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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 For the quarterly period ended September 30, 2015

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to __________.

 

Commission File Number: 000-54277

 

BANJO & MATILDA, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

27-1519178

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. employer identification number)

 

1221 2nd Street #300

Santa Monica CA 90401

(Address of principal executive offices and zip code)

 

(855) 245-1613 

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

x

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of December 31, 2016, the Registrant had outstanding 58,823,116 shares of common stock.

 

 
 

 

BANJO & MATILDA, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

Page

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.

Financial statements

 

4

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

F-1

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

F-2

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

F-3

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

F-4

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

5

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

6

 

Item 4.

Controls and Procedures

 

6

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

8

 

Item 1A.

Risk Factors

 

8

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

8

 

Item 3.

Defaults Upon Senior Securities

 

8

 

Item 4.

Mine Safety Disclosures

 

8

 

Item 5.

Other Information

 

8

 

Item 6.

Exhibits

 

9

 

SIGNATURES

 

10 

 

 
2
Table of Contents

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to statements regarding projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to those set forth herein and in our Annual Report on Form 10-K.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by the federal securities laws, we undertake no obligation to update forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

 

 
3
Table of Contents

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial statements

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Consolidated Balance Sheets

 

F-1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

F-2

 

Condensed Consolidated Statements of Cash Flows

 

F-3

 

Notes to Condensed Consolidated Financial Statements

 

F-4

 

 
4
Table of Contents

 

BANJO & MATILDA INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

June 30,

 

 

 

2015

 

 

2015

 

 

 

(Unaudited)

 

 

 

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$ 27,083

 

 

$ 362,668

 

Trade receivables, net

 

 

525,493

 

 

 

180,289

 

Inventory, net

 

 

76,718

 

 

 

174,792

 

Deposit on purchases

 

 

259,289

 

 

 

357,804

 

Other assets

 

 

70,983

 

 

 

5,550

 

TOTAL CURRENT ASSETS

 

 

959,566

 

 

 

1,081,103

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

 

Intangible assets, net

 

 

43,326

 

 

 

45,011

 

Deferred financing costs, net

 

 

43,182

 

 

 

47,107

 

Other receivable

 

 

-

 

 

 

66,952

 

Property, plant and equipment, net

 

 

12,759

 

 

 

12,139

 

TOTAL NON-CURRENT ASSETS

 

 

99,266

 

 

 

171,208

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 1,058,833

 

 

$ 1,252,311

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Trade and other payables

 

$ 675,536

 

 

$ 633,394

 

Deposit payable

 

 

1,159

 

 

 

1,159

 

Trade financing

 

 

780,313

 

 

 

779,653

 

Accrued interest

 

 

90,038

 

 

 

69,824

 

Loans payable

 

 

221,806

 

 

 

229,288

 

Loan from related parties

 

 

176,986

 

 

 

217,855

 

Convertible loan from related party (net of discount)

 

 

163,059

 

 

 

-

 

TOTAL CURRENT LIABILITIES

 

 

2,108,896

 

 

 

1,931,172

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Loans payable (net of related discount)

 

 

400,973

 

 

 

563,357

 

Convertible loan from related party (net of discount) (net of current portion)

 

 

212,670

 

 

 

-

 

TOTAL NON-CURRENT LIABILITIES

 

 

613,643

 

 

 

563,357

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

2,722,539

 

 

 

2,494,529

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value, 100,000,000 shares authorized

 

 

 

 

 

 

 

 

and 1,000,000 shares issued and outstanding, respectively

 

 

10

 

 

 

10

 

Common stock, $0.00001 par value, 100,000,000 shares authorized and

 

 

 

 

 

 

 

 

58,823,116 and 58,323,116 shares issued and outstanding, respectively

 

 

588

 

 

 

583

 

Additional paid in capital

 

 

1,591,051

 

 

 

1,759,187

 

Other accumulated comprehensive gain

 

 

100,007

 

 

 

100,007

 

Accumulated deficit

 

 

(3,355,363 )

 

 

(3,102,005 )

TOTAL STOCKHOLDERS' DEFICIT

 

 

(1,663,707 )

 

 

(1,242,219 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$ 1,058,833

 

 

$ 1,252,311

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
F-1
Table of Contents

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(UNAUDITED)

 

 

 

 

 

 

 

 

 

September 30, 2015

 

 

September 30, 2014

 

 

 

 

 

 

 

 

Revenue

 

$ 880,304

 

 

$ 746,763

 

Cost of sales

 

 

571,807

 

 

 

411,733

 

Gross profit

 

 

308,497

 

 

 

335,030

 

 

 

 

 

 

 

 

 

 

Payroll and employee related expenses

 

 

261,965

 

 

 

172,404

 

Operating expense

 

 

62,720

 

 

 

54,548

 

Marketing expense

 

 

68,420

 

 

 

105,792

 

Samples & design expense

 

 

36,603

 

 

 

-

 

Occupancy expenses

 

 

13,365

 

 

 

13,239

 

Depreciation and amortization expense

 

 

2,265

 

 

 

3,269

 

Finance Charges

 

 

15,381

 

 

 

40,751

 

Corporate and public company expense

 

 

32,387

 

 

 

36,539

 

 

 

 

493,106

 

 

 

426,542

 

Loss from operations

 

 

(184,610 )

 

 

(91,512 )

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

Other income

 

 

12,678

 

 

 

-

 

Amortization of debt discount

 

 

(18,094 )

 

 

-

 

Interest expense

 

 

(63,332 )

 

 

(46,179 )

Total Other Expense

 

 

(68,748 )

 

 

(46,179 )

 

 

 

 

 

 

 

 

 

Loss before income tax

 

 

(253,358 )

 

 

(137,691 )

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(253,358 )

 

 

(137,691 )

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

-

 

 

 

(5,424 )

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$ (253,358 )

 

$ (143,115 )

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ (0.00 )

Diluted

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

58,619,819

 

 

 

27,924,631

 

Diluted

 

 

58,619,819

 

 

 

27,924,631

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
F-2
Table of Contents

 

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(UNAUDITED)

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

Net loss

 

$ (253,358 )

 

$ (137,691 )

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

 

 

used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

580

 

 

 

692

 

Amortization

 

 

1,686

 

 

 

2,577

 

Effect of exchange rate changes on cash and cash equivalents

 

 

-

 

 

 

(1,191 )

Debt discount amortization

 

 

18,094

 

 

 

-

 

Amortization of deferred finance fee

 

 

3,926

 

 

 

-

 

(Increase) / decrease in assets:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(345,204 )

 

 

(67,684 )

Inventory

 

 

98,074

 

 

 

(259,528 )

Deposit on Purchases

 

 

98,515

 

 

 

-

 

Other assets

 

 

(65,433 )

 

 

3,071

 

Other receivable

 

 

66,952

 

 

 

(7,565 )

Increase in current liabilities:

 

 

 

 

 

 

 

 

Trade payables and other liabilities

 

 

69,268

 

 

 

56,078

 

Accrued interest

 

 

20,211

 

 

 

7,543

 

Deposits payable

 

 

-

 

 

 

30,413

 

Net cash used in operating activities

 

 

(286,690 )

 

 

(373,285 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,200 )

 

 

(2,873 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from issuance of stock

 

 

-

 

 

 

32,770

 

Net (payments) proceeds from related party loan

 

 

121,512

 

 

 

(54,843 )

Net loan (payments) proceeds

 

 

(169,867 )

 

 

3,764

 

Net trade financing

 

 

660

 

 

 

372,529

 

Net cash provided by (used in) financing activities

 

 

(47,695 )

 

 

354,220

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(335,585 )

 

 

(21,938 )

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

$ 362,668

 

 

$ 33,367

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$ 27,083

 

 

$ 11,429

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Income tax payments

 

$ -

 

 

$ -

 

Interest payments

 

$ 40,192

 

 

$ 46,769

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES FOR NON CASH:

 

 

FINANCING AND INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Debt converted to equity

 

$ 27,123

 

 

$ -

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
F-3
Table of Contents

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION

 

All currencies represented in the notes to the condensed consolidated financial statements are in United States Dollars (USD) unless specified as AUD (Australian Dollars).

 

Banjo and Matilda, Inc. was incorporated in Nevada on December 18, 2009 under the name Eastern World Group, Inc. On September 24, 2013, its name was changed to Banjo & Matilda, Inc.

 

On November 14, 2013, Banjo & Matilda, Inc., entered into a Share Exchange Agreement (the "Exchange Agreement") with Banjo & Matilda, Pty Ltd., a corporation formed under the laws of Australia (the "Company") and the shareholders of the Company. Pursuant to the Exchange Agreement, at the closing of the transaction contemplated thereunder (the "Transaction"), the Company became a wholly-owned subsidiary of Banjo & Matilda, Inc.

 

Banjo & Matilda Pty Ltd. was incorporated under the laws of Australia on May 27, 2009 and manufactures and sells cashmere fashion. Headquartered at Bondi Beach, the Aussie lifestyle of sun, sand and surf resonates innately with this label and its philosophy of low maintenance, style and comfort.

 

Banjo & Matilda USA, Inc. was incorporated in the State of Delaware on October 14, 2013 and is owned 100% by Banjo & Matilda, Inc.

 

The ultra-soft cashmere staples, pairing simplicity with cool sophistication has rapidly gained loyal customers worldwide positioning the label as the 'go-to' for contemporary cashmere products.

 

Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Banjo & Matilda Pty Ltd. for the net monetary assets of the Banjo & Matilda, Inc. accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under share reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Banjo & Matilda, Inc. are those of the legal acquiree, Banjo & Matilda Pty Ltd., which is considered to be the accounting acquirer. Share and per share amounts stated have been retroactively adjusted to reflect the merger.

 

As a result of the exchange agreement, the reorganization was treated as an acquisition by the accounting acquiree that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data have been retroactively restated. Accordingly, the financial statements include the following:

 

(1)

The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer at fair value.

(2)

The statements of operations include the operations of the accounting acquirer for the period presented and the operations of the legal acquirer from the date of the merger.

 

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements were prepared in conformity with generally accepted accounting principles in the United States of America ("US GAAP").

 

 
F-4
Table of Contents

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Banjo & Matilda, Inc. ("Banjo" or "the Company") and its wholly owned subsidiaries Banjo & Matilda Pty Ltd. and Banjo & Matilda USA, Inc., collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.

 

Exchange Gain (Loss)

 

During the three-month period ended September 30, 2015, the transactions of the Company were denominated in US Dollars. Some transactions were denominated in AUD and British pounds for the sales made outside US and for rent paid for the Australian store. Such transactions were converted to US$ on the date of transaction and the exchange gains or losses were recorded in the statement of operations. During the three-month period ended September 30, 2014, the transactions of the Company were denominated in foreign currency and were recorded in Australian dollar (AUD) at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

 

Foreign Currency Translation and Comprehensive Income (Loss)

 

During the three-month period ended September 30, 2015, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US$ on the date of settlement and the exchange gains and losses were recorded in the statement of operations. No change was recorded in the comprehensive income (loss). During the three-month period ended September 30, 2014, the accounts of the Company were maintained, and its financial statements were expressed, in AUD. Such financial statements were translated into USD with the AUD as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder's equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders' equity. There were no significant fluctuations in the exchange rate for the conversion of AUD to USD after the balance sheet date.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.

 

Reportable Segment

 

The Company has one reportable segment. The Company's activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.

 

Revenue Recognition

 

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. 

 

 
F-5
Table of Contents

 

Cost of Sales

 

Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), shipping, importation duties and charges, third party royalties, and product sampling.

 

Operating Overhead Expense

 

Operating overhead expense consists primarily of payroll and benefit related costs, rent, depreciation and amortization, professional services, and meetings and travel.

 

Income Taxes

 

The Company utilizes FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company follows FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740). When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

 

At September 30, 2015 and 2014, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended September 30, 2015 and prior years or in computing its tax provision for 2015. Management has considered its tax positions and believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained upon examination. The Company is subject to examination by U.S. Federal and State tax authorities from the period ended June 30, 2012 to the present, generally for three years after they are filed.

 

The Company has been behind in filing its payroll tax returns and sales tax returns. The Company has recorded $1,580 as penalties for the late payment of taxes in the accompanying financials.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base across many markets, predominantly Australia, United States of America, United Kingdom, Europe and the Middle East. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. In addition, Receivables that are factored through the Company's Receivable finance facility are guaranteed by the finance company that further mitigates Credit Risk.

 

 
F-6
Table of Contents

 

Risks and Uncertainties

 

The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

 

Contingencies

 

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company's management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

 

If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

Cash and Equivalents

 

Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At September 30, 2015 and June 30, 2015, the Company had $27,083 and $362,668 in cash in Australia and in the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

 

Allowance for Doubtful Accounts

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The allowances for doubtful accounts as of September 30, 2015 and June 30, 2015 are $147,870 and $140,870 respectively.

 

Inventory

 

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of September 30, 2015 and June 30, 2015, the Company had outstanding balances of Finished Goods Inventory of $76,718 and $174,792 respectively.

 

Property, Plant & Equipment

 

Property and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three to 10 years; computer equipment, two to three years; buildings and improvements, five to 15 years; leasehold improvements, two to 10 years; and furniture and equipment, one to five years.

 

 
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As of September 30, 2015 and June 30, 2015, Plant and Equipment consisted of the following:

 

 

 

September 30, 2015

 

 

June 30,

2015

 

 

 

 

 

 

 

 

 

 

Property, plant & equipment

 

$ 30,244

 

 

$ 29,044

 

Accumulated depreciation

 

$ (17,485 )

 

$ (16,905 )

 

 

$ 12,759

 

 

$ 12,139

 

 

Depreciation was $580 and $692 for the three-month periods ended September 30, 2015 and 2014, respectively.

 

Fair Value of Financial Instruments

 

For certain of the Company's financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, "Fair Value Measurements and Disclosures," requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, "Financial Instruments," defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, "Distinguishing Liabilities from Equity," and ASC 815.

 

As of September 30, 2015 and June 30, 2015, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

 

Earnings Per Share (EPS)

 

Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

 

 
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The following table sets for the computation of basic and diluted earnings per share for three month periods ended September 30, 2015 and 2014: 

 

 

 

September 30, 2015

 

 

September 30, 2014

 

Basic and diluted

 

 

 

 

 

 

Net (loss) income

 

$ (253,358 )

 

$ (137,691 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares in computing basic and diluted net (loss) income

 

 

 

 

 

 

 

 

 

Basic

 

 

58,619,819

 

 

 

27,924,631

 

Diluted

 

 

58,619,819

 

 

 

27,924,631

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share basic and diluted

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ (0.00 )

 

Intangible Assets

 

The Company records identifiable intangible assets at fair value on the date of acquisition and evaluates the useful life of each asset.

 

Finite-lived intangible assets primarily consist of software development capitalized. Finite-lived intangible assets are amortized on a straight-line basis and are tested for recoverability if events or changes in circumstances indicate that their carrying amounts may not be recoverable. These intangibles have useful lives ranging from 1 to 10 years. No events or changes in circumstances indicate that impairment existed as of September 30, 2015.

 

Going Concern 

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company reported accumulated deficit of $3,355,363 as of September 30, 2015. The Company also incurred net losses of $253,358 and $137,691 for the three-month periods ended September 30, 2015 and 2014, respectively and had negative working capital for the three-month periods ended September 30, 2015 and 2014. To date, these losses and deficiencies have been financed principally through the loans from related parties and from third parties.

 

In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. We anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that we are required to raise additional funds to acquire properties, and to cover costs of operations, we intend to do so through additional offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any future financing will involve substantial dilution to existing investors.

 

Subsequent to the period ended September 30, 2015, the Company entered into an equity line funding agreement with Spider Investments, LLC to sell up to $1,500,000 of our common stock, subject to certain terms and conditions some of which are out of our control, including the (i) filing and obtaining effectiveness of a registration statement registering the issuance of our shares of common stock under the Act to be issued pursuant to the equity line and (ii) certain volume and other trading conditions of our common stock. The Company plans to file the registration statement and to obtain effectiveness thereof as soon as practicable. 

 

 
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Recently Issued Accounting Pronouncements

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In November 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which changes how deferred taxes are classified on the balance sheet and is effective for financial statements issued for annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as non-current. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and updates certain presentation and disclosure requirements. ASU 2016-01 is effective beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

 

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” The guidance simplifies accounting for share-based payments, most notably by requiring all excess tax benefits and tax deficiencies to be recorded as income tax benefits or expense in the income statement and by allowing entities to recognize forfeitures of awards when they occur. This new guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted prospectively or retroactively. The Company is currently evaluating the impact the adoption of this standard would have on its financial condition, results of operations and cash flows.

 

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods with that reporting period. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

 

 
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In August 2016, the FASB issued ASU 2016-15, regarding ASC Topic 230 “Statement of Cash Flows.” This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect the adoption of this standard to have a significant effect on its consolidated financial statements.

 

There were no other new accounting pronouncements during the three-month period ended September 30, 2015 that we believe would have a material impact on our financial position or results of operations.

 

Reclassification

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.

 

Note 3 – TRADE RECEIVABLES

 

Trade receivables consist principally of accounts receivable from sales to small to medium sized businesses, principally in Australia, Europe and the United States. Trade receivables are recorded at the invoiced amount and net of allowances for doubtful accounts. The allowance for doubtful accounts represents management's estimate of the amount of probable credit losses in existing accounts receivable, as determined from a review of past due balances and other specific account data. The assessment includes actually incurred historical data as well as current economic conditions. Account balances are written off against the allowance when management determines the receivable is uncollectible.

 

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity or parent entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

 

Trade receivables that are past their normal payment terms are overdue and once 60 days past due are considered delinquent. Minimum payment terms vary by product. The maximum payment term for all products is 90 days. All trade receivables that are overdue are individually assessed for impairment.

 

The allowances for doubtful accounts as of September 30, 2015 and June 30, 2015 are $147,870 and $140,870 respectively.

 

Note 4 – INTANGIBLE ASSETS

 

Intangible assets consist of the following as of September 30, 2015 and June 30, 2015: 

 

 

 

September 30, 2015

 

 

June 30,

2015

 

 

 

 

 

 

 

 

Website

 

$ 60,781

 

 

$ 60,781

 

Accumulated amortization

 

$ (17,456 )

 

$ (15,770 )

 

 

$ 43,325

 

 

$ 45,011

 

 

The intangible assets are amortized over 1 to 10 years. Amortization expense was $1,686 and $2,577 for the three-month periods ended September 30, 2015 and 2014 respectively.

 

 
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Note 5 – TRADE AND OTHER PAYABLES

 

As of September 30, 2015 and June 30, 2015, trade and other payable are comprised of the following: 

 

 

 

September 30, 2015

 

 

June 30,

2015

 

 

 

 

 

 

 

 

 

 

Trade payable

 

$ 443,875

 

 

$ 463,107

 

Officer compensation

 

$ 7,698

 

 

$ -

 

Payroll payable

 

$ 13,863

 

 

$ 91,018

 

Payroll taxes

 

$ 107,893

 

 

$ -

 

Employee benefits

 

$ 82,671

 

 

$ 82,671

 

Other liabilities

 

$ 19,536

 

 

$ (3,402 )

 

 

$ 675,536

 

 

$ 633,394

 

 

Note 6 – TRADE FINANCING

 

The Company has a trade financing agreement with a financial institution in Australia at an interest rate of 20.95% per annum. The amount is to be paid through application of its EMDG grant and up to 25% of the Company's store sales in Australia. All of the amounts referenced are in Australian dollars. As of September 30, 2015 and June 30, 2015, the Company had outstanding balances of USD $112,814 and $112,436, respectively.

 

On August 14, 2014, the Company entered into a trade finance agreement with an entity in the United States with a total maximum facility of $1,500,000 based on $1,000,000 towards sales invoiced and $500,000 towards purchase order financing. As of September 30, 2015 and June 30, 2015, the Company had an outstanding balance of $667,498 and $646,078, respectively.

 

On November 20, 2014, the Company entered into a new retail trade finance agreement with an entity in Australia for AUD $75,000 with 100 equal payments of AUD $871.80 daily. As of September 30, 2015 and June 30, 2015, the Company had outstanding balances of USD $0 and USD $21,139 (AUD $27,500), respectively.

 

Note 7 – LOANS

 

In December 2013, the Company entered into a short-term loan arrangement in the amount of $100,000 with an individual. Terms of the note require interest payment of $5,000 on the repayment date, 30 days after the note date. If not repaid at that time, interest will accrue at the rate of $166 per day until the note is repaid. The outstanding balance as of September 30, 2015 and as of June 30, 2015 was $100,000 and $100,000 respectively. During the three-month periods ended September 30, 2015 and 2014, the Company recorded an interest of $15,106 and $7,386, respectively, on the note.

 

 
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 In May 2014 and July 2014, the Company entered into two convertible loan agreements in the amount of $72,800 each. Interest accrued at the rate of 8% per annum. Loan and accrued interest were due in February 2015 and April 2015. The loans may be converted into common stock of the Company at any time by the election of the lender at a predetermined conversion price. During the quarter ended March 31, 2015, $72,800 was converted into 2,402,141 shares and $20,000 was converted into 943,396 shares. The remaining loan balance plus accrued interest was repaid during the quarter ended March 31, 2015. The outstanding balance as of September 30, 2015 and as of June 30, 2015 was $0.

 

From May 2014 to September 2015, the Company entered into several convertible loan agreements with a lender aggregating in the amount of $121,500. The notes bear interest at 6% per annum and are due and payable six months from the date of each note. The loans may be converted into common stock at any time by the election of the lender after a period of six months at a predetermined conversion price. The outstanding balance as of September 30, 2015 and as of June 30, 2015 was $121,500 and $121,500 respectively. The Company accrued interest of $1,823 and $0 during the three-month periods ended September 30, 2015 and 2014, respectively.

 

In December 2014, the Company entered into a loan agreement in the amount of $10,000 AUD with an individual in Australia. The note was repaid in full in July 2015.

 

In June 2015, the Company entered into a secured promissory note in the amount of $500,000 with a Delaware statutory trust. The note bears interest at the rate of 18% per annum and is due or before July 1, 2017. The note has various covenants attached including one in which all credit card receipts are to be swept into an account which will fund payments on the note that are not in excess of the minimum quarterly payments required. As a condition of the note, an affiliate of the lender was granted a warrant to purchase 6,000,000 shares of the common stock of Banjo & Matilda, Inc. at a price of $.08 in whole or in part. The outstanding balance as of September 30, 2015 was $500,000. The Company determined that the fair value of the warrants using the Black – Scholes model with the variable listed below:

 

·

Volatility: 329%

·

Risk free rate of return: 0.67%

·

Expected term: 2.04 years

 

In connection with the issuance of the above notes, the Company recorded a note discount of $115,274. The Company amortized $14,235 and $0, of the note discount during the three-month periods ended September 30, 2015 and 2014, respectively. The Company recorded an interest of $22,099 and $0, on the note during the three-month periods ended September 30, 2015 and 2014, respectively

 

Subsequent to the period, on February 5, 2016, the Company signed an amendment to the secured promissory note extending the maturity date by one year to July 17, 2018.

 

Related Party Payable

 

The Company had several note agreements with a shareholder aggregating to AUD $370,000 plus interest. The notes had interest rates varying from 6% to 15% per annum. In March 2015, the outstanding balance and accrued interest was refinanced by an AUD526,272 convertible note. The Convertible Note bears interest at the rate of 18% per annum and is due on or before April 30, 2017. The interest portion of the note shall be paid weekly starting in April 2015. Principle payments of $9,929 AUD weekly are to commence in April 2016. All or any portion of the principal amount of the Convertible Note and all accrued interest is convertible at the option of the holder into common stock of the Company at a conversion price of five cents ($0.05) per share, subject to various standard provisions. The outstanding balance, net of related discount, as of September 30, 2015 and June 30, 2015 was USD $375,733 and $217,855, respectively. The Company determined the fair value of the convertible note of $80,909 using the intrinsic value method. The Company recorded an amortization of the debt discount of $3,858 and $0, during the three-month period ended September 30, 2015 and 2014, respectively. During the three-month periods ended September 30, 2015 and 2014, the Company recorded an interest of $17,178 and $0, respectively, on the note.

 

 
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The Company has liabilities payable in the amount of $176,986 and $217,855 to shareholders and officers of the Company as of September 30, 2015 and June 30, 2015, respectively. The note bears interest at the rate of 3% per annum and was due on or before June 30, 2014. The outstanding balance, including accrued interest, may be converted into common shares of Banjo & Matilda, Inc. at a pre-determined rate. The Company has granted the Lenders a security interest in the intellectual property of the Borrower.

 

Year ending September 30,

 

Loan 1

 

 

Loan 2

 

 

Loan 3

 

 

Loan 4

 

 

Loan 5

 

 

Total

 

2016

 

$ 100,000

 

 

$ 121,806

 

 

$ -

 

 

$ 175,558

 

 

$ 176,986

 

 

$ 574,349

 

2017

 

$ -

 

 

$ -

 

 

$ 500,000

 

 

$ 228,987

 

 

$ -

 

 

$ 728,987

 

 

 

$ 100,000

 

 

$ 121,806

 

 

$ 500,000

 

 

$ 404,545

 

 

$ 176,986

 

 

$ 1,303,337

 

 

Note 8 – COMMITMENTS

 

The Company leases commercial space in Sydney, Australia that serves as its flagship as well as a retail store. We lease approximately 2,500 square feet of space pursuant to a three-year lease agreement which expired in October 2014. After expiration, the lease converted to a month-to-month basis. The annual rent for the premises is AUD $57,200.

 

The Company also leases space on an as needed basis in Santa Monica, California that serves as its corporate headquarters.

 

For the three-month periods ended September 30, 2015 and 2014 the aggregate rental expense was $13,365 and $13,239, respectively.

 

Note 9 – INCOME TAXES 

 

Based on the available information and other factors, management believes it is more likely than not that the net deferred tax assets at, September 30, 2015 and June 30, 2015 will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at, September 30, 2015 and June 30, 2015. At June 30, 2016 and 2015, the Company had federal net operating loss carry-forwards of approximately $3,290,000 and $2,555,000, respectively, expiring beginning in 2032.

 

Deferred tax assets consist of the following components:

 

 

 

September 30,

 

 

June 30,

 

 

 

2015

 

 

2015

 

 

 

 

 

 

 

 

 

 

Net loss carryforward

 

$ 980,000

 

 

$ 767,000

 

Valuation allowance

 

$ (980,000 )

 

$ (767,000 )
Total deferred tax assets

 

$ -

 

 

$ -

 

 

 
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Note 10 – STOCKHOLDERS' EQUITY

 

Common Stock

 

On July 24, 2014, the Company agreed to issue 55,200 shares of the Company stock for $13,800 or $0.25 per share to an individual investor. 

 

On October 28, 2014, the Company agreed to issue 5,833,333 shares of the Company stock to the original shareholders of Banjo & Matilda Pty Ltd related to the merger and reorganization based on the original agreement.

 

On October 28, 2014, the Company agreed to issue 92,593 shares of common stock to an individual for compensation from Banjo Australia. The shares were valued at $15,339 or approximately $0.17 per share.

 

On November 3, 2014, the Company issued 25,000 shares of common stock to an individual in exchange for interest expense. The shares were valued at $5,000 or $.25 per share.

 

During the quarter ended March 31, 2015, the Company agreed to convert $92,800 of convertible debt for 3,345,537 shares of common stock at prices from $0.02 to $0.0901 per share to a corporate investor.

 

During the quarter ended March 31, 2015, the Company agreed to issue 400,000 shares of the Company stock for $60,000 or $0.15 per share to a company for consulting services. The terms of the service agreement is from January 1, 2015 to June 1, 2015. As of June 30, 2015, the Company recognized consulting expense of $60,000.

 

During the first and second quarter of 2015, the Company agreed to issue 21,039,970 shares of the Company stock for $450,799 or approximately $0.02 per share to five investors.

 

During the fiscal year ended June 30, 2015, the Company voided 475,000 shares of the Company stock for the value of $95,000. The shares were originally considered converted from debt when they were in fact not converted. The debt is still outstanding.

 

During the three-month period ended September 30, 2015, the Company issued 500,000 shares of the Company’s common stock for settlement of an outstanding vendor balance amounting to USD $27,123.

 

Note 11 – RELATED PARTY TRANSACTIONS

 

During the three-month period ended September 30, 2015, the Company paid $4,759 as compensation to the mother of the CEO. During the three-month period ended September 30, 2015, the Company accrued interest of $6,982 on a loan owed to the CEO of the Company.

 

Note 12 – SUBSEQUENT EVENTS

 

Subsequent to the period, on November 2, 2016, the Company entered into a merchant agreement with a capital funding group for $47,250. Pursuant to the agreement, the Company cannot obtain future financing by selling receivables without consent from the lender. The Merchant holds a security interest in all accounts and proceeds.

 

 
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Subsequent to the period, on November 3, 2016, the Company entered into a payments rights purchase and sale agreement for $72,500.

 

Subsequent to the period, on February 5, 2016, The Company signed an amendment to the secured promissory note of $500,000, extending the maturity date by one year to July 17, 2018. The amendment changed the terms of the credit card receipts used to fund payments required by the note. The amendment also cancelled the warrants to purchase 6,000,000 shares at a price of $0.08. New warrants were granted to purchase 6,000,000 shares at $0.05 per share and to purchase 2,000,000 shares at $0.02 per share. The Company determined the fair value of the warrants using the Black – Scholes model and recorded the additional value of $87,553 for the modified warrants. The variables used for the Black –Scholes model are as listed below:

 

Volatility: 123%

Risk free rate of return: 1.26%

Expected term: 5 years

 

Subsequent to the period, on October 27, 2015, the Company entered into convertible loan agreements in the amount of $42,000 with a lender with whom they have several other loans. The notes bear interest at 6% per annum and are due and payable in six months. The loans may be converted into common stock at any time by the election of the lender after a period of six months at a predetermined conversion price.

 

Subsequent to the period, on November 29, 2016, the Company entered into a consignment agreement. It is a platform for funding advance inventory production. This facility allowed the Company to fund manufacturing with a consignment facility which pegs repayment to the sales of inventory. 

 

Subsequent to the period ended September 30, 2015, the Company entered into an equity line funding agreement with Spider Investments, LLC to sell up to $1,500,000 of our common stock, subject to certain terms and conditions some of which are out of our control, including the (i) filing and obtaining effectiveness of a registration statement registering the issuance of our shares of common stock under the Act to be issued pursuant to the equity line and (ii) certain volume and other trading conditions of our common stock. The Company plans to file the registration statement and to obtain effectiveness thereof as soon as practicable. 

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited financial statements and the related notes included elsewhere in this report and with the financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements.

 

Results of Operations

 

The following discussion of the results of operations constitutes management’s view of the factors that affected the financial and operating performance for the three months ended September 30, 2015 and 2014. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report. The Company has a June 30 fiscal year end.

 

During the three-month period ended September 30, 2015, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US$ on the date of settlement and the exchange gains and losses were recorded in the statement of operations. No change was recorded in the comprehensive income (loss). During the three-month period ended September 30, 2014, the accounts of the Company were maintained, and its financial statements were expressed, in AUD. Such financial statements were translated into USD with the AUD as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder's equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders' equity. There were no significant fluctuations in the exchange rate for the conversion of AUD to USD after the balance sheet date.

 

Management is pleased with the growth in the Banjo & Matilda brand presence and position in the market. While the Company marginally increased overall sales mostly from increased wholesale sales, the overall profitability declined as a result of expanding personnel and resources to create the platform for growing the Company’s wholesale operations in the United States and reduced gross margins from its wholesale sales channel.

 

After a strategic review of the Company’s operating performance and long term strategy in June 2015, management decided to exit from the Company’s wholesale sales channel and business in favor of pursuing a higher value and longer term growth, direct to consumer digital vertical brand business model. In September 2015, the Company began to exit from its wholesale sales channel in-line with this strategy. As a digital vertical brand (DVB), the Company can generate higher gross margins by selling directly to consumers online by not having to accommodate the retailer wholesale mark-up. This additional gross margin from eliminating lower margin wholesale sales allows the Company to improve its overall operating margins and have greater flexibility and control over its retail pricing for its products, improving the customer value proposition and brand adoption. The Company can also build a more sustainable and higher growth revenue stream, and at the same time reduce operating overheads by eliminating fixed and variable expenses associated with operating a wholesale business model, among other significant benefits associated with a digitally centric business model. In addition, DVB’s are generally considered superior in value to traditional wholesale focused brands. Typical recent private investment valuations of DVB’s have been transacted at a valuation of 3-4 x annual sales versus less than 1 x annual sales for traditional brands (1). By pursuing a DVB strategy, the Company’s sales will temporarily reduce during the remainder of 2016 and 2017 due to the elimination of low-margin wholesale sales. While there will be been a short-term reduction in sales, the Company believes the superior DVB business model will generate and sustain greater value for shareholders moving forward.

 

We reported revenue of $880,304 during the September 2015 quarter, an increase of 16% compared to the same quarter during the prior fiscal year mainly because of an increase in wholesale sales. Gross profit decreased 8% compared to the same period in the prior year, from $335,030 to $308,497 as a result of reduced gross margins associated with wholesale sales. SG&A consisting of payroll, selling, marketing and design, e-commerce, retail overhead expenses, administrative (including public Company costs) and occupancy increased 24% to $477,25 in the September 30, 2015 quarter compared from $385,791 in the September 30, 2014 quarter mostly due to the increase in overheads associated with expanding the wholesale sales channel and business. Financing costs decreased to $15,381 in the September 30, 2015 quarter from $40,751 during the September 30, 2014 quarter.

 

The Company recorded an EBITDA loss of $182,345 for the September 2015 quarter, compared to $88,243 for the same period the prior year. The Net loss was $253,358 for the quarter ended September 30, 2015 compared with $137,691 for the quarter ended September 30, 2014.

 

 
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LIQUIDITY AND CAPITAL RESOURCES

 

At September 30, 2015, we had a working capital deficit of $1,149,330. We will continue to borrow to acquire inventory and fund sales. The rates at which we can acquire funds will directly impact our ability to operate profitably and generate positive cash flow. In addition to relying upon debt, we will seek to raise equity to support our efforts to grow. There is no assurance that debt or equity financing will be available to us on acceptable terms, if at all, and, in all events, the sale of equity or instruments convertible into equity will dilute the interests of our current shareholders. Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best-efforts private equity and debt financings. We do not have any credit or equity facilities available with financial institutions, stockholders or third party investors, and will continue to rely on best-efforts financings. The failure to raise sufficient capital could cause us to cease operations.

 

Subsequent to the period ended September 30, 2015, the Company entered into an equity line funding agreement with Spider Investments, LLC to sell up to $1,500,000 of our common stock, subject to certain terms and conditions some of which are out of our control, including the (i) filing and obtaining effectiveness of a registration statement registering the issuance of our shares of common stock under the Act to be issued pursuant to the equity line and (ii) certain volume and other trading conditions of our common stock. The Company plans to file the registration statement and to obtain effectiveness thereof as soon as practicable. 

 

During the three months ended September 30, 2015, we used $286,690 of cash in our operating activities to fund our net loss from continuing operations and to finance our trade receivables. The amount of cash used in operations in the three months ended September 30, 2014 was $373,285. During the three months ended September 30, 2015, net cash used in financing activities was $47,695 compared with net cash provided by financing activities of $354,220 for the three months ended September 30, 2014.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable as the Company is a smaller reporting company.

 

Item 4. Controls and Procedures

 

a) Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

 
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At the end of the period covered by this report we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Brendan Macpherson, of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation included an evaluation of our financial controls. Since our Chief Executive Officer also serves as our Chief Financial Officer and we do not have financial and accounting personnel thoroughly familiar with U.S. GAAP and U.S. securities laws and regulations, we have a deficiency in our financial controls. This deficiency in our financial controls and procedures constitutes a deficiency in our disclosure controls and procedures in that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. This deficiency will not be considered remediated until we hire accounting personnel with the requisite knowledge and experience concerning U.S. GAAP and the U.S. securities laws.

 

b) Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Our business is subject to numerous risks and uncertainties including but not limited to those discussed in “Risk Factors” in our Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities

 

During the three months ended September 30, 2015, we issued a total of 500,000 shares of common stock in settlement of a $27,123 debt obligation.

 

The securities described above were issued in reliance upon the exemptions from registration pursuant to Sections 4(a)(2) and 3(a)(9) of the Securities Act. The shares issued in the private placement were all sold to non-US residents in accordance with Regulation S.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

 
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Item 6. Exhibits

 

The following exhibits are filed herewith:

 

Exhibit

Number

 

Document

 

31.1

 

Certifications of the principal executive officer and principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

 

Certifications of the principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

 

XBRL Instance Document

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

101.CAL

 

XBRL Taxonomy Extension Calculation

 

101.DEF

 

XBRL Taxonomy Extension Definition

 

101.LAB

 

XBRL Taxonomy Extension Label

 

101.PRE

 

XBRL Taxonomy Extension Presentation

 

 
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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

BANJO & MATILDA, INC.

 

Date: March 3, 2017

By:

/s/ Brendan Macpherson

 

Brendan Macpherson

Chief Executive Officer and Chief Financial Officer

(Principal Executive and Financial Officer)

 

 
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