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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Trident Brands Incorporated (CE) | USOTC:TDNT | OTCMarkets | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.0003 | 0.00 | 00:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURUTIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2021
Commission file number 000-53707
TRIDENT BRANDS INCORPORATED |
(Exact Name of Registrant as Specified in Its Charter) |
Nevada |
| 26-1367322 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
433 Plaza Real, Suite 275
Boca Raton, FL 33432
(Address of Principal Executive Offices & Zip Code)
(561) 962-4122
(Telephone Number)
Resident Agents of Nevada
711 S. Carson Street, Suite 4
Carson City, NV 89701
(Name and Address of Agent for Service)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
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. (Check one):
Large accelerated filer | ☐ | Smaller reporting company | ☒ |
Accelerated filer | ☐ | Non-accelerated Filer | ☒ |
Emerging Growth Company | ☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of March 15, 2022, the registrant had 33,311,887 shares of common stock issued and outstanding. The Company had a market value of $1,065,980 based on the closing stock price of $0.032 on November 30, 2021.
TRIDENT BRANDS INCORPORATED
FORM 10-K
For the year ended November 30, 2021
TABLE OF CONTENTS
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Item 1B. | Unresolved Staff Comments |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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Basis of Presentation
Except where the context otherwise requires, all references in this Annual Report on Form 10-K for the fiscal year ended November 30, 2021 (“Form 10-K”) to the “Company”, “we”, “us”, “our”, “Trident” and “Trident Brands” or similar words and phrases are to Trident Brands Incorporated and its subsidiaries, taken together.
In this report, all currency amounts are expressed in thousands of United States (“U.S.”) dollars (“$”), except per share data, unless otherwise stated. Amounts expressed in other than U.S. dollars are noted accordingly. For example, amounts if expressed in Canadian dollars are expressed in thousands of Canadian dollars and preceded by the symbol “Cdn $”.
Forward-Looking Statements
This Form 10-K contains forward-looking statements which are based on our current expectations and assumptions and involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as “anticipate”, “estimate”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, the negatives of such terms, and words and phrases of similar impact and include, but are not limited to references to expected increases in revenues and margins, growth opportunities, the success of new product launches and line extensions, our ability to finance our business, potential strategic investments, business strategies, competitive strengths, goals, references to key markets where we operate and the market for our securities. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our interpretation of current conditions, historical trends and expected future developments, as well as other factors that we believe are appropriate in the circumstance.
Whether actual results and developments will agree with our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from our expectations and predictions. We believe these factors include, but are not limited to, the following:
| · | we have a limited operating history with significant losses and expect losses to continue for the foreseeable future; |
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| · | we could face intense competition, which could result in lower revenues and higher expenditures and could adversely affect our results of operations; |
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| · | we are governed by only nine persons serving as directors and officers which may lead to faulty corporate governance; |
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| · | we must attract and maintain key personnel or our business may fail; |
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| · | We have an immediate and urgent need for capital - we may not be able to secure the financing we need to implement our business plan; |
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| · | our business and operating results could be harmed if we fail to manage our growth or change; |
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| · | we have a limited operating history and if we are not successful in growing our business, then we may have to scale back or even cease our ongoing business operations; |
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| · | if our intellectual property is not adequately protected, then we may not be able to compete effectively and we may not be profitable; |
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| · | if we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could impact our ability to stay in business; |
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| · | we could lose our competitive advantages if we are not able to protect any of our food and nutritional products and intellectual property rights against infringement, and any related litigation could be time-consuming and costly; |
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| · | if we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained; |
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| · | our products may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands; |
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| · | our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm product sales and harm our financial condition and operating results; |
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| · | if we do not introduce new products or make enhancements to adequately meet the changing needs of our customers, some of our products could fail in the marketplace, which could negatively impact our revenues, financial condition and operating results. |
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| · | we are affected by laws and governmental regulations with potential penalties or claims, which could harm our financial condition and operating results; |
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| · | since we rely on independent third parties for the manufacture and supply of certain of our products, if these third parties fail to reliably supply products to us at required levels of quality and which are manufactured in compliance with applicable laws, then our financial condition and operating results would be harmed; |
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| · | we may incur material product liability claims, which could increase our costs and harm our financial condition and operating results; |
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| · | unless we can generate sufficient cash from operations or additional raise funds, we may not be able to meet our debt obligations and continue as a going concern; |
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| · | our customers generally are not obligated to continue purchasing products from us; |
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| · | if we do not manage our supply chain effectively, our operating results may be adversely affected; |
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| · | our stock price may be volatile, which may result in losses to our shareholders; |
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| · | our common shares are thinly traded and our shareholders may be unable to sell at or near ask prices, or at all; |
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| · | the market price for our common stock is particularly volatile given our status as a relatively small and developing company, which could lead to wide fluctuations in our share price. Our shareholders may be unable to sell their common stock at or above their purchase price if at all, which may result in substantial losses to you; |
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| · | we do not anticipate paying any cash dividends to our common shareholders and as a result shareholders may only realize a return when the shares are sold; |
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| · | we are quoted on the OTCQB quotation system and our common stock is subject to “penny stock” rules which could negatively impact our liquidity and our shareholders’ ability to sell their shares; |
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| · | volatility in our common share price may subject us to securities litigation; |
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| · | the elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights of our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees; |
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| · | our business is subject to changing regulations related to corporate governance and public disclosure that have increased both our costs and the risk of noncompliance. |
Consequently all forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that our actual results or the developments we anticipate will be realized. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk Factors, included elsewhere in this report.
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Part I
Item 1. Business
Business Description
Trident Brands Incorporated was incorporated under the laws of the State of Nevada on November 5, 2007. The Company was initially formed to engage in the acquisition, exploration and development of natural resource properties, but has since transitioned and is now focused on branded consumer products and food ingredients. The Company is in the early growth stage and has commenced commercial activities following a period of organization and development of its business plan.
The Company maintains a portfolio of branded consumer products in the functional nutrition and dietary supplement categories under the Brain Armor® trademarks. Our products are focused on high growth category segments including performance nutrition and brain health, supported by an established contract manufacturing supply chain, strong research and development infrastructure and a solid and proactive management team, board of directors and business advisors with many years of senior experience in related fields.
Corporate Legal Structure and Related Matters
Trident Brands Incorporated has two legal subsidiaries, as detailed below.
Brain Armor Inc. is 70.5% owned by Trident Brands and is organized to develop, market and sell a portfolio of DHA supplements under the Brain Armor® brand, which is targeted at the cognitive health and performance segment.
Trident Brands Canada Ltd. is 100% owned by Trident Brands Incorporated and holds various banking facilities, and licenses associated with the manufacturing, importation and sale of natural health and nutrition products in Canada.
The Company’s administrative office is located at 433 Plaza Real, Suite275, Boca Raton, Florida, 3432 and its fiscal year end is November 30th.
The Company has authorized capital of 300,000,000 common shares with a par value of $0.001 per share. 33,311,887 common shares were issued and outstanding as of November 30, 2021 and 33,311,887 as of April 14, 2022.
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Management and Board of Directors
Mr. Michael Friedman serves as Chief Executive Officer and President.
Mr. Peter Salvo, the Vice President, Finance, Corporate Secretary, and Controller of the Company is our Principal Financial Officer and Principal Accounting Officer. Mrs. Pamela Andrews serves as Managing Director of our subsidiary, Brain Armor Inc.
The board is comprised of Mr. Anthony Pallante, Mr. Michael Friedman and Mr. Richard Russell.
Mr. Russell serves on the Company’s Board of Directors as an “independent director”, as defined under the Nasdaq Stock Market’s corporate governance rules, is Chairman of the Audit Committee and is considered a financial expert.
Evolution of Trident Brands
Brands
On March 1, 2015, we acquired, through a licensing agreement with DSM Nutritional Products LLC (“DNP”), the exclusive global rights to Brain Armor® dietary supplements, a plant-based DHA supplement designed specifically for the needs of athletes. At the same time, a wholly-owned subsidiary, Brain Armor Incorporated was registered to hold the trademark license and commercially develop the Brain Armor® brand. As per the agreement, DNP was to be the sole source of the Company’s omega-3 oil requirements which will be DNP’s life’s DHATM oil and will supply the soft gel capsules in finished form to us. In order to maintain exclusivity to the license, we were required to meet certain targets with respect to product launches and sales volume. Also under the terms of the agreement we had the opportunity to exercise an option to purchase the Brain Armor(R) dietary supplement brand. The term of the Agreement and the license rights was for five (5) years and shall be subject to successive one (1) year automatic renewal periods, assuming all performance milestones had been met. On December 22, 2017, the Company purchased the trademark and the proprietary formulations at a cost of $400,000, effectively terminating the license agreement of 2015. The Company has since developed and improved its own formulations.
On January 28, 2016, we issued 3,000,000 common shares pursuant to a Deed of Assignment dated effective January 20, 2015 among our Company, Oceans Omega LLC, and the assignor 2298107 Ontario Inc., pursuant to which the assignor assigned to our Company the assignor’s non-exclusive rights to purchase, market, sell and distribute certain Omega 3 nutritional emulsions produced by Oceans Omega LLC to the food and beverage industries and exclusive rights to purchase, market, sell and distribute to the global meat industry.
In April 2019, Trident began shipping Brain Armor dietary supplement products to CVS Health; in July 2020 to Whole Foods Markets through United Natural Foods Inc (UNFI), a national distributor; and in June 2020 to US supplement retailer Vitamin Shoppe. All of these retail listings were under standard vendor trading agreement terms. All these retail agreements have since been terminated due to the Company’s inability to purchase inventory due to a lack of funds.
Key Developments in Fiscal 2021 and Fiscal 2022 to the Date of this Report
On March 30, 2021, a non-US investor subscribed to the acquisition of 333,333 units of the Company’s Brain Armor Inc subsidiary. Each unit is comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock, and was sold at a per unit price of USD $0.30 for an aggregate purchase price of USD $100,000 which was received by the Company on March 30, 2021. The vesting and exercise prices of the warrants are as follows:
| · | 1/3 of shares shall be exercisable 6 months after the subscription date at an exercise price of $0.45 per share |
| · | 1/3 of shares shall be exercisable 12 months after the subscription date at an exercise price of $0.60 per share |
| · | 1/3 of shares shall be exercisable 18 months after the subscription date at an exercise price of $0.75 per share |
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On May 5, 2021, a US investor subscribed to the acquisition of 3,333,333 units of the Company’s Brain Armor Inc subsidiary. Each unit is comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock, and was sold at a per unit price of USD $0.30 for an aggregate purchase price of USD $1,000,000 of which $100,000 was received by the Company on May 13, 2021 and $100,000 on May 27, 2021. This subscription agreement has since been terminated, without further investment. The vesting and exercise prices of the warrants are as follows:
| · | 1/3 of shares shall be exercisable 6 months after the subscription date at an exercise price of $0.45 per share |
| · | 1/3 of shares shall be exercisable 12 months after the subscription date at an exercise price of $0.60 per share |
| · | 1/3 of shares shall be exercisable 18 months after the subscription date at an exercise price of $0.75 per share |
On June 17, 2021, the Small Business Administration (SBA) approved the Company’s PPP loan forgiveness application for the full amount of $135,165.
On June 30, 2021, the Board of Directors of the Company, unanimously consented to amend its Articles of Incorporation to among other things authorize 29,432,320 shares of Preferred Stock, $0.001 par value. Subsequently, on March 29, 2022, the Board unanimously consented to confirm its prior authorization to amend the Company’s Certificate of Incorporation to authorize 29,432,320 shares of Preferred Stock, $0.001 par value, and change the name of the Company to SOLNI Group, Inc. A majority of the Company’s stockholders have also approved the amendments to the Certificate of Incorporation.
Pursuant to Reg. Section 240.14c-2(b) of the Securities and Exchange Commission (the “Commission”), the authorization of the Series A Preferred Stock will not be effective until 20 calendar days after the mailing date of our definitive Information Statement to our common stockholders. The increase in our authorized shares will become effective on May 31, 2022.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the corporate name change will not be effective until the later of (i) 20 calendar days after the mailing date of our definitive Information Statement to our common stockholders and (ii) the completion of FINRA’s review of the corporate action related to the Company name change. Subject to compliance with these requirements, the name change will be effective May 31, 2022.
On September 27, 2021, the Board of Directors of Trident Brands Incorporated, appointed Michael Friedman as a member of our Board of Director, as well as President and Chief Executive Officer of the Company, effective October 1, 2021. Concurrent with Mr. Friedman’s appointment, Scott Chapman and Anthony Pallante resigned as President and CEO of the Company, respectively.
In connection with his appointment as President and CEO, the Company entered into a one-year employment agreement with Mr. Friedman which is renewable by the Company for 2, 2-year renewal periods. The Agreement provides for an annual base salary of $180,000 and an equity compensation grant of 1,100,000 shares of company common stock which shall vest in 4 equal quarterly installments commencing January 1, 2022. Mr. Friedman is also eligible for annual as well as performance based equity compensation awards. In addition, he is eligible for transaction based cash/equity bonuses equal to three percent of the value of the transaction, including an acquisition. On March 3, 2022, the Board of Directors approved issuance of an aggregate of 4 million shares to the employees, of which Mr. Friedman will receive 80,000 shares. In addition the Board approved an equity compensation bonus plan for Mr. Friedman. See Note 13, Subsequent Events.
On October 15, 2021, a Promissory Note was issued to Anthony Pallante, Chairman and a significant stockholder of the Company. The Note is unsecured and was issued in consideration for payments made to creditors in satisfaction of Company obligations. Mr. Pallante loaned the Company $20,101. The Note bears Interest at a rate of 8% per annum. All unpaid principal and accrued interest shall be due and payable upon demand at any time subsequent to six (6) months from the date the notes were issued. As of November 30, 2021, Mr. Pallante made additional payments of $16,731 for a total of $36,832.
Business Objectives and Strategies
Our management team brings together many years of seasoned expertise in branded consumer and supplement products, supply chain, product development and corporate finance. Our team has experience in developing and commercializing consumer products, in both global companies and specialty markets.
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Our objective is to provide our shareholders with solid returns through strategic investments across multiple consumer product and food ingredient platforms. The platforms we are focusing on include:
| · | Life science technologies and related products that have applications to a range of consumer products; |
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| · | Nutritional supplements and related consumer goods providing defined benefits to the consumer; and |
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| · | Functional foods and beverages ingredients with defined health and wellness benefits. |
Subject to receipt of additional funding, we plan to build our business through strategic investments in high growth early stage consumer brands and functional ingredients platforms within segment/sectors which we believe offer long term growth potential. We are focused on three core strategies underpinning our objectives:
| · | To execute our multi-tier brand and innovation strategy to drive revenue; |
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| · | To aggressively manage our asset light business model to drive a low cost platform; and |
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| · | To drive disciplines leading to ability to finance and govern growing operations. |
Once we secure sufficient capital to enable us to fully implement our business plan, we expect revenues and associated margins to increase as we continue to commercialize segments and products within our portfolio. Specifically, Brain Armor® product lines have demonstrated solid potential in the markets where they compete. Further research and development investment is also expected to strengthen our position in the market and contribute to current platforms and incremental business potential.
Our purpose is to apply these capabilities in starting new product lines with specific competitive advantage. Our product development is focused on:
| · | Extending established brands with existing equity that can be leveraged; |
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| · | Delivering consumer benefit with unique technology or intellectual properties; and |
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| · | Targeting dynamic growth segments. |
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Coupled with planned strategic capital investment, our focus is on investments within the fast growing nutritional product and functional food segments/sectors. Our goal is to provide our shareholders with outstanding ROI through a portfolio of branded platforms via an asset light business model when and where appropriate.
As part of our long-term strategy we are targeting the following growth opportunities:
| · | Brand licenses in fast growing categories; |
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| · | Consumer goods with focus on supplements, functional foods & beverages; |
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| · | Life science technology that has applications in consumer products with a focus on nutritional, brain and heart health products; and |
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| · | Intellectual property and/or licenses in recognized brand platforms. |
In addition to investments in brands and technology, we will seek to acquire businesses to support our strategy through the use of common and/or preferred equity, senior secured, unsecured, and convertible debt in organizations who meet our investment goals. Through our management and directors vast expertise in both the consumer branded segment and strategic investment experience, we seek to provide our shareholders a sound return on their investment.
The Company’s strategic objective is to:
| · | Build and grow strategic brands organically; |
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| · | Make strategic investments in high growth companies; |
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| · | Develop and then merge brands/business lines into larger multi-national Companies; and |
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| · | Mitigate risk by creating a diverse portfolio of brands/operations in the growth sectors listed above. |
Brands
Brain Armor®
The Company had a licensing agreement that granted us the exclusive global rights to Brain Armor®, a plant-based Omega-3 dietary supplement formulated to improve cognitive health and well-being. In December 2017, we purchased the Brain Armor® trademark at a cost of $400,000, effectively terminating the licensing agreement, and reformulated Brain Armor® dietary supplements with a proprietary blend of active ingredients clinically-proven to support neuro-nutrition at every stage of life.
In FY2021, the Company booked an impairment charge of $400,000 for the full value of the Brain Armor trademark.
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Product Supply
We procure our products utilizing a series of ingredient suppliers and strategic contract manufacturers. All suppliers are pre-qualified and must meet our stringent quality and performance standards.
All novel product formulations and flavor systems are proprietary and formulated in-house.
Competition
We compete in the branded nutritional products and functional foods market segments. These markets are highly competitive with many companies, large and small, competing for market share.
Compliance with Government Regulation
Our operations, supply chain and products are subject to a wide range of governmental regulations and policies in various regions where we operate, including the U.S. and Canada. These laws, regulations and policies are implemented, as applicable in each jurisdiction, on the national, federal, state, provincial and local levels. We believe we have processes and systems in place throughout our supply chain to meet the requirements of these regulations.
Patents, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor Contracts
As of November 30, 2021 the following trademarks have been registered or applications filed on behalf of Trident Brands Incorporated or operating subsidiaries of Trident Brands Incorporated:
Marks Owned by Trident Brands Incorporated
Case Ref. | Country | Title | Application No. | Application Date | Registration No. | Registration Date |
T6791051US | U.S.A. | P2N PEAK PERFORMANCE NUTRITION | 87/626,644 | 28-Sep-2017 | 5,591,609 | 23-Oct-2018 |
T6791052US | U.S.A. | P2N PEAK PERFORMANCE NUTRITION & Design
| 87/626,631 | 28-Sep-2017 | 5,591,608 | 23-Oct-2018 |
Marks Owned by Brain Armor Inc.
Case Ref. | Country | Title | Application No. | Application Date | Registration No. | Registration Date |
T6788650AU | Australia | BRAIN ARMOR | 1818703 | 04-Jan-2017 | 1818703 | 04-Jan-2017 |
T6793063BR | Brazil | BRAIN ARMOR | 910926875 | 19-Apr-2016 | 910926875 | 16-Apr-2019 |
T6792601CA | Canada | BRAIN ARMOR | 1,753,775 | 06-Nov-2015 | 1,062,057 | 05-Nov-2019 |
T6799503CA | Canada | BRAINSPANNERS | 2,009,917 | 05-Feb-2020 |
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T6788651CN | China | BRAIN ARMOR | 22604683 | 13-Jan-2017 | 22604683 | 14-Feb-2018 |
T6788651CN.1 | China | BRAIN ARMOR | 22909187 | 23-Feb-2017 | 22909187 | 28-Feb-2018 |
T6788652CTM | European Union Trademark | BRAIN ARMOR | 016227605 | 04-Jan-2017 | 016227605 | 10-May-2017 |
T6793062MX | Mexico | BRAIN ARMOR | 1,737,757 | 19-Apr-2016 | 1,662,294 | 09-Aug-2016 |
T6791122US | U.S.A. | FOCUS FIX | 87/644,666 | 13-Oct-2017 | 5,764,475 | 28-May-2019 |
T6791663US | U.S.A. | BRAIN ARMOR Logo
| 87/705,173 | 01-Dec-2017 |
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T6791663US.1 | U.S.A. | BRAIN ARMOR Logo
| 87/980,658 |
| 5,777,345 | 11-Jun-2019 |
T6793061US | U.S.A. | BRAIN ARMOR | 77/879,509 | 24-Nov-2009 | 3,994,592 | 12-Jul-2011 |
T6798137US | U.S.A. | THE HEALTHY BRAIN COMPANY | 88/621,820 | 18-Sep-2019 | 6,138,267 | 25-Aug-2020 |
T6798324US | U.S.A. | BRAIN ARMOR THE HEALTHY BRAIN COMPANY | 88/621,830 | 18-Sep-2019 |
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T6798325US | U.S.A. | BRAIN ARMOR THE HEALTHY BRAIN COMPANY & Design
| 88/621,836 | 18-Sep-2019 |
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T6788652CTMGB | United Kingdom | BRAIN ARMOR | 016227605 | 04-Jan-2017 | UK009016227605 | 10-May-2017 |
T6788653UK | United Kingdom | BRAIN ARMOR | 3204840 | 04-Jan-2017 | UK00003204840 | 24-Mar-2017 |
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Human Resources, Contract Service Providers, Employees
We operate our business utilizing resources to provide services to the Company on a contractual basis. We feel this is most prudent as we can cost effectively meet our needs and leverage capabilities of talented individuals without employing on a full time basis. As the business grows, we expect to add a number of full-time employees. We presently do not have pension, health, annuity, insurance, profit sharing or similar benefit plans; however, we may adopt such plans in the future. Except for our stock option plan, there are presently no employee benefits available to our officers and directors.
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Reports to Securities Holders
We provide an annual report that includes audited financial information to our shareholders. We will make our financial information equally available to any interested parties or investors through compliance with applicable disclosure rules under the Securities Exchange Act of 1934. We are subject to disclosure filing requirements, including filing Form 10K annually and Form 10Q quarterly. In addition, we will file Form 8K and other proxy and information statements from time to time as required. . The public may read and copy any materials that we file with the Securities and Exchange Commission, (“SEC”), at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains our reports, proxy and information statements, and other information regarding the Company that we file electronically with the SEC.
Item 1A. Risk Factors
RISKS RELATED TO OUR BUSINESS
You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this current report on Form 10-K that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occur, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
We have an immediate and urgent need for capital and may not be able to continue as a going concern.
As of November 30, 2021, we had a working capital deficit of $8.9 million and accumulated deficit of $42,205,049. During the year ended November 30, 2021, we had a net loss of $3.1 million and our operations used $0.4 million of cash. As of April 14, 2022, we had only minimal cash on hand. We have historically incurred operating losses and may continue to incur operating losses for the foreseeable future. We believe that these conditions raise substantial doubt about our ability to continue as a going concern. This may hinder our future ability to obtain financing or may force us to obtain financing on less favorable terms than would otherwise be available. If we are unable to develop sufficient revenues and additional customers for our products and services, we may not generate enough revenue to sustain our business, and we may fail, in which case our stockholders would suffer a total loss of their investment. There can be no assurance that we will be able to continue as a going concern.
We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
We have yet to establish a history of profitable operations and, as at November 30, 2021, have an accumulated deficit of $42,205,049, realized since our inception on November 5, 2007. We have generated only limited revenues since our inception and thus have incurred significant operating losses. Our profitability will require the successful commercialization and sales of our planned products at acceptable margins, for which we currently do not have sufficient capital. We may not be able to successfully achieve any of these objectives.
If we are unable to continue as a going concern, our securities will have little or no value.
Although our audited financial statements for the year ended November 30, 2021, were prepared under the assumption that we would continue our operations as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the year ended November 30, 2021, contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern, based on the financial statements at that time. Specifically, as noted above, we have experienced recurring losses from operations and negative cash flows from operating activities, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. In addition, as noted above, continued operations and our ability to continue as a going concern may be dependent on our ability to obtain additional financing in the near future and thereafter, and there are no assurances that such financing will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to generate additional funds in the future through sales of our products, financings or from other sources or transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a going concern, our shareholders will suffer a total loss of their investment.
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The benefits we have realized and may continue to realize from participating in relief programs provided under the CARES Act may not be sufficient to enable us to withstand the current economic conditions and any extended economic downturn or recession which may result from the Pandemic.
We have received funds under the CARES Act, and have benefited from other relief measures pursuant to the CARES Act and other government stimulus, including the deferral of employer payroll taxes. Receipt of additional government funds and other benefits from the CARES Act is subject to, in certain circumstances, a detailed application and approval process and it is unclear whether we will meet any eligibility requirements, receive any funds and the extent to which these funds may offset our Pandemic-related cash flow disruptions. Additionally, retaining these funds subjects us to various terms and conditions. While we have taken steps to ensure compliance with these terms and conditions, any violation may trigger repayment of some or all of the funds received. Further, funds we have received or may receive, either directly through participation in government programs, or indirectly through increased revenues attributable to a possible economic recovery generated in whole or in part by the CARES Act, may not be sufficient to mitigate the impact of the Pandemic.
We may be required to raise additional financing by issuing new securities with terms or rights superior to those of our shares of common stock, which could adversely affect the market price of our shares of common stock and our business.
We will require additional financing to fund future operations. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current stockholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and the voting power of shares of our common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities may similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us which could have a materially adverse affect on our business.
We are currently in default with respect to various outstanding debt obligations, which if we fail to repay, could result in foreclosure upon our assets.
We are currently in default with respect to a number of our debt obligations. In the event we are unable to repay such debt obligations, we could lose all of our assets and be forced to cease our operations.
We could face intense competition, which could result in lower revenues and higher expenditures and could adversely affect our results of operations.
Unless we keep pace with changing market demands, we could lose existing customers and more importantly fail to win new and retain any future customers. In order to compete effectively in the food and nutritional products industry, we must continually design, develop implement and market new and/or enhanced products and strategies. Our future success will depend, in part, upon our ability to address the changing and sophisticated needs of the marketplace. Our strategy of expanding our food and nutrition business may not be successful and could adversely affect our business operations and financial condition.
Further, our plan to pursue sales of our product in international markets may be limited by risks related to conditions in such markets.
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We are governed by only three persons serving as directors and two of them act as officers of the company which may lead to faulty corporate governance.
Currently our board includes only one independent director and as a result not all of our committees are independent. This could lead to less than preferable governance practices due to this lack of total independence.
We depend on the continued services of our Chairman, and our President and Secretary, and the loss of key personnel could affect our ability to successfully grow our business.
We are highly dependent upon the services of Mr. Pallante, Chairman, and Mr. Friedman, President & CEO. The permanent loss of either of them could have a material adverse effect upon our operating results. We may not be able to locate a suitable replacement if their services were lost. We do not maintain key man life insurance on either of them. Our future success will also depend, in part, upon our ability to attract and retain highly qualified personnel. Our inability to retain additional key executives and to attract new, qualified personnel could cause us to curtail our business operations.
Our officers and directors are anticipated to allocate their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs.
None of our officer or directors are committing their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other business interests. Each of our officer and directors are engaged in other business endeavors for which such person may be entitled to substantial compensation or have significant financial incentive to assist, and our officer and directors are not obligated to contribute any specific number of hours per week to our affairs. If our officer and directors’ other business affairs require or incentivize them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to execute our business plan. We have no formal process for vetting such conflicts of interest.
We must attract and maintain key personnel or our business may fail.
Success depends on the acquisition of key personnel. We will have to compete with other companies both within and outside the food and nutritional products industry to recruit and retain competent employees and contract resources. If we cannot maintain qualified resources to meet the needs of our anticipated growth, this could have a material adverse effect on our business and financial condition.
Our business and operating results could be harmed if we fail to manage our growth or change.
Our business may experience periods of rapid change and/or growth that could place significant demands on our personnel, operating and financial resources. To manage possible growth and change, we must continue to locate skilled professionals in the food and nutritional products industries and adequate funds in a timely manner.
Any acquisitions that we make could disrupt our business and harm our financial condition.
From time to time, we may evaluate potential strategic acquisitions to facilitate our growth. We may not be successful in identifying acquisition candidates. In addition, we may not be able to continue the operational success of any acquisitions or successfully integrate any businesses that we acquire. We may have potential write-offs of acquired assets and an impairment of any goodwill recorded as a result of acquisitions. Furthermore, the integration of any acquisition may divert management’s time and resources from our core business and disrupt our operations or may result in conflicts with our business. Any acquisition may not be successful, may reduce our cash reserves and may negatively affect our earnings and financial performance. We cannot ensure that any acquisitions we make will not have a material adverse effect on our business, financial condition and results of operations.
Our need to raise additional capital to accomplish our objectives of expanding into new markets and selectively developing new products and acquiring other brands exposes us to risks including limiting our ability to acquire other brands and limiting our financial flexibility.
If we do not have sufficient cash resources, as is currently the case, our ability to develop products and acquire brands is limited unless and until we are able to obtain additional capital through future debt or equity financing. Using cash to finance development and acquisition of brands, which is not currently an option, could limit our financial flexibility by reducing cash available for operating purposes. Using debt financing could result in lenders imposing financial covenants that limit our operations and financial flexibility. Using equity financing will result in dilution of ownership interests of our existing stockholders. We may also use common stock as consideration for future acquisitions. If our common stock does not maintain a sufficient market value or if prospective acquisition candidates are unwilling to accept our common stock as part of the consideration for the sale of their businesses, we may be required to use more of our cash resources or greater debt financing to complete these acquisitions.
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We have a limited operating history and if we are not successful in growing our business, then we may have to scale back or even cease our ongoing business operations.
There can be no assurance that we will ever operate profitably. We have a limited operating history. Our success is significantly dependent on the successful marketing and sales of our food and nutritional products, which cannot be guaranteed. Our operations will be subject to all the risks inherent in the uncertainties arising from the absence of a significant operating history. We may be unable to profitably sell our food and nutritional products and thus operate on a profitable basis. Potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors will likely lose some or all of their investment in our company.
If our intellectual property is not adequately protected, then we may not be able to compete effectively and we may not be profitable.
Our commercial success depends, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of our technologies and products as well as successfully defending third-party challenges to such technologies and products. We will be able to protect our technologies and product from use by third parties only to the extent that valid and enforceable patents, trade secrets or regulatory protection cover them and we have exclusive rights to use them. The ability of our licensors, collaborators and suppliers to maintain their patent rights against third-party challenges to their validity, scope or enforceability will also play an important role in determining our future.
The patent positions of technology related companies can be highly uncertain and involve complex legal and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed regarding such companies’ patents has emerged to date in the United States, and the patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict with any certainty the range of claims that may be allowed or enforced concerning our patents.
We also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, through confidentiality agreements with our employees, consultants and scientific and other advisors, they may unintentionally or willfully disclose our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable. If we are not able to maintain patent or trade secret protection on our technologies and products, then we may not be able to exclude competitors from developing or marketing competing products, and we may not be able to operate profitability.
If we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could impact our ability to stay in business.
There has been, and we believe that there will continue to be, significant litigation and demands for licenses in our industry regarding patent and other intellectual property rights. Although we anticipate having a valid defense to any allegation that our current products, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights that we might infringe with our products or other activities, and our competitors or other patent holders may assert that our products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause us to incur substantial litigation expenses and, if successful, may require us to pay substantial damages. Some of our potential competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, we could be forced to stop or delay our research, development, manufacturing or sales activities. The impact of this could impact our ability to stay in business.
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We could lose our competitive advantages if we are not able to protect any of our food and nutritional products and intellectual property rights against infringement, and any related litigation could be time-consuming and costly.
Our success and ability to compete depends to a significant degree on our licenses and the ability to use our food and nutritional products. If any of our competitor’s copies or otherwise gains access to any of our competitive advantages or develops similar products independently, our ability to compete would be negatively impacted.
We also consider our assigned trademarks invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brands. These and any other measures that we may take to protect our intellectual property rights, which presently are based upon a combination of copyright, trade secret and trademark laws, may not be adequate to prevent their unauthorized use.
Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. In addition, notwithstanding any rights we have secured in our intellectual property, other persons may bring claims against us that we have infringed on their intellectual property rights, including claims based upon the content we license from third parties or claims that our intellectual property right interests are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our service marks or require us to make changes to our website or other of our technologies.
If we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained.
As we proceed with the commercialization of our portfolio, we expect to experience significant and rapid growth in the scope and complexity of our business. We will need to add resources to market our services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We will be required to hire a broad range of additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.
Our products may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands.
Our industry is characterized by rapid changes in market demands. As a result, our products may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to and anticipate market demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced services to comply with emerging industry or governmental standards.
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Our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm product sales and harm our financial condition and operating results.
Our business is subject to changing consumer trends and preferences. Our success depends on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. The nutritional supplement industry is characterized by rapid and frequent changes in demand and new product introductions and enhancements. Our failure to predict these trends could negatively impact consumer opinion of our products and thus commercial success.
If we do not introduce new products or make enhancements to adequately meet the changing needs of our customers, some of our products could fail in the marketplace, which could negatively impact our revenues, financial condition and operating results.
The business of marketing food and nutritional products is highly competitive and sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. These market segments include numerous manufacturers, distributors, marketers, retailers and physicians that actively compete for the business of consumers. We must continually adapt to marketplace demands in order to avoid negatively impacting our results.
We are affected by laws and governmental regulations with potential penalties or claims, which could harm our financial condition and operating results.
The formulation, manufacturing, packaging, labeling, distribution, advertising, licensing, sale and storage of our products are affected by laws and governmental regulations.
New regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in loss of revenues. We are subject to FDA rules for current good manufacturing practices, or GMPs, for the manufacture, packing, labeling and holding of nutritional products distributed in the United States. We have retained supply partners that maintain a comprehensive quality assurance program designed to address these regulations.
If these supply partners fail to comply with the GMPs and regulations, this could negatively impact our reputation and ability to sell products even though we are not directly liable under the GMPs and regulations for such compliance.
Since we rely on independent third parties for the manufacture and supply of our products, if these third parties fail to reliably supply products to us at required levels of quality and which are manufactured in compliance with applicable laws, then our financial condition and operating results would be harmed.
We cannot be assured that our outside contract manufacturers will continuously and reliably supply products to us at the levels of quality, or the quantities, we require, and in compliance with applicable laws, including under the FDA’s GMP regulations. Additionally, while we are not presently aware of any current liquidity issues with our suppliers, we cannot be assured we will not experience financial hardship or capacity constraints in the future that could interrupt supply and thus our ability to profitably market our products.
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We may incur material product liability claims, which could increase our costs and harm our financial condition and operating results.
We rely upon published and unpublished safety information including clinical studies on ingredients used in our products. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, we may be subjected to various product liability claims, including that the products contain contaminants, the products include inadequate instructions as to their uses, or the products include inadequate warnings concerning side effects and interactions with other substances. It is possible that widespread product liability claims could increase our costs, and adversely affect our revenues and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequate insurance coverage in the future.
Our customers generally are not obligated to continue purchasing products from us
Many of our customers buy from us under purchase orders, and we generally do not have long-term agreements with or commitments from these customers for the purchase of products. We cannot provide assurance that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Decreases in our customers’ sales volumes or orders for products supplied by us may have a material adverse effect on our business, financial condition or results of operations.
If we do not manage our supply chain effectively, our operating results may be adversely affected
Our supply chain is complex. We rely on suppliers for our raw materials and for the manufacturing, processing, packaging and distribution of all of our products. The inability of any of these suppliers to deliver or perform for us in a timely or cost-effective manner could cause our operating costs to rise and our margins to fall. We must continuously monitor our inventory and product mix against forecasted demand or risk having inadequate supplies to meet consumer demand as well as having too much inventory that may reach its expiration date. If we are unable to manage our supply chain efficiently and ensure that our products are available to meet consumer demand, our operating costs could increase and our margins could fall.
The COVID-19 pandemic has significantly reduced demand for our products, and has had, and may continue to have, a material adverse impact on our financial condition, results of operations and cash flows.
The effects of the COVID-19 (coronavirus) pandemic, including actions taken by businesses and governments, have resulted in a significant and swift reduction in international and U.S. economic activity. These effects have adversely affected the demand for our products. The decline in our customers’ demand for our products has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.
Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.
Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Annual Report.
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A reversal of the U.S. economic recovery and a return to volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.
Worsening economic and market conditions, downside shocks, or a return to recessionary economic conditions could severely reduce demand for our products and adversely affect our operating results. These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand. Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy. An economic downturn may cause uncertainty in the capital and credit markets and could have a material adverse effect on us. We could also be adversely affected by such factors as changes in foreign currency rates, weak economies, and political conditions in foreign countries in which we sell our products in the future.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.
RISKS RELATING TO OWNERSHIP OF OUR SECURITIES
Our stock price may be volatile, which may result in losses to our shareholders.
The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies quoted on the OTC quotation system in which shares of our common stock are quoted, have been volatile in the past and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to continue to be volatile and could fluctuate widely in response to many factors, including the following, some of which are beyond our control:
| · | variations in our operating results; |
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| · | changes in expectations of our future financial performance, including financial estimates by securities analysts and investors; |
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| · | changes in operating and stock price performance of other companies in our industry; |
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| · | additions or departures of key personnel; and |
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| · | future sales of our common stock. |
Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.
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Our common shares are thinly traded and our shareholders may be unable to sell at or near ask prices, or at all.
We cannot predict the extent to which an active public market for trading our common stock will be develop or be sustained. Our shares have historically been sporadically or “thinly-traded” meaning that the number of persons interested in purchasing our common shares at or near offered prices at any given time may be relatively small or non-existent.
This situation is attributable to a number of factors, including the fact that we are a small company in its development phase which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume. Even if we came to the attention of such persons, those persons may be reluctant to follow, purchase, or recommend the purchase of shares of an unproven company such as ours until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous trades without an adverse effect on share price. We cannot be assured that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.
The market price for our common stock is particularly volatile given our status as a relatively small and developing company, which could lead to wide fluctuations in our share price. Our shareholders may be unable to sell their common stock at or above their purchase price if at all, which may result in substantial losses.
Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stock/over the counter stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price and there can be no assurance that our shares will not be impacted by these practices.
We do not anticipate paying any cash dividends to our common shareholders and as a result shareholders may only realize a return when the shares are sold.
We presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to retain all earnings to implement our business plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.
We are quoted on the OTC quotation system and our common stock is subject to “penny stock” rules which could negatively impact our liquidity and our shareholders’ ability to sell their shares.
Our common stock is currently quoted on the OTCQB. There can be no assurance that we can continue to meet the requirements to maintain the quotation on the OTC system of our common stock. If we are unable to maintain the quotation of our common stock in the OTC system, the market liquidity of our common stock will likely be severely limited.
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Volatility in our common share price may subject us to securities litigation.
The market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources and impact our ability to operate as a going concern.
The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights of our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.
Our Articles of Incorporation contains a specific provision that eliminates the liability of our directors and officers for monetary damages to our company and shareholders. Further, we are prepared to give such indemnification to our directors and officers to the extent provided for by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
Our business is subject to changing regulations related to corporate governance and public disclosure that have increased both our costs and the risk of noncompliance.
Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and FINRA, have issued requirements and regulations and continue to develop additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities. Because new and modified laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.
We currently require additional financing , which may not be available or may be costly and dilutive.
We currently require additional financing to support our working capital needs. The amount of additional capital we require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. Additionally, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions that we consider to be in the best interest of the company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.
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We may be required to raise additional financing by issuing new securities with terms or rights superior to those of our shares of common stock, which could adversely affect the market price of our shares of common stock and our business.
We require additional financing to fund our current operations. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current stockholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and the voting power of shares of our common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities may similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us which could have a material adverse affect on our business.
RISKS RELATED TO THE ENVIRONMENT AND COVID-19
The Pandemic has had, and may continue to have, a materially adverse effect on our business, operations, financial results and liquidity and its duration is unknown.
The Pandemic has had a negative impact on the global economy, including certain industries in the U.S. economy that are primarily focused on retail distribution. We cannot predict the extent and duration of the Pandemic or its economic impact, but we expect the adverse consequences will be substantial. Further, the extent and strength of any economic recovery after the Pandemic abates is uncertain and subject to various factors and conditions. Our business, operations and financial position may continue to be negatively impacted after the Pandemic abates and may remain at depressed levels compared to prior to the outbreak of the Pandemic for an extended period.
Major public health concerns, including the outbreak of epidemic or pandemic contagious disease such as COVID-19, may adversely affect revenue and disrupt financial markets. In the case of COVID-19, revenue at has been adversely affected and financial markets have been disrupted, both of which are likely to continue.
In January 2020, the World Health Organization declared that the COVID-19 outbreak, which began in China and has since spread to other areas, as a global health emergency. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic continues to spread throughout the U.S. and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. The spread of the virus in the U.S. or a similar public health threat, or fear of such an event, may result in (and in the case of the COVID-19 pandemic, has resulted in), among other things, a reduced willingness of patients to visit stores or the shopping centers in which our products are located out of concern over exposure to contagious disease, closed centers, reduced business hours, and a decline in revenue. A prolonged outbreak, resulting in reduced patient traffic and continued disruptions to capital and financial markets, could have (and in case of the COVID-19 pandemic, has resulted in) a material adverse impact on our business, financial condition, results of operations, and the market price of our stock.
Global economic, political, social and other conditions, including the COVID-19 pandemic, may continue to adversely impact our business and results of operations.
The health and wellness industry, can be affected by macro-economic factors, including changes in national, regional, and local economic conditions, unemployment levels and consumer spending patterns, which together may impact the willingness of consumers to purchase our products as they adjust their discretionary spending. Adverse economic conditions may adversely affect the ability of our distributors to obtain the credit necessary to fund their working capital needs, which could negatively impact their ability or desire to continue to purchase products from us in the same frequencies and volumes as they have done in the past. If we experience similar adverse economic conditions in the future, sales of our products could be adversely affected, collectability of accounts receivable may be compromised and we may face obsolescence issues with our inventory, any of which could have a material adverse impact on our operating results and financial condition.
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Additionally, while the extent of the impact on our business and financial condition is unknown at this time, we may be negatively affected by COVID-19 and actions taken to address and limit the spread of COVID-19, such as travel restrictions, event cancellations, and limitations affecting the supply of labor and the movement of raw materials and finished products. If available manufacturing capacity is reduced as a result of the COVID-19, it could negatively affect the timely supply, pricing and availability of finished products. Moreover, we will also be negatively impacted by current and future closures of restaurants, independent accounts, convenience chains, and retail store chains resulting from the COVID-19 outbreak. The current closures of businesses will negatively affect our revenues and cash flows and the future closure of businesses will also adversely impact our business and financial condition.
Overall, the Company does not yet know the full extent of potential delays or impacts on its business, financing activities, or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of third parties on which we rely.
Our business and future operating results may be adversely affected by changes in economic conditions, adverse weather and other unforeseen conditions or events that are beyond our control could materially affect our ability to maintain or increase sales of our products.
Our services emphasize health and wellness, which is generally viewed as a discretionary expenditure. The United States in general or the specific markets in which we operate may suffer from depressed economic activity, recessionary economic cycles, higher fuel or energy costs, low consumer confidence, high levels of unemployment, reduced home values, increases in home foreclosures, investment losses, personal bankruptcies, reduced access to credit or other economic factors that may affect consumer discretionary spending. Negative economic conditions might cause consumers to make long-term changes to their discretionary spending behavior, including reducing health and wellness spending on a permanent basis. In addition, economic conditions in particular areas of the country where we sell our products could have a disproportionate impact on our overall results of operations, and regional occurrences such as local strikes, terrorist attacks, increases in energy prices, adverse weather conditions, pandemics, tornadoes, earthquakes, hurricanes, floods, droughts, power loss, telecommunications failures, fires, the economic consequences of military action and the associated political instability, and the effect of heightened security concerns on domestic and international travel and commerce, or other natural or man-made disasters could materially adversely affect our business, financial condition and results of operations.
Severe weather may have an adverse effect on our product distribution. Flooding caused by rising sea levels and severe weather events, including hurricanes, tornadoes and widespread fires have had and may have in the future an adverse effect on our distribution and result in significant losses to us and interruption of our business. When major weather or climate-related events occur, we may have to stop distribution of our products and close or limit the product distribution until the event has ended. We may incur significant costs and losses as a result of these activities, both in terms of operating and distribution, in anticipation of, during, and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in distribution. Our insurance may not adequately compensate us for these costs and losses.
Further, concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs to increase. In the long-term, we believe any such increased operating costs will be passed through and paid by our participants in the form of higher charges for our products. However, in the short-term, these increased costs, if material in amount, could adversely affect our financial condition and results of operations and cause the value of our securities to decline.
Climate change may negatively affect our business.
There is growing concern that a gradual increase in global average temperatures may cause an adverse change in weather patterns around the globe resulting in an increase in the frequency and severity of natural disasters. While warmer weather has historically been associated with increased sales of our products, changing weather patterns could have a negative impact on agricultural productivity, which may limit availability or increase the cost of certain key ingredients such as sugar cane, natural flavors and supplements used in our products. Also, increased frequency or duration of extreme weather conditions may disrupt the productivity of our facilities, the operation of our supply chain or impact demand for our products. In addition, the increasing concern over climate change may result in more regional, federal and global legal and regulatory requirements and could result in increased production, transportation and raw material costs. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.
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RISKS RELATED TO INFORMATION TECHNOLOGY, CYBERSECURITY AND DATA PRIVACY
If we fail to properly maintain the integrity of our data or to strategically implement, upgrade or consolidate existing information systems, our reputation and business could be materially adversely affected.
We may use electronic means to interact with our customers and collect, maintain and store individually identifiable information, including, but not limited to, personal financial information and health-related information. Despite the security measures we have in place to ensure compliance with applicable laws and rules, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of cyber terrorism, vandalism or theft, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Additionally, the collection, maintenance, use, disclosure and disposal of individually identifiable data by our businesses are regulated at the federal and state levels as well as by certain financial industry groups, such as the Payment Card Industry organization. Federal, state and financial industry groups may also consider from time to time new privacy and security requirements that may apply to our businesses. Compliance with evolving privacy and security laws, requirements, and regulations may result in cost increases due to necessary systems changes, new limitations or constraints on our business models and the development of new administrative processes. They also may impose further restrictions on our collection, disclosure and use of individually identifiable information that is housed in one or more of our databases. Noncompliance with privacy laws, financial industry group requirements or a security breach involving the misappropriation, loss or other unauthorized disclosure of personal, sensitive and/or confidential information, whether by us or by one of our vendors, could have material adverse effects on our business, operations, reputation and financial condition, including decreased revenue; material fines and penalties; increased financial processing fees; compensatory, statutory, punitive or other damages; adverse actions against our licenses to do business; and injunctive relief whether by court or consent order.
If our security systems are breached, we may face civil liability and public perception of our security measures could be diminished, either of which would negatively affect our ability to attract and retain patients.
We rely on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and our internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of our business processes, including managing our building systems, financial transactions and maintenance of records, which may include personally identifiable information or protected health information of customers. If we or our third party vendors experience material security or other failures, inadequacies or interruptions, we could incur material costs and losses and our operations could be disrupted. We take various actions, and incur significant costs, to maintain and protect the operation and security of our information technology and systems, including the data maintained in those systems. However, these measures may not prevent the systems’ improper functioning or a compromise in security.
Techniques used to gain unauthorized access to corporate data systems are constantly evolving, and we may be unable to anticipate or prevent unauthorized access to data pertaining to our patients, including credit card and debit card information and other personally identifiable information. Our systems, which are supported by our own systems and those of third-party vendors, are vulnerable to computer malware, trojans, viruses, worms, break-ins, phishing attacks, denial-of-service attacks, attempts to access our servers in an unauthorized manner, or other attacks on and disruptions of our and third-party vendor computer systems, any of which could lead to system interruptions, delays, or shutdowns, causing loss of critical data or the unauthorized access to personally identifiable information. If an actual or perceived breach of security occurs on our systems or a vendor’s systems, we may face civil liability and reputational damage, either of which would negatively affect our ability to attract and retain patients. We also would be required to expend significant resources to mitigate the breach of security and to address related matters.
We may not be able to effectively control the unauthorized actions of third parties who may have access to the customer data we collect. Any failure, or perceived failure, by us to maintain the security of data relating to our patients and employees, and to comply with our posted privacy policy, laws and regulations, rules of self-regulatory organizations, industry standards and contractual provisions to which we may be bound, could result in the loss of confidence in us, or result in actions against us by governmental entities or others, all of which could result in litigation and financial losses, and could potentially cause us to lose patients, revenue and employees.
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Security breaches, computer viruses, attacks by hackers, and online fraud schemes can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information. The cybersecurity risks to us and our third-party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities against us, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in our or third parties’ information technology networks and systems or operations. Any failure by us or our third party vendors to maintain the security, proper function and availability of information technology and systems could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.
Our business and operations would be adversely impacted in the event of a failure or interruption of our information technology infrastructure or as a result of a cybersecurity attack.
The proper functioning of our own information technology (IT) infrastructure is critical to the efficient operation and management of our business. We may not have the necessary financial resources to update and maintain our IT infrastructure, and any failure or interruption of our IT system could adversely impact our operations. In addition, our IT is vulnerable to cyberattacks, computer viruses, worms and other malicious software programs, physical and electronic break-ins, sabotage and similar disruptions from unauthorized tampering with our computer systems. We believe that we have adopted appropriate measures to mitigate potential risks to our technology infrastructure and our operations from these IT-related and other potential disruptions. However, given the unpredictability of the timing, nature and scope of any such IT failures or disruptions, we could potentially be subject to downtimes, transactional errors, processing inefficiencies, operational delays, other detrimental impacts on our operations or ability to provide products to our participants, the compromising of confidential or personal information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We do not currently own any property and we currently have no investment policies as they pertain to real estate, real estate interests or real estate mortgages.
Item 3. Legal Proceedings
Mycell litigation
On June 3, 2019, the Company filed a lawsuit against PIT Mycell, LLC, William E. Peterson III, New Age Ventures, LLC, Volker Berl, and Mycell Technologies, LLC (“Mycell”) in the Superior Court in Bergen County, New Jersey, Civil Action No. BER-L-004198-19, in which the Company seeks to require the defendants to perform under and allow the enforcement of certain notes made by Mycell and acquired by the Company in September 2017. The notes are past their stated maturity date of December 31, 2016. The Company also alleges that the parties had entered into a written Settlement Agreement Letter of Intent dated March 14, 2019 (the “Settlement”), but that the defendants repudiated it shortly thereafter. The notes had been the subject of an earlier lawsuit in Virginia in state court in Fairfax County between the Company and PIT Mycell, LLC that the Settlement was intended to resolve. The Company seeks to enforce the notes and the Settlement in the New Jersey lawsuit and requests actual damages in an amount to be proven at trial, attorneys’ fees and litigation costs, specific performance requiring certain defendants to enforce obligations under the notes against Mycell, specific performance requiring the defendants to execute a final Settlement Agreement consistent with the Settlement, an order permitting foreclosure on the collateral for the notes, and declaratory relief. On January 24, 2020, the New Jersey court denied Defendant’s Motions to dismiss the case. The parties have engaged in written discovery and exchanged productions of documents. Mycell filed for bankruptcy on November 25, 2020. The bankruptcy is completed and the Company no longer has a claim on the new company that has since emerged from bankruptcy.
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Everlast Litigation
On January 11, 2019, the Company filed a lawsuit against Everlast World’s Boxing Headquarters Corp. (“Everlast”). This action involves Everlast’s attempts to prevent the Company from exercising its right to terminate a License Agreement between the parties pursuant to which Trident had the right to market certain Everlast-branded products.
On January 17, 2019, Everlast World’s Boxing Headquarters Corp. (“Everlast”) filed a counter civil lawsuit against the Company and other defendants. In that lawsuit, Everlast seeks payment from the defendants under a License Agreement dated June 4, 2013, for $425,555 in unpaid royalties allegedly due and owing under the License Agreement and interest on the allegedly unpaid royalties of $96,265, which interest allegedly continues to accrue. Everlast has also sought all costs, expenses, and legal fees incurred by Everlast in collecting monies that it claims are due under the License Agreement. On February 26, 2020, the court in the Everlast matter issued an Opinion and Order granting a motion to dismiss all of the Company’s claims against Everlast and granting a motion for judgment on the pleadings as to liability against the Company. The Court left open the question of damages to be awarded to Everlast. The Company has requested that the parties participate in settlement discussions before a magistrate judge or, in the alternative, that Everlast engage in limited discovery on these matters. No settlement was reached. On October 15, 2020, the Court in the Everlast case ordered, adjudged and decreed that Plaintiff Everlast have judgment and recover a total of $738,946 from the Company as follows:
1. $425,000 representing royalty payments due to Everlast;
2. Interest on royalty payments computed through October 15, 2020, in the sum of $242,920;
3. Costs and attorneys’ fees in the sum of $71,026
The Company has fully accrued the $738,946 liability as of November 30, 2021.
The Clerk of Court was directed to close the case. The Company did not appeal the judgement.
On November 17, 2021, The Company entered Into a Stipulation of Settlement (“Settlement Agreement”) of the litigation captioned Everlast World’s Boxing Headquarters Corp. (“Everlast”) , Plaintiff vs. Trident Brands, Inc. and Manchester Capital Inc., Defendants, Case No. 21 Tj 90. Under the terms of the Settlement Agreement, the Company agreed to pay Everlast on or before February 15, 2022, the sum of $650,000 in full satisfaction of the Everlast’s judgment against the Company in the amount of $738,946. Under the Settlement Agreement, except for the first $250,000 of capital raised, the Company is required to pay Everlast 20% of the gross amount of any capital raising transaction, until the full $650,000 is paid, provided however that the full $650,000 was required to have been paid no later than February 15, 2022.
The Company failed to pay Everlast the full $650,000 by February 15, 2022, as a result of which, the Company is obligated to pay Everlast the judgment amount of $738,945, plus applicable interest (a total of $750,713 as of August 21, 2021) and attorney’s fees, less any payments made.
On December 1, 2020, Bank of America Leasing and Capital, LLC filed a legal action against the Company in the Superior Court for the State of California, County of San Mateo (Case NO. 20-CIV-05306), alleging breach of contract. The claim arises out of a software services contract between the Company and Oracle Corporation. Bank of America Leasing and Capital, LLC acquired Oracle’s rights under the agreement. The plaintiff claims the Company is liable for damages in the amount of $217,000 plus interests and costs. The Company has not filed an answer to this complaint. On February 22, 2021, the plaintiff requested that the Court enter a default judgment against the Company. The Company intends to engage counsel and defend against this claim.
Item 4. Mining Safety Disclosures
None.
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Part II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Since July 8, 2013 our shares began trading under the symbol “TDNT”.
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| 2021 |
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| 2020 |
| ||||||||||
|
| High |
|
| Low |
|
| High |
|
| Low |
| ||||
First Quarter |
| $ | 0.100 |
|
| $ | 0.033 |
|
| $ | 0.500 |
|
| $ | 0.250 |
|
Second Quarter |
| $ | 0.076 |
|
| $ | 0.048 |
|
| $ | 0.348 |
|
| $ | 0.160 |
|
Third Quarter |
| $ | 0.062 |
|
| $ | 0.031 |
|
| $ | 0.288 |
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| $ | 0.031 |
|
Fourth Quarter |
| $ | 0.047 |
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| $ | 0.031 |
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| $ | 0.150 |
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| $ | 0.033 |
|
The foregoing over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
The OTCQB is a regulated quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter (OTC) securities. The OTC is not an issuer listing service, market or exchange. Although the OTC market does not have any listing requirements per se, to be eligible for quotation on the OTC market, issuers must remain current in their filings with the SEC or applicable regulatory authority. Market Makers are not permitted to begin quotation of a security whose issuer does not meet this filing requirement. Securities already quoted on the OTC market that become delinquent in their required filings will be removed following a grace period if they do not make their required filing during that time.
As of November 30, 2021, we had 33,311,887 Shares of $0.001 par value common stock issued and outstanding held by 61 shareholders of record.
Of the 33,311,887 shares of common stock outstanding as of November 30, 2021, 8,441,724 shares are owned by Anthony Pallante, Chair of the Board, and 1,000,000 shares are owned by Michael Friedman, CEO, President and Director, and may only be resold in compliance with Rule 144 of the Securities Act of 1933. The stock transfer agent r our securities is Action Stock Transfer.
Dividends
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.
Section Rule 15(g) of the Securities Exchange Act of 1934
The Company’s shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser’s written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as “bid” and “offer” quotes, a dealers “spread” and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; and the customers rights and remedies in causes of fraud in penny stock transactions.
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Recent Sales of Unregistered Securities
There were no sales of unregistered securities in the last three fiscal years.
Securities authorized for issuance under equity compensation plans
As of November 30, 2021, we have issued the following securities under our 2013 Stock Option Plan:
Name and Position | Number of Options | Date of Grant | Exercise price | Expiration | Vesting from date of Grant | |
1.
| Scott Chapman former President, Director, Chair of Corporate Governance Committee |
150,000 150,000 |
Dec 6, 2017 Dec 6, 2017 |
$0.40 $0.40 |
Dec 6, 2022 Dec 6, 2022 |
Immediate 12 months |
2.
| Peter Salvo Controller | 75,000 75,000 | Dec 6, 2017 Dec 6, 2017 | $0.40 $0.40 | Dec 6, 2022 Dec 6, 2022 | Immediate 12 months |
3. | Anthony Pallante Director, Chairman of the Board | 375,000 375,000 | Dec 6, 2017 Dec 6, 2017 | $0.40 $0.40 | Dec 6, 2022 Dec 6, 2022 | Immediate 12 months
|
4. | Brad Caistor
| 150,000 150,000 | Dec 6, 2017 Dec 6, 2017 | $0.40 $0.40 | Dec 6, 2022 Dec 6, 2022 | Immediate 12 months |
5. | Landon McCluskey
| 16,250 16,250 | Dec 6, 2017 Dec 6, 2017 | $0.40 $0.40 | Dec 6, 2022 Dec 6, 2022 | Immediate 12 months |
| Total: | 1,532,500 |
Scott Chapman’s options expired on April 14, 2022.
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Section 16(a)
Based solely upon a review of Forms 3 and 4 furnished by us under Rule 16a-3(d) of the Securities Exchange Act of 1934, we are not aware of any individual who failed to file a required report on a timely basis required by Section 16(a) of the Securities Exchange Act of 1934.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Financial Information
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section provides analysis of our operations and financial position for the fiscal year ended November 30, 2021 and includes information available up to April 14, 2022, unless otherwise indicated herein. It is supplementary information and should be read in conjunction with the Consolidated Financial Statements included elsewhere in this report.
Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as “anticipate”, “estimate”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, or other similar expressions concerning matters that are not historical facts. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.
Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking statements are also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors are more fully described in the “Risk Factors” section at Item 1A of this Form 10-K.
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Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on our experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes. The following are the accounting estimates which we believe to be most important to our business.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivables are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible amounts as necessary.
Inventory
Inventory is our largest current asset other than cash and consists primarily of raw materials and finished goods held for sale. Inventories are valued at the lower of cost, measured on a first-in, first out basis, or estimated net realizable value. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. These factors include the age of inventory, the amount of inventory held by type, future demand for products, and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, expected business plans, and expected market conditions. As a result, the actual amount received on sale could differ from our estimated value of inventory.
Long-Lived Assets
We review our long-lived assets, to include intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as “the asset”) may not be recoverable. Such circumstances include, but are not limited to:
| · | a significant decrease in the market price of the asset; |
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|
|
| · | a significant change in the extent or manner in which the asset is being used; |
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|
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| · | a significant change in the business climate that could affect the value of the asset; |
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| · | a current period loss combined with projection of continuing loss associated with use of the asset; and |
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| · | a current expectation that, more likely than not, the asset will be sold or otherwise disposed of before the end of its previously estimated useful life. |
We continually evaluate whether such events and circumstances have occurred. When such events or circumstances exist, the recoverability of the asset’s carrying value shall be determined by estimating the undiscounted future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset. In FY2021, the Company booked an impairment charge for the full value of the Brain Armor trademark.
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Revenue Recognition
We recognize revenue at the time of delivery of the product and when all of the following have occurred: a sales agreement is in place; the performance obligations of the agreement has been identified; the transaction price has been determined; the transaction price has been allocated to the performance obligations; and when each performance obligation is satisfied. Agreed trading terms with customers such as value incentives, rebates, early payment discounts and other discounts are recorded as reductions to revenues at the time of sale.
Cost of Sales
Cost of sales includes the direct purchase cost of the product based on the FIFO method.
Stock-Based Compensation
We maintain a stock incentive plan under which stock options and other stock-based awards may be granted to selected officer, directors and service providers. For grants of stock options, we are required to estimate a number of inputs at each grant date, such as the estimated life of the option, future stock price volatility, and the forfeiture rate used in the Black-Scholes option-pricing model to determine a fair value for the options granted to employees or non-employee directors. Once determined at the grant date, the fair value of the stock option award is recorded over the vesting period of the options granted.
Income Taxes
We are liable for income taxes in jurisdictions where we operate. Our effective tax rate may differ from the statutory tax rate and will vary from year to year primarily as a result of any permanent differences, investment and other tax credits, as well as the provision for income taxes at different rates in various jurisdictions. In making an estimate of our income tax liability, we first assess which items of income and expense are taxable in a particular jurisdiction. This process involves a determination of the amount of taxes currently payable as well as the assessment of the effect of temporary timing differences resulting from different treatment of items for accounting and tax purposes. These differences in the timing of the recognition of income or the deductibility of expenses may result in deferred income tax balances that are recorded as assets or liabilities as the case may be on our balance sheet. We also estimate the amount of valuation allowance to maintain relating to loss carry forwards and other balances that can be used to reduce future taxes payable. We assess the likelihood of the ultimate realization of these tax assets by looking at the relative size of the tax assets in relation to the profitability of the businesses and the jurisdiction to which they can be applied, the number of years based on management’s estimate it will take to use the tax assets and any other special circumstances. Given our history of operating losses we have taken a valuation allowance to offset the potential future value of loss carry-forwards.
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Results of Operations for the Fiscal Years Ended November 30, 2021 and November 30, 2020
The following summary of our results of operations should be read in conjunction with our audited financial statements for the fiscal years ended November 30, 2021 and 2020.
Our operating results for years ended November 30, 2021 and 2020 are summarized as follows:
|
| Year Ended |
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| Year Ended |
| ||
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| Nov 30, |
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| Nov 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
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|
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| ||
Revenues |
| $ | 224,720 |
|
| $ | 872,923 |
|
Gross Profit |
| $ | 103,673 |
|
| $ | 244,122 |
|
Operating Expenses |
| $ | 2,126,544 |
|
| $ | 4,571,077 |
|
Impairment Loss |
| $ | 400,000 |
|
| $ | - |
|
Other Income/(Expenses) |
| $ | (663,605 | ) |
| $ | (1,068,237 | ) |
Net Loss |
| $ | (3,086,476 | ) |
| $ | (5,395,192 | ) |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
Interest Expense and loss on debt extinguishment |
| $ | 798,770 |
|
| $ | 5,390,575 |
|
Depreciation and Amortization |
| $ | - |
|
| $ | 4,413 |
|
Impairment Loss |
| $ | 400,000 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | (1,887,706 | ) |
| $ | (204 | ) |
|
|
|
|
|
|
|
|
|
Add (deduct): |
|
|
|
|
|
|
|
|
Stock Options Expense |
| $ | - |
|
| $ | - |
|
Derivative Loss (Gain) |
| $ | - |
|
| $ | (4,312,338 |
|
Adjusted EBITDA |
| $ | (1,887,706 | ) |
| $ | (4,312,542 | ) |
Revenues and Gross Profits
Revenues decreased 74% in 2021 to $224,720 versus $872,923 in the prior year. The decrease was the result of our inability to fulfill various purchase orders due to being out of stock (OOS) of certain products, as a result of not having sufficient capital to purchase inventory. Gross profit decreased to $103,673 (46.1% of revenues) versus $244,122 (28.0% of revenues) in the prior period. We expect revenue to continue to decrease, unless and until we receive additional funding and secure needed inventory, at which time we expect our revenues to gradually recover. In addition, we intend to continue to look for distribution and supply chain partners to lower our costs.
Operating Expenses
Our operating expenses for the years ended November 30, 2021 and 2020 are outlined in the table below:
|
| 2021 |
|
| 2020 |
| ||
Professional Fees |
| $ | 241,608 |
|
| $ | 694,842 |
|
General & Administrative Expenses |
| $ | 1,367,447 |
|
| $ | 2,545,105 |
|
Marketing, Selling & Warehousing Expenses |
| $ | 323,180 |
|
| $ | 1,129,665 |
|
Management Salary |
| $ | 188,000 |
|
| $ | 152,000 |
|
Rent |
| $ | 6,309 |
|
| $ | 49,465 |
|
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| Table of Contents |
Operating expenses for the year ended November 30, 2021 were $2,126,544 as compared to $4,571,077 for the comparative period in 2020, a decrease of 53.5%. The decrease in our operating expenses was primarily due to our efforts to reduce costs. Subject to receipt of additional funding, management expects operating expenses to increase as revenue is expected to gain traction and market conditions normalize.
The Company incurred an impairment loss of $400,000 in 2021 as a result of writing off the book value of the Brain Armor Trademark
Other Income (Expenses)
Other income/(expenses) for the year ended November 30, 2021 were $(663,605) versus $(1,068,237) in the comparative period in 2020, an improvement of 37.9%. The decrease in expenses was due primarily to a decrease in interest expense of $3,499,510 offset by a gain on debt forgiveness of $125,165. In the prior year there was a derivative gain of $4,312,338 and loss on debt extinguishment of $1,092,295 that did not occur in 2021 which contributed to a net change of expenses of ($3,220,043). Management expects interest expenses to remain the same.
Liquidity and Capital Resources
Our cash and cash equivalents balance at November 30, 2021 was $7,653. As of April 7, 2022, we had $7,164 of cash on hand. The current funds available to the company are not sufficient to fund our near term operations . The Company has an urgent need for additional capital, without which, the Company is unlikely to continue as a going concern.
Historical Convertible Note Financings
On January 29, 2015, we entered into a securities purchase agreement with a non-US institutional investor whereby we agreed to sell an aggregate principal amount of $2,300,000 of senior secured convertible debentures, convertible into shares of the Company’s common stock. We received $1,800,000 of the funds from the transaction on February 5, 2015 and the balance of $500,000 on May 14, 2015. On September 26, 2016, we entered into a Convertible Promissory Note Amendment Agreement with this investor whereby we agreed to extend the maturity date and amend the interest payable on the senior secured convertible debentures, whereby we extended the term of the notes through September 30, 2019 and interest rate was increased from 6% per annum to 8% per annum. The convertible debentures are convertible into shares of the Company’s common stock at an initial conversion price of $0.71 per share for an aggregate of up to 3,239,437 shares.
| 34 |
| Table of Contents |
On September 26, 2016, we entered into a Securities Purchase Agreement with a non-US institutional investor pursuant to which, in consideration for proceeds of $4,100,000, we issued a secured convertible promissory note in the amount of $4,100,000. Pursuant to the Securities Purchase Agreement, the investor has agreed, from time to time after January 1, 2017, to make additional investments at our request of up to $5,900,000 ($10,000,000 in the aggregate) in one or more tranches of not less than one tranche during any 60 day period. The funding of any tranche under the agreement (other than the first $4,100,000 which has been funded) was subject to the mutual agreement of the parties as to the use of funds. The parties have agreed to negotiate in good faith to pre-approve use of funds within 120 days following September 26, 2016. On May 9, 2017, the Company received the second tranche of funding with proceeds of $4,400,000 and on May 16, 2018 the third tranche of funding with proceeds of $1,500,000 for a total investment by the investor of $10,000,000. In consideration of each advance made by the investor pursuant to the Securities Purchase Agreement, we issued to the investor a convertible promissory note of equal value, maturing three years after issuance, and bearing interest at the rate of 8% per annum. Each note was secured in first priority against the present and after acquired assets of the Company, and was convertible in whole or in part at the option of the holder into common shares of the Company at a conversion price per share of $.60, equal to a 25% discount to the 10 day average closing price of the Company’s common stock for the period immediately preceding the issuance of the applicable note.
On November 30, 2018 the Company and Fengate entered into a Securities Purchase Amendment Agreement (‘SPA”) pursuant to which the Company agreed to issue to Fengate additional convertible promissory notes (collectively, the “2018 and 2019 Convertible Notes”) of up to $10,000,000, subject to certain terms and conditions. Each portion of the principal amount advanced pursuant to the SPA bore interest at the rate of twelve percent (12%) per annum and was payable monthly in arrears to Fengate. Outstanding principal and interest continued to be secured by the general security agreement dated September 26, 2016, which forms a part of the Agreement. The holder of the note may also elect from time to time to convert all or a portion of the outstanding principal and interest into common shares of the Company at a 25% discount to the average closing price of the common shares during the 10 trading days immediately prior to the applicable conversion date. The 2018 and 2019 Convertible Notes (aka “Amended SPA Notes”) were extended until December 1, 2021. The Maturity Date of the Amended SPA Notes was extended to November 30, 2025, as described below.
On November 30, 2018 the Company received the first tranche of funding with proceeds of $3,400,780. The 2nd tranche of $2,804,187 was received on April 13, 2019. The 3rd tranche of $3,795,033 less $936,168 withheld for withheld for interest payments up to and including June 30, 2020 was received on November 6, 2019. On March 5, 2020, the 2018 and 2019 Convertible Notes were amended to increase the amount of the 3rd tranche by $936,168 representing the amount previously withheld as interest payment. The withheld interest was subsequently received on March 12, 2020.The Company used the proceeds of the secured convertible note for general working capital purposes including, without limitation, product development, inventory, and marketing and selling expenses.
Agreement to Restructure Convertible Notes
On November 30, 2020 (“Effective Date”), the Company entered into that certain Fourth Amendment to Convertible Promissory Notes (“Fourth Amendment”), with Fengate, the holder of the Notes (the “Note Holder”).
By way of background, immediately prior to the Effective Date, the Company was indebted to the Note Holder in the aggregate principal amount of $22.3 million as follows: $12.3 million (the “2016 Convertible Notes”) and $10 million (the “Amended SPA Notes”). In addition, the Company owed aggregate accrued interest of $5,359,392 on the 2016 Convertible Notes and the Amended SPA Notes.
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Conversion of $17.7 million of Indebtedness into Company Equity
In connection with the Fourth Amendment, the Note Holder has agreed to convert aggregate principal and accrued interest of $17,659,392 into equity of the Company, as more fully described below.
As of the Effective Date, the Company and Note Holder have agreed that the Company will issue the Note Holder 29,432,320 shares of Company Preferred Stock in full and complete satisfaction of (i) all amounts owing under the 2016 Convertible Notes through November 30, 2021 (including accrued interest thereon) and (ii) all accrued interest on the Amended SPA Notes through November 30, 2021. This transaction represents the conversion of aggregate principal and accrued interest of $17,659,392 into Preferred Stock at the rate of $.60 per share. The $17,659,392 is comprised of $12.3 million of principal owing under the 2016 Convertible Notes and all accrued interest owing under both the 2016 Convertible Notes and the Amended SPA Notes (an aggregate of $5,359,392).
Under the terms of the Fourth Amendment, the Preferred Stock shall be (i) voting shares, with the same voting rights as common shares, except the Preferred Stock shall have no vote in respect of election of directors, (ii) entitled to such dividends as the Board of Directors of the Company may in its discretion declare (and no dividends may be declared on the Company’s other classes of shares unless a dividend is declared on the Preferred Stock), (iii) have a preference in liquidation ahead of all other classes of Company shares, (iv) be entitled upon a sale of the Company (to be further defined in definitive agreements) to receive the consideration that would be payable in respect of that number of shares of common stock of the Company equal to the number of shares of Preferred Stock (on a one-for one basis with the Company common stock), and (v) otherwise on such other terms and conditions as are mutually agreeable and not inconsistent with the foregoing.
The consummation of the foregoing transaction is subject to (i) authorization and issuance of the Preferred Stock, which is subject to approval of the requisite number of common shares of the Company, in accordance with Nevada law and the Company’s organizational documents, and (ii) Note Holder’s obligation to remain in compliance with regulations governing its ownership of voting shares.
The Company and Note Holder had previously undertaken to consummate the foregoing transactions no later than June 30, 2021.On March 29, 2022, the Board of Directors approved an amendment to our Certificate of Incorporation which authorizes 29,432,230 shares of Company Preferred Stock. On March 30, 2022, more than a majority in interest of our common shares by written consent approved such amendment to our Certificate of Incorporation. The Company expects to consummate this transaction May 30, 2022.
Amendment of Terms of $10 million Amended SPA Notes
The Fourth Amendment also amends the Amended SPA Notes (aggregate principal amount of $10 million) as of the Effective Date, as follows:
| 1. | Interest Rate. The interest rate per annum in respect of outstanding principal under the Amended SPA Notes shall be eight (8%) percent computed on a simple interest basis. |
|
|
|
| 2. | Interest Payments. |
| a. | Interest on unpaid principal of the Amended SPA Notes ($10 million) with respect to the period of December 1, 2020 through November 30, 2021 may be paid by the Company in kind by issuing a non-interest bearing note (a “PIK Note”) in the amount of $800,000 on November 30, 2021 with a maturity date of November 30, 2025. If no PIK Note is issued on such date, accrued and unpaid principal shall be payable in cash. |
|
|
|
| b. | Interest on unpaid principal of the Amended SPA Notes with respect to the period of December 1, 2021 through November 30, 2022 may be paid by the Company in kind by issuing a PIK Note in the amount of $800,000 on November 30, 2022 with a maturity date of November 30, 2025. If no PIK Note is issued on such date, accrued and unpaid principal shall be payable in cash. |
|
|
|
| c. | The PIK Notes issued by the Company pursuant to the previous two paragraphs shall be in the form attached to the Securities Purchase Agreement dated as of September 26, 2016, as amended, pursuant to the which the Amended SPA Notes were issued, subject to revisions necessary to make such PIK Notes non-convertible and non-interest bearing. |
|
|
|
| d. | Interest on unpaid principal with respect to the period of December 1, 2022 through November 30, 2025 shall be payable quarterly in arrears commencing February 28, 2023. |
| 3. | Termination of Conversion Feature. The convertibility of the Amended SPA Notes is terminated. |
|
|
|
| 4. | Extension of Maturity Date. The Maturity Date of the Amended SPA Notes is extended to November 30, 2025. |
Except as modified by the Fourth Amendment, the Notes, as previously amended, remain in full force and effect.
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On May 28, 2020, we obtained a $135,165 unsecured loan payable through the Paycheck Protection Program (“PPP”), which was enacted as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES ACT”). The funds were received from Bank of America through a loan agreement pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act and used for payroll costs, rent, mortgage interest, and utility costs during the 24 week period after the date of loan disbursement is eligible to be forgiven provided that (a) we use the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. While the full loan amount may be forgiven, the amount of loan forgiveness will be reduced if, among other reasons, we do not maintain staffing or payroll levels or less than 60% of the loan proceeds are used for payroll costs. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred to the date the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.
On June 17, 2021, the Small Business Administration (SBA) approved the Company’s PPP loan forgiveness application for the full amount of $135,165.
Working Capital Deficiency and Need for Additional Capital
As of November 30, 2021, we had a working capital deficit of approximately $8.9 million, compared to a deficit of approximately $6.4 million as of November 30, 2020 The approximate $2.5 million increase in working capital deficit was due primarily to a $1.9 million increase in accrued liabilities.
As disclosed under Item 3. Legal Proceedings, a judgment was entered against us in the Everlast matter in the amount of approximately $740,000, which has grown to $750,713, as of August 2021. In addition, the plaintiff in the Oracle matter has requested a default judgment against us. Accordingly, the Company is currently obligated to pay Everlast approximately $751,000 not including interest accrued since August 2021 and could be liable to pay Oracle at least $217,000 if the court enters a default judgment, in which case, the Company would be liable for in excess of $1 million in judgments, in the aggregate. If the Company is compelled to pay these liabilities, there would be a material adverse effect on the financial condition of the Company.
As of April 14, 2022, we had only minimal cash on hand, and consequently, we are unable to implement our current business plan. Accordingly, we have an immediate need for additional capital to fund our operating activities. COVID-19 has thus far adversely affected our revenues and our ability to raise additional capital, so there is no assurance we will be able to grow our business or raise sufficient additional capital on acceptable terms or at all.
In order to remedy this liquidity deficiency, we are actively seeking to raise additional funds through the sale of equity and/or debt securities, and ultimately, we will need to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to realize additional revenues from the sale of our products and services. As previously stated, our operations are generating negative cash flows, and thus adversely affecting our liquidity. If we are unable to raise additional funds in the near term, we will not be able to implement our business plan, in which case there would be a material adverse effect on our results of operations and financial condition.
In the event we do not generate sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we will be unable to implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should we be unable to recover the value of our assets or satisfy our liabilities.
Based on our limited availability of funds we expect to spend minimal amounts on product development, sales and marketing and capital expenditures. We expect to fund any future product development expenditures through a combination of cash flows from operations and proceeds from equity and/or debt financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our product development expenditures, in which case, there could be material and adverse effect on our business and results of operations.
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| Table of Contents |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company we are not required to provide this information.
Item 8. Financial Statements
Our Consolidated Financial Statements required by this item are set forth immediately following the signature page to this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Financial Disclosure
None.
Item 9A (T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting described below in “Management’s Internal Control Over Financial Reporting”. However, the material information required to be included in our Securities and Exchange Commission reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared.
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| Table of Contents |
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of November 30, 2021, based on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under this framework, management concluded that our internal control over financial reporting was not effective as of November 30, 2021 and identified the following material weaknesses:
Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.
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| Table of Contents |
Management is committed to improving its internal controls and (1) will use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) will increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.
Management has discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter for our fiscal year ended November 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
| 40 |
| Table of Contents |
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following sets forth information about our directors and executive officers as of the date of this report:
NAME |
| AGE |
| POSITION |
Michael Friedman(1) |
| 44 |
| Chief Executive Officer, President and Director. |
Anthony Pallante(2) |
| 64 |
| Director and Chair of the Board of Directors. |
Scott Chapman(3) |
| 58 |
| Director, Chair of the Corporate Governance Committee and Chair of the Compensation Committee |
Richard Russell(4) |
| 61 |
| Director, Chair of the Audit Committee |
Pamela Andrews(5) |
| 47 |
| Managing Director, Brain Armor Inc. |
Peter Salvo(6) |
| 67 |
| VP Finance, Controller and Secretary. |
(1) | Michael Friedman was appointed CEO, President and Director on September 27, 2021. |
|
|
(2) | Anthony Pallante was appointed CEO, Director and Chair of the Board of Directors on December 2, 2016. |
| |
(3) | Scott Chapman was appointed as President on June 1, 2019. He was appointed as Chair of the Audit Committee on December 2, 2016 and as a Director and Chair of the Governance Committee of our company on March 21, 2014. On January 14, 2022, Scott Chapman resigned as a Director of the Company. |
| |
(4) | Richard Russell was appointed as a Director of our company on March 1, 2020 and serves as Chair of the Audit Committee. |
| |
(5) | Pamela Andrews was appointed Managing Director, Brain Armor on September 24, 2020. |
| |
(6) | Peter Salvo was appointed as a Controller of our company on March 21, 2014 and assumed the positions of Principle Financial Officer and Principal Accounting Officer on June 1, 2019. |
Our directors will serve in that capacity until our next annual shareholder meeting or until their successor is elected or appointed and qualified. Officers hold their positions at the will of our Board of Directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.
| 41 |
| Table of Contents |
Michael Friedman, LLM (Taxation), JD Chief Executive Officer, President and Director
Since November 2003, Mr. Friedman was the Founder, Chairman and CEO of Fresh Harvest Products, Inc. (now known as Innovative MedTech, Inc., OTC: IMTH). As of April 2022, Mr. Friedman is the CEO, President and a Director of IMTH. Mr. Friedman has been an advisor, Board of Director Member, and chief financial officer for multiple companies in several industries, primarily focusing on CPG, media and technology. Mr. Friedman is co-Founder and CEO of Treat Holdings, LLC which developed the TreatER mobile application which is available on the Apple App Store and directs users to the nearest urgent care or emergency room. Mr. Friedman received a Master of Laws in Taxation (LL.M.) and a Juris Doctor (JD) from New York Law School.
Anthony Pallante, Director and Chair of the Board of Directors
Mr. Anthony M. Pallante is the Founder and Principal of Manchester Capital Inc. and has served as its Chairman and Chief Executive Officer for over 25 years. Mr. Pallante served as our Chief Executive Officer from December 2, 2016 to September 27, 2021. Prior to Manchester Capital, Mr. Pallante served as a Senior Vice President and Officer at Cott Beverages. Prior to Cott, he served as the President and Principal of Exclusive Beverage, the Ontario Royal Crown Cola franchise, which he sold to Cott. He holds a Bachelor of Arts from York University in Toronto and is active in various local and community charities.
Richard Russell,
Director, and Chair of the Audit Committee.
Since November 2017, Mr. Russell has served as Chief Financial Officer of LM Funding America, Inc., a Florida based Nasdaq listed technology-based specialty finance company offering unique funding solutions to community associations. As of November 2020, he is also Chief Financial Officer and board member of LMF Acquisition Opportunities Inc. (a special purpose acquisition corporation focused on acquiring a financial technology or services company). From December 2019 through February 2022, Mr. Russell served as Chief Financial Officer of Generation Income Properties Inc., a Florida based real estate investment company quoted on the Nasdaq. From August 2016 to April 2021, Mr. Russell was a Board Member of the Hillsborough County Internal Audit Commission, of which he was appointed Chairman in January 2020. From September 2013 to December 2016, Mr. Russell served as Chief Financial Officer of Mission Health Communities, a skilled nursing company with 32 skilled and assisted living facilities in Florida. From 2007 – 2013, Mr. Russell was the Sr. Director Corp. Finance - Sr. Director - Head of Internal Audit - Assistant Corporate Controller of Cott Corporation, a large public international manufacturing beverage company headquartered in Florida.
Pamela Andrews, Managing Director, Brain Armor Inc.
With a career spanning over 25 years, Pamela Andrews has been a noteworthy leader in the CPG space. With roots at P&G and Estee Lauder, she made a move to the ‘start-up’ space as one of the initial team members at Ascenta Health in July 2006 where she was the Director of Strategic Partnerships. Ascenta was a pioneer in the Omega-3 category and quickly became a market leader in a very short span of time. When Ascenta Health was acquired by Nature’s Way in 2015, Pamela followed Ascenta’s President & CEO Marc St-Onge to his new start-up, Bend Beauty. For the next two years, from August 2015 until June 2017 she helped to develop and launch this innovative brand in the newly emerging cosmeceutical space. Pamela then moved to Toronto in July 2017 to join Jamieson Wellness as their VP Marketing of the ‘Specialty Supplements’ division where she helped shape the vision and strategy of this new segment of business until March 2020. This division comprises Jamieson’s latest portfolio acquisitions in the natural health category. As a special passion throughout most of her career, Pamela has also been a pioneer in the ‘Influencer Marketing’ space. She has been very effective in connecting key opinion leaders and celebrity influencers to brands in order to quickly and effectively grow their market share. The relationships she has cultivated with celebrity influencers bring an invaluable piece of business to any growing brand.
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| Table of Contents |
Peter Salvo, Controller and Corporate Secretary
Peter Salvo is a professional accountant with over 25 years of experience in manufacturing, most notably in the automotive industry. Mr. Salvo has served in many capacities, most recently as controller and finance manager with Meritor Suspension Systems Company for 14 years. He has also worked for Rockwell International for 11 years as Manager of Financial Analysis. Mr. Salvo has extensive financial management experience and served as a key member of various management teams.
Mr. Salvo is a Chartered Professional Accountant (CPA, CMA), received his Certified Management Accountant designation in 1985 and holds a bachelor degree in commerce from McMaster University.
Executive Management and Board of Directors
Our executive management team represents a significant depth of experience in public companies, food and nutritional products, marketing, and domestic and international business development. The team represents a cross-disciplinary approach to management and business development.
We believe that all of our directors’ respective educational background, operational and business experience give them the qualifications and skills necessary to serve as directors of our company. Our board of directors consists solely of Mr. Pallante, Mr. Friedman, Mr. Chapman and Mr. Russell.
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Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our shares of common stock and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended November 30, 2021, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with.
Code of Ethics
We have not adopted a code of ethics that applies to our officers, directors and employees. When we do adopt a code of ethics, we will disclose it in a Current Report on Form 8-K.
Audit Committee and Audit Committee Financial Expert
Our board of directors has determined that one member of its audit committee qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K, and is “independent” as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.
We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.
Item 11. Executive Compensation
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| All Other Compensation |
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|
| ||||||||
Michael Friedman President & CEO |
| 2021 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 30,000 |
|
|
| 30,000 |
|
|
| 2020 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Anthony Pallante, Director |
| 2021 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 276,000 |
|
| $ | 276,000 |
|
|
| 2020 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 149,500 |
|
| $ | 149,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Chapman, former Director & President |
| 2021 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 116,500 |
|
| $ | 116,500 |
|
|
| 2020 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 104,750 |
|
| $ | 104,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pamela Andrews, Managing Director, BA Inc |
| 2021 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 118,333 |
|
| $ | 118,333 |
|
|
| 2020 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 24,000 |
|
| $ | 24,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Salvo, Controller |
| 2021 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 150,000 |
|
| $ | 150,000 |
|
|
| 2020 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 150,000 |
|
| $ | 150,000 |
|
Scott Chapman resigned as President and Director on January 14, 2022.
Our officers and directors have written service contracts with us. We presently do not have pension, health, annuity, insurance, profit sharing or similar benefit plans; however, we may adopt plans in the future. Except for our stock option plan, of which no options were issued in 2020 and 2019, there are presently no personal benefits available to our officers and directors.
| 44 |
| Table of Contents |
DIRECTOR COMPENSATION | ||||||||||||||||||||||||
Name |
| Fees Earned or Paid in Cash |
|
| Stock Awards |
|
| Option Awards |
|
| Non-Equity Incentive Plan Compensation |
|
| Change in Pension Value and Nonqualified Deferred Compensation Earnings |
|
| Total |
| ||||||
Anthony Pallante |
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
Michael Friedman |
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
Scott Chapman |
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
Richard Russell |
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 0 |
|
Scott Chapman resigned as President and Director on January 14, 2022
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership of our common stock as of April 7, 2022 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group.
Name and Address of Beneficial Owner | Title of Class | Amount and Nature of Beneficial Ownership(1) | Percent of Class(2) | |
Officers and Directors | ||||
Anthony Pallante |
| Common Stock | 8,391,724 | 25.19% |
Michael Friedman Scott Chapman |
| Common Stock Common Stock | 1,100,000 400,000 | 3.00% 1.20% |
Brad Caister |
| Common Stock | 1,403,000 | 4.21% |
Peter Salvo |
| Common Stock | -0- | 0.00% |
Richard Russell |
| Common Stock | -0- | 0.00% |
All officers and directors as a group | Common stock, $0.001 par value | |||
11,294,724 | 33.91% | |||
5%+ Security Holders | ||||
2373539 Ontario Inc |
| Common Stock | 3,000,000 | 9.00% |
Francesca Pallante |
| Common Stock | 3,000,000 | 9.00% |
Fengate Trident GP Inc |
| Common Stock | 2,000,000 | 6.00% |
|
| Common stock, $0.001 par value |
|
|
All 5%+ Security Holders | 8,000,000 | 24.02% | ||
Francesca Pallante is the wife of CEO Anthony Pallante. Mr. Pallante disclaims beneficial ownership of these shares
(1) | Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock. |
(2) | Percentage of shares outstanding is calculated based on total shares outstanding as at March 15, 2022 of 33,311,887. This total does not include outstanding warrants or options of the Company. |
| 45 |
| Table of Contents |
Changes in Control
We do not currently have any arrangements which if consummated may result in a change of control of our company, except that, as described above, under the heading “Conversion of $17.7 million of Indebtedness into Company Equity,” in connection with the Fourth Amendment, the Note Holder has agreed to convert aggregate principal and accrued interest of $17,659,392 into equity of the Company. In connection with this transaction, the Company and Note Holder have agreed that the Company will issue the Note Holder 29,432,320 shares of Company Preferred Stock. Under the terms of the Fourth Amendment, the Preferred Stock shall be voting shares, with the same voting rights as common shares, except the Preferred Stock shall have no vote in respect of election of directors. The consummation of this transaction could be deemed a change of control, even though the Preferred Shares will not have the right to vote upon the election of directors.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The following includes a summary of transactions since the beginning of the November 30, 2019 fiscal year, or any currently proposed transaction, in which our company was or is to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
On October 15, 2021, a Promissory Note was issued to Anthony Pallante, Chairman and a significant stockholder of the Company. The Note is unsecured and was issued in consideration for payments made to creditors in satisfaction of Company obligations. Mr. Pallante loaned the Company $20,101. The Note bears Interest at a rate of 8% per annum. All unpaid principal and accrued interest shall be due and payable upon demand at any time subsequent to six (6) months from the date the notes were issued. As of November 30, 2021, Mr. Pallante made additional payments of $16,731 for a total of $36,832.
Promoters and Certain Control Persons
The Company does not have any promoters.
Corporate Governance
We currently have three directors, consisting of Anthony Pallante, Michael Friedman, and Richard Russell. On February 29, 2020 Mark Holcombe resigned as a director of the company. On January 14, 2022 Scott Chapman resigned as a director of the company. On March 1, 2020 the Company’s Board of Directors appointed Richard Russell to serve on the Company’s Board of Directors, to serve in such capacity until the next annual meeting of stockholders of the Company. In connection with his appointment, the Company’s Board of Directors determined that Mr. Russell would meet the requirements of an “independent director” under the Nasdaq Stock Market’s corporate governance rules. Accordingly, the Board of Directors has designated Mr. Russell an “independent director” for corporate governance purposes. The Company intends to expand its Board of Directors and appoint additional “independent directors,” with the objective of enhancing corporate governance.
We have an Audit Committee, Compensation Committee and Corporate Governance Committee.
We have an independent director on our Audit Committee . We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have a completely independent Compensation or Corporate Governance Committee at this time because we believe that the functions of such committees can be adequately performed by the existing board of directors. Additionally, we believe that retaining independent directors for those committees would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
Item 14. Principal Accountant Fees and Services
The total fees charged to the company for audit services were $64,000 and for other services were $Nil during the year ended November 30, 2021.
The total fees charged to the company for audit services were $62,000 and for other services were $Nil during the year ended November 30, 2020.
| 46 |
| Table of Contents |
PART IV
Item 15. Exhibits
The following exhibits are included with this filing:
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed with our original Registration Statement on Form SB-2 (subsequently amended utilizing Form S-1) under Commission File Number 333-148710, and incorporated herein by this reference.
** Filed with our 2020 Annual Report on Form 10-K under Commission File Number 000-53707, and incorporated herein by this reference.
47 |
| Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Trident Brands Incorporated | ||
|
|
|
|
Date: April 14, 2022 | /s/ Michael Friedman | ||
|
| By: Michael Friedman |
|
|
| (CEO, President and Director) |
|
|
|
|
|
|
| /s/ Peter Salvo |
|
|
| By: Peter Salvo |
|
|
| (Principal Financial Officer) |
|
|
|
|
|
|
| /s/ Richard Russell |
|
|
| By: Richard Russell |
|
|
| (Director) |
|
|
|
|
|
| By: | /s/ Anthony Pallante |
|
|
| Anthony Pallante |
|
|
| (Director) |
|
48 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Trident Brands Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Trident Brands Incorporated and its subsidiaries (collectively, the “Company”) as of November 30, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2021 and 2020, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2015.
Houston, Texas
April 14, 2022
Firm ID: 00206
| F-1 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED |
Consolidated Balance Sheets |
See Notes to Consolidated Financial Statements
| F-2 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED |
Consolidated Statements of Operations |
|
| Twelve Months |
|
| Twelve Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| November 30, |
|
| November 30 |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Revenues, net |
| $ | 224,720 |
|
| $ | 872,923 |
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
| 121,047 |
|
|
| 628,801 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 103,673 |
|
|
| 244,122 |
|
|
|
|
|
|
|
|
|
|
General & Administrative Expenses |
|
| (2,126,544 | ) |
|
| (4,571,077 | ) |
Impairment Loss |
|
| (400,000 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
| (2,422,871 | ) |
|
| (4,326,955 | ) |
|
|
|
|
|
|
|
|
|
Other Income (Expenses) |
|
|
|
|
|
|
|
|
Interest Expense, net |
|
| (798,770 | ) |
|
| (4,298,280 | ) |
Gain on Debt Forgiveness |
|
| 135,165 |
|
|
| 10,000 |
|
Loss on Debt Extinguishment |
|
| - |
|
|
| (1,092,295 | ) |
Derivative gain (loss) |
|
| - |
|
|
| 4,312,338 |
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expenses) |
|
| (663,605 | ) |
|
| (1,068,237 | ) |
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | (3,086,476 | ) |
| $ | (5,395,192 | ) |
|
|
|
|
|
|
|
|
|
Net loss attributable to Trident |
|
| (2,682,771 | ) |
|
| (5,296,648 | ) |
Net loss attributable to Non-Controlling Interests |
|
| (403,705 | ) |
|
| (98,544 | ) |
|
|
|
|
|
|
|
|
|
Loss per share - Basic and diluted |
| $ | (0.08 | ) |
| $ | (0.16 | ) |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Basic and diluted |
|
| 32,314,627 |
|
|
| 32,311,887 |
|
See Notes to Consolidated Financial Statements |
| F-3 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED |
Consolidated Statements of Changes in Stockholders’ Deficit |
From the years ended November 30, 2021 and 2020 |
|
| Common |
|
| Common |
|
| Additional |
|
|
|
|
| Non- |
|
|
| |||||||
|
| Stock |
|
| Stock |
|
| Paid-in |
|
| Accumulated |
|
| Controlling |
|
|
|
| ||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Interest |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, November 30, 2019 |
|
| 32,311,887 |
|
| $ | 32,312 |
|
| $ | 9,945,488 |
|
| $ | (34,225,630 | ) |
| $ | (288,603 | ) |
| $ | (24,536,433 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APIC reclassified to derivative liability |
|
| - |
|
|
| - |
|
|
| (3,981,221 | ) |
|
| - |
|
|
| - |
|
|
| (3,981,221 | ) |
Resolution of derivative liability |
|
|
|
|
|
|
|
|
|
| 5,494,363 |
|
|
|
|
|
|
|
|
|
|
| 5,494,363 |
|
Net loss, November 30, 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
| (5,296,648 | ) |
|
| (98,544 | ) |
|
| (5,395,192 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2020 |
|
| 32,311,887 |
|
| $ | 32,312 |
|
| $ | 11,458,630 |
|
| $ | (39,522,278 | ) |
| $ | (387,147 | ) |
| $ | (28,418,483 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Shares for services |
|
| 1,000,000 |
|
|
| 1,000 |
|
|
| 34,000 |
|
|
| - |
|
|
| - |
|
|
| 35,000 |
|
NCI Investment in Brain Armor |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 300,000 |
|
|
| 300,000 |
|
Net loss, November 30, 2021 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,682,770 | ) |
|
| (403,705 | ) |
|
| (3,086,476 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2021 |
|
| 33,311,887 |
|
| $ | 33,312 |
|
| $ | 11,492,630 |
|
| $ | (42,205,049 | ) |
| $ | (490,852 | ) |
| $ | (31,169,959 | ) |
See Notes to Consolidated Financial Statements |
| F-4 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED |
Consolidated Statements of Cash Flows |
|
| Year |
|
| Year |
| ||
|
| Ended |
|
| Ended |
| ||
|
| November 30, |
|
| November 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Net loss |
| $ | (3,086,476 | ) |
| $ | (5,395,192 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| - |
|
|
| 1,885,587 |
|
Loss on debt extinguishment |
|
| - |
|
|
| 1,092,295 |
|
Depreciation expense |
|
| - |
|
|
| 4,413 |
|
Impairment Loss |
|
| 400,000 |
|
|
| - |
|
Inventory write-off |
|
| 206,342 |
|
|
| 195,264 |
|
Gain on Note Payable Forgiveness |
|
| (135,165 | ) |
|
|
|
|
Derivative (gain)/loss |
|
|
|
|
|
| (4,312,338 | ) |
Issuance of common shares for services |
|
| 35,000 |
|
|
| - |
|
Provision for bad debts |
|
| 5,024 |
|
|
| 99,207 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 46,402 |
|
|
| 117,356 |
|
Prepaid expenses |
|
| (2,966 | ) |
|
| 13,148 |
|
Inventory |
|
| 131,301 |
|
|
| 667,995 |
|
Accounts payable and accrued liabilities |
|
| 2,020,186 |
|
|
| 3,635,265 |
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities |
|
| (380,354 | ) |
|
| (1,997,000 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from PPP loan |
|
| - |
|
|
| 135,165 |
|
Proceeds from convertible debt |
|
| - |
|
|
| 936,168 |
|
Proceeds from NCI Investment in Brain Armor |
|
| 300,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
| 300,000 |
|
|
| 1,071,333 |
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| (80,354 | ) |
|
| (925,667 | ) |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
| 88,007 |
|
|
| 1,013,674 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
| $ | 7,653 |
|
| $ | 88,007 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Income taxes |
| $ | - |
|
| $ | - |
|
Interest |
| $ | - |
|
| $ | - |
|
See Notes to Consolidated Financial Statements |
| F-5 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Trident Brands Incorporated (“we”, “our”, “the Company”) was incorporated under the laws of the State of Nevada on November 5, 2007.
The Company is focused on the development of high growth branded consumer products and ingredients within the nutritional supplement, life sciences and food and beverage categories. The Company is in its early growth stage and has transitioned out of its shell status with the “Super-8-K” filing at the end of August, 2014. Activities to date have focused on capital formation, organizational development and execution of its branded consumer products and ingredients business plan.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a November 30 year-end.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates. The ultimate impact from COVID-19 on the Company’s operations and financial results during 2021 and beyond will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with which the economy recovers. We are not able to fully quantify the impact that these factors will have on our financial results in 2022 and beyond, but developments related to COVID-19 materially and adversely affected the Company’s financial performance in 2021.
Principles of Consolidation
The Company’s consolidated financial statements as of November 30, 2021 include the accounts of Trident Brands Incorporated and its subsidiaries: Brain Armor Inc. and Trident Brands Canada Ltd.
Earnings (Loss) Per Share
The Company follows the guidance in ASC No. 260, “Earnings Per Share”, which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock.
Basic net earnings (loss) per share amounts are computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding. Due to net losses during the years ended November 30, 2021 and 2020, diluted earnings (loss) per share are the same as the basic earnings (loss) per share since inclusion of common stock equivalents would have been anti-dilutive.
| F-6 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivables are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible amounts as necessary. As of November 30, 2021 and 2020, the Company’s accounts receivable was netted against an allowance of $160,210 and $155,186 respectively.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is principally determined using the first-in, first-out (FIFO) method. We regularly review inventory for obsolete and slow-moving inventory and recognize a reserve or write offs as necessary. We recognized an inventory reserve of $401,606 and $195,264 as of November 30, 2021 and 2020, respectively.
Inventory at November 30, 2021 consist of raw materials and finished goods of $842,076 and 39,848 respectively. Inventory at November 30, 2020 consist of raw materials and finished goods of $842,076 and $377,491, respectively.
Long-Lived Assets
We review our long-lived assets, including intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as “the asset”) may not be recoverable. Such circumstances include, but are not limited to:
| · | a significant decrease in the market price of the asset; |
|
|
|
| · | a significant change in the extent or manner in which the asset is being used; |
|
|
|
| · | a significant change in the business climate that could affect the value of the asset; |
|
|
|
| · | a current period loss combined with projection of continuing loss associated with use of the asset; and |
|
|
|
| · | a current expectation that, more likely than not, the asset will be sold or otherwise disposed of before the end of its previously estimated useful life. |
We continually evaluate whether such events and circumstances have occurred. When such events or circumstances exist, the recoverability of the asset’s carrying value shall be determined by estimating the undiscounted future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset.
| F-7 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
Intangible Assets
Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company currently does not have any amortizable intangible assets. The Company’s indefinite-lived intangible assets consist of trademarks.
The Company reviews its indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Impairment losses are recognized only if the carrying amount exceeds its fair value.
Beneficial Conversion Features
The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
| F-8 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
The carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and note payable. The fair value of the Company’s long-term debt is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value. As of November 30, 2021 the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, except for a derivative liability, related to the embedded conversion option on the 2016 and 2018 convertible notes, with a fair value of $0 as of November 30, 2021 and 2020. The derivative liability was fair valued using Level 3 inputs.
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:
Balance at November 30, 2019 |
|
| 5,825,480 |
|
Unrealized derivative gain included in other expense |
|
| (4,312,338 | ) |
APIC reclassified to derivative liability |
|
| 3,981,221 |
|
Resolution of derivative liability |
|
| (5,494,363 | ) |
Balance at November 30, 2020 and 2021 |
| $ | -0- |
|
The fair value of the derivative liabilities are calculated at the time of issuance and the Company records a derivative liability for the calculated value. Changes in the fair value of the derivative liabilities are recorded in other income (expense) in the consolidated statements of operations.
The following are the assumptions used for derivative instruments valued using the Black Scholes option pricing model as of November 30, 2021 and November 30, 2020:
|
| 2021 |
|
| 2020 |
| ||
Market value of stock on measurement date |
| $ | N/A |
|
| $ | 0.033 |
|
Risk-fee interest rate |
|
| N/A |
|
|
| 0.16% and 0.18 | % |
|
|
| ||||||
| ||||||||
Dividend yield |
|
| N/A |
|
|
| 0 | % |
Volatility factor |
|
| N/A |
|
|
| 173.23 | % |
Term. |
|
| N/A |
|
| 0.085 and 1.0 yrs |
| |
| F-9 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification. The Company’s sequencing policy is to evaluate for reclassification contracts with the earliest inception date first.
Revenue
The Company markets a range of branded consumer products in the active nutrition and dietary supplement categories under the Brain Armor® label.
Four customers accounted for 18.9%, 16.8%, 14.4% and 12.4% of total revenue, compared to four customers for 22.3%, 17.7%, 13.0% and 10.2% in the prior year. One customer accounted for 10.9% of total accounts receivable, compared to three customers for 16.9%, 15.9% and 11.9% in the prior year.
The Company records revenue when all of the following criteria are met: 1) the contract with a customer is identified, 2) the performance obligations in the contract are identified, 3) the transaction price is determined, 4) the transaction price has been allocated to the performance obligations and 5) when each performance obligation is satisfied.
Customer returns, allowances and consideration paid to customers for services which are not considered distinct are recorded as reductions to revenues.
Cost of Sales
Cost of sales includes the direct purchase cost of the product based on the FIFO method.
The Company purchased 100% of its products from one vendor for the year ended November 30, 2021 and three vendors provided 97% of the Company’s products for the year ended November 30, 2020.
Stock-Based Compensation
The Company accounts for employee and non-employee stock-based compensation in accordance with ASC-718, “Compensation-Stock Compensation”. ASC-718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.
| F-10 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
Income Taxes
Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of November 30, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax positions.
Related Parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
On October 15, 2021, a Promissory Note was issued to Anthony Pallante, Chairman and a significant stockholder of the Company. The Note is unsecured and was issued in consideration for payments made to creditors in satisfaction of Company obligations. Mr. Pallante loaned the Company $20,101. The Note bears Interest at a rate of 8% per annum. All unpaid principal and accrued interest shall be due and payable upon demand at any time subsequent to six (6) months from the date the notes were issued. As of November 30, 2021, Mr. Pallante made additional payments of $16,731 for a total of $36,832.
| F-11 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
Recent Accounting Pronouncements
The Company has evaluated the following recent accounting pronouncements through the date the financial statements were issued and filed with the Securities and Exchange Commission and believe that none of them will have a material effect on the Company’s financial statements:
In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Management’s evaluation was that there was no impact to the Company’s consolidated financial statements.
| F-12 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
In December 2018, the FASB issued ASC 842 and as ASU 2016-02, is the new lease accounting standard published by the Financial Accounting Standards Board (FASB). It replaced the previous US GAAP leasing standard, ASC 840. The purpose of the new standard is to close a major accounting loophole in ASC 840: off-balance sheet operating leases. Public companies began to implement the standard starting after December 15, 2018. Private companies will follow a year later on December 15, 2020. ASC 842 represents a significant overhaul of the accounting treatment for leases, with the most significant change being that most leases, including most operating leases, are now capitalized on the balance sheet. Under ASC 840, FASB permitted operating leases to be reported only in the footnotes of corporate financial statements. Under ASC 842, the only leases that are exempt from the capitalization requirement are short-term leases less than or equal to 12 months in length. This became effective December 1, 2019 and the Company chose to adopt it early on December 1, 2018. The adoption did not have any material impact on the Company’s consolidated financial statements as the Company has no long term leases.
On June 20, 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, as part of its ongoing Simplification Initiative. Currently, share-based payments to nonemployees are accounted for under Subtopic 505-50 which significantly differs from the guidance for share-based payments to employees under Topic 718. This ASU supersedes Subtopic 505-50 by expanding the scope of Topic 718 to include nonemployee awards and generally aligning the accounting for nonemployee awards with the accounting for employee awards (with limited exceptions). The effective date is for fiscal years beginning after December 15, 2018. The Company adopted the measure on December 1, 2019. The adoption did not have any material impact on the Company’s consolidated financial statements.
NOTE 3. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued. In accordance with Financial Accounting Standards Board, or the FASB, Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.
As of November 30, 2021, the Company had $7,653 in cash and a working capital deficit of $8,869,959. The Company also has generated losses and has an accumulated deficit as of November 30, 2021. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Unless management is able to obtain additional financing, the Company may not be able to meet its funding requirements during the next 12 months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| F-13 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
NOTE 4. NOTE RECEIVABLE
On September 12, 2017 the Company entered into a note purchase agreement with Fengate Trident LP (“Fengate”) pursuant to which, in consideration for the issuance of 811,887 of our common shares to Fengate, we purchased outstanding secured convertible promissory notes of Mycell Technologies LLC having an aggregate balance due and payable of $511,141 in principal and $94,526 in interest accrued as at September 12, 2017. The purchased notes, which were originally issued to LPF (MCTECH) Investment Corp. on January 22, 2016, February 5, 2016, and May 19, 2016, bear simple interest on unpaid principal at the rate of ten percent per annum. The outstanding principal and accrued interest is convertible at the option of the note holder into securities of Mycell. The accrued interest as at November 30, 2018 is $105,869. The Company reserved a full allowance on the note receivable and accrued interest of $617,010 as of November 30, 2021 and November 30, 2020.
Mycell filed for bankruptcy on November 25, 2020. The bankruptcy is completed and the Company no longer has a claim on the new company that has since emerged from bankruptcy.
NOTE 5. INTANGIBLE ASSETS
On December 22, 2017, Trident exercised its option under our Exclusive License Agreement (dated March 1, 2015) to purchase the Brain Armor® brand from DSM Nutrition Products LLC (“DSM”). Subsequently, the parties have executed applicable trademark assignment and purchase agreements necessary to transfer all global intellectual property rights in the Brain Armor brand to Trident. In lieu of a $400,000 cash payment to DSM for the value of the Brain Armor® brand as initially intended, the Company agreed to meet certain conditions, that when satisfied will have an equivalent value of $400,000. The costs incurred to meet these conditions are being charged to intangible assets. As of November 30, 2021 and 2020, the Company has recorded $400,000 of costs to the asset account. Of this amount $200,000 is paid over time as the Company purchases omega-3 oil from DSM pursuant to its exclusive supply agreement. During the 12 months ended November 30, 2021 and 2020, no payments were made to DSM in connection with this liability. The amount outstanding as of November 30,2021 is $79,040
The Company reviewed the intangible asset for impairment and booked an impairment charge of $400,000 for the full value of the asset on November 30, 2021.
NOTE 6. WARRANTS AND OPTIONS
On December 6, 2017, our Board of Directors authorized the issuance to its members and management stock options to purchase up to 2,615,000 shares of our common stock. 1,307,500 of the options vest upon issuance and are exercisable for up to five years at $0.85 per share, while the remaining 1,307,500 will vest 12 months following issuance and be exercisable for up to five years at $1.00 per share. The options were issued pursuant to the Company’s 2013 Stock Option Plan, which was registered with the Securities and Exchange Commission on Form S-8 in January, 2015. The 2013 Stock Option Plan authorizes the Company to issue incentive and non-qualified stock options to employees and consultants of the Company to purchase a number of shares not to exceed 15% of the Company’s currently issued and outstanding securities.
On January 4, 2019, our Board of Directors approved the re-pricing of the majority of options previously granted at $0.40 per share.
On May 5, 2019, our Board of Directors approved the extension of 750,000 previously issued and outstanding stock options originally issued on May 5, 2014 to certain individuals for an additional year to May 5, 2020.
The total outstanding stock options as of November 30, 2021 are 1,832,500. For the period ended November 30, 2021, the Company expensed $0 as compensation expense compared to $8,875 in the comparable prior year period for stock options granted on December 6, 2017.
The following table represents stock option activity as of and for the years ended November 30, 2021 and 2020:
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Contractual Life in Years |
|
| Intrinsic Value | ||||
Outstanding - November 30, 2019 |
|
| 3,215,000 |
|
| $ | .40 |
|
|
| 2.42 |
| $ | -0- | |
Exercisable - November 30, 2019 |
|
| 3,215,000 |
|
| $ | .40 |
|
|
| 2.42 |
|
|
| |
Granted |
| -0- |
|
|
|
|
|
|
|
|
|
|
| ||
Exercised or Vested |
| -0- |
|
|
|
|
|
|
|
|
|
|
| ||
Forfeited or Expired |
|
| 1,382,500 |
|
|
|
|
|
|
|
|
|
|
| |
Outstanding – November 30, 2020 |
|
| 1,832,500 |
|
| $ | 0.40 |
|
|
| 2.02 |
|
|
| |
Exercisable - November 30, 2020 |
|
| 1,832,500 |
|
| $ | 0.40 |
|
|
| 2.02 |
|
| -0- | |
Granted |
| -0- |
|
|
|
|
|
|
|
|
|
|
| ||
Exercised or Vested |
| -0- |
|
|
|
|
|
|
|
|
|
|
| ||
Forfeited or Expired |
|
| 300,000 |
|
|
|
|
|
|
|
|
|
|
| |
Outstanding - November 30, 2021 |
|
| 1,532,500 |
|
| $ | 0.40 |
|
|
| 1.02 |
|
|
| |
Exercisable - November 30, 2021 |
|
| 1,532,500 |
|
| $ | 0.40 |
|
|
| 1.02 |
|
| -0- | |
| F-14 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
As of November 30, 2021, the Company has no outstanding warrants. All the outstanding warrants have expired.
NOTE 7. RELATED PARTY TRANSACTIONS
On October 15, 2021, a Promissory Note was issued to Anthony Pallante, Chairman and a significant stockholder of the Company. The Note is unsecured and was issued in consideration for payments made to creditors in satisfaction of Company obligations. Mr. Pallante loaned the Company $20,101. The Note bears Interest at a rate of 8% per annum. All unpaid principal and accrued interest shall be due and payable upon demand at any time subsequent to six (6) months from the date the notes were issued. As of November 30, 2021, Mr. Pallante made additional payments of $16,731 for a total of $36,832.
NOTE 8. CONVERTIBLE DEBT
On January 29, 2015, the Company entered into a securities purchase agreement with a non-US institutional investor whereby it agreed to sell an aggregate principal amount of $2,300,000 of senior secured convertible debentures, convertible into shares of the Company’s common stock.
The Company received $1,800,000 of the funds from the transaction on February 5, 2015. The balance of $500,000 was received on May 14, 2015. These convertible notes were subsequently acquired by Fengate Trident, LP (“Fengate”) on April 28, 2017.
The convertible debentures are convertible into shares of the Company’s common stock at an initial conversion price of $0.71 per share, for an aggregate of up to 3,239,437 shares. The debentures originally accrued interest at 6% per annum. On September 26, 2016 the Company entered into an amendment agreement related to these convertible debentures whereby the applicable interest rate was increased from 6% to 8% and provisions added to allow the investor to transfer, sell or hypothecate the convertible notes subject to applicable securities laws. The maturity date of the notes was also extended through September 30, 2019. We considered ASC Topic 470-50, Debt Modifications and Extinguishments, and determined that the modification was not deemed substantial.
Due to the note being convertible to common shares of the Company, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature was $647,888 which was recognized as debt discount. As of November 30, 2017, the full amount of the debt discount has been amortized.
On September 26, 2016, the Company entered into a securities purchase agreement with a non-US institutional investor, pursuant to which, in consideration for proceeds of $4,100,000, the Company issued a secured convertible promissory note in the amount of $4,100,000. Pursuant to the securities purchase agreement, the investor has agreed, from time to time after January 1, 2017, to make additional investments at the Company’s request of up to $5,900,000. On May 9, 2017, the Company received the second tranche of funding with proceeds of $4,400,000 and on May 16, 2018 the third tranche of $1,500,000 for a total investment by the investor of $10,000,000.
| F-15 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
In consideration of each advance made by the investor pursuant to the securities purchase agreement, the Company issued to the investor a convertible promissory note of equal value, maturing on September 30, 2019, and bearing interest at the rate of 8% per annum. Each note was secured in first priority against the present and after acquired assets of the Company and was convertible in whole or in part at the option of the holder into common shares of the Company at a conversion price of $0.60 per share, for an aggregate of up to 16,666,667 shares. These convertible notes were subsequently acquired by Fengate on April 28, 2017.
Due to the notes being convertible to common shares of the Company, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature of the notes amounted to $3,333,334 and was recognized as a debt discount. As of November 30, 2021, $3,333,334 of the debt discount was amortized to interest of which $334,988 was amortized during the current year compared to $855,987 in the prior year. As of November 30, 2021, the debt discount was fully amortized.
On November 30, 2018 the Company and Fengate entered into a Securities Purchase Amendment Agreement (“SPA”) pursuant to which the Company has agreed to issue to Fengate additional convertible promissory notes (collectively, the “2018 and 2019 Convertible Notes”) of up to $10,000,000, subject to certain terms and conditions. Each portion of the principal amount advanced pursuant to the SPA bore interest at the rate of twelve percent (12%) per annum and was payable monthly in arrears to Fengate. Outstanding principal and interest will continue to be secured by the general security agreement dated September 26, 2016, which forms a part of the Agreement. The holder of the note may also elect from time to time to convert all or a portion of the outstanding principal and interest into common shares of the Company at a 25% discount to the average closing price of the common shares during the 10 trading days immediately prior to the applicable conversion date. The 2018 and 2019 Convertible Notes (aka “Amended SPA Notes”) were extended until December 1, 2021. The Maturity Date of the Amended SPA Notes was extended to November 30, 2025, as described below.
On November 30, 2018 the Company received the first tranche of funding with proceeds of $3,400,780. The 2nd tranche of $2,804,187 was received on April 13, 2019. The 3rd tranche of $3,795,033 less $936,168 withheld for interest payments up to and including June 30, 2020 was received on November 6, 2019. On March 5, 2020, the 2018 and 2019 Convertible Notes were amended to increase the amount of the 3rd tranche by $936,168 representing the amount previously withheld as interest payment. The withheld interest was subsequently received on March 12, 2020.
The Company analyzed the embedded conversion option on the convertible notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option on the 2018 Convertible Note qualified for derivative accounting. The Company used the Black-Scholes model to value the embedded conversion option at $892,000 on the issuance date of November 30, 2018, $1,911,256 on the issuance date of April 13, 2019 and $1,696,933 on the issuance date of November 6, 2019. The assumptions used were a discount rate of 2.80%, 1.96% and 1.96%; volatility rate of 79.57%, 104.70% and 107.3%; and a term of 1.50, 1.13 and 0.57 years respectively. The fair values of the embedded conversion options were recorded as debt discount and were amortized over the term of the 2018 and 2019 Convertible Notes. Amortization of debt discount for the years ended November 30, 2021 and 2020 was $1,885,587 and $1,857,295, respectively. The unamortized discount as of November 30, 2021 is $0.
On January 9, 2020 the Company and Fengate entered into an Amendment to Convertible Promissory Notes Agreement to amend the terms of the convertible notes issued on February 5, 2015 (US$1,800,000), May 14, 2015 (US$500,000), September 26, 2016 (US$4,100,000), May 9, 2017 (US$4,400,000) and May 16, 2018 (US$1,500,000) (collectively the “2016 Convertible Notes”). Pursuant to the Amendment, Fengate has agreed to convert all of the 2016 Notes on or before the earlier to occur of (i) the maturity date of the 2016 Convertible Notes and (ii) the Company raising new equity investment of not less than US$2,000,000, on terms mutually acceptable to Fengate and the Company (subject to Fengate’s regulatory considerations). Conversion of the 2016 Notes will occur in a single conversion transaction at a price that is equal to a 25% discount to the average closing price of the Company’s common stock for the 10 trading days immediately prior to the conversion date, with the exact structure of the conversion to be determined by the parties. On June 3, 2020 the maturity date was extended from May 31 to December 31, 2020. The Amendment also extended the maturity date of the 2018 and 2019 Convertible Notes to December 1, 2021.
The Company analyzed the embedded conversion option on the amended “2016 Convertible Notes” for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option qualified for derivative accounting. On January 9, 2020 the Company used the Black-Scholes model to value the embedded conversion options at $7,965,083. The assumptions used were a discount rate of 1.96%, volatility rate of 148.8%; and a term of 0.39 years respectively. The modification resulted in $3,981,221 of APIC previously recorded for beneficial conversion feature of these convertible notes being reclassified as derivative liability.
On November 30, 2020, the Company entered into a fourth amendment of the 2016 Convertible Notes and the 2018 and 2019 Convertible Notes wherein the Company will issue to Fengate 29,432,320 shares of Company Preferred Stock (representing $17,659,392 of principal and interest converted into Preferred Stock at the rate of $0.60 per share), in full and complete satisfaction of (i) all amounts owing under the 2016 Convertible Notes through November 30, 2021 (including accrued interest thereon) and (ii) all accrued interest on the 2018 and 2019 Convertible Notes through November 30, 2021. The conversion is expected to occur by the end of June, 2021. The 2018 and 2019 Convertible Notes were further amended to (i) eliminate the conversion feature of such notes, (ii) provide for a simple interest rate of 8% per annum, with the first 2 years of interest payable at maturity of the 2018 and 2019 Convertible Notes and the last three years of interest payable quarterly beginning February 28, 2023; and (iii) extend the maturity of such notes until November 30, 2025. Pursuant to this amendment, all notes no longer qualified for derivative accounting. As such, the value of the embedded conversion options of all notes of $5,494,363 was credited to additional paid in capital.
The consummation of the foregoing transaction is subject to (i) authorization and issuance of the Preferred Stock, which is subject to approval of the requisite number of common shares of the Company, in accordance with Nevada law and the Company’s organizational documents, and (ii) Note Holder’s obligation to remain in compliance with regulations governing its ownership of voting shares.
The Company and Note Holder had previously undertaken to consummate the foregoing transactions no later than June 30, 2021. On March 29, 2022, the Board of Directors approved an amendment to our Certificate of Incorporation which authorizes 29,432,320 shares of Company Preferred Stock. On March 30, 2022, more than a majority in interest of our common shares by written consent approved such amendment to our Certificate of Incorporation. The Company expects to consummate this transaction May 30, 2022.
We considered ASC Topic 470-50, Debt Modifications and Extinguishments in connection with the amendment of the interest rate and maturity date of the 2018 and 2019 Convertible Notes and determined that the modification would be considered a debt extinguishment. The unamortized discount of $1,092,295 at the date of amendment was recognized as a loss on debt extinguishment for the year ended November 30, 2020
On June 30, 2021, the Board of Directors of the Company, unanimously consented to amend its Articles of Incorporation to among other things authorize 29,432,320 shares of Preferred Stock, $0.001 par value. A majority of the Company’s stockholders have also approved the amendment to the Articles of Incorporation. The effectiveness of these Amendments are subject to the filing of an information statement with the US SEC and the State of Nevada.
| F-16 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
NOTE 9. PAYCHECK PROTECTION PROGRAM (PPP) LOAN
On May 28, 2020, the Company obtained a Paycheck Protection Program (PPP) loan in the amount of $135,165. These business loans were established by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help certain businesses, self-employed workers, sole proprietors, certain nonprofit organizations, and tribal businesses continue paying their workers.
The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act and used for payroll costs, rent, mortgage interest, and utility costs during the 24 week period after the date of loan disbursement is eligible to be forgiven provided that (a) we use the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. While the full loan amount may be forgiven, the amount of loan forgiveness will be reduced if, among other reasons, we do not maintain staffing or payroll levels or less than 60% of the loan proceeds are used for payroll costs. Principal and interest payments on any unforgiven portion of the PPP Funds will be deferred to the date the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.
On June 17, 2021, the Small Business Administration (SBA) approved the Company’s PPP loan forgiveness application for the full amount of $135,165.
NOTE 10. NON-CONTROLLING INTEREST INVESTMENT IN BRAIN ARMOR, INC.
On March 30, 2021, a non-US investor subscribed to the acquisition of 333,333 units of the Company’s Brain Armor Inc subsidiary. Each unit is comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock, and was sold at a per unit price of USD $0.30 for an aggregate purchase price of USD $100,000 which was received by the Company on March 30, 2021. The vesting and exercise prices of the warrants are as follows:
| · | 1/3 of shares shall be exercisable 6 months after the subscription date at an exercise price of $0.45 per share |
| · | 1/3 of shares shall be exercisable 12 months after the subscription date at an exercise price of $0.60 per share |
| · | 1/3 of shares shall be exercisable 18 months after the subscription date at an exercise price of $0.75 per share |
On May 5, 2021, a US investor subscribed to the acquisition of 3,333,333 units of the Company’s Brain Armor Inc subsidiary. Each unit is comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock, and was sold at a per unit price of USD $0.30 for an aggregate purchase price of USD $1,000,000 of which $100,000 was received by the Company on May 13, 2021 and $100,000 on May 27, 2021. This subscription agreement has since been terminated. The vesting and exercise prices of the warrants are as follows:
| · | 1/3 of shares shall be exercisable 6 months after the subscription date at an exercise price of $0.45 per share |
| · | 1/3 of shares shall be exercisable 12 months after the subscription date at an exercise price of $0.60 per share |
| · | 1/3 of shares shall be exercisable 18 months after the subscription date at an exercise price of $0.75 per share |
As a result of these transactions, the Company’s ownership was reduced to 70.5%.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Everlast License Agreement
On December 23, 2013, the Company entered into a Deed of Assignment Agreement with Everlast World’s Boxing Headquarters Corporation, International Brand Management Limited, Sports Nutrition Products Incorporated and Manchester Capital Incorporated wherein Everlast, International Brand, Sports Nutrition and Manchester Capital are parties to a trade mark license and Sports Nutrition, a New York corporation, has assigned its interest in the trade mark license to the Company. Pursuant to the terms of the assignment agreement, Sports Nutrition Products Incorporated, a wholly owned subsidiary of Trident Brands Incorporated, assigned all of its rights, title, interest and benefit to the trade mark license to the Company effective December 23, 2013 and the Company assumed all of the obligations of Sports Nutrition Products Incorporated under the license agreement. The Company shall remain responsible to Everlast and International Brand for all acts and omissions of the subsidiary, Sports Nutrition Products Inc.
The Everlast License Agreement includes a clause stating that Manchester Capital Incorporated will guarantee that the Licensee shall perform all of its obligations and duties under the License Agreement. If the Licensee defaults in the payment when due of any amount it is obliged to pay to Licensor under the License Agreement, or arising from its termination, Manchester Capital is unconditionally responsible to pay that amount to Licensor in the manner prescribed in the License Agreement as if it were the Licensee.
| F-17 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
The Royalty Calculation, as per the terms of the agreement, are as follows: In 2013, 7% of Net Retail Sales and 7% of 60% of Direct Response Sales Revenue; in 2014, 8% of Net Retail Sales and 8% of 60% of Direct Response Sales Revenue; in 2015, 9% of Net Retail Sales and 9% of 60% of Direct Response Sales Revenue; in 2016 onwards, 10% of Net Retail Sales and 10% of 60% of Direct Response Sales Revenue. The Annual Minimum Guaranteed Royalty is $120,000 in 2014, $235,000 in 2015, $320,000 in 2016, $345,000 in 2017 and in 2018 onwards, if the Agreement remains in force, will be 75% of the previous Year’s Royalty Calculation or the previous Year’s Annual Minimum Guaranteed Royalty plus 10%, whichever is greater.
The agreement was terminated on December 31, 2017. On January 17, 2019, Everlast World’s Boxing Headquarters Corp. (“Everlast”) filed a counter civil lawsuit against the Company and other defendants. In that lawsuit, Everlast seeks payment from the defendants under a License Agreement dated June 4, 2013, for $425,555 in unpaid royalties allegedly due and owing under the License Agreement and interest on the allegedly unpaid royalties of $96,265, which interest allegedly continues to accrue. Everlast has also sought all costs, expenses, and legal fees incurred by Everlast in collecting monies that it claims are due under the License Agreement. On February 26, 2020, the court in the Everlast matter issued an Opinion and Order granting a motion to dismiss all of the Company’s claims against Everlast and granting a motion for judgment on the pleadings as to liability against the Company. The Court left open the question of damages to be awarded to Everlast. The Company had requested that the parties participate in settlement discussions before a magistrate judge or, in the alternative, that Everlast engage in limited discovery on these matters. No settlement was reached. On October 15, 2020, the Court in the Everlast case ordered, adjudged and decreed that Plaintiff Everlast have judgment and recover a total of $738,946 from the Company as follows:
1. $425,000 representing royalty payments due to Everlast;
2. Interest on royalty payments computed through October 15, 2020, in the sum of $242,920;
3. Costs and attorneys’ fees in the sum of $71,026
The Company has fully accrued the $738,946 liability as of November 30, 2021.
On November 17, 2021, The Company entered Into a Stipulation of Settlement (“Settlement Agreement”) of the litigation captioned Everlast World’s Boxing Headquarters Corp. (“Everlast”) , Plaintiff vs. Trident Brands, Inc. and Manchester Capital Inc., Defendants, Case No. 21 Tj 90. Under the terms of the Settlement Agreement, the Company agreed to pay Everlast on or before February 15, 2022, the sum of $650,000 in full satisfaction of the Everlast’s judgment against the Company in the amount of $738,946. Under the Settlement Agreement, except for the first $250,000 of capital raised, the Company is required to pay Everlast 20% of the gross amount of any capital raising transaction, until the full $650,000 is paid, provided however that the full $650,000 was required to have been paid no later than February 15, 2022.
The Company failed to pay Everlast the full $650,000 by February 15, 2022, as a result of which the Company is obligated to pay Everlast the judgment amount of $738,945, plus applicable interest (a total of $750,713 as of August 21, 2021) and attorney’s fees, less any payments made.
Banc of America Leasing and Capital
On December 1, 2020, Bank of America Leasing and Capital, LLC filed a legal action against the Company in the Superior Court for the State of California, County of San Mateo (Case NO. 20-CIV-05306), alleging breach of contract. The claim arises out of a software services contract between the Company and Oracle Corporation. Bank of America Leasing and Capital, LLC acquired Oracle’s rights under the agreement. The plaintiff claims the Company is liable for damages in the amount of $217,000 plus interests and costs. The Company has not filed an answer to this complaint. On February 22, 2021, the plaintiff requested that the Court enter a default judgment against the Company. The Company intends to engage counsel and defend against this claim.
PIT Mycell
On June 3, 2019, the Company filed a lawsuit against PIT Mycell, LLC, William E. Peterson III, New Age Ventures, LLC, Volker Berl, and Mycell Technologies, LLC (“Mycell”) in the Superior Court in Bergen County, New Jersey, Civil Action No. BER-L-004198-19, in which the Company seeks to require the defendants to perform under and allow the enforcement of certain notes made by Mycell and acquired by the Company in September 2017. The notes are past their stated maturity date of December 31, 2016. The Company also alleges that the parties had entered into a written Settlement Agreement Letter of Intent dated March 14, 2019 (the “Settlement”), but that the defendants repudiated it shortly thereafter. The notes had been the subject of an earlier lawsuit in Virginia in state court in Fairfax County between the Company and PIT Mycell, LLC that the Settlement was intended to resolve. The Company seeks to enforce the notes and the Settlement in the New Jersey lawsuit and requests actual damages in an amount to be proven at trial, attorneys’ fees and litigation costs, specific performance requiring certain defendants to enforce obligations under the notes against Mycell, specific performance requiring the defendants to execute a final Settlement Agreement consistent with the Settlement, an order permitting foreclosure on the collateral for the notes, and declaratory relief. On January 24, 2020, the New Jesey court denied Defendant’s Motions to dismiss the case. The parties have engaged in written discovery and exchanged productions of documents. Mycell filed for bankruptcy on November 25, 2020. The bankruptcy is completed and the Company no longer has a claim on the new company that has since emerged from bankruptcy.
Contingencies
The Company may be subject to various legal proceedings and claims that arise in the ordinary course of business. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. If any legal matter, that may arise, were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s would reflect any potential claim in the consolidated financial statements for that reporting period.
| F-18 |
| Table of Contents |
TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
November 30, 2021 and 2020
NOTE 12. INCOME TAXES
Deferred tax assets consist of:
|
| As of November 30, 2021 |
|
| As of November 30, 2020 |
| ||
Deferred tax assets: |
|
|
|
|
|
| ||
Net operating tax carryforwards |
| $ | 32,381,319 |
|
| $ | 29,295,465 |
|
Tax Rate |
|
| 21 | % |
|
| 21 | % |
Gross deferred tax assets |
|
| 6,800,077 |
|
|
| 6,152,048 |
|
Valuation allowance |
|
| (6,800,077 | ) |
|
| (6,152,048 | ) |
Net deferred tax assets |
| $ | -0- |
|
| $ | -0- |
|
As of November 30, 2021, the Company has a net operating loss carryforward of approximately $32 million. Net operating loss carryforwards may now be carried forward indefinitely until the loss is fully recovered, but are limited to 80% of taxable income in any one tax period.
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company has recorded a valuation allowance. Tax years 2016 to 2020 are open to examination by federal and state taxing authorities.
Due to the enactment of the Tax Reform Act of 2018, the corporate tax rate for those tax years beginning with 2018 was reduced to 21%.
NOTE 13. SUBSEQUENT EVENTS
The Company failed to pay Everlast the full $650,000 by February 15, 2022, as per the November 17, 2021 Stipulation of Settlement with Everlast. The Company is now obligated to pay Everlast the judgment amount of $738,945, plus applicable interest (a total of $750,713 as of August 21, 2021) and attorney’s fees, less any payments made. Additionally, the litigation shall now proceed.
The Board has authorized the following executive compensation to its executives:
| - | Upon the closing of an initial financing (greater than $2,000,000) then the CEO shall be issued 1.5% of the fully diluted common stock and the Chairman shall receive 1.0% of the fully diluted common stock; |
|
|
|
| - | Upon the uplisting of the Company to the New York Stock Exchange (NYSE) or the Nasdaq (whether by merger or operations), then the CEO shall be issued 1.5% of the fully diluted common stock and the Chairman shall receive 1.0% of the fully diluted common stock; |
|
|
|
| - | Upon the closing of an acquisition, then the CEO shall be issued a bonus equal 3% of the total enterprise value of the deal and the Chairman shall receive 2% of the total enterprise value of the deal, which may at the option of the Company be paid in cash, or stock. If the bonus is paid in stock, then the stock shall be issued at a 20% discount to the market; |
|
|
|
WHEREAS, the Board desires to establish the following compensation and bonus plan for its CEO and to reserve some bonus stock in anticipation of hiring a COO and CFO:
Total Revenue* (in millions) |
|
| Adjusted EBITDA* |
|
| Exercise Price** |
|
| Percent of Shares CEO *** |
|
| Percent of Shares COO*** |
|
| Percent of Shares CFO*** |
| ||||||
| $ | 1.00 |
|
|
| N/A |
|
| $ | 0.05 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 2.00 |
|
|
| N/A |
|
| $ | 0.125 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 4.00 |
|
|
| N/A |
|
| $ | 0.25 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 8.00 |
|
| $ | 80,000 |
|
| $ | 0.50 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 12.00 |
|
| $ | 150,000 |
|
| $ | 0.75 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 18.00 |
|
| $ | 225,000 |
|
| $ | 1.00 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 30.00 |
|
| $ | 450,000 |
|
| $ | 1.50 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 45.00 |
|
| $ | 675,000 |
|
| $ | 2.50 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
| $ | 75.00 |
|
| $ | 1,312,500 |
|
| $ | 5.00 |
|
|
| 1.00 | % |
|
| 0.25 | % |
|
| 0.25 | % |
* Total Revenue shall be 75% of the share calculation and Adjusted EBITDA shall be 25% of the share calculation
** Exercise Price shall be the lower of the Exercise Price set forth above or a 20% discount to the 5-day VWAP
** Exercise Price shall not be adjusted accordingly for any stock splits, as these Exercise Prices are after giving effect to the split.
*** Percent of Shares shall be based on the number of fully diluted common shares
On March 3, 2022, the Board also authorized 4,000,000 shares to its employees. The shares will be vested immediately and issued all at once.
On April 4, 2022, the Company announced that it filed an amendment to its certificate of incorporation to authorize 29,320,432 shares of Preferred Stock which it will use to satisfy approximately $17.7 Million of principal and accrued interest due under certain convertible notes, representing a conversion rate of $0.60 per share. The amendment authorizing the Preferred Shares was approved by a majority of the Company’s shareholders and was filed with the State of Nevada on March 31, 2022. The amendment is expected to be effective May 31, 2022.
| F-19 |
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