UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURUTIES EXCHANGE ACT OF 1934

 

For the fiscal year ended November 30, 2020

 

Commission file number 000-53707

 

TRIDENT BRANDS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada		26-1367322
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

200 South Executive Drive, Suite 101

Brookfield, WI 53005

(Address of Principal Executive Offices & Zip Code)

 

(262) 789-6689

(Telephone Number)

 

Resident Agents of Nevada

711 S. Carson Street, Suite 4

Carson City, NV 89701

(Name and Address of Agent for Service)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to section 12(g) of the Act:

Common Stock, $.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ☐   No ☒

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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

 

Large accelerated filer	☐	Smaller reporting company	☒
Accelerated filer	☐	Non-accelerated filer	☒
Emerging Growth Company	☒

 

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

 

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

 

As of March 16, 2021, the registrant had 32,311,887 shares of common stock issued and outstanding. The Company had a market value of $1,050,136 based on the closing stock price of $0.0325 on November 30, 2020.

  

 

TRIDENT BRANDS INCORPORATED

FORM 10-K

For the year ended November 30, 2020

TABLE OF CONTENTS

 

			Page
Basis of Presentation			3
Forward Looking Statements			3
Part I
Item 1.	Business		6
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		20
Item 2.	Properties		21
Item 3.	Legal Proceedings		21
Item 4.	Mining Safety Disclosures		21
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		22
Item 6.	Selected Financial Data		24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		32
Item 8.	Financial Statements		32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		32
Item 9A(T).	Controls and Procedures		32
Item 9B.	Other Information		34
Part III
Item 10.	Directors, Executive Officers and Corporate Governance		35
Item 11.	Executive Compensation		38
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		39
Item 13.	Certain Relationships and Related Transactions, and Director Independence		40
Item 14.	Principal Accountant Fees and Services		40
Part IV
Item 15.	Exhibits		41

  

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Basis of Presentation

 

Except where the context otherwise requires, all references in this Annual Report on Form 10-K for the fiscal year ended November 30, 2020 (“Form 10-K”) to the “Company”, “we”, “us”, “our”, “Trident” and “Trident Brands” or similar words and phrases are to Trident Brands Incorporated and its subsidiaries, taken together.

 

In this report, all currency amounts are expressed in thousands of United States (“U.S.”) dollars (“$”), except per share data, unless otherwise stated. Amounts expressed in other than U.S. dollars are noted accordingly. For example, amounts if expressed in Canadian dollars are expressed in thousands of Canadian dollars and preceded by the symbol “Cdn $”.

 

Forward-Looking Statements

 

This Form 10-K contains forward-looking statements which are based on our current expectations and assumptions and involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as “anticipate”, “estimate”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, the negatives of such terms, and words and phrases of similar impact and include, but are not limited to references to expected increases in revenues and margins, growth opportunities, the success of new product launches and line extensions, our ability to finance our business, potential strategic investments, business strategies, competitive strengths, goals, references to key markets where we operate and the market for our securities. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our interpretation of current conditions, historical trends and expected future developments, as well as other factors that we believe are appropriate in the circumstance.

 

Whether actual results and developments will agree with our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from our expectations and predictions. We believe these factors include, but are not limited to, the following:

 

	·	we have a limited operating history with significant losses and expect losses to continue for the foreseeable future;
	·	we could face intense competition, which could result in lower revenues and higher expenditures and could adversely affect our results of operations;
	·	we are governed by only three persons serving as directors and officers which may lead to faulty corporate governance;
	·	we must attract and maintain key personnel or our business may fail;

   

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	·	We have an immediate and urgent need for capital - we may not be able to secure the financing we need to meet our future capital need;
	·	our business and operating results could be harmed if we fail to manage our growth or change;
	·	we have a limited operating history and if we are not successful in growing our business, then we may have to scale back or even cease our ongoing business operations;
	·	if our intellectual property is not adequately protected, then we may not be able to compete effectively and we may not be profitable;
	·	if we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could impact our ability to stay in business;
	·	we could lose our competitive advantages if we are not able to protect any of our food and nutritional products and intellectual property rights against infringement, and any related litigation could be time-consuming and costly;
	·	if we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained;
	·	our services may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands;
	·	our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm product sales and harm our financial condition and operating results;
	·	if we do not introduce new products or make enhancements to adequately meet the changing needs of our customers, some of our products could fail in the marketplace, which could negatively impact our revenues, financial condition and operating results.
	·	we are affected by laws and governmental regulations with potential penalties or claims, which could harm our financial condition and operating results;
	·	since we rely on independent third parties for the manufacture and supply of certain of our products, if these third parties fail to reliably supply products to us at required levels of quality and which are manufactured in compliance with applicable laws, then our financial condition and operating results would be harmed;

   

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	·	we may incur material product liability claims, which could increase our costs and harm our financial condition and operating results;
	·	unless we can generate sufficient cash from operations or additional raise funds, we may not be able to meet our debt obligations and continue as a going concern;
	·	our customers generally are not obligated to continue purchasing products from us;
	·	if we do not manage our supply chain effectively, our operating results may be adversely affected;
	·	our stock price may be volatile, which may result in losses to our shareholders;
	·	our common shares are thinly traded and our shareholders may be unable to sell at or near ask prices, or at all;
	·	the market price for our common stock is particularly volatile given our status as a relatively small and developing company, which could lead to wide fluctuations in our share price. Our shareholders may be unable to sell their common stock at or above their purchase price if at all, which may result in substantial losses to you;
	·	we do not anticipate paying any cash dividends to our common shareholders and as a result shareholders may only realize a return when the shares are sold;
	·	we are quoted on the OTCQB quotation system and our common stock is subject to “penny stock” rules which could negatively impact our liquidity and our shareholders’ ability to sell their shares;
	·	volatility in our common share price may subject us to securities litigation;
	·	the elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights of our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees;
	·	our business is subject to changing regulations related to corporate governance and public disclosure that have increased both our costs and the risk of noncompliance.

 

Consequently all forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that our actual results or the developments we anticipate will be realized. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk Factors, included elsewhere in this report.

   

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Part I

 

Item 1. Business

 

Business Description

 

Trident Brands Incorporated was incorporated under the laws of the State of Nevada on November 5, 2007. The Company was initially formed to engage in the acquisition, exploration and development of natural resource properties, but has since transitioned and is now focused on branded consumer products and food ingredients. The Company is in the early growth stage and has commenced commercial activities following a period of organization and development of its business plan.

 

The Company maintains a compelling portfolio of branded consumer products in the functional nutrition and dietary supplement categories under the Brain Armor® and P2N Peak Performance Nutrition® trademarks, and provides a range of private label sports nutrition items to major retailer accounts. Our products are focused on high growth category segments including performance nutrition and brain health, supported by an established contract manufacturing supply chain, strong research and development infrastructure and a solid and proactive management team, board of directors and business advisors with many years of senior experience in related fields.

 

Corporate Legal Structure and Related Matters

 

Trident Brands Incorporated has four legal subsidiaries, as detailed below.

    

 

Trident Sports Nutrition Inc. is 100% owned by Trident Brands and is organized to deliver shelf ready product solutions in the active nutrition and dietary supplement segment to leading retailers for private label and control brand programs.

 

Brain Armor Inc. is 94.8% owned by Trident Brands and is organized to develop, market and sell a portfolio of DHA supplements under the Brain Armor® brand, which is targeted at the cognitive health and performance segment.

 

Trident Health is 100% owned by Trident Brands.

 

Trident Brands Canada Ltd. is 100% owned by Trident Brands Incorporated and holds various banking facilities, and licenses associated with the manufacturing, importation and sale of natural health and nutrition products in Canada.

 

The Company’s administrative office is located at 200 South Executive Drive, Suite 101, Brookfield, Wisconsin, 53005 and its fiscal year end is November 30th.

 

The Company has authorized capital of 300,000,000 common shares with a par value of $0.001 per share. 32,311,887 common shares were issued and outstanding as of November 30, 2020 and 32,311,887 as of March 16, 2021.

   

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Management and Board of Directors

 

Mr. Anthony Pallante serves as Chairman of the Board and Chief Executive Officer while Mr. Scott Chapman serves as President.

 

Mr. Peter Salvo, the Vice President, Finance, Corporate Secretary, and Controller of the Company is our Principal Financial Officer and Principal Accounting Officer. Mrs. Pamela Andrews serves as Managing Director of our subsidiary, Brain Armor Inc.

 

The board is comprised of Mr. Anthony Pallante, Mr. Scott Chapman and Mr. Richard Russell.

 

Mr. Chapman is a director and Chair of the Corporate Governance Committee. Mr. Russell serves on the Company’s Board of Directors as an “independent director”, as defined under the Nasdaq Stock Market’s corporate governance rules, is Chairman of the Audit Committee and is considered a financial expert.

   

Evolution of Trident Brands

 

Brands

    

On March 1, 2015, we acquired, through a licensing agreement with DSM Nutritional Products LLC (“DNP”), the exclusive global rights to Brain Armor® dietary supplements, a plant-based DHA supplement designed specifically for the needs of athletes. At the same time, a wholly-owned subsidiary, Brain Armor Incorporated was registered to hold the trademark license and all costs and revenue associated with commercial development of the Brain Armor® brand. As per the agreement, DNP shall be the sole source of the Company’s omega-3 oil requirements which will be DNP’s life’s DHATM oil and will supply the soft gel capsules in finished form to us. In order to maintain exclusivity to the license, we are required to meet certain targets with respect to product launches and sales volume. Also under the terms of the agreement we have the opportunity to exercise an option to purchase the Brain Armor(R) dietary supplement brand. The term of the Agreement and the license rights is for five (5) years and shall be subject to successive one (1) year automatic renewal periods, assuming all performance milestones have been met.

 

On January 28, 2016, we issued 3,000,000 common shares pursuant to a Deed of Assignment dated effective January 20, 2015 among our Company, Oceans Omega LLC, and the assignor 2298107 Ontario Inc., pursuant to which the assignor assigned to our Company the assignor’s non-exclusive rights to purchase, market, sell and distribute certain Omega 3 nutritional emulsions produced by Oceans Omega LLC to the food and beverage industries and exclusive rights to purchase, market, sell and distribute to the global meat industry.

 

In December 2017, Trident began shipping P2N Peak Performance Nutrition products on an exclusive basis under a Vendor Agreement with Amazon Fulfillment Services Inc.

 

In April 2019, Trident began shipping Brain Armor dietary supplement products to CVS Health; in July 2020 to Whole Foods Markets through United Natural Foods Inc (UNFI), a national distributor; and in June 2020 to US supplement retailer Vitamin Shoppe. All of these retail listings are under standard vendor trading agreement terms.

 

Key Developments in Fiscal 2020 and Fiscal 2021 to the Date of this Report

  

On January 9, 2020 the Company and Fengate Trident LP entered into an Amendment to Convertible Promissory Notes Agreement to amend the terms of certain convertible promissory notes issued pursuant to a Securities Purchase Agreement by and between the Company and the Purchaser dated September 26, 2016 and previously amended on November 30, 2018 and March 11, 2019. The Amendment affects the convertible notes issued February 5, 2015 (US$1,800,000), May 14, 2015 (US$500,000), September 26, 2016 (US$4,100,000), May 9, 2017 (US$4,400,000) and May 16, 2018 (US$1,500,000), respectively (collectively the “2016 Convertible Notes”). Pursuant to the Amendment, the Purchaser has agreed to convert all of the 2016 Notes on or before the earlier to occur of (i) the Maturity Date of the 2016 Convertible Notes and (ii) the Company raising new equity investment of not less than US$2,000,000, on terms mutually acceptable to the Purchaser and the Company (subject to the Purchaser’s regulatory considerations). Conversion of the 2016 Notes will occur in a single conversion transaction at a price that is equal to a 25% discount to the average closing price of the Company’s common stock for the 10 trading days immediately prior to the conversion date, with the exact structure of the conversion to be determined by the parties.

       

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The Amendment also amends the outstanding convertible notes issued to the Purchaser on November 30, 2018 (US$3,400,780), April 13, 2019 (US$2,804,187) and November 6, 2019 (US$3,795,033) respectively (collectively the “2018 and 2019 Convertible  Notes”). Maturity of the 2018 and 2019 Convertible Notes has been extended to December 1, 2021. It was further agreed that interest on the 2018 and 2019 Convertible  Notes will accrue as at July 1, 2020 and be payable upon maturity.

 

On November 30, 2020 (“Effective Date”), the Company entered into that certain Fourth Amendment to Convertible Promissory Notes ( “Fourth Amendment”), with Fengate, the holder of the Notes (the “Note Holder”).  

   

By way of background, immediately prior to the Effective Date, the Company was indebted to the Note Holder in the aggregate principal amount of $22.3 million as follows: $12.3 million (the “2016 Convertible Notes”) and $10 million (the “Amended SPA Notes”). In addition, the Company owed aggregate accrued interest of $5,359,392 on the 2016 Convertible Notes and the Amended SPA Notes.

 

Conversion of $17.7 million of Indebtedness into Company Equity

 

In connection with the Fourth Amendment, the Note Holder has agreed to convert aggregate principal and accrued interest of $17,659,392 into equity of the Company, as more fully described below.  

 

As of the Effective Date, the Company and Note Holder have agreed that the Company will issue the Note Holder 29,432,320 shares of Company Preferred Stock in full and complete satisfaction of (i) all amounts owing under the 2016 Convertible Notes through November 30, 2020 (including accrued interest thereon) and (ii) all accrued interest on the Amended SPA Notes through November 30, 2020. This transaction represents the conversion of aggregate principal and accrued interest of $17,659,392 into Preferred Stock at the rate of $.60 per share. The $17,659,392 is comprised of $12.3 million of principal owing under the 2016 Convertible Notes and all accrued interest owing under both the 2016 Convertible Notes and the Amended SPA Notes (an aggregate of $5,359,392).

 

Under the terms of the Fourth Amendment, the Preferred Stock shall be (i) voting shares, with the same voting rights as common shares, except the Preferred Stock shall have no vote in respect of election of directors, (ii) entitled to such dividends as the Board of Directors of the Company may in its discretion declare (and no dividends may be declared on the Company’s other classes of shares unless a dividend is declared on the Preferred Stock), (iii) have a preference in liquidation ahead of all other classes of Company shares, (iv) be entitled upon a sale of the Company (to be further defined in definitive agreements) to receive the consideration that would be payable in respect of that number of shares of common stock of the Company equal to the number of shares of Preferred Stock (on a one-for one basis with the Company common stock), and (v) otherwise on such other terms and conditions as are mutually agreeable and not inconsistent with the foregoing.

 

The consummation of the foregoing transaction is subject to (i) authorization and issuance of the Preferred Stock, which is subject to approval of the requisite number of common shares of the Company, in accordance with Nevada law and the Company’s organizational documents, and (ii) Note Holder’s obligation to remain in compliance with regulations governing its ownership of voting shares.  

 

The Company and Note Holder have undertaken to consummate the foregoing transactions no later than June 30 , 2021.The Company expects to consummate this transaction prior to May 30, 2021.

 

Amendment of Terms of $10 million Amended SPA Notes

 

The Fourth Amendment also amends the Amended SPA Notes (aggregate principal amount of $10 million) as of the Effective Date, as follows:

 

	1.	Interest Rate. The interest rate per annum in respect of outstanding principal under the Amended SPA Notes shall be eight (8%) percent computed on a simple interest basis.
	2.	Interest Payments.

 

	a.	Interest on unpaid principal of the Amended SPA Notes ($10 million) with respect to the period of December 1, 2020 through November 30, 2021 may be paid by the Company in kind by issuing a non-interest bearing note (a “PIK Note”) in the amount of $800,000 on November 30, 2021 with a maturity date of November 30, 2025. If no PIK Note is issued on such date, accrued and unpaid principal shall be payable in cash.
	b.	Interest on unpaid principal of the Amended SPA Notes with respect to the period of December 1, 2021 through November 30, 2022 may be paid by the Company in kind by issuing a PIK Note in the amount of $800,000 on November 30, 2022 with a maturity date of November 30, 2025. If no PIK Note is issued on such date, accrued and unpaid principal shall be payable in cash.
	c.	The PIK Notes issued by the Company pursuant to the previous two paragraphs shall be in the form attached to the Securities Purchase Agreement dated as of September 26, 2016, as amended, pursuant to the which the Amended SPA Notes were issued, subject to revisions necessary to make such PIK Notes non-convertible and non-interest bearing.
	d.	Interest on unpaid principal with respect to the period of December 1, 2022 through November 30, 2025 shall be payable quarterly in arrears commencing February 28, 2023.

 

	3.	Termination of Conversion Feature. The convertibility of the Amended SPA Notes is terminated.
	4.	Extension of Maturity Date. The Maturity Date of the Amended SPA Notes is extended to November 30, 2025.

 

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Except as modified by the Fourth Amendment, the Notes, as previously amended, remain in full force and effect.

   

On September 24, 2020, the Company appointed Pamela Andrews as Managing Director of Brain Armor Inc.

   

Business Objectives and Strategies

 

Our business brings together many years of seasoned expertise in branded consumer and supplement products, supply chain, product development and corporate finance. Our team has experience in developing and commercializing consumer products, in both global companies and specialty markets.

   

Our objective is to provide our shareholders with solid returns through strategic investments across multiple consumer product and food ingredient platforms. The platforms we are focusing on include:

 

	·	Life science technologies and related products that have applications to a range of consumer products;
	·	Nutritional supplements and related consumer goods providing defined benefits to the consumer; and
	·	Functional foods and beverages ingredients with defined health and wellness benefits.

 

We are building our business through strategic investments in high growth early stage consumer brands and functional ingredients platforms within segment/sectors which we believe offer long term growth potential. We are focused on three core strategies underpinning our objectives:

 

	·	To execute our multi-tier brand and innovation strategy to drive revenue;
	·	To aggressively manage our asset light business model to drive a low cost platform; and
	·	To drive disciplines leading to increased investor awareness and ability to finance and govern growing operations.

 

Once we secure sufficient capital to enable us to fully implement our business plan, we expect revenues and associated margins to increase as we continue to commercialize segments and products within our portfolio. Specifically, Brain Armor®, P2N Peak Performance Nutrition and private label product lines have demonstrated solid potential in the markets where they compete. Further research and development investment is also expected to entrench our position in the market and contribute to current platforms and incremental business potential.

  

Our purpose is to apply these capabilities in starting new product lines with specific competitive advantage. Our product development is focused on:

 

	·	Extending established brands with existing equity that can be leveraged;
	·	Delivering consumer benefit with unique technology or intellectual properties; and
	·	Targeting dynamic growth segments.

  

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Coupled with strategic capital investment, our focus is on investments within the fast growing nutritional product and functional food segments/sectors. Our goal is to provide our shareholders with outstanding ROI through a portfolio of branded platforms via an asset light business model when and where appropriate.

 

As part of our long-term strategy we are targeting the following growth opportunities:

 

	·	Brand licenses in fast growing categories;
	·	Consumer goods with focus on supplements, functional foods & beverages;
	·	Life science technology that has applications in consumer products with a focus on nutritional, brain and heart health products; and
	·	Intellectual property and/or licenses in recognized brand platforms.

 

In addition to investments in brands and technology, we will seek to acquire positions in businesses to support our strategy through the use of common and/or preferred equity, senior secured, unsecured, and convertible debt in organizations who meet our investment goals. Through our management and directors vast expertise in both the consumer branded segment and strategic investment experience, we seek to provide our shareholders a sound return on their investment.

 

The Company’s strategic objective is to:

 

	·	Build and grow strategic brands organically;
	·	Make strategic investments in high growth companies;
	·	Develop and then merge brands/business lines into larger multi-national Companies; and
	·	Mitigate risk by creating a diverse portfolio of brands/operations in the growth sectors listed above.

 

Brands

 

Brain Armor®

 

The Company has a licensing agreement that grants us the exclusive global rights to Brain Armor®, a plant-based Omega-3 dietary supplement formulated to improve cognitive health and well-being. In December 2017, we purchased the Brain Armor® trademark and reformulated Brain Armor® dietary supplements with a proprietary blend of active ingredients clinically-proven to support neuro-nutrition at every stage of life.

  

P2N Peak Performance Nutrition®

 

In October 2017, Trident Sports Nutrition developed the P2N Peak Performance Nutrition brand as a control label range for a leading US eCommerce customer. The P2N brand encompasses a full-range of active nutrition products delivering high quality ingredients and proven formulas to support mass-market fitness goals.

   

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Control (or Private) Label

 

In April 2017, we entered into a vendor agreement to formulate and supply whey protein powder under a private label to a leading mass retail customer.

 

Product Supply

 

We procure our products utilizing a series of ingredient suppliers and strategic contract manufacturers. All suppliers are pre-qualified and must meet our stringent quality and performance standards.

 

All novel product formulations and flavor systems are proprietary and formulated in-house.

  

Competition

 

We compete in the branded nutritional products and functional foods market segments. These markets are highly competitive with many companies, large and small, competing for market share.
  

Compliance with Government Regulation

 

Our operations, supply chain and products are subject to a wide range of governmental regulations and policies in various regions where we operate, including the U.S. and Canada. These laws, regulations and policies are implemented, as applicable in each jurisdiction, on the national, federal, state, provincial and local levels. We believe we have processes and systems in place throughout our supply chain to meet the requirements of these regulations.

 

Patents, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor Contracts

 

As of November 30, 2020 the following trademarks have been registered or applications filed on behalf of Trident Brands Incorporated or operating subsidiaries of Trident Brands Incorporated:

 

 

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Human Resources, Contract Service Providers, Employees

 

We operate our business utilizing resources to provide services to the Company on a contractual basis. We feel this is most prudent as we can cost effectively meet our needs and leverage capabilities of talented individuals without employing on a full time basis. As the business grows, we expect to add a number of full-time employees. We presently do not have pension, health, annuity, insurance, profit sharing or similar benefit plans; however, we may adopt such plans in the future. Except for our stock option plan, there are presently no employee benefits available to our officers and directors.

    

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Reports to Securities Holders

 

We provide an annual report that includes audited financial information to our shareholders. We will make our financial information equally available to any interested parties or investors through compliance with applicable disclosure rules  under the Securities Exchange Act of 1934. We are subject to disclosure filing requirements, including filing Form 10K annually and Form 10Q quarterly. In addition, we will file Form 8K and other proxy and information statements from time to time as required. . The public may read and copy any materials that we file with the Securities and Exchange Commission, (“SEC”), at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains our reports, proxy and information statements, and other information regarding the Company that we file electronically with the SEC.

  

Item 1A. Risk Factors

 

RISKS RELATED TO OUR BUSINESS

 

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this current report on Form 10-K that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occur, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

We have an immediate and urgent need for capital and may not be able to continue as a going concern.

 

As of November 30, 2020, we had a working capital deficit of $6.4 million and accumulated deficit of $39,522,278. During the year ended November 30, 2020, we had a net loss of $5.4 million and our operations used $2 million of cash. As of March 15, 2021, we had only minimal cash on hand. We have historically incurred operating losses and may continue to incur operating losses for the foreseeable future. We believe that these conditions raise substantial doubt about our ability to continue as a going concern. This may hinder our future ability to obtain financing or may force us to obtain financing on less favorable terms than would otherwise be available. If we are unable to develop sufficient revenues and additional customers for our products and services, we may not generate enough revenue to sustain our business, and we may fail, in which case our stockholders would suffer a total loss of their investment. There can be no assurance that we will be able to continue as a going concern.

 

We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.

 

We have yet to establish a history of profitable operations and, as at November 30, 2020, have an accumulated deficit of $39,522,278, realized since our inception on November 5, 2007. We have generated only limited revenues since our inception and thus have incurred significant operating losses. Our profitability will require the successful commercialization and sales of our planned products at acceptable margins. We may not be able to successfully achieve any of these requirements.

  

We could face intense competition, which could result in lower revenues and higher expenditures and could adversely affect our results of operations.

 

Unless we keep pace with changing market demands, we could lose existing customers and more importantly fail to win new and retain any future customers. In order to compete effectively in the food and nutritional products industry, we must continually design, develop implement and market new and/or enhanced products and strategies. Our future success will depend, in part, upon our ability to address the changing and sophisticated needs of the marketplace. Our strategy of expanding our food and nutrition business may not be successful and could adversely affect our business operations and financial condition.

 

Further, our plan to pursue sales of our product in international markets may be limited by risks related to conditions in such markets.

  

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We are governed by only three persons serving as directors and two of them act as officers of the company which may lead to faulty corporate governance.

 

Currently our board includes only one independent director and as a result not all of our committees are independent. This could lead to less than preferable governance practices due to this lack of total independence.

 

We must attract and maintain key personnel or our business may fail.

 

Success depends on the acquisition of key personnel. We will have to compete with other companies both within and outside the food and nutritional products industry to recruit and retain competent employees and contract resources. If we cannot maintain qualified resources to meet the needs of our anticipated growth, this could have a material adverse effect on our business and financial condition.

 

Our business and operating results could be harmed if we fail to manage our growth or change.

 

Our business may experience periods of rapid change and/or growth that could place significant demands on our personnel, operating and financial resources. To manage possible growth and change, we must continue to locate skilled professionals in the food and nutritional products industries and adequate funds in a timely manner.

 

We have a limited operating history and if we are not successful in growing our business, then we may have to scale back or even cease our ongoing business operations.

 

There can be no assurance that we will ever operate profitably. We have a limited operating history. Our success is significantly dependent on the successful marketing and sales of our food and nutritional products, which cannot be guaranteed. Our operations will be subject to all the risks inherent in the uncertainties arising from the absence of a significant operating history. We may be unable to profitably sell our food and nutritional products and thus operate on a profitable basis. Potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

  

If our intellectual property is not adequately protected, then we may not be able to compete effectively and we may not be profitable.

 

Our commercial success depends, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of our technologies and products as well as successfully defending third-party challenges to such technologies and products. We will be able to protect our technologies and product from use by third parties only to the extent that valid and enforceable patents, trade secrets or regulatory protection cover them and we have exclusive rights to use them. The ability of our licensors, collaborators and suppliers to maintain their patent rights against third-party challenges to their validity, scope or enforceability will also play an important role in determining our future.

   

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The patent positions of technology related companies can be highly uncertain and involve complex legal and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed regarding such companies’ patents has emerged to date in the United States, and the patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict with any certainty the range of claims that may be allowed or enforced concerning our patents.

 

We also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, through confidentiality agreements with our employees, consultants and scientific and other advisors, they may unintentionally or willfully disclose our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable. If we are not able to maintain patent or trade secret protection on our technologies and products, then we may not be able to exclude competitors from developing or marketing competing products, and we may not be able to operate profitability.

  

If we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could impact our ability to stay in business.

 

There has been, and we believe that there will continue to be, significant litigation and demands for licenses in our industry regarding patent and other intellectual property rights. Although we anticipate having a valid defense to any allegation that our current products, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights that we might infringe with our products or other activities, and our competitors or other patent holders may assert that our products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause us to incur substantial litigation expenses and, if successful, may require us to pay substantial damages. Some of our potential competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, we could be forced to stop or delay our research, development, manufacturing or sales activities. The impact of this could impact our ability to stay in business.

 

We could lose our competitive advantages if we are not able to protect any of our food and nutritional products and intellectual property rights against infringement, and any related litigation could be time-consuming and costly.

 

Our success and ability to compete depends to a significant degree on our licenses and the ability to use our food and nutritional products. If any of our competitor’s copies or otherwise gains access to any of our competitive advantages or develops similar products independently, our ability to compete would be negatively impacted.

   

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We also consider our assigned trademarks invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brands. These and any other measures that we may take to protect our intellectual property rights, which presently are based upon a combination of copyright, trade secret and trademark laws, may not be adequate to prevent their unauthorized use.

 

Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. In addition, notwithstanding any rights we have secured in our intellectual property, other persons may bring claims against us that we have infringed on their intellectual property rights, including claims based upon the content we license from third parties or claims that our intellectual property right interests are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our service marks or require us to make changes to our website or other of our technologies.

 

If we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained.

 

As we proceed with the commercialization of our portfolio, we expect to experience significant and rapid growth in the scope and complexity of our business. We will need to add resources to market our services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We will be required to hire a broad range of additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.

 

Our services may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands.

 

Our industry is characterized by rapid changes in market demands. As a result, our products may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to and anticipate market demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced services to comply with emerging industry or governmental standards.

   

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Our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm product sales and harm our financial condition and operating results.

 

Our business is subject to changing consumer trends and preferences. Our success depends on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. The nutritional supplement industry is characterized by rapid and frequent changes in demand and new product introductions and enhancements. Our failure to predict these trends could negatively impact consumer opinion of our products and thus commercial success.

  

If we do not introduce new products or make enhancements to adequately meet the changing needs of our customers, some of our products could fail in the marketplace, which could negatively impact our revenues, financial condition and operating results.

 

The business of marketing of food and nutritional products is highly competitive and sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. These market segments include numerous manufacturers, distributors, marketers, retailers and physicians that actively compete for the business of consumers. We must continually adapt to marketplace demands in order to avoid negatively impacting our results.

 

We are affected by laws and governmental regulations with potential penalties or claims, which could harm our financial condition and operating results.

 

The formulation, manufacturing, packaging, labeling, distribution, advertising, licensing, sale and storage of our products are affected by laws and governmental regulations.

 

New regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in loss of revenues. We are subject to FDA rules for current good manufacturing practices, or GMPs, for the manufacture, packing, labeling and holding of nutritional products distributed in the United States. We have retained supply partners that maintain a comprehensive quality assurance program designed to address these regulations.

 

If these supply partners fail to comply with the GMPs and regulations, this could negatively impact our reputation and ability to sell products even though we are not directly liable under the GMPs and regulations for such compliance.

 

Since we rely on independent third parties for the manufacture and supply of certain of our products, if these third parties fail to reliably supply products to us at required levels of quality and which are manufactured in compliance with applicable laws, then our financial condition and operating results would be harmed.

 

We cannot be assured that our outside contract manufacturers will continuously and reliably supply products to us at the levels of quality, or the quantities, we require, and in compliance with applicable laws, including under the FDA’s GMP regulations. Additionally, while we are not presently aware of any current liquidity issues with our suppliers, we cannot be assured we will not experience financial hardship or capacity constraints in the future that could interrupt supply and thus our ability to profitably market our products.

     

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We may incur material product liability claims, which could increase our costs and harm our financial condition and operating results.

 

We rely upon published and unpublished safety information including clinical studies on ingredients used in our products. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, we may be subjected to various product liability claims, including that the products contain contaminants, the products include inadequate instructions as to their uses, or the products include inadequate warnings concerning side effects and interactions with other substances. It is possible that widespread product liability claims could increase our costs, and adversely affect our revenues and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequate insurance coverage in the future.

 

Our customers generally are not obligated to continue purchasing products from us

 

Many of our customers buy from us under purchase orders, and we generally do not have long-term agreements with or commitments from these customers for the purchase of products. We cannot provide assurance that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Decreases in our customers’ sales volumes or orders for products supplied by us may have a material adverse effect on our business, financial condition or results of operations.

 

If we do not manage our supply chain effectively, our operating results may be adversely affected

 

Our supply chain is complex. We rely on suppliers for our raw materials and for the manufacturing, processing, packaging and distribution of many of our products. The inability of any of these suppliers to deliver or perform for us in a timely or cost-effective manner could cause our operating costs to rise and our margins to fall. We must continuously monitor our inventory and product mix against forecasted demand or risk having inadequate supplies to meet consumer demand as well as having too much inventory that may reach its expiration date. If we are unable to manage our supply chain efficiently and ensure that our products are available to meet consumer demand, our operating costs could increase and our margins could fall.

 

The COVID-19 pandemic has significantly reduced demand for our products, and has had, and may continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

 

The effects of the COVID-19 (coronavirus) pandemic, including actions taken by businesses and governments, have resulted in a significant and swift reduction in international and U.S. economic activity. These effects have adversely affected the demand for our products. The decline in our customers’ demand for our products has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

 

RISKS RELATING TO OWNERSHIP OF OUR SECURITIES

 

Our stock price may be volatile, which may result in losses to our shareholders.

 

The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies quoted on the OTC quotation system in which shares of our common stock are quoted, have been volatile in the past and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many factors, including the following, some of which are beyond our control:

  

	·	variations in our operating results;
	·	changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;
	·	changes in operating and stock price performance of other companies in our industry;
	·	additions or departures of key personnel; and
	·	future sales of our common stock.

 

Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.

   

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Our common shares are thinly traded and our shareholders may be unable to sell at or near ask prices, or at all.

 

We cannot predict the extent to which an active public market for trading our common stock will be develop or be sustained. Our shares have historically been sporadically or “thinly-traded” meaning that the number of persons interested in purchasing our common shares at or near offered prices at any given time may be relatively small or non-existent.

  

This situation is attributable to a number of factors, including the fact that we are a small company in its development phase which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume. Even if we came to the attention of such persons, those persons may be reluctant to follow, purchase, or recommend the purchase of shares of an unproven company such as ours until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous trades without an adverse effect on share price. We cannot be assured that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.

 

The market price for our common stock is particularly volatile given our status as a relatively small and developing company, which could lead to wide fluctuations in our share price. Our shareholders may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.

 

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stock/over the counter stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price and there can be no assurance that our shares will not be impacted by these practices.

  

We do not anticipate paying any cash dividends to our common shareholders and as a result shareholders may only realize a return when the shares are sold.

 

We presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to retain all earnings to implement our business plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.

   

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We are quoted on the OTC quotation system and our common stock is subject to “penny stock” rules which could negatively impact our liquidity and our shareholders’ ability to sell their shares.

 

Our common stock is currently quoted on the OTCQB. We must comply with numerous NASDAQ MarketPlace rules in order to maintain the listing of our common stock on the OTCQB. There can be no assurance that we can continue to meet the requirements to maintain the quotation on the OTC system of our common stock. If we are unable to maintain the quotation of our common stock in the OTC system, the market liquidity of our common stock may be severely limited.

  

Volatility in our common share price may subject us to securities litigation.

 

The market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources and impact our ability to operate as a going concern.

 

The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights of our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.

 

Our Articles of Incorporation contains a specific provision that eliminates the liability of our directors and officers for monetary damages to our company and shareholders. Further, we are prepared to give such indemnification to our directors and officers to the extent provided for by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.

  

Our business is subject to changing regulations related to corporate governance and public disclosure that have increased both our costs and the risk of noncompliance.

 

Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and FINRA, have issued requirements and regulations and continue to develop additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities. Because new and modified laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.

  

Item 1B. Unresolved Staff Comments

 

None.

   

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Item 2. Properties

 

We do not currently own any property and we currently have no investment policies as they pertain to real estate, real estate interests or real estate mortgages.

 

Item 3. Legal Proceedings

 

On January 11, 2019, the Company filed a lawsuit against Everlast World’s Boxing Headquarters Corp. (“Everlast”). This action involves Everlast’s attempts to prevent the Company from exercising its right to terminate a License Agreement between the parties pursuant to which Trident had the right to market certain Everlast-branded products.

 

On January 17, 2019, Everlast World’s Boxing Headquarters Corp. (“Everlast”) filed a counter civil lawsuit against the Company and other defendants. In that lawsuit, Everlast seeks payment from the defendants under a License Agreement dated June 4, 2013, for $425,555 in unpaid royalties allegedly due and owing under the License Agreement and interest on the allegedly unpaid royalties of $96,265, which interest allegedly continues to accrue. Everlast has also sought all costs, expenses, and legal fees incurred by Everlast in collecting monies that it claims are due under the License Agreement. On February 26, 2020, the court in the Everlast matter issued an Opinion and Order granting a motion to dismiss all of the Company’s claims against Everlast and granting a motion for judgment on the pleadings as to liability against the Company. The Court left open the question of damages to be awarded to Everlast. The Company has requested that the parties participate in settlement discussions before a magistrate judge or, in the alternative, that Everlast engage in limited discovery on these matters. No settlement was reached. On October 15, 2020, the Court in the Everlast case ordered, adjudged and decreed that Plaintiff Everlast have judgment and recover a total of $738,946 from the Company as follows:

 

1. $425,000 representing royalty payments due to Everlast;

2. Interest on royalty payments computed through October 15, 2020, in the sum of $242,920;

3. Costs and attorneys’ fees in the sum of $71,026

 

The Company has fully accrued the $738,946 liability as of November 30, 2020.

  

The Clerk of Court was directed to close the case. The Company did not appeal the judgement.

 

On June 3, 2019, the Company filed a lawsuit against PIT Mycell, LLC, William E. Peterson III, New Age Ventures, LLC, Volker Berl, and Mycell Technologies, LLC (“Mycell”) in the Superior Court in Bergen County, New Jersey, Civil Action No. BER-L-004198-19, in which the Company seeks to require the defendants to perform under and allow the enforcement of certain notes made by Mycell and acquired by the Company in September 2017. The notes are past their stated maturity date of December 31, 2016. The Company also alleges that the parties had entered into a written Settlement Agreement Letter of Intent dated March 14, 2019 (the “Settlement”), but that the defendants repudiated it shortly thereafter. The notes had been the subject of an earlier lawsuit in Virginia in state court in Fairfax County between the Company and PIT Mycell, LLC that the Settlement was intended to resolve. The Company seeks to enforce the notes and the Settlement in the New Jersey lawsuit and requests actual damages in an amount to be proven at trial, attorneys’ fees and litigation costs, specific performance requiring certain defendants to enforce obligations under the notes against Mycell, specific performance requiring the defendants to execute a final Settlement Agreement consistent with the Settlement, an order permitting foreclosure on the collateral for the notes, and declaratory relief. On January 24, 2020, the New Jersey court denied Defendant’s Motions to dismiss the case. The parties have engaged in written discovery and exchanged productions of documents. Mycell filed for bankruptcy on November 25, 2020.

 

On December 1, 2020, Bank of America Leasing and Capital, LLC filed a legal action against the Company in the Superior Court for the State of California, County of San Mateo (Case NO. 20-CIV-05306), alleging breach of contract. The claim arises out of a software services contract between the Company and Oracle Corporation.  Bank of America Leasing and Capital, LLC acquired Oracle’s rights under the agreement.  The plaintiff claims the Company is liable for damages in the amount of $217,000 plus interests and costs.  The Company has not filed an answer to this complaint.  On February 22, 2021, the plaintiff requested that the Court enter a default judgment against the Company.  The Company intends to engage counsel and defend against this claim.

  

Item 4. Mining Safety Disclosures

 

None.

  

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Part II

 

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Since July 8, 2013 our shares began trading under the symbol “TDNT”. As of the date of this filing, there has been no active trading of our securities.

 

		2020								2019
		High				Low				High				Low
First Quarter		$	0.500			$	0.250			$	0.600			$	0.310
Second Quarter		$	0.348			$	0.160			$	0.468			$	0.380
Third Quarter		$	0.288			$	0.031			$	0.620			$	0.440
Fourth Quarter		$	0.150			$	0.033			$	0.580			$	0.208

   

The foregoing over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

The OTCQB is a regulated quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter (OTC) securities. The OTC is not an issuer listing service, market or exchange. Although the OTC market  does not have any listing requirements per se, to be eligible for quotation on the OTC market, issuers must remain current in their filings with the SEC or applicable regulatory authority. Market Makers are not permitted to begin quotation of a security whose issuer does not meet this filing requirement. Securities already quoted on the OTC market that become delinquent in their required filings will be removed following a grace period if they do not make their required filing during that time.

  

As of November 30, 2020, we had 32,311,887 Shares of $0.001 par value common stock issued and outstanding held by 48 shareholders of record.

 

Of the 32,311,887 shares of common stock outstanding as of November 30, 2020, 8,441,724 shares are owned by Anthony Pallante, CEO and director, and may only be resold in compliance with Rule 144 of the Securities Act of 1933.

 

The stock transfer agent for our securities is Action Stock Transfer.

 

Dividends

 

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.

 

Section Rule 15(g) of the Securities Exchange Act of 1934

 

The Company’s shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser’s written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.

 

Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as “bid” and “offer” quotes, a dealers “spread” and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; and the customers rights and remedies in causes of fraud in penny stock transactions.

  

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Securities authorized for issuance under equity compensation plans

 

As of November 30, 2020, we have issued the following securities under our 2013 Stock Option Plan:

 

	Name and Position	Number of Options	Date of Grant	Exercise price	Expiration	Vesting from date of Grant
1.	Scott Chapman Current President, Director, Chair of Corporate Governance Committee	150,000 150,000	Dec 6, 2017 Dec 6, 2017	$0.40 $0.40	Dec 6, 2022 Dec 6, 2022	Immediate 12 months
2.	Mark Holcombe (former President, CFO, Director, Chairman of the Compensation Committee	150,000 150,000	Dec 6, 2017 Dec 6, 2017	$0.40 $0.40	Dec 6, 2022 Dec 6, 2022	Immediate 12 months
3.	Peter Salvo Controller	75,000 75,000	Dec 6, 2017 Dec 6, 2017	$0.40 $0.40	Dec 6, 2022 Dec 6, 2022	Immediate 12 months
4.	Anthony Pallante CEO, Director, Chairman of the Board	375,000 375,000	Dec 6, 2017 Dec 6, 2017	$0.40 $0.40	Dec 6, 2022 Dec 6, 2022	Immediate 12 months
5.	Brad Caistor	150,000 150,000	Dec 6, 2017 Dec 6, 2017	$0.40 $0.40	Dec 6, 2022 Dec 6, 2022	Immediate 12 months
6.	Landon McCluskey	16,250 16,250	Dec 6, 2017 Dec 6, 2017	$0.40 $0.40	Dec 6, 2022 Dec 6, 2022	Immediate 12 months
	Total:	1,832,500

     

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Section 16(a)

 

Based solely upon a review of Forms 3 and 4 furnished by us under Rule 16a-3(d) of the Securities Exchange Act of 1934, we are not aware of any individual who failed to file a required report on a timely basis required by Section 16(a) of the Securities Exchange Act of 1934.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

There were no shares of common stock or other securities issued to the issuer or affiliated purchasers during the year ended November 30, 2020.

 

Item 6. Selected Financial Data

 

As a smaller reporting company we are not required to provide this information.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Financial Information

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section provides analysis of our operations and financial position for the fiscal year ended November 30, 2020 and includes information available up to March 16, 2020, unless otherwise indicated herein. It is supplementary information and should be read in conjunction with the Consolidated Financial Statements included elsewhere in this report.

 

Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as “anticipate”, “estimate”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, or other similar expressions concerning matters that are not historical facts. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.

 

Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking statements are also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors are more fully described in the “Risk Factors” section at Item 1A of this Form 10-K.

   

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Critical Accounting Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on our experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes. The following are the accounting estimates which we believe to be most important to our business.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts 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 November 30, 2020 and November 30, 2019

 

The following summary of our results of operations should be read in conjunction with our audited financial statements for the fiscal years ended November 30, 2020 and 2019.

 

Our operating results for years ended November 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		$	5,390,575			$	4,371,507
Depreciation and Amortization		$	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 $872,923 versus $2,153,572 in the prior year. The decrease was the result of the Company’s implementation of a strategic shift away from established commodity-based private label product sales to developing high-margin premium branded product sales in the period. Gross profit decreased by 43% to $244,122 versus $429,761 with margin improvement in the period to 28.0% of revenues versus 20.0% of revenues in the prior period. This improvement is attributable to early commercial development of Brain Armor® branded product sales. Subject to receipt of additional funding which will be used in part for further sales and marketing initiatives, Management expects revenue and profit contribution improvement as commercial efforts continue to gain traction and market conditions normalize. COVID-19 has thus far adversely affected our revenues and our ability to raise additional capital, so there is no assurance we will be able to grow our business or raise sufficient additional capital on acceptable terms or at all.

  

Operating Expenses

 

Our operating expenses for the years ended November 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

      

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Operating expenses for the year ended November 30, 2020 were $4,571,077 as compared to $6,950,756 for the comparative period in 2019, a decrease of 34.2%. The decrease in our operating expenses was primarily due to our efforts to reduce costs, partially offset by an increase in professional fees. Management expects operating expenses to increase as revenue is expected to gain traction and market conditions normalize.

  

Other Income (Expenses)

 

Other income/(expenses) for the year ended November 30, 2020 were $(1,068,237) versus $(5,696,798) in the comparative period in 2019, an improvement of 81.2%. The increase in income was due primarily to an increase in a derivative gain of $5,637,629 on the revaluation of the embedded conversion option of the 2018 and 2019 convertible notes partially offset by a loss on debt extinguishment of $1,092,295. Management expects interest expenses to decrease. and does not expect any amortization of debt discount or derivative loss or gains.

   

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 November 30, 2020 was $(5,395,192) compared to $(12,217,793) in the comparative period in 2019. After deducting non-cash amounts of interest and loss on debt extinguishment, depreciation and amortization, EBITDA for the year ended November 30, 2020 was $(204) compared to $(7,837,905) in 2019.

 

Adjusted EBITDA

 

We define Adjusted EBITDA as EBITDA, adjusted to exclude stock options expense and derivative loss. Reported EBITDA for the year ended November 30, 2020 was $(204) compared to $(7,837,700) in the comparative period in 2019. After deducting non-cash stock options expense and derivative loss, Adjusted EBITDA for the year ended November 30, 2020 was $(4,312,542) compared to ($6,131,863) in 2019.

 

Liquidity and Capital Resources

 

Our cash and cash equivalents balance at November 30, 2020 was $88,007. Management believes the current funds available to the company will not be sufficient to fund our operations for the next twelve months from the date the financial statements are issued unless the Company can raise additional funds.

 

Historical Convertible Note Financings

 

On January 29, 2015, we entered into a securities purchase agreement with a non-US institutional investor whereby we agreed to sell an aggregate principal amount of $2,300,000 of senior secured convertible debentures, convertible into shares of the Company’s common stock. We received $1,800,000 of the funds from the transaction on February 5, 2015 and the balance of $500,000 on May 14, 2015. On September 26, 2016, we entered into a Convertible Promissory Note Amendment Agreement with this investor whereby we agreed to extend the maturity date and amend the interest payable on the senior secured convertible debentures, whereby we extended the term of the notes through September 30, 2019 and interest rate was increased from 6% per annum to 8% per annum. The convertible debentures are convertible into shares of the Company’s common stock at an initial conversion price of $0.71 per share for an aggregate of up to 3,239,437 shares.

   

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On September 26, 2016, we entered into a Securities Purchase Agreement with a non-US institutional investor pursuant to which, in consideration for proceeds of $4,100,000, we issued a secured convertible promissory note in the amount of $4,100,000. Pursuant to the Securities Purchase Agreement, the investor has agreed, from time to time after January 1, 2017, to make additional investments at our request of up to $5,900,000 ($10,000,000 in the aggregate) in one or more tranches of not less than one tranche during any 60 day period. The funding of any tranche under the agreement (other than the first $4,100,000 which has been funded) is subject to the mutual agreement of the parties as to the use of funds. The parties have agreed to negotiate in good faith to pre-approve use of funds within 120 days following September 26, 2016. On May 9, 2017, the Company received the second tranche of funding with proceeds of $4,400,000 and on May 16, 2018 the third tranche of funding with proceeds of $1,500,000 for a total investment by the investor of $10,000,000. The Company intends to use the proceeds of the secured convertible note for general working capital purposes including, without limitation, settlement of accounts payable and repayment of mature loans. In consideration of each advance made by the investor pursuant to the Securities Purchase Agreement, we will issue to the investor a convertible promissory note of equal value, maturing three years after issuance, and bearing interest at the rate of 8% per annum. Each note will be secured in first priority against the present and after acquired assets of the Company, and will be convertible in whole or in part at the option of the holder into common shares of the Company at a conversion price per share of $.60, equal to a 25% discount to the 10 day average closing price of the Company’s common stock for the period immediately preceding the issuance of the applicable note.

 

On November 30, 2018 the Company and Fengate entered into a Securities Purchase Amendment Agreement (‘SPA”) pursuant to which the Company has agreed to issue to Fengate additional convertible promissory notes (collectively, the “2018 and 2019 Convertible Notes”) of up to $10,000,000, subject to certain terms and conditions. Each portion of the principal amount advanced pursuant to the SPA will bear interest at the rate of twelve percent (12%) per annum and will be payable monthly in arrears to Fengate. Outstanding principal and interest will continue to be secured by the general security agreement dated September 26, 2016, which forms a part of the Agreement. The holder of the note may also elect from time to time to convert all or a portion of the outstanding principal and interest into common shares of the Company at a 25% discount to the average closing price of the common shares during the 10 trading days immediately prior to the applicable conversion date. The 2018 and 2019 Convertible Notes were extended and will mature on December 1, 2021.

 

On November 30, 2018 the Company received the first tranche of funding with proceeds of $3,400,780. The 2nd tranche of $2,804,187 was received on April 13, 2019. The 3rd tranche of $3,795,033 less $936,168 withheld for withheld for interest payments up to and including June 30, 2020 was received on November 6, 2019. On March 5, 2020, the 2018 and 2019 Convertible Notes were amended to increase the amount of the 3rd tranche by $936,168 representing the amount previously withheld as interest payment. The withheld interest was subsequently received on March 12, 2020.The Company used the proceeds of the secured convertible note for general working capital purposes including, without limitation, product development, inventory, and marketing and selling expenses.

 

Agreement to Restructure Convertible Notes

 

On November 30, 2020 (“Effective Date”), the Company entered into that certain Fourth Amendment to Convertible Promissory Notes ( “Fourth Amendment”), with Fengate, the holder of the Notes (the “Note Holder”).  

 

By way of background, immediately prior to the Effective Date, the Company was indebted to the Note Holder in the aggregate principal amount of $22.3 million as follows: $12.3 million (the “2016 Convertible Notes”) and $10 million (the “Amended SPA Notes”). In addition, the Company owed aggregate accrued interest of $5,359,392 on the 2016 Convertible Notes and the Amended SPA Notes.

 

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Conversion of $17.7 million of Indebtedness into Company Equity

 

In connection with the Fourth Amendment, the Note Holder has agreed to convert aggregate principal and accrued interest of $17,659,392 into equity of the Company, as more fully described below.  

 

As of the Effective Date, the Company and Note Holder have agreed that the Company will issue the Note Holder 29,432,320 shares of Company Preferred Stock in full and complete satisfaction of (i) all amounts owing under the 2016 Convertible Notes through November 30, 2020 (including accrued interest thereon) and (ii) all accrued interest on the Amended SPA Notes through November 30, 2020. This transaction represents the conversion of aggregate principal and accrued interest of $17,659,392 into Preferred Stock at the rate of $.60 per share. The $17,659,392 is comprised of $12.3 million of principal owing under the 2016 Convertible Notes and all accrued interest owing under both the 2016 Convertible Notes and the Amended SPA Notes (an aggregate of $5,359,392).

 

Under the terms of the Fourth Amendment, the Preferred Stock shall be (i) voting shares, with the same voting rights as common shares, except the Preferred Stock shall have no vote in respect of election of directors, (ii) entitled to such dividends as the Board of Directors of the Company may in its discretion declare (and no dividends may be declared on the Company’s other classes of shares unless a dividend is declared on the Preferred Stock), (iii) have a preference in liquidation ahead of all other classes of Company shares, (iv) be entitled upon a sale of the Company (to be further defined in definitive agreements) to receive the consideration that would be payable in respect of that number of shares of common stock of the Company equal to the number of shares of Preferred Stock (on a one-for one basis with the Company common stock), and (v) otherwise on such other terms and conditions as are mutually agreeable and not inconsistent with the foregoing.

 

The consummation of the foregoing transaction is subject to (i) authorization and issuance of the Preferred Stock, which is subject to approval of the requisite number of common shares of the Company, in accordance with Nevada law and the Company’s organizational documents, and (ii) Note Holder’s obligation to remain in compliance with regulations governing its ownership of voting shares.  

 

The Company and Note Holder have undertaken to consummate the foregoing transactions no later than June 30 , 2021.The Company expects to consummate this transaction prior to May 30, 2021.

    

Amendment of Terms of $10 million Amended SPA Notes

 

The Fourth Amendment also amends the Amended SPA Notes (aggregate principal amount of $10 million) as of the Effective Date, as follows:

 

	1.	Interest Rate. The interest rate per annum in respect of outstanding principal under the Amended SPA Notes shall be eight (8%) percent computed on a simple interest basis.
	2.	Interest Payments.

 

	a.	Interest on unpaid principal of the Amended SPA Notes ($10 million) with respect to the period of December 1, 2020 through November 30, 2021 may be paid by the Company in kind by issuing a non-interest bearing note (a “PIK Note”) in the amount of $800,000 on November 30, 2021 with a maturity date of November 30, 2025. If no PIK Note is issued on such date, accrued and unpaid principal shall be payable in cash.
	b.	Interest on unpaid principal of the Amended SPA Notes with respect to the period of December 1, 2021 through November 30, 2022 may be paid by the Company in kind by issuing a PIK Note in the amount of $800,000 on November 30, 2022 with a maturity date of November 30, 2025. If no PIK Note is issued on such date, accrued and unpaid principal shall be payable in cash.
	c.	The PIK Notes issued by the Company pursuant to the previous two paragraphs shall be in the form attached to the Securities Purchase Agreement dated as of September 26, 2016, as amended, pursuant to the which the Amended SPA Notes were issued, subject to revisions necessary to make such PIK Notes non-convertible and non-interest bearing.
	d.	Interest on unpaid principal with respect to the period of December 1, 2022 through November 30, 2025 shall be payable quarterly in arrears commencing February 28, 2023.

 

	3.	Termination of Conversion Feature. The convertibility of the Amended SPA Notes is terminated.
	4.	Extension of Maturity Date. The Maturity Date of the Amended SPA Notes is extended to November 30, 2025.

 

Except as modified by the Fourth Amendment, the Notes, as previously amended, remain in full force and effect.

    

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On May 28, 2020, we obtained a $135,165 unsecured loan payable through the Paycheck Protection Program (“PPP”), which was enacted as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES ACT”). The funds were received from Bank of America through a loan agreement pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act and used for payroll costs, rent, mortgage interest, and utility costs during the 24 week period after the date of loan disbursement is eligible to be forgiven provided that (a) we use the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. While the full loan amount may be forgiven, the amount of loan forgiveness will be reduced if, among other reasons, we do not maintain staffing or payroll levels or less than 60% of the loan proceeds are used for payroll costs. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred to the date the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.

 

Working Capital Deficiency and Need for Additional Capital

 

We currently have a working capital deficiency. As of November 30, 2020, we had a working capital deficit of approximately $6.4 million, compared to a deficit of approximately $18.3 million as of November 30, 2019. The approximate $11.9 million decrease in working capital deficit was due primarily to (all amounts approximate) $12.0 million decrease in convertible debt reclassified to long term debt and a $5.8 million decrease in derivative liability partially offset by $3.9 million increase in accrued liabilities, 926,000 decrease in cash and $863,000 decrease in inventory.

 

As disclosed under Item 3. Legal Proceedings, a judgment was entered  against us in the Everlast matter in the amount of  approximately $740,000.  In addition, the plaintiff in the Oracle matter has requested a default judgment against us. Accordingly, the Company is  currently obligated to pay Everlast approximately $740,000 and could be liable to pay Oracle at least $217,000 if the court enters a default judgment, in which case, the Company would be liable for in excess of $1 million in judgments, in the aggregate. If the Company is compelled to pay these liabilities, there would be a material adverse effect on the financial condition of the Company.      

 

As of March 15, 2021, we had only minimal cash on hand, and consequently, we are unable to fully implement our current business plan. Accordingly, we have an immediate need for additional capital to fund our operating activities. COVID-19 has thus far adversely affected our revenues and our ability to raise additional capital, so there is no assurance we will be able to grow our business or raise sufficient additional capital on acceptable terms or at all.

  

In order to remedy this liquidity deficiency, we are actively seeking to raise additional funds through the sale of equity and/or debt securities, and ultimately, we will need to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to realize additional revenues from the sale of our products and services. As previously stated, our operations are generating negative cash flows, and thus adversely affecting our liquidity. If we are unable to raise additional funds in the near term, we will not be able to implement our business plan, in which case there would be a material adverse effect on our results of operations and financial condition.

  

In the event we do not generate sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we will be unable to 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.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company we are not required to provide this information.

 

Item 8. Financial Statements

 

Our Consolidated Financial Statements required by this item are set forth immediately following the signature page to this Form 10-K.

 

Item 9. Changes in and Disagreements with Accountants on Financial Disclosure

 

None.

 

Item 9A (T). Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting described below in “Management’s Internal Control Over Financial Reporting”. However, the material information required to be included in our Securities and Exchange Commission reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared.

  

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Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.

 

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

 

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of November 30, 2020, based on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under this framework, management concluded that our internal control over financial reporting was not effective as of November 30, 2020 and identified the following material weaknesses:

 

Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.

 

Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.  

   

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Management is committed to improving its internal controls and (1) will continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) will increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.

  

Management has discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

  

Changes in Internal Controls Over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter for our fiscal year ended November 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

   

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The following sets forth information about our directors and executive officers as of the date of this report:

 

NAME		AGE		POSITION
Anthony Pallante(1)		63		Chief Executive Officer, Director and Chair of the Board of Directors.
Scott Chapman(2)		57		President, Director, Chair of the Corporate Governance Committee and Chair of the Compensation Committee
Richard Russell(3)		60		Director, Chair of the Audit Committee
Pamela Andrews(4)		46		Managing Director, Brain Armor Inc.
Peter Salvo(5)		66		VP Finance, Controller and Secretary.

  

(1)	Anthony Pallante was appointed CEO, Director and Chair of the Board of Directors on December 2, 2016.
(2)	Scott Chapman was appointed as President on June 1, 2019. He was appointed as Chair of the Audit Committee on December 2, 2016 and as a Director and Chair of the Governance Committee of our company on March 21, 2014.
(3)	Richard Russell was appointed as a Director of our company on March 1, 2020 and serves as Chair of the Audit Committee.
(4)	Pamela Andrews was appointed Managing Director, Brain Armor on September 24, 2020.
(5)	Peter Salvo was appointed as a Controller of our company on March 21, 2014 and assumed the positions of Principle Financial Officer and Principal Accounting Officer on June 1, 2019.

  

Our directors will serve in that capacity until our next annual shareholder meeting or until their successor is elected or appointed and qualified. Officers hold their positions at the will of our Board of Directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.

   

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Anthony Pallante, Chief Executive Officer, Director and Chair of the Board of Directors

 

Mr. Anthony M. Pallante is the Founder and Principal of Manchester Capital Inc. and has served as its Chairman and Chief Executive Officer for over 25 years. Prior to Manchester Capital, Mr. Pallante served as a Senior Vice President and Officer at Cott Beverages. Prior to Cott, he served as the President and Principal of Exclusive Beverage, the Ontario Royal Crown Cola franchise, which he sold to Cott. He holds a Bachelor of Arts from York University in Toronto and is active in various local and community charities.

  

Scott Chapman, President,

Director and Chair of the Corporate Governance Committee and Compensation Committee

  

Scott Chapman is an investment professional with over 20 years of experience both in Canada and internationally. Mr. Chapman has acted as senior partner with Lines Overseas Management (Bermuda, Bahamas); and in institutional, retail sales with Midland Walwyn (Montreal, Quebec).

 

Across numerous financial sectors, Mr. Chapman’s responsibilities have included corporate finance, venture capital, institutional and retail sales.

 

From April 2009 to present, Mr. Chapman has been the owner of Hyperion Management. Hyperion is in the business of venture capital, marketing, corporate governance and sports management.

 

Mr. Chapman is a native of Montreal, Quebec and holds a BA from Concordia University.

 

Richard Russell,

Director, and Chair of the Audit Committee.

 

Since November 2017, Mr. Russell has served as Chief Financial Officer of LM Funding America, Inc., a Florida based Nasdaq listed technology-based specialty finance company offering unique funding solutions to community associations. As of November 2020, he is also Chief Financial Officer and board member of LMF Acquisition Opportunities Inc. (a special purpose acquisition corporation focused on acquiring a financial technology or services company). Since December 2019, Mr. Russell has served as Chief Financial Officer of Generation Income Properties Inc., a Florida based real estate investment company quoted on the OTCQB. Since August 2016, Mr. Russell has been a Board Member of the Hillsborough County Internal Audit Commission, of which he was appointed Chairman in January 2020. From September 2013 to December 2016, Mr. Russell served as Chief Financial Officer of Mission Health Communities, a skilled nursing company with 32 skilled and assisted living facilities in Florida. From 2007 – 2013, Mr. Russell was the Sr. Director Corp. Finance - Sr. Director - Head of Internal Audit - Assistant Corporate Controller of Cott Corporation, a large public international manufacturing beverage company headquartered in Florida.

 

Pamela Andrews, Managing Director, Brain Armor Inc.

  

With a career spanning over 25 years, Pamela Andrews has been a noteworthy leader in the CPG space. With roots at P&G and Estee Lauder, she made a move to the ‘start-up’ space as one of the initial team members at Ascenta Health  in July 2006 where she was the Director of Strategic Partnerships. Ascenta was a pioneer in the Omega-3 category and quickly became a market leader in a very short span of time. When Ascenta Health was acquired by Nature’s Way in 2015, Pamela followed Ascenta’s President & CEO Marc St-Onge to his new start-up, Bend Beauty. For the next two years, from August 2015 until June 2017 she helped to develop and launch this innovative brand in the newly emerging cosmeceutical space. Pamela then moved to Toronto in July 2017 to join Jamieson Wellness as their VP Marketing of the ‘Specialty Supplements’ division where she helped shape the vision and strategy of this new segment of business until March 2020. This division comprises Jamieson’s latest portfolio acquisitions in the natural health category. As a special passion throughout most of her career, Pamela has also been a pioneer in the ‘Influencer Marketing’ space. She has been very effective in connecting key opinion leaders and celebrity influencers to brands in order to quickly and effectively grow their market share. The relationships she has cultivated with celebrity influencers bring an invaluable piece of business to any growing brand.

 

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Peter Salvo, Controller and Corporate Secretary

 

Peter Salvo is a professional accountant with over 25 years of experience in manufacturing, most notably in the automotive industry. Mr. Salvo has served in many capacities, most recently as controller and finance manager with Meritor Suspension Systems Company for 14 years. He has also worked for Rockwell International for 11 years as Manager of Financial Analysis. Mr. Salvo has extensive financial management experience and served as a key member of various management teams.

 

Mr. Salvo is a Chartered Professional Accountant (CPA, CMA), received his Certified Management Accountant designation in 1985 and holds a bachelor degree in commerce from McMaster University.

 

Executive Management and Board of Directors

 

Our executive management team represents a significant depth of experience in public companies, food and nutritional products, marketing, and domestic and international business development. The team represents a cross-disciplinary approach to management and business development.

 

We believe that all of our directors’ respective educational background, operational and business experience give them the qualifications and skills necessary to serve as directors of our company. Our board of directors consists solely of Mr. Pallante, Mr. Chapman and Richard Russell.

 

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Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our shares of common stock and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.

 

Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended November 30, 2020, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with.

 

Code of Ethics

 

We have not adopted a code of ethics that applies to our officers, directors and employees. When we do adopt a code of ethics, we will disclose it in a Current Report on Form 8-K.

 

Audit Committee and Audit Committee Financial Expert

 

Our board of directors has determined that one member of its audit committee qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K, and is “independent” as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

  

We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.

 

Item 11. Executive Compensation

 

SUMMARY COMPENSATION TABLE
Name and Principal Position		Year		Salary				Bonus				Stock Awards				Option Awards				Non-Equity Incentive Plan Compen-sation				Change in Pension Value and Non-qualified Deferred Compen-sation Earnings				All Other Compensation				Total
Anthony Pallante, Director & CEO		2020			0				0				0			$	0				0				0			$	149,500			$	149,500
		2019			0				10,000				0			$	0				0				0			$	264,000			$	274,000
Mark Holcome, former Director, President & CFO		2020			0				0				0			$	0				0				0			$	107,333			$	107,333
		2019			0				7,000				0			$	0				0				0			$	215,000			$	222,000
Scott Chapman, Director & President		2020			0				0				0			$	0				0				0			$	104,750			$	104,750
		2019			0				0				0			$	0				0				0			$	117,000			$	117,000
Pamela Andrews, Managing Director, BA Inc		2020			0				0				0			$	0				0				0			$	24,000			$	24,000
		2019			0				0				0			$	0				0				0			$	18,375			$	18,375
Peter Salvo, Controller		2020			0				0				0			$	0				0				0			$	81,250			$	81,250
		2019			0				4,000				0			$	0				0				0			$	150,000			$	154,000

 

Mark Holcombe resigned as President and CFO on June 1, 2019 and resigned as director on February 29, 2020.

  

Our officers and directors have written service contracts with us. We presently do not have pension, health, annuity, insurance, profit sharing or similar benefit plans; however, we may adopt plans in the future. Except for our stock option plan, of which no options were issued in 2020 and 2019, there are presently no personal benefits available to our officers and directors.

    

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DIRECTOR COMPENSATION
Name		Fees Earned or Paid in Cash				Stock Awards				Option Awards				Non-Equity Incentive Plan Compensation				Change in Pension Value and Nonqualified Deferred Compensation Earnings				Total
Anthony Pallante		$	0				0			$	0				0				0			$	0
Scott Chapman		$	0				0			$	0				0				0			$	0
Richard Russell		$	0				0			$	0				0				0			$	0

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth information regarding beneficial ownership of our common stock as of November 30, 2020 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group.

 

Name and Address of Beneficial Owner		Title of Class	Amount and Nature of Beneficial Ownership(1)	Percent of Class(2)
Officers and Directors
Anthony Pallante		Common Stock	8,441,724	26.13%
Scott Chapman		Common Stock	400,000	1.24%
Peter Salvo		Common Stock	-0-	0.00%
Richard Russell		Common Stock	-0-	0.00%
All officers and directors as a group		Common stock, $0.001 par value
			8,841,724	27.36%
5%+ Security Holders
2373539 Ontario Inc		Common Stock	3,000,000	9.28%
Francesca Pallante		Common Stock	3,000,000	9.28%
Fengate Trident GP Inc		Common Stock	2,000,000	6.19%
		Common stock, $0.001 par value
All 5%+ Security Holders			8,000,000	24.76%

 

Francesca Pallante is the wife of CEO Anthony Pallante. Mr. Pallante disclaims beneficial ownership of these shares

 

(1)	Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock.
(2)	Percentage of shares outstanding is calculated based on total shares outstanding as at March 16, 2021 of 32,311,887. This total does not include outstanding warrants or options of the Company.

   

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Changes in Control

 

We do not currently have any arrangements which if consummated may result in a change of control of our company, except that, as described above, under the heading “Conversion of $17.7 million of Indebtedness into Company Equity,” in connection with the Fourth Amendment, the Note Holder has agreed to convert aggregate principal and accrued interest of $17,659,392 into equity of the Company. In connection with this transaction,  the Company and Note Holder have agreed that the Company will issue the Note Holder 29,432,320 shares of Company Preferred Stock. Under the terms of the Fourth Amendment, the Preferred Stock shall be voting shares, with the same voting rights as common shares, except the Preferred Stock shall have no vote in respect of election of directors. The consummation of this transaction, which is subject to shareholder approval, could be deemed a change of control, even though the Preferred Shares shall not have the right to vote upon the election of directors.

    

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The following includes a summary of transactions since the beginning of the November 30, 2019 fiscal year, or any currently proposed transaction, in which our company was or is to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

  

Promoters and Certain Control Persons

  

The Company does not have any promoters.

 

Corporate Governance

 

We were acting with three directors, consisting of Anthony Pallante, Scott Chapman and Richard Russell. On February 29, 2020 Mark Holcombe resigned as a director of the company. On March 1, 2020 the Company’s Board of Directors appointed Richard Russell to serve on the Company’s Board of Directors, to serve in such capacity until the next annual meeting of stockholders of the Company. In connection with his appointment, the Company’s Board of Directors determined that Mr. Russell would meet the requirements of an “independent director” under the Nasdaq Stock Market’s corporate governance rules. Accordingly, the Board of Directors has designated Mr. Russell an “independent director” for corporate governance purposes. The Company intends to expand its Board of Directors and appoint additional “independent directors,” with the objective of enhancing corporate governance.

 

We have an Audit Committee, Compensation Committee and Corporate Governance Committee.

 

We have an independent director on our Audit Committee . We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have a completely independent Compensation or Corporate Governance Committee at this time because we believe that the functions of such committees can be adequately performed by the existing board of directors. Additionally, we believe that retaining independent directors for those committees would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.

 

Item 14. Principal Accountant Fees and Services

 

The total fees charged to the company for audit services were $62,000 and for other services were $Nil during the year ended November 30, 2020.

 

The total fees charged to the company for audit services were 61,300 and for other services were $Nil during the year ended November 30, 2019.

   

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PART IV

 

Item 15. Exhibits

 

The following exhibits are included with this filing:

 

Exhibit		Description
3(i)		Articles of Incorporation*
3(ii)		Bylaws*
10.1		Amendment to Convertible Promissory Notes dated January 9, 2020
10.2		Amendment No. 2 to Convertible Promissory Note dated March 5, 2020
10.3		Third Amendment to Convertible Promissory Notes dated May 31, 2020
10.4		Fourth Amendment to Convertible Promissory Notes dated November 30, 2020
31.1		Sec. 302 Certification of Chief Executive Officer
31.2		Sec. 302 Certification of Chief Financial Officer
32.1		Sec. 906 Certification of Chief Executive Officer
32.2		Sec. 906 Certification of Chief Financial Officer

 

* Included in our original Registration Statement on Form SB-2 (subsequently amended utilizing Form S-1) under Commission File Number 333-148710.

   

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SIGNATURES

 

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

 

		Trident Brands Incorporated
Date: March 16, 2021		/s/ Anthony Pallante
		By: Anthony Pallante
		(CEO, Director & Chair of the Board)
		/s/ Peter Salvo
		By: Peter Salvo
		(Principal Financial Officer)
		/s/ Scott Chapman
		By: Scott Chapman
		(President & Director)

   

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  

To the Stockholders and Board of Directors of

Trident Brands Incorporated

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Trident Brands Incorporated and its subsidiaries (collectively, the “Company”) as of November 30, 2020 and 2019, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company’s auditor since 2015.

Houston, Texas

March 16, 2021

  

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TRIDENT BRANDS INCORPORATED

Consolidated Balance Sheets

 

		As of				As of
		November 30,				November 30,
		2020				2019
ASSETS
Current Assets
Cash and Cash Equivalents		$	88,007			$	1,013,674
Accounts Receivable, net of allowance for doubtful accounts of $155,186 and $55,979, respectively			63,784				280,347
Inventory, net of reserves of $195,264 and $0, respectively			1,219,567				2,082,826
Prepaid and other current assets			155,179				168,327
Total Current Assets			1,526,537				3,545,174
Fixed Assets-Furniture & Fixtures, net			-				4,413
Intangible Assets			400,000				400,000
TOTAL ASSETS		$	1,926,537			$	3,949,587
LIABILITIES & STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts Payable		$	429,009			$	443,247
Accrued Liabilities			7,480,846				3,605,175
Derivative Liability			-				5,825,480
Convertible Debt, net of discount of $0 and $334,988 respectively			-				11,965,012
Total Current Liabilities			7,909,855				21,838,914
PPP Loan Payable			135,165				-
Convertible Debt, net of discount of $0 and $3,352,894 respectively			22,300,000				6,647,106
Total Liabilities			30,345,020				28,486,020
Stockholders’ Deficit
Common stock, $0.001 par value, 300,000,000 shares authorized; 32,311,887 shares issued and outstanding as of November 30, 2020 and November 30, 2019			32,312				32,312
Additional paid-in capital			11,458,630				9,945,488
Non-Controlling Interest in Subsidiary			(387,147	)			(288,603	)
Accumulated Deficit			(39,522,278	)			(34,225,630	)
Total Stockholders’ Deficit			(28,418,483	)			(24,536,433	)
TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT		$	1,926,537			$	3,949,587

 

See Notes to Consolidated Financial Statements

 

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TRIDENT BRANDS INCORPORATED

Consolidated Statements of Operations

 

		Twelve Months				Twelve Months
		Ended				Ended
		November 30,				November 30
		2020				2019
Revenues, net		$	872,923			$	2,153,572
Cost of Sales			628,801				1,723,811
Gross Profit			244,122				429,761
General & Administrative Expenses			(4,571,077	)			(6,950,756	)
Loss from Operations			(4,326,955	)			(6,520,995	)
Other Income (Expenses)
Interest Expense, net			(4,298,280	)			(4,371,507	)
Gain on Debt Forgiveness			10,000				-
Loss on Debt Extinguishment			(1,092,295	)			-
Derivative gain (loss)			4,312,338				(1,325,291	)
Total Other Income (Expenses)			(1,068,237	)			(5,696,798	)
Net Loss		$	(5,395,192	)		$	(12,217,793	)
Net loss attributable to Trident			(5,296,648	)			(12,100,189	)
Net loss attributable to Non-Controlling Interests			(98,544	)			(117,604	)
Loss per share - Basic and diluted		$	(0.16	)		$	(0.37	)
Weighted average number of common shares outstanding - Basic and diluted			32,311,887				32,311,887

 

See Notes to Consolidated Financial Statements

 

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TRIDENT BRANDS INCORPORATED

Consolidated Statements of Changes in Stockholders’ Deficit

From the years ended November 30, 2020 and 2019

 

						Common				Additional
		Common				Stock				Paid-in				Accumulated				Non-Controlling
		Stock				Amount				Capital				Deficit				Interest				Total
Balance, November 30, 2018			32,311,887			$	32,312			$	9,564,737			$	(22,125,441	)		$	(170,999	)		$	(12,699,391	)
Stock Options Expenses			-				-				380,751				-				-				380,751
Net loss, November 30, 2019			-				-				-				(12.100,189	)			(117,604	)			(12,217,793	)
Balance, November 30, 2019			32,311,887			$	32,312			$	9,945,488			$	(34,225,630	)		$	(288,603	)		$	(24,536,433	)
APIC reclassified to derivative liability			-				-				(3,981,221	)			-				-				(3,981,221	)
Resolution of derivative liability			-				-				5,494,363				-				-				5,494,363
Net loss, November 30, 2020			-				-				-				(5,296,648	)			(98,544	)			(5,395,192	)
Balance, November 30, 2020			32,311,887			$	32,312			$	11,458,630			$	(39,522,278	)		$	(387,147	)		$	(28,418,483	)

 

See Notes to Consolidated Financial Statements

 

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TRIDENT BRANDS INCORPORATED

Consolidated Statements of Cash Flows

 

		Twelve Months				Twelve Months
		Ended				Ended
		November 30,				November 30,
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(5,395,192	)		$	(12,217,793	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount			1,885,587				2,939,450
Loss on debt extinguishment			1,092,295				-
Depreciation expense			4,413				8,381
Inventory reserve			195,264				-
Derivative (gain)/loss			(4,312,338	)			1,325,291
Stock options expense			-				380,751
Provision for bad debts			99,207				-
Changes in operating assets and liabilities:
Accounts receivable			117,356				77,145
Prepaid expenses			13,148				(44,728	)
Inventory			667,995				(27,763	)
Accounts payable and accrued liabilities			3,635,265				(235,864	)
Cash used in operating activities			(1,997,000	)			(7,795,130	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets			-				18,869
Additions of intangible assets			-				(6,420	)
Cash provided by (used in) investing activities			-				12,449
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from PPP loan			135,165				-
Proceeds from convertible debt			936,168				5,663,052
Cash provided by financing activities			1,071,333				5,663,052
NET CHANGE IN CASH AND CASH EQUIVALENTS			(925,667	)			(2,119,629	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR			1,013,674				3,133,303
CASH AND CASH EQUIVALENTS AT END OF YEAR		$	88,007			$	1,013,674
Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes		$	-			$	-
Interest			-				1,380,637
NON-CASH TRANSACTIONS
Debt discount related to derivative liability			-				3,608,189

 

See Notes to Consolidated Financial Statements

 

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TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Trident Brands Incorporated (“we”, “our”, “the Company”) was incorporated under the laws of the State of Nevada on November 5, 2007.

 

The Company is focused on the development of high growth branded and private label consumer products and ingredients within the nutritional supplement, life sciences and food and beverage categories. The Company is in its early growth stage and has transitioned out of its shell status with the Super-8K filing at the end of August, 2014. Activities to date have focused on capital formation, organizational development and execution of its branded and private label consumer products and ingredients business plan.

  

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting

 

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a November 30 year-end.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The ultimate impact from COVID-19 on the Company’s operations and financial results during 2020 and beyond will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with which the economy recovers. We are not able to fully quantify the impact that these factors will have on our financial results in 2021 and beyond, but developments related to COVID-19  materially affected the Company’s financial performance in 2020.

  

Principles of Consolidation

 

The Company’s consolidated financial statements as of November 30, 2020 include the accounts of Trident Brands Incorporated and its subsidiaries: Trident Brands Canada Ltd, Sports Nutrition Products Inc., Brain Armor Inc., Trident Sports Nutrition Inc. and Trident Brands International Ltd.

 

Earnings (Loss) Per Share

 

The Company follows the guidance in ASC No. 260, “Earnings Per Share”, which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock.

 

Basic net earnings (loss) per share amounts are computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding. Due to net losses during the years ended November 30, 2020 and 2019, diluted earnings (loss) per share are the same as the basic earnings (loss) per share since inclusion of common stock equivalents would have been anti-dilutive.

 

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TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible amounts as necessary. As of November 30, 2020 and 2019, the Company’s accounts receivable was netted against an allowance of $155,186 and $55,979 respectively.

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value. Cost is principally determined using the first-in, first-out (FIFO) method. We regularly review inventory for obsolete and slow-moving inventory and recognize a reserve or write offs as necessary. We recognized an inventory reserve of $195,264 and $0 as of November 30, 2020 and 2019, respectively.

  

Inventory at November 30, 2020 consist of raw materials and finished goods of $842,076 and $377,491, respectively. Inventory at November 30, 2019 consist of raw materials and finished goods of $1,088,949 and $993,877, respectively.

 

Long-Lived Assets

 

We review our long-lived assets, including intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as “the asset”) may not be recoverable. Such circumstances include, but are not limited to:

 

	·	a significant decrease in the market price of the asset;
	·	a significant change in the extent or manner in which the asset is being used;
	·	a significant change in the business climate that could affect the value of the asset;
	·	a current period loss combined with projection of continuing loss associated with use of the asset; and
	·	a current expectation that, more likely than not, the asset will be sold or otherwise disposed of before the end of its previously estimated useful life.

 

We continually evaluate whether such events and circumstances have occurred. When such events or circumstances exist, the recoverability of the asset’s carrying value shall be determined by estimating the undiscounted future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset.

 

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TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

Intangible Assets

 

Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company currently does not have any amortizable intangible assets. The Company’s indefinite-lived intangible assets consist of trademarks.

 

The Company reviews its indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Impairment losses are recognized only if the carrying amount exceeds its fair value.

 

Beneficial Conversion Features

 

The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.

 

Fair Value of Financial Instruments

 

The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.

 

Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

F-8

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TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

The carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and note payable. The fair value of the Company’s long-term debt is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value. As of November 30, 2020 the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, except for a derivative liability, related to the embedded conversion option on the 2016 and 2018 convertible notes, with a fair value of $0 as of November 30, 2020 and $5,825,480 as of November 30, 2019. The derivative liability was fair valued using Level 3 inputs.

 

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

 

Balance at November 30, 2018		$	892,000
Unrealized derivative loss included in other expense			1,325,291
Net transfers in debt discount related to derivative liability			3,608,189
Balance at November 30, 2019			5,825,480
Unrealized derivative gain included in other expense			(4,312,338	)
APIC reclassified to derivative liability			3,981,221
Resolution of derivative liability			(5,494,363	)
Balance at November 30, 2020		$	-0-

  

The fair value of the derivative liabilities are calculated at the time of issuance and the Company records a derivative liability for the calculated value. Changes in the fair value of the derivative liabilities are recorded in other income (expense) in the consolidated statements of operations.

 

The following are the assumptions used for derivative instruments valued using the Black Scholes option pricing model as of November 30, 2020 and November 30, 2019:

 

		2020				2019
Market value of stock on measurement date		$	0.033			$	.0285 and 0.445
Risk-fee interest rate		0.16% and 0.18		%			1.96	%
Dividend yield			0	%			0	%
Volatility factor			173.23	%		126.24% to 104.70		%
Term.		0.085 and 1.0 yr				0.50 yr and 1.13 yrs

 

F-9

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

Derivative Financial Instruments

 

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification. The Company’s sequencing policy is to evaluate for reclassification contracts with the earliest inception date first.

 

Revenue

 

The Company markets a range of branded and private label consumer products in the active nutrition and dietary supplement categories including Brain Armor® and P2N Peak Performance Nutrition®.

 

Four customers accounted for 22.3%, 17.7%, 13.0% and 10.2% of total revenue, compared to four customers for 29.7%, 21.8%, 15.0% and 12.7% in the prior year. Three customers accounted for 16.9%, 15.9% and 11.9% of total accounts receivable, compared to two customers for 29.8% and 11.8% in the prior year.

 

The Company records revenue when all of the following criteria are met: 1) the contract with a customer is identified, 2) the performance obligations in the contract are identified, 3) the transaction price is determined, 4) the transaction price has been allocated to the performance obligations and 5) when each performance obligation is satisfied.

 

Customer returns, allowances and consideration paid to customers for services which are not considered distinct are recorded as reductions to revenues.

 

Cost of Sales

 

The Company purchased 97% of its products from one vendor for the year ended November 30, 2020 and three vendors provided 98% of the Company’s products for the year ended November 30, 2019.

Cost of sales includes the direct purchase cost of the product based on the FIFO method.

 

Stock-Based Compensation

 

The Company accounts for employee and non-employee stock-based compensation in accordance with ASC-718, “Compensation-Stock Compensation”. ASC-718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.

 

F-10

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

 

Income Taxes

 

Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.

 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of November 30, 2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions.

 

Related Parties

 

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.

 

Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

F-11

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

Recent Accounting Pronouncements

 

The Company has evaluated the following recent accounting pronouncements through the date the financial statements were issued and filed with the Securities and Exchange Commission and believe that none of them will have a material effect on the Company’s financial statements:

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Management’s evaluation was that there was no impact to the Company’s consolidated financial statements.

 

F-12

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

In December 2018, the FASB issued ASC 842 and as ASU 2016-02, is the new lease accounting standard published by the Financial Accounting Standards Board (FASB). It replaced the previous US GAAP leasing standard, ASC 840. The purpose of the new standard is to close a major accounting loophole in ASC 840: off-balance sheet operating leases. Public companies began to implement the standard starting after December 15, 2018. Private companies will follow a year later on December 15, 2020. ASC 842 represents a significant overhaul of the accounting treatment for leases, with the most significant change being that most leases, including most operating leases, are now capitalized on the balance sheet. Under ASC 840, FASB permitted operating leases to be reported only in the footnotes of corporate financial statements. Under ASC 842, the only leases that are exempt from the capitalization requirement are short-term leases less than or equal to 12 months in length. This became effective December 1, 2019 and the Company chose to adopt it early  on  December 1, 2018. The adoption did not have any material impact on the Company’s consolidated financial statements as the Company has no long term leases.

 

On June 20, 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, as part of its ongoing Simplification Initiative. Currently, share-based payments to nonemployees are accounted for under Subtopic 505-50 which significantly differs from the guidance for share-based payments to employees under Topic 718. This ASU supersedes Subtopic 505-50 by expanding the scope of Topic 718 to include nonemployee awards and generally aligning the accounting for nonemployee awards with the accounting for employee awards (with limited exceptions). The effective date is for fiscal years beginning after December 15, 2018. The Company adopted the measure on December 1, 2019. The adoption did not have any material impact on the Company’s consolidated financial statements.

   

NOTE 3. GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued. In accordance with Financial Accounting Standards Board, or the FASB, Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

 

As of November 30, 2020, the Company had $88,007 in cash and a working capital deficit of $6,383,318. The Company also has generated losses and has an accumulated deficit as of November 30, 2020. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The Company completed additional long-term financing with the non-US institutional investor, receiving proceeds of $3,400,780 on November 30, 2018, $2,804,187 on April 13, 2019 and $3,795,033 (less $936,168 withheld for interest payments up to and including June 30, 2020) on November 6, 2019 through the issuance of secured convertible promissory notes. On March 5, 2020, the 2018 Convertible Note was amended to increase the amount of the 3^rd tranche by $936,168 representing the amount previously withheld as interest payment. The payment was received on March 12, 2020. However, unless management is able to obtain additional financing, the Company may not be able to meet its funding requirements during the next 12 months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

F-13

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

NOTE 4. NOTE RECEIVABLE

 

On September 12, 2017 the Company entered into a note purchase agreement with Fengate Trident LP (“Fengate”) pursuant to which, in consideration for the issuance of 811,887 of our common shares to Fengate, we purchased outstanding secured convertible promissory notes of Mycell Technologies LLC having an aggregate balance due and payable of $511,141 in principal and $94,526 in interest accrued as at September 12, 2017. The purchased notes, which were originally issued to LPF (MCTECH) Investment Corp. on January 22, 2016, February 5, 2016, and May 19, 2016, bear simple interest on unpaid principal at the rate of ten percent per annum. The outstanding principal and accrued interest is convertible at the option of the note holder into securities of Mycell. The accrued interest as at November 30, 2018 is $105,869. The Company reserved a full allowance on the note receivable and accrued interest of $617,010 as of November 30, 2020 and November 30, 2019.

 

NOTE 5. INTANGIBLE ASSETS

 

On December 22, 2017, Trident exercised its option under our Exclusive License Agreement (dated March 1, 2015) to purchase the Brain Armor® brand from DSM Nutrition Products LLC (“DSM”). Subsequently, the parties have executed applicable trademark assignment and purchase agreements necessary to transfer all global intellectual property rights in the Brain Armor brand to Trident. In lieu of a $400,000 cash payment to DSM for the value of the Brain Armor® brand as initially intended, the Company agreed to meet certain conditions, that when satisfied will have an equivalent value of $400,000. The costs incurred to meet these conditions are being charged to intangible assets. As of November 30, 2020 and 2019, the Company has recorded $400,000 of costs to the asset account. Of this amount $200,000 is paid over time as the Company purchases omega-3 oil from DSM pursuant to its exclusive supply agreement. During the 12 months ended November 30, 2020, no payments were made to DSM in connection with this liability and $71,280 in the prior year. The amount outstanding as of November 30,2020 is $120,960.

 

NOTE 6. WARRANTS AND OPTIONS

 

On December 6, 2017, our Board of Directors authorized the issuance to its members and management stock options to purchase up to 2,615,000 shares of our common stock. 1,307,500 of the options vest upon issuance and are exercisable for up to five years at $0.85 per share, while the remaining 1,307,500 will vest 12 months following issuance and be exercisable for up to five years at $1.00 per share. The options were issued pursuant to the Company’s 2013 Stock Option Plan, which was registered with the Securities and Exchange Commission on Form S-8 in January, 2015. The 2013 Stock Option Plan authorizes the Company to issue incentive and non-qualified stock options to employees and consultants of the Company to purchase a number of shares not to exceed 15% of the Company’s currently issued and outstanding securities.

 

On January 4, 2019, our Board of Directors approved the re-pricing of the majority of options previously granted at $0.40 per share.

  

On May 5, 2019, our Board of Directors approved the extension of 750,000 previously issued and outstanding stock options originally issued on May 5, 2014 to certain individuals for an additional year to May 5, 2020.

 

The total outstanding stock options as of November 30, 2020 are 1,832,500. For the period ended November 30, 2020, the Company expensed $0 as compensation expense compared to $8,875 in the comparable prior year period for stock options granted on December 6, 2017. The Company also used the Black-Scholes model to value the re-priced stock options at $275,024 and the options with the extended exercise period at $96,852 which were also expensed during the year ended November 30, 2019. Following are the assumptions used in the valuation of the re-priced and extended options: Discount rates between 0.90% and 2.10%; Volatility between 85.51% and 79.75%; and with terms of 2.5 and 3.0 years for the re-priced options and discount rate of 1.93%, volatility of 107.15% and term of 1.33 year for the extended options.

 

The following table represents stock option activity as of and for the years ended November 30, 2020 and 2019:

 

		Number of Options				Weighted Average Exercise Price				Contractual Life in Years				Intrinsic Value
Outstanding - November 30, 2018			4,640,000			$	1.02				2.45
Exercisable - November 30, 2018			3,332,500			$	1.03				1.84			$	-0-
Granted			-0-
Exercised or Vested			-0-
Forfeited or Expired			1,425,000
Outstanding – November 30, 2019			3,215,000			$	0.40				2.42
Exercisable - November 30, 2019			3,215,000			$	0.40				2.42				-0-
Granted			-0-
Exercised or Vested			-0-
Forfeited or Expired			1,382,500
Outstanding - November 30, 2020			1,832,500			$	0.40				2.02
Exercisable - November 30, 2020			1,832,500			$	0.40				2.02				-0-

 

F-14

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

As of November 30, 2020, the Company has no outstanding warrants. All the outstanding warrants have expired.

 

The following table represents warrant activity for the years ended November 30, 2020 and 2019:

 

		Number of Warrants				Weighted Average Exercise Price				Contractual Life in Years				Intrinsic Value
Outstanding – November 30,2018			225,000			$	1.35				0.20				-
Exercisable – November 30,2018			225,000
Granted		-0-
Exercised or Vested		-0-
Cancelled or Expired			225,000
Outstanding – November 30, 2019		-0-				$	0.0				0.00
Exercisable - November 30, 2019		-0-
Granted		-0-
Exercised or Vested		-0-
Cancelled or Expired		-0-
Outstanding – November 30, 2020		-0-				$	0.0				0.00

     

NOTE 7. CONVERTIBLE DEBT

 

On January 29, 2015, the Company entered into a securities purchase agreement with a non-US institutional investor whereby it agreed to sell an aggregate principal amount of $2,300,000 of senior secured convertible debentures, convertible into shares of the Company’s common stock.

 

The Company received $1,800,000 of the funds from the transaction on February 5, 2015. The balance of $500,000 was received on May 14, 2015. These convertible notes were subsequently acquired by Fengate Trident, LP (“Fengate”) on April 28, 2017.

 

The convertible debentures are convertible into shares of the Company’s common stock at an initial conversion price of $0.71 per share, for an aggregate of up to 3,239,437 shares. The debentures originally accrued interest at 6% per annum. On September 26, 2016 the Company entered into an amendment agreement related to these convertible debentures whereby the applicable interest rate was increased from 6% to 8% and provisions added to allow the investor to transfer, sell or hypothecate the convertible notes subject to applicable securities laws. The maturity date of the notes was also extended through September 30, 2019. We considered ASC Topic 470-50, Debt Modifications and Extinguishments, and determined that the modification was not deemed substantial.

 

Due to the note being convertible to common shares of the Company, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature was $647,888 which was recognized as debt discount. As of November 30, 2017, the full amount of the debt discount has been amortized.

 

On September 26, 2016, the Company entered into a securities purchase agreement with a non-US institutional investor, pursuant to which, in consideration for proceeds of $4,100,000, the Company issued a secured convertible promissory note in the amount of $4,100,000. Pursuant to the securities purchase agreement, the investor has agreed, from time to time after January 1, 2017, to make additional investments at the Company’s request of up to $5,900,000. On May 9, 2017, the Company received the second tranche of funding with proceeds of $4,400,000 and on May 16, 2018 the third tranche of $1,500,000 for a total investment by the investor of $10,000,000.

  

F-15

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

The Company used the proceeds of the secured convertible note for general working capital purposes including settlement of accounts payable and repayment of mature loans.

 

In consideration of each advance made by the investor pursuant to the securities purchase agreement, the Company issued to the investor a convertible promissory note of equal value, maturing on September 30, 2019, and bearing interest at the rate of 8% per annum. Each note is secured in first priority against the present and after acquired assets of the Company and is convertible in whole or in part at the option of the holder into common shares of the Company at a conversion price of $0.60 per share, for an aggregate of up to 16,666,667 shares. These convertible notes were subsequently acquired by Fengate on April 28, 2017.

 

Due to the notes being convertible to common shares of the Company, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature of the notes amounted to $3,333,334 and was recognized as a debt discount. As of November 30, 2020, $3,333,334 of the debt discount was amortized to interest of which $334,988 was amortized during the current year compared to $855,987 in the prior year. As of November 30, 2020, the debt discount was fully amortized.

 

On November 30, 2018 the Company and Fengate entered into a Securities Purchase Amendment Agreement (“SPA”) pursuant to which the Company has agreed to issue to Fengate additional convertible promissory notes (collectively, the “2018 and 2019 Convertible Notes”) of up to $10,000,000, subject to certain terms and conditions. Each portion of the principal amount advanced pursuant to the SPA will bear interest at the rate of twelve percent (12%) per annum and will be payable monthly in arrears to Fengate. Outstanding principal and interest will continue to be secured by the general security agreement dated September 26, 2016, which forms a part of the Agreement. The holder of the note may also elect from time to time to convert all or a portion of the outstanding principal and interest into common shares of the Company at a 25% discount to the average closing price of the common shares during the 10 trading days immediately prior to the applicable conversion date.

 

On November 30, 2018 the Company received the first tranche of funding with proceeds of $3,400,780. The 2nd tranche of $2,804,187 was received on April 13, 2019. The 3rd tranche of $3,795,033 less $936,168 withheld for interest payments up to and including June 30, 2020 was received on November 6, 2019. On March 5, 2020, the 2018 and 2019 Convertible Notes were amended to increase the amount of the 3rd tranche by $936,168 representing the amount previously withheld as interest payment. The withheld interest was subsequently received on March 12, 2020.

  

The Company analyzed the embedded conversion option on the convertible notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option on the 2018 Convertible Note qualified for derivative accounting. The Company used the Black-Scholes model to value the embedded conversion option at $892,000 on the issuance date of November 30, 2018, $1,911,256 on the issuance date of April 13, 2019 and $1,696,933 on the issuance date of November 6, 2019. The assumptions used were a discount rate of 2.80%, 1.96% and 1.96%; volatility rate of 79.57%, 104.70% and 107.3%; and a term of 1.50, 1.13 and 0.57 years respectively. The fair values of the embedded conversion options were recorded as debt discount and were amortized over the term of the 2018 and 2019 Convertible Notes. Amortization of debt discount for the years ended November 30, 2020 and 2019 was $1,885,587 and $1,857,295, respectively. The unamortized discount as of November 30, 2020 is $0.

 

On January 9, 2020 the Company and Fengate entered into an Amendment to Convertible Promissory Notes Agreement to amend the terms of the convertible notes issued on February 5, 2015 (US$1,800,000), May 14, 2015 (US$500,000), September 26, 2016 (US$4,100,000), May 9, 2017 (US$4,400,000) and May 16, 2018 (US$1,500,000) (collectively the “2016 Convertible Notes”). Pursuant to the Amendment, Fengate has agreed to convert all of the 2016 Notes on or before the earlier to occur of (i) the maturity date of the 2016 Convertible Notes and (ii) the Company raising new equity investment of not less than US$2,000,000, on terms mutually acceptable to Fengate and the Company (subject to Fengate’s regulatory considerations). Conversion of the 2016 Notes will occur in a single conversion transaction at a price that is equal to a 25% discount to the average closing price of the Company’s common stock for the 10 trading days immediately prior to the conversion date, with the exact structure of the conversion to be determined by the parties. On June 3, 2020 the maturity date was extended from May 31 to December 31, 2020. The Amendment also extended the maturity date of the 2018 and 2019 Convertible Notes to December 1, 2021.

 

The Company analyzed the embedded conversion option on the amended “2016 Convertible Notes” for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option qualified for derivative accounting. On January 9, 2020 the Company used the Black-Scholes model to value the embedded conversion options at $7,965,083. The assumptions used were a discount rate of 1.96%, volatility rate of 148.8%; and a term of 0.39 years respectively. The modification resulted in $3,981,221 of APIC previously recorded for beneficial conversion feature of these convertible notes being reclassified as derivative liability.

 

On November 30, 2020, the Company entered into a fourth amendment of the 2016 Convertible Notes and the 2018 and 2019 Convertible Notes wherein the Company will issue to Fengate 29,432,320 shares of Company Preferred Stock (representing $17,659,392 of principal and interest converted into Preferred Stock at the rate of $0.60 per share), in full and complete satisfaction of (i) all amounts owing under the 2016 Convertible Notes through November 30, 2020 (including accrued interest thereon) and (ii) all accrued interest on the 2018 and 2019 Convertible Notes through November 30, 2020. The conversion is expected to occur by the end of June, 2021. The 2018 and 2019 Convertible Notes were further amended to (i) eliminate the conversion feature of such notes, (ii) provide for a simple interest rate of 8% per annum, with the first 2 years of interest payable at maturity of the 2018 and 2019 Convertible Notes and the last three years of interest payable quarterly beginning February 28, 2023; and (iii) extend the maturity of such notes until November 30, 2025. Pursuant to this amendment, all notes no longer qualified for derivative accounting. As such, the value of the embedded conversion options of all notes of $5,494,363 was credited to additional paid in capital. The issuance of the Preferred Shares is subject to stockholder approval.

 

We considered ASC Topic 470-50, Debt Modifications and Extinguishments in connection with the amendment of the interest rate and maturity date of the 2018 and 2019 Convertible Notes and determined that the modification would be considered a debt extinguishment.  The unamortized discount of $1,092,295 at the date of amendment was recognized as a loss on debt extinguishment for the year ended November 30, 2020.

 

F-16

Table of Contents

  

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

  

NOTE 8. PAYCHECK PROTECTION PROGRAM (PPP) LOAN

 

On May 28, 2020, the Company obtained a Paycheck Protection Program (PPP) loan in the amount of $135,165. These business loans were established by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help certain businesses, self-employed workers, sole proprietors, certain nonprofit organizations, and tribal businesses continue paying their workers.

 

The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act and used for payroll costs, rent, mortgage interest, and utility costs during the 24 week period after the date of loan disbursement is eligible to be forgiven provided that (a) we use the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. While the full loan amount may be forgiven, the amount of loan forgiveness will be reduced if, among other reasons, we do not maintain staffing or payroll levels or less than 60% of the loan proceeds are used for payroll costs. Principal and interest payments on any unforgiven portion of the PPP Funds will be deferred to the date the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.

 

NOTE 9. COMMITMENTS AND CONTINGENCIES

 

Everlast License Agreement

 

On December 23, 2013, the Company entered into a Deed of Assignment Agreement with Everlast World’s Boxing Headquarters Corporation, International Brand Management Limited, Sports Nutrition Products Incorporated and Manchester Capital Incorporated wherein Everlast, International Brand, Sports Nutrition and Manchester Capital are parties to a trade mark license and Sports Nutrition, a New York corporation, has assigned its interest in the trade mark license to the Company. Pursuant to the terms of the assignment agreement, Sports Nutrition Products Incorporated, a wholly owned subsidiary of Trident Brands Incorporated, assigned all of its rights, title, interest and benefit to the trade mark license to the Company effective December 23, 2013 and the Company assumed all of the obligations of Sports Nutrition Products Incorporated under the license agreement. The Company shall remain responsible to Everlast and International Brand for all acts and omissions of the subsidiary, Sports Nutrition Products Inc.

 

The Everlast License Agreement includes a clause stating that Manchester Capital Incorporated will guarantee that the Licensee shall perform all of its obligations and duties under the License Agreement. If the Licensee defaults in the payment when due of any amount it is obliged to pay to Licensor under the License Agreement, or arising from its termination, Manchester Capital is unconditionally responsible to pay that amount to Licensor in the manner prescribed in the License Agreement as if it were the Licensee.

 

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TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

The Royalty Calculation, as per the terms of the agreement, are as follows: In 2013, 7% of Net Retail Sales and 7% of 60% of Direct Response Sales Revenue; in 2014, 8% of Net Retail Sales and 8% of 60% of Direct Response Sales Revenue; in 2015, 9% of Net Retail Sales and 9% of 60% of Direct Response Sales Revenue; in 2016 onwards, 10% of Net Retail Sales and 10% of 60% of Direct Response Sales Revenue. The Annual Minimum Guaranteed Royalty is $120,000 in 2014, $235,000 in 2015, $320,000 in 2016, $345,000 in 2017 and in 2018 onwards, if the Agreement remains in force, will be 75% of the previous Year’s Royalty Calculation or the previous Year’s Annual Minimum Guaranteed Royalty plus 10%, whichever is greater.

 

The agreement was terminated on December 31, 2017. On January 17, 2019, Everlast World’s Boxing Headquarters Corp. (“Everlast”) filed a counter civil lawsuit against the Company and other defendants. In that lawsuit, Everlast seeks payment from the defendants under a License Agreement dated June 4, 2013, for $425,555 in unpaid royalties allegedly due and owing under the License Agreement and interest on the allegedly unpaid royalties of $96,265, which interest allegedly continues to accrue. Everlast has also sought all costs, expenses, and legal fees incurred by Everlast in collecting monies that it claims are due under the License Agreement. On February 26, 2020, the court in the Everlast matter issued an Opinion and Order granting a motion to dismiss all of the Company’s claims against Everlast and granting a motion for judgment on the pleadings as to liability against the Company. The Court left open the question of damages to be awarded to Everlast. The Company had requested that the parties participate in settlement discussions before a magistrate judge or, in the alternative, that Everlast engage in limited discovery on these matters. No settlement was reached. On October 15, 2020, the Court in the Everlast case ordered, adjudged and decreed that Plaintiff Everlast have judgment and recover a total of $738,946 from the Company as follows:

 

1. $425,000 representing royalty payments due to Everlast;

2. Interest on royalty payments computed through October 15, 2020, in the sum of $242,920;

3. Costs and attorneys’ fees in the sum of $71,026

  

The Company has fully accrued the $738,946 liability as of November 30, 2020.

 

Banc of America Leasing and Capital 

 

On December 1, 2020, Bank of America Leasing and Capital, LLC filed a legal action against the Company in the Superior Court for the State of California, County of San Mateo (Case NO. 20-CIV-05306), alleging breach of contract. The claim arises out of a software services contract between the Company and Oracle Corporation.  Bank of America Leasing and Capital, LLC acquired Oracle’s rights under the agreement.  The plaintiff claims the Company is liable for damages in the amount of $217,000 plus interests and costs.  The Company has not filed an answer to this complaint.  On February 22, 2021, the plaintiff requested that the Court enter a default judgment against the Company.  The Company intends to engage counsel and defend against this claim.

 

PIT Mycell

 

On June 3, 2019, the Company filed a lawsuit against PIT Mycell, LLC, William E. Peterson III, New Age Ventures, LLC, Volker Berl, and Mycell Technologies, LLC (“Mycell”) in the Superior Court in Bergen County, New Jersey, Civil Action No. BER-L-004198-19, in which the Company seeks to require the defendants to perform under and allow the enforcement of certain notes made by Mycell and acquired by the Company in September 2017. The notes are past their stated maturity date of December 31, 2016. The Company also alleges that the parties had entered into a written Settlement Agreement Letter of Intent dated March 14, 2019 (the “Settlement”), but that the defendants repudiated it shortly thereafter. The notes had been the subject of an earlier lawsuit in Virginia in state court in Fairfax County between the Company and PIT Mycell, LLC that the Settlement was intended to resolve. The Company seeks to enforce the notes and the Settlement in the New Jersey lawsuit and requests actual damages in an amount to be proven at trial, attorneys’ fees and litigation costs, specific performance requiring certain defendants to enforce obligations under the notes against Mycell, specific performance requiring the defendants to execute a final Settlement Agreement consistent with the Settlement, an order permitting foreclosure on the collateral for the notes, and declaratory relief. On January 24, 2020, the New Jesey court denied Defendant’s Motions to dismiss the case. The parties have engaged in written discovery and exchanged productions of documents. Mycell filed for bankruptcy on November 25, 2020.

 

Contingencies

 

The Company may be subject to various legal proceedings and claims that arise in the ordinary course of business. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. If any legal matter, that may arise, were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s would reflect any potential claim in the consolidated financial statements for that reporting period.

 

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TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

November 30, 2020 and 2019

 

NOTE 10. INCOME TAXES

 

Deferred tax assets consist of:

 

		As of November 30, 2020				As of November 30, 2019
Deferred tax assets:
Net operating tax carryforwards		$	29,295,465			$	22,578,663
Tax Rate			21	%			21	%
Gross deferred tax assets			6,152,048				4,741,519
Valuation allowance			(6,152,048	)			(4,741,519	)
Net deferred tax assets		$	-0-			$	-0-

 

As of November 30, 2020, the Company has a net operating loss carryforward of approximately $29 million. Net operating loss carryforwards may now be carried forward indefinitely until the loss is fully recovered, but are limited to 80% of taxable income in any one tax period.

 

Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company has recorded a valuation allowance. Tax years 2016 to 2019 are open to examination by federal and state taxing authorities.

 

Due to the enactment of the Tax Reform Act of 2018, the corporate tax rate for those tax years beginning with 2018 was reduced to 21%.

 

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