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EX-32.2 - CERTIFICATION - Nate's Food Co.nhmd_ex322.htm
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EX-31.1 - CERTIFICATION - Nate's Food Co.nhmd_ex311.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended November 30, 2017

 

or

 

o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to____________

 

Commission File Number 000-52831

 

Nate's Food Co.

(Exact name of registrant as specified in its charter)

 

Colorado

46-3403755

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

15151 Springdale Street, Huntington Beach, California

92649

(Address of principal executive offices)

(Zip Code)

  

(949) 341-1834

(Registrant’s telephone number, including area code)

   

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

x

 

Emerging growth company

o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. o YES   o NO

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

507,669,616 common shares issued and outstanding as of May 22, 2018.                         

 

 
 
 
 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION.

 

 

 

Item 1.

Financial Statements.

3

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition or Plan of Operation.

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

17

 

 

 

Item 4.

Controls and Procedures.

17

 

 

 

PART II - OTHER INFORMATION.

 

 

 

Item 1.

Legal Proceedings.

18

 

 

 

Item 1A.

Risk Factors.

18

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

18

 

 

 

Item 3.

Defaults Upon Senior Securities.

18

 

 

 

Item 4.

Mine Safety Disclosures.

18

 

 

 

Item 5.

Other Information.

18

 

 

 

Item 6.

Exhibits.

19

 

 

 

SIGNATURES.

20

 


2
 
Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Nate’s Food Co.

Condensed Balance Sheets

(Unaudited)

 

November 30,

 

 

May 31,

 

  

 

2017

 

 

2017

ASSETS

Current assets:

Cash

$ 206 $ 727

Total current assets

206 727
     

TOTAL ASSETS

$ 206 $ 727
    

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Liabilities:

Current liabilities:

Accounts payable and accrued liabilities

$ 181,802 $ 143,498

Accrued expense

37,114 30,067

Notes payable - related parties

204,838 199,428

Convertible notes, net of $0 and $11,539 debt discount as of November 30, 2017 and May 31, 2017, respectively

36,818 61,719

Derivative liability

180,711 90,986

Total current liabilities

641,283 525,698
  

Total liabilities

641,283 525,698
   

Stockholders’ Deficit:

Series A Preferred Stock, Par Value $0.0001, 2,000,000 shares authorized, 1,940,153 issued and outstanding

194 194

Series B Preferred Stock, Par Value $0.0001, 150,000 shares authorized, 148,322 issued and outstanding

15 15

Series C Preferred Stock, Par Value $1.00, 250,000 shares authorized, 58,774 issued and outstanding

58,774 58,774

Series D Preferred Stock, Par Value $0.0001, 10,000,000 shares authorized, 6,350,000 issued and outstanding

635 635

Series E Preferred Stock, Par Value $0.0001, 15,000,000 shares authorized, 10,216,000 issued and outstanding

1,021 1,021

Common Stock, Par Value $0.001, 1,500,000,000 shares authorized, 507,669,616 and 381,206,448 issued and outstanding at November 30, 2017 and May 31, 2017, respectively

507,669 381,206

Additional paid in capital

3,015,383 2,935,801

Accumulated deficit

(4,224,768 ) (3,902,617 )

Total stockholders’ deficit

(641,077 ) (524,971 )

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$ 206 $ 727

  

See accompanying notes to the unaudited condensed financial statements

 

 
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Nate’s Food Co.

Condensed Statements of Operations

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

November 30,

 

 

November 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$ 683

 

 

$ 658

 

 

$ 2,625

 

 

$ 3,392

 

Cost of Goods Sold

 

 

-

 

 

 

-

 

 

 

272

 

 

 

-

 

Gross Profit

 

 

683

 

 

 

658

 

 

 

2,353

 

 

 

3,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

42,459

 

 

 

72,787

 

 

 

46,588

 

 

 

111,581

 

Depreciation

 

 

-

 

 

 

9,880

 

 

 

-

 

 

 

19,760

 

Food development/research

 

 

-

 

 

 

1,532

 

 

 

-

 

 

 

1,532

 

Total operating expenses

 

 

42,459

 

 

 

84,199

 

 

 

46,588

 

 

 

132,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(41,776 )

 

 

(83,541 )

 

 

(44,235 )

 

 

(129,481 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,290 )

(Gain) loss on derivative

 

 

(14,173 )

 

 

254,763

 

 

 

259,330

 

 

 

(1,414,102 )

Interest Expenses

 

 

1,810

 

 

 

72,637

 

 

 

18,586

 

 

 

185,575

 

Total other (income) expenses

 

 

(12,363 )

 

 

327,400

 

 

 

277,916

 

 

 

(1,229,817 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$ (29,413 )

 

$ (410,941 )

 

$ (322,151 )

 

$ 1,100,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividend on Series B convertible preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(534 )

Net income (loss) attributable to common stockholders

 

$ (29,413 )

 

$ (410,941 )

 

$ (322,151 )

 

$ 1,099,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.00 )

 

$ 0.00

 

Diluted

 

$ 0.00

 

 

$ (0.00 )

 

$ -

 

 

$ 0.00

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

507,669,616

 

 

 

299,080,483

 

 

 

475,217,137

 

 

 

283,425,069

 

Diluted

 

 

507,669,616

 

 

 

299,080,483

 

 

 

475,217,137

 

 

 

665,215,644

 

  

See accompanying notes to the unaudited condensed financial statements

 

 
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Nate’s Food Co.

Condensed Statements of Cash Flows

(Unaudited)

 

Six Months Ended

November 30,

 

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)

$ (322,151 ) $ 1,100,336

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation

- 19,760

Amortization of debt discount

11,539 96,539

(Gain) loss on derivative liability

259,330 (1,414,102 )

Changes in assets and liabilities:

Accounts payable and accrued liabilities

42,714 54,119

Accrued expenses

7,047 (45,470 )

Net cash used in operating activities

(1,521 ) (188,818 )
 

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used in investing activities

- -
 

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of Series D Preferred stock

- 235,000

Proceeds from convertible notes

- 72,500

Payment of convertible notes

- (146,875 )

Proceeds from notes payable - related party

1,000 57,000

Net cash provided by financing activities

1,000 217,625
  

Net cash increase (decrease) for the period

(521 ) 28,807

Cash at beginning of period

727 525

Cash at end of Period

$ 206 $ 29,332
 

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid in cash

$ - $ 134,506

Taxes paid in cash

$ - $ -
  

NON CASH INVESTING AND FINANCING ACTIVITIES

Debt discount from derivative liability

$ - $ 126,130

Conversion of Series B Preferred stock into common stock

$ - $ 540

Conversion of convertible notes and accrued interest into common stock

$ 36,440 $ 155,418

Settlement of derivative liability to additional paid in capital

$ 169,605 $ 465,459

Convertible note exchanged for note payable and accrued interest

$ - $ 53,630

Cancellation of Series E Preferred Stock

$ - $ 1

Reclassification of accounts payable to notes payable - related party

$ 4,410 $ 8,424

 

See accompanying notes to the unaudited condensed financial statements

 

 
5
 
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NATE’S FOOD CO.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1 – Basis of Presentation

 

Nate’s Food Co. (“we”, “us”, “our”, the "Company" or the "Registrant") was incorporated in the state of Colorado on January 12, 2000. Nate’s Food Co. is domiciled in the state of Colorado, and its corporate headquarters are located in Huntington Beach, California. The Company selected May 31 as its fiscal year end. On May 12, 2014, Nate’s Pancakes Inc. was incorporated in the state of Indiana. On May 19, 2014, the Company completed a reverse merger between Nate’s Pancakes, Inc and Capital Resource Alliance. Nate’s Pancakes was the surviving Company. In May 2014, the Company changed its name from Capital Resource Alliance to Nate’s Food Co.

 

We sell a ready-to-use, pre-mixed pancake and waffle batter delivered in a pressurized can. Our current product is an original flavor of pancake and waffle batter. We are currently in the process of developing additional flavors and products with the goal to have 10 products in development in 2017. Currently, we have developed three flavors for our pancake and waffle mix. We plan to continue to expand into other baked goods and other non-breakfast areas.

 

The accompanying unaudited financial statements of the Company 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 ("SEC") and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report filed with the SEC on Form 10-K, on December 22, 2017. 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 the most recent fiscal year 2017 as reported in Form 10-K, have been omitted.

 

Use of Estimates

 

The preparation of financial statements under accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on Nate’s Food Co. financial condition and results of operations during the period in which such changes occurred. Actual results could differ from those estimates. Nate’s Food Co.’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.

 

Fair Value of Financial Instruments

 

The Company's financial instruments consist primarily of cash, accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

  

The Company adopted ASC Topic 820, Fair Value Measurements ("ASC Topic 820"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

  

 
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The three-level hierarchy for fair value measurements is defined as follows:

 

·

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; 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 other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;

  

·

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

 

The following table summarizes fair value measurements by level at November 30, 2017, and May 31, 2017, measured at fair value on a recurring basis:

 

November 30, 2017

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

 

-

 

 

 

-

 

 

$ 180,711

 

 

$ 180,711

 

 

May 31, 2017

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

 

-

 

 

 

-

 

 

$ 90,986

 

 

$ 90,986

 

 

Note 2 – Going Concern

 

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses from operations, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

 

In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.

 

Historically, it has mostly relied upon internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

 

Note 3 – Related Party Transactions

 

Notes Payable – Related Parties

 

During the six months ended November 30, 2017, the Company borrowed $1,000 from our officer for working capital and converted an existing accounts payable to our officer of $4,410 to a note payable. As at November 30, 2017, the total amount owed to this officer was $204,838. Of this amount, $57,500 of the loan is at 10% interest and was to be repaid by June 28, 2017 and currently is in default. $71,902 of the loan is at 10% interest, and $75,436 of the loan is at 0% interest. Both of the loans were to be repaid by December 31, 2016 and are currently in default.

 

 
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Note 4 – Convertible Debt

 

The Company had the following convertible notes payable outstanding as of November 30, 2017 and May 31, 2017:

 

November 30,

May 31,

2017

2017

JSJ Investments

$ 36,818 $ 73,258
  36,818 73,258

Less: debt discount and deferred financing cost

- (11,539 )
  36,818 61,719

Less: current portion of convertible notes payable

36,818 61,719

Long-term convertible notes payable

$ - $ -

 

Typenex Co

 

On July 24, 2015, the Company received financing in the amount of $93,000 from Typenex Co-Investment, LLC with $13,000 cash discount to the lender and incurred $8,000 in financing costs to third parties. The deferred financing cost is being amortized over the life of the note using the effective interest method. The $93,000 bears an 8% interest rate and matured in nine months. The holder shall be entitled to convert any portion of the outstanding and unpaid conversion amount in to fully paid and non-assessable shares of common stock. Conversion price is 50% of the average of the three lowest closing bid prices for the 15 previous consecutive trading days prior to the payment date. The Company may prepay the note at any time at an amount equal to 120% of the outstanding principal and the accrued and unpaid interest. The note was discounted for a derivative (see note 5 for details) and the discount is being amortized over the life of the note using the effective interest method. On July 8, 2016, the Company made a payment of 50% of the balance then due in the amount of $57,000. The payment of $57,000 was applied to an interest penalty and accrued interest. The Company entered into a Forbearance Agreement with Typenex regarding conversion of the balance of $57,000 debt into shares of common stock at an agreed upon discount and frequency of conversions. During the six months ended November 30, 2017, 27,575,932 shares of common stock were issued based on the True-Up conversion. We accounted for the issuance of the common stock as a derivative. As of November 30, 2017 and May 31, 2017, the Company had Convertible note of $0 and accrued interest of $0. During the six months ended November 30, 2017 and 2016, the Company recognized interest expense of $0 and $55,796, respectively.

 

JSJ Investments

 

On October 13, 2016, the Company received financing in the amount of $85,500 from JSJ Investments with $5,000 original issue discount and incurred $8,000 in financing costs. The original issue discount and financing costs are being amortized over the life of the note using the effective interest method. The $85,500 bears 10% interest and matured on July 13, 2017. The note is currently in default. The holder shall be entitled to convert any portion of the outstanding and unpaid conversion amount in to fully paid and non-assessable shares of common Stock. The conversion price is the 45% discount to the lowest traded price during the previous 20 trading days to the date of a conversion notice. The Company may redeem the note at rates ranging from 125% to 150% depending on the redemption date. The note was discounted for a derivative (see note 5 for details) and the discount is being amortized over the life of the note using the effective interest method. The Company amortized discount and financing costs of $11,539 for the six months ended November 30, 2017. During the year ended May 31, 2017, the note of $36,440 was converted into 98,887,236 shares of common stock. During the six months ended November 30, 2017 and 2016, the Company recognized interest expense of $3,773 and $1,124. As of November 30, 2017 and May 31, 2017, the Company had accrued interest of $9,128 and $5,355, respectively.

 

Note 5– Derivative Liability

 

The Company analyzed the conversion options for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that the instrument should be classified as a liability when the conversion option becomes effective and there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

 

 
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The following table summarizes the derivative liabilities included in the balance sheet at November 30, 2017:

 

Balance - May 31, 2017

$ 90,986

(Gain) on change in fair value of the derivative

259,330

Settled upon conversion of debt

(169,605 )

Balance - November 30, 2017

$ 180,711

 

The following table summarizes the gain/loss on derivative liability included in the income statement for the periods ended November 30, 2017 and 2016, respectively.

 

Six Months Ended

November 30,

2017

2016

Day one loss due to derivatives on convertible debt

$ - $ 87,124

(Gain) loss on change in fair value of the derivative

259,330 (1,501,226 )
$ 259,330 $ (1,414,102 )

 

The table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability, as well as the determined value of the option liability at each measurement date:

 

 

 

November 30,

 

 

May 31,

 

 

 

2017

 

 

2017

 

Expected term

 

0.02 - 3.08 years

 

 

0.12 - 4.08 years

 

Expected average volatility

 

239% - 362%

 

 

108.24% - 314.75%

 

Expected dividend yield

 

-

 

 

-

 

Risk-free interest rate

 

0.83% - 1.90%

 

 

0.34% - 1.62%

 

 

Note 6 – Equity Transactions

 

Preferred Stock

 

Series A Preferred Stock

 

The Company is authorized to issue 2,000,000 shares of series A Preferred Stock at a par value of $0.0001. The Series A Preferred Stock has voting rights equal to 1,000 votes for each 1 share of common stock owned. The Series A Preferred Stock shall have no liquidation preference over any other class of stock and there will be no dividends due or payable on the Series A Preferred Stock.

 

There were no issuances of the Series A Preferred Stock during the six months ended November 30, 2017.

 

Series B Convertible Preferred Stock

 

The Company is authorized to issue 150,000 shares of Series B Preferred Stock at a par value of $0.0001. The Series B Preferred Stock shall have no liquidation preference over any other class of stock and there will be no dividends due or payable on the Series B Preferred Stock. The Series B Preferred converts into Common Stock at a ratio of 1:1,000. However, the Series B may not be converted for a period of 12 months.

 

There were no issuances of the Series B Preferred Stock during the six months ended November 30, 2017.

 

Series C Convertible Preferred Stock

 

The Company is authorized to issue 250,000 shares of Series C Preferred Stock at a par value of $1. The Series C Preferred Stock shall have no liquidation preference over any other class of stock and there will be no dividends due or payable on the Series C Preferred Stock, The Preferred Stock can be converted to common stock, at a conversion rate of 66 common shares for each preferred share owned. The Company evaluated the conversion feature and concluded that it did not qualify as a derivative transaction. The Company evaluated the convertible preferred stock under FASB ACS 470-20-30 and determined it does not contain a beneficial conversion feature.

 

  
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There were no issuances of the Series C Preferred Stock during the sic months ended November 30, 2017.

 

Series D Convertible Preferred Stock

 

On June 13, 2016, pursuant to its Articles of Incorporation and Bylaws, the Board of Directors of the Company, unanimously approved the designation of a new series of preferred stock, "Series D Convertible Preferred Stock.

 

The Company is authorized to issue 10,000,000 shares of Series D Preferred Stock at a par value of $0.0001.

 

The Series D Preferred Stock shall have no liquidation preference over any other class of stock and there will be no dividends due or payable on the Series D Preferred Stock,

 

Beginning January 1, 2017, each holder of shares of Series D Preferred Stock may, at any time and from time to time, convert each of its shares of Series D Preferred Stock into a 15 fully paid and nonassessable shares of common stock.

 

Beginning January 1, 2018, the Company may convert shares of Series D Preferred Stock at any time and from time to time, each of its shares of Series D Preferred Stock into 15 of fully paid and nonassessable shares of common stock.

 

There were no issuances of the Series D Preferred Stock during the six months ended November 30, 2017.

 

Series E Preferred Stock

 

The Company is authorized to issue 15,000,000 shares of Series E Preferred Stock at a par value of $0.0001. The Series E Preferred Stock shall have no liquidation preference over any other class of stock and there will be no dividends due or payable on the Series E Preferred Stock. Beginning October 1, 2016, each share of Series E Preferred Stock is convertible into ten (10) shares of common stock. From October 1, 2016 to October 1, 2018, holders of Series E Preferred Stock may at any time convert to shares of common stock, thereafter, the Company may elect to convert any outstanding stock at any time without notice to the shareholders. The Company evaluated the conversion feature and concluded that it did not qualify as a derivative transaction. The Company evaluated the convertible preferred stock under FASB ACS 470-20-30 and determined it does not contain a beneficial conversion feature.

 

There were no issuances of the Series E Preferred Stock during the six months ended November 30, 2017.

 

Common stock

 

During the six months ended November 30, 2017, the Company issued common stock as follows,

 

 

· 98,887,236 common shares for the conversion of debt and accrued interest of $36,440.

 

 

 

 

· 27,575,932 common shares for the True-Up conversion.
   

As of November 30, 2017 and May 31, 2017, 507,669,616 and 381,206,448 shares of common stock were issued and outstanding, respectively.

 

Warrants

 

On September 29, 2015, the Company granted 1,000,000 warrants to Vista Capital Investments, LLC, in exchange for interest owed of $12,222, and recognized a loss on debt settlement of $16,778. Warrants were originally exercisable into 1,000,000 shares of common stock, for a period of five years from issuance, at a price of $0.05 per share, with multiple reset provisions when the share price is below $0.05. As a result of these reset features, additional warrants were issued and became exercisable into 36,933,026 shares of common stock at $0.00028 per share. Each warrant is exercisable into one share of common stock.

 

The following table summarizes information relating to outstanding and exercisable warrants as of November 30, 2017:

 

Warrants Outstanding

Warrants Exercisable

Number of Shares

Weighted Average Remaining Contractual life

(in years)

Weighted Average

Exercise Price

Number

of Shares

Weighted Average

Exercise Price

36,933,026

2.83 years

$ 0.0003 36,933,026 $ 0.0003

    

 
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The following table summarizes warrant activity for the six months ended November 30, 2017:

 

Number of

shares

Weighted Average Exercise Price

Weighted Average Life (years)

Outstanding, May 31, 2017

15,388,761 $ 0.0007

3.33 years

Reset features

21,544,265 0.0003

3.08 years

Forfeited

- - -

Exercised

- - -

Outstanding, November 30, 2017

36,933,026 $ 0.0003

2.83 years

 

Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company's stock exceeded the exercise price of the stock options at November 30, 2017, for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). As of November 30, 2017, the aggregate intrinsic value of options outstanding was approximately $52,630 based on the closing market price of $0.001 on November 30, 2017.

 

Note 7 – Subsequent Events

 

On December 22, 2017, the board of directors approved the issuance of Preferred Stock to four officers as compensation of $15,000 per officer as follows,

 

·

1,678 shares of Series B Convertible Preferred Stock for a value of $1,620

·

191,226 shares of Series C Convertible Preferred Stock for a value of $12,186

·

4,784,000 shares of Series E Convertible Preferred Stock for a value of $46,194

 

 
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Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation

 

FORWARD-LOOKING STATEMENTS

 

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained herein involve risks and uncertainties, including statements as to:

 

·

our future operating results;

·

our business prospects;

·

our contractual arrangements and relationships with third parties;

·

the dependence of our future success on the general economy;

·

our possible financings; and

·

the adequacy of our cash resources and working capital.

 

These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

General Overview

 

We were incorporated under the laws of the State of Colorado on January 12, 2000, under the name Capital Resources Alliance, Inc. At inception, we were a development stage company in the business of mining and exploration. On May 19, 2014 our company completed a reverse merger with Nate’s Pancakes, Inc., an Indiana company, with Nate’s Pancakes being the surviving entity. In May 2014, we changed our name from Capital Resource Alliance, Inc. to Nate’s Food Co.

 

In connection with the reverse merger, we became a food manufacturing and product company, and in May 2014, we executed a licensing agreement with Nate’s Pancakes to market and sell “Nate’s Homemade”, exclusively throughout the world.

 

Our Current Business

 

We are a food manufacturing and product company that manufactures, distributes and sells ready-to-use, pre-mixed pancake and waffle batter. We hold a 20 year worldwide exclusive license agreement for Nate’s Homemade.

 

On August 23, 2016, we entered in to an arrangement with one of California's largest aerosol producers to begin pilot production runs of Nate's Homemade Pancake and Waffle Batter in order to start supplying Southern California grocery stores. This will enable our company to expand our current online sales activity to include distribution to regional grocery chains without impacting our ongoing development activities with ABCO Laboratories Inc. in Northern California.

 

 
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Results of Operations

 

Three Months Ended November 30, 2017 Compared to the Three Months Ended November 30, 2016

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

November 30,

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

Change

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$ 683

 

 

$ 658

 

 

$ 25

 

 

 

4 %

Cost of Goods Sold

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Gross profit

 

 

683

 

 

 

658

 

 

 

25

 

 

 

4 %

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

42,459

 

 

 

72,787

 

 

 

(30,328 )

 

(42

)%

Depreciation

 

 

-

 

 

 

9,880

 

 

 

(9,880 )

 

(100

)%

Food development/research

 

 

-

 

 

 

1,532

 

 

 

(1,532 )

 

(100

)%

Total operating expenses

 

 

42,459

 

 

 

84,199

 

 

 

(41,740 )

 

(50

)%

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) loss on derivative

 

 

(14,173 )

 

 

254,763

 

 

 

(268,936 )

 

(106

)%

Interest Expenses

 

 

1,810

 

 

 

72,637

 

 

 

(70,827 )

 

(98

)%

Net Loss

 

$ (29,413 )

 

$ (410,941 )

 

$ 381,528

 

 

(93

)%

 

Revenue

 

Our company generated $683 in revenue with a gross profit of $683 or 100%, for the three months ended November 30, 2017 as compared to $658 in revenue with a gross profit of $658, or 100%, for the three months ended November 30, 2016.

 

Operating Expenses

  

During the period ended November 30, 2017, we incurred general and administrative expenses of $42,459 compared to $72,787 incurred during the period ended November 30, 2016. The decrease was primarily the result of a decrease in license fee and professional fee.

 

During the period ended November 30, 2017, we incurred depreciation of $0 compared to $9,880 incurred during the period ended November 30, 2016. The Company impaired equipment in fiscal year 2017.

 

Other (income) expense

 

During the period ended November 30, 2017, we incurred gain on derivatives of $14,173 compared to $254,763 in loss on derivative during the period ended November 30, 2016.

 

 
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Six Months Ended November 30, 2017 Compared to the Six Months Ended November 30, 2016

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

November 30,

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

Change

 

 

%

 

  

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$ 2,625

 

 

$ 3,392

 

 

$ (767 )

 

(23

)%

Cost of Goods Sold

 

 

272

 

 

 

-

 

 

 

272

 

 

 

-

 

Gross profit

 

 

2,353

 

 

 

3,392

 

 

 

(1,039 )

 

(31

)%

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

46,588

 

 

 

111,581

 

 

 

(64,993 )

 

(58

)%

Depreciation

 

 

-

 

 

 

19,760

 

 

 

(19,760 )

 

(100

)%

Food development/research

 

 

-

 

 

 

1,532

 

 

 

(1,532 )

 

(100

)%

Total operating expenses

 

 

46,588

 

 

 

132,873

 

 

 

(86,285 )

 

(65

)%

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

-

 

 

 

(1,290 )

 

 

1,290

 

 

(100

)%

(Gain) loss on derivative

 

 

259,330

 

 

 

(1,414,102 )

 

 

1,673,432

 

 

(118

)%

Interest Expenses

 

 

18,586

 

 

 

185,575

 

 

 

(166,989 )

 

(90

)%

Net Income (Loss)

 

$ (322,151 )

 

$ 1,100,336

 

 

$ (1,422,487 )

 

(129

)%

 

Revenue

 

Our company generated $2,625 in revenue with a gross profit of $2,353 or 90%, for the six months ended November 30, 2017 as compared to $3,392 in revenue with a gross profit of $3,392, for the six months ended November 30, 2016.

 

Operating Expenses

 

Operating expenses were relatively unchanged for the six months ended November 30, 2017 as compared to the same period in 2016.

 

During the period ended November 30, 2017, we incurred general and administrative expenses of $46,588 compared to $111,581 incurred during the period ended November 30, 2016. The decrease was primarily the result of a decrease in license fee and professional fee.

 

During the period ended November 30, 2017, we incurred depreciation of $0 compared to $19,760 incurred during the period ended November 30, 2016. The Company impaired equipment in fiscal year 2017.

 

Other (income) expense

 

During the period ended November 30, 2017, we incurred loss on derivatives of $259,330 compared to $1,414,102 in gain on derivative during the period ended November 30, 2016. During the period ended November 30, 2016, the Company recorded gain on derivative due to the repayment of convertible notes.

 

Liquidity and Capital Resources

 

Working Capital

 

 

 

November 30,

 

 

May 31,

 

 

 

 

 

 

 

 

2017

 

 

2017

 

 

Change

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

$ 206

 

 

$ 727

 

 

$ (521 )

 

(72

)%

Current Liabilities

 

$ 641,283

 

 

$ 525,698

 

 

$ 115,585

 

 

 

22 %

Working Capital Deficiency

 

$ (641,077 )

 

$ (524,971 )

 

$ (116,106 )

 

 

22 %

  

 
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Cash Flows

 

 

 

Six Months Ended

 

 

 

 

 

November 30,

 

 

 

 

 

2017

 

 

2016

 

 

Change

 

 

 

 

 

 

 

 

 

 

 

Cash Flows Used in Operating Activities

 

$ (1,521 )

 

$ (188,818 )

 

$ 187,297

 

Cash Flows Provided by Financing Activities

 

 

1,000

 

 

 

217,625

 

 

$ (216,625 )

Net change in Cash During Period

 

$ (521 )

 

$ 28,807

 

 

$ (29,328 )

 

As of November 30, 2017, our company had $206 in cash. In management’s opinion, our company’s cash position is insufficient to maintain our operations at the current level for the next 12 months. Any expansion may cause our company to require additional capital until such expansion begins generating revenue. It is anticipated that the raising of additional funds will principally be through the sales of our securities.

 

As of November 30, 2017, our total current liabilities were $641,283 which primarily consisted of $204,838 in notes payable – related parties, $180,711 in derivative liability, $181,802 in accounts payable and accrued liabilities and $36,818 in convertible notes as compared to May 31, 2017, with total current liabilities of $525,698 which primarily consisted of $90,986 in derivative liability, $199,428 in notes payable - related parties, $173,565 in accounts payable and accrued liabilities and $61,719 in convertible notes.

 

Operating Activities

 

Net cash used in operating activities was $1,521 for the six months ended November 30, 2017 compared with net cash used in operating activities of $188,818 in the same period in 2016.

 

Investing Activities

 

During the six months ended November 30, 2017 and 2016, our company did not have any investing activities.

 

Financing Activities

 

Net cash from financing activities was $1,000 from note payable from related party for the six months ended November 30, 2017 compared to $217,625 provided from financing activities in the same period in 2016.

 

Off-Balance Sheet Arrangements

 

We have no 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 stockholders.

 

Critical Accounting Policies

 

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.

 

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

  

 
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The material estimates for our company are that of derivative liabilities and income tax valuation allowance recorded for deferred tax assets. We recorded stock-based compensation for options and warrants issued and the fair value of embedded conversion options that are convertible into a variable amount of shares. The fair values of options, warrants, and embedded conversion options are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model stated below. The specific quantitative variables are included in the notes to the consolidated financial statements. The estimated fair value of options is recognized as expense on the straight-line basis over the options’ vesting periods. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the expected life, dividend yield, expected volatility, and risk-free interest rate weighted-average assumptions used for options and warrants granted. Expected volatility for 2017 and 2016 was estimated using our common stock for convertible notes and warrants. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date. The expected life of options is based on the life of the instrument on grant date.

 

Basis of Accounting and Going Concern

 

Our unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in conformity with GAAP. In addition, the accompanying unaudited condensed financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We generated accumulated losses of approximately $4,225,000 through November, 2017 and have insufficient working capital and cash flows to support operations. These factors raise substantial doubt about our ability to continue as a going concern. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty.

  

Convertible Notes

 

Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method.

 

Derivative Financial Instruments

 

The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.

 

  
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The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

 

The Black-Scholes option valuation model was used to estimate the fair value of the conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options.

 

Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.

 

Also, refer to Note 1 - Significant Accounting Policies and Note 5 - Derivative Liabilities in the unaudited financial statements that are included in this Report.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure.

 

As of the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of November 30, 2017, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and (ii) 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.

 

Changes in Internal Control Over Financial Reporting

 

During the period covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
17
 
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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 
18
 
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Item 6. Exhibits

 

The following exhibits are included as part of this report:

 

Exhibit Number

 

Description

(31)

 

Rule 13a-14(a)/15d-14(a) Certification

31.1

 

Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer,

31.2

 

Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer

(32)

 

Section 1350 Certification

32.1

 

Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer

32.2

 

Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer

101

 

Interactive Data Files

101.INS*

 

XBRL Instance Document

101.SCH*

 

XBRL Taxonomy Extension Schema Document

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

NATE'S FOOD CO.

(Registrant)

 

Dated: May 23, 2018

/s/ Nate Steck
Nate Steck
President, Chief Executive Officer and Director
(Principal Executive Officer)
 

   

Dated: May 23, 2018

/s/ Marc Kassoff

Marc Kassoff

Vice-President, Chief Financial Officer and Director

(Principal Financial Officer and Principal Accounting Officer)

 

 

20