Quarterly Report (10-q)

Date : 06/26/2019 @ 10:08AM
Source : Edgar (US Regulatory)
Stock : Banjo and Matilda Inc (PK) (BANJ)
Quote : 0.0348  0.0015 (4.50%) @ 2:49PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended December 31, 2017

 

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

 

For the transition period from __________ to __________

 

Commission File Number: 000-54277

 

BANJO & MATILDA, INC .

(Exact name of registrant as specified in its charter)

 

Nevada

 

27-1519178

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification number)

 

1221 2 nd Street #300

Santa Monica CA 90401

(Address of principal executive offices and zip code)

 

724 769 3091

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

x

(Do not check if a smaller reporting company)

 

 

 

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 7(a)(2)(B) of the Securities Act. ¨

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of June 26, 2019, the Registrant had outstanding 69,584,149 shares of common stock.

 

 
 
 
 

 

BANJO & MATILDA, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

3

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

Financial statements

 

 

4

 

CONSOLIDATED BALANCE SHEETS

 

 

F-1

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

F-2

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

 

F-3

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

F-4

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

F-5

 

 

 

 

 

 

Item 2.

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

 

 

5

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

9

 

Item 1A.

Risk Factors

 

9

 

Item 2.

Unregistered Sales of Equity Securities

 

 

9

 

Item 3.

Defaults Upon Senior Securities

 

9

 

Item 4.

Mine Safety Disclosures

 

 

9

 

Item 5.

Other Information

 

 

9

 

Item 6.

Exhibits

 

 

10

 

 

 

 

 

 

 

SIGNATURES

 

 

11

 

 

 
2
 
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

 
3
 
Table of Contents

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial statements

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

(UNAUDITED)

 

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated Balance Sheets

 

F-1

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss

 

 

F-2 - F-3 

 

 

 

 

 

 

Consolidated Statements of Cash Flows

 

 

F-4

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

F-5

 

 

 
4
 
Table of Contents

 

BANJO & MATILDA INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

AS OF DECEMBER 31, 2017 AND JUNE 30, 2017

 

  

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

2017

(Unaudited)

 

 

June 30,

2017

 

 

 

 

 

 

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$ -

 

 

$ 4,491

 

Trade receivables, net

 

 

501

 

 

 

-

 

Inventory, net

 

 

-

 

 

 

18,443

 

TOTAL CURRENT ASSETS

 

 

501

 

 

 

22,934

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

6,434

 

 

 

7,529

 

TOTAL NON-CURRENT ASSETS

 

 

6,434

 

 

 

7,529

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 6,935

 

 

$ 30,463

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Cash overdraft

 

$ 6,988

 

 

$ -

 

Trade and other payables

 

 

1,392,204

 

 

 

1,178,978

 

Deposit payable

 

 

4,621

 

 

 

4,621

 

Trade financing

 

 

364,004

 

 

 

367,588

 

Accrued interest

 

 

709,640

 

 

 

523,257

 

Loans payable (net of related discount)

 

 

663,706

 

 

 

630,786

 

Loan from related parties

 

 

170,626

 

 

 

170,626

 

Convertible loan from related parties (net of related discount)

 

 

387,328

 

 

 

387,328

 

TOTAL CURRENT LIABILITIES

 

 

3,699,117

 

 

 

3,263,184

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

3,699,117

 

 

 

3,263,184

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

 

10

 

 

 

10

 

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

 

 

 

 

 

 

 

 

69,584,149 and 69,584,149 shares issued and outstanding, respectively

 

 

695

 

 

 

695

 

Additional paid in capital

 

 

1,951,295

 

 

 

1,951,295

 

Other accumulated comprehensive gain

 

 

100,007

 

 

 

100,007

 

Accumulated deficit

 

 

(5,744,189 )

 

 

(5,284,728 )

TOTAL STOCKHOLDERS' DEFICIT

 

 

(3,692,182 )

 

 

(3,232,721 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$ 6,935

 

 

$ 30,463

 

 

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

 

 
F-1
 
Table of Contents

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 2017 AND 2016

 

 

 

Three month periods ended

 

 

Six month periods ended

 

 

 

December 31,

2017

(Unaudited)

 

 

December 31,

2016

(Unaudited)

 

 

December 31,

2017

(Unaudited)

 

 

December 31,

2016

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ 159,115

 

 

$ 79,779

 

 

$ 360,042

 

Cost of sales

 

 

-

 

 

 

24,838

 

 

 

19,699

 

 

 

90,690

 

Gross profit

 

 

-

 

 

 

134,277

 

 

 

60,080

 

 

 

269,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and employee related expenses

 

 

113,937

 

 

 

123,880

 

 

 

246,966

 

 

 

246,363

 

Operating expense

 

 

142

 

 

 

20,818

 

 

 

8,971

 

 

 

40,922

 

Marketing expense

 

 

-

 

 

 

17,136

 

 

 

5,143

 

 

 

34,917

 

Selling expense

 

 

-

 

 

 

21,579

 

 

 

7,047

 

 

 

53,057

 

Samples and design expense

 

 

-

 

 

 

6,055

 

 

 

-

 

 

 

7,761

 

Occupancy expenses

 

 

-

 

 

 

11,461

 

 

 

6,348

 

 

 

26,058

 

Depreciation and amortization expense

 

 

541

 

 

 

2,662

 

 

 

1,095

 

 

 

5,324

 

Finance Charges

 

 

9,814

 

 

 

18,450

 

 

 

21,165

 

 

 

27,258

 

Corporate and public company expense

 

 

1,092

 

 

 

7,125

 

 

 

20,451

 

 

 

14,547

 

Realized currency loss (gain)

 

 

1,357

 

 

 

-

 

 

 

1,357

 

 

 

-

 

 

 

 

126,883

 

 

 

229,166

 

 

 

318,543

 

 

 

456,207

 

Loss from operations

 

 

(126,883 )

 

 

(94,889 )

 

 

(258,463 )

 

 

(186,855 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

(879 )

 

 

3,390

 

 

 

(1,761 )

 

 

4,077

 

Amortization of debt discount

 

 

(12,534 )

 

 

(16,393 )

 

 

(25,068 )

 

 

(32,785 )

Interest expense

 

 

(87,472 )

 

 

(68,966 )

 

 

(174,169 )

 

 

(136,804 )

Total Other Expense

 

 

(100,885 )

 

 

(81,969 )

 

 

(200,998 )

 

 

(165,512 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income tax

 

 

(227,768 )

 

 

(176,858 )

 

 

(459,461 )

 

 

(352,367 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (227,768 )

 

$ (176,858 )

 

$ (459,461 )

 

$ (352,367 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.01 )

 

$ (0.01 )

Diluted

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.01 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

69,584,149

 

 

 

58,823,116

 

 

 

69,584,149

 

 

 

58,823,116

 

Diluted

 

 

69,584,149

 

 

 

58,823,116

 

 

 

69,584,149

 

 

 

58,823,116

 

  

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

 

 
F-2
 
Table of Contents

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 2017 AND 2016

 

 

 

 

 

 

 

 

 

Three month periods ended

 

 

Six month periods ended

 

 

 

December 31, 2017 (Unaudited)

 

 

December 31, 2016 (Unaudited)

 

 

December 31, 2017 (Unaudited)

 

 

December 31, 2016 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (227,768 )

 

$ (176,858 )

 

$ (459,461 )

 

$ (352,367 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$ (227,768 )

 

$ (176,858 )

 

$ (459,461 )

 

$ (352,367 )

 

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

 

 
F-3
 
Table of Contents

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 2017 AND 2016

 

 

 

December 31, 2017 (Unaudited)

 

 

December 31, 2016 (Unaudited)

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$ (459,461 )

 

$ (352,367 )

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

 

 

 

 

 

 

 

 

Depreciation

 

 

1,095

 

 

 

1,953

 

Amortization

 

 

-

 

 

 

3,371

 

AR allowance

 

 

-

 

 

 

(8,772 )

Debt discount amortization

 

 

25,068

 

 

 

32,785

 

Amortization of deferred finance fee

 

 

7,852

 

 

 

7,851

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(501 )

 

 

11,642

 

Inventory

 

 

18,443

 

 

 

(26,845 )

Deposit on Purchases

 

 

-

 

 

 

1,153

 

Other assets

 

 

-

 

 

 

(5,500 )

Deferred financing costs

 

 

-

 

 

 

(1,153 )

Trade payables and other liabilities

 

 

220,214

 

 

 

69,162

 

Accrued interest

 

 

186,383

 

 

 

134,487

 

Net cash (used in) operating activities

 

 

(907 )

 

 

(132,234 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net proceeds (net payments) on related party loan

 

 

-

 

 

 

(1,532 )

Net proceeds (net payments) on loan payables

 

 

-

 

 

 

204,875

 

Net trade financing

 

 

(3,584 )

 

 

(53,601 )

Net cash provided by (used in) financing activities

 

 

(3,584 )

 

 

149,742

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(4,491 )

 

 

17,508

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

$ 4,491

 

 

$ 11,056

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$ -

 

 

$ 28,564

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest payments

 

$ -

 

 

$ 12,082

 

 

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

 

 
F-4
 
Table of Contents

 

BANJO & MATILDA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(1)

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

(2)

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

 

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern

 

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company reported accumulated deficit of $5,744,189 as of December 31, 2017. The Company also incurred net losses of $227,768 and $459,461 for the for the three and six months ended December 31, 2017, respectively, and had negative working capital. To date, these losses and deficiencies have been financed principally through the loans from related parties and from third parties. In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. We anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that we are required to raise additional funds to acquire properties, and to cover costs of operations, we intend to do so through additional offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any future financing will involve substantial dilution to existing investors.

 

 
F-5
 
Table of Contents

 

Basis of Presentation

 

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

 

Principles of Consolidation

 

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

 

Exchange Gain (Loss)

 

For the three and six months ended December 31, 2017 and 2016, the transactions of the Company were denominated in US Dollars. Some transactions were denominated in AUD and British pounds for the sales made outside US and for rent paid for the Australian store. Such transactions were converted to US dollars on the date of transaction and the exchange gains or losses were recorded in the consolidated statement of operations. The exchange gains or losses were immaterial for the six months ended December 31, 2017 and 2016.

 

Foreign Currency Translation and Comprehensive Income (Loss)

 

For the three and six months ended December 31, 2017 and 2016, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US dollars on the date of settlement and the exchange gains and losses were recorded in the consolidated statement of operations. No change was recorded in the comprehensive income (loss).

 

Use of Estimates

 

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

 

Reportable Segment

 

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

 

Revenue Recognition

 

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

 

Cost of Sales

 

Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), importation duties and charges.

 

Selling Expense

 

Selling expenses consist primarily of shipping and handling costs, relating to the delivery of products to customers, are classified as selling, general and administrative expenses. Selling expenses amounted to $7,047 for the six month period and $0 for the three month period ended December 31, 2017 and $53,057 for the six and $21,579 for the three month periods ended December 31, 2016.

 

 
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Operating Overhead Expense

 

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

 

Income Taxes

 

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

 

The Company accounts for uncertain tax positions in accordance with FASB ASC Topic 740. When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

 

At June 30, 2017 and 2016, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended June 30, 2017 and prior years or in computing its tax provision for 2016. Management has considered its tax positions and believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained upon examination. The Company is subject to examination by U.S. Federal and State tax authorities from the period ended June 30, 2014 to the present, generally for three years after they are filed.

 

The Company has been behind in filing its payroll tax returns and sales tax returns. The Company has recorded $1,761 as penalties and $13,716 as interest for the late payment of taxes in the accompanying financials.

 

Concentration of Credit Risk

 

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

 

Risks and Uncertainties

 

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

 

Contingencies

 

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

 

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

 

Cash and Equivalents

 

Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At December 31, 2017 and June 30, 2017, the Company had $0 and $4,491 in cash in Australia and in the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

 

Allowance for Doubtful Accounts

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The allowances for doubtful accounts as of December 31, 2017 and June 30, 2017 are $135,956 and $135,956 respectively.

 

Inventory

 

Inventories are valued at the lower of cost (determined on a weighted average basis) or net realizable value. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of December 31, 2017 and June 30, 2017, the Company had outstanding balances of Finished Goods Inventory of $0 and $18,443 respectively.

 

As of December 31, 2017 and June 30, 2017, a reserve for Estimated Inventory Charges in the amount of $0 and $230 was established.

 

Property, Plant & Equipment

 

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

 

As of December 31, 2017, and June 30, 2017, Plant and Equipment consisted of the following:

 

 

 

December 31

 

 

June 30

 

 

 

2017

 

 

2017

 

Property, plant & equipment

 

$ 29,456

 

 

$ 29,456

 

Accumulated depreciation

 

 

(23,022 )

 

 

(21,927 )

 

 

$ 6,434

 

 

$ 7,529

 

 

Depreciation was $1,095 and $5,324 for the six months ended December 31, 2017 and 2016, respectively and $541 and $2,662 for the three months ended December 31, 2017 and 2016 respectively.

  

 
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Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

As of December 31, 2017 and June 30, 2017, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

 

Earnings Per Share (EPS)

 

The Company utilize FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods of operating loss for which no common share equivalents are included because their effect would be anti-dilutive.

 

The following table sets for the computation of basic and diluted earnings per share the three months and six months ended December 31, 2017 and 2016:

 

 

 

Three month periods ended

 

 

 

December 31, 2017

 

 

December 31, 2016

 

Basic and diluted

 

 

 

 

 

 

Net loss

 

$ (227,768 )

 

$ (176,858 )

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ (0.00 )

Diluted

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

69,584,149

 

 

 

58,823,116

 

 

 

 

 

 

 

 

  

 

 

 

Six month periods ended

 

 

December 31, 2017

 

 

December 31, 2016

 

Basic and diluted

 

 

 

 

 

 

 

 

Net loss

 

$ (459,461 )

 

$ (352,367 )

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

Basic

 

$ (0.01 )

 

$ (0.01 )

Diluted

 

$ (0.01 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

69,584,149

 

 

 

58,823,116

 

 

 
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Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , issued as a new Topic, ASC Topic 606. The new revenue recognition standard supersedes all existing revenue recognition guidance. Under this ASU, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to the first quarter of 2018, with early adoption permitted in the first quarter of 2017. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its results of operations, cash flows and financial position.

 

In January 2016, The FASB issued ASU No. 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825) . ASU No. 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. For non-public companies, ASU 2016-01 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. We are currently evaluating the impact of the adoption of ASU 2016-01 on our consolidated financial statements.

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial position or consolidated statement of operations.

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. 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 with early adoption permitted. The Company has elected for early adoption of this guidance during the fiscal year ended June 30, 2017 on our consolidated financial statements.

 

In August 2017, the FASB issued guidance that eases certain documentation and assessment requirements of hedge effectiveness and modifies the accounting for components excluded from the assessment. Some of the modifications include the ineffectiveness of derivative gain/loss in highly effective cash flow hedge to be recorded in OCI, the change in fair value of derivative to be recorded in the same income statement line as hedged item, and additional disclosures required on the cumulative basis adjustment in fair value hedges and the effect of hedging on financial statement lines for components excluded from the assessment. The amendment also simplifies the application of hedge accounting in certain situations to permit new hedging strategies to be eligible for hedge accounting. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2018, our fiscal 2020. Early adoption is permitted and the modified retrospective transition method should be applied. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

Reclassification

 

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

 

Note 3 – TRADE RECEIVABLES

 

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

 

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

 

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

 

The allowances for doubtful accounts as of December 31, 2017 and June 30, 2017 are $135,956 and $135,956 respectively.

 

Note 4 – TRADE AND OTHER PAYABLES

 

As of December 31, 2017, and June 30, 2017, trade and other payable are comprised of the following:

 

 

 

December 31

 

 

June 30

 

 

 

2017

 

 

2017

 

Trade payable

 

$ 607,081

 

 

$ 580,322

 

Cash Overdraft

 

 

6,988

 

 

 

0

 

Officer compensation

 

 

203,699

 

 

 

122,225

 

Payroll payable

 

 

230,917

 

 

 

151,824

 

Payroll taxes

 

 

214,627

 

 

 

195,551

 

Employee benefits

 

 

98,826

 

 

 

95,314

 

Other liabilities

 

 

37,054

 

 

 

33,742

 

 

 

$ 1,392,204

 

 

$ 1,178,978

 

 

Note 5 – TRADE FINANCING

 

The Company entered into a Note Purchase Agreement for $65,000 dated January 4, 2017 with a third party. The amount was due on July 4, 2017 and carries interest at the rate of 18%. As of December 31, 2017, and June 30, 2017, the outstanding loan balance was $56,320 and $57,958 and accrued interest was $11,547 and $5,301 respectively. The loan maturity date has been extended until full settlement occurs without penalty.

 

The Company has a trade financing agreement with a financial institution in Australia with a maximum limit of AUD $150,000 at an interest rate of 20.95% per annum. Upon default of the loan, the Company reached a settlement with its obligation with the entity in the amount of AUD $165,523. The amount is to be paid through application of its Export Market Development Grant and up to 25% of the Company's store sales in Australia. All of the amounts referenced are in Australian dollars. As of December 31, 2017, and June 30, 2017, the Company had outstanding balance of USD $51,264 and USD $53,210, respectively.

 

On August 14, 2014 the Company entered into a trade finance agreement with an entity in the United States with a total maximum facility of $1,500,000 based on $1,000,000 towards sales invoiced and $500,000 towards purchase order financing. Original term is for 12 months with automatic renewal for each consecutive period thereafter with interest at base rate floor of 3.25 plus 4.5%. In the event of default, an additional 7% interest is added. As of December 31, 2017, and June 30, 2017, the Company had an outstanding balance of $128,468 and had renewed the loan term indefinitely until full settlement occurs. As of December 31, 2017, and June 30, 2017, the Company had an accrued interest balance of $48,828 and $39,062, respectively.

 

On November 2, 2016, the Company entered into a merchant agreement with a capital funding group for a purchase price of $35,000 and purchased amount of $47,250. The Company is amortizing the excess of purchase amount over the purchase price, over the term of the financing of 21 months. Pursuant to the agreement, the Company cannot obtain future financing by selling receivables without consent from the lender. The Merchant holds a security interest in all accounts and proceeds. As of December 31, 2017 and June 30, 2017, the balance owed to the lender amounted to $17,981 and accrued interest of $8,167 and $4,667, respectively. The term has been extended indefinitely until full settlement occurs without penalty.

 

On November 3, 2016, the Company entered into a payments rights purchase and sale agreement for $72,500 due in April 2017. The financing has a purchase price of $50,000 with the purchased amount of $72,500. The Company is amortizing the excess of purchased amount over purchase price, over the term of the financing of six months. The Company has to make daily payments of $575.40 to the lender. During the period ended December 31, 2017 there was no amortization of the excess purchased amount, as interest expense, in the accompanying financials. As of December 31, 2017 and June 30, 2017, the loan balance owed to the lender of $2,601 is in default. The loan has been charged an interest rate of 16% per annum while in default. During the three month and six month period ended December 31, 2017 the Company recorded interest expense of $105 and $210, respectively. During fiscal year 2019 this load was settled for $6,250.

 

 
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On November 29, 2016, the Company entered into a consignment agreement. It is a platform for funding advance inventory production. This facility allowed the Company to fund manufacturing with a consignment facility which pegs repayment to the sales of inventory. During the period ended June 30, 2017, the Company initially raised $21,928 for a purchase price of $26,313. This amount was paid off as of March 31, 2017. The difference of $4,385 was amortized over the period of financing. The Company again raised $114,888 for a purchase price of $133,342 in December 2016 due by December 2017. The difference of $18,454 is being amortized over the period of financing. As of December 31, 2017, and June 30, 2017, balance outstanding was $107,370, with $22,812 and $15,123 in accrued interest, respectively. As of December 31, 2017, the loan was not in default. As of November 2018, the loan balance is in default and there are no penalties for the default on this loan.

 

Note 6 – LOANS

 

In December 2013, the Company entered into a short-term loan arrangement in the amount of $100,000 with an individual. Terms of the note require interest payment of $5,000 on the repayment date, 30 days after the note date. If not repaid at that time, interest will accrue at the rate of $166 per day until the note is repaid. The loan has been in default since January 2014 and accruing interest of $166 per day. The outstanding balance as of December 31, 2017 and June 30, 2017 was $100,000. During the six month period ended December 31, 2017 and 2016, the Company recorded interest expense of $30,544 and $30,212, respectively, on the note. As of December 31, 2017 and June 30, 2017, the accrued interest recorded is $201,748 and $171,204, respectively, on the note.

 

From May 2014 to June 2017, the Company entered into several convertible loan agreements with a lender aggregating in the amount of $162,500. The notes bear interest at 6% per year and are due and payable six months from the date of each note. The loans may be converted into common stock at any time by the election of the lender after a period of six months at a predetermined conversion price. The outstanding balance as of December 31, 2017 and June 30, 2017 was $36,500. On April 15, 2017, the Company issued 2,227,700 at $0.05 per share in exchange for $95,000 in principle and $16,385 in accrued interest. The remaining loan balance has been in default. There was no penalty or interest rates increase due to the default. The accrued interest is $3,313 and $2,209 as of December 31, 2017 and June 30, 2017, respectively.

 

In June 2015, the Company entered into a secured promissory note in the amount of $500,000 with a Delaware statutory trust. The note bears interest at the rate of 18% per annum and was due on or before July 1, 2017. The note has various covenants attached including one in which all credit card receipts are to be swept into an account which will fund payments on the note that are not in excess of the minimum quarterly payments required. As a condition of the note, an affiliate of the lender was granted a warrant to purchase 6,000,000 shares of the common stock of the Company at a price of $.08 in whole or in part. The outstanding balance as of December 31, 2017 and June 30, 2017 was $500,000.

 

On February 5, 2016, The Company signed an amendment to the secured promissory note extending the maturity date by one year to July 17, 2018. The amendment changed the terms of the credit card receipts used to fund payments required by the note. The amendment also cancelled the warrants to purchase 6,000,000 shares at a price of $0.08. New warrants were granted to purchase 6,000,000 shares at $0.05 per share and to purchase 2,000,000 shares at $0.02 per share. The Company determined the fair value of the warrants using the Black – Scholes model and recorded the additional value of $41,467 for the modified warrants. The variables used for the Black –Scholes model are as listed below:

 

 

·

Volatility: 123%

 

·

Risk free rate of return: 1.26%

 

·

Expected term: 5 years

 

In connection with the issuance of the above notes, the Company recorded a note discount of $115,274. The Company amortized $25,068 and $25,068 of the note discount during the six month periods ended December 31, 2017 and 2016, respectively. The Company recorded interest of $55,452 and $45,000 on the note during the six month periods ended December 31, 2017 and 2016, respectively. As of December 31, 2017 and June 30, 2017, accrued interest balance is $114,548 and $59,096, respectively. The loan is in default and bears interest at the rate of 22% per year.

 

From August 2016 to February 2017, the Company entered into several convertible loan agreements with a lender aggregating in the amount of $60,125. The notes bear interest at 6% per year and are due and payable six months from the date of each note. The convertible loan agreements are in default as of February 2017. There was no penalty or interest rates increase due to the default. The loans may be converted into common stock at any time by the election of the lender after a period of six months at a predetermined conversion price. The outstanding balance as of December 31, 2017 and June 30, 2017 was $60,125. The accrued interest is $4,048 and $2,096 as of December 31, 2017 and June 30, 2017, respectively.

 

 
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Related Party Payable

 

The Company had several outstanding convertible note agreements with a shareholder aggregating to AUD $370,000. The notes had interest rates varying from 6% to 15% per annum. In March 2015, the outstanding balance and accrued interest was refinanced by a $526,272 convertible note. The Convertible Note bears interest at the rate of 18% per annum and was due on or before April 30, 2017. The interest portion of the note shall be paid weekly starting in April 2015. Principle payments of $9,929 AUD weekly were to commence in April 2016. All or any portion of the principal amount of the Convertible Note and all accrued interest is convertible at the option of the holder into common stock of the Company at a conversion price of five cents ($0.05) per share, subject to various standard provisions. The outstanding balance as of December 31, 2017 and June 30, 2017, net of related discount, was USD $387,328. The interest rate increased from 18% per annum to 22% per annum due to the loan default as of September 30, 2015. The Company determined the fair value of the convertible note of $80,909 using the intrinsic value method. The Company recorded an amortization of the debt discount of $0 and $7,717, during the six month periods ended December 31, 2017 and 2016, respectively. The debt discount is fully amortized as of June 30, 2017. During the six month periods ended December 31, 2017 and 2016, the Company recorded interest of $42,956 and $42,606, respectively, on the note. Accrued interest as of December 31, 2017 and June 30, 2017 is $187,701 and $144,745 respectively.

 

The Company has liabilities payable in the amount of $170,626 to shareholders and officers of the Company as of December 31, 2017 and June 30, 2017. The note bears interest at the rate of 15% per annum and was due on or before June 30, 2014. The outstanding balance, including accrued interest, may be converted into common shares of Banjo & Matilda, Inc. at a pre-determined rate. The Company has granted the Lenders a security interest in the intellectual property of the Borrower. The remaining loan balance has been in default. There was no penalty or interest rates increase due to the default. The accrued interest is $70,660 and $57,260 as of December 31, 2017 and June 30, 2017, respectively.

 

Scheduled principal payments on loans are as follows;

 

Year ending June 30,

 

Loan 1

 

 

Loan 2

 

 

Loan 3

 

 

Loan 4

 

 

Loan 5

 

 

Loan 6

 

 

Total

 

2018

 

$

100,000

 

$

36,500

 

$

500,000

 

$

60,125

 

$

387,328

 

$

170,626

 

$

1,254,579

 

$

100,000

 

$

36,500

 

$

500,000

 

$

60,125

 

$

387,328

 

$

170,626

 

$

1,254,579

 

Note 7 – COMMITMENTS

 

The Company leases commercial space in Sydney, Australia that serves as its flagship as well as a retail store. We lease approximately 2,500 square feet of space pursuant to a three-year lease agreement which expired in October 2014. After expiration, the lease converted to a month-to-month basis. The annual rent for the premises is AUD $52,000. This lease was terminated as of September 30, 2017.

 

The Company also leases space on an as needed basis in Santa Monica, California that serves as its corporate headquarters. We utilize approximately 500 square feet of space pursuant to a month-to-month basis. This lease was terminated as of September 30, 2017.

 

For the six months ended December 31, 2017 and 2016 the aggregate rental expense was $6,329 and $26,058, respectively.

 

Note 8 – INCOME TAXES

 

Based on the available information and other factors, management believes it is more likely than not that the net deferred tax assets at, June 30, 2017 and June 30, 2016 will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at December 31, 2017 and June 30, 2017. At December 31, 2017 and June 30, 2017, the Company had federal net operating loss carry-forwards of approximately $5,214,000 and $4,755,000, respectively, expiring beginning in 2032.

 

Deferred tax assets consist of the following components:

 

 

 

December 31, 2017

 

 

June 30, 2017

 

Net loss carryforward

 

$ 1,561,000

 

 

$ 1,425,000

 

Valuation allowance

 

 

(1,561,000 )

 

 

(1,425,000 )

Total deferred tax assets

 

$ -

 

 

$ -

 

 

 
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Note 9 – STOCKHOLDERS' EQUITY

 

Preferred Stock

 

Pursuant to an Employment Agreement (the "Agreement") with the Chief Executive Officer on November 15, 2013, The Company issued 1,000,000 undesignated shares of Preferred Stock each having a par value of $0.00001. The preferred shares shall be entitled to 100 votes to every one share of common stock. The Preferred Shares shall only valid during the term of this Agreement. At the end of the Agreement, November 15, 2016, the shares shall be cancelled and returned to Treasury and the Executive shall have no preferential voting rights. If this Agreement is renewed the preferred shares remain with the Executives.

 

Common Stock

 

No changes to the common stock for the six months ended December 31, 2017.

 

Note 10 – RELATED PARTY TRANSACTIONS

 

During the fiscal year ended June 30, 2016, the Company paid $20,113 and $1,005 as compensation, respectively, to the sister and mother of the CEO. There were no related party transaction for June 30, 2017 to disclose.

 

Note 11 – SUBSEQUENT EVENTS

 

Effective April 18, 2019, Banjo & Matilda, Inc and American Aviation Technologies LLC entered into an Exchange Agreement dated as of March 16, 2019 pursuant to which Banjo shall acquire 100% of the issued and outstanding membership units of AAT in exchange for the issuance of Banjo shares of its Series A Preferred Stock constituting 84.4% of the total voting power of Banjo capital stock to be outstanding upon closing, after giving effect to the consummation of concurrent debt settlement and other capital stock issuances but before the issuance of shares of capital stock for investor relations purposes. As a result of the Exchange Agreement, the Company will become a wholly owned subsidiary of Banjo.

 

The Exchange Agreement is subject to the satisfaction of certain conditions as set forth in the Exchange Agreement. At Closing, two additional directors will be added, resulting in a total of 4 directors serving post-closing.

 

The Company is a Florida limited liability company that is an aircraft design and development company dedicated to advancing aeronautical safety and performance through new and innovative concepts.

 

 
F-14
 
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Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with the audited and unaudited financial statements and the notes to those statements included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this Report that could cause actual results to differ materially from those anticipated in these forward-looking statements.

 

Financial Results

 

The following discussion of the results of operations constitutes management's review of the factors that affected the financial and operating performance for the quarter ending December 31, 2017 and 2016. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report. The Company has a June 30 fiscal year end.

 

During the quarters ended December 31, 2017 and 2016, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US Dollars on the date of settlement and the exchange gains and losses were recorded in the statement of operations. No change was recorded in the comprehensive income (loss). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders' equity. There were no significant fluctuations in the exchange rate for the conversion of Australian Dollars to US Dollars after the balance sheet date.

 

Executive summary

 

The December quarter 2017 represented a continuation of the strategic review the company commenced in the September 2017 quarter.

 

While the Company started in 2009 as an e-commerce only brand, it embarked upon a strategic brand building wholesale distribution program in 2013. In 2015 the Company made the decision to exit this distribution channel due to the increasing issues that apparel and luxury goods brands were facing in working with retailers via wholesale. The Company experienced lower margins, carried higher risks and viewed an uncertain future due to the increasing difficulties occurring in the physical retail landscape. In 2016 the Company began to focus fully on its higher value, higher margin, lower risk direct-to-consumer e-commerce centric business model. Over the course of 2016 and 2017 the company failed to raise adequate funds to fund this pivot and scale the business, and as a consequence has had to scale back its operations to conserve capital.

 

Given the lack of operating capital available to continue to build the Banjo & Matilda brand and e-commerce sales, the company has begun to consider strategic opportunities to deliver value to shareholders. The company has identified several promising opportunities and is carefully pursuing and evaluating these with an intent to activate one of these opportunities as soon as possible.

 

December Quarter 2017 Results of Operations Compared with December Quarter 2016

 

Revenues

 

Sales decreased from $159,115 to $0 for the December 2017 quarter compared with the December quarter in 2016. Cost of sales commensurately decreased from $24,838 to $0. For the six month periods ending December 31 2017 and 2016 sales decreased from $360,042 to $79,779 and cost of sales decreased from $90,690 to $19,699. These fluctuations were caused by the wind down in operations and related decrease in sales due to lack of new inventory.

 

Gross Margins

 

Gross margins decreased from $134,277 to $0, for the three months ending December 31, 2017 compared with the three months ending December 31, 2016 and from $269,352 to $60,080 for the six months ending December 31, 2017 and December 31, 2016 respectively.

 

Expenses

 

Total operating expenses decreased 45% from $229,166 to $126,883, for the December 2017 quarter compared with the December 2016 quarter. For the six month periods ending December 31, 2017 and December 31, 2016 total operating expenses decreased 30% from $456,207 to $318,543. The reduction in operating expense was driven by the wind down in operations.

 

Net Loss

 

Net loss and comprehensive net loss was $227,768 for the three months ending December 31, 2017 compared to $176,858 in the three months ending December 31, 2016 and $459,461 and 352,367 for the six month periods ending December 31 2017 and 2016 respectively. The reduction in revenue was the driver of the increasing loss.

 

 
5
 
Table of Contents

 

Liquidity and Capital Resources

 

As of December 31, 2017, we had a cash balance of $0 and negative working capital of $3,698,616. Our net loss of $227,768 in the quarter ended December 31 2017 was mostly funded by proceeds raised from financings. We will need to raise working capital (or refinance existing short-term debt to long-term debt) to fund operations. Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best-efforts private equity and debt financings. We do not have any credit or equity facilities available with financial institutions, stockholders or third party investors, and will continue to rely on best efforts financings. The failure to raise sufficient capital will likely cause us to cease operations.

 

During the six months ended December 31, 2017, our operating activities used $907 of net cash compared to using $132,234 of net cash flow in our operating activities for the six months ended December 31, 2016. This difference primarily resulted from the cessation of sales and operations.

 

During the six months ended December 31, 2017, net cash used by financing activities was $3,584 compared with $149,742 of net cash provided by financing activities in the six months ended December 31, 2016. This was due to no additional funding being secured.

 

Commitments for Capital Expenditures

 

We do not have substantial commitments for capital expenditures. All of our products are manufactured by third parties, enabling us to scale up operations without acquiring substantial production equipment. Although we will need to increase our design capabilities and augment our sales and administrative staff as we grow, the rate of growth of these expenses should be less than the rate of growth of our revenue. Further, we anticipate that as we expand our sales, the interest rates, fees and other expenses we pay to obtain credit, should be lower than those we incur presently. Of course, any substantial growth in our revenues will require additional equity which, if available, will dilute the interests of our current shareholders. We do anticipate a slight increase in the rate of growth of our operating expenses this year due to, among other factors, the fact that our historical financial statements do not include the expenses associated with being a public company.

 

Off Balance Sheet Items

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements 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 revenues and expenses during the period covered by the financial statements. Actual results could differ from estimates. Significant estimates include collectability of accounts receivable, valuation of inventory, sales return and recoverability of long-term assets.

 

Revenue Recognition

 

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

 

Cost of Sales

 

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

 

Inventory

 

Inventories are valued at the lower of cost (determined on a weighted average basis) or net realizable value. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower.

 

 
6
 
Table of Contents

 

Allowance for Doubtful Accounts

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

 

Exchange Gain (Loss)

 

During the period ended December 31, 2017 and 2016, the transactions of the Company were denominated in US Dollars. Some transactions were denominated in AUD and British pounds for the sales made outside US and for rent paid for the Australian store. Such transactions were converted to US Dollars on the date of transaction and the exchange gains or losses were recorded in the statement of operations. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

 

Foreign Currency Translation and Comprehensive Income (Loss)

 

During the period ended December 31, 2017 and 2016, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US Dollars on the date of settlement and the exchange gains and losses were recorded in the statement of operations. No change was recorded in the comprehensive income (loss). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders' equity. There were no significant fluctuations in the exchange rate for the conversion of Australian Dollars to US Dollars after the balance sheet date.

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

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

 

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

 

 
7
 
Table of Contents

 

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

 

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

 

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

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. 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 with early adoption permitted. The Company has elected for early adoption of this guidance during the fiscal year ended June 30, 2017 on our consolidated financial statements.

 

In August 2017, the FASB issued guidance that eases certain documentation and assessment requirements of hedge effectiveness and modifies the accounting for components excluded from the assessment. Some of the modifications include the ineffectiveness of derivative gain/loss in highly effective cash flow hedge to be recorded in OCI, the change in fair value of derivative to be recorded in the same income statement line as hedged item, and additional disclosures required on the cumulative basis adjustment in fair value hedges and the effect of hedging on financial statement lines for components excluded from the assessment. The amendment also simplifies the application of hedge accounting in certain situations to permit new hedging strategies to be eligible for hedge accounting. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2018, our fiscal 2020. Early adoption is permitted and the modified retrospective transition method should be applied. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

There were no other new accounting pronouncements during the year period ended December 31, 2017 that we believe would have a material impact on our financial position or results of operations. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

 
8
 
Table of Contents

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

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

 

Item 2. Unregistered Sales of Equity Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

 
9
 
Table of Contents

 

Item 6. Exhibits

 

The following exhibits are filed herewith:

 

Exhibit

Number

 

 

Document

 

 

 

31.1

 

 

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

 

 

 

32.1

 

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

   

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation

 

 
10
 
Table of Contents

 

SIGNATURES

 

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

 

 

BANJO & MATILDA, INC.

 

 

  

 

Date: June 26, 2019

By:

/s/ Brendan Macpherson

 

 

 

 

 

Brendan Macpherson

Chief Executive Officer and Chief Financial Officer

(Principal Executive and Financial Officer)

 

 

 
11

 

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