 20172019 and 2016, respectively.2018.

Share-based Compensation —We offer share-based compensation plans to attract, retain and motivate key officers, non-employee directors and employees to work toward the financial success of the Company. Share-based compensation cost for our stock option grants is estimated at the grant date based on the award’s fair-value as calculated by an option pricing model and is recognized as expense ratably over the requisite service period. The option pricing models require various highly judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period.

Legal accruals —The Company is subject to claims and lawsuits in the ordinary course of its business. A determination of the amount accrued, if any, for these contingencies is made after analysis of each matter. We continually evaluate such accruals and may increase or decrease accrued amounts, as we deem appropriate. Because lawsuits are inherently unpredictable, and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgment about future events. As a result, the amount of ultimate loss may differ from those estimates.

Income taxes —We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits, effective rates for state and local income taxes and the tax deductibility of certain other items. We adjust our effective income tax rate as additional information on outcomes or events becomes available. Our estimates are based on the best available information at the time that we prepare the income tax provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.

Valuation of options and warrants —We separately value warrants to purchase common stock when issued in connection with notes payable using the Black Scholesa binomial quantitative valuation method. The value of such warrants is recorded as a discount from the related notes payable and credited to additional paid-in capital at the time of the issuance of the related notes payable. The value of the discount is applied to the note payable and amortized over the expected term of the note payable using the interest method with the related accretion charged to operations.

We account for our share-based compensation as required by the Financial Accounting Standards Board (“FASB”) under authoritative guidance ASC 718 on stock compensation, using the Black Scholesa binomial quantitative valuation method. The resulting compensation expense is recognized in the financial statements on a straight-line basis over the vesting period from the date of grant.

Share grants are measured using a fair value method with the resulting compensation cost recognized in the financial statements. Compensation expense is recognized on a straight-line basis over the service period for the stock awards.

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Fair value of financial instruments — The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the abilityis able to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

The Company monitors the market conditions and evaluates the fair value hierarchy levels at least quarterly. For any transfers in and out of the levels of the fair value hierarchy, the Company elects to disclose the fair value measurement at the beginning of the reporting period during which the transfer occurred.

The Company’s financial instruments consisted of cash, cash in escrow, accounts receivable, accounts payable and accrued liabilities, provision for franchisee rescissions and refunds, accrued personnel expenses, due to related party and notes payable. The estimated fair value of these financial instruments approximateapproximates the carrying amount due to the short maturity of these instruments. The recognition of the derivative values of convertible debt are based on the weighted-average Black-Scholesbinomial option pricing model.

Fair value of financial instruments — In April 2008, the FASB issued a pronouncement that provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. This pronouncement was effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of these requirements can affect the accounting for many convertible instruments with provisions that protect holders from a decline in the stock price. Each reporting period, the Company evaluates whether convertible debt to acquire stock of the Company contains provisions that protect holders from declines in the stock price or otherwise could result in modification of the conversion price under the respective convertible debt agreements. The Company determined that the conversion feature in the convertible notes issued contained such provisions and recorded such instruments as derivative liabilities. See Note 6, Notes9, Convertible notes payable.

Off Balance Sheet Arrangements

NoneNot applicable for small reporting companies.

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New Accounting Pronouncements

In July 2015, FASB issued ASU 2015-11, “Inventory (Topic 330) Related to Simplifying the Measurement of Inventory,” which applies to all inventory except that which is measured using last-in, first-out (“LIFO”) or the retail inventory method. Inventory measured using first-in, first-out (“FIFO”) or average cost is within the scope of the new guidance and should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance is applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. The Company adopted ASU 2015-11 effective July 1, 2017, which had no material impact on its consolidated financial statements or financial statement disclosures.

In January 2017, the Financial Accounting Standards Board (the “FASB”) issued new guidance for goodwill impairment which requires only a single-step quantitative test to identify and measure impairment and record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The option to perform a qualitative assessment first for a reporting unit to determine if a quantitative impairment test is necessary does not change under the new guidance. This guidance is effective for the Company beginning in fiscal year 2020 with early adoption permitted. The Company expects to adoptadopted this guidance in fiscal year 2017. The adoption of this guidance will have no impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued new guidance addressing diversity in practiceASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that existsa statement of cash flows explain the change during the period in the classificationtotal of cash, cash equivalents, and presentation of changes inrestricted cash. Therefore, amounts generally described as restricted cash in the statements of cash flows. This guidance is effective for the Company beginning in fiscal year 2018 with early adoption permitted. The Company expects to adopt this guidance retrospectively beginning in fiscal year 2017. Upon adoption, restricted cash willshould be combinedincluded with cash and cash equivalents when reconciling the beginning of period and end of period balances intotal amounts shown on the consolidated statementsstatement of cash flows, and the current presentation of changes intransfers between cash and cash equivalents and restricted cash are no longer presented within operatingthe statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early adopt ASU 2016-18 for the reporting period ended December 31, 2017 and financing activities will be eliminated. Thethe standard was applied retrospectively for all periods presented which had no material impact on prior years. As a result of the adoption of this guidance will haveASU 2016-18, the Company no impact onlonger presents the Company’schange within restricted cash in the consolidated financial statements.statement of cash flows.

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued new guidance for employee share-based compensation which simplifies several aspects of accounting for share-based payment transactions, including excess tax benefits, forfeiture estimates, statutory tax withholding requirements, and classification in the statements of cash flows. This guidance iswas effective for the Company in fiscal year 2017. Under the new guidance any future excess tax benefits or deficiencies are recorded to the provision for income taxes in the consolidated statements of operations, instead of additional paid-in capital in the consolidated balance sheets. During fiscalthe years ended 2017June 30, 2019 and 2016,2018, no excess tax benefits were recorded to additional paid-in capital that would have been recorded as a reduction to the provision for income taxes.

In February 2016, the FASB issued new guidance for lease accounting, which replaces existing lease accounting guidance. The new guidance aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. This guidance is effective for the Company in fiscal year 20192020 with early adoption permitted, and modified retrospective application is required. The Company expects to adopt this new guidance in fiscal year 20192020 and is currently evaluating the impact the adoption of this new guidance will have on the Company’s consolidated financial statements and related disclosures. The Company expects that substantially all of its operating lease commitments (see note 11)Note 12) will be subject to the new guidance and will be recognized as operating lease liabilities and right-of-use assets upon adoption.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which removed the requirement for an entity to disclose in the interim periods after adoption, the effect of the change on income from continuing operations, net income, any other affected financial statement line item, and any affected per share amount. For lessors, the new leasing standard requires leases to be classified as a sales-type, direct financing or operating leases. These criteria focus on the transfer of control of the underlying lease asset. This standard and related update were effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

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In May 2014, the FASB issued new guidance forASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the revenue recognition related to contracts with customers, except for contracts within the scope of other standards, which supersedes nearly all existing revenue recognition guidance. The new guidance provides a single framework in which revenue is required to be recognized to depict the transfer of promised goods or services to customers in amountsan amount that reflectreflects the consideration to which a companythe entity expects to be entitled in exchange for those goods orand services. ASU 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. The new guidance is effectiveNew Revenue Standard provides for a single comprehensive principles-based standard for the Company in fiscal year 2018recognition of revenue across all industries through the application of the following five-step process:

Step 1: Identify the contract(s) with early adoption permitted in fiscal year 2017. The Company expects to adopt this new guidance in fiscal year 2018 usinga customer.

Step 2: Identify the full retrospective transition method, which will result in restating each prior reporting period presentedperformance obligations in the yearcontract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

This five-step process will require significant management judgment in addition to changing the way many companies recognize revenue in their financial statements. Additionally, and among other provisions, the New Revenue Standard requires expanded quantitative and qualitative disclosures, including disclosure about the nature, amount, timing and uncertainty of adoption.revenue.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), which defers the effective date of ASU 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company expects theCompany’s adoption of the new guidance toASU 2014-09 will not change the timing of the recognition of initial franchise fees. Currently, thesefees as all performance obligations as detailed in the franchise agreement relating to franchise fees are recognized when a machineconsidered met at the time of kiosk shipment.

In March 2016, FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this update change the accounting for certain stock-based compensation transactions, including the income tax consequences and cash flow classification for applicable transactions. The amendments in this update are effective for annual periods beginning after December 31, 2016 and interim periods within those annual periods. The Company is installed or when a renewal agreement becomes effective. The newcurrently evaluating the impact that this amendment will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes existing guidance willon accounting for leases in Leases (Topic 840) and generally require these feesrequires all leases, including operating leases, to be recognized overin the termstatement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. In July 2018, the related franchise licenseFASB issued ASU 2018-10 “Codification Improvements of Topic 842, Leases” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” ASU 2018-11 provides companies another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The consideration in the contract is allocated to the lease and non-lease components on a relative standalone price basis (for lessees) or in accordance with the allocation guidance in the new revenue standard (for lessors). ASU 2018-11 also provides lessees with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component. If a lessee makes that accounting policy election, it is required to account for the respective machines, which we expect will result innon-lease components together with the associated lease component as a material impactsingle lease component and to revenue recognized for franchise fees and renewal fees. The Company doesprovide certain disclosures. Lessors are not expect this new guidance to materially impact the recognition of royalty income, or sales of frozen yogurt and other products.afforded a similar practical expedient. The Company is continuing to evaluateevaluating the impact the adoption of this new guidanceeffect ASU 2016-02, 2018-10 and 2018-11 will have on theseits consolidated financial statements and other revenue transactions.disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time.

Effective January 2017, FASB issued ASU No. 2016-15 “Statement of Cash Flows” (Topic 230). This guidance clarifies diversity in practice on where in the Statement of Cash Flows to recognize certain transactions, including the classification of payment of contingent consideration for acquisitions between Financing and Operating activities. We are currently evaluating the impact that this amendment will have on our consolidated financial statements.

On January 5, 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business” (Topic ASC 805), guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and remove the evaluation of whether a market participant could replace the missing elements. This ASU is effective for public business entities in annual periods beginning after December 15, 2017, including interim periods therein. We are currently evaluating the impact that this amendment will have on our consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation” (Topic 718) - Scope of Modification Accounting. This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This ASU is effective prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. We are currently evaluating the impact that this amendment will have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”, which adds disclosure requirements to Topic 820 for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company is evaluating the provisions of this ASU and plans to adopt this ASU effective July 1, 2020.

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Item 7A – Quantitative and Qualitative Disclosures about Market Risk

Disclosure not required as a result of our Company’s status as a smaller reporting company.

Item 8 – Financial Statements and Supplementary Data–– Included on page F-1 within this Annual Report on Form 10-K.

Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On January 15, 2018, the Company’s Board of Directors dismissed Anton & Chia, LLP as the Company’s independent registered public accountants. During the Company’s two fiscal yearsyear ended June 30, 2017 and through January 15, 2018, there were no disagreements between the Company and Anton & Chia, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Anton Chia’s& Chia LLP’s satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their reports on the Company’s financial statements for such years or periods; and there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.

On January 15, 2019 the Company appointed Benjamin & Young LLP as our independent registered public accountants. During the Company’s fiscal years ended June 30, 2019, and June 30, 2018, there were no disagreements between the Company and Benjamin & Young, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Benjamin & Young LLP’s satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their reports on the Company’s financial statements for such years or periods; and there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.

Item 9A – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management has designed our disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.

As required by Exchange Act Rule 13a-15(b), we have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our management, and the design and operation of our disclosure controls and procedures as of June 30, 2017.2019.

Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) has concluded that as of the end of the period covered by this Annual Report on Form 10K, our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were not deemed effective in order to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure (see below for further discussion).

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Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a- 15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We recognize that because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

To evaluate the effectiveness of our internal control over financial reporting, management used the criteria described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) - 1992.– 1992, as amended in 2013.

In connection with management’s assessment of our internal control over financial reporting, we determined that as of June 30, 2019, there was a material weakness in our internal control over financial reporting asdue the lack of June 30, 2017.an audit committee. Since the Company is not listed on a national exchange or on an automated interdealer quotation system, it is not required to have an audit committee or independentindependent directors, and thus doesdid not have a controlling independent board or audit committee. We consider this to be a material weakness as an independent board and audit committee provide important oversight. TheSubsequent to June 30, 2019, the Company is inremediated the process of addressing this issuematerial weakness by establishing an audit and a compensation committee and appointing two independent directors, with at least one having financial expertise.expertise to be the Audit Chairman. The Company determined that there may be a material weakness related to the identification of transactions that could be deemed violations of Section 13(k) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 402 of the Sarbanes-Oxley Act of 2002. The specific material weaknesses identified by the Company’s management as of end of the period covered by this report include the following:

Despite the material weaknesses reported above, our management believes that our consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

The Company remediated this material weakness by adding qualified personnel to the accounting department and developing and implementing internal controls to eliminate such transactions.

Changes in Internal Control Over Financial Reporting

There were no material changes in our internal control over financial reporting (as defined in Rule 13a- 15(f) under the Exchange Act) that occurred as of June 30, 2017,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2017.2019. Our management’s evaluation of our internal control was based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework - 1992”– 1992, as amended in 2013”). Based on its evaluation under theInternal Control - Evaluation Framework,due to the material weakness described above, management concluded that our internal control over financial reporting was not effective as of June 30, 2017.2019. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis by the Board in the normal course of their duties.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to a permanent exemption for non-accelerated filers from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

Officers’ Certifications

Appearing as exhibits to this Annual Report are “Certifications” of our Chief Executive Officer and Chief Financial Officer. The Certifications are required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the Annual Report contains information concerning the Controls Evaluation referred to in the Section 302 Certification. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Item 9B – Other Information

None

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Part III

Item 10 – Directors, Executive Officers and Corporate Governance

The names of our current officers and directors during the reporting period, as well as certain information about them, are set forth below:

Name		Age		Position
Nicholas Yates		43	41	Chief Executive Officer, Chairman, Director
Arthur S. Budman	Vice President Corporate Operations,	57		Director
Ryan Polk		51		Chief Financial Officer
Christopher Maudlin		36		Director
Lavaille Lavette		53		Director

_________

NicholasMr. Yates has been our Chairman of the Board of Directors and our Vice President of Operations, as well as the Vice President of Corporate Operations of FHV LLCGNFB since July 2013, responsible for the development of FHV LLC’sfocusing on developing company-owned businesses. Effective October 1, 2014,businesses, international franchising, company financings and investor relations. Mr. Yates resigned his position as Vice Presidentidentified Robofusion, the original inventor of Corporate Operations of FHV LLC. From July 2011 to July 2013,the Robotic Vending Kiosk now operated by Reis & Irvy’s, he secured the Company’s exclusive manufacturing partner Flex Ltd., created entirely our international license program, and negotiated the exclusive agreement with Compass Group USA. Mr. Yates provided consulting services tohas also assumed the role of Chief Executive Officer of FHV LLC in San Diego, California and, prior to that time, from April 2006 to May 2010, Mr. Yates was the General Manager for FHV Cal. In January 2014, FHV Cal was dissolved and its shares of the Company’s common stock were distributed to a trust of which Mr. Yates is the principal beneficiary.effective September 27, 2018. On March 30, 2007, Mr. Yates filed a Debtor’s Petition with the Insolvency and Trustee Service in Australia to declare himself bankrupt in that country.

Arthur S. Budman was appointed as our Chief Executive Officer and Chief Financial Officer on October 1, 2014. From May 19, 2014 to September 30, 2014, he oversaw our financial and accounting departments in a consultancy capacity. Mr. Budman has been a Managing Partner of Ameritege Technology Partners, a boutique private equity firm, located in San Diego California, since February 2002. Mr. Budman has been a principal at Rudy Biscuit, Inc. in Buena Park,stepped down as CEO on September 27, 2018 and retained CFO responsibilities. Mr. Budman served as Chief Financial Officer of FHV LLC, one of the Company’s subsidiaries, which as of September 28, 2018, executed an Assignment for the Benefit of Creditors under California an overstock merchandise liquidation business, sincelaw. Mr Budman stepped down as the CFO and no longer was employed by the Company as of March 2011.31, 2019.

Mr. FinleyRyan Polk was appointed as our Chief Financial Officer on April 1, 2019. Polk has held President, CFO, and COO positions with founder and private equity owned consumer products companies with revenues above $150 million. Before joining the Company, Polk was a principal with Perissos Partners in Irvine, California, from June 2017 to March 2019. Polk served as the CFO and COO of Cellpoint Corporation whose principal business was the reclamation and recycling of Apple and Samsung mobile device parts for the major US mobile carriers. From July 11 to May 2017, he filled executive roles in the portfolio companies owned by LDI, a family office based in Indianapolis. LDI actively managed investments in distribution, light manufacturing, and supply chain management. He led the mergers and acquisition team for LDI as well. Polk also served as the Vice President Corporate FP&A for Brightpoint, a publicly traded, Fortune 100 mobile device logistics company, based in Indianapolis prior to its sale to Ingram Micro. He has 18 consecutive years of experience working with international employees, customers, and suppliers. He is an alum of Ernst & Young.

Effective September 11, 2018, the Company elected Chris Maudlin to the Board of Directors. Chris will also serve as the Chairman of the Company’s audit committee and compensation committee. Chris Maudlin has been the Head of the Private Client Group at Artivest, a memberNew York and California based Financial Technology firm since July 2009. Chris brings 14 years of our Company’sexperience in investment consulting to his current role. Chris has been with Artivest (formerly Altegris) for over 9 years. Prior to joining Altegris in 2009, Chris worked in investment advisory roles at several companies, including Merrill Lynch and Morgan Stanley. Chris received a BA in Communications from University of California, Davis, holds the designation of Chartered Alternative Investment Analyst (CAIA) and Series 7, 24, 31 and 66 licenses.

Furthermore, effective September 13, 2018, the Company elected Lavaille Lavette to the Board of Directors since September 2013. Mr. Finley graduated withDirectors. With a degreeMaster’s in Physiology from Southern Illinois University at Carbondale in 1987. Mr. Finley wasEducation, Lavaille Lavette has worked as an investment broker, schoolteacher, school district administrator, speechwriter, marketing executive and sales/-merchandising leader. A best-selling author, marketing and educational expert, Lavaille served as the Special Advisor to the U.S. Secretary of Education, 2001 – 2005. Lavaille is a major league baseball player for 19 years from 1989 through 2007 winning five gold gloves, appearing in two All-Star games and winning a World Series with the Arizona Diamondbacks in 2001. Throughout his career Mr. Finley was known for his physical fitness programs which enabled him to play until his retirement in 2007 at age 42. Since late 2009 until the present Mr. Finley has been worked on business development with Apheta (a company providing advance planning services for high net worth individuals and athletes) and GS Levine Insurance services (a property/casualty and commercial insurance agency) and currently works with Morgan StanleyFounding Board Member and the San Diego Padres.first President of the Luanda Africa Sister City Association. She is involved in a number of international charitable ventures.

Currently she heads up a branding/marketing consulting firm and multi-media packaging company. In addition to the branding and marketing of well-known personalities, the company develops and markets products in the airport, publishing, food, and the sports industry. Over the past 15 years Lavaille has used her merchandising and sales expertise to manage a number of airport food and retail concepts.

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In evaluating director nominees, we principally consider the following among other business and personal factors:

Our goal is to assemble a Board of Directors that brings our Company a variety of perspectives and skills derived from high quality business, professional and personal experience. Personal integrity is a necessary requirement for every member of our Board.

There are no family relationships among any of our officers or directors. No non-independent director ismanagement representatives are compensated for his or her service on our Board of Directors. Mr. Finley isOur new directors will be paid an annual retainer of $12,000,$24,000, payable $1,000$2,000 per month. In addition, he receives $250 for each meeting attended,month and $150 for each telephonic meeting or written action of the Board in which he participates and/or signs.will receive 250,000 stock options vesting over a two-year period.

Corporate Governance

Board Committees

We presently do not have an audit committee and a compensation committee or nominating committee or committee performing similar functions. Our current Board plans to formcommittee. The audit and compensation committees were each chaired by Christopher Maudlin as of June 30, 2019, who is an audit, compensationindependent board member and nominating committee in the future. We envision that thea financial expert. The audit committee will beis primarily responsible for reviewing the services performed by our independent auditors and evaluating our accounting policies and systems of internal controls. We envision that theThe compensation committee will beis primarily responsible for reviewing and approving our salary and benefits policies and other compensation of our executive officers. TheSubsequent to June 30, 2019 and following the appointment of Thomas McChesney as an independent member on September 1, 2019, a nominating committee wouldwill be formed which will be primarily responsible for nominating directors and setting policies and procedures for the nomination of directors. The nominating committee would also be responsible for overseeing the creation and implementation of our corporate governance policies and procedures. Until these committees are established, these decisions will continue to be made by our Board of Directors.

Director Independence

The Board believes that Mr. Finley is independent asThomas McChesney, newly appointed to the termBoard on September 1, 2019 and Mr. Maudlin are considered “independent” is defined by the rules of NASDAQ Rule 5605.

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Involvement in Certain Legal Proceedings

To our knowledge except as may be noted above or under “Legal Proceedings”, none of our directors or executive officers have been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or have been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and beneficial owners of more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission (“SEC”) initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Directors, executive officers and greater than 10% beneficial owners are required by SEC regulations to furnish to us copies of all Section 16(a) reports they file.

The Company’s Officers and Directors have properly filed beneficial holdings reports as required under Section 16a of the SEC.

Code of Business Conduct and Ethics

We have not yet adopted a Code of Business ConductEthics for our management. We intend to adopt a Code of Ethics which when adopted will apply to all our executive officers and Ethicsdirectors as well as any other employees who perform any accounting or financial functions or operations for us. Although we have not adopted a formal code of ethics, the Company’s employee handbook states that appliesall employees must adhere to among other persons, our principal executive officer, principal financial officer, principal accounting officer or controller,the highest ethical and persons performing similar functions.legal standards.

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Item 11 – Executive Compensation

Summary Compensation Table

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual compensation in excess of $100,000.

																								Change in
																								Pension
																								Value and
																								Non-Qualified
																				Non-equity				Deferred				All
												Stock				Option				Incentive				Compensation				Other
				Salary				Bonus				Awards				Awards				Comp				Earnings				Comp.				Total
Position		Year		($)				($)				($)(1)				($)(2)				($)				($)				($)(3)				($)
Nicholas Yates		2017			200,000				315,265				-				508,000				-				-				12,796				1,036,061
Vice President, Operations, Director		2016			200,000				90,997				-				34,000				-				-				5,402				330,399
Arthur S. Budman (4)		2017			175,000				112,829				-				50,800				-				-				5,264				343,893
Chief Executive Officer, Chief Financial Officer, Director		2016			175,000				47,867				21,500				17,000				-				-				4,740				266,107
Alex Kennedy (5)		2017			-				1,200				-				-				-				-				-				1,200
Director of Franchise Development, Director		2016			52,616				-				-				-				-				-				2,593				55,209
Steve Finley (6)		2017			12,000				-				-				-				-				-				-				12,000
Independent Director		2016			12,000				-				-				-				-				-				-				12,000

																				Change in
																				Pension
																				Value and
																				Non-Qualified
																Non-equity				Deferred				All
												Option				Incentive				Compensation				Other
				Salary				Bonus				Awards				Comp				Earnings				Comp.				Total
Position		Year		($)				($)				($)(1)				($)				($)				($)(2)				($)
Nicholas Yates		2019			200,000				197,943				-				-				-								397,943
Chief Executive Officer, Director		2018			200,000				611,488				3,802,500				-				-				-				4,613,988
Arthur S. Budman		2019			123,397				51,490				-				-				-				148,077				322,964
Chief Executive Officer, Chief Financial Officer, Director		2018			175,000				90,872				253,500				-				-				-				519,372
Ryan Polk		2019			50,000				33,250				-				-				-				-				83,250
Chief Financial Officer, Chief Operations Officer

___________________

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(1)	The amounts in this column are the fair value of stock awards.
(1)	The amounts in this column are the fair value of stock awards.
(2)	The amounts in this column are the annual fair values of stock option grants in accordance with ASC 718. The grant date fair values have been determined based on the assumptions and methodologies set forth in Note 9 to the consolidated financial statements.
(3)(2)	The amountsMr. Budman received a $148,077 payment upon stepping down as Chief Financial Officer on April 1, 2019. This payment included $87,500 in this column are for Company provided health benefits.severance and $60,577 in accrued PTO.
(3)	The amounts in this column areCompany paid a bonus to the Chairman for Company provided health benefits.
(4)	Mr Budman was appointed Chief Executive Officer and Chief Financial Officer on October 1, 2014. Included in Mr. Budman's salary was approximately $60,323 related to consulting wages.
(5)	Ms. Kennedy resigned from the Board of Directors and her position as Director of Franchise Development on October 1, 2015.
(6)	Mr. Finley isCompany’s stock that potential franchisees purchased. In this regard, the Company paid $1,000 per month in connection with his role as an independent directorapproximately $332,000 to its Chairman for the time-period from July 2017 to April 2018. The Company will take steps to recapture the value of the Company.these payments previously made.

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Grants of Stock Awards

In connection with his initial employment agreement, Mr. Budman was granted 250,000 shares of common stock that vested ratably over twelve months, commencing October 15, 2014. Furthermore, during fiscal 2016, Mr. Budman was granted options to purchase 250,000 shares of common stock at $.095 per share, representing the then fair market value of the options at the time of grant. The options vest 100% in twelve months from the date of grant. On January 20, 2017, the Company granted non-qualified stock options (outside of the 2013 Plan) aggregating 500,000 shares, to Mr. Budman. The options vest 50% upon the delivery of 400 frozen yogurt robots or achieving cumulative revenue of $15 million and 50% upon the delivery of 800 frozen yogurt robots or achieving cumulative revenue of $30 million.

During fiscal 2016, Mr.Nicholas Yates was granted options to purchase 500,000 shares of common stock at $.095 per share, representing the then fair market value of the options at the time of grant. The options vest 100% in twelve months from the date of grant.

On January 20, 2017, the Company granted non-qualified stock options (outside of the 2013 Plan) aggregating 5,000,000 shares at $0.16 per share to its Chairman. The options vest 50% upon the delivery of 400 frozen yogurt robotsrobotic soft serve vending kiosks or achieving cumulative revenue of $15 million and 50% upon the delivery of 800 frozen yogurt robotsrobotic soft serve vending kiosks or achieving cumulative revenue of $30 million.

On February 23, 2018, the Company granted non-qualified stock options (outside of the 2013 Plan) aggregating 4,500,000 shares at $0.87 per share, to Mr. Yates. The options vest 50% upon 1,200 units installed or $45 million in cumulative revenue; and 50% upon 2,000 units installed or $75 million in cumulative revenue.

Arthur S. Budman

On January 20, 2017, the Company granted non-qualified stock options (outside of the 2013 Plan) aggregating 500,000 shares at an exercise price of $0.16 per share, to Mr. Budman. The options vest 50% upon the delivery of 400 robotic soft serve vending kiosks or achieving cumulative revenue of $15 million and 50% upon the delivery of 800 robotic soft serve vending kiosks or achieving cumulative revenue of $30 million.

On February 23, 2018, the Company granted non-qualified stock options (outside of the 2013 Plan) aggregating 300,000 shares at $0.87 per share, to Mr. Budman. The options vest 50% upon 1,200 units installed or $45 million in cumulative revenue; and 50% upon 2,000 units installed or $75 million in cumulative revenue.

Option Exercises and Stock Vested

During fiscal 2016,year 2019, Mr. Finley exercised 100,000 options using the cashless exercise feature. As a result, Mr. Finley was issued 60,715Yates vested 2,500,000 shares of common stock. Furthermore, during fiscalin relation to his January 20, 2017, Mr. Finley exercised 150,000 options using the cashless exercise feature. As a result, Mr. Finley was issued 119,854 shares of common stock.non-qualified stock option grant.

Outstanding Equity Awards at Fiscal Year EndAs of April 1, 2019, Mr. Budman was no longer an active employee of the Company. At the time of departure, none of the performance obligations detailed in both the January 20, 2017, or the February 23, 2018, non-qualified stock option grants had been achieved.

At June 30, 2017, Mr. Yates held 5,500,000 options to purchase common stock, of which 500,000 were exercisable at $.095 per share. At June 30, 2017, Mr. Finley held 194,488 options to purchase common stock, of which 194,488 were exercisable at $.165 per share. At June 30, 2017, Mr. Budman held 250,000 options to purchase common stock, of which 250,000 were exercisable at $.095 per share.

Compensation of Directors

On September 4, 2013, the Company appointed Steve Finley as an independent member to its Board of Directors. In connection with Mr. Finley’s appointment, he was granted non-qualified stock options to purchase 500,000 shares of the Company’s common stock at $.165 per share, the then current value of the stock. The options vest ratably over a three year period and expire five years from the date of grant. Additionally, Mr. Finley is paid $1,000 per month for Board services. During the year ended June 30, 2017, Mr. Finley was compensated $12,000 in connection with his Board appointment.

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Outstanding Equity Awards at Fiscal Year End

Stock Awards

Equity

invcentive

Equity

plan

Option Awards

incentive

awards:

Equity

plan

Market

incentive

awards:

or payout

plan

Number of

value of

awards:

Market

unearned

unearned

Number of

Number of

Number of

Number of

value of

shares,

shares,

securities

securities

securities

shares or

share of

units

units

underlying

underlying

underlying

units of

units or

or other

or other

unexercised

unexercised

unexercised

Option

stock that

stock that

rights that

rights that

options

options

unearned

Exercise

Option

have not

have not

have not

have not

exercisable

non-exercisable

options

Price

Expiration

vested

vested

vested

vested

Position

(#)

(#)

(#)

($)

Date

(#)

($)

(#)

($)

Nicholas Yates,

2,500,000

2,500,000

-

$

0.16

1/19/2024

-

-

-

-

Chairman and Chief Executive Officer

-

4,500,000

-

$

0.87

2/22/2025

-

Arthur S. Budman,

-

-

-

$

0.16

1/19/2024

-

-

-

-

Director

-

-

-

$

0.87

2/22/2025

-

-

-

-