TRIDENT BRANDS INCORPORATED Forward-Looking Financial Information
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") section provides analysis of our operations and financial
position for the fiscal year ended
Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as "anticipate", "estimate", "intend", "project", "potential", "continue", "believe", "expect", "could", "would", "should", "might", "plan", "will", "may", "predict", or other similar expressions concerning matters that are not historical facts. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.
Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking statements are also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors are more fully described in the "Risk Factors" section at Item 1A of this Form 10-K.
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Critical Accounting Estimates
The preparation of financial statements in conformity with
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible amounts as necessary.
Inventory
Inventory is our largest current asset other than cash and consists primarily of raw materials and finished goods held for sale. Inventories are valued at the lower of cost, measured on a first-in, first out basis, or estimated net realizable value. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. These factors include the age of inventory, the amount of inventory held by type, future demand for products, and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, expected business plans, and expected market conditions. As a result, the actual amount received on sale could differ from our estimated value of inventory.
Long-Lived Assets
We review our long-lived assets, to include intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as "the asset") may not be recoverable. Such circumstances include, but are not limited to:
· a significant decrease in the market price of the asset;
· a significant change in the extent or manner in which the asset is being
used;
· a significant change in the business climate that could affect the value
of the asset;
· a current period loss combined with projection of continuing loss
associated with use of the asset; and
· a current expectation that, more likely than not, the asset will be sold
or otherwise disposed of before the end of its previously estimated useful
life.
We continually evaluate whether such events and circumstances have occurred. When such events or circumstances exist, the recoverability of the asset's carrying value shall be determined by estimating the undiscounted future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset. To date, no such impairment has occurred. To the extent such events or circumstances occur that could affect the recoverability of our long-lived assets, we may incur charges for impairment in the future.
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Revenue Recognition
We recognize revenue at the time of delivery of the product and when all of the following have occurred: a sales agreement is in place; the performance obligations of the agreement has been identified; the transaction price has been determined; the transaction price has been allocated to the performance obligations; and when each performance obligation is satisfied. Agreed trading terms with customers such as value incentives, rebates, early payment discounts and other discounts are recorded as reductions to revenues at the time of sale.
Cost of Sales
Cost of sales includes the direct purchase cost of the product based on the FIFO method.
Stock-Based Compensation
We maintain a stock incentive plan under which stock options and other stock-based awards may be granted to selected officer, directors and service providers. For grants of stock options, we are required to estimate a number of inputs at each grant date, such as the estimated life of the option, future stock price volatility, and the forfeiture rate used in the Black-Scholes option-pricing model to determine a fair value for the options granted to employees or non-employee directors. Once determined at the grant date, the fair value of the stock option award is recorded over the vesting period of the options granted.
Income Taxes
We are liable for income taxes in jurisdictions where we operate. Our effective tax rate may differ from the statutory tax rate and will vary from year to year primarily as a result of any permanent differences, investment and other tax credits, as well as the provision for income taxes at different rates in various jurisdictions. In making an estimate of our income tax liability, we first assess which items of income and expense are taxable in a particular jurisdiction. This process involves a determination of the amount of taxes currently payable as well as the assessment of the effect of temporary timing differences resulting from different treatment of items for accounting and tax purposes. These differences in the timing of the recognition of income or the deductibility of expenses may result in deferred income tax balances that are recorded as assets or liabilities as the case may be on our balance sheet. We also estimate the amount of valuation allowance to maintain relating to loss carry forwards and other balances that can be used to reduce future taxes payable. We assess the likelihood of the ultimate realization of these tax assets by looking at the relative size of the tax assets in relation to the profitability of the businesses and the jurisdiction to which they can be applied, the number of years based on management's estimate it will take to use the tax assets and any other special circumstances. Given our history of operating losses we have taken a valuation allowance to offset the potential future value of loss carry-forwards.
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Results of Operations for the Fiscal Years Ended
The following summary of our results of operations should be read in conjunction
with our audited financial statements for the fiscal years ended
Our operating results for years endedNovember 30, 2020 and 2019 are summarized as follows: Year Ended Year Ended Nov 30, Nov 30, 2020 2019 Revenues$ 872,923 $ 2,153,572 Gross Profit$ 244,122 $ 429,761 Operating Expenses$ 4,571,077 $ 6,950,756 Other Income/(Expenses)$ (1,068,237 ) $ (5,696,798 ) Net Loss$ (5,395,192 ) $ (12,217,793 )
Add back:
Interest Expense and loss on debt extinguishment
$ 4,413 $ 8,381 EBITDA$ (204 ) $ (7,837,905 ) Add (deduct): Stock Options Expense $ -$ 380,751 Derivative Loss (Gain)$ (4,312,338 ) $ 1,325,291 Adjusted EBITDA$ (4,312,542 ) $ (6,131,863 ) Revenues and Gross Profits
Revenues decreased 59% in 2020 to
Operating Expenses Our operating expenses for the years endedNovember 30, 2020 and 2019 are outlined in the table below: 2020 2019 Professional Fees$ 694,842 $ 988,832 General & Administrative Expenses$ 2,545,105 $ 4,144,332 Marketing, Selling & Warehousing Expenses$ 1,129,665 $ 1,485,024 Management Salary$ 152,000 $ 153,750 Director's Fees $ -$ 29,500 Rent$ 49,465 $ 149,318 27 Table of Contents
Operating expenses for the year ended
Other Income (Expenses)
Other income/(expenses) for the year ended
Non-GAAP Financial Measure EBITDA
We define EBITDA as net income (loss), adjusted to exclude: Interest income and
expense, depreciation and amortization expense including impairment loss. EBITDA
is a non-GAAP financial measure that we present in this annual report on Form
10-K to supplement the financial information we present on a GAAP basis. We
monitor and present EBITDA because it is a key measure used by our management to
understand and evaluate our performance. Reported net loss for the year ended
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA, adjusted to exclude stock options expense
and derivative loss. Reported EBITDA for the year ended
Liquidity and Capital Resources
Our cash and cash equivalents balance at
Historical Convertible Note Financings
On
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On
On
On
Agreement to Restructure Convertible Notes
On
By way of background, immediately prior to the Effective Date, the Company was
indebted to the Note Holder in the aggregate principal amount of
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Conversion of
In connection with the Fourth Amendment, the Note Holder has agreed to convert
aggregate principal and accrued interest of
As of the Effective Date, the Company and Note Holder have agreed that the
Company will issue the Note Holder 29,432,320 shares of Company Preferred Stock
in full and complete satisfaction of (i) all amounts owing under the 2016
Convertible Notes through
Under the terms of the Fourth Amendment, the Preferred Stock shall be (i) voting shares, with the same voting rights as common shares, except the Preferred Stock shall have no vote in respect of election of directors, (ii) entitled to such dividends as the Board of Directors of the Company may in its discretion declare (and no dividends may be declared on the Company's other classes of shares unless a dividend is declared on the Preferred Stock), (iii) have a preference in liquidation ahead of all other classes of Company shares, (iv) be entitled upon a sale of the Company (to be further defined in definitive agreements) to receive the consideration that would be payable in respect of that number of shares of common stock of the Company equal to the number of shares of Preferred Stock (on a one-for one basis with the Company common stock), and (v) otherwise on such other terms and conditions as are mutually agreeable and not inconsistent with the foregoing.
The consummation of the foregoing transaction is subject to (i) authorization
and issuance of the Preferred Stock, which is subject to approval of the
requisite number of common shares of the Company, in accordance with
The Company and Note Holder have undertaken to consummate the foregoing
transactions no later than
Amendment of Terms of
The Fourth Amendment also amends the Amended SPA Notes (aggregate principal
amount of
1. Interest Rate. The interest rate per annum in respect of outstanding
principal under the Amended SPA Notes shall be eight (8%) percent computed
on a simple interest basis.
2. Interest Payments.
a. Interest on unpaid principal of the Amended SPA Notes ($10 million )
with respect to the period of December 1, 2020 through November 30,
2021 may be paid by the Company in kind by issuing a non-interest
bearing note (a "PIK Note") in the amount of $800,000 on November 30,
2021 with a maturity date of November 30, 2025 . If no PIK Note is
issued on such date, accrued and unpaid principal shall be payable in
cash.
b. Interest on unpaid principal of the Amended SPA Notes with respect to
the period of December 1, 2021 through November 30, 2022 may be paid by
the Company in kind by issuing a PIK Note in the amount of $800,000 on
November 30, 2022 with a maturity date of November 30, 2025 . If no PIK
Note is issued on such date, accrued and unpaid principal shall be
payable in cash.
c. The PIK Notes issued by the Company pursuant to the previous two
paragraphs shall be in the form attached to the Securities Purchase
Agreement dated as of September 26, 2016 , as amended, pursuant to the
which the Amended SPA Notes were issued, subject to revisions necessary
to make such PIK Notes non-convertible and non-interest bearing.
d. Interest on unpaid principal with respect to the period of December 1,
2022 through November 30, 2025 shall be payable quarterly in arrears
commencing February 28, 2023 .
3. Termination of Conversion Feature. The convertibility of the Amended SPA
Notes is terminated.
4. Extension of Maturity Date. The Maturity Date of the Amended SPA Notes is
extended to November 30, 2025 .
Except as modified by the Fourth Amendment, the Notes, as previously amended, remain in full force and effect.
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On
Working Capital Deficiency and Need for
We currently have a working capital deficiency. As of
As disclosed under Item 3. Legal Proceedings, a judgment was entered against us
in the Everlast matter in the amount of approximately
As of
In order to remedy this liquidity deficiency, we are actively seeking to raise additional funds through the sale of equity and/or debt securities, and ultimately, we will need to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to realize additional revenues from the sale of our products and services. As previously stated, our operations are generating negative cash flows, and thus adversely affecting our liquidity. If we are unable to raise additional funds in the near term, we will not be able to implement our business plan, in which case there would be a material adverse effect on our results of operations and financial condition.
In the event we do not generate sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we will be unable to fully implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should we be unable to recover the value of our assets or satisfy our liabilities.
Based on our limited availability of funds we expect to spend minimal amounts on product development, sales and marketing and capital expenditures. We expect to fund any future product development expenditures through a combination of cash flows from operations and proceeds from equity and/or debt financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our product development expenditures, in which case, there could be an adverse effect on our business and results of operations.
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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.
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