UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2021 |
Commission file number 000-53707
TRIDENT BRANDS INCORPORATED |
(Exact name of registrant as specified in its charter) |
Nevada
(State or other jurisdiction of incorporation or organization)
200 South Executive Drive, Suite 101
Brookfield, WI 53005
(Address of principal executive offices, including zip code.)
(262)789-6689
(Telephone number, including area code)
Resident Agents of Nevada
711 S. Carson Street, Suite 4
Carson City, NV 89701
(Name and Address of Agent for Service)
Check 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 last 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 (§232.405 of this chapter) 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer, "accelerated” “accelerated filer," "non-accelerated filer,"” “smaller reporting company,” and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging Growth Company | ☒ |
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 number of the registrant’s common shares outstanding as of October 16, 2017July 20, 2021 was 32,311,887.
TRIDENT BRANDS INCORORATED
FORM 10-Q
For the quarterly period ended AugustMay 31, 2016
6 | |||
Consolidated Balance Sheets as at | 6 | ||
7 | |||
8 | |||
9 | |||
10 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
23 | |||
23 | |||
25 |
Basis of Presentation
Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q (“Form 10-Q”) to the “Company”, “we”, “us”, “our”, “Trident” and “Trident Brands” or similar words and phrases are to Trident Brands Incorporated and its subsidiaries, taken together.
In this report, all currency amounts are expressed in thousands of United States (“U.S.”) dollars (“$”), except per share data, unless otherwise stated. Amounts expressed in other than U.S. dollars are noted accordingly. For example, amounts if expressed in Canadian dollars are expressed in thousands of Canadian dollars and preceded by the symbol “Cdn $”.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements which are based on our current expectations and assumptions and involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as “anticipate”, “estimate”, “intend”“intend��, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, the negatives of such terms, and words and phrases of similar impact and include, but are not limited to references to expected increases in revenues and margins, growth opportunities, the success of new product launches and line extensions, our ability to finance our business, potential strategic investments, business strategies, competitive strengths, goals, references to key markets where we operate and the market for our securities. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our interpretation of current conditions, historical trends and expected future developments, as well as other factors that we believe are appropriate in the circumstance.
Whether actual results and developments will agree with our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from our expectations and predictions. We believe these factors include, but are not limited to, the following:
● | we have a limited operating history with significant losses and expect losses to continue for the foreseeable future; |
● | we have an urgent need for additional capital to |
● | we could face intense competition, which could result in lower revenues and higher expenditures and could adversely affect our results of operations; |
● | we are governed by only three persons serving as directors and officers which may lead to faulty corporate governance; |
● | we must attract and maintain key personnel or our business may fail; |
● | we may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions; |
● | our business and operating results could be harmed if we fail to manage our growth or change; |
● | we have a limited operating history and if we are not successful in growing our business, then we may have to scale back or even cease our ongoing business operations; |
● | if our intellectual property is not adequately protected, then we may not be able to compete effectively and we may not be profitable; |
● | if we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could impact our ability to stay in business; |
● | we could lose our competitive advantages if we are not able to protect any of our food and nutritional products and intellectual property rights against infringement, and any related litigation could be time-consuming and costly; |
3 |
Table of Contents |
● | if we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained; |
● | our services may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands; |
● | our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm product sales and harm our financial condition and operating results; |
● | if we do not introduce new products or make enhancements to adequately meet the changing needs of our customers, some of our products could fail in the marketplace, which could negatively impact our revenues, financial condition and operating results; |
● | we are affected by laws and governmental regulations with potential penalties or claims, which could harm our financial condition and operating results; |
● | since we rely on independent third parties for the manufacture and supply of certain of our products, if these third parties fail to reliably supply products to us at required levels of quality and which are manufactured in compliance with applicable laws, then our financial condition and operating results would be harmed; |
● | we may incur material product liability claims, which could increase our costs and harm our financial condition and operating results; |
● | unless we can generate sufficient cash from operations or raise additional funds, we may not be able to meet our debt obligations; |
● | our customers generally are not obligated to continue purchasing products from us; |
● | if we do not manage our supply chain effectively, our operating results may be adversely affected; |
● | our stock price may be volatile, which may result in losses to our shareholders; |
● | our common shares are thinly traded and our shareholders may be unable to sell at or near ask prices, or at all; |
● | the market price for our common stock is particularly volatile given our status as a relatively small and developing company, which could lead to wide fluctuations in our share price. Our shareholders may be unable to sell your common stock at or above their purchase price if at all, which may result in substantial losses; |
● | we do not anticipate paying any cash dividends to our common shareholdersand as a result shareholders may only realize a return when the shares are sold; |
● | we are |
● | volatility in our common share price may subject us to securities litigation; |
● | the elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights of our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees; |
● | our business is subject to changing regulations related to corporate governance and public disclosure that have increased both our costs and the risk of | |
● | The recent coronavirus outbreak could have an adverse effect on our business. | |
Concerns remain about the global outbreak of a novel strain of coronavirus (COVID-19). The virus spread rapidly across the globe, including the U.S. The pandemic had an unprecedented impact on the U.S. economy as federal, state and local governments reacted to this public health crisis, which has created significant uncertainties. These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the economy, our customers and supply chain. | ||
Consumer fear about becoming ill with the virus and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of people or self-quarantine may continue. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the outbreak within the U.S., the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently. |
4 |
Table of Contents |
Consequently all forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that our actual results or the developments we anticipate will be realized. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report.
Corporate Legal Structure and Related Matters
Trident Brands Incorporated has fivefour legal subsidiaries, as detailed below.
Trident Sports Nutrition Inc.
is 100% owned by Trident Brands and is organized to deliver shelf ready product solutions in theBrain Armor Inc.
isTrident Health is 100% owned by Trident Brands and holds an exclusive license to market and sell products in the nutritional food and supplement category under the Everlast® brand.
Trident Brands Canada Ltd.
is 100% owned by Trident Brands Incorporated and holds various banking facilities, and licenses associated with the manufacturing, importation and sale of natural health and nutrition products in Canada.The Company’s administrative office is located at 200 South Executive Drive, Suite 101, Brookfield, Wisconsin, 53005 and its fiscal year end is November 30th.
The Company has authorized capital of 300,000,000 common shares with a par value of $0.001 per share. 31,000,00032,311,887 common shares were issued and outstanding as of AugustMay 31, 20172021 and 32,311,887 as of October 16, 2017.
5 |
Table of Contents |
The unaudited financial statements for the quarter ended AugustMay 31, 20172021 immediately follow.
Consolidated Balance Sheets
(Unaudited)
As of | As of | |||||||
August 31, 2017 | November 30, 2016 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 4,130,378 | $ | 1,527,624 | ||||
Restricted Cash | 250,000 | - | ||||||
Accounts Receivable | 661,799 | 53,053 | ||||||
Inventory | 274,367 | 231,221 | ||||||
Prepaid | 210,748 | 67,332 | ||||||
Total Current Assets | 5,527,292 | 1,879,230 | ||||||
Fixed Assets-Furniture & Fixtures, net | 28,029 | - | ||||||
Intangible Assets - Licenses, net | 2,200,000 | 2,425,000 | ||||||
TOTAL ASSETS | $ | 7,755,321 | $ | 4,304,230 | ||||
LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts Payable | $ | 1,322,818 | $ | 106,612 | ||||
Accrued Liability | 1,150,958 | 431,178 | ||||||
Loan Payable - Third Party, net of discount $0 and $8,812, respectively | - | 191,188 | ||||||
Total Current Liabilities | 2,473,776 | 728,978 | ||||||
Convertible Debt, net of discount $2,220,465 and $1,285,836, respectively | 8,579,535 | 5,114,164 | ||||||
Total Liabilities | 11,053,311 | 5,843,142 | ||||||
Stockholders' Deficit | ||||||||
Common stock, $0.001 par value, 300,000,000 shares authorized; | ||||||||
31,000,000 shares issued and outstanding as of August 31, 2017 and November 30, 2016 | 31,000 | 31,000 | ||||||
Additional paid-in capital | 6,922,854 | 5,431,976 | ||||||
Non-Controlling Interest in Subsidiary | (95,183 | ) | (65,786 | ) | ||||
Accumulated Deficit | (10,156,661 | ) | (6,936,102 | ) | ||||
Total Stockholders' Deficit | (3,297,990 | ) | (1,538,912 | ) | ||||
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT | $ | 7,755,321 | $ | 4,304,230 |
|
| As of |
|
| As of |
| ||
|
| May 31, |
|
| November 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
ASSETS |
| |||||||
|
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash and Cash Equivalents |
| $ | 131,361 |
|
| $ | 88,007 |
|
Accounts Receivable, net of allowance of $157,526 and $155,186 respectively |
|
| 71,505 |
|
|
| 63,784 |
|
Inventory, net of reserves of $195,264 and $195,264 respectively |
|
| 1,107,587 |
|
|
| 1,219,567 |
|
Prepaid and other current assets |
|
| 68,907 |
|
|
| 155,179 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
| 1,379,360 |
|
|
| 1,526,537 |
|
|
|
|
|
|
|
|
|
|
Intangible Assets, net |
|
| 400,000 |
|
|
| 400,000 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
| $ | 1,779,360 |
|
| $ | 1,926,537 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts Payable |
| $ | 421,062 |
|
| $ | 429,009 |
|
Accrued Liabilities |
|
| 8,297,295 |
|
|
| 7,480,846 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
| 8,718,357 |
|
|
| 7,909,855 |
|
|
|
|
|
|
|
|
|
|
PPP Loan Payable |
|
| 135,165 |
|
|
| 135,165 |
|
Convertible Debt, net of discount of $0 and $0, respectively |
|
| 22,300,000 |
|
|
| 22,300,000 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
| 31,153,522 |
|
|
| 30,345,020 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 300,000,000 shares authorized; 32,311,887 shares issued and outstanding as of May 31, 2021 and November 30, 2020 |
|
| 32,312 |
|
|
| 32,312 |
|
Additional paid-in capital |
|
| 11,458,630 |
|
|
| 11,458,630 |
|
Non-Controlling Interest in Subsidiary |
|
| (161,237 | ) |
|
| (387,147 | ) |
Accumulated Deficit |
|
| (40,703,867 | ) |
|
| (39,522,278 | ) |
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficit |
|
| (29,374,162 | ) |
|
| (28,418,483 | ) |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT |
| $ | 1,779,360 |
|
| $ | 1,926,537 |
|
See Notes to Unaudited Consolidated Financial Statements
Consolidated Statements of Operations (unaudited)
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | |||||||||||||
Revenues | $ | 3,277,655 | $ | 17,028 | $ | 3,305,644 | $ | 241,053 | ||||||||
Cost of Sales | 3,117,150 | 9,388 | 3,132,266 | 135,364 | ||||||||||||
Gross Profit | 160,505 | 7,640 | 173,378 | 105,689 | ||||||||||||
General, Selling & Administrative Expenses | (908,378 | ) | (502,659 | ) | (2,375,051 | ) | (1,755,774 | ) | ||||||||
Loss from Operations | (747,873 | ) | (495,019 | ) | (2,201,673 | ) | (1,650,085 | ) | ||||||||
Other Income (Expenses) | ||||||||||||||||
Interest Expense | (489,593 | ) | (79,269 | ) | (1,048,283 | ) | (351,353 | ) | ||||||||
Total Other Income (Expenses) | (489,593 | ) | (79,269 | ) | (1,048,283 | ) | (351,353 | ) | ||||||||
Net Loss | $ | (1,237,466 | ) | $ | (574,288 | ) | $ | (3,249,956 | ) | $ | (2,001,438 | ) | ||||
Net loss attributable to Trident | (1,228,122 | ) | (566,582 | ) | (3,220,559 | ) | (1,990,807 | ) | ||||||||
Net loss attributable to Non-Controlling Interests | (9,344 | ) | (7,706 | ) | (29,397 | ) | (10,631 | ) | ||||||||
Loss per share - Basic and diluted | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.07 | ) | ||||
Weighted average number of common | ||||||||||||||||
shares outstanding - Basic and diluted | 31,000,000 | 31,000,000 | 31,000,000 | 30,596,364 |
(Unaudited)
|
| Three Months |
|
| Three Months |
|
| Six Months |
|
| Six Months |
| ||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||
|
| May 31, |
|
| May 31, |
|
| May 31, |
|
| May 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues, net |
| $ | 46,243 |
|
| $ | 244,102 |
|
| $ | 190,291 |
|
| $ | 405,987 |
|
Cost of Sales |
|
| 24,580 |
|
|
| 167,240 |
|
|
| 103,368 |
|
|
| 252,169 |
|
Gross Profit |
|
| 21.663 |
|
|
| 76,862 |
|
|
| 86,923 |
|
|
| 153,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & Administrative Expenses |
|
| (537,978 | ) |
|
| (1,119,556 | ) |
|
| (942,262 | ) |
|
| (2,433,290 | ) |
Loss from Operations |
|
| (516,315 | ) |
|
| (1,042,694 | ) |
|
| (855,339 | ) |
|
| (2,279,472 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, net |
|
| (200,008 | ) |
|
| (1,001,119 | ) |
|
| (400,341 | ) |
|
| (2,447,807 | ) |
Gain on Debt Forgiveness |
|
| - |
|
|
| 10,000 |
|
|
| - |
|
|
| 10,000 |
|
Derivative loss |
|
| - |
|
|
| (8,028,629 | ) |
|
| - |
|
|
| (9,601,342 | ) |
Total Other Income (Expenses) |
|
| (200,008 | ) |
|
| (9,019,748 | ) |
|
| (400,341 | ) |
|
| (12,039,149 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | (716,323 | ) |
| $ | (10,062,442 | ) |
| $ | (1,255,680 | ) |
| $ | (14,318,621 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Trident |
|
| (646,092 | ) |
|
| (10,035,750 | ) |
|
| (1,181,590 | ) |
|
| (14,262,178 | ) |
Net loss attributable to Non-Controlling Interests |
|
| (70,231 | ) |
|
| (26,692 | ) |
|
| (74,090 | ) |
|
| (56,443 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - Basic and diluted |
| $ | (0.02 | ) |
| $ | (0.31 | ) |
| $ | (0.04 | ) |
| $ | (0.44 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Basic and diluted |
|
| 32,311,887 |
|
|
| 32,311,887 |
|
|
| 32,311,887 |
|
|
| 32,311,887 |
|
See Notes to Unaudited Consolidated Financial Statements
Consolidated Statements of Cash Flows (unaudited)
Nine Months | Nine Months | |||||||
Ended | Ended | |||||||
August 31, 2017 | August 31, 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (3,249,956 | ) | $ | (2,001,438 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Amortization of debt discount | 540,850 | 190,245 | ||||||
Amortization of license | 225,000 | 200,000 | ||||||
Stock option expense | 24,211 | 101,565 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts Receivable | (608,746 | ) | (138,763 | ) | ||||
Prepaid expenses | (143,416 | ) | 646 | |||||
Inventory | (43,146 | ) | (162,418 | ) | ||||
Accounts payable and accrued liabilities | 1,935,986 | 1,176,761 | ||||||
Cash used in operating activities | (1,319,217 | ) | (633,402 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Restricted Cash | (250,000 | ) | - | |||||
Purchase of Fixed Assets | (28,029 | ) | - | |||||
Cash used in investing activities | (278,029 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds on loan payable - related party | - | 200,000 | ||||||
Principal payments on loan payable - third party | (200,000 | ) | - | |||||
Proceeds on loan payable - third party | - | 250,000 | ||||||
Proceeds on convertible debt | 4,400,000 | - | ||||||
Cash provided by financing activities | 4,200,000 | 450,000 | ||||||
Net change in cash | 2,602,754 | (183,402 | ) | |||||
Cash at beginning of period | 1,527,624 | 187,886 | ||||||
Cash at end of period | $ | 4,130,378 | $ | 4,484 | ||||
NON-CASH TRANSACTIONS | ||||||||
Beneficial conversion features | $ | 1,466,667 | $ | - | ||||
Common stock issued for asset acquisition | - | 2,700,000 | ||||||
Relative fair value of warrants recorded as debt discount | - | 78,776 | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 20,083 | $ | - |
From the quarter ended May 31, 2021 and May 31, 2020
(Unaudited)
|
|
|
|
| Common |
|
| Additional |
|
|
|
|
| Non- |
|
|
|
| ||||||
|
| Common |
|
| Stock |
|
| Paid-in |
|
| Accumulated |
|
| Controlling |
|
|
|
| ||||||
|
| Stock |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Interest |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, November 30, 2019 |
|
| 32,311,887 |
|
| $ | 32,312 |
|
| $ | 9,945,488 |
|
| $ | (34,225,630 | ) |
| $ | (288,603 | ) |
| $ | (24,536,433 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APIC reclassified to derivative liability |
|
| - |
|
|
| - |
|
|
| (3,981,220 | ) |
|
| - |
|
|
| - |
|
|
| (3,981,220 | ) |
Net loss, February 29, 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,226,428 | ) |
|
| (29,751 | ) |
|
| (4,256,179 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 29, 2020 |
|
| 32,311,887 |
|
| $ | 32,312 |
|
| $ | 5,964,268 |
|
| $ | (38,452,058 | ) |
| $ | (318,354 | ) |
| $ | (32,773,832 | ) |
Net loss, May 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (10,035,750 | ) |
|
| (26,692 | ) |
|
| (10,062,442 | ) |
Balance, May 31, 2020 |
|
| 32,311,887 |
|
|
| 32,312 |
|
|
| 5,964,268 |
|
|
| (48,487,808 | ) |
|
| (345,046 | ) |
|
| (42,836,274 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2020 |
|
| 32,311,887 |
|
| $ | 32,312 |
|
| $ | 11,458,630 |
|
| $ | (39,522,278 | ) |
| $ | (387,147 | ) |
| $ | (28,418,483 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, February 28, 2021 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (539,498 | ) |
|
| (3,859 | ) |
|
| (539,357 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2021 |
|
| 32,311,887 |
|
| $ | 32,312 |
|
| $ | 11,458,630 |
|
| $ | (40,057,776 | ) |
| $ | (391,006 | ) |
| $ | (28,957,840 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCI Investment in Brain Armor |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| 300,000 |
|
|
| 300,000 |
|
Net loss, May 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (646,091 | ) |
|
| (70,231 | ) |
|
| (716,323 | ) |
Balance May 31, 2021 |
|
| 32,311,887 |
|
|
| 32,312 |
|
|
| 11,458,630 |
|
|
| (40,703,867 | ) |
|
| (161,237 | ) |
|
| (29,374,163 | ) |
See Notes to Unaudited Consolidated Financial Statements
Consolidated Statements of Cash Flows
(Unaudited)
|
| Three Months |
|
| Three Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| May 31, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Net loss |
| $ | (1,255,680 | ) |
| $ | (14,318,621 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| - |
|
|
| 1,339,440 |
|
Depreciation expense |
|
| - |
|
|
| 4,191 |
|
Derivative (gain)/loss |
|
| - |
|
|
| 9,601,342 |
|
Provision for bad debts |
|
| 2,340 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts Receivable |
|
| (10,061 | ) |
|
| 69,696 |
|
Prepaid expenses |
|
| 86,272 |
|
|
| (94,482 | ) |
Inventory |
|
| 111,980 |
|
|
| 247,852 |
|
Accounts payable and accrued liabilities |
|
| 808,503 |
|
|
| 1,266,543 |
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities |
|
| (256,646 | ) |
|
| (1,807,673 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from PPP loan |
|
| - |
|
|
| 135,165 |
|
Proceeds from convertible debt |
|
| - |
|
|
| 936,168 |
|
Proceeds from NCI investment in Brain Armor |
|
| 300,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
| 300,000 |
|
|
| 1,071,333 |
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| 43,354 |
|
|
| (736,340 | ) |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
| 88,007 |
|
|
| 1,013,674 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 131,361 |
|
| $ | 277,334 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Income taxes |
| $ | - |
|
| $ | - |
|
Interest |
| $ | - |
|
| $ | - |
|
See Notes to Unaudited Consolidated Financial Statements
9 |
Table of Contents |
Notes to Consolidated Financial Statements
May 31, 2017
(Unaudited)
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Trident Brands Incorporated (f/k/a Sandfield Ventures Corp.) (“we”, “our”, “the Company”) was incorporated under the laws of the State of Nevada on November 5, 2007. The Company was formed to engage in the acquisition, exploration and development of natural resource properties.
The Company is now focused on the development of high growth branded and private label consumer products and ingredients within the nutritional supplement, life sciences and food and beverage categories. The Company is in its early growth stage and has transitioned out of its shell status with the Super-8 filing at the end of August, 2014. Activities to date have focused on capital formation, organizational development and execution of its branded and private label consumer products and ingredients business plan.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Trident Brands Incorporatedthe Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Trident’sthe Company’s Form 10-K filed with SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 20162020 as reported in the Form 10-K have been omitted.
Restricted Cash
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates. The ultimate impact from COVID-19 on the Company’s operations and financial results during 2020 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with which the economy recovers. We are not able to fully quantify the impact that these factors will have on our financial results during 2021 and beyond, but expect developments related to COVID-19 to materially affect the Company’s financial performance in 2021.
Customer Concentration
Two customers accounted for 19.9% and 11.5% of total revenue for the six month period ended May 31, 2021 compared to four customers accounting for 22.3%, 17.7%, 13.0% and 10.2% for the 12 month period ended November 30, 2020. Two customers accounted for 39.4% and 29.2% of total accounts receivable as of AugustMay 31, 2017 represents cash held2021 compared to three customers accounting for 16.9%, 15.9% and 11.9% as of November 30, 2020.
10 |
Table of Contents |
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a trust account. The funds have been set asidefair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the acquisitionasset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of StreamPak Ltd (see Note 9 regarding subsequent events)financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The carrying value of certain on-balance-sheet financial instruments approximated their fair values due to cover legalthe short-term nature of these instruments. These financial instruments include cash and other related costs.
Customer ConcentrationRecent Accounting Pronouncements
The Company has one major customerevaluated recent accounting pronouncements through the date the financial statements were issued and filed with the Securities and Exchange Commission and believe that accounted for approximately 98% and $3,240,318 of sales forthere are none that will have a material impact on the nine month period ended August 31, 2017 and 97% of the accounts receivable.
NOTE 3. GOING CONCERN
The accompanying interim consolidated financial statements have been reclassified to conform to the 2017 financial presentation. These reclassifications have no impact on net loss.
As of AugustMay 31, 2017,2021, the Company had $4,380,378$131,361 in cash and a working capital deficit of $7,338,997. The Company also has accessgenerated losses and has an accumulated deficit as of May 31, 2021. These factors raise substantial doubt about the ability of the Company to $1,500,000 availablecontinue as a going concern. Unless Management is able to obtain additional financing, the Company may not be able to meet its funding requirements during the next 12 months. The financial statements do not include any adjustments that might result from the investor. The Company feelsoutcome of this represents substantial liquid resources (cash & available financing), sufficient to meet the Company’s obligations for the next twelve months.
11 |
Table of Contents |
NOTE 4. WARRANTS AND OPTIONS
The following table represents stock option activity for the six month period ended AugustMay 31, 2017:
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Contractual Life in Years |
|
| Intrinsic Value |
| ||||
Outstanding - November 30, 2020 |
|
| 1,832,500 |
|
| $ | 0.40 |
|
|
| 2.02 |
|
|
|
| |
Exercisable - November 30, 2020 |
|
| 1,832,500 |
|
| $ | 0.40 |
|
|
| 2.02 |
|
| $ | -0- |
|
Granted |
| -0- |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Exercised or Vested |
| -0- |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Forfeited or Expired |
| -0- |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Outstanding - May 31, 2021 |
|
| 1,832,500 |
|
| $ | 0.40 |
|
|
| 1.52 |
|
|
|
|
|
Exercisable - May 31, 2021 |
|
| 1,832,500 |
|
| $ | 0.40 |
|
|
| 1.52 |
|
| $ | -0- |
|
As of May 31, 2017
Number of Options | Weighted Average Exercise Price | Contractual Life in Years | Intrinsic Value | |||||||||||
Outstanding - November 30, 2016 | 2,358,333 | $ | 0.96 | 2.51 | ||||||||||
Exercisable - November 30, 2016 | 1,666,667 | $ | 1.17 | 2.43 | ||||||||||
Granted | -0- | $ | 0.0 | |||||||||||
Exercised or Vested | -0- | |||||||||||||
Cancelled or Expired | 333,333 | |||||||||||||
Outstanding - August 31, 2017 | 2,025,000 | $ | 0.96 | 1.68 | ||||||||||
Exercisable - August 31, 2017 | 2,025,000 | $ | 0.96 | 1.68 | $8,417 |
Number of Warrants | Weighted Average Exercise Price | Contractual Life in Years | Intrinsic Value | |||||||||||
Outstanding – November 30, 2016 | 225,000 | $ | 1.35 | 2.21 | ||||||||||
Exercisable - November 30, 2016 | -0- | |||||||||||||
Granted | -0- | |||||||||||||
Exercised or Vested | -0- | |||||||||||||
Cancelled or Expired | -0- | |||||||||||||
Outstanding – August 31, 2017 | 225,000 | $ | 1.35 | 1.45 | $ | 0 |
NOTE 5. RELATED PARTY TRANSACTIONS
On January 29, 2015, the Company entered into a securities purchase agreement with a non-US institutional investor whereby it agreed to sell an aggregate principal amount of $2,300,000 of senior secured convertible debentures, convertible into shares of the company’sCompany’s common stock.
The Company received $1,800,000 of the funds from the transaction on February 5, 2015. The balance of $500,000 was received on May 14, 2015.
The convertible debentures are convertible into shares of the Company’s common stock at an initial conversion price of $0.71 per share, for an aggregate of up to 3,239,437 shares. The debentures originally accrued interest at 6% per annum. On September 26, 2016 the Company entered into an amendment agreement related to these convertible debentures whereby the applicable interest rate was increased from 6% to 8% and provisions added to allow the investor to transfer, sell or hypothecate the convertible notes subject to applicable securities laws. The maturity date of the notes was also extended through September 30, 2019.
Due to the note being convertible to common shares of the Company, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature was $647,888 which was recognized as debt discount. As of August 31,November 30, 2017, the full amount of the debt discount has been amortized.
On September 26, 2016, the Company entered into a securities purchase agreement with a non-US institutional investor, pursuant to which, in consideration for proceeds of $4,100,000, the Company issued a secured convertible promissory note in the amount of $4,100,000. Pursuant to the securities purchase agreement, the investor has agreed, from time to time after January 1, 2017, to make additional investments at the Company’s request of up to $5,900,000 ($10,000,000 in the aggregate) in one or more tranches of not less than one tranche during any 60 day period. The funding of any tranche under the agreement (other than the first $4,100,000 which has been funded) is subject to the mutual agreement of the parties as to the use of funds.
The Company intends to useused the proceeds of the secured convertible note for general working capital purposes including without limitation, settlement of accounts payable and repayment of mature loans.
12 |
Table of Contents |
In consideration of each advance made by the investor pursuant to the securities purchase agreement, the Company will issueissued to the investor a convertible promissory note of equal value, maturing three years after issuance,on September 30, 2019, and bearing interest at the rate of 8% per annum. Each note will beis secured in first priority against the present and after acquired assets of the Company and will beis convertible in whole or in part at the option of the holder into common shares of the Company at a conversion price of $0.60 per share, for an aggregate of up to 14,166,66716,666,667 shares.
Due to the notes being convertible to common shares of the Company, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature of the notes amounted to $2,833,334$3,333,334 and was recognized as a debt discount. As of August 31, 2017, $612,869November 30, 2020, $3,333,334 of the debt discount was amortized to interest of which $532,038$334,988 was amortized during the current 9 month period and $80,831year compared to $855,987 in the prior year. As of November 30, 2020, the debt discount was fully amortized.
On November 30, 2018 the Company and Fengate entered into a Securities Purchase Amendment Agreement (‘SPA’) pursuant to which the Company has agreed to issue to Fengate additional convertible promissory notes (collectively, the “2018 and 2019 Convertible Notes”) of up to $10,000,000, subject to certain terms and conditions. Each portion of the principal amount advanced pursuant to the SPA will bear interest at the rate of twelve percent (12%) per annum and will be payable monthly in arrears to Fengate. Outstanding principal and interest will continue to be secured by the general security agreement dated September 26, 2016, which forms a part of the Agreement. The unamortizedholder of the note may also elect from time to time to convert all or a portion of the outstanding principal and interest into common shares of the Company at a 25% discount is $2,220,465.
On November 30, 2018 the Company received the first tranche of funding with proceeds of $3,400,780. The 2nd tranche of $2,804,187 was received on April 13, 2019. The 3rd tranche of $3,795,033 less $936,168 withheld for interest payments up to and including June 30, 2020 was received on November 6, 2019. On March 5, 2020, the 2018 and 2019 Convertible Notes were amended to increase the amount of the 3rd tranche by $936,168 representing the amount previously withheld as interest payment. The withheld interest was subsequently received on March 12, 2020.
The Company analyzed the embedded conversion option on the convertible notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classifiedon the 2018 Convertible Note qualified for derivative accounting. The Company used the Black-Scholes model to value the embedded conversion option at $892,000 on the issuance date of November 30, 2018, $1,911,256 on the issuance date of April 13, 2019 and $1,696,933 on the issuance date of November 6, 2019.The assumptions used were a discount rate of 2.80%, 1.96% and 1.96%; volatility rate of 79.57%, 104.70% and 107.3%; and a term of 1.50, 1.13 and 0.57 years respectively. The fair values of the embedded conversion options were recorded as equity.
On January 22, 2015, pursuant to a Deed of Assignment dated effective January 20, 2015,9, 2020 the Company and Fengate entered into an Emulsion SupplyAmendment to Convertible Promissory Notes Agreement with Oceans Omega LLC which representsto amend the rights acquired pursuantterms of the convertible notes issued on February 5, 2015 (US$1,800,000), May 14, 2015 (US$500,000), September 26, 2016 (US$4,100,000), May 9, 2017 (US$4,400,000) and May 16, 2018 (US$1,500,000) (collectively the “2016 Convertible Notes”). Pursuant to the DeedAmendment, Fengate has agreed to convert all of Assignment. The Emulsion Supply Agreement providesthe 2016 Notes on or before the earlier to occur of (i) the maturity date of the 2016 Convertible Notes and (ii) the Company with the non-exclusive rightraising new equity investment of not less than US$2,000,000, on terms mutually acceptable to Fengate and license (without the right to sublicense) to purchase, market, promote, sell and distribute Oceans Omega LLC’s omega-3 emulsions for use in the development, production, processing, manufacture and sale of food and beverages and exclusive rights to purchase, market, promote, sell and distribute Oceans Omega emulsions for meats, for human or animal consumption. On January 6, 2016 the Company issued 3,000,000 shares(subject to mark the closingFengate’s regulatory considerations). Conversion of the Deed of Assignment and the Emulsion Supply Agreement, which did not specify the amount of consideration payable by the Company when they were executed on January 20, 2015. The consideration payable was subsequently established by the parties2016 Notes will occur in a single conversion transaction at a market value of $2,700,000 and common shares issued as compensation based onprice that is equal to a 25% discount to the average closing price of the Company’s common shares as quotedstock for the 10 trading days immediately prior to the conversion date, with the exact structure of the conversion to be determined by the parties. On June 3, 2020 the maturity date was extended from May 31 to December 31, 2020. The Amendment also extended the maturity date of the 2018 and 2019 Convertible Notes to December 1, 2021.
13 |
Table of Contents |
The Company analyzed the embedded conversion option on the OTC Markets quotation systems onamended “2016 Convertible Notes” for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option qualified for derivative accounting. On January 6, 2016.9, 2020 the Company used the Black-Scholes model to value the embedded conversion options at $7,965,083. The valueassumptions used were a discount rate of the license is1.96%, volatility rate of 148.8%; and a term of 0.39 years respectively. The modification resulted in $3,981,221 of APIC previously recorded for beneficial conversion feature of these convertible notes being amortized over the remaining contractual life which is 9 years. As of August 31, 2017, the net value of the license was $2,200,000 after amortizing $500,000. Amortization expense for the nine months ended August 31, 2017 and 2016 was $225,000 and $200,000, respectively.
On September 12, 2017November 30, 2020, the Company entered into a note purchase agreement with Fengate Trident LP pursuant to which, in consideration forfourth amendment of the issuance of 811,887 of our common shares2016 Convertible Notes and the 2018 and 2019 Convertible Notes wherein the Company will issue to Fengate we purchased outstanding secured convertible promissory notes29,432,320 shares of Mycell Technologies LLC having an aggregate balance due and payableCompany Preferred Stock (representing $17,659,392 of $511,141 in principal and $94,526 in interest accrued as at September 12, 2017. The purchased notes, which were originally issued to LPF (MCTECH) Investment Corp. on January 22, 2016, February 5, 2016, and May 19, 2016, bear simple interest on unpaid principalconverted into Preferred Stock at the rate of ten percent$0.60 per annum. The outstanding principalshare), in full and complete satisfaction of (i) all amounts owing under the 2016 Convertible Notes through November 30, 2020 (including accrued interest thereon) and (ii) all accrued interest on the 2018 and 2019 Convertible Notes through November 30, 2020. The conversion is convertibleexpected to occur during the third fiscal quarter of 2021. The 2018 and 2019 Convertible Notes were further amended to (i) eliminate the conversion feature of such notes, (ii) provide for a simple interest rate of 8% per annum, with the first 2 years of interest payable at maturity of the 2018 and 2019 Convertible Notes and the last three years of interest payable quarterly beginning May 31, 2023; and (iii) extend the maturity of such notes until November 30, 2025. Pursuant to this amendment, all notes no longer qualified for derivative accounting. As such, the value of the embedded conversion options of all notes of $5,494,363 was credited to additional paid in capital. The issuance of the Preferred Shares is subject to stockholder approval.
We considered ASC Topic 470-50, Debt Modifications and Extinguishments in connection with the amendment of the interest rate and maturity date of the 2018 and 2019 Convertible Notes and determined that the modification would be considered a debt extinguishment. The unamortized discount of $1,092,295 at the optiondate of amendment was recognized as a loss on debt extinguishment for the year ended November 30, 2020.
On June 30, 2021, the Board of Directors of the note holder into securitiesCompany, unanimously consented to amend its Articles of Mycell. We issuedIncorporation to among other things authorize 29,432,320 shares of Preferred Stock, $0.001 par value.
NOTE 6. PAYCHECK PROTECTION PROGRAM (PPP) LOAN
On May 28, 2020, the 811,887 common sharesCompany obtained a Paycheck Protection Program (PPP) loan in the amount of $135,165. These business loans were established by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to one (1) non-US person (ashelp certain businesses, self-employed workers, sole proprietors, certain nonprofit organizations, and tribal businesses continue paying their workers.
The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act and used for payroll costs, rent, mortgage interest, and utility costs during the 24 week period after the date of loan disbursement is eligible to be forgiven provided that term is defined in Regulation S(a) we use the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. While the full loan amount may be forgiven, the amount of loan forgiveness will be reduced if, among other reasons, we do not maintain staffing or payroll levels or less than 60% of the Securities Act of 1933), in an offshore transaction relyingloan proceeds are used for payroll costs. Principal and interest payments on Regulation Sany unforgiven portion of the SecuritiesPPP Funds will be deferred to the date the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.
On June 17, 2021, the Small Business Administration (SBA) approved the Company’s PPP loan forgiveness application.
NOTE 7. NON-CONTROLLING INTEREST INVESTMENT IN BRAIN ARMOR, INC.
On March 30, 2021, a non-US investor subscribed to the acquisition of 1933,333,333 units of the Company’s Brain Armor Inc subsidiary. Each unit is comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock at a per unit price of USD $0.30 for an aggregate purchase price of USD $100,000 which was received by the Company on March 30, 2021. The vesting and exercise prices of the warrants are as amended.
● | 1/3 of shares shall be exercisable 6 months after the subscription date at an exercise price of $0.45 per share | |
● | 1/3 of shares shall be exercisable 12 months after the subscription date at an exercise price of $0.60 per share | |
● | 1/3 of shares shall be exercisable 18 months after the subscription date at an exercise price of $0.75 per share |
14 |
Table of Contents |
On May 5, 2021, a US investor subscribed to the acquisition of 3,333,333 units of the Company’s Brain Armor Inc subsidiary. Each unit is comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock at a per unit price of USD $0.30 for an aggregate purchase price of USD $1,000,000 of which $100,000 was received by the Company on September 12, 2017 weMay 13, 2021 and $100,000 on May 27, 2021. This subscription agreement has since been terminated by mutual agreement of Brain Armor Inc. and the investor.
The vesting and exercise prices of the warrants are as follows:
● | 1/3 of shares shall be exercisable 6 months after the subscription date at an exercise price of $0.45 per share | |
● | 1/3 of shares shall be exercisable 12 months after the subscription date at an exercise price of $0.60 per share | |
● | 1/3 of shares shall be exercisable 18 months after the subscription date at an exercise price of $0.75 per share |
NOTE 8. COMMITMENTS AND CONTINGENCIES
Everlast License Agreement
On December 23, 2013, the Company entered into a Share PurchaseDeed of Assignment Agreement dated September 6, 2017 among our wholly owned subsidiary, Trident Brandswith Everlast World’s Boxing Headquarters Corporation, International Ltd. (“Trident International”),Brand Management Limited, Sports Nutrition Products Incorporated and Manchester Capital Incorporated wherein Everlast, International Brand, Sports Nutrition and Manchester Capital are parties to a Bahamastrade mark license and Sports Nutrition, a New York corporation, StreamPak Ltd. (“StreamPak”), an Anguilla corporation, andhas assigned its interest in the sole shareholder of StreamPak, pursuanttrade mark license to which, in consideration for the payment of $125,000 in cash and 500,000 of our common shares, Trident International purchased 100%Company. Pursuant to the terms of the issued and outstanding common shares of StreamPak. As a result of the share purchase StreamPak becameassignment agreement, Sports Nutrition Products Incorporated, a wholly owned subsidiary of Trident International. We issuedBrands Incorporated, assigned all of its rights, title, interest and benefit to the 500,000 common sharestrade mark license to one (1) non-US person (as that term is defined in Regulation Sthe Company effective December 23, 2013 and the Company assumed all of the Securities Actobligations of 1933)Sports Nutrition Products Incorporated under the license agreement. The Company shall remain responsible to Everlast and International Brand for all acts and omissions of the subsidiary, Sports Nutrition Products Inc.
The Everlast License Agreement includes a clause stating that Manchester Capital Incorporated will guarantee that the Licensee shall perform all of its obligations and duties under the License Agreement. If the Licensee defaults in the payment when due of any amount it is obliged to pay to Licensor under the License Agreement, or arising from its termination, Manchester Capital is unconditionally responsible to pay that amount to Licensor in the manner prescribed in the License Agreement as if it were the Licensee.
15 |
Table of Contents |
The Royalty Calculation, as per the terms of the agreement, are as follows: In 2013, 7% of Net Retail Sales and 7% of 60% of Direct Response Sales Revenue; in 2014, 8% of Net Retail Sales and 8% of 60% of Direct Response Sales Revenue; in 2015, 9% of Net Retail Sales and 9% of 60% of Direct Response Sales Revenue; in 2016 onwards, 10% of Net Retail Sales and 10% of 60% of Direct Response Sales Revenue. The Annual Minimum Guaranteed Royalty is $120,000 in 2014, $235,000 in 2015, $320,000 in 2016, $345,000 in 2017 and in 2018 onwards, if the Agreement remains in force, will be 75% of the previous Year’s Royalty Calculation or the previous Year’s Annual Minimum Guaranteed Royalty plus 10%, whichever is greater.
The agreement was terminated on December 31, 2017. On January 17, 2019, Everlast World’s Boxing Headquarters Corp. (“Everlast”) filed a counter civil lawsuit against the Company and other defendants. In that lawsuit, Everlast seeks payment from the defendants under a License Agreement dated June 4, 2013, for $425,555 in unpaid royalties allegedly due and owing under the License Agreement and interest on the allegedly unpaid royalties of $96,265, which interest allegedly continues to accrue. Everlast has also sought all costs, expenses, and legal fees incurred by Everlast in collecting monies that it claims are due under the License Agreement. On February 26, 2020, the court in the Everlast matter issued an Opinion and Order granting a motion to dismiss all of the Company’s claims against Everlast and granting a motion for judgment on the pleadings as to liability against the Company. The Court left open the question of damages to be awarded to Everlast. The Company had requested that the parties participate in settlement discussions before a magistrate judge or, in the alternative, that Everlast engage in limited discovery on these matters. No settlement was reached. On October 15, 2020, the Court in the Everlast case ordered, adjudged and decreed that Plaintiff Everlast have judgment and recover a total of $738,946 from the Company as follows:
1. | $425,000 representing royalty payments due to Everlast; |
2. | Interest on royalty payments computed through October 15, 2020, in the sum of $242,920; |
3. | Costs and attorneys’ fees in the sum of $71,026 |
The Company has fully accrued the $738,946 liability as of November 30, 2020.
On or about June 30, 2021, the Company, as Debtor, and Trident Sports Nutrition, Inc. and Brain Armor Inc., as garnishee defendants, were served with garnishment summons and complaint in Fond du Lac County, Wisconsin Circuit Court, (Case No. 2021FJ0003). The Plaintiff is Everlast, who is seeking to collect upon a judgment entered in the United States District Court for the Southern District of New York (Case No. 19-CV-503). According to Everlast, the judgment as of June 29, 2021 is in the amount of $745,814.61.
On July 16, 2021, the Company filed an Answer asserting that its assets are subject to the security interest of LDF (MCTECH) Investment Corp. and should not be subject to garnishment. Trident Sports Nutrition, Inc. and Brain Armor Inc. both filed garnishee answers denying that either corporation had control or possession of assets belonging to Trident Brands, Inc. or was otherwise indebted to the Company. The time period for Everlast to respond to these pleadings expires on August 5, 2021.
In addition, Everlast has commenced a proceeding in Waukesha County, Wisconsin Circuit Court (Case No. 21-TJ-90) and the Hon. Daniel P. Murray, Court Commissioner, has ordered the Company, Anthony M. Pallante and Peter Salvo to appear at his office for a supplemental examination on July 29, 2021 to answer under oath concerning the property and financial affairs of the Company. The Company and Messrs. Pallante and Salvo plan on defending against the Order issued by the Court Commissioner on jurisdictional and/or other grounds.
Banc of America Leasing and Capital
On December 1, 2020, Bank of America Leasing and Capital, LLC filed a legal action against the Company in the Superior Court for the State of California, County of San Mateo (Case NO. 20-CIV-05306), alleging breach of contract. The claim arises out of a software services contract between the Company and Oracle Corporation. Bank of America Leasing and Capital, LLC acquired Oracle’s rights under the agreement. The plaintiff claims the Company is liable for damages in the amount of $217,000 plus interests and costs. The Company did not file an answer to this complaint. On February 22, 2021, the plaintiff requested that the Court enter a default against the Company, which the court has done.
PIT Mycell
On June 3, 2019, the Company filed a lawsuit against PIT Mycell, LLC, William E. Peterson III, New Age Ventures, LLC, Volker Berl, and Mycell Technologies, LLC (“Mycell”) in the Superior Court in Bergen County, New Jersey, Civil Action No. BER-L-004198-19, in which the Company seeks to require the defendants to perform under and allow the enforcement of certain notes made by Mycell and acquired by the Company in September 2017. The notes are past their stated maturity date of December 31, 2016. The Company also alleges that the parties had entered into a written Settlement Agreement Letter of Intent dated March 14, 2019 (the “Settlement”), but that the defendants repudiated it shortly thereafter. The notes had been the subject of an earlier lawsuit in Virginia in state court in Fairfax County between the Company and PIT Mycell, LLC that the Settlement was intended to resolve. The Company seeks to enforce the notes and the Settlement in the New Jersey lawsuit and requests actual damages in an offshore transaction relyingamount to be proven at trial, attorneys’ fees and litigation costs, specific performance requiring certain defendants to enforce obligations under the notes against Mycell, specific performance requiring the defendants to execute a final Settlement Agreement consistent with the Settlement, an order permitting foreclosure on Regulation Sthe collateral for the notes, and declaratory relief. On January 24, 2020, the New Jesey court denied Defendant’s Motions to dismiss the case. The parties have engaged in written discovery and exchanged productions of documents. Mycell filed for bankruptcy on November 25, 2020.
NOTE 9. SUBSEQUENT EVENTS
On June 17, 2021, the Small Business Administration (SBA) approved the Company’s PPP loan forgiveness application for the full amount of $135,165.
On June 30, 2021, the Board of Directors of the Securities ActCompany, unanimously consented to amend its Articles of 1933, as amended.
On June 30, 2021, Everlast filed garnishment actions seeking to cause third parties who may be holding our money property (including Brain Armor, Inc.) to turn such property over to Everlast to satisfy the judgment it has against us. We have engaged counsel to represent us in connection with this matter.
16 |
Table of Contents |
Forward Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the interim consolidated financial statements, and notes thereto, for the quarter ended AugustMay 31, 20172021 contained under Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”) and in conjunction with the annual consolidated financial statements, and notes thereto, contained in the Annual Report on Form 10-K for the fiscal year ended November 30, 20162020 (“Form 10-K”). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to October 16, 2017.
Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as “anticipate”, “estimate”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, the negatives of such terms, and other similar expressions concerning matters that are not historical facts. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.
Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking statements are also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors are more fully described in the “Risk Factors” section at Item 1A of the Form 10-K.
Forward-looking statements contained in this commentary are based on our current estimates, expectations and projections, which we believe are reasonable as of the date of this report. You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do not undertake to update any forward-looking information at any particular time.
All dollar amounts in this MD&A are expressed in thousands of U.S. dollars except per share amounts, unless otherwise noted.
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited consolidated financial statements for the three month and ninesix month periods ended AugustMay 31, 20172021 and AugustMay 31, 2016.
17 |
Table of Contents |
Our operating results for three month periods ended AugustMay 31, 20172021 and AugustMay 31, 20162020 are summarized as follows:
Three Months Ended | Three Months Ended | |||||||
August 31, 2017 | August 31, 2016 | |||||||
Revenues | $ | 3,277,655 | $ | 17,028 | ||||
Gross Profit | $ | 160,505 | $ | 7,640 | ||||
Operating Expenses | $ | 908,378 | $ | 502,659 | ||||
Other Expenses | $ | 489,593 | $ | 79,269 | ||||
Net Loss | $ | 1,237,466 | $ | 574,288 |
|
| Three Months Ended |
|
| Three Months Ended |
| ||
|
| May 31, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | 46,243 |
|
| $ | 244,102 |
|
Gross Profit |
| $ | 21,663 |
|
| $ | 76,862 |
|
Operating Expenses |
| $ | 537,978 |
|
| $ | 1,119,556 |
|
Other Expenses |
| $ | 200,008 |
|
| $ | (9,019,748 | ) |
Net Loss |
| $ | (716,323 | ) |
| $ | (10,062,442 | ) |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
Interest Expense |
| $ | 200,008 |
|
| $ | 1,001,119 |
|
Depreciation |
| $ | -0- |
|
| $ | 2,095 |
|
Amortization |
| $ | -0- |
|
| $ | -0- |
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | (516,315 | ) |
| $ | (9,059,228 | ) |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
Derivative Loss |
| $ | -0- |
|
| $ | 8,028,629 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
| $ | (516,315 | ) |
| $ | (1,030,599 | ) |
18 |
Table of Contents |
Revenues and Gross Profits
Sales in the first quarter of 2021 decreased to $3,277,655$46,243 versus $17,028$244,102 in the prior year. This growth is attributed to a significant contract manufacturing supply agreement with a major retailer, coupled with increased direct sales of Brain Armor® products to professional sports teams and collegiate programs. Gross Profit increased to $160,505 or 4.9% of revenues versus $7,640 or 44.9% of revenues inperiod. The decrease was the prior year as a result of the increase in sales. Management continuesinability to direct operational support and focus toward markets, distribution channels and customers that represent sustainable commercial value. As such, wefulfill various purchase orders due to out of stock (OOS) of certain SKU’s. We expect further revenue andthis lack of supply to resolve over the next three months. Gross profit growth in the remainderdecreased to $21,663 (46.8% of 2017 and 2018. This outlook is supported by expanded retail customer supply agreements and new item listings coupled with further product innovation scheduled for introduction in Q4 2017 and Q1 2018.
Operating Expenses
Our operating expenses for the three month periodsperiod ended AugustMay 31, 20172021 and AugustMay 31, 2016 are2020 is summarized below:
Three Months Ended | Three Months Ended | |||||||
August 31, 2017 | August 31, 2016 | |||||||
Professional Fees | $ | 41,618 | $ | 11,716 | ||||
General & Administrative Expenses | $ | 461,330 | $ | 235,826 | ||||
Marketing, Selling & Warehousing Expenses | $ | 274,254 | $ | 142,359 | ||||
Management Salary | $ | 21,000 | $ | 12,000 | ||||
Director's Fees | $ | 21,000 | $ | 18,000 | ||||
Rent | $ | 2,926 | $ | 2,171 | ||||
Royalty | $ | 86,250 | $ | 80,587 |
|
| Three Months Ended May 31, |
|
| Three Months Ended May 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Professional Fees |
| $ | 80,478 |
|
| $ | 120,235 |
|
General & Administrative Expenses |
| $ | 374,804 |
|
| $ | 622,589 |
|
Marketing, Selling & Warehousing Expenses |
| $ | 34,451 |
|
| $ | 326,557 |
|
Management Salary |
| $ | 47,500 |
|
| $ | 35,125 |
|
Rent |
| $ | 745 |
|
| $ | 15,050 |
|
Operating expenses for the three month period ended AugustMay 31, 20172021 were $908,378$537,978 as compared to $502,659$1,119,556 for the comparative period in 2016, an increase2020, a decrease of 81%51.9%. The increasedecrease in our operating expenses was primarily due to increaseda decrease in general & administrative expenses as a result of cost reductions and administrative costsdecreased marketing and selling expenses related to the decrease in sales. Legal expenses also decreased by $45,571. Subject to raising additional capital, we expect our operating expenses to increase as we build outramp up our organization and roll-out our product offering. These costs are expected to continue to increase throughout 2017 as we continue to develop and commercialize our product offerings.
Other Expenses
Other expenses for the three month period ended AugustMay 31, 2021 were $200,008 as compared to $9,019,748 for the comparative period in 2020, a decrease of 97.8%. The decrease in other expenses was primarily due to a decrease in non-cash derivative loss of $8,028,629 and a decrease in interest expense of $801,111 related to lower debt levels of $358,135, elimination of non-cash interest expense related to the impact of amortization of debt discount from convertible notes entered into in 2016, 2017 increasedand 2018 of $168,410, and non-cash derivative loss of $274,566 on the revaluation of the embedded conversion option of all the convertible notes. This was partially offset by a $10,000 gain on debt forgiveness in the prior period. We expect interest expense to $489,593 versus $79,269remain constant.
Non-GAAP Financial Measure
The following non-GAAP financial measures are presented in this quarterly report on Form 10-Q to supplement the financial information we present on a GAAP basis. We monitor and present EBITDA and Adjusted EBITDA because they are key measures used by our management to understand and evaluate our performance.
EBITDA
We define EBITDA as net income (loss), adjusted to exclude: Interest income and expense, depreciation and amortization expense including impairment loss. Reported net loss for the three month period May 31, 2021 was $(716,323) compared to $(10,062,442) in the comparative period in 2016. The increase2020. After deducting interest, depreciation and amortization, EBITDA for the three month period ended May 31, 2021 was due($516,315) compared to an increase($9,059,226) in interest2020.
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA, adjusted to exclude: stock options expense dueand derivative loss. Reported EBITDA for the three month period May 31, 2021 was ($516,315) compared to higher debt levels($9,059,228) in the comparative period in 2020. After deducting non-cash stock options expense and derivative loss, Adjusted EBITDA for the impact of certain other items including the beneficial conversion feature relatedthree month period ended May 31, 2021 was ($516,315) compared to the convertible note entered into($1,030,599) in 2017.
Our operating results for the ninesix month periods ended AugustMay 31, 20172021 and AugustMay 31, 20162020 are summarized as follows:
Nine Months Ended | Nine Months Ended | |||||||
August 31, 2017 | August 31, 2016 | |||||||
Revenues | $ | 3,305,644 | $ | 241,053 | ||||
Gross Profit | $ | 173,378 | $ | 105,689 | ||||
Operating Expenses | $ | 2,375,051 | $ | 1,755,774 | ||||
Other Expenses | $ | 1,048,283 | $ | 351,353 | ||||
Net Loss | $ | 3,249,956 | $ | 2,001,438 |
|
| Six Months Ended May 31, 2021 |
|
| Six Months Ended May 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | 190,291 |
|
| $ | 405,987 |
|
Gross Profit |
| $ | 86,923 |
|
| $ | 153,818 |
|
Operating Expenses |
| $ | 942,262 |
|
| $ | 2,433,290 |
|
Other Expenses |
| $ | 400,341 |
|
| $ | 12,039,149 |
|
Net Loss |
| $ | (1,255,680 | ) |
| $ | (14,318,621 | ) |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
Interest Expense |
| $ | 400,341 |
|
| $ | 2,447,807 |
|
Depreciation |
| $ | -0- |
|
| $ | 4,191 |
|
Amortization |
| $ | -0- |
|
| $ | -0- |
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | (855,339 | ) |
| $ | (11,866,623 | ) |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
Stock Options Expense |
| $ | -0- |
|
| $ | -0- |
|
Derivative Loss |
| $ | -0- |
|
| $ | 9,601,342 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
| $ | (855,339 | ) |
| $ | (2,265,281 | ) |
Revenues and Gross Profit
Sales in the nine month period ended August 31, 2017first half of fiscal 2021 decreased to $3,305,644$190,291 versus $241,053$405,987 in the prior year. This growth is attributedperiod. The decrease was the result of the inability to a significant contract manufacturingfulfill various purchase orders due to out of stock (OOS) of certain SKU’s. We expect this lack of supply agreement with a major retailer, coupled with increased direct salesto resolve over the next three months. Gross profit decreased to $86,923 (45.7% of Brain Armor® products to professional sports teams and collegiate programs. This translated into a corresponding increase in Gross Profit to $173,378 or 5.2%revenues) versus $153,818 (37.9% of revenues versus $105,689 or 43.8% of revenues in the prior year. Management continues to direct operational support and focus toward markets, distribution channels and customers that represent sustainable commercial value. As such, we expect further revenue and profit growth in the remainder of 2017 and 2018. This outlook is supported by expanded retail customer supply agreements and new item listings coupled with further product innovation scheduled for introduction in Q4 2017 and Q1 2018.
20 |
Table of Contents |
Operating Expenses
Our operating expenses for the ninesix month periodsperiod ended AugustMay 31, 20172021 and AugustMay 31, 2016 are2020 is summarized below:
Nine Months Ended | Nine Months Ended | |||||||
August 31, 2017 | August 31, 2016 | |||||||
Professional Fees | $ | 133,796 | $ | 111,469 | ||||
General & Administrative Expenses | $ | 1,281,536 | $ | 767,121 | ||||
Marketing, Selling & Warehousing Expenses | $ | 569,531 | $ | 550,954 | ||||
Management Salary | $ | 63,000 | $ | 32,500 | ||||
Director's Fees | $ | 63,000 | $ | 54,000 | ||||
Rent | $ | 7,521 | $ | 6,016 | ||||
Royalty | $ | 256,667 | $ | 233,714 |
|
| Six Months Ended May 31, 2021 |
|
| Six Months Ended May 31, 2020 |
| ||
Professional Fees |
| $ | 94,127 |
|
| $ | 279,843 |
|
General & Administrative Expenses |
| $ | 699,750 |
|
| $ | 1,476,618 |
|
Marketing, Selling & Warehousing Expenses |
| $ | 61,481 |
|
| $ | 571,384 |
|
Management Salary |
| $ | 85,000 |
|
| $ | 73,375 |
|
Director’s Fees |
| $ | -0- |
|
| $ | -0- |
|
Rent |
| $ | 1,904 |
|
| $ | 32,070 |
|
Operating expenses for the ninesix month period ended AugustMay 31, 20172021 were $2,375,051$942,262 as compared to $1,755,774$2,433,290 for the comparative period in 2016, an increase2020, a decrease of 35.3%61.3%. The increasedecrease in our operating expenses iswas primarily due to increaseda decrease in legal expenses of $184,438 and a decrease in general administration and administrative costsmarketing and selling expenses related to the decrease in sales. Subject to raising additional capital, we expect our operating expenses to increase as we build and roll-outramp up our product offerings. These costs are expected to continue to increase throughout 2017 as we continue to develop and commercialize our product offerings.
Other Expenses
Other expenses for the ninesix month period ended AugustMay 31, 2017 increased2021 were $400,341, compared to $1,048,283 versus $351,353$12,039,149 in the comparative period in 2016.2020, a decrease of 96.7%. The increasedecrease in other expenses was primarily due to an increasea decrease in non-cash derivative loss of $9,601,342 (on the revaluation of the embedded conversion option of all the convertible notes), a $2,047,466 decrease in interest expense due(related to higherlower debt levelslevels), and a $1,339,440 decrease in non-cash interest expense (related to the impact of certain other items including the beneficial conversion feature related to theamortization of debt discount from convertible notenotes entered into in 2017.
Non-GAAP Financial Measure
The following non-GAAP financial measures are presented in this quarterly report on Form 10-Q to supplement the financial information we present on a GAAP basis. We monitor and present EBITDA and Adjusted EBITDA because they are key measures used by our management to understand and evaluate our performance.
EBITDA
We define EBITDA as net income (loss), adjusted to exclude: Interest income and expense, depreciation and amortization expense including impairment loss. Reported net loss for the six month period May 31, 2021 was $1,255,680 compared to $14,318,621 in the comparative period in 2020. After deducting interest, depreciation and amortization, EBITDA for the six month period ended May 31, 2021 was ($855,338) compared to ($11,866,623) in 2020.
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA, adjusted to exclude stock options expense and derivative loss. Reported EBITDA for the six month period May 31, 2021 was ($855,338) compared to ($11,866,623) in the comparative period in 2020. After deducting non-cash stock options expense and derivative loss, Adjusted EBITDA for the six month period ended May 31, 2021 was ($855,338) compared to ($2,265,281) in 2020.
21 |
Table of Contents |
Balance Sheet Data
The following table provides selected balance sheetsheets data as at AugustMay 31, 2017 and August 31, 2016.
Balance Sheet Data: | August 31, 2017 | August 31, 2016 | ||||||
Cash | $ | 4,380,378 | $ | 4,484 | ||||
Total assets | $ | 7,755,321 | $ | 3,006,386 | ||||
Total liabilities | $ | 11,053,311 | $ | 4,736,704 | ||||
Stockholders' (deficit) | $ | (3,297,990 | ) | $ | (1,730,318 | ) |
Balance Sheet Data: |
| May 31, 2021 |
|
| May 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 131,361 |
|
| $ | 277,334 |
|
Total assets |
| $ | 1,779,360 |
|
| $ | 2,909,624 |
|
Total liabilities |
| $ | 31,153,522 |
|
| $ | 45,745,898 |
|
Stockholders’ (deficit) |
| $ | (29,374,162 | ) |
| $ | (42,836,274 | ) |
Strategic Orientation
Our objective is to provide our shareholders with solid returns through strategic investments across multiple consumer product and food ingredient platforms. The platforms we are focusing on include:
● | Life science technologies and related products that have applications to a range of consumer products; |
● | Nutritional supplements and related consumer goods providing defined benefits to the consumer; and |
● | Functional foods and beverages ingredients with defined health and wellness benefits. |
We are building our business through strategic investments in high growth early stage consumer brands and functional ingredientsingredient platforms within segment/sectors which we believe offer long term growthsustainable commercial potential. We are focused on three core strategies underpinning our objectives:
● | To execute |
● | To aggressively manage |
While we have yet to realize break even cash flows orachieve profitability, we believe we are making significant progress against our goalscommercial objectives. We expect revenue and objectives, and expect revenues and marginsmargin to increase as we begin commercializing the productscontinue to strengthen distribution partnerships while capitalizing on product innovation, supply-chain optimization and brand equity within our current portfolio. All three of our product platforms show solid potential in the markets where they compete and both our Everlast® and Brain Armor® product lines are now in the market and generating revenues. Our strategy was to first establish listings for these products with non-bricks and mortar accounts, and this has been successful. Brain Armor® has now been listed at a large retail account as well, and we expect listings for Everlast® to follow. The development of Oceans Omega as an ingredient for food and beverage products is ongoing, and given the longer sales cycle for ingredients, we expect to realize revenues later in fiscal 2017 both through external customer product development and also internally via potential line extensions for both the Everlast® and Brain Armor® product lines.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued. In accordance with Financial Accounting Standards Board, or the FASB, Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.
As of May 31, 2021, the Company had $131,361 in cash and a working capital deficit of $7,338,997. The Company has historically generated losses and negative operating cash flows. The Company has an accumulated deficit of $40,703,867 as of May 31, 2021. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Unless management is able to obtain additional financing, the Company may not be sufficientable to fund our operations formeet its funding requirements during the next twelve12 months.
Working Capital Deficiency and Need for Additional Capital
Between March 22 and May 27, 2021, Brain Armor, Inc, the Company’s majority owned subsidiary, sold an aggregate principal amount of $2,300,0001,000,000 Units, each comprised of senior secured convertible debentures, convertible into sharesone share of the company’s common stock. We received $1,800,000stock and a warrant to purchase one share of the funds from the transaction on February 5, 2015 and the balance of $500,000 on May 14, 2015. On September 26, 2016, we entered into a Convertible Promissory Note Amendment Agreement with this investor whereby we agreed to extend the maturity date and amend the interest payable on the senior secured convertible debentures, whereby we extended the term of the notes through September 30, 2019 and interest rate was increased from 6% per annum to 8% per annum. The convertible debentures are convertible into shares of the Company’s common stock, at an initial conversiona per Unit price of $0.71 per share$.30, for an aggregate of up to 3,239,437 shares.
We currently have a severe working capital deficiency. As of May 31, 2021, we issuedhad a secured convertible promissory noteworking capital deficit of approximately $7.3 million, compared to a deficit of approximately $6.4 million as of November 30, 2020. The approximate $0.9 million decrease in working capital deficit was due primarily to (all amounts approximate) an increase in accrued liabilities of $0.8 million.
As disclosed under Item 3. Legal Proceedings, a judgment was entered against us in the Everlast matter in the amount of $4,100,000. Pursuantapproximately $740,000. Everlast has since filed a garnishment action seeking to cause third parties who may be holding our money property (including Brain Armor, Inc.) to turn such property over to Everlast to satisfy the Securities Purchase Agreement,judgment it has against us. In addition, the investor has agreed, from time to time after January 1, 2017, to make additional investments at our request of up to $5,900,000 ($10,000,000plaintiff in the aggregate)Oracle matter has requested a default judgment against us. Accordingly, the Company is currently obligated to pay Everlast approximately $740,000 and could be liable to pay Oracle at least $217,000 if the court enters a default judgment, in one or more trancheswhich case, the Company would be liable for in excess of not less than one tranche during any 60 day period. The funding of any tranche under$1 million in judgments, in the agreement (other thanaggregate. If the first $4,100,000 which has been funded)Company is subjectcompelled to pay these liabilities, there would be a material adverse effect on the mutual agreementfinancial condition of the Company. On June 30, 2021, Everlast filed garnishment actions seeking to cause third parties aswho may be holding our money property (including Brain Armor, Inc.) to turn such property over to Everlast to satisfy the usejudgment it has against us. We have engaged counsel to represent us in connection with this matter.
22 |
Table of Contents |
As of funds. The partiesJuly 20, 2021, we had only minimal cash on hand, and consequently, we are unable to fully implement our current business plan. Accordingly, we have agreedan immediate need for additional capital to negotiate in good faithfund our operating activities. COVID-19 has thus far adversely affected our revenues and our ability to pre-approve useraise additional capital, so there is no assurance we will be able to grow our business or raise sufficient additional capital on acceptable terms or at all.
In order to remedy this liquidity deficiency, we are actively seeking to raise additional funds through the sale of equity and/or debt securities, and ultimately, we will need to generate substantial positive operating cash flows. Our internal sources of funds within 120 days following September 26, 2016. On May 9, 2017,will consist of cash flows from operations, but not until we begin to realize additional revenues from the Company receivedsale of our products and services. As previously stated, our operations are generating negative cash flows, and thus adversely affecting our liquidity. If we are unable to raise additional funds in the second tranche of funding with proceeds of $4,400,000 for a total investment by the investor of $8,500,000. Under the terms of the securities purchase agreement, the Company has an additional $1,500,000 of available funding. We intend to use the proceeds of the secured convertible note for general working capital purposes including, without limitation, settlement of accounts payable and repayment of mature loans. In consideration of each advance made by the investor pursuant to the Securities Purchase Agreement,near term, we will issuenot be able to implement our business plan, in which case there would be a material adverse effect on our results of operations and financial condition.
In the investor a convertible promissory note of equal value, maturing three years after issuance, and bearing interest at the rate of 8% per annum. Each note will be secured in first priority against the present and after acquired assets of the Company, and will be convertible in wholeevent we do not generate sufficient funds from revenues or in part at the option of the holder into common shares of the Company at a conversion price per share of $0.60, equal to a 25% discount to the 10 day average closing price of the Company’s common stock for the period immediately precedingfinancing through the issuance of the applicable note. Duecommon stock or from debt financing, we will be unable to the notes being convertiblefully implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should we be unable to recover the Company common shares, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature was $1,366,667our assets or satisfy our liabilities.
Based on our limited availability of funds we expect to spend minimal amounts on product development, sales and $1,466,667 respectivelymarketing and capital expenditures. We expect to fund any future product development expenditures through a combination of cash flows from operations and proceeds from equity and/or debt financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our product development expenditures, in which was recognized as debt discount. Ascase, there could be a material adverse effect on our business and results of August 31, 2017, $612,869 of debt discount was amortized of which $532,038 was amortized during the current nine month period and $80,831 in the prior year. The unamortized discount is $2,220,465.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual Obligations
Except for the transactions noted in Business Developments, there have been no material changes outside the normal course of business in our contractual obligations since January 3, 2015.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes. The use of estimates is pervasive throughout our financial statements. There have been no material changes to the critical accounting estimates disclosed under the heading “Critical Accounting Estimates” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of the Form 10-K.
As a smaller reporting company we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective such that the material information required to be included in our Securities and Exchange Commission reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared.
Changes in Internal Controls Over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer have concluded that there have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter ended AugustMay 31, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On January 11, 2019, the Company filed a lawsuit against Everlast World’s Boxing Headquarters Corp. (“Everlast”). This action involves Everlast’s attempts to prevent the Company from exercising its right to terminate a License Agreement between the parties pursuant to which Trident had the right to market certain Everlast-branded products.
On January 17, 2019, Everlast World’s Boxing Headquarters Corp. (“Everlast”) filed a counter civil lawsuit against the Company and other defendants. In that lawsuit, Everlast seeks payment from the defendants under a License Agreement dated June 4, 2013, for $425,555 in unpaid royalties allegedly due and owing under the License Agreement and interest on the allegedly unpaid royalties of $96,265, which interest allegedly continues to accrue. Everlast has also sought all costs, expenses, and legal fees incurred by Everlast in collecting monies that it claims are due under the License Agreement. On February 26, 2020, the court in the Everlast matter issued an Opinion and Order granting a motion to dismiss all of the Company’s claims against Everlast and granting a motion for judgment on the pleadings as to liability against the Company. The Court left open the question of damages to be awarded to Everlast. The Company has requested that the parties participate in settlement discussions before a magistrate judge or, in the alternative, that Everlast engage in limited discovery on these matters. No settlement was reached. On October 15, 2020, the Court in the Everlast case ordered, adjudged and decreed that Plaintiff Everlast have judgment and recover a total of $738,946 from the Company as follows:
1. | $425,000 representing royalty payments due to Everlast; |
2. | Interest on royalty payments computed through October 15, 2020, in the sum of $242,920; |
3. | Costs and attorneys’ fees in the sum of $71,026 |
The Company has fully accrued the $738,946 liability as of November 30, 2020.
The Clerk of Court was directed to close the case. The Company did not appeal the judgement.
On or about June 30, 2021, the Company, as Debtor, and Trident Sports Nutrition, Inc. and Brain Armor Inc., as garnishee defendants, were served with garnishment summons and complaint in Fond du Lac County, Wisconsin Circuit Court, (Case No. 2021FJ0003). The Plaintiff is Everlast, who is seeking to collect upon a judgment entered in the United States District Court for the Southern District of New York (Case No. 19-CV-503). According to Everlast, the judgment as of June 29, 2021 is in the amount of $745,814.61.
On July 16, 2021, the Company filed an Answer asserting that its assets are subject to the security interest of LDF (MCTECH) Investment Corp. and should not be subject to garnishment. Trident Sports Nutrition, Inc. and Brain Armor Inc. both filed garnishee answers denying that either corporation had control or possession of assets belonging to Trident Brands, Inc. or was otherwise indebted to the Company. The time period for Everlast to respond to these pleadings expires on August 5, 2021.
In addition, Everlast has commenced a proceeding in Waukesha County, Wisconsin Circuit Court (Case No. 21-TJ-90) and the Hon. Daniel P. Murray, Court Commissioner, has ordered the Company, Anthony M. Pallante and Peter Salvo to appear at his office for a supplemental examination on July 29, 2021 to answer under oath concerning the property and financial affairs of the Company. The Company and Messrs. Pallante and Salvo plan on defending against the Order issued by the Court Commissioner on jurisdictional and/or other grounds.
On June 3, 2019, the Company filed a lawsuit against PIT Mycell, LLC, William E. Peterson III, New Age Ventures, LLC, Volker Berl, and Mycell Technologies, LLC (“Mycell”) in the Superior Court in Bergen County, New Jersey, Civil Action No. BER-L-004198-19, in which the Company seeks to require the defendants to perform under and allow the enforcement of certain notes made by Mycell and acquired by the Company in September 2017. The notes are past their stated maturity date of December 31, 2016. The Company also alleges that the parties had entered into a written Settlement Agreement Letter of Intent dated March 14, 2019 (the “Settlement”), but that the defendants repudiated it shortly thereafter. The notes had been the subject of an earlier lawsuit in Virginia in state court in Fairfax County between the Company and PIT Mycell, LLC that the Settlement was intended to resolve. The Company seeks to enforce the notes and the Settlement in the New Jersey lawsuit and requests actual damages in an amount to be proven at trial, attorneys’ fees and litigation costs, specific performance requiring certain defendants to enforce obligations under the notes against Mycell, specific performance requiring the defendants to execute a final Settlement Agreement consistent with the Settlement, an order permitting foreclosure on the collateral for the notes, and declaratory relief. On January 24, 2020, the New Jersey court denied Defendant’s Motions to dismiss the case. The parties have engaged in written discovery and exchanged productions of documents. Mycell filed for bankruptcy on November 25, 2020.
On December 1, 2020, Bank of America Leasing and Capital, LLC filed a legal action against the Company in the Superior Court for the State of California, County of San Mateo (Case NO. 20-CIV-05306), alleging breach of contract. The claim arises out of a software services contract between the Company and Oracle Corporation. Bank of America Leasing and Capital, LLC acquired Oracle’s rights under the agreement. The plaintiff claims the Company is liable for damages in the amount of $217,000 plus interests and costs. The Company did not file an answer to this complaint. On February 22, 2021, the plaintiff requested that the Court enter a default against the Company, which the court has done.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Between March 22 and May 27, 2021, Brain Armor, Inc, the Company’s majority owned subsidiary, sold an aggregate of 1,000,000 Units, each comprised of one share of common stock and a warrant to purchase one share of common stock, at a per Unit price of $0.30, for gross proceeds of $300,000.
We believe that the foregoing transactions were exempt from the registration requirements under the Securities Act of 1933, as amended (“the Act”), based on the following facts: there was no general solicitation, there was a limited number of purchasers, each of whom the Registrant believes was an “accredited investor” (within the meaning of Regulation D under the Securities Act of 1933, as amended) and was sophisticated about business and financial matters, and all shares issued were subject to restriction on transfer, so as to take reasonable steps to assure that the purchaser was not an underwriter within the meaning of Section 2(11) under the Act.
24 |
Table of Contents |
ITEM 6. EXHIBITS
The following exhibits are included with this quarterly filing:
Exhibit No. | Description | |
101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
__________
*Document is incorporated by reference and can be found in its entirety in our Registration Statement on Form SB-2, SEC File Number 333-148710, at the Securities and Exchange Commission website at www.sec.gov.
Table of Contents |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Trident Brands Incorporated | |||
Date: July 20, 2021 | |||
By: | /s/ Anthony Pallante | ||
Anthony Pallante | |||
(Chief Executive Officer & Chair of the Board) | |||
By: | /s/ Peter Salvo | ||
Peter Salvo | |||
(Principal Financial Officer) |