The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
BANJO & MATILDA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – BASIS OF PRESENTATION AND ORGANIZATION
All currencies represented in the notes to the condensed consolidated financial statements are in United States Dollars (USD) unless specified as AUD (Australian Dollars).
Banjo and Matilda, Inc. was incorporated in Nevada on December 18, 2009 under the name Eastern World Group, Inc. On September 24, 2013, its name was changed to Banjo & Matilda, Inc.
On November 14, 2013, Banjo & Matilda, Inc., entered into a Share Exchange Agreement (the “Exchange Agreement”) with Banjo & Matilda, Pty Ltd., a corporation formed under the laws of Australia (the “Company”) and the shareholders of the Company. Pursuant to the Exchange Agreement, at the closing of the transaction contemplated thereunder (the “Transaction”), the Company became a wholly-owned subsidiary of Banjo & Matilda, Inc.
Banjo & Matilda Pty Ltd. was incorporated under the laws of Australia on May 27, 2009 and manufactures and sells cashmere fashion. Headquartered at Bondi Beach, the Aussie lifestyle of sun, sand and surf resonates innately with this label and its philosophy of low maintenance, style and comfort.
Banjo & Matilda USA, Inc. was incorporated in the State of Delaware on October 14, 2013 and is owned 100% by Banjo & Matilda, Inc.
The ultra-soft cashmere staples, pairing simplicity with cool sophistication has rapidly gained loyal customers worldwide positioning the label as the ‘go-to’ for contemporary cashmere products.
Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Banjo & Matilda Pty Ltd. for the net monetary assets of the Banjo & Matilda, Inc. accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under share reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Banjo & Matilda, Inc. are those of the legal acquiree, Banjo & Matilda Pty Ltd., which is considered to be the accounting acquirer. Share and per share amounts stated have been retroactively adjusted to reflect the merger.
As a result of the exchange agreement, the reorganization was treated as an acquisition by the accounting acquiree that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data have been retroactively restated. Accordingly, the financial statements include the following:
|
(1)
|
The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer at fair value.
|
|
|
|
|
(2)
|
The statements of operations include the operations of the accounting acquirer for the period presented and the operations of the legal acquirer from the date of the merger.
|
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 $5,951,912 as of March 31, 2018. The Company also incurred net losses of $207,723 and $667,184 for the for the three and nine months ended March 31, 2018, respectively, and had negative working capital. To date, these losses and deficiencies have been financed principally through the loans from related parties and from third parties. In view of the matters described, there is substantial doubt as to the Company’s ability to continue as a going concern without a significant infusion of capital. We anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that we are required to raise additional funds to acquire properties, and to cover costs of operations, we intend to do so through additional offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any future financing will involve substantial dilution to existing investors.
Basis of Presentation
The accompanying financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”).
Principles of Consolidation
The consolidated financial statements include the accounts of Banjo & Matilda, Inc. (“Banjo” or “the Company”) and its wholly owned subsidiaries Banjo & Matilda Pty Ltd. and Banjo & Matilda USA, Inc., collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.
Exchange Gain (Loss)
During the nine month periods ended March 31, 2018 and 2017, the transactions of the Company were denominated in US Dollars. Some transactions were denominated in AUD and British pounds for the sales made outside US and for rent paid for the Australian store. Such transactions were converted to US$ on the date of transaction and the exchange gains or losses were recorded in the statement of operations. The exchange gains or losses were immaterial for the nine months ended March 31, 2017 and 2018.
Foreign Currency Translation and Comprehensive Income (Loss)
During the nine month periods ended March 31, 2018 and 2017, the transactions of the Company were denominated in US Dollars. All the transactions which were denominated in other currencies were converted to US$ on the date of settlement and the exchange gains and losses were recorded in the statement of operations. No change was recorded in the comprehensive income (loss).
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.
Reportable Segment
The Company has one reportable segment. The Company’s activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.
Cost of Sales
Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), and 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 nine month period and $0 for the three month periods ended March 31, 2018 and $78,125 for the nine month and $25,068 for the three month periods ended March 31, 2017.
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 $2,640 as penalties and $20,597 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 financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s 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 March 31, 2018 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 March 31, 2018 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 March 31, 2018 and June 30, 2017, the Company had outstanding balances of Finished Goods Inventory of $0 and $18,443 respectively.
As of March 31, 2018 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 March 31, 2018 and June 30, 2017, Plant and Equipment consisted of the following:
|
|
March 31
|
|
|
June 30
|
|
|
|
2018
|
|
|
2017
|
|
Property, plant and equipment
|
|
$
|
29,456
|
|
|
$
|
29,456
|
|
Accumulated depreciation
|
|
|
(23,535
|
)
|
|
|
(21,927
|
)
|
|
|
$
|
5,921
|
|
|
$
|
7,529
|
|
Depreciation was $1,608 and $7,276 for the nine month periods ended March 31, 2018 and 2017, respectively. Depreciation was $513 and $1,952 for the three month periods ended March 31, 2018 and 2017, respectively.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
As of March 31, 2018, 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 for three and nine month periods ended March 31, 2018 and 2017:
|
|
Three month periods ended
|
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
Basic and diluted
|
|
|
|
|
|
|
Net loss
|
|
$
|
(207,723
|
)
|
|
$
|
(255,973
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
69,584,149
|
|
|
|
59,062,005
|
|
|
|
Nine month periods ended
|
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
Basic and diluted
|
|
|
|
|
|
|
Net loss
|
|
$
|
(667,184
|
)
|
|
$
|
(608,339
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
69,584,149
|
|
|
|
58,905,021
|
|
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. We do not expect the adoption of this guidance to have a material impact 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.
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 terms are extended to no more than 90 days by the Company. All trade receivables that are overdue are individually assessed for impairment.
The allowances for doubtful accounts as of March 31, 2018 and June 30, 2017 are $135,956 and $135,956 respectively.
Note 4 – TRADE AND OTHER PAYABLES
As of March 31, 2018 and June 30, 2017, trade and other payable are comprised of the following:
|
|
March 31
|
|
|
June 30
|
|
|
|
2018
|
|
|
2017
|
|
Trade payable
|
|
$
|
606,147
|
|
|
$
|
580,322
|
|
Cash Overdraft
|
|
|
5,255
|
|
|
|
-
|
|
Officer compensation
|
|
|
277,099
|
|
|
|
122,225
|
|
Payroll payable
|
|
|
255,917
|
|
|
|
151,824
|
|
Payroll taxes
|
|
|
214,347
|
|
|
|
195,551
|
|
Employee benefits
|
|
|
98,643
|
|
|
|
95,314
|
|
Other liabilities
|
|
|
36,760
|
|
|
|
33,742
|
|
|
|
$
|
1,499,423
|
|
|
$
|
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 March 31, 2018, and June 30, 2017, the outstanding loan balance was $56,320 and $57,958 and accrued interest was $14,602 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 March 31, 2018, 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 March 31, 2018, 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 March 31, 2018, and June 30, 2017, the Company had an accrued interest balance of $53,710 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 March 31, 2018 and June 30, 2017, the balance owed to the lender amounted to $17,981 and accrued interest of $9,917 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 March 31, 2018 there was no amortization of the excess purchased amount, as interest expense, in the accompanying financials. As of March 31, 2018 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 nine month periods ended March 31, 2018 the Company recorded interest expense of $102 and $312, respectively. During fiscal year 2019 this loan was settled for $6,250.
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 March 31, 2018, and June 30, 2017, balance outstanding was $107,370, with $24,795 and $15,123 in accrued interest, respectively. As of March 31, 2018, the loan was in default and charged an interest rate of 12% per annum.
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 March 31, 2018 and as of June 30, 2017 was $100,000 and $100,000 respectively. During the nine month periods ended March 31, 2018 and 2017, the Company recorded an interest of $45,484 and $45,318, respectively, on the note. As of March 31, 2018 and June 30, 2017, the accrued interest recorded is $216,688 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 March 31, 2018 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 March 31, 2018 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 March 31, 2018 and June 30, 2017 was $500,000. The debt discount amortization and deferred interest carried on the loan was $12,534 and $3,926 respectively as of March 31, 2018 and $50,135 and $15,702 as of June 30, 2017.
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:
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Volatility: 123%
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·
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Risk free rate of return: 1.26%
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·
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Expected term: 5 years
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In connection with the issuance of the above notes, the Company recorded a note discount of $115,274. The Company amortized $37,601 and $37,601, of the note discount during the nine month periods ended March 31, 2018 and 2017, respectively. The Company recorded interest of $82,575 and $67,500, on the note during the nine month periods ended March 31, 2018 and 2017, respectively. As of March 31, 2018 and June 30, 2017, the accrued interest balance is $141,671 and $59,096, respectively. The loan is in default and accrues 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 were no penalty or interest rate 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 March 31, 2018 and June 30, 2017 was $60,125. The accrued interest is $4,998 and $2,096 as of March 31, 2018 and June 30, 2017, respectively.
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 is due on or before April 30, 2017. The interest portion of the note shall be paid weekly starting in April 2015. Principle payments of $9,929 AUD weekly 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 March 31, 2018 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 $11,575, during the nine month period ended March 31, 2018 and 2017, respectively. The debt discount is fully amortized as of June 30, 2017. During the nine month periods ended March 31, 2018 and 2017, the Company recorded interest of $63,967 and $63,909, respectively, on the note. Accrued interest as of March 31, 2018 and June 30, 2017 is $208,712 and $144,745 respectively.
The Company has liabilities payable in the amount of $170,626 to shareholders and officers of the Company as of March 31, 2018 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 $77,591 and $57,260 as of March 31, 2018 and June 30, 2017, respectively.
Scheduled principal payments on loans are as follows;
Year ending June 30,
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Loan 1
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Loan 2
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Loan 3
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Loan 4
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Loan 5
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Loan 6
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Total
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2018
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$
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100,000
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|
|
$
|
36,500
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|
|
$
|
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
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|
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.
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 nine months ended March 31 2018 and 2017 the aggregate rental expense was $6,348 and $33,072, 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 March 31, 2018 and June 30, 2017. At March 31, 2018 and June 30, 2017, the Company had federal net operating loss carry-forwards of approximately $5,422,000 and $4,755,000, respectively, expiring beginning in 2032.
Deferred tax assets consist of the following components:
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|
March 31,
2018
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|
|
June 30,
2017
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|
Net loss carryforward
|
|
$
|
1,626,000
|
|
|
$
|
1,425,000
|
|
Valuation allowance
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|
|
(1,626,000
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)
|
|
|
(1,425,000
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)
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Total deferred tax assets
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|
$
|
-
|
|
|
$
|
-
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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 nine months ended March 31, 2018.
Note 10 – RELATED PARTY TRANSACTIONS
During the nine month period ended March 31 2018, there were no related party transactions for the Company 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.