Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2016
Commission file number 000-53707
TRIDENT BRANDS INCORPORATED
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
200 South Executive Drive, Suite 101
Brookfield, WI 53005
(Address of principal executive offices, including zip code)
(262) 789-6689
(Telephone number, including area code)
Resident Agents of Nevada
711 S. Carson Street, Suite 4
Carson City, NV 89701
(Name and Address of Agent for Service)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the last 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer, "accelerated filer,"
"non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
The number of the registrant's common shares outstanding as of July 14, 2016 was
31,000,000.
TRIDENT BRANDS INCORORATED
FORM 10-Q
For the quarterly period ended May 31, 2016
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 6
Consolidated Balance Sheets as at May 31, 2016 (Unaudited)
and November 30, 2015 7
Consolidated Statements of Operations for the three and six
months ended May 31, 2016 and May 31, 2015 (Unaudited) 8
Consolidated Statements of Cash Flows for the six months
ended May 31, 2016 and May 31, 2015 (Unaudited) 9
Notes to Consolidated Unaudited Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
PART II OTHER INFORMATION
Item 6. Exhibits 21
2
BASIS OF PRESENTATION
Except where the context otherwise requires, all references in this Quarterly
Report on Form 10-Q ("Form 10-Q") to the "Company", "we", "us", "our", "Trident"
and "Trident Brands" or similar words and phrases are to Trident Brands
Incorporated and its subsidiaries, taken together.
In this report, all currency amounts are expressed in thousands of United States
("U.S.") dollars ("$"), except per share data, unless otherwise stated. Amounts
expressed in other than U.S. dollars are noted accordingly. For example, amounts
if expressed in Canadian dollars are expressed in thousands of Canadian dollars
and preceded by the symbol "Cdn $".
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements which are based on our
current expectations and assumptions and involve a number of risks and
uncertainties. Generally, forward-looking statements do not relate strictly to
historical or current facts and are typically accompanied by words such as
"anticipate", "estimate", "intend", "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;
* there is doubt about our ability to continue as a going concern due to
recurring losses from operations, an accumulated deficit and
insufficient cash resources on hand to meet our business objectives,
all of which means that we may not be able to continue operations;
* we could face intense competition, which could result in lower
revenues and higher expenditures and could adversely affect our
results of operations;
* we are governed by only three persons serving as directors which may
lead to faulty corporate governance;
* we must attract and maintain key personnel or our business may fail;
* we may not be able to secure additional financing to meet our future
capital needs due to changes in general economic conditions;
* our business and operating results could be harmed if we fail to
manage our growth or change;
* we have a limited operating history and if we are not successful in
growing our business, then we may have to scale back or even cease our
ongoing business operations;
* if our intellectual property is not adequately protected, then we may
not be able to compete effectively and we may not be profitable;
3
* if we are the subject of an intellectual property infringement claim,
the cost of participating in any litigation could impact our ability
to stay in business;
* we could lose our competitive advantages if we are not able to protect
any of our food and nutritional products and intellectual property
rights against infringement, and any related litigation could be
time-consuming and costly;
* if we fail to effectively manage our growth our future business
results could be harmed and our managerial and operational resources
may be strained;
* if we fail to effectively manage our growth our future business
results could be harmed and our managerial and operational resources
may be strained;
* our services may become obsolete and unmarketable if we are unable to
respond adequately to rapidly changing technology and customer
demands;
* our failure to appropriately respond to changing consumer preferences
and demand for new products or product enhancements could
significantly harm product sales and harm our financial condition and
operating results;
* if we do not introduce new products or make enhancements to adequately
meet the changing needs of our customers, some of our products could
fail in the marketplace, which could negatively impact our revenues,
financial condition and operating results;
* we are affected by laws and governmental regulations with potential
penalties or claims, which could harm our financial condition and
operating results;
* since we rely on independent third parties for the manufacture and
supply of certain of our products, if these third parties fail to
reliably supply products to us at required levels of quality and which
are manufactured in compliance with applicable laws, then our
financial condition and operating results would be harmed;
* we may incur material product liability claims, which could increase
our costs and harm our financial condition and operating results;
* unless we can generate sufficient cash from operations or raise
additional funds, we may not be able to meet our debt obligations;
* our customers generally are not obligated to continue purchasing
products from us;
* if we do not manage our supply chain effectively, our operating
results may be adversely affected;
* our stock price may be volatile, which may result in losses to our
shareholders;
* our common shares are thinly traded and our shareholders may be unable
to sell at or near ask prices, or at all;
* the market price for our common stock is particularly volatile given
our status as a relatively small and developing company, which could
lead to wide fluctuations in our share price. Our shareholders may be
unable to sell your common stock at or above their purchase price if
at all, which may result in substantial losses;
4
* 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 are listed 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;
* volatility in our common share price may subject us to securities
litigation;
* the elimination of monetary liability against our directors, officers
and employees under Nevada law and the existence of indemnification
rights of our directors, officers and employees may result in
substantial expenditures by our company and may discourage lawsuits
against our directors, officers and employees; and
* 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.
CORPORATE LEGAL STRUCTURE AND RELATED MATTERS
Trident Brands Incorporated has three legal subsidiaries and also directly holds
the Supply and License Agreement to purchase, market, sell and distribute Oceans
Omega nutritional emulsions. Detailed below is the legal structure of Trident
Brands Incorporated.
Trident Brands Incorporated
/ | \
/ | \
/ | \
100% 100% 85.5%
Trident Brands Sports Nutrition Brain Armor Inc.
Canada Ltd. Products Inc.
Trident Brands Canada Ltd. is 100% owned by Trident Brands and holds various
banking facilities, Sports Nutrition Product Inc. is 100% owned by Trident
Brands and holds the license to market and sell products in the nutritional
foods and supplemetns categories under the Everlast(R) brand, and Brain Armor
Inc. is 85.5% owned by Trident Brands and holds the trademark related to the
Brain Armor(R) brand.
The Company's administrative office is located at 200 South Executive Drive,
Suite 101, Brookfield, Wisconsin, 53005 and its fiscal year end is November
30th.
The Company has authorized capital of 300,000,000 common shares with a par value
of $0.001 per share. 31,000,000 common shares were issued and outstanding as of
May 31, 2016 and 31,000,000 as of July 14, 2016.
5
ITEM 1. FINANCIAL STATEMENTS
The unaudited financial statements for the quarter ended May 31, 2016
immediately follow.
6
TRIDENT BRANDS INCORPORATED
Consolidated Balance Sheets
--------------------------------------------------------------------------------
(unaudited)
As of As of
May 31, 2016 November 30, 2015
------------ -----------------
ASSETS
CURRENT ASSETS
Cash $ 18,600 $ 187,886
Accounts Receivable 148,183 --
Inventory 330,182 145,480
Prepaid 23,882 55,887
------------ ------------
TOTAL CURRENT ASSETS 520,847 389,253
INTANGIBLE ASSETS - LICENSES, NET 2,575,000 --
------------ ------------
TOTAL ASSETS $ 3,095,847 $ 389,253
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 624,547 $ 184,680
Accrued Liability 433,042 181,024
Loan Payable - Related Party, net of discount $26,438 and $0, respectively 353,562 180,000
Loan Payable - Third Party, net of discount $29,017 and $0, respectively 520,983 300,000
Convertible Debt, net of discount $0 and $147,230, respectively 2,300,000 2,152,770
------------ ------------
TOTAL CURRENT LIABILITIES 4,232,134 2,998,474
------------ ------------
TOTAL LIABILITIES 4,232,134 2,998,474
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, ($0.001 par value, 300,000,000 shares
authorized; 31,000,000 shares issued and outstanding
as of May 31 2016 and 28,000,000 as of November 30, 2015 31,000 28,000
Additional paid-in capital 4,074,624 1,177,540
Non-Controlling Interest in Subsidiary (17,568) (14,643)
Accumulated Deficit (5,224,343) (3,800,118)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,136,287) (2,609,221)
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 3,095,847 $ 389,253
============ ============
See Notes to unaudited Financial Statements
7
TRIDENT BRANDS INCORPORATED
Consolidated Statement of Operations (unaudited)
--------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
May 31, 2016 May 31, 2015 May 31, 2016 May 31, 2015
------------ ------------ ------------ ------------
REVENUES $ 204,831 $ 670 $ 224,026 $ 1,640
Cost of Sales 112,157 456 125,977 539
------------ ------------ ------------ ------------
GROSS PROFIT 92,674 214 98,049 1,101
GENERAL & ADMINISTRATIVE EXPENSES (556,644) (566,977) (1,099,988) (820,535)
OTHER INCOME (EXPENSES)
Royalty Fees (80,187) (58,750) (153,127) (107,921)
Interest Expense (103,906) (167,344) (272,084) (256,340)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSES) (184,093) (226,094) (425,211) (364,261)
------------ ------------ ------------ ------------
NET LOSS $ (648,063) $ (792,857) $ (1,427,150) $ (1,183,695)
============ ============ ============ ============
NET LOSS ATTRIBUTABLE TO TRIDENT (647,862) (792,857) (1,424,225) (1,183,695)
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS (201) -- (2,925) --
BASIC EARNING (LOSS) PER SHARE $ (0.02) $ (0.03) $ (0.05) $ (0.04)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 31,000,000 28,000,000 30,393,443 28,000,000
============ ============ ============ ============
See Notes to unaudited Financial Statements
8
TRIDENT BRANDS INCORPORATED
Consolidated Statement of Cash Flows (unaudited)
--------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
May 31, 2016 May 31, 2015
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,427,150) $ (1,183,695)
Adjustments to reconcile net loss to net cash
used in operating activities:
Debt issuance cost -- 34,250
Amortization of debt discount 170,551 176,019
Amortization of license 125,000
Compensation-Options 121,308 --
Changes in operating assets and liabilities:
Accounts Receivable (148,183) --
Prepaid expenses 32,005 (80,509)
Inventory (184,702) (201,834)
Accounts payable and accrued liabilities 691,885 (1,348)
------------ ------------
CASH USED IN OPERATING ACTIVITIES (619,286) (1,257,117)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on loan payable - related party -- (140,070)
Proceeds on loan payable - related party 200,000 75,000
Principal payments on loan payable - third party -- (123,000)
Proceeds on loan payable - third party 250,000 100,000
Proceeds on convertible debt -- 2,300,000
------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES 450,000 2,211,930
------------ ------------
NET CHANGE IN CASH (169,286) 954,813
CASH AT BEGINNING OF PERIOD 187,886 352
------------ ------------
CASH AT END OF PERIOD $ 18,600 $ 955,165
============ ============
NON-CASH TRANSACTIONS
Beneficial conversion features $ -- $ 647,887
Common stock issued for asset acquisition 2,700,000 --
Relative fair value of warrant recorded as debt discount 78,776 --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR:
INCOME TAXES $ -- $ --
============ ============
INTEREST $ -- $ 34,250
============ ============
See Notes to unaudited Financial Statements
9
TRIDENT BRANDS INCORPORATED
Notes to (Unaudited) Consolidated Financial Statements
May 31, 2016
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Trident Brands Incorporated (f/k/a Sandfield Ventures Corp.) ("the Company") was
incorporated under the laws of the State of Nevada on November 5, 2007. The
Company was formed to engage in the acquisition, exploration and development of
natural resource properties.
The Company is now focused on consumer products. The objective is investment in
and development of high growth consumer brands and ingredients businesses. The
Company is in its early growth stage and has transitioned out of it's shell
status with the Super-8 filing at the end of August, 2014. Activities to date
have been limited to capital formation, organization, development of its
business plan, and development of an array of products for sale and initial
commercialization efforts.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Trident Brands
Incorporated have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction with the
audited financial statements and notes thereto contained in Trident's Form 10-K
filed with SEC. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have
been reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes to
the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for fiscal 2015 as reported on
Form 10-K have been omitted.
NOTE 3. GOING CONCERN
The accompanying financial statements are presented on a going concern basis.
The Company has had minimal revenues during the period from November 5, 2007
(date of inception) to May 31, 2016 and has a working capital deficit as of May
31, 2016. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The Company is currently in the early growth
stage at product introduction phase and expenses are increasing. The company has
secured financing to cover these expenses. The current cash of $18,600, is
insufficient to cover the expenses the Company will incur during the next twelve
months. The Company is currently pursuing various financing alternatives in
order to address this issue
NOTE 4. WARRANTS AND OPTIONS
On May 1, 2016, 100,000 stock options were granted to Steve Bromley, a Special
Advisor to the Company and Chair of our Advisory Committee, with 50,000 of the
options exercisable at a price of $1.25 per share, vesting May 1, 2017 and the
remaining 50,000 options exercisable at a price of $1.50 per share, vesting May
1, 2018. All 100,000 options expire on May 1, 2021. The total outstanding stock
options as of May 31, 2016 are 2,475,000.
10
TRIDENT BRANDS INCORPORATED
Notes to (Unaudited) Consolidated Financial Statements
May 31, 2016
--------------------------------------------------------------------------------
The company uses the Black-Scholes model to value the stock options. Following
are the assumptions used for the shares vested 12 and 24 months from the date of
issuance: Discount rate .9% and 1.29%; Volatility 80.54% and 75.85%; and Term
3.0 and 3.5.
During the six months ended May 31, 2016, $121,308 was recognized as options
expense.
The following table represents stock option activity for the period ended May
31, 2016:
Number of Weighted Average Contractual Life Intrinsic
Options Exercise Price in Years Value
------- -------------- -------- -----
Outstanding - Nov. 30, 2015 2,375,000 $1.15 3.5
Exercisable - Nov. 30, 2015 958,334 $2.00 3.4 $354,583
Granted 100,000 $1.38 4.92
Exercised or Vested 0
Cancelled or Expired 0
Outstanding - May 31, 2016 2,475,000 $0.89 3.01
Exercisable - 31, 2016 1,541,667 $0.59 2.93 $316,667
On January 29, 2016, the Company issued 125,000 warrants to purchase common
shares of the Company along with the $250,000 secured third party promissory
note. The relative fair value is $43,526 which is recognized as debt discount.
As of May 31, 2016, $14,509 of the debt discount is amortized and the
unamortized discount is $29,017.
On March 4, 2016, the Company issued 100,000 warrants to purchase common shares
of the Company along with the $200,000 secured related party promissory note.
The relative fair value is $35,250 which is recognized as debt discount. As of
May 31, 2016, $8,812 of the debt discount is amortized and the unamortized
discount is $26,438.
The exercise price of both warrants are $1.35 with a term of 3 years and are
vested immediately. The company uses the Black-Scholes model to value the
warrants. Following are the assumptions used: Discount rate .9%; Volatility
76.25% and 77.30% respectively.
The following table represents warrant activity for the period ended May 31,
2016:
Number of Weighted Average Contractual Life Intrinsic
Warrants Exercise Price in Years Value
-------- -------------- -------- -----
Outstanding - Nov. 30, 2015 0
Exercisable - Nov. 30, 2015 0
Granted 225,000 $1.35 2.70
Exercised or Vested 0
Cancelled or Expired 0
Outstanding - May 31, 2016 225,000 $1.35 2.70
11
TRIDENT BRANDS INCORPORATED
Notes to (Unaudited) Consolidated Financial Statements
May 31, 2016
--------------------------------------------------------------------------------
NOTE 5. RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. The company
is paying a director $500 per month rent for use of office space and services.
During the quarter ended November 30, 2015, Continental Ingredients Canada, Inc.
of which the Company's CEO owns significant interest, loaned the Company
$180,000 bearing interest at the rate of 8% per annum, payable on maturity,
calculated on the principal amount of the loan outstanding. The $180,000 note
was advanced during the year ended November 30, 2015. Unless paid earlier, the
loan and accrued and unpaid interest shall be payable in full on November 2,
2016. As of May 31, 2016, the full amount of the loan is outstanding.
On February 29, 2016, we entered into a Securities Purchase Agreement with
Continental Ingredients Canada, Inc. whereby we received proceeds of $200,000 on
March 4, 2016 in return for a $200,000 secured promissory note due 12 months
from the issuance date, bearing interest at the rate of 10% per annum, and
100,000 warrants to purchase common shares of our Company at an exercise price
of $1.35 per share for three years from the date of issue. As of May 31, 2016,
the full amount of the loan is outstanding. See note 4 for valuation of
warrants.
During the year, the Company purchased inventory from Continental Ingredients
Canada, Inc. The total amount of inventory purchased was $316,086.
NOTE 6. LOAN PAYABLE - THIRD PARTY
We have three short term loans. One for $200,000, one for $100,000 and the other
for $250,000 bearing interest at the rate of 8.0%, 8.0% and 10.0% per annum
respectively, payable on maturity, calculated on the principle amount of the
loan outstanding. Unless paid earlier, the loan and accrued and unpaid interest
shall be payable in full on April 30, 2015 (payment maturity date extended to
October 31, 2015 and while now technically in default, the parties to the
obligation are negotiating a deal for repayment), July 21, 2015 (payment
maturity date extended to April 30, 2016 and while now technically in default,
the parties to the obligation are negotiating a deal for repayment) and January
29, 2017 respectively. As of May 31, 2016, the full amount of the loans are
outstanding and the accrued interest expense is $56,548 ($33,333, $14,882 and
$8,333 respectively).
NOTE 7. CONVERTIBLE DEBT
On January 29, 2015, Trident Brands Incorporated 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.
The convertible debentures are convertible into shares of the Company's common
stock at an initial conversion price of $.71 per share, for an aggregate of up
to 3,239,437 shares. The debentures bear interest at 6% per annum. The
applicable portion of the Principal Amount and the Interest outstanding shall be
12
TRIDENT BRANDS INCORPORATED
Notes to (Unaudited) Consolidated Financial Statements
May 31, 2016
--------------------------------------------------------------------------------
due and payable on the date that is 12 months from the applicable Issuance Date.
While the $2,300,000 is now technically in default, the parties to the
obligation are negotiating a deal for repayment.
Due to the note being convertible to the company common shares, beneficial
conversion features analysis was performed. The intrinsic value of the
conversion feature was $647,887 which was recognized as debt discount. During
the six months ended May 31, 2016, $147,230 of debt discount was amortized and
the unamortized discount is $0.
As of May 31, 2016 and November 30, 2015, the outstanding balance of the
convertible debt is 2,300,000 and $2,152,770, net of discount of $0 and
$147,230, respectively.
The Company analyzed the embedded conversion option for derivative accounting
consideration under ASC 815-15 "Derivatives and Hedging" and determined that the
conversion option should be classified as equity.
NOTE 8. INTANGIBLE ASSETS
On January 22, 2015, pursuant to a Deed of Assignment dated effective January
20, 2015, the Company entered into an Emulsion Supply Agreement with Oceans
Omega LLC which represents the rights acquired pursuant to the Deed of
Assignment. The Emulsion Supply Agreement provides the Company with the
non-exclusive right and license (without the right to sublicense) to purchase,
market, promote, sell and distribute Oceans Omega LLC's omega-3 emulsions for
use in the development, production, processing, manufacture and sale of food and
beverages (exclusive meats) for human or animal consumption. On January 6, 2016
the Company issued 3,000,000 shares to mark the closing of the Deed of
Assignment and the Emulsion Supply Agreement, which did not specify the amount
of consideration payable by the Company when they were executed on January 20,
2015. The consideration payable was subsequently established by the parties at a
market value of $2,700,000 based on the closing price of the common shares as
quoted on the OTC Markets quotation systems on January 6, 2016. The value of the
license is being amortized over the remaining contractual life which is 9 years.
As of May 31, 2016, the net value of the license was $2,575,000 after amortizing
$125,000.
NOTE 9. SUBSEQUENT EVENTS
Effective June 1, 2016 the Company issued to Mr. Bromley an additional 200,000
stock options under the 2013 Stock Option Plan, with 100,000 of the options
exercisable at a price of $1.25 per share, vesting June 1, 2017 and the
remaining 100,000 options exercisable at a price of $1.50 per share, vesting
June 1, 2018. All 200,000 options expire on June 1, 2021
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read in conjunction with the interim
consolidated financial statements, and notes thereto, for the quarter and two
quarters ended May 31, 2016 and May 31, 2015 contained under Item 1 of this
Quarterly Report on Form 10-Q ("Form 10-Q") and in conjunction with the annual
consolidated financial statements, and notes thereto, contained in the Annual
Report on Form 10-K for the fiscal year ended November 30, 2015 ("Form 10-K").
Unless otherwise indicated herein, the discussion and analysis contained in this
MD&A includes information available to July 14, 2016.
Certain statements contained in this MD&A may constitute forward-looking
statements as defined under securities laws. Forward-looking statements may
relate to our future outlook and anticipated events or results and may include
statements regarding our future financial position, business strategy, budgets,
litigation, projected costs, capital expenditures, financial results, taxes,
plans and objectives. In some cases, forward-looking statements can be
identified by terms such as "anticipate", "estimate", "intend", "project",
"potential", "continue", "believe", "expect", "could", "would", "should",
"might", "plan", "will", "may", "predict", the negatives of such terms, and
other similar expressions concerning matters that are not historical facts. To
the extent any forward-looking statements contain future-oriented financial
information or financial outlooks, such information is being provided to enable
a reader to assess our financial condition, material changes in our financial
condition, our results of operations, and our liquidity and capital resources.
Readers are cautioned that this information may not be appropriate for any other
purpose, including investment decisions.
Forward-looking statements contained in this MD&A are based on certain factors
and assumptions regarding expected growth, results of operations, performance,
and business prospects and opportunities. While we consider these assumptions to
be reasonable, based on information currently available, they may prove to be
incorrect. Forward-looking statements are also subject to certain factors,
including risks and uncertainties that could cause actual results to differ
materially from what we currently expect. These factors are more fully described
in the "Risk Factors" section at Item 1A of the Form 10-K.
Forward-looking statements contained in this commentary are based on our current
estimates, expectations and projections, which we believe are reasonable as of
the date of this report. You should not place undue importance on
forward-looking statements and should not rely upon this information as of any
other date. Other than as required under securities laws, we do not undertake to
update any forward-looking information at any particular time.
All dollar amounts in this MD&A are expressed in thousands of U.S. dollars,
except per share amounts, unless otherwise noted.
BUSINESS DEVELOPMENTS
On December 8, 2015, a Letter of Intent ("LOI") was signed confirming the
intention of Trident Brands Inc. and Continental Ingredients Canada Inc. ("CIC")
to enter into negotiations regarding the potential acquisition by Trident of up
to 43% of the voting securities of CIC with an option to acquire the balance of
all remaining issued and outstanding voting securities at the time of the
closing of the transaction. Approval of any subsequent agreement, if any, is
subject to approval by a Special Committee of the Board by April 15, 2016.
On December 9, 2015, we entered into a revised Product Development Agreement
("PDA") with Continental Ingredients Canada Inc. ("CIC") pursuant to which we
engaged CIC on an exclusive basis to provide services for the development,
manufacturing, and supply of our Everlast Nutrition(R) and Brain Armor(TM) brand
nutritional supplements, and functional food and beverage products. CIC's
services will include research and development, design, ingredient sourcing,
production, distribution, and inventory management of our planned portfolio of
14
branded products. In addition, CIC will manage all third party suppliers and
manufacturers, and provide us with office space at their Oakville, Ontario,
facility. The term of the PDA is for 5 years, expiring on December 9, 2020. The
term will renew automatically for successive 12 month periods unless terminated
by either party with 6 months' notice. This PDA replaced our previous agreement
with CIC dated May 5, 2014 regarding our Everlast Nutrition(R) products. On
March 1st 2016, the PDA was further amended to clarify that while neither party
to the agreement can assign its interests or obligations without the prior
written consent of the other party, a change of control in CIC shall not be
considered an assignment of CIC's rights and obligations.
Effective December 15, 2015, Michael Browne resigned as President of our Company
to focus on his Brand Director, Chief Financial Officer, Secretary and Treasurer
responsibilities. Mr. Browne's resignation was not the result of any
disagreement with our Company regarding our operations, policies, practices or
otherwise.
Also, effective December 15, 2015, Donald MacPhee, one of our board members and
Chair of the Audit Committee, was appointed as President and Chief Executive
Officer of our Company.
On January 6, 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.
On January 29, 2016, we entered into a Securities Purchase Agreement with one
investor whereby we received proceeds of $250,000 in return for a $250,000
secured promissory note due 12 months from the issuance date, bearing interest
at the rate of 10% per annum, and 125,000 warrants to purchase common shares of
our Company at an exercise price of $1.35 per share for three years from the
date of issue.
On February 29, 2016, we entered into a Securities Purchase Agreement with CIC
whereby we received proceeds of $200,000 on March 4, 2016 in return for a
$200,000 secured promissory note due 12 months from the issuance date, bearing
interest at the rate of 10% per annum, and 100,000 warrants to purchase common
shares of our Company at an exercise price of $1.35 per share for three years
from the date of issue.
On May 1, 2016, we entered into a Special Advisor Consulting Agreement with
Bromley Consulting & Advisory Inc. ("Bromley Consulting") and Steve Bromley
pursuant to which Bromley Consulting agreed to provide the services of Steve
Bromley as a Special Advisor to the Company and as Chair of our Advisory
Committee. The initial term of the Agreement is for one year and will renew
automatically for successive one year periods unless terminated by either party
with not less than 30 days' notice. In consideration of the engagement, we have
agreed to pay Bromley Consulting an annual retainer of $30,000 payable in
monthly installments of $2,500 plus fees for additional services to be mutually
agreed, and we issued to Mr. Bromley 100,000 stock options under our 2013 Stock
Option Plan, with 50,000 of the options exercisable at a price of $1.25 per
share, vesting May 1, 2017 and the remaining 50,000 options exercisable at a
price of $1.50 per share, vesting May 1, 2018. All 100,000 options expire on May
1, 2021. Effective June 1, 2016 we issued to Mr. Bromley an additional 200,000
stock options under our 2013 Stock Option Plan, with 100,000 of the options
exercisable at a price of $1.25 per share, vesting June 1, 2017 and the
remaining 100,000 options exercisable at a price of $1.50 per share, vesting
June 1, 2018. All 200,000 options expire on June 1, 2021.
RESULTS OF OPERATIONS
The following summary of our results of operations should be read in conjunction
with our unaudited financial statements for the three month and six month
periods ended May 31, 2016 and May 31, 2015.
THREE MONTH PERIODS ENDED MAY 31, 2016 AND MAY 31, 2015
Our operating results for the three month periods ended May 31, 2016 and May 31,
2015 are summarized as follows:
15
Three Months Three Months
Ended Ended
May 31, 2016 May 31, 2015
------------ ------------
Revenues $204,831 $ 670
Gross Profit $ 92,674 $ 214
Operating Expenses $556,644 $566,977
Other Expenses $184,093 $226,094
Net Loss $648,063 $792,857
REVENUES AND GROSS PROFIT
While still in the early stages of commercialization, our revenues increased in
the second quarter of 2016 to $204,831 versus $670 in the prior year as we have
commenced commercialization of our product offerings and realized increased
sales of both Everlast(R) and Brain Armor(R) product lines, primarily through
e-retailers. Gross Profit increased accordingly in the second quarter of 2016 to
$92,674 or 45.2% of revenues versus $214 or 31.9% of revenues in the prior year,
indicative of increased efficiencies and an improved product mix. During the
quarter we incurred manufacturing delays on the production of certain
Everlast(R) products, resulting in reduced revenues in the quarter, and it is
expected that this will also have an impact on Everlast(R) revenues in the third
quarter as well. Even so, we expect both Everlast(R) and Brain Armor(R) revenues
to continue to ramp-up over the course of 2016 as commercial efforts gain
traction, new listings are realized and further product innovation is brought to
the market. We also expect Oceans Omega revenues to ramp-up later in the year as
the product gains traction in customer applications currently in development and
is also incorporated into Everlast(R) and Brain Armor(R) line extensions.
OPERATING EXPENSES
Our operating expenses for the three month periods ended May 31, 2016 and May
31, 2015 are summarized below:
Three Months Three Months
Ended Ended
May 31, 2016 May 31, 2015
------------ ------------
Professional Fees $ 23,764 $ 96,809
General & Administrative Expenses $295,819 $164,130
Marketing, Selling & Warehousing Expenses $205,723 $264,598
Management Salary $ 11,500 $ 21,000
Director's Fees $ 18,000 $ 18,000
Rent $ 1,838 $ 2,440
Operating expenses for the three month period ended May 31, 2016 were $556,644
as compared to $566,977 for the comparative period in 2015, a decrease of 1.8%.
The decrease in our operating expenses was primarily due to reduced marketing
and promotional expenses based on the timing of certain expenditures in the
prior year, a focused effort in 2016 to delay certain marketing and selling
costs as a result of manufacturing issues delaying the roll-out of the new
Everlast Nutrition SKU's and reduced professional fees, offset by increased
general and administrative costs including advertising and promotion, as we
build-out our organization and roll-out our product offerings, as well as
incremental non-cash costs of $40,005 due to stock option compensation expense
and amortization of a license acquired during the first quarter of 2016. These
costs are expected to continue to increase throughout 2016 as we continue to
develop and commercialize our product offerings.
16
OTHER EXPENSES
Other expenses for the three month period ended May 31, 2016 decreased to
$184,093 versus $226,094 in the comparative period in 2015. The decrease was due
to the reduction in interest expense related to the beneficial conversion
feature on the convertible debt offset by an increase in interest expense due to
higher debt levels plus an increase in royalties as per the terms of the
Everlast(R) License Agreement.
SIX MONTH PERIODS ENDED MAY 31, 2016 AND MAY 31, 2015
Our operating results for the six month periods ended May 31, 2016 and May 31,
2015 are summarized as follows:
Six Months Six Months
Ended Ended
May 31, 2016 May 31, 2015
------------ ------------
Revenues $ 224,026 $ 1,640
Gross Profit $ 98,049 $ 1,101
Operating Expenses $1,099,988 $ 820,535
Other Expenses $ 425,211 $ 364,261
Net Loss $1,427,150 $1,183,695
REVENUES AND GROSS PROFIT
While still in the early stages of commercialization, our revenues increased in
the first half of 2016 as we have commenced commercialization of our product
offerings and realized increased sales of both Everlast(R) and Brain Armor(R)
product lines, primarily through e-retailers. Gross Profit increased accordingly
in the first six months of the year to $98,049 or 43.8% of revenues versus
$1,101 or 67.1% of revenues in the prior year, indicative of increased volumes
and normalized product mix. During the second quarter of 2016 we incurred
manufacturing delays on the production of certain Everlast(R) products,
resulting in reduced revenues in the quarter and year-to-date, and it is
expected that this will also have an impact on Everlast(R) revenues in the third
quarter as well. Even so, we expect both Everlast(R) and Brain Armor(R) revenues
to continue to ramp-up over the course of 2016 as commercial efforts gain
traction, new listings are realized and further product innovation is brought to
the market. We also expect Oceans Omega revenues to ramp-up later in the year as
the product gains traction in customer applications currently in development and
is also incorporated into Everlast(R) and Brain Armor(R) line extensions.
OPERATING EXPENSES
Our operating expenses for the six month periods ended May 31, 2016 and May 31,
2015 are summarized below:
Six Months Six Months
Ended Ended
May 31, 2016 May 31, 2015
------------ ------------
Professional Fees $ 99,753 $162,270
General & Administrative Expenses $576,061 $203,765
Marketing, Selling & Warehousing Expenses $363,829 $371,663
Management Salary $ 20,500 $ 42,000
Director's Fees $ 36,000 $ 36,000
Rent $ 3,845 $ 4,837
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Operating expenses for the six month period ended May 31, 2016 were $1,099,988
as compared to $820,535 for the comparative period in 2015, an increase of
34.1%. The increase in our operating expenses is primarily due to increased
general and administrative costs and marketing and promotional expenses as we
build and roll-out our product offerings, as well as incremental non-cash costs
of $121,308 due to stock option compensation expense and amortization costs of
$125,000 related to a license acquired during the first quarter of 2016. These
costs are expected to continue to increase throughout 2016 as we continue to
develop and commercialize our product offerings.
OTHER EXPENSES
Other expenses for the six month period ended May 31, 2016 increased to $425,211
versus $364,261 in the comparative period in 2015. The increase was due to
increased royalty fees of $45,206 and increased interest expense due to higher
debt levels.
BALANCE SHEET DATA
The following table provides selected balance sheet as at May 31, 2016.
Balance Sheet Data: May 31, 2016 November 30, 2015
------------------- ------------ -----------------
Cash $ 18,600 $ 187,886
Total assets $ 3,095,847 $ 389,253
Total liabilities $ 4,232,134 $ 2,998,474
Shareholders' equity (deficit) $(1,136,287) $(2,609,221)
During the first half of 2016 total assets increased significantly due to the
value of the license agreement for the rights to purchase, market, sell and
distribute certain Omega 3 emulsions produced by Oceans Omega LLC. Stockholders
equity also increased as this license was acquired for shares, thus increasing
the Additional Paid in Capital.
STRATEGIC ORIENTATION
Our goal is to provide our shareholders with solid returns through strategic
investments across multiple branded product platforms. The platforms we are
focusing on include:
* Life science technologies that have applications to a range of
consumer products;
* Consumer hard and soft goods providing defined benefits to the
consumer; and
* Functional foods and beverages ingredients with defined health and
wellness benefits.
We are building our business through strategic investments in high growth early
stage consumer brands and functional ingredients businesses within
segment/sectors which we believe offer long term growth potential, leveraging an
asset light business model, and partnering with a number of strategic partners
to bring our products to market.
While we have yet to realize break even cash flows or profitability, we believe
we are making good progress against our goals and objectives, and expect
revenues and margins to increase as we begin commercializing the products within
our portfolio. All three of our product platforms show solid potential in the
markets where they compete and both our Everlast(R) and Brain Armor(R) product
lines are now in the market and generating revenues. Our strategy was to first
establish listings for these products with non-bricks and mortar accounts, and
this has been successful. Brain Armor(R) has now been listed at a large retail
account as well, and we expect listings for Everlast(R) to follow. The
development of Oceans Omega as an ingredient for food and beverage products is
ongoing, and given the longer sales cycle for ingredients, we expect to realize
revenues later in fiscal 2106 both through external customer product development
and also internally via line extensions for both the Everlast(R) and Brain
Armor(R) product lines.
18
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance at May 31, 2016 was $18,600 with $4,232,134 in outstanding
liabilities including loans payable and convertible debt.
We have two loans payable to a related party (CIC) one for $180,000 bearing
interest at a rate of 8% per annum, due November 2, 2016 and the other one for
$200,000 at a rate of 10%, due March 4, 2017. As at May 31, 2016, the full
amount of the loans are outstanding and the accrued interest expense is $8,400
and 5,000 respectively.
We have three short term loans from third parties. One for $200,000, one for
$100,000 and the other for $250,000 bearing interest at the rate of 8.0%, 8.0%
and 10.0% per annum respectively, payable on maturity, calculated on the
principle amount of the loan outstanding. Unless paid earlier, the loan and
accrued and unpaid interest amounts on these loans shall be payable in full on
April 30, 2015 (payment maturity date extended to October 31, 2015 and while
technically in default the parties to the obligation are working co-operatively
to finalize the terms of repayment), July 21, 2015 (payment maturity date
extended to April 30, 2016 and while technically in default, the parties are
working co-operatively to finalize the terms of repayment) and January 29, 2017
respectively. As of May 31, 2016, the full amounts of these loans are
outstanding and the accrued interest expense is $33,333, $14,882 and $8,333
respectively. The loan for $250,000 also included the issuance of warrants, thus
the carrying value of the loan has been reduced on the balance sheet to reflect
the discount associated with the warrants.
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 May14, 2015.
The convertible debentures are convertible into shares of the Company's common
stock at an initial conversion price of $.71 per share, for an aggregate of up
to 3,239,437 shares. The debentures bear interest at 6% per annum. The
applicable portion of the principal amount and the interest outstanding shall be
due and payable on the date that is 12 months from the applicable issuance date
or such other time as the parties may agree upon. The accrued interest expense
is $173,442. Due to the note being convertible into common shares at a discount
to the market price of the shares at the time of issuance, a beneficial
conversion discount in the amount of $647,887 was recorded and is being
amortized over the term of the debenture. The unamortized convertible debenture
discount at May 31, 2016 is $0.
On January 29, 2016 and February 29, 2016, we entered into Securities Purchase
Agreements whereby we received proceeds of $250,000 on February 3, 2016 and
$200,000 on March 4, 2016 in return for secured promissory notes of $250,000 and
$200,000 due 12 months from the issuance date, bearing interest at the rate of
10% per annum, and 125,000 and 100,00 warrants respectively to purchase common
shares of our Company at an exercise price of $1.35 per share for three years
from the date of issue.
Going forward we need to continue to raise funds via both debt and equity
offerings to support the anticipated growth of our business. While funds on hand
are not sufficient to fund our operations for the next twelve months, management
are actively pursuing a number of financing alternatives to raise required
funds.
These funds may be raised through equity financing, debt financing, or other
sources, some of which may lead to dilution in the equity ownership of our
shares. Without these funds, there is no assurance that we will be able to
maintain operations at a level sufficient for an investor to obtain a return on
their investment in our common stock.
GOING CONCERN
The accompanying financial statements included in this Form 10-Q are presented
on a going concern basis. There is substantial doubt about our ability to
continue as a going concern.
19
As shown in the accompanying financial statements, we have incurred net losses
of $5,224,343 since inception. This condition raises substantial doubt as to our
ability to continue as a going concern. In response to these conditions, we may
raise additional capital through the sale of equity securities, through an
offering of debt securities or through borrowings from financial institutions or
individuals. The financial statements do not include any adjustments that might
be necessary if we are unable to continue as a going concern.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
CONTRACTUAL OBLIGATIONS
Except for the transactions noted in Business Developments, there have been no
material changes outside the normal course of business in our contractual
obligations since November 30, 2015.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, related revenues and expenses, and disclosure
of gain and loss contingencies at the date of the financial statements. The
estimates and assumptions made require us to exercise our judgment and are based
on historical experience and various other factors that we believe to be
reasonable under the circumstances. We continually evaluate the information that
forms the basis of our estimates and assumptions as our business and the
business environment generally changes. The use of estimates is pervasive
throughout our financial statements. There have been no material changes to the
critical accounting estimates disclosed under the heading "Critical Accounting
Estimates" in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations", of the Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our principal executive officer and the principal financial officer, we have
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934, as of the end of the period
covered by this report. Based on this evaluation, our principal executive
officer and principal financial officer concluded as of the evaluation date that
our disclosure controls and procedures were not effective such that the material
information required to be included in our Securities and Exchange Commission
reports is accumulated and communicated to our management, including our
principal executive and financial officer, recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms relating to
our company, particularly during the period when this report was being prepared.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
Our management, with the participation of our principal executive officer and
principal financial officer have concluded that there have been no changes in
our internal control over financial reporting that occurred during the last
fiscal quarter ended May 31, 2016 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
The following exhibits are included with this quarterly filing:
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation*
3.2 Bylaws*
31.1 Sec. 302 Certification of Chief Executive Officer
31.2 Sec. 302 Certification of Chief Financial Officer
32.1 Sec. 906 Certification of Chief Executive Officer
32.2 Sec. 906 Certification of Chief Financial Officer
101 Interactive data files pursuant to Rule 405 of Regulation S-T.
----------
* Document is incorporated by reference and can be found in its entirety in
our Registration Statement on Form SB-2, SEC File Number 333-148710, at the
Securities and Exchange Commission website at .
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
July 14, 2016 Trident Brands Incorporated
/s/ Donald MacPhee
----------------------------------------------
By: Donald MacPhee
(President, Chief Executive Officer, Director)
/s/ Mike Browne
----------------------------------------------
By: Mike Browne
(Chief Financial Officer)
/s/ Mark Holcombe
----------------------------------------------
By: Mark Holcombe
(Director & Chair of the Board)
/s/ Scott Chapman
----------------------------------------------
By: Scott Chapman
(Director)
2
