UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended DecemberMarch 31, 20162020
¨ ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.
Commission File Number: 000-54277
BANJO & MATILDA, INC. |
(Exact name of registrant as specified in its charter) |
Nevada | 27-1519178 | |
(State or other jurisdiction of
| (I.R.S. employer identification number) |
1221 2nd Street #300Innovation Centre #1
3998 FAU Boulevard, Suite 309
Santa Monica CA 90401Boca Raton, Florida 33431
(Address of principal executive offices and zip code)
(855) 245-1613561-491-9595
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes o ☒ No x☐
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 o☐
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 accelerated filer,” “accelerated filer,” “smaller reporting company,” and "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 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐ No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of February 15, 2017,May 20, 2020, the Registrant had outstanding 58,823,11669,584,149 shares of common stock.
FORM 10-Q
TABLE OF CONTENTS
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Condensed Consolidated Financial | 4 | |||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 5 | |||||
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16 |
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16 |
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16 |
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16 |
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16 |
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2 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to statements regarding projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to those set forth herein and in our Annual Report on Form 10-K.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by the federal securities laws, we undertake no obligation to update forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.
3 |
PART I – FINANCIAL INFORMATION
BANJO & MATILDA, INC. AND SUBSIDIARIESSUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERMARCH 31, 20162020
(UNAUDITED)
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and June 30, 2019 | F-1 | |||
F-2 | ||||
F-3 - F-4 | ||||
| ||||
Notes to Condensed Consolidated Financial Statements (unaudited) |
|
4 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
|
|
|
|
|
|
| ||
|
| As of |
|
| As of |
| ||
|
| March 31, 2020 |
|
| June 30, 2019 |
| ||
Assets |
| (Unaudited) |
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 138,305 |
|
| $ | 3,029 |
|
Deposits |
|
| 12,546 |
|
|
| - |
|
Total current assets |
|
| 150,851 |
|
|
| 3,029 |
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset |
|
| 219,775 |
|
|
| - |
|
Total assets |
| $ | 370,626 |
|
| $ | 3,029 |
|
|
|
|
|
|
|
|
|
|
Liabilities & stockholders’ deficit |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 85,566 |
|
| $ | 378 |
|
Accrued liability, related party |
|
| 2,357 |
|
|
| 1,500 |
|
Convertible notes payable, net of discount |
|
| 205,075 |
|
|
| - |
|
Convertible notes payable, related party, net of discount |
|
| 18,000 |
|
|
| 35,000 |
|
Lease liability, current |
|
| 35,706 |
|
|
| - |
|
Total current liabilities |
|
| 346,704 |
|
|
| 36,878 |
|
|
|
|
|
|
|
|
|
|
Lease liability, long-term |
|
| 193,898 |
|
|
| - |
|
Total liabilities |
|
| 540,603 |
|
|
| 36,878 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
|
|
Series A Preferred stock, $0.00001 par value; 100,000,000 shares authorized; 3,500,000 designated; 3,113,368 and 0 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively |
|
| 31 |
|
|
| - |
|
Common stock, $0.00001 par value; 100,000,000 shares authorized; 69,584,149 and 0 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively |
|
| 696 |
|
|
| - |
|
Common stock to be issued |
|
| 135,739 |
|
|
| 50,907 |
|
Additional paid in capital |
|
| 367,471 |
|
|
| 50,907 |
|
Accumulated deficit |
|
| (673,913 | ) |
|
| (84,756 | ) |
Total stockholders' deficit |
|
| (169,976 | ) |
|
| (33,849 | ) |
Total liabilities and stockholders' deficit |
| $ | 370,626 |
|
| $ | 3,029 |
|
BANJO & MATILDA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30, 2016 2016 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents Trade receivables, net Inventory, net Deposit on purchases Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Intangible assets, net Deferred financing costs, net Property, plant and equipment, net TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Trade and other payables Deposit payable Trade financing Accrued interest Loans payable Loan from related parties Convertible loan from related parties (net of related discount) TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Loans payable (net of related discount) (net of current portion) TOTAL LIABILITIES STOCKHOLDERS' DEFICIT Preferred stock, $0.00001 par value, 100,000,000 shares authorized and 1,000,000 shares issued and outstanding, respectively Common stock, $0.00001 par value, 100,000,000 shares authorized and 58,823,116 and 58,823,116 shares issued and outstanding, respectively Additional paid in capital Other accumulated comprehensive gain Accumulated deficit TOTAL STOCKHOLDERS' DEFICIT TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 28,564 $ 11,056 - 2,870 129,272 102,427 - 1,153 5,500 - 163,336 117,506 34,898 38,269 24,709 31,407 10,023 11,976 69,629 81,652 $ 232,966 $ 199,157 $ 1,077,935 $ 1,008,772 4,621 4,621 196,119 249,720 370,885 236,398 689,269 306,092 181,737 183,269 377,724 370,008 2,898,290 2,358,880 171,903 325,137 3,070,193 2,684,017 10 10 588 588 1,632,517 1,632,517 100,007 100,007 (4,570,349 ) (4,217,982 ) (2,837,226 ) (2,484,860 ) $ 232,966 $ 199,157
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
| F-1 |
| Table of Contents |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| For the three months ended March 31, 2020 |
|
| For the three months ended March 31, 2019 |
|
| For the nine months ended March 31, 2020 |
|
| From Inception (August 6, 2018) through |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development expense |
| $ | - |
|
| $ | 2,900 |
|
| $ | 6,339 |
|
| $ | 4,882 |
|
Professional fees |
|
| 48,250 |
|
|
| 23,665 |
|
|
| 114,668 |
|
|
| 46,361 |
|
Other general and administrative expenses |
|
| 73,409 |
|
|
| 2,508 |
|
|
| 141,945 |
|
|
| 2,935 |
|
Total operating expenses |
|
| 121,659 |
|
|
| 29,073 |
|
|
| 262,952 |
|
|
| 54,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (121,659 | ) |
|
| (29,073 | ) |
|
| (262,952 | ) |
|
| (54,178 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| (152,423 | ) |
|
| - |
|
|
| (286,375 | ) |
|
| - |
|
Amortization of debt discount, related party |
|
| (12,977 | ) |
|
| - |
|
|
| (27,242 | ) |
|
| - |
|
Interest expense |
|
| (4,545 | ) |
|
| - |
|
|
| (8,609 | ) |
|
| - |
|
Interest expense, related party |
|
| (1,356 | ) |
|
| (192 | ) |
|
| (3,979 | ) |
|
| (192 | ) |
Total other (expense) |
|
| (171,301 | ) |
|
| (192 | ) |
|
| (326,205 | ) |
|
| (192 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (292,960 | ) |
| $ | (29,265 | ) |
| $ | (589,157 | ) |
| $ | (54,370 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted |
|
| 69,584,149 |
|
|
| 69,584,149 |
|
|
| 69,584,149 |
|
|
| 69,584,149 |
|
BANJO & MATILDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 2016 AND 2015
(UNAUDITED)
Three month periods ended Six month periods ended December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 Revenue Cost of sales Gross profit Payroll and employee related expenses Operating expense Marketing expense Samples & design expense Occupancy expenses Depreciation and amortization expense Finance Charges Corporate and public company expense Loss from operations Other Income (Expense) Interest income Other income Amortization of debt discount Interest expense Total Other Expense Loss before income tax Provision for income taxes Net loss Other comprehensive income Foreign currency translation Comprehensive loss Net loss per share Basic Diluted Weighted average number of shares outstanding: Basic Diluted $ 159,115 $ 732,063 $ 360,042 $ 1,612,367 46,417 517,152 143,747 1,088,959 112,698 214,911 216,295 523,408 123,879 131,688 246,362 393,653 20,818 42,725 40,922 105,445 17,136 23,501 34,917 91,921 6,055 7,466 7,761 44,069 11,461 23,350 26,058 36,715 2,662 2,291 5,324 4,556 18,450 12,299 27,258 27,680 7,125 40,898 14,547 73,285 207,587 284,219 403,150 777,324 (94,889 ) (69,307 ) (186,855 ) (253,916 ) - - 3,390 (9,846 ) 4,077 2,832 (16,393 ) (18,093 ) (32,785 ) (36,187 ) (68,966 ) (52,120 ) (136,804 ) (115,453 ) (81,969 ) (80,059 ) (165,512 ) (148,808 ) (176,858 ) (149,367 ) (352,367 ) (402,724 ) - - - - (176,858 ) (149,367 ) (352,367 ) (402,724 ) - - - - $ (176,858 ) $ (149,367 ) $ (352,367 ) $ (402,724 ) $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.01 ) $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.01 ) 58,823,116 58,823,116 58,823,116 58,722,023 58,823,116 58,823,116 58,823,116 58,722,023
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
| F-2 |
| Table of Contents |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||
FOR THE NINE MONTHS ENDED MARCH 31, 2020 | ||||||||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
| Common stock |
|
|
|
|
|
|
| ||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Paid in |
|
| to be |
|
| Accumulated |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| issued |
|
| Deficit |
|
| Total |
| ||||||||
Balance June 30, 2019 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 50,907 |
|
| $ | - |
|
| $ | (84,756 | ) |
|
| (33,849 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of reverse merger |
|
| 3,113,637 |
|
|
| 31 |
|
|
| 69,584,149 |
|
|
| 696 |
|
|
| (50,629 | ) |
|
| - |
|
|
|
|
|
|
| (49,902 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (19,166 | ) |
|
| (19,166 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2019 |
|
| 3,113,637 |
|
| $ | 31 |
|
|
| 69,584,149 |
|
| $ | 696 |
|
| $ | 278 |
|
| $ | - |
|
| $ | (103,922 | ) |
| $ | (102,917 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of beneficial conversion feature associated with convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 318,543 |
|
|
| - |
|
|
| - |
|
|
| 318,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (277,031 | ) |
|
| (277,031 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019 |
|
| 3,113,637 |
|
| $ | 31 |
|
|
| 69,584,149 |
|
| $ | 696 |
|
| $ | 318,821 |
|
|
| - |
|
| $ | (380,953 | ) |
| $ | (61,405 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes and accrued interest converted into common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 135,739 |
|
|
| - |
|
|
| 135,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of beneficial conversion feature associated with convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 48,650 |
|
|
|
|
|
|
| - |
|
|
| 48,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| (292,960 | ) |
|
| (292,960 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020 |
|
| 3,113,637 |
|
| $ | 31 |
|
|
| 69,584,149 |
|
| $ | 696 |
|
| $ | 367,471 |
|
|
| 135,739 |
|
| $ | (673,913 | ) |
| $ | (169,976 | ) |
BANJO & MATILDA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 2016 AND 2015
(UNAUDITED)
December 31, 2016 December 31, 2015 Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Amortization AR allowance Debt discount amortization Amortization of deferred finance fee (Increase) / decrease in assets: Trade receivables Inventory Deposit on Purchases Other assets Other receivable Deferred financing costs Increase/ (decrease) in current liabilities: Trade payables and other liabilities Accrued interest Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (net payments) on related party loan Proceeds from loan payables Net proceeds (net payments) on loan payables Net trade financing Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period SUPPLEMENTAL DISCLOSURES: Cash paid during the year for: Income tax payments Interest payments SUPPLEMENTAL DISCLOSURES FOR NON CASH: FINANCING AND INVESTING ACTIVITIES Debt converted to equity $ (352,367 ) $ (402,724 ) 1,953 1,185 3,371 3,371 (8,772 ) 873 32,785 36,187 7,851 7,851 - 11,642 16,808 (26,845 ) 40,962 1,153 356,651 (5,500 ) (235,650 ) - 66,952 (1,153 ) - 69,162 5,202 134,487 58,350 (132,233 ) (43,983 ) - (2,334 ) (1,532 ) 268,971 - (340,886 ) 204,875 - (53,601 ) (130,151 ) 149,742 (202,066 ) 17,508 (248,383 ) $ 11,056 $ 362,668 $ 28,564 $ 114,285 $ - $ - $ 12,082 $ 64,953 $ - $ 27,123
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
| F-3 |
BANJO & MATILDA INC. AND SUBSIDIARY | ||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||
FROM INCEPTION (AUGUST 6, 2018) THROUGH MARCH 31, 2019 | ||||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||||
|
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|
|
|
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|
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|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Paid in |
|
| Accumulated |
|
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||||
Inception, August 6, 2018 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 50,200 |
|
| $ | - |
|
| $ | 50,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2018 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 50,200 |
|
| $ | - |
|
| $ | 50,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (25,105 | ) |
|
| (25,105 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 50,200 |
|
| $ | (25,105 | ) |
| $ | 25,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (29,265 | ) |
|
| (29,265 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 50,200 |
|
| $ | (54,370 | ) |
| $ | (4,170 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
| Table of Contents |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| ||||||||
|
| For the nine months ended March 31, 2020 |
|
| From Inception (August 6, 2018) through 2019 |
| ||
|
|
|
|
|
|
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net Loss |
| $ | (589,157 | ) |
| $ | (54,370 | ) |
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| 286,375 |
|
|
| - |
|
Amortization of debt discount, related parties |
|
| 27,242 |
|
|
| - |
|
Changes in operating assets & liabilities: |
|
|
|
|
|
| - |
|
Operating lease right of use asset |
|
| 9,830 |
|
|
| - |
|
Deposits |
|
| (12,546 | ) |
|
| - |
|
Accounts payable and accrued expenses |
|
| 41,725 |
|
|
| - |
|
Accrued expenses, related parties |
|
| (1,143 | ) |
|
| - |
|
Net cash used by operating activities |
|
| (237,674 | ) |
|
| (54,370 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable |
|
| 339,950 |
|
|
| - |
|
Proceeds from convertible notes payable, related party |
|
| 33,000 |
|
|
| - |
|
Proceeds from sale of equity |
|
| - |
|
|
| 50,200 |
|
Net cash provided by financing activities |
|
| 372,950 |
|
|
| 50,200 |
|
|
|
|
|
|
|
|
|
|
Increase in Cash |
|
| 135,276 |
|
|
| (4,170 | ) |
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
| 3,029 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Cash (and equivalents) at end of period |
| $ | 138,305 |
|
| $ | (4,170 | ) |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Non-cash operating and financing activities: |
|
|
|
|
|
|
|
|
Convertible debt and accrued interest converted to common stock |
| $ | 135,739 |
|
| $ | - |
|
Beneficial conversion feature on convertible notes payable |
| $ | 48,650 |
|
| $ | - |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
| Table of Contents |
BANJO & MATILDA, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NoteNOTE 1 – BASIS- ORGANIZATION AND NATURE OF PRESENTATION AND ORGANIZATIONBUSINESS
All currencies representedBanjo & Matilda, Inc. was originally incorporated in Nevada on December 18, 2009 under the name Eastern World Group, Inc. and changed its name to Banjo & Matilda, Inc. on September 24, 2013.
On November 14, 2013, we entered into a share exchange agreement (the “Exchange Agreement”) with Banjo & Matilda Pty Ltd, (“Banjo & Matilda”) and the shareholders of Banjo & Matilda (“B&M Shareholders”). Pursuant to the Exchange Agreement, 100% of the issued and outstanding capital stock of Banjo & Matilda was acquired, making it a wholly-owned subsidiary. There was no prior relationship between the Company and its affiliates and Banjo & Matilda and its affiliates.
In consideration for the purchase of 100% of the issued and outstanding capital stock of Banjo & Matilda under the Exchange Agreement, we issued B&M Shareholders an aggregate of 24,338,872 restricted shares of common stock of the Company.
On July 1st 2015, the operations of Banjo & Matilda Pty Ltd were transferred to Banjo & Matilda (Australia) Pty Ltd., a wholly owned subsidiary of Banjo & Matilda Inc.
Following the worldwide downturn of the retail clothing business model, in June of 2017, Banjo & Matilda, Inc. began to seek out additional businesses to acquire as subsidiaries to expand and refocus its operations to generate more revenue and profit.
In June of 2017, Banjo & Matilda, Inc. began to seek out companies to acquire as additional subsidiaries to expand its business lines, and generate more revenue and profit.
On September 20, 2017, Banjo & Matilda, Inc. entered into a Memorandum of Understanding for the acquisition of Spectrum King, LLC as a wholly-owned subsidiary, a pioneer of full spectrum LED grow lights, specialized in designing, manufacturing and selling high-end LED grow lights for indoor/greenhouse applications with both the Agriculture and Horticulture industries.
On March 19, 2018, Banjo & Matilda, Inc. entered into a Share Exchange Agreement with Spectrum King, LLC, however this transaction failed to close.
On April 16, 2019, Banjo & Matilda, Inc. entered into a Share Exchange Agreement with American Aviation Technologies, LLC (“AAT”), an aircraft design and development company focused on the emerging segment of the aviation industry of autonomous and semi-autonomous vertical take-off and landing (VTOL) unmanned aerial vehicles (UAVs).
On June 28, 2019, Banjo & Matilda, Inc. spun out two wholly-owned subsidiaries: Banjo & Matilda (USA), Inc. and Banjo & Matilda Australia Pty LTD.
On September 30, 2019, the acquisition of American Aviation Technologies, LLC closed and it became a wholly-owned subsidiary of Banjo & Matilda, Inc.
| F-6 |
| Table of Contents |
Banjo & Matilda, Inc. is an aircraft design and development company focused on the emerging segment of the aviation industry of autonomous and semi-autonomous vertical take-off and landing (VTOL) unmanned aerial vehicles (UAVs). This segment of the aviation industry is attracting significant investment in the notesdevelopment of autonomous and semi-autonomous vertical take-off and landing (VTOL) unmanned aerial vehicles (UAVs).
The quintessence of contemporary aeronautical science and engineering, these mostly electric or hybrid-electric aircraft include small remotely controlled UAVs as well as larger passenger and cargo UAVs, which are targeting short-haul, on-demand transport of passengers and freight, called urban aerial mobility (UAM). The feasibility of these more lightweight and efficient aircraft designs is made possible through advances in composite materials, additive manufacturing (3D printing), miniaturization of electronics, computer processing speed, battery power and electromagnetic propulsion.
The UAV has become a viable, low cost alternative in many VTOL applications previously dominated by the helicopter, including aerial photography and videography. Among its advantages in aerial filming are its size, acoustics, low cost of operation, low altitude flying and superior maneuverability. Because of UAVs’ explosive growth over the past few years and the anticipated ubiquity in the future, new regulations are being formulated to allow their safe integration into low altitude civil airspace.
Stakeholders shaping this integration process include aircraft manufacturers, ridesharing companies, governmental regulatory agencies and civil transportation authorities, all of whom are working toward establishing standards and overcoming the variety of issues involved with its implementation. Key technologies impacting the development and implementation of this VTOL aircraft segment for fully autonomous applications include high speed (5G) data transmission and artificial intelligence. Also drawing interest is the development of VTOL and hover capable rotorcraft that can accomplish many of the civilian and military transport functions of a helicopter, but are faster, quieter, less complex to operate and safer on the ground. Helicopters have been around for over 80 years and have been improved significantly with advanced flight control systems but remain extremely complicated to fly and have performance limitations based on their fundamental flight principles. Due to a condition called retreating blade stall, also known as dissymmetry of lift, helicopters have a maximum forward speed of about 250 miles per hour. Additionally, helicopters produce high noise levels, due primarily to rotor blade vortex interaction and vibration, and have high operating costs.
The acquisition of American Aviation Technologies, LLC (“AAT”), which included the “Halo” patent, was undertaken to provide a foundation for the Company’s foray into aerospace industry. The “Halo” patent was issued in October 2019 after AAT had acquired all rights to the Halo aircraft design, including any prospective patents or applications for patents, through an intellectual property assignment by its inventor in 2018. As a scalable and multi-purpose platform, the aircraft’s size and capabilities can be expanded depending on the mission requirements, from a small frame UAV (or drone) to potentially a heavy lift cargo and even passenger transport aircraft, either manned or unmanned. Halo is expected to compete favorably with and exceed the performance of other VTOL aircraft in terms of speed, acoustics, maneuverability, efficiency, duration and safety.
| F-7 |
| Table of Contents |
The Halo platform is essentially a powered lift type of system with characteristics of tiltrotors and tiltwings and differs from rotorcraft such as the helicopter in its lift and forward propulsion mechanisms during horizontal flight, which has several advantages. Powered lift is one of seven main categories of aircraft classifications designated by the U.S. Federal Aviation Administration (FAA) and is defined as “a heavier-than-air aircraft capable of vertical take off and landing (VTOL) and low speed flight that depends principally on engine-driven lift devices or engine thrust for lift during these flight regimes and on non-rotating airfoils for lift during horizontal flight.” In tiltrotors and tiltwings one or more powered rotors are used for both lift and forward propulsion, essentially combining the vertical take off and landing capability of a helicopter with the efficiency, range, speed and cruise altitude of a conventional fixed-wing aircraft. For vertical flight, the rotors are horizontally angled to provide thrust upwards, lifting in the manner that a helicopter rotor operates. As the aircraft gains speed and altitude, the rotors progressively rotate or tilt forward, either moving independently of the wing or integrated and moving with the wing, eventually becoming perpendicular to the fuselage of the aircraft and functioning similar to a propeller in a vertical plane of orientation. Following the transition from vertical to forward flight mode, the airfoil-shaped wing generates the aerodynamic forces for lift and the rotor supplies the thrust. The wing’s greater efficiency, in conjunction with the rotor positioning, assists these aircraft in achieving higher forward speeds than helicopters, which are limited due to retreating blade stall. Tiltrotors and tiltwings are also inherently quieter in forward flight.
The Company is a member and tenant of the Research Park at Florida Atlantic University (FAU) in Boca Raton, Florida, which is part of the university and adjacent to the Boca Raton Airport. FAU is one of the top engineering schools in the state, and part of the National Science Foundation’s Industry/University Cooperative Research Center Program called the Center for Advanced Knowledge Enablement (CAKE). The 70-acre Research Park is home to many technology companies and research-based organizations. FAU recently opened a center for Artificial Intelligence and Connected Assured Autonomy through their College of Engineering and Computer Science, which is applicable to advanced aircraft systems. The Company will collaborate with FAU’s academic team, both faculty and students, through a series of joint research initiatives. The relationship with FAU would also potentially assist with access to grant programs and financing opportunities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the unaudited condensed financial statements have been included. Such adjustments are of a normal, recurring nature. The unaudited condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. These financial statements should be read in conjunction with the company’s latest annual financial statements.
Principles of Consolidation
The condensed consolidated unaudited financial statements include the accounts of Banjo & Matilda, Inc. (“Banjo” or “the Company”) and its wholly owned subsidiary American Aviation Technologies, LLC, collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation. These financial statements should be read in conjunction with the company’s latest annual financial statements.
| F-8 |
| Table of Contents |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of beneficial conversion features associated with convertible debt. Actual results could differ from these estimates.
Fair Value Measurements and Fair Value of Financial Instruments
The Company adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3: Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The estimated fair value of certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Deferred Taxes
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes ("ASC 740-10") for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial. As of March 31, 2020 there are no deferred tax assets.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company has no cash equivalents.
| F-9 |
| Table of Contents |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable and Allowance for Doubtful Accounts
The Company monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The allowance for doubtful accounts is estimated based on an assessment of the Company's ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts and if the financial condition of the Company's customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. The Company writes-off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection. The allowance for doubtful accounts is created by forming a credit balance which is deducted from the total receivables balance in the balance sheet. As of March 31, 2020 and June, 30, 2019 there are no accounts receivable.
Revenue Recognition
Revenue includes product sales. The Company recognizes revenue from product sales in accordance with Topic 606 "Revenue Recognition in Financial Statements" which considers revenue realized or realizable and earned when all of the following criteria are met:
(i) | persuasive evidence of an arrangement exists, | |
(ii) | the services have been rendered and all required milestones achieved, | |
(iii) | the sales price is fixed or determinable, and | |
(iv) | Collectability is reasonably assured. |
For the nine months ended March 31, 2020 and for the period from inception (August 6, 2018) through March 31, 2019, the Company has no revenue.
Convertible Debentures
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 "Debt with Conversion and Other Options." In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt. During the nine months ended March 31, 2020, the Company recorded a BCF in the amount of $367,193.
Fair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10") requires disclosure of the fair value of certain financial instruments. The carrying value of cash, accounts payable and accrued liabilities as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The Company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures ("ASC 820-10") and Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10"), which permits entities to choose to measure many financial instruments and certain other items at fair value.
| F-10 |
| Table of Contents |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Expenses
Expenditures for research and development are expensed as incurred. The Company incurred research and development expenses of $6,339 for the nine months ended March 31, 2020 and $4,882 for the period from inception (August 6, 2018) through March 31, 2019.
Advertising, Marketing and Public Relations
The Company expenses advertising and marketing costs as they are incurred. There Company recorded advertising expenses in the amount of $1,211 for the nine months ended March 31, 2020 and $492 for the period from inception (August 6, 2018) through March 31, 2019.
Offering Costs
Costs incurred in connection with raising capital by the issuance of common stock are recorded as contra equity and deducted from the capital raised. There were no offering costs for the nine months ended March 31, 2020 and from inception (August 6, 2018) through March 31, 2019, respectively.
Income Taxes
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of general and administrative expenses. Our consolidated federal tax return and any state tax returns are not currently under examination.
The Company has adopted FASB ASC 740-10, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Recent Accounting Pronouncements
In February 2016, FASB issued ASC 842 that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement.
The ASU will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted, and is applicable on a modified retrospective basis with various optional practical expedients. The Company has assessed the impact of this standard. The Company entered into a new lease agreement commencing on November 1, 2019 which falls under this current guidance and has been implemented during the nine months ended March 31, 2020.
| F-11 |
| Table of Contents |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606. The new revenue recognition standard supersedes all existing revenue recognition guidance. Under this ASU, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to the first quarter of 2018, with early adoption permitted in the first quarter of 2017.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.
On June 20, 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after this date. The Company adopted ASU 2018-07 on August 6, 2018. The adoption of this standard did not have a material impact on the financial statements.
The Company has implemented all new accounting pronouncements that are in United States Dollars (USD)effect. These pronouncements did not have any material impact on the consolidated financial statements unless specifiedotherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – OPERATING LEASE RIGHT-OF-USE ASSET AND OPERATING LEASE LIABILITY
The Company leases 2,911 square feet of office space located at Innovation Centre No. 1, 3998 FAU Boulevard, Boca Raton, Florida. The Company entered into a lease agreement commencing on November 1, 2019 through January 1, 2025 in which the first three months of rent are abated. The base month rents of $4,367 from February 1, 2020 to October 1, 2020, $4,498 from November 1, 2020 to October 1, 2021, $4,633 from November 1, 2021 to October 1, 2022, $4,771 from November 1, 2022 to October 1, 2023, $4,915 from November 1, 2023 to October 1, 2024, and $5,063 from November 1, 2024 to January 1, 2025. Under the terms of the lease, the base rent is subject to sales tax. Additionally, the Company is responsible to pay common area maintenance, which is a variable expense.
Operating lease right-of-use asset and liability are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 10%, as AUD (Australian Dollars).the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. Since the common area maintenance expenses are expenses that do not depend on an index or rate, they are excluded from the measurement of the lease liability and recognized in other general and administrative expenses on the statements of operations. At inception the Company paid prepaid rent in the amount of $4,659, which is netted against the operating lease right of use asset balance. In February 2020, the Company applied the prepaid rent.
| F-12 |
| Table of Contents |
NOTE 3 – OPERATING LEASE RIGHT-OF-USE ASSET AND OPERATING LEASE LIABILITY (CONTINUED)
Right-of-use asset is summarized below: |
|
| ||
|
|
| ||
|
| March 31, 2020 |
| |
Office lease |
| $ | 225,610 |
|
Less accumulated amortization |
|
| (5,835 | ) |
Right-of-use assets, net |
| $ | 219,775 |
|
Operating lease liability is summarized below: |
|
| ||
|
|
| ||
|
| March 31, 2020 |
| |
Office lease |
| $ | 229,604 |
|
Less: current portion |
|
| (35,706 | ) |
Long term portion |
|
| 193,898 |
|
|
|
|
|
|
Maturity of the lease liability is as follows: |
|
|
|
|
Fiscal year ending June 30, 2020 |
| $ | 13,977 |
|
Fiscal year ending June 30, 2021 |
|
| 57,027 |
|
Fiscal year ending June 30, 2022 |
|
| 58,746 |
|
Fiscal year ending June 30, 2023 |
|
| 60,506 |
|
Fiscal year ending June 30, 2024 |
|
| 62,318 |
|
Fiscal year ending June 30, 2025 |
|
| 37,182 |
|
|
|
| 289,755 |
|
Plus: Present value discount |
|
| (60,151 | ) |
Lease liability |
| $ | 229,604 |
|
NOTE 4 – EXCHANGE AGREEMENT
On April 18, 2019, Banjo & Matilda, Inc, and American Aviation Technologies, LLC (“AAT”) entered into a Share Exchange Agreement (“Agreement”). The agreement, which was effective on September 30, 2019, was pursuant to which Banjo acquired 100% of our issued and outstanding membership units in exchange for the issuance of Banjo shares of its Series A Preferred Stock constituting 86.39% of the total voting power of Banjo capital stock to be outstanding upon closing, after giving effect to the consummation of concurrent debt settlement and other capital stock issuances but before the issuance of shares of capital stock for investor relations purposes. As a result of the Exchange Agreement, the Company became a wholly owned subsidiary of Banjo.
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NOTE 4 – EXCHANGE AGREEMENT (CONTINUED)
The Exchange Agreement was subject to the satisfaction of certain conditions as set forth in the Exchange Agreement.
Consummation of the Exchange Agreement was effective on September 30, 2019. Pursuant to the Exchange Agreement, the members of AAT received 2,750,000 shares of the Banjo & Matilda, Inc.’s Series A Preferred Stock to the members of AAT in exchange for the 10,000,000 member units.
On September 30, 2019 just prior to the exchange, Banjo issued 170,000 shares of preferred stock as compensation and 193,637 shares of preferred stock in satisfaction of $2,608,224 in liabilities.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
The carrying value of convertible notes payable, net of discount, as of March 31, 2020 was $205,075 as summarized below:
The following table illustrates the carrying values for the convertible notes payable as of March 31, 2020:
|
| March 31, |
| |
Convertible Notes Payable |
| 2020 |
| |
Convertible notes payable issued October 4, 2019 (6% interest) |
| $ | 45,000 |
|
Convertible notes payable issued November 22, 2019 (6% interest) |
|
| 40,000 |
|
Convertible notes payable issued March 2, 2020 (6% interest) |
|
| 22,000 |
|
Convertible notes payable issued March 3, 2020 (6% interest) |
|
| 25,000 |
|
Convertible notes payable issued March 7, 2020 (6% interest) |
|
| 1,650 |
|
Total face value |
|
| 133,650 |
|
Less unamortized discount |
|
| (53,575 | ) |
Carrying value |
| $ | 80,075 |
|
The following table illustrates the carrying values for the convertible notes payable, in default as of March 31, 2020:
|
| March 31, |
| |
Convertible Notes Payable, In Default |
| 2020 |
| |
Convertible notes payable issued September 27, 2019 (6% interest) |
| $ | 25,000 |
|
Convertible notes payable issued September 30, 2019 (6% interest) |
|
| 50,000 |
|
Convertible notes payable issued October 1, 2019 (6% interest) |
|
| 50,000 |
|
Total face value |
|
| 125,000 |
|
Less unamortized discount |
|
| - |
|
Carrying value |
| $ | 125,000 |
|
Between September 27, 2019 and March 7, 2020, AAT issued convertible notes payable with an aggregate face value of $339,950 with a coupon rate of 6%. The notes have a maturity date of six months. The agreements provided that in the event AAT is merged into Banjo (“Company”), at any time prior to the Maturity Date the holder has the option to convert the principal balance and any accrued interest to common stock of the Company at a conversion price of $.0033 per share.
The Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification. However, the Company was required to determine if the debt contained a beneficial conversion feature (“BCF”), which is based on the intrinsic value on the date of issuance. The Company recorded a beneficial conversion feature in the amount of $339,950 related to these notes. Additionally, for the nine months ended March 31, 2020 the Company recorded $286,375 in amortization of debt discount related to the BCF. For the nine months ended March 31, 2020 the Company recorded $8,609 in interest expense.
Between March 27, 2020 and March 31, 2020, holders of the convertible notes elected to convert $81,300 in principal and $2,439 in accrued interest into 25,375,454 shares of common stock. Since the shares have not been issued as of March 31, 2020, these amounts were held in common stock to be issued.
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NOTE 6 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY
The following table illustrates the carrying values for the convertible notes payable, related party as of March 31, 2020 and June 30, 2019:
|
| March 31, |
|
| June 30, |
| ||
Convertible Notes Payable |
| 2020 |
|
| 2019 |
| ||
Convertible notes payable issued March 4, 2019 (8% interest) |
| $ | - |
|
| $ | 25,000 |
|
Convertible notes payable issued May 31, 2019 (8% interest) |
|
| - |
|
|
| 10,000 |
|
Convertible notes payable issued September 23, 2019 (8% interest) |
|
| 18,000 |
|
|
| - |
|
Total face value |
|
| 18,000 |
|
|
| 35,000 |
|
Less unamortized discount |
|
| - |
|
|
| - |
|
Carrying value |
| $ | 18,000 |
|
| $ | 35,000 |
|
Between March 4, 2019 and September 23, 2019, AAT issued convertible notes payable with an aggregate face value of $68,000 with a coupon rate of 8% to a related party. The agreements provided that in the event AAT is merged into Banjo (“Company”), at any time prior to the Maturity Date the holder has the option to convert the principal balance and any accrued interest to common stock of the Company at a conversion price of $.0033 per share.
The Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification. However, the Company was required to determine if the debt contained a beneficial conversion feature (“BCF”), which is based on the intrinsic value on the date of issuance. The Company recorded a beneficial conversion feature in the amount of $27,243 related to these notes. Additionally, for the nine months ended March 31, 2020 the Company recorded $26,111 in amortization of debt discount related to the BCF. For the nine months ended March 31, 2020 the Company recorded $3,979 in interest expense.
Between March 27, 2020 and March 31, 2020, holders of the convertible notes elected to convert $50,000 in principal and $2,000 in accrued interest into 15,757,576 shares of common stock. Since the shares have not been issued as of March 31, 2020, these amounts were held in common stock to be issued.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of March 31, 2020, the Company is not aware of any contingent liabilities that should be reflected in the financial statements.
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NOTE 8 – EQUITY
Preferred Stock
There are 100,000,000 shares authorized as preferred stock, of which 3,500,000 are designated as Series A Preferred Stock having a par value of $0.00001 per share. The Series A preferred stock has the following rights:
· | Voting: The preferred shares shall be entitled to 100 votes to every one share of common stock. | |
· | Dividends: The Series A Preferred Stockholders are treated the same as the Common Stock holders except at the dividend on each share of Series A Convertible Preferred Stock is equal to the amount of the dividend declared and paid on each share of Common Stock multiplied by the Conversion Rate. | |
· | Conversion: Each share of Series A Preferred Stock is convertible, at the option of the holder thereof, at any time into shares of Common Stock on a 1:1,000 basis. | |
· | The shares of Series A Preferred Stock are redeemable at the option of the Corporation at any time after September 30, 2022 upon not less than 30 days written notice to the holders. It is not mandatorily redeemable. |
As of March 31, 2020 and June 30, 2019, the Company has 3,113,638 and 0 shares of Series A Preferred Stock issued and outstanding, respectively. The balance of Preferred Stock at March 31, 2020 and June 30, 2019 was $31 and $0, respectively.
Common Stock
There have been no changes to the common stock for nine months ended March 31, 2020. The Company currently has 100,000,000 common shares authorized with a par value of $0.00001 per share. The number of shares outstanding at March 31, 2020 and June 30, 2019 was 69,584,149 and 0, respectively. The balance of Common Stock at March 31, 2020 and June 30, 2019 was $696 and $0, respectively.
Common Stock to be Issued
Between March 27, 2020 and March 31, 2020, holders of the convertible notes elected to convert $131,300 in principal and $4,439 in accrued interest into 41,133,030 shares of common stock. Since the shares have not been issued as of March 31, 2020, these amounts were held in common stock to be issued.
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NOTE 9 – GOING CONCERN MATTERS
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At March 31, 2020 and June 30, 2019, the Company had $138,305 and $3,029 in cash and $195,853 and $33,849 in negative working capital, respectively. For the nine months ended March 31, 2020 and from inception (August 6, 2018) through March 31, 2019, the Company had a net loss of $589,157 and $54,370, respectively. For the three months ended March 31, 2020 and 2019, the Company had a net loss of $292,960 and $29,265, respectively. Continued losses may adversely affect the liquidity of the Company in the future. Therefore, the factors noted above raise substantial doubt about our ability to continue as a going concern. The recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems.
NOTE 10 – SUBSEQUENT EVENTS
Convertible notes issued
Between April 10, 2020 and April 23, 2020, AAT issued convertible notes payable with an aggregate face value of $3,000 with a coupon rate of 6%. The notes have a maturity date of six months. The agreements provided that in the event AAT is merged into Banjo (“Company”), at any time prior to the Maturity Date the holder has the option to convert the principal balance and any accrued interest at a conversion price of $.0033 per share.
Note conversions
On May 22, 2020, holders of convertible notes issued conversion notices to convert $20,000 in principal and $600 in accrued interest into 6,242,424 shares of common stock.
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the audited and unaudited financial statements and the notes to those statements included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this Report that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.
This section of the report should be read together with Footnotes of the Company audited financials for the year ended June 30, 2019. The unaudited statements of operations for the nine months ended March 31, 2020 and from inception (August 6, 2018) through March 31, 2019 are compared in the sections below.
General Overview
Banjo and Matilda, Inc. was incorporated in Nevada on December 18, 2009 under the name Eastern World Group, Inc. On September 24, 2013, its name was changed to Banjo & Matilda, Inc.
On November 14, 2013, Banjo & Matilda, Inc., entered into a Share Exchange Agreement (the "Exchange Agreement"“Exchange Agreement”) with Banjo & Matilda, Pty Ltd., a corporation formed under the laws of Australia (the "Company"“Company”) and the shareholders of the Company. Pursuant to the Exchange Agreement, at the closing of the transaction contemplated thereunder (the "Transaction"“Transaction”), the Company became a wholly-owned subsidiary of Banjo & Matilda, Inc. (the “Parent”).
Banjo & Matilda Pty Ltd. was incorporated under the laws of Australia on May 27, 2009 and manufactures and sells cashmere fashion. Headquartered at Bondi Beach, the Aussie lifestyle of sun, sand and surf resonates innately with this label and its philosophy of low maintenance, style and comfort.
Banjo & Matilda USA, Inc. was incorporated in the State of Delaware on October 14, 2013, as a subsidiary, and is owned 100% by Banjo & Matilda, Inc.
The ultra-soft cashmere staples, pairing simplicity with cool sophistication has rapidly gained loyal customers worldwide positioning the label as the 'go-to'‘go-to’ for contemporary cashmere products.
Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Banjo & Matilda Pty Ltd. for the net monetary assets of the Banjo & Matilda, Inc. accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under share reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Banjo & Matilda, Inc. are those of the legal acquiree, Banjo & Matilda Pty Ltd., which is considered to be the accounting acquirer. Share and per share amounts stated have been retroactively adjusted to reflect the merger.
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As a result of the exchange agreement, the reorganization was treated as an acquisition by the accounting acquiree that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data have been retroactively restated. Accordingly, the financial statements include the following:
(1) | The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer at fair value. | |
(2) | The statements of operations include the operations of the accounting acquirer for the period presented and the operations of the legal acquirer from the date of the merger. |
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESIn June of 2017, Banjo & Matilda, Inc. began to seek out companies to acquire as additional subsidiaries to expand its business lines, and generate more revenue and profit.
BasisOn September 20, 2017, Banjo & Matilda, Inc. entered into a Memorandum of PresentationUnderstanding with Spectrum King, LLC.
On March 19, 2018, Banjo & Matilda, Inc. entered into a Share Exchange Agreement with Spectrum King, LLC, however this transaction did not close.
On April 16, 2019, Banjo & Matilda, Inc. entered into a Share Exchange Agreement with American Aviation Technologies, LLC
On June 28, 2019, Banjo & Matilda, Inc. spun out two wholly-owned subsidiaries: Banjo & Matilda (USA), Inc. and Banjo & Matilda Australia Pty LTD.
On September 30, 2019, the acquisition of American Aviation Technologies, LLC closed and it became a wholly-owned subsidiary of Banjo & Matilda, Inc.
Recent Developments
Spin Out Agreement
Effective June 28, 2019, the Company entered into a Spin Out Agreement with WNPAU Pty Ltd. (“WNPAU”) which is owned by the Company’s former CEO Brendan MacPherson. In connection with the agreement, WNPAU agreed to assume all the assets and liabilities of the Company’s two subsidiaries: Banjo & Matilda (USA), Inc. and Banjo & Matilda Australia Pty LTD exchange for the return of 1,000,000 shares of Preferred Stock held by Brendan MacPherson and $135,000 of accrued compensation owed to Brendan MacPherson.
Exchange Agreement
On April 18, 2019, Banjo & Matilda, Inc, and American Aviation Technologies, LLC (“AAT”) entered into a Share Exchange Agreement (“Agreement”). The agreement, which was effective on September 30, 2019, was pursuant to which Banjo acquired 100% of our issued and outstanding membership units in exchange for the issuance of Banjo shares of its Series A Preferred Stock constituting 86.39% of the total voting power of Banjo capital stock to be outstanding upon closing, after giving effect to the consummation of concurrent debt settlement and other capital stock issuances but before the issuance of shares of capital stock for investor relations purposes. As a result of the Exchange Agreement, the Company became a wholly owned subsidiary of Banjo.
The accompanyingExchange Agreement was subject to the satisfaction of certain conditions as set forth in the Exchange Agreement.
AAT is a Florida limited liability company that is an aircraft design and development company dedicated to advancing aeronautical safety and performance through new and innovative concepts.
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Critical Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements wereof the Company and the accompanying notes included in this Quarterly Report are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. Such adjustments are of a normal, recurring nature. The unaudited condensed consolidated financial statements, and the accompanying notes, are prepared in conformityaccordance with generally accepted accounting principles in the United States of America ("US GAAP"). Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. These financial statements should be read in conjunction with the company’s latest annual financial statements.
Principles of Consolidation
The condensed consolidated unaudited financial statements include the accounts of Banjo & Matilda, Inc. ("Banjo"(“Banjo” or "the Company"“the Company”) and its wholly owned subsidiaries Banjo & Matilda Pty Ltd. and Banjo & Matilda USA, Inc.,subsidiary American Aviation Technologies, LLC, collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation. These financial statements should be read in conjunction with the company’s latest annual financial statements.
Exchange Gain (Loss)
During the six-month periods ended December 31, 2016 and 2015, the transactions of the Company were denominated in US Dollars. Some transactions were denominated in AUD and British pounds for the sales made outside US and for rent paid for the Australian store. Such transactions were converted to US$ on the date of transaction and the exchange gains or losses were recorded in the statement of operations.
Foreign Currency Translation and Comprehensive Income (Loss)
During the six-month period ended December 31, 2016 ad 2015, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US$ on the date of settlement and the exchange gains and losses were recorded in the statement of operations. No change was recorded in the comprehensive income (loss).
Use of Estimates
The preparation of financial statements in conformity with US GAAPaccounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of beneficial conversion features associated with convertible debt. Actual results could differ from thosethese estimates. Significant estimates include collectability
Fair Value Measurements and Fair Value of accounts receivable, accounts payable, sales returnsFinancial Instruments
The Company adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and recoverabilityestablishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3: Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The estimated fair value of long-termcertain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Deferred Taxes
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes ("ASC 740-10") for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
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Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial. As of March 31, 2020 there are no deferred tax assets.
Reportable SegmentCash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company has no cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
The Company monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The allowance for doubtful accounts is estimated based on an assessment of the Company's ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts and if the financial condition of the Company's customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. The Company writes-off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection. The allowance for doubtful accounts is created by forming a credit balance which is deducted from the total receivables balance in the balance sheet. As of March 31, 2020 and June, 30, 2019 there are no accounts receivable.
Revenue Recognition
Revenue includes product sales. The Company recognizes revenue from product sales in accordance with Topic 606 "Revenue Recognition in Financial Statements" which considers revenue realized or realizable and earned when all of the following criteria are met:
(i) | persuasive evidence of an arrangement exists, | |
(ii) | the services have been rendered and all required milestones achieved, | |
(iii) | the sales price is fixed or determinable, and | |
(iv) | Collectability is reasonably assured. |
For the nine months ended March 31, 2020 and for the period from inception (August 6, 2018) through March 31, 2019, the Company has no revenue.
Convertible Debentures
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 "Debt with Conversion and Other Options." In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt. During the nine months ended March 31, 2020, the Company recorded a BCF in the amount of $367,193.
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Fair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10") requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The Company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures ("ASC 820-10") and Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10"), which permits entities to choose to measure many financial instruments and certain other items at fair value.
Research and Development Expenses
Expenditures for research and development are expensed as incurred. The Company incurred research and development expenses of $6,339 for the nine months ended March 31, 2020 and $4,882 for the period from inception (August 6, 2018) through March 31, 2019.
Advertising, Marketing and Public Relations
The Company expenses advertising and marketing costs as they are incurred. There Company recorded advertising expenses in the amount of $1,211 for the nine months ended March 31, 2020 and $492 for the period from inception (August 6, 2018) through March 31, 2019.
Offering Costs
Costs incurred in connection with raising capital by the issuance of common stock are recorded as contra equity and deducted from the capital raised. There were no offering costs for the nine months ended March 31, 2020 and from inception (August 6, 2018) through March 31, 2019, respectively.
Income Taxes
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of general and administrative expenses. Our consolidated federal tax return and any state tax returns are not currently under examination.
The Company has one reportable segment. The Company's activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowancesadopted FASB ASC 740-10, Accounting for returns and any taxes collected from customers and subsequently remitted to governmental authorities.
Cost of Sales
Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), shipping, importation duties and charges, third party royalties, and product sampling.
Operating Overhead Expense
Operating overhead expense consists primarily of payroll and benefit related costs, rent, depreciation and amortization, professional services, and meetings and travel.
Income Taxes
The Company utilizes FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, which requires recognition of deferredan asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years ofcomputed annually from differences between the financial statement and tax basesbasis of assets and liabilities and their financial reportingthat will result in taxable or deductible amounts at each period endin the future based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
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Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606. The new revenue recognition standard supersedes all existing revenue recognition guidance. Under this ASU, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to the first quarter of 2018, with early adoption permitted in the first quarter of 2017.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.
On June 20, 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after this date. The Company adopted ASU 2018-07 on August 6, 2018. The adoption of this standard did not have a material impact on the financial statements.
The Company follows FASB Interpretation No. 48, Accountinghas implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Reclassification
Certain prior year amounts have been reclassified for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740). When tax returns are filed, it is likely that some positions taken would be sustained upon examination byconsistency with the taxing authorities, while others are subject to uncertainty aboutcurrent period presentation. These reclassifications had no effect on the meritsreported results of operations or cash flow.
Financial Results
The following discussion of the position taken orresults of operations constitutes management’s review of the factors that affected the financial and operating performance for the nine months ended March 31, 2020 versus the period from August 6, 2018 (Inception) through March 31, 2019 and the three months ended March 31, 2020 versus the three months ended March 31, 2019. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report. The Company has a June 30 fiscal year end.
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Results of Operations
The following information represents our results of operations the three months ended March 31, 2020 versus the three months ended March 31, 2019.
Three months ended March 31, 2020 compared to the three months ended March 31, 2019
|
| For the three months ended March 31, 2020 (Unaudited) |
|
| For the three months ended March 31, 2019 (Unaudited) |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development expense |
| $ | - |
|
| $ | 2,900 |
|
| $ | (2,900 | ) |
| (100 | )% | |
Professional fees |
|
| 48,250 |
|
|
| 23,665 |
|
|
| (4,990 | ) |
| (104 | )% | |
Other general and administrative expenses |
|
| 73,409 |
|
|
| 2,508 |
|
|
| 100,477 |
|
| 2827 | % | |
Total operating expenses |
|
| 121,659 |
|
|
| 29,073 |
|
|
| (131,358 | ) |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (121,659 | ) |
|
| (29,073 | ) |
|
| (92,587 | ) |
|
| 318 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| (152,423 | ) |
|
| 0 |
|
|
| (152,423 | ) |
|
| 100 | % |
Amortization of debt discount, related parties |
|
| (12,977 | ) |
|
| 0 |
|
|
| (12,977 | ) |
|
| 100 | % |
Interest expense |
|
| (4,545 | ) |
|
| 0 |
|
|
| (4,545 | ) |
|
| 100 | % |
Interest expense, related parties |
|
| (1,356 | ) |
|
| (192 | ) |
|
| (1,164 | ) |
|
| 606 | % |
Total other income (expense) |
|
| (171,301 | ) |
|
| (192 | ) |
|
| (171,109 | ) |
|
| 89119 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (292,960 | ) |
| $ | (29,265 | ) |
| $ | (263,696 | ) |
|
| 901 | % |
Research and Development Expenses
Total research and development expenses were $0 for the three months ended March 31, 2020 compared to $2,900 for the three months ended March 31, 2019. The decrease of 100% was due to the fact there were no research and development expenses in the current period as the incurred research and development expenses for the year incurred in the first quarter.
Professional Fees
Total professional fees were $48,250 for the three months ended March 31, 2020 compared to $23,665 for the three months ended March 31, 2019. The increase of 104% was due was due to incurring engineering, legal and accounting fees. The accounting and legal fees were primarily related to fulfilling financial reporting requirements.
Other general and administrative expenses
Total other general and administrative expenses were $73,409 for the three months ended March 31, 2020 compared to $2,508 for the three months ended March 31, 2019. The increase of 2827% was primarily due to consulting fees for new business development and incurring rent for new office space.
| 11 |
| Table of Contents |
Other Expenses
Total other expenses were $171,301 for the three months ended March 31, 2020 compared to $192 for the three months ended March 31, 2019. Total other expenses consist of interest expense on debt and amortization of debt discount. The increase of 100% was due to the issuance of new debt.
Net loss
Total net loss was $292,960 for the three months ended March 31, 2020 compared to $29,265 for the three months ended March 31, 2019. The increase of 901% was due to increased professional fees primarily for fulfilling financial reporting requirements, office rent and interest expense related to new debt.
Nine months ended March 31, 2020 compared to the period from August 6, 2018 (Inception) through March 31, 2019
|
| For the nine months ended March 31, 2020 (Unaudited) |
|
| From Inception (August 6, 2018) through |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development expense |
| $ | 6,339 |
|
| $ | 4,882 |
|
| $ | 1,457 |
|
|
| 30 | % |
Professional fees |
|
| 114,668 |
|
|
| 46,361 |
|
|
| 68,307 |
|
|
| 147 | % |
Other general and administrative expenses |
|
| 141,945 |
|
|
| 2,935 |
|
|
| 139,010 |
|
| 4736 | % | |
Total operating expenses |
|
| 262,952 |
|
|
| 54,178 |
|
|
| (131,358 | ) |
|
| 242 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (262,952 | ) |
|
| (54,178 | ) |
|
| (208,774 | ) |
|
| 385 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| (286,375 | ) |
|
| 0 |
|
|
| (286,375 | ) |
|
| 100 | % |
Amortization of debt discount, related parties |
|
| (27,242 | ) |
|
| 0 |
|
|
| (27,242 | ) |
|
| 100 | % |
Interest expense |
|
| (8,609 | ) |
|
| 0 |
|
|
| (8,609 | ) |
|
| 100 | % |
Interest expense, related parties |
|
| (3,979 | ) |
|
| (192 | ) |
|
| (3,787 | ) |
| 1972 | % | |
Total other income (expense) |
|
| (326,205 | ) |
|
| (192 | ) |
|
| (326,013 | ) |
|
| 169798 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (589,157 | ) |
| $ | (54,370 | ) |
| $ | (534,787 | ) |
|
| 984 | % |
| 12 |
| Table of Contents |
Research and Development Expenses
Total research and development expenses were $6,339 for the nine months ended March 31, 2020 compared to $4,882 for the period from August 6, 2018 (Inception) through March 31, 2019.
Professional Fees
Total professional fees were $114,668 for the nine months ended March 31, 2020 compared to $46,361 for the period from August 6, 2018 (Inception) through March 31, 2019. The increase of 147% was due to incurring engineering, legal and accounting fees. The accounting and legal fees were primarily related to fulfilling financial reporting requirements.
Other general and administrative expenses
Total other general and administrative expenses were $141,945 for the nine months ended March 31, 2020 compared to $2,935 for the period from August 6, 2018 (Inception) through March 31, 2019. The increase of 4736% was primarily due to consulting fees for new business development and incurring rent for new office space.
Other Expenses
Total other expenses were $326,205 for the nine months ended March 31, 2020 compared to $192 for the period from August 6, 2018 (Inception) through March 31, 2019. The increase of 169798% was due to interest expense related to the issuance of new debt.
Net loss
Total net loss was $589,157 for the nine months ended March 31, 2020 compared to $54,370 for the period from August 6, 2018 (Inception) through March 31, 2019. The increase of 984% was due to increased professional fees primarily for fulfilling financial reporting requirements, office rent and interest expense related to new debt.
Operating Activities
Cash used in operations of $237,674 during the nine months ended March 31, 2020 was primarily a result of our $589,157 net loss reconciled with our net non-cash expenses relating to amortization of debt discount, accounts payable and accrued liabilities. Cash used in operations of $54,370 from August 6, 2018 (Inception) through March 31, 2019 was a result of our $54,370 net loss.
Financing Activities
Net cash provided by financing activities for the nine months ended March 31, 2020 was $372,950, which consisted of proceeds from the issuance of convertible debt in the amount of $339,950 and from the position that would be ultimately sustained. issuance of convertible debt, related party in the amount of $33,000. Net cash provided by financing activities from August 6, 2018 (Inception) through March 31, 2019 was $50,200, which consisted of proceeds from the sale of equity.
| 13 |
| Table of Contents |
Going Concern
The benefitCompany's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At March 31, 2020 and June 30, 2019, the Company had $138,305 and $3,029 in cash and $195,853 and $33,849 in negative working capital, respectively. For the nine months ended March 31, 2020 and from inception (August 6, 2018) through March 31, 2019, the Company had a net loss of $589,157 and $54,370, respectively. For the three months ended March 31, 2020 and 2019, the Company had a net loss of $292,960 and $29,265, respectively. Continued losses may adversely affect the liquidity of the Company in the future. Therefore, the factors noted above raise substantial doubt about our ability to continue as a going concern. The recoverability of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. Themajor portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefitsrecorded asset amounts shown in the accompanying balance sheets along withis dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any associated interest and penalties that would be payableadjustments relating to the taxing authoritiesrecoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s existence is dependent upon examination. Interestmanagement’s ability to develop profitable operations and resolve its liquidity problems.
Off-Balance Sheet Arrangements
As of March 31, 2020, there were no off-balance sheet arrangements.
Critical Accounting Policies and Use of Estimates
Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of our business, we are not exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that may otherwise arise from transactions in derivatives.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of beneficial conversion features associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.convertible debt. Actual results could differ from these estimates.
| 14 |
| Table of Contents |
At December 31, 2016 and 2015, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended December 31, 2016 and prior years or in computing its tax provision for 2016. Management has considered its tax positions and believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained upon examination. The Company is subject to examination by U.S. Federal and State tax authorities from the period ended June 30, 2013 to the present, generally for three years after they are filed.
The Company has been behind in filing its payroll tax returns and sales tax returns. The Company has recorded $2,180 as penalties for the late payment of taxes in the accompanying financials.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base across many markets, predominantly Australia, United States of America, United Kingdom, Europe and the Middle East. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. In addition, Receivables that are factored through the Company's Receivable finance facility are guaranteed by the finance company that further mitigates Credit Risk.
Risks and Uncertainties
The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company'sOur management, andin consultation with its legal counsel assessas appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Companyus or unasserted claims that may result in such proceedings, the Company'swe, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought.
sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company'sour financial statements. If the assessment indicates that a potentialpotentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guaranteeguarantees would be disclosed.
Cash and Equivalents
Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At December 31, 2016 and June 30, 2016, the Company had $28,564 and $11,056 in cash in Australia and in the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
Allowance for Doubtful Accounts
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The allowances for doubtful accounts as of December 31, 2016 and June 30, 2016 are $139,098 and $147,870 respectively.
Inventory
Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of December 31,2016 and June 30, 2016, the Company had outstanding balances of Finished Goods Inventory in hand of $69,530 and $102,427 respectively. As of December 31,2016 and June 30, 2016, the Company had outstanding balances of Inventory in transit of $77,000 and $0 respectively.
The inventory reserve balance as of December 31, 2016 and June 30, 2016, was approximately $17,000 and $17,000, respectively.
Property, Plant & Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three to 10 years; computer equipment, two to three years; buildings and improvements, five to 15 years; leasehold improvements, two to 10 years; and furniture and equipment, one to five years.
As of December 31, 2016 and June 30, 2016, Plant and Equipment consisted of the following:
December 31 June 30 2016 2016 Property, plant & equipment Accumulated depreciation $ 31,378 $ 31,378 $ (21,355 ) $ (19,402 ) $ 10,023 $ 11,976
Depreciation was $1,953 and $1,185 for the three-month periods ended December 31, 2016 and 2015, respectively. Depreciation was $976 and $605 for the three-month periods ended December 31, 2016 and 2015, respectively.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, "Fair Value Measurements and Disclosures," requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, "Financial Instruments," defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, "Distinguishing Liabilities from Equity," and ASC 815.
As of December 31, 2016 and June 30, 2016, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
Earnings Per Share (EPS)
Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).
The following table sets for the computation of basic and diluted earnings per share for three and six month periods ended December 31, 2016 and 2015:
Three month periods ended Six month periods ended December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 Basic and diluted Net loss Net loss per share Basic Diluted Weighted average number of shares outstanding: Basic & diluted $ (176,858 ) $ (149,367 ) $ (352,367 ) $ (402,724 ) $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.01 ) $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.01 ) 58,823,116 58,823,116 58,823,116 58,722,023
Intangible Assets
The Company records identifiable intangible assets at fair value on the date of acquisition and evaluates the useful life of each asset.
Finite-lived intangible assets primarily consist of software development capitalized. Finite-lived intangible assets are amortized on a straight-line basis and are tested for recoverability if events or changes in circumstances indicate that their carrying amounts may not be recoverable. These intangibles have useful lives ranging from 1 to 10 years. No events or changes in circumstances indicate that impairment existed as of December 31, 2016.
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company reported accumulated deficit of $4,570,349 as of December 31, 2016. The Company also incurred net losses of $352,367 and $402,724 for the six-month periods ended December 31, 2016 and 2015, respectively and had negative working capital for the six-month periods ended December 31, 2016 and 2015. To date, these losses and deficiencies have been financed principally through the loans from related parties and from third parties.
In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. We anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that we are required to raise additional funds to acquire properties, and to cover costs of operations, we intend to do so through additional offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any future financing will involve substantial dilution to existing investors.
Subsequent to the period ended December 31, 2016, the Company entered into an equity line funding agreement with Spider Investments, LLC to sell up to $1,500,000 of our common stock, subject to certain terms and conditions some of which are out of our control, including the (i) filing and obtaining effectiveness of a registration statement registering the issuance of our shares of common stock under the Act to be issued pursuant to the equity line and (ii) certain volume and other trading conditions of our common stock. The Company plans to file the registration statement and to obtain effectiveness thereof as soon as practicable.
Recently Issued Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which changes how deferred taxes are classified on the balance sheet and is effective for financial statements issued for annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as non-current. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and updates certain presentation and disclosure requirements. ASU 2016-01 is effective beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” The guidance simplifies accounting for share-based payments, most notably by requiring all excess tax benefits and tax deficiencies to be recorded as income tax benefits or expense in the income statement and by allowing entities to recognize forfeitures of awards when they occur. This new guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted prospectively or retroactively. The Company is currently evaluating the impact the adoption of this standard would have on its financial condition, results of operations and cash flows.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods with that reporting period. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, regarding ASC Topic 230 “Statement of Cash Flows.” This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect the adoption of this standard to have a significant effect on its consolidated financial statements.
There were no other new accounting pronouncements during the three-month period ended September 30, 2015 that we believe would have a material impact on our financial position or results of operations.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.
Note 3 – TRADE RECEIVABLES
Trade receivables consist principally of accounts receivable from sales to small to medium sized businesses, principally in Australia, Europe and the United States. Trade receivables are recorded at the invoiced amount and net of allowances for doubtful accounts. The allowance for doubtful accounts represents management's estimate of the amount of probable credit losses in existing accounts receivable, as determined from a review of past due balances and other specific account data. The assessment includes actually incurred historical data as well as current economic conditions. Account balances are written off against the allowance when management determines the receivable is uncollectible.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity or parent entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.
Trade receivables that are past their normal payment terms are overdue and once 60 days past due are considered delinquent. Minimum payment terms vary by product. The maximum payment term for all products is 90 days. All trade receivables that are overdue are individually assessed for impairment.
The allowances for doubtful accounts as of December 31, 2016 and June 30, 2016 are $139,098 and $147,870 respectively.
Note 4 – INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 2016 and June 30, 2016:
December 31 June 30 2016 2016 Website Accumulated amortization $ 60,781 $ 60,781 $ (25,883 ) $ (22,512 ) $ 34,898 $ 38,269
The intangible assets are amortized over 1 to 10 years. Amortization expense was $3,371 and $3,371 for the six-month periods ended December 31, 2016 and 2015 respectively Amortization expense was $1,685 and $1,685 for the three-month periods ended December 31, 2016 and 2015 respectively.
Note 5 – TRADE AND OTHER PAYABLES
As of December 31, 2016 and June 30, 2016, trade and other payable are comprised of the following:
December 31 June 30 2016 2016 Trade payable Officer compensation Payroll payable Payroll taxes Employee benefits Other liabilities $ 592,826 $ 593,009 $ 94,986 $ 83,739 $ 73,210 $ 29,616 $ 158,518 $ 158,518 $ 91,201 $ 88,097 $ 65,983 $ 55,793 $ 1,076,724 $ 1,008,772
Note 6 – TRADE FINANCING
The Company has a trade financing agreement with a financial institution in Australia with a maximum limit of AUD $150,000 at an interest rate of 20.95% per annum. The Company reached a settlement with its obligation with the entity in the amount of AUD $165,523. The amount is to be paid through application of its EMDG grant and up to 25% of the Company's store sales in Australia. All of the amounts referenced are in Australian dollars. As of December 31, 2016 and June 30, 2016, the Company had outstanding balances of USD $65,923 and $72,936, respectively.
On August 14, 2014 the Company entered into a trade finance agreement with an entity in the United States with a total maximum facility of $1,500,000 based on $1,000,000 towards sales invoiced and $500,000 towards purchase order financing. As of December 31, 2016 and June 30, 2016, the Company had an outstanding balance of $135,992 and $176,783, respectively.
On November 2, 2016, the Company entered into a merchant agreement with a capital funding group for a purchase price of $35,000 and purchased amount of $47,250. The Company is amortizing the excess of purchase amount over the purchase price, over the term of the financing of 21 months. Pursuant to the agreement, the Company cannot obtain future financing by selling receivables without consent from the lender. The Merchant holds a security interest in all accounts and proceeds. During the six-month period ended December 31, 2016, the Company amortized interest of $1,167.
On November 3, 2016, the Company entered into a payments rights purchase and sale agreement for $72,500. The financing has a purchase price of $50,000 with the purchased amount of $72,500. The Company is amortizing the excess of purchased amount over purchase price, over the term of the financing of six months. The Company has to make daily payments of $575.40 to the lender. During the six-month period ended December 31, 2016, the Company amortized $7,500 of the excess purchased amount, as interest expense, in the accompanying financials.
On November 29, 2016, the Company entered into a consignment agreement. It is a platform for funding advance inventory production. This facility allowed the Company to fund manufacturing with a consignment facility which pegs repayment to the sales of inventory. During the period ended December 31, 2016, the Company raised $114,888 for a purchase price of $133,341.51. The difference of $15,508.71 is being amortized over the period of financing of seven months. During the three-month period ended December 31, 2016, the Company recorded an interest expense of $2,216.
Note 7 –LOANS
In December 2013, the company entered into a short-term loan arrangement in the amount of $100,000 with an individual. Terms of the note require interest payment of $5,000 on the repayment date, 30 days after the note date. If not repaid at that time, interest will accrue at the rate of $166 per day until the note is repaid. The outstanding balance as of December 31, 2016 and as of June 30, 2016 was $100,000 and $100,000 respectively. During the six-month periods ended December 31, 2016 and 2015, the Company recorded an interest of $30,212 and $30,046, respectively, on the note. During the three-month periods ended December 31, 2016 and 2015, the Company recorded an interest of $15,106 and $14,940, respectively, on the note.
From May 2014 to December 2016, the Company entered into several convertible loan agreements with a lender aggregating in the amount of $162,500. The notes bear interest at 6% per annum and are due and payable six months from the date of each note. The loans may be converted into common stock at any time by the election of the lender after a period of six months at 20% discount to the market price. However, the notes have a floor to the conversion price of $0.05 per share for the old notes and a floor of $0.03 per share for the new notes. As of December 31, 2016, the Company had no beneficial conversion feature to be recorded on the notes. The outstanding balance as of December 31, 2016 and as of June 30, 2016 was $162,500 and $131,500 respectively. The Company accrued interest of $4,875 and $3,945 during the three-month periods ended December 31, 2016 and 2015, respectively. The Company accrued interest of $2,566 and $2,122 during the three-month periods ended December 31, 2016 and 2015, respectively.
In June 2015, the Company entered into a secured promissory note in the amount of $500,000 with a Delaware statutory trust. The note bears interest at the rate of 18% per annum and was due or before July 1, 2017. The note has various covenants attached including one in which all credit card receipts are to be swept into an account which will fund payments on the note that are not in excess of the minimum quarterly payments required. As a condition of the note, an affiliate of the lender was granted a warrant to purchase 6,000,000 shares of the common stock of the Company at a price of $.08 in whole or in part. The outstanding balance as of June 30, 2016 was $500,000.
On February 5, 2016, The Company signed an amendment to the secured promissory note extending the maturity date by one year to July 17, 2018. The amendment changed the terms of the credit card receipts used to fund payments required by the note. The amendment also cancelled the warrants to purchase 6,000,000 shares at a price of $0.08. New warrants were granted to purchase 6,000,000 shares at $0.05 per share and to purchase 2,000,000 shares at $0.02 per share. The Company determined the fair value of the warrants using the Black – Scholes model and recorded the additional value of $41,467 for the modified warrants. The variables used for the Black –Scholes model are as listed below:
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In connection with the issuance of the above notes, the Company recorded a note discount of $115,274. The Company amortized $25,068 and $28,470, of the note discount during the six-month periods ended December 31, 2016 and 2015, respectively. The Company amortized $12,534 and $14,235, of the note discount during the three-month periods ended December 31, 2016 and 2015, respectively. The Company recorded an interest of $45,000 and $36,721, on the note during the six-month periods ended December 31, 2016 and 2015, respectively. The Company recorded an interest of $22,500 and $14,722, on the note during the three-month periods ended December 31, 2016 and 2015, respectively.
Related Party Payable
The Company has a convertible note agreement with a shareholder for $526,272. The Convertible Note bears interest at the rate of 18% per annum and is due on or before April 30, 2017. The interest portion of the note shall be paid weekly starting in April 2015. All or any portion of the principal amount of the Convertible Note and all accrued interest is convertible at the option of the holder into common stock of the Company at a conversion price of five cents ($0.05) per share, subject to various standard provisions. The outstanding balance as of December 31, 2016 and June 30, 2016, net of related discount, was USD $377,724 and $370,008, respectively. The Company determined the fair value of the convertible note of $80,909 using the intrinsic value method. The Company recorded an amortization of the debt discount of $7,717 and $7,717, during the six-month period ended December 31, 2016 and 2015, respectively. The Company recorded an amortization of the debt discount of $3,858 and $3,858, during the three-month period ended December 31, 2016 and 2015, respectively. During the six-month periods ended December 31, 2016 and 2015, the Company recorded an interest of $42,606 and $34,227, respectively, on the note. During the three-month periods ended December 31, 2016 and 2015, the Company recorded an interest of $21,303 and $17,049, respectively, on the note.
The Company has liabilities payable in the amount of $181,737 and $183,269 to shareholders and officers of the Company as of December 31, 2016 and June 30, 2016, respectively. The note bears interest at the rate of 3% per annum and was due on or before June 30, 2014. The outstanding balance, including accrued interest, may be converted into common shares of Banjo & Matilda, Inc. at a pre-determined rate. The Company has granted the Lenders a security interest in the intellectual property of the Borrower.
Scheduled principal payments on loans are as follow;
Year ending December 31, Loan 1 Loan 2 Loan 3 Loan 4 Loan 5 Total 2017 2018 $ 100,000 $ 162,500 $ 340,619 $ 387,328 $ 181,737 $ 1,172,184 $ - $ - $ 159,381 $ - $ - $ 159,381 $ 100,000 $ 162,500 $ 500,000 $ 387,328 $ 181,737 $ 1,331,565
Note 8 – COMMITMENTS
The Company leases commercial space in Sydney, Australia that serves as its flagship as well as a retail store. We lease approximately 2,500 square feet of space pursuant to a three-year lease agreement which expired in October 2014. After expiration, the lease converted to a month-to-month basis. The annual rent for the premises is AUD $57,200.
The Company also leases space on an as needed basis in Santa Monica, California that serves as its corporate headquarters.
For the six-month periods ended December 31, 2016 and 2015 the aggregate rental expense was $26,058 and $36,715, respectively. For the three-month periods ended December 31, 2016 and 2015 the aggregate rental expense was $11,461 and $23,350, respectively.
Note 9 – INCOME TAXES
Based on the available information and other factors, management believes it is more likely than not that the net deferred tax assets at, December 31, 2016 and June 30, 2016 will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at, December 31, 2016 and June 30, 2016. At December 31, 2016 and June 30, 2016, the Company had federal net operating loss carry-forwards of approximately $3,934,000 and $3,664,000, respectively, expiring beginning in 2032.
Deferred tax assets consist of the following components:
December 31, June 30, 2016 2016 Net loss carryforward Valuation allowance Total deferred tax assets $ 1,176,000 $ 1,095,000 $ (1,176,000 ) $ (1,095,000 ) $ - $ -
Note 10 – STOCKHOLDERS' EQUITY
Common Stock
During the year ended June 30, 2015, the Company agreed to issue 55,200 shares of the Company stock for $13,800 or $0.25 per share to an individual investor.
During the year ended June 30, 2015, on October 28, 2014, the Company agreed to issue 5,833,333 shares of the Company stock to the original shareholders of Banjo & Matilda Pty Ltd related to the merger and reorganization based on the original agreement.
During the year ended June 30, 2015, the Company agreed to issue 92,593 shares of common stock to an individual for compensation from Banjo Australia. The shares were valued at $15,339 or approximately $0.17 per share.
During the year ended June 30, 2015, the Company issued 25,000 shares of common stock to an individual in exchange for interest expense. The shares were valued at $5,000 or $.25 per share.
During the year ended June 30, 2015, the Company agreed to convert $92,800 of convertible debt for 3,345,537 shares of common stock at prices from $0.02 to $0.0901 per share to a corporate investor.
During the year ended June 30, 2015, the Company agreed to issue 400,000 shares of the Company stock for $60,000 or $0.15 per share to a company for consulting services.
During the year ended June 30, 2015, the Company issued 21,039,970 shares of the Company stock for $450,799 or approximately $0.02 per share to five investors.
During the fiscal year ended June 30, 2015, the Company voided 475,000 shares of the Company stock for the value of $95,000. The shares were originally considered converted from debt when they were in fact not converted. The debt is still outstanding.
During the year ended June 30, 2016, the Company issued 500,000 shares of the Company’s common stock for settlement of an outstanding vendor balance amounting to USD $27,123.
Note 11 – RELATED PARTY TRANSACTIONS
During the six-month period ended December 31, 2016 and 2015, the Company paid $0 and $14,076 as compensation to the mother of the CEO. During the six-month period ended December 31, 2016 and 2015, the Company accrued interest of $14,111 and $14,149, respectively, on a loan owed to the CEO of the Company.
Note 12 – SUBSEQUENT EVENTS
The Company has entered into an equity line funding agreement with Spider Investments, LLC to sell up to $1,500,000 of our common stock, subject to certain terms and conditions some of which are out of our control, including the (i) filing and obtaining effectiveness of a registration statement registering the issuance of our shares of common stock under the Act to be issued pursuant to the equity line and (ii) certain volume and other trading conditions of our common stock. The Company plans to file the registration statement within 30 days from the date hereof and to obtain effectiveness thereof as soon as practicable.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited financial statements and the related notes included elsewhere in this report and with the financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements.
Results of Operations
The following discussion of the results of operations constitutes management’s view of the factors that affected the financial and operating performance for the six months ended December 31, 2016 and 2015. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report. The Company has a June 30 fiscal year end.
During the six-month period ended December 31, 2016 and 2015, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US$ on the date of settlement and the exchange gains and losses were recorded in the statement of operations. No change was recorded in the comprehensive income (loss).
After a strategic review of the Company’s operating performance and long term strategy in June 2015, management decided to exit from the Company’s wholesale sales channel and business in favor of pursuing a higher value and longer term growth, direct to consumer digital vertical brand business model. In September 2015, the Company began to exit from its wholesale sales channel in-line with this strategy. As a digital vertical brand (DVB), the Company can generate higher gross margins by selling directly to consumers online by not having to accommodate the retailer wholesale mark-up. This additional gross margin from eliminating lower margin wholesale sales allows the Company to improve its overall operating margins and have greater flexibility and control over its retail pricing for its products, improving the customer value proposition and brand adoption. The Company can also build a more sustainable and higher growth revenue stream, and at the same time reduce operating overheads by eliminating fixed and variable expenses associated with operating a wholesale business model, among other significant benefits associated with a digitally centric business model. In addition, DVB’s are generally considered superior in value to traditional wholesale focused brands. Typical recent private investment valuations of DVB’s have been transacted at a valuation of 3-4 x annual sales versus less than 1 x annual sales for traditional brands (1). By pursuing a DVB strategy, the Company’s sales will temporarily reduce during the remainder of 2016 and 2017 due to the elimination of low-margin wholesale sales. While there will be been a short-term reduction in sales, the Company believes the superior DVB business model will generate and sustain greater value for shareholders moving forward.
Because of the business model improvements, EBITDA improved 9% from a loss of $215,377 in the December 2016 quarter to a loss of $195,766 in the December 2016 quarter, while Gross margin improved from 29% to 70%, underscoring the value of the new vertical digital business model showing a more than a 100% improvement in Gross Margin and an improvement in profitability on just 23% of total sales for the comparative period.
The Company recorded revenue of $159,115 during the three-months ended December 31, 2016 compared to $732,063 for the same period during the prior fiscal year, and $360,042 during the six-months ended December 31, 2016 compared to $1,612,367 for the same period during the prior fiscal year, primarily because of the reduction in wholesale sales.
By eliminating low-margin wholesale sales, Gross Margins increased to 71% in the December 2016 quarter from 29% for the same period during the prior fiscal year, and increased to 60% during the six-months ended December 31, 2016 from 32% for the same period during the prior fiscal year. Gross profit decreased to $112,698 for the three months ended December 31, 2016 from $214,911 in the same period in the prior year due to lower overall sales driven by the elimination of wholesale sales in-line with the Company’s new business model. Gross profit decreased to $216,295 for the six months ended December 31, 2016 from $523,408 in the same period in the prior year due to lower overall sales driven by the elimination of wholesale sales in-line with the Company’s new business model.
Due to changing the Company’s business model and exiting the wholesale business, related wholesale expenses were eliminated. SG&A consisting of payroll, selling, marketing and design, e-commerce, retail overhead expenses, administrative (including public Company costs) and occupancy were $189,137 for the for the three months ended December 31, 2016 compared to $271,920 for the same period during the prior fiscal year, and $375,892 for the six months ended December 31, 2016 compared to $749,645 for the same period during the prior fiscal year
Net loss was $325,367 for the six-month period ended December 31, 2016, compared with $402,724 for the prior year period.
(1) Note: Based on data obtained from PitchBook and Crunchbase as well as Management discussions with other DVB’s
LIQUIDITY AND CAPITAL RESOURCES
We had a working capital deficit of $2,734,954 as of December 31, 2016. We will continue to borrow to acquire inventory and fund sales. The rates at which we can acquire funds will directly impact our ability to operate profitably and generate positive cash flow. In addition to relying upon debt, we will seek to raise equity to support our efforts to grow. There is no assurance that debt or equity financing will be available to us on acceptable terms, if at all, and, in all events, the sale of equity or instruments convertible into equity will dilute the interests of our current shareholders. Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best-efforts private equity and debt financings. We do not have any credit or equity facilities available with financial institutions, stockholders or third party investors, and will continue to rely on best efforts financings. The failure to raise sufficient capital could cause us to cease operations.
The Company has entered into an equity line funding agreement with Spider Investments, LLC to sell up to $1,500,000 of our common stock, subject to certain terms and conditions some of which are out of our control, including the (i) filing and obtaining effectiveness of a registration statement registering the issuance of our shares of common stock under the Act to be issued pursuant to the equity line and (ii) certain volume and other trading conditions of our common stock. The Company plans to file the registration statement within 30 days from the date hereof and to obtain effectiveness thereof as soon as practicable.
During the six months ended December 31, 2016, net cash of $132,233 was used in our operating activities compared with $43,983 of net cash used in our operating activities during the six months ended December 31, 2015. During the six months ended December 31, 2016, net cash provided by financing activities was $149,742 compared with $202,066 of net cash used in financing activities during the six months ended December 31, 2015.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market RiskRisk.
Not applicable as the Company isAs a smaller reporting company.company, the Company has elected not to provide the disclosure required by this item.
Item 4. Controls and ProceduresProcedures.
a) Disclosure Controls and Procedures
We maintain “disclosureThe Company has established disclosure controls and procedures” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we filefiled or submitsubmitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission rules and, forms, and thatas such, information is accumulated and communicated to our management, including ourthe Company’s Chief Executive Officer, Keith Duffy, who serves as our principal executive officer and Chief Financial Officer,principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating ourMr. Duffy, evaluated the effectiveness of the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assuranceas defined in Rule 13a-15(e) of the Exchange Act, as of March 31, 2020. Based on his evaluation, Mr. Duffy concluded that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
At the end of the period covered by this report we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Brendan Macpherson, of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation included an evaluation of our financial controls. Since our Chief Executive Officer also serves as our Chief Financial Officer and we do not have financial and accounting personnel thoroughly familiar with U.S. GAAP and U.S. securities laws and regulations, we have a deficiency in our financial controls. This deficiency in our financial controls and procedures constitutes a deficiency in our disclosure controls and procedures in that ourCompany’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. This deficiency will not be considered remediated until we hire accounting personnel with the requisite knowledge and experience concerning U.S. GAAP and the U.S. securities laws.of March 31, 2020.
b) Changes in Internal Control overOver Financial Reporting
There havehas been no changeschange in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the quarterly period covered by this reportCompany’s most recent fiscal quarter ended March 31, 2020, that havehas materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting.
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None.
Our business is subject to numerous risks and uncertainties including but not limited to those discussed in “Risk Factors” in our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
None.
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The following exhibits are filed herewith:
Exhibit Number | Document | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation | |
101.DEF | XBRL Taxonomy Extension Definition | |
101.LAB | XBRL Taxonomy Extension Label | |
101.PRE | XBRL Taxonomy Extension Presentation |
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In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BANJO & MATILDA, INC. | ||||
Date: | By: | /s/ | ||
Chief Executive Officer and Chief Financial Officer (Principal Executive and Financial Officer) | ||||
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