UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 30, 2016
OR
[ ] | TRANSITION REPORT PURSUANT TO PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
XFit Brands, Inc.
(Exact Name of Registrant as Specified in Charter)
Nevada | 000-55372 | 47-1858485 | ||
(State or Other Jurisdiction | (Commission | (I.R.S. Employer |
25731 Commercentre Drive, | (949) 916-9680 | |||
(Address of Principal Executive Offices) | (Registrant’s Telephone Number) |
Not applicable
(Former name and address, if changed since last report)
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 16, 2016, there were 26,866,251 shares of the issuer’s common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
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XFit Brands, Inc.
Condensed Consolidated Balance Sheets
September 30, 2016 | June 30, 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 61,096 | $ | 6,829 | ||||
Accounts receivable | 91,814 | 179,636 | ||||||
Inventory | 373,354 | 288,184 | ||||||
Prepaid expenses | 91,047 | 114,060 | ||||||
Total Current Assets | 617,312 | 588,709 | ||||||
Long Term Assets | ||||||||
Property and equipment, net | 32,207 | 37,676 | ||||||
Deposits | 23,467 | 23,467 | ||||||
Intangible assets, net | 5,541 | 13,640 | ||||||
TOTAL ASSETS | $ | 678,526 | $ | 663,492 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 755,528 | $ | 730,026 | ||||
Related party payable | 95,620 | 95,620 | ||||||
Accrued expenses and interest | 336,787 | 273,819 | ||||||
Customer deposits | 183,636 | 129,201 | ||||||
Line of credit | 33,978 | 34,999 | ||||||
Total Current Liabilities | 1,405,549 | 1,263,665 | ||||||
Notes payable, net of discounts | 2,544,469 | 2,478,720 | ||||||
Total Liabilities | 3,950,018 | 3,742,385 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Stockholders’ Deficit | ||||||||
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2016 and June 30, 2016 | - | - | ||||||
Common stock, $0.0001 par value, 1,250,000,000 shares authorized, 21,742,806 and 21,192,807 shares issued and outstanding as of September 30, 2016 and June 30, 2016, respectively | 2,174 | 2,119 | ||||||
Additional paid in capital | 4,926,015 | 4,712,245 | ||||||
Accumulated deficit | (8,199,681 | ) | (7,793,257 | ) | ||||
Total Stockholders’ Deficit | (3,271,492 | ) | (3,078,893 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 678,526 | $ | 663,492 |
See accompanying notes to the condensed consolidated financial statements.
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XFit Brands, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
For the three month periods ended September 30, 2016 and 2015
For the Three Months Ended September 30, | ||||||||
2016 | 2015 | |||||||
Revenues: | ||||||||
Product sales | $ | 492,007 | $ | 473,257 | ||||
Cost of revenues | 277,108 | 258,845 | ||||||
Gross profit | 214,899 | 214,412 | ||||||
Operating expenses | ||||||||
General and administrative | 398,245 | 444,930 | ||||||
Sales and marketing | 64,175 | 89,894 | ||||||
Total operating expenses | 462,420 | 534,824 | ||||||
Loss from operations | (247,521 | ) | (320,412 | ) | ||||
Interest expense | (158,932 | ) | (116,277 | ) | ||||
Net Loss | $ | (406,453 | ) | $ | (436,689 | ) | ||
Loss per common share – basic and diluted | $ | (.0186 | ) | $ | (0.022 | ) | ||
Weighted average shares outstanding - basic and diluted | 21,742,806 | 20,492,500 |
See accompanying notes to the condensed consolidated financial statements.
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XFit Brands, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three month periods ended September 30, 2016 and 2015
Three Month Periods Ended September 30, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (406,453 | ) | $ | (436,689 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 12,093 | 15,382 | ||||||
Amortization of debt issuance costs and loan discount | 60,377 | 41,108 | ||||||
Stock based compensation | - | 75,000 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 87,851 | 6,917 | ||||||
Royalties receivable | - | 25,000 | ||||||
Prepaid expenses | 23,013 | 100,265 | ||||||
Inventory | (85,170 | ) | (50,872 | ) | ||||
Accounts payable | 25,502 | 241,279 | ||||||
Accrued expenses | 69,815 | 1,528 | ||||||
Customer deposits | 54,435 | (67,516 | ||||||
Net cash used in operating activities | (158,537 | ) | (48,598 | ) | ||||
Cash flows from financing activities | ||||||||
Net proceeds from (payments on) line of credit | (1,021 | ) | 19,224 | |||||
Proceeds from sale of stock | 213,825 | - | ||||||
Net cash provided by financing activities | 212,804 | 19,224 | ||||||
Net increase (decrease) in cash | $ | 54,267 | $ | (29,374 | ) | |||
Cash at beginning of period | 6,829 | 51,016 | ||||||
Cash at end of period | $ | 61,096 | $ | 21,642 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for interest | $ | 30,400 | $ | 64,525 | ||||
Non-cash investing and financing activities: | ||||||||
Value of common shares issued as a loan fee | $ | - | $ | 50,000 | ||||
Interest expense added to loan principal balance | $ | 34,000 | $ | 26,173 |
See accompanying notes to the condensed consolidated financial statements.
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XFit Brands, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 – NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
History of the Company
XFit Brands, Inc. (“XFit” or the “Company”) was incorporated on September 16, 2014 under the laws of the State of Nevada. The fiscal year of the Company is June 30. XFit’s principal business activity is the design, development, and worldwide marketing and selling of functional equipment, training gear, apparel and accessories for the sports market and fitness industry. The Company provides a full portfolio of products and services spanning Mixed Martial Arts and other high and low impact fitness regimes and own the trademarks Throwdown®, EnviroTurf®, GlideBoxx® and Transformations. Products are sold to gyms, fitness facilities, universities, first responders and directly to consumers via website and through third party catalogues through a mix of independent distributors and licensees.
These financial statements represent the consolidated financial statements of XFit and its wholly owned operating subsidiaries Throwdown Industries Holdings, LLC (“Holdings”), Throwdown Industries, LLC (“TDLLC”), and Throwdown Industries, Inc. (“TDINC”).
Forward Stock Split
On March 28, 2016, the Board of Directors approved a 1-for-5 forward split of its outstanding shares of common stock (and proportional increase of its authorized common stock from 250 million shares to 1.25 billion shares) with a record date of April 14, 2016 and an effective date of April 15, 2016. Prior to the split, the Company had 4,118,500 shares issued and outstanding and after the split, the Company had 20,592,500 shares issued and outstanding. All references to the number of shares and per-share amounts within these condensed consolidated financial statements, including the notes thereto, have been retroactively restated to reflect this stock split, unless explicitly stated otherwise.
Basis of presentation
The accompanying condensed consolidated financial statements are unaudited, but in the opinion of management, reflect all adjustments necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes as of and for the years ended June 30, 2016 and 2015, which were filed with the Company’s annual report Form 10-K on September 29, 2016. The results of operations for the three months ended September 30, 2016 are not necessarily indicative of results that may be expected for the year ending June 30, 2017 or for any other interim period.
Basis of Consolidation
The condensed consolidated financial statements include the accounts of XFit, Holdings and TDINC. All significant intercompany transactions and balances have been eliminated in consolidation. The financial statements do not include the financials or any impact from it recent acquisition of EnviroTurf® and GlideBoxx® which were acquired after September 30, 2016 (see Note 11, Subsequent Events).
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Recent Accounting Pronouncements
The Company has implemented all applicable new accounting standards and does not believe that there are any other new accounting pronouncements that have been issued that may have a material impact on the consolidated financial statements.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03,Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs(“ASU-2015-03”). ASU 2015-03 requires companies to present debt issuance costs as a direct deduction from the carrying value of that debt liability. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
Loss per Share
The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the period. The diluted net loss per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the period. To compute the diluted weighted average number of shares outstanding, the company begins with the basic weighted average number of shares outstanding and adds any potentially dilutive securities that are convertible into shares of common stock. Diluted net loss per share is the same as basic net loss per share due to the lack of dilutive items. For the three months ended September 30, 2016 and 2015, the Company had warrants outstanding to acquire shares of common stock that totaled 2,174,281 and 2,055,838 shares, respectively, which were excluded as their effect would have been anti-dilutive.
Reclassifications
Certain reclassifications were made to the prior period condensed consolidated financial statements to conform to the current period presentation. There was no change to the previously reported net loss.
Use of Estimates
Condensed consolidated financial statements prepared in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management has estimated the collectability of its accounts receivable, the valuation of long-lived assets, and the fair value of equity instruments issued. Actual results could differ from those estimates.
Loan Discounts and Loan Fees
The Company amortizes loan discounts over the term of the loan using the effective interest method. Costs associated with obtaining financing are capitalized and amortized over the term of the related loans using the effective interest method. Amortization of the debt issuance costs was $60,377 and $41,108 for the three months ended September 30, 2016 and 2015, respectively, which was recorded as a component of interest expense on the condensed consolidated statements of operations.
NOTE 2 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at:
September 30, 2016 | June 30, 2016 | |||||||
(Unaudited) | ||||||||
Office furniture and equipment | $ | 51,794 | $ | 51,794 | ||||
Warehouse equipment | 15,254 | 15,254 | ||||||
Molds and dies | 4,200 | 4,200 | ||||||
Leasehold Improvements | 4,227 | 4,227 | ||||||
Total, cost | 75,475 | 75,475 | ||||||
Accumulated Depreciation | (43,268 | ) | (37,799 | ) | ||||
Property and equipment, net | $ | 32,207 | $ | 37,676 |
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Depreciation expense for the three months ended September 30, 2016 and 2015 was $5,469 and $4,599, respectively.
NOTE 3 – INTANGIBLE ASSETS, NET
Intangible assets consisted of the following at:
September 30, 2016 | June 30, 2016 | |||||||
(Unaudited) | ||||||||
Trademark and patent | $ | 8,277 | $ | 8,277 | ||||
Transformations exercise fitness program | 62,500 | 62,500 | ||||||
Computer Software | 5,584 | 5,584 | ||||||
Total, cost | 76,361 | 76,361 | ||||||
Accumulated Amortization | (70,820 | ) | (62,721 | ) | ||||
Intangible assets, net | $ | 5,541 | $ | 13,640 |
Amortization expense for the three months ended September 30, 2016 and 2015 was $8,100 and $10,783, respectively.
NOTE 4 – SHORT TERM FINANCING
On May 3, 2016, the Company entered into a Securities Purchase Agreement (“SPA”) with a single accredited investor (“Investor”) under which it issued and sold to Investor a promissory note in the principal amount of $125,000 (the “Note”). The Note has a maturity date of December 31, 2016 and an original issue discount of $20,000. In addition, the Company agreed to pay Investor’s expenses in connection with the SPA and issuance of the Note of $5,000. Accordingly, the Company received net proceeds from Investor of $100,000, which proceeds were used for investor relation services. This financing is listed on the condensed consolidated balance sheets under accrued expenses.
So long as the Note is outstanding, upon any issuance of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Investor in the Note or the SPA, then the Company will notify Investor of such additional or more favorable term and such term, at Investor’s option, shall become a part of the Note and/or SPA. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms interest rates, and original issue discounts.
Interest shall not accrue on the unpaid principal balance of this Note unless an Event of Default occurs. Upon the occurrence of an Event of Default, the outstanding balance of this Note shall bear interest at the lesser of the rate of fifteen percent (15%) per annum or the maximum rate permitted by applicable law. The Note has a prepayment deadline of November 3, 2016. Events of Default under the Note include failure to pay any amounts when due, including on the prepayment deadline, breach of covenants or representations and warranties or upon voluntary bankruptcy or insolvency proceedings.
At any time following the occurrence of an Event of Default, Investor may, by written notice to the Company, declare all unpaid principal, plus all accrued interest and other amounts due hereunder to be immediately due and payable at an amount equal to 125% of the outstanding principal amount of the Note at the time of the default (“Mandatory Default Amount”); provided, however, that for an Event of Default for failure to pay the Note in full on the Prepayment Deadline, Investor will not accelerate the Note unless the Company fails to pay the Mandatory Default Amount (plus all accrued interest from and after the Event of Default) on the Maturity Date.
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NOTE 5 – NOTES PAYABLE
The note payable is comprised of the following at:
September 30, 2016 | June 30, 2016 | |||||||
(Unaudited) | ||||||||
Note payable | $ | 2,727,968 | $ | 2,712,787 | ||||
Less: unamortized loan discount | (122,463 | ) | (154,462 | ) | ||||
Less: unamortized debt issuance costs | (59,560 | ) | (79,605 | ) | ||||
Total note payable, net | $ | 2,545,945 | $ | 2,478,720 |
On June 10, 2014, the Company entered into a Note Purchase Agreement (“Agreement”) with Pacific Investment Management Company (“PIMCO”) that authorized the issuance of up to $2,500,000. On June 12, 2014, the Company entered into a Senior Secured Note (“Note”) whereby the Company drew $1,500,000. The note bears interest at 14% and an effective interest rate of 21%. This Note is collateralized by all of the assets of the Company except its Accounts Receivable which it is in second position to Crown Financial.
On February 6, 2015, the Company drew down an additional $500,000 of funds on the PIMCO Agreement. Following the February 6, 2015 draw, the principal balance payable on the PIMCO note is $2,000,000, and on October 20, 2015 the Company drew down the final $500,000 in funds on this loan facility. The full principal balance outstanding related to this note is due on July 12, 2017. During November 2016 the Company finalized terms of refinancing its note payable with PIMCO. Both the note holder and the Company are in process of executing the final note agreements. The parties reached an agreement to treat the interest as Payment in Kind (PIK) and add the interest to the amount of the loan on a monthly basis. This, in effect, increased the amount of the loan. Currently the Company is finalizing an agreement with the lender to extend the note for an additional 3 years.
The Note includes various covenants, including but not limited to, having annual audited financial statements within 90 days of the end of the fiscal year. At September 30, 2016, the Company is in compliance with all covenants.
In connection with the Note, the Company granted warrants to acquire up to 10% of the Company’s capital stock based on an aggregate enterprise fair market value of $15.0 million. The Company valued the warrants using the Black-Scholes option pricing model with the following variables: annual dividend yield of 0%; expected life of 10 years; risk free rate of return of 2.92%; and expected volatility of 0%. The Company estimated the value of the warrants to be $377,480, which is recorded as a loan discount and is being amortized under the effective interest method to interest expense over the term of the loan.
NOTE 6 – BANK LINE OF CREDIT
On July 24, 2015, the Company entered into an unsecured line of credit with Wells Fargo Bank. The line of credit bears interest at prime plus 4% and is personally guaranteed by the Company’s chief executive officer. There is no maturity date and the Company was in compliance as of September 30, 2016.
NOTE 7 – RELATED PARTY TRANSACTIONS
Related Party Payable
As of September 30, 2016 and June 30, 2016, the Company has $95,620 of bonuses payable to four of its officers which also owns shares of common stock. These bonuses were to cover income taxes relating to bonuses issued during 2009.
As of September 30, 2016, the Company has a salary and variable compensation payable to David E Vautrin, CEO and Charles Joiner, President of $50,224 and $66,565 respectively, which has been reflected under the caption accrued expenses and interest on the condensed consolidated balance sheets. The Company has also accrued 100% of their compensation since September 30, 2016 through November 16, 2016.
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NOTE 8 – STOCKHOLDERS’ DEFICIT
Equity Purchase Agreement
On December 17, 2014, the Company entered into an Equity Purchase Agreement with Kodiak Capital LLC (Kodiak). The Equity Purchase Agreement provides the Company with financing whereby the Company can issue and sell to Kodiak, from time to time, shares of common stock (the“Put Shares”) up to an aggregate purchase price of $5.0 million (the “Maximum Commitment Amount”) during the commitment period. The commitment period is defined as the period beginning on the trading day immediately following the effectiveness of the registration statement and ending December 31, 2016. In addition, in no event shall Kodiak be entitled to purchase that number of Put Shares which when added to the sum of the number of shares of common stock already beneficially owned by Kodiak would exceed 9.99% of the number of shares of common stock outstanding on the applicable closing date.
The Equity Purchase Agreement will terminate when any of the following events occur: (i) Kodiak has purchased an aggregate of $5.0 million of the Company’s common stock, (ii) on December 31, 2016 or (iii) upon written notice from the Company to Kodiak.
During the three months ended September 30, 2016, The Company put 2,650 shares to Kodiak and received $213,560. As of September 30, 2016, the Company has put 3,100,000 shares to Kodiak under the equity purchase agreement. There are no more registered shares remaining that could be put to Kodiak in the future.
Investment Agreement with GHS Investments, LLC
On August 13, 2016 the Company entered into an Investment Agreement (the “Investment Agreement”) with GHS Investments, LLC (“GHS”). The Investment Agreement gives the Company the option to sell to GHS, up to $5,000,000 worth of its common stock (“Shares”), over the period following effectiveness of a registration statement covering the resale of the Shares (the “Effective Date”) and ending thirty-six (36) months after the Effective Date. Under the terms of the Investment Agreement, the Company has the right to deliver from time to time a Put Notice to GHS stating the dollar amount of Put Shares (up to $500,000 under any individual Put Notice)(the “Put Amount”) that it intends to sell to GHS with the price per share based on the following formula: the lesser of (a) the lowest sale price for the Common Stock on the date of the Put Notice (the “Put Notice Date”); or (b) the arithmetic average of the three (3) lowest trading prices for the Company’s Common Stock during the five trading days following the Put Notice Date. The maximum number of shares that can be put to GHS is two times the average daily trading volume during the ten trading days prior to the closing of a put (the “Closing Date”). If the amount of the tranche of its outstanding shares exceeds the volume limitation, additional tranches will be delivered until the entire Purchase Amount is delivered. Each tranche, including the initial tranche, will trigger a new purchase price, and will be priced according to the purchase price definition. There are a number of conditions to the Company effecting a put, including the effectiveness of the registration statement.
As of September 30, 2016 the registration statement for the above Investment Agreement still needs to be amended to include the consolidated financials of the recent EnviroTurf acquisition (see Note 11, Subsequent Events). Therefore the Company has not placed any shares under this GHS agreement.
Vendor Credit Agreements
On June 26 2015, the Company entered into a Stock Purchase Agreement with Yayu General Machinery Co., LTD, whereby the Company issued 200,000 shares of its common stock at $1.00 per share. The purchase price is in the form of a manufacturing credit of $200,000 to use for future inventory purchases (the “Vendor Credit”). The Company can use all or part of the Vendor Credit until the Vendor Credit is exhausted. As of September 30, 2016 and June 30, 2016, the Company had $82,112 and $105,096, respectfully, of Vendor Credit included in prepaid expenses in the condensed consolidated balance sheets.
Stock Incentive Plan
On October 21, 2014, the Board of Directors and the Company’s sole stockholder adopted the 2014 Stock Incentive Plan. The purpose of the 2014 Stock Incentive Plan is to advance the best interests of the Company by providing those persons who have a substantial responsibility for management and growth of the Company with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with the Company. Further, the availability and offering of stock options and common stock under the plan supports and increases the Company’s ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which the Company depends. The total number of shares available for the grant of either stock options or compensation stock under the plan is 3,000,000 shares of common stock, subject to adjustment. The Board of Directors administers the plan and has full power to grant stock options. As of September 30, 2016, the Company has not issued any options under the plan.
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NOTE 9– COMMITMENTS AND CONTINGENCIES
Lease Commitments
On June 18, 2015, the Company entered into a lease agreement for approximately 25,788 square feet of warehouse and office space under a thirty-eight (38) month operating lease that commences on September 1, 2015 and expires on October 31, 2018. The lease has monthly payments of $16,504 with standard rent increases over the life of the lease scheduled in October of each year.
On June 5, 2015, the Company entered into a sublease of a portion of the premises for the period September 1, 2015 through January 31, 2017, at a monthly rental rate of $5,000.
Rent expense for the three-month ended September 30, 2016 and 2015, was $67,870 and $15,182, respectively.
Litigation
From time-to-time, the Company is subject to various litigation and other claims in the normal course of business. The Company establishes liabilities in connection with legal actions that management deems to be probable and estimable. No amounts have been accrued in the consolidated financial statements with respect to any matters.
NOTE 10 – ASSET PURCHASES
Asset Purchase Agreement
On February 26, 2015, the Company entered into an Asset Purchase Agreement to acquire the exclusive rights, title, and interest in the Transformations exercise and fitness program. The purchase price was $62,500, which comprised of a $7,500 cash payment and eleven thousand (11,000) shares of the Company’s common stock that was valued at $55,000. The agreement also has a performance based earn out for a period of eighteen (18) months that is based on fifty percent (50%) of all programming services gross revenues derived from the Transformations program, up to a maximum earn-out of $187,500. The earn out is payable in tranches and none of the tranches were met within the 18-month earn-out period that ended on September 26, 2016.
NOTE 11 – SUBSEQUENT EVENTS
Acquisition of Assets of Environmental Turf Services, LLC
On October 14, 2016 but effective as of October 10, 2016, XFit Brands, Inc. (“XFit” or the “Company”) acquired the assets of Environmental Turf Services, LLC (“EnviroTurf”) pursuant to a definitive Asset Purchase Agreement dated October 10, 2016 (the “Purchase Agreement”) between the Company and EnviroTurf. The acquired assets consisted of inventory, accounts receivable, equipment and vehicles, the registered trademark “ENVIROTURF” and the associated goodwill. The acquisition was completed on October 14, 2016 upon delivery and acceptance of the schedules to the Purchase Agreement (the “Acquisition”).
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At the closing of the Acquisition, the Company paid and issued to EnviroTurf a total purchase price of $346,000 as follows: (i) assumption of $200,000 of EnviroTurf’s accounts payable and (ii) 2,000,000 unregistered shares of XFit Common Stock (the “Purchase Price Shares”), which were valued at the closing price on the date of XFit’s Common Stock on the date of the Acquisition. The Company will finance the Acquisition and related costs through a combination of cash on hand and internally-generated working capital.
The Purchase Agreement contains customary representations, warranties and covenants by the parties.
Acquisition of Assets of Glideboxx LLC
On October 10, 2016 the Company acquired all of the rights, title, and interest to the GlideBoxx Product, USPTO # 7857734, and related training programs and marketing materials to the Company free and clear of any and all liens, encumbrances, and or liabilities for a purchase price of 100,000 shares of common stock and will also pay Glideboxx LLC 5% (five percent) in total of all net revenue derived from sales of the GlideBoxx for a period of 7 (seven) years in cash or kind. Net Revenue is defined as Gross revenue net discounts and returns.
Issuance of Options
On October 7, 2016, the Company issued 825,000 options to employees in accordance to the Stock Incentive Plan. Options generally vest over three years, expire after 3 years, and have an exercise price of $0.07 per share.
Refinancing with PIMCO
During November 2016 the Company finalized terms of refinancing its note payable with PIMCO. Both the note holder and the Company are in process of executing the final note agreements. The revised terms of the financing arrangement will include a new note with a principal of $3,500,000 which bears interest at 9% per annum and is due July 12, 2020. In addition, the Company will allow PIMCO to convert any accrued interest due as of November 2016 into shares of the Company’s common stock.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING INFORMATION
The following information should be read in conjunction with XFit Brands, Inc. and its subsidiaries (“we”, “us”, “our”, or the “Company”) condensed consolidated unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q that does not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance.
Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission filings. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; and advances in technology that can reduce the demand for the Company’s products. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results.
Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described elsewhere in this report and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended June, 30, 2015.
The Company disclaims any obligation to update the forward-looking statements in this report.
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Overview
XFit Brands, Inc. was incorporated in September 2014 under the laws of the State of Nevada. As used herein, the terms “we,” “us,” “XFIT,” and the “Company” refer to XFit Brands, Inc. and its predecessors, subsidiaries, and affiliates, collectively, unless the context indicates otherwise. Our fiscal year end is June 30. Our principal office address is 25731 Commercentre Drive, Lake Forest, CA 92630. Our telephone number is (949) 916-9680. As of November 16, 2016, we had 10 employees.
Our principal business activity is the design, development, and worldwide marketing and selling of functional equipment, training gear, apparel, and accessories for the impact sports market and fitness industry. Our products are marketed and sold under our Throwdown®, XFit Brands®, and Transformations™ brand names to gyms, fitness facilities, and directly to consumers via our internet website and through third party catalogues (which we refer to as our “Direct to Consumer” operations) through a mix of independent distributors and licensees throughout the world. All of our products are manufactured by independent contractors. Our equipment and apparel products are produced both in the United States and abroad.
We are an “emerging growth company” within the meaning of the federal securities laws. For as long as we are an emerging growth company, we will not be required to comply with the requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company.
Results of Operations
For the next twelve months, our current operating plan is focused on the development and sale of sports surfaces, training and protective gear for the Mixed Martial Arts (“MMA”), fitness, training, and exercise industry.
Our long term growth strategy includes expanding our presence in the fitness, training, and exercise community; leveraging our MMA core credibility and heritage; developing strategic alliances; and acquiring other companies in the fitness, training, and exercise industry to leverage our asset base, manufacturing infrastructure, market presence, and experienced personnel.
As is discussed further in the Liquidity and Capital Resources section below, we have limited funds to support our operations. Our continuation as a going concern subsequent to the year ended June 30, 2016 is dependent on our ability to obtain additional financing to fund the continued operation of our business model for a long enough period to achieve profitable operations. Based on our current business plan, we currently estimate we will need up to an additional $612,000 of financing to execute our business plan over the next twelve months. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern.
Three months ended September 30, 2016 Compared to the Three Months Ended September 30, 2015
Our revenue, operating expenses, and net loss from operations for the three month period ended September 30, 2016 as compared to the three month period ended September 30, 2015, are set forth below.
Three Months Ended September 30: | % Change Increase | |||||||||||||||
2016 | 2015 | Change | (Decrease) | |||||||||||||
REVENUES | ||||||||||||||||
Product sales | $ | 492,007 | $ | 473,257 | $ | 18,750 | 4.0 | % | ||||||||
COST OF REVENUES | 277,108 | 258,845 | 18,263 | 7.1 | % | |||||||||||
Gross profit | 214,899 | 214,412 | 487 | 0.2 | % | |||||||||||
OPERATING EXPENSES: | ||||||||||||||||
General and administrative | 398,245 | 444,930 | (46,685 | ) | (10.5 | )% | ||||||||||
Sales and marketing | 64,175 | 89,894 | (25,719 | ) | (28.6 | )% | ||||||||||
Total operating expenses | 462,420 | 534,824 | (72,404 | ) | (13.5 | )% | ||||||||||
Loss from operations | (247,521 | ) | (320,412 | ) | 72,891 | (22.7 | )% | |||||||||
Interest expense | (158,932 | ) | (116,277 | ) | (42,655 | ) | 36.7 | % | ||||||||
Net loss | $ | (406,453 | ) | $ | (436,689 | ) | $ | 30,236 | (6.9 | )% |
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Revenues.Revenues consist of product sales. Total revenues for the three months ended September 30, 2016 were $492,007, an increase of $18,750, or 4.0%, from $473,257 of total revenues for the three months ended September 30, 2015. The increase in product sales is attributable to increased selling efforts and momentum during the three months ended September 30, 2016.
Cost of Revenues.Total cost of revenues for the three months ended September 30, 2016 were $277,108, an increase of $18,260, or 7.1%, from $258,845 for the three months ended September 30, 2015. Cost of product sales during the three months ended September 30, 2016 were 56.3% as compared to 54.7% during the three months ended September 30, 2015. The increase in cost of revenues is attributable to both promotional activity with a key account in conjunction with the 4.0% increase in product sales during the three months ended September 30, 2016.
Gross Profit.Gross profit increased $491 to $214,899 for the three months ended September 30, 2016, from a gross profit of $214,412 for the three months ended September 30, 2015. The increase in gross profit reflects the increase in product cost of sales in connection with promotional activity, During the three months ended September 30, 2016, we realized a 43.7% gross profit on our product sales as compared to a 45.3% gross profit on product sales during the three months ended September 30, 2015. The lower gross profit achieved during the three months ended September 30, 2015 is promotional activity with the fitness accessories.
General and Administrative Expenses. General and administrative expenses decreased by $46,684 or 10.5%, to $398,245 for the three months ended September 30, 2016 from $444,930 for the three months ended September 30, 2015. General & administrative expenses for the three months ended September 30, 2016 are comprised of salaries and wages of $118,567, professional fees of $121,358, office expenses of $1,193, insurance of $22,881, rent of $67,870, travel of $12,987, and other of $53,389. General & administrative expenses for the three months ended September 30, 2015 are comprised of salaries and wages of $178,578, professional fees of $181,851, office expenses of $1,137, insurance of $19,675, rent of $15,182, travel of $10,413, and $38,093 of other general and administrative expenses. The decrease in general and administrative expenses during the three months ended September 30, 2016 is comprised of an decrease in salaries and wages of $60,011, a decrease in professional fees of $60,492, an increase in office expenses of $55, an increase of $3,206 in insurance expense, an increase of $52,688 of rent expense, an increase of $2,573 of travel expenses, and a net $15,296 increase in other general and administrative expenses. Despite the $52,688 increase in rent, the overall decrease in general and administrative expenses is attributable to decreased salaries, wages and professional fees as we continue to scale the Company for growth.
Sales and Marketing Expense. Sales and marketing expense decreased $25,720 or 28.6%, to $64,175 for the three months ended September 30, 2016 from $89,894 for the three months ended September 30, 2015. This decrease in sales and marketing expense is attributable to a decrease is wages.
Interest Expense.Interest expense increased by $42,655 to $158,932 for the three months ended September 30, 2016 from $116,277 for the three months ended September 30, 2015. The increase is largely due to the increased interest expense on the delayed draw note with the PIMCO Fund during the three months ended September 30, 2016. The principal balance of the PIMCO note was $2,742,720 during the three months ended September 30, 2015, while the principal balance during the three months ended September 30, 2015, was $2,111,301. During the three months ended September 30, 2015, we also incurred $649 interest on the line of credit with Wells Fargo Bank while the interest during the three months ended September 30, 2015 was $658.
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Other Income.During the three months ended September 30, 2016, and the three months ended September 30, 2015, we did not earn other income.
Net Loss.Net loss decreased by $30,239 or 6.9% to a net loss of $406,453 for the three months ended September 30, 2016 from a net loss of $436,689 for the three months ended September 30, 2015. This decrease in our net loss is attributable to the decreases in salaries, wages and professional fees.
Liquidity and Capital Resources
Our consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the consolidated financial statements, we incurred a net loss of $406,453 during the three months ended September 30, 2016, and losses are expected to continue in the near term. The accumulated deficit since inception is $8,224,275 at September 30, 2016. We have been funding our operations through private loans and the sale of equity interests in private placement transactions. See our discussion of our Credit Facility with PIMCO and our Equity Purchase Agreement with Kodiak Capital below. Our cash resources are insufficient to meet our planned business objectives without additional financing. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.
Management anticipates that significant additional expenditures will be necessary to further develop our product lines and licensing relationships to expand product sales and royalty revenues before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At September 30, 2016, we had $61,096 of cash on hand. We anticipate that our existing cash and cash equivalents, together with our cash from operating activities will not be sufficient to fund operations and expected growth through at least the next twelve months. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.
Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) executing contracts with international licensees; and (c) controlling overhead and expenses. There can be no assurance that we can successfully accomplish these steps and it is uncertain that we will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to us on satisfactory terms and conditions, if at all.
In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.
The success of our ability to continue as a going concern is dependent upon obtaining new customers for our products and new licensees to generate royalty revenues, and maintaining a break even or profitable level of operations. We have incurred operating losses since inception, and this is likely to continue in the near future. We believe that we are able to fund our immediate operations, working capital requirements, and debt service requirements with existing working capital, cash flows generated from operations, and additional borrowings under our delayed draw note or, if available, under our equity purchase agreement with GHS.
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Our financial requirements will be dependent upon the financial support through credit facilities and additional sales of our equity securities. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have a verbal commitment but no formal written commitments for any additional capital.
The downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock or the debt securities may cause us to be subject to restrictive covenants. If additional financing is not available or is not available on acceptable terms, we may have to curtail our operations.
Cash, total current assets, total assets, total current liabilities and total liabilities as of September 30, 2016 and June 30, 2016 are as follows:
September 30, 2016 | June 30, 2016 | |||||||
Cash | $ | 61,096 | $ | 6,829 | ||||
Total current assets | $ | 617,312 | $ | 588,709 | ||||
Total assets | $ | 678,526 | $ | 663,492 | ||||
Total current liabilities | $ | 1,405,549 | $ | 1,263,665 | ||||
Total liabilities | $ | 3,950,018 | $ | 3,742,385 |
At September 30, 2016, we had a working capital deficit of $788,237 compared to a working capital deficit of $674,956 at June 30, 2016 Current liabilities increased to $1,405,549 at September 30, 2016 from $1,263,665 at June 30, 2016, primarily as a result of increases in accounts payable and the bank line of credit.
Our operating activities used net cash of $158,537 for the three months ended September 30, 2016 compared to net cash used in operations of $48,598 for the three months ended September 30, 2015. The net cash used in operations for the three months ended September 30, 2016, reflects a net loss of $406,453, decreased by $72,470 in non-cash charges and by $175,446 net increase in the working capital accounts. The net cash used in operations for the three months ended September 30, 2015 reflects a net loss of $436,689, decreased by $131,490 in non-cash charges and by $256,601net increase in the working capital accounts.
We did not have any cash related to investing activities in the three months ended September 30, 2016 or 2015.
Our net cash provided by financing activities for the three months ended September 30, 2016 was $212,804, which consisted of decrease of $1,021 Wells Fargo line of credit and $213,825 in proceeds in the sale of stock to Kodiak Capital.
Credit Facility
On June 10, 2014, we entered into a Note Purchase Agreement (“Agreement”) with PIMCO Funds: Private Account Portfolio Series: PIMCO High Yield Portfolio, a separate investment portfolio of PIMCO Funds, a Massachusetts business trust (“PIMCO”) that authorized the issuance of up to $2,500,000. On June 12, 2014, we entered into a Senior Secured Note (“Note”) whereby we drew $1,500,000. The note bears interest at 14% and matures on June 12, 2017. Interest in payable monthly in arrears, provided that if no event of default has occurred, Obligor can elect to pay cash interest on each payment date at 9%, with the additional unpaid interest due on such dates added to the principal balance, The note bears an effective interest rate of 21%. This Note is collateralized by all of our assets. The Note includes various covenants, including but not limited to, having annual audited financial statements within 90 days of the end of the fiscal year.
On February 6, 2015, we drew an additional $500,000 under this facility to increase the principal amount payable (including the accrued interest added to the principal amount) under this note to $2,044,300 and on October 20, 2015, we drew the remaining $500,000 available under this facility to increase the amount payable under this note (with accrued interest) to $2,620,098. We issued 10,000 shares of our common stock to PIMCO as a loan fee in consideration of the October 2015 draw down. A replacement note was issued on each draw down date to reflect the note increase.
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Crown Financial, LLC Factoring Agreement
On August 3, 2016 we entered into an Agreement with Crown Financial, LLC which advances 80% of invoices approved and assumed by Crown for collection. Depending on the length of time taken to collect the invoices we will receive additional payments from Crown ranging from 18.25% if collected within 20 days to 0% if collected in 120 days. Crown has the right to require us to repurchase unpaid invoices outstanding for more than 120 days. PIMCO has waived its security interest in invoices assigned to Crown.
GHS Investment Agreement
On August 13, 2016 we entered into an Investment Agreement (the “Investment Agreement”) with GHS Investments, LLC (“GHS”). Although we are not mandated to sell shares under the Investment Agreement, the Investment Agreement gives us the option to sell to GHS, up to $5,000,000 worth of our common stock (“Shares”), over the period following effectiveness of the registration of a registration statement covering the resale of the Shares (the “Effective Date”) and ending thirty-six (36) months after the Effective Date. Under the terms of the Investment Agreement, we have the right to deliver from time to time a Put Notice to GHS stating the dollar amount of Put Shares (up to $500,000 under any individual Put Notice)(the “Put Amount”) that we intend to sell to GHS with the price per share based on the following formula: the lesser of (a) the lowest sale price for the Common Stock on the date of the Put Notice (the “Put Notice Date”); or (b) the arithmetic average of the three (3) lowest trading prices for the Company’s Common Stock during the five trading days following the Put Notice Date. The maximum number of shares that can be put to GHS is two times the average daily trading volume during the ten trading days prior to the closing of a put (the “Closing Date”). If the amount of the tranche of our outstanding shares exceeds the volume limitation, additional tranches will be delivered until the entire Purchase Amount is delivered. Each tranche, including the initial tranche, will trigger a new purchase price, and will be priced according to the purchase price definition.
In addition, there is an ownership limit for GHS of 9.99% of our outstanding shares.
On any Closing Date, we shall deliver to GHS the number of shares of the Common Stock registered in the name of GHS as specified in the Put Notice. In addition, we must deliver the other required documents, instruments and writings required. GHS is not required to purchase the shares unless:
● | Our Registration Statement with respect to the resale of the shares of Common Stock delivered in connection with the applicable Put shall have been declared effective. | |
● | at all times during the period beginning on the date of the Put Notice and ending on the date of the related closing, our common stock has been listed on the Principal Market as defined in the Investment Agreement (which includes, among others, the OTC Market: QB Tier) and shall not have been suspended from trading thereon. | |
● | we have complied with its obligations and is otherwise not in breach of or in default under the Investment Agreement, the Registration Rights Agreement or any other agreement executed in connection therewith; | |
● | no injunction has been issued and remains in force, and no action has been commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Put Shares; and | |
● | the issuance of the Put Shares will not violate any shareholder approval requirements of the market or exchange on which our common stock is principally listed. |
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GHS will not engage in any “short-sale” (as defined in Rule 200 of Regulation SHO) of our common stock at any time during this Agreement. Pursuant to the Investment Agreement with GHS, we agreed to pay a fee equaling $250,000 or 5%of the Commitment Amount (the “Commitment Fee”) which shall be paid in installments of Fifty Thousand ($50,000) beginning on the earlier of (i) the Effective Date of the Registration Statement and (ii) January 1, 2017 and, the first Trading Day of each January, April, July and October thereafter until fully paid. Each installment of the Commitment Fee shall be paid either in cash or, at the election of the Company, in shares of Common Stock, which shall be deemed a put under the Investment Agreement. On August 13, 2016, we entered into a Registration Rights Agreement with GHS requiring, among other things that we prepare and file with the SEC a Registration Statement on Form S-1 covering the resale of the shares issuable to GHS under the Investment Agreement. As per the Investment Agreement, GHS’ obligations are not assignable.
Equity Purchase Agreement with Kodiak Capital LLC
On December 17, 2014, we entered into an Equity Purchase Agreement (“Equity Purchase Agreement”) with Kodiak Capital LLC. The Equity Purchase Agreement provides us with a financing (the “Financing” ) whereby the registrant can issue and sell to Kodiak, from time to time, shares of our common stock (the “Put Shares” ) up to an aggregate purchase price of $5.0 million (the “Maximum Commitment Amount”) during the Commitment Period (as defined below). Under the terms of the Equity Purchase Agreement, we have the right to deliver from time to time a Put Notice to Kodiak stating the dollar amount of Put Shares (up to $500,000 under any individual Put Notice) that we intend to sell to Kodiak with the price per share based on the following formula: seventy-five percent (75%) of the lowest closing bid price of our common stock during the period beginning on the date of the Put Notice and ending five (5) days thereafter. Under the Equity Purchase Agreement, we may not deliver the Put Notice until after the resale of the Put Shares has been registered pursuant to a registration statement filed with the Securities and Exchange Commission. Additionally, provided that the Equity Purchase Agreement does not terminate earlier, during the period beginning on the trading day immediately following the effectiveness of the registration statement and ending December 31, 2016, we may deliver the Put Notice or Notices (up to the Maximum Commitment Amount) to Kodiak (the “Commitment Period”). In addition, in no event shall Kodiak be entitled to purchase that number of Put Shares which when added to the sum of the number of shares of common stock already beneficially owned by Kodiak would exceed 9.99% of the number of shares of common stock outstanding on the applicable closing date.
The Equity Purchase Agreement also provides that we are not entitled to deliver a Put Notice, and Kodiak shall not be obligated to purchase any Put Shares, unless each of the following conditions are satisfied: (i) a registration statement has been declared effective and remains effective for the resale of the Put Shares until the closing with respect to the subject Put Notice; (ii) at all times during the period beginning on the date of the Put Notice and ending on the date of the related closing, our common stock has been listed on the Principal Market as defined in the Equity Purchase Agreement (which includes, among others, the Over-the-Counter Bulletin Board and the OTC Market Group’s OTC Link quotation system) and shall not have been suspended from trading thereon; (iii) we have complied with its obligations and is otherwise not in breach of or in default under the Equity Purchase Agreement, the Registration Rights Agreement or any other agreement executed in connection therewith; (iv) no injunction has been issued and remains in force, and no action has been commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Put Shares; and (v) the issuance of the Put Shares will not violate any shareholder approval requirements of the market or exchange on which our common stock are principally listed.
The Equity Purchase Agreement will terminate when any of the following events occur: (i) Kodiak has purchased an aggregate of $5.0 million of our common stock, (ii) on December 31, 2016 or (iii) upon written notice from us to Kodiak. We intend to terminate the Kodiak Equity Purchase Agreement prior to the Effective Date for the GHS Investment Agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of our last fiscal quarter ended September 30, 2016, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were effective as of September 30, 2016, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by the SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Going forward from this filing, the Company intends to improve its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls 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.
Changes in Internal Control over Financial Reporting
During the quarter covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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From time to time, the Company may become a party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. The Company is not involved currently in legal proceedings that could reasonably be expected to have a material adverse effect on its business, prospects, financial condition or results of operations. The Company may become involved in other material legal proceedings in the future.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item. Please refer to “Risk Factors” contained in our Annual Report on Form 10-K for the year ended June 30, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
See Reports on Form 8-K filed on September 22, 2016 and October 19, 2016
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 6. Exhibits
EXHIBIT INDEX
Exhibit No. | Description | |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of the Chief Financial Officer pursuant to U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Schema Linkbase Document | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized
XFIT BRANDS, INC | ||
(Registrant) | ||
Date: November 21, 2016 | By: | /s/ David E. Vautrin |
David E. Vautrin | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: November 21, 2016 | By: | /s/ Charles S Cameron |
Charles Scott Cameron | ||
Chief Financial Officer | ||
(Principal Accounting Officer) |
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