Company Quick10K Filing
Quick10K
Trident Brands
10-Q 2019-05-31 Quarter: 2019-05-31
10-Q 2019-02-28 Quarter: 2019-02-28
10-K 2018-11-30 Annual: 2018-11-30
10-Q 2018-08-31 Quarter: 2018-08-31
10-Q 2018-05-31 Quarter: 2018-05-31
10-Q 2018-02-28 Quarter: 2018-02-28
10-K 2017-11-30 Annual: 2017-11-30
10-Q 2017-08-31 Quarter: 2017-08-31
10-Q 2017-05-31 Quarter: 2017-05-31
10-Q 2017-02-28 Quarter: 2017-02-28
10-K 2016-11-30 Annual: 2016-11-30
10-Q 2016-08-31 Quarter: 2016-08-31
10-Q 2016-05-31 Quarter: 2016-05-31
10-Q 2016-02-29 Quarter: 2016-02-29
10-K 2015-11-30 Annual: 2015-11-30
10-Q 2015-08-31 Quarter: 2015-08-31
10-Q 2015-05-31 Quarter: 2015-05-31
10-Q 2015-02-28 Quarter: 2015-02-28
10-K 2014-11-30 Annual: 2014-11-30
10-Q 2014-08-31 Quarter: 2014-08-31
10-Q 2014-05-31 Quarter: 2014-05-31
10-Q 2014-02-28 Quarter: 2014-02-28
10-K 2013-11-30 Annual: 2013-11-30
8-K 2019-06-01 Officers, Other Events, Exhibits
8-K 2019-05-05 Officers, Other Events
8-K 2018-12-12 Other Events
8-K 2018-11-27 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
MUFG Mitsubishi Ufj Financial Group 61,900
BCH Bank of Chile 14,480
ACC American Campus Communities 6,300
LM Legg Mason 2,900
GSKY Greensky 2,360
RDUS Radius Health 993
AVD American Vanguard 451
TLRD Tailored Brands 399
UG United Guardian 87
MYMX Mymetics 0
TDNT 2019-05-31
Item 1. Financial Statements
Note 1. Organization and Description of Business
Note 2. Summary of Significant Accounting Policies
Note 3. Going Concern
Note 4. Warrants and Options
Note 5. Related Party Transactions
Note 6. Note Receivable
Note 7. Convertible Debt
Note 8. Intangible Assets
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Trident Brands Earnings 2019-05-31

TDNT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 g8728.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2019
 
Commission file number 000-53707
 
 
TRIDENT BRANDS INCORPORATED
(Exact name of registrant as specified in its charter)

Nevada 26-1367322
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
200 South Executive Drive, Suite 101, Brookfield, WI
53005
(Address of principal executive offices)
(Zip Code)

(262) 789-6689
(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol(s)
 
Name of exchange on which registered
         
         

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 fling requirements for the past 90 days. Yes   No

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

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

Large accelerated filer 
 
Accelerated filer 
Non-Accelerated filer
Smaller reporting company
Emerging growth company 

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be fled by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of the registrant’s common shares outstanding as of July 22, 2019 was 32,311,887.



TRIDENT BRANDS INCORORATED
FORM 10-Q
For the quarterly period ended May 31, 2019

TABLE OF CONTENTS


PART I
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited)
7
     
 
Consolidated Balance Sheets as at May 31, 2019  and November 30, 2018
8
     
 
Consolidated Statements of Operations for the three and six months ended May 31, 2019 and May 31, 2018
9
     
 
Consolidated Statements of Changes in Stockholders’ Deficit for the six months ended May 31, 2019 and 2018
10
     
 
Consolidated Statements of Cash Flows for the six months ended May 31, 2019 and  May 31, 2018
11
     
 
Notes to Consolidated  Financial Statements
12
     
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
     
Item 3
Quantitative and Qualitative Disclosures about Market Risk
21
     
Item 4
Controls and Procedures
21
     
PART II
OTHER INFORMATION
 
     
Item 6
Exhibits
23


2


Basis of Presentation

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q (“Form 10-Q”) to the “Company”, “we”, “us”, “our”, “Trident” and “Trident Brands” or similar words and phrases are to Trident Brands Incorporated and its subsidiaries, taken together.

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

Forward-Looking Statements

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

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

·
we have a limited operating history with significant losses and expect losses to continue for the foreseeable future;

·
we could face intense competition, which could result in lower revenues and higher expenditures and could adversely affect our results of operations;

·
we are governed by only three persons serving as directors and officers which may lead to faulty corporate governance;

·
we must attract and maintain key personnel or our business may fail;

·
we may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions;

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

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

·
if our intellectual property is not adequately protected, then we may not be able to compete effectively and we may not be profitable;

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

3



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

·
if we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained;

·
if we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained;

·
our services may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands;

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

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

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

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

·
we may incur material product liability claims, which could increase our costs and harm our financial condition and operating results;

·
unless we can generate sufficient cash from operations or raise additional funds, we may not be able to meet our debt obligations;

·
our customers generally are not obligated to continue purchasing products from us;

·
if we do not manage our supply chain effectively, our operating results may be adversely affected;

·
our stock price may be volatile, which may result in losses to our shareholders;

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

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

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

4


·
we are listed on the OTCQB quotation system and our common stock is subject to “penny stock” rules which could negatively impact our liquidity and our shareholders’ ability to sell their shares;

·
volatility in our common share price may subject us to securities litigation;

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

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

Consequently all forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that our actual results or the developments we anticipate will be realized. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report.

Corporate Legal Structure and Related Matters

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


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

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

Sports Nutrition Product Inc. (DBA Everlast Nutrition) is 100% owned by Trident Brands and holds an exclusive license to market and sell products in the nutritional food and supplement category under the Everlast® brand.

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

Trident Brands International Ltd. is 100% owned by Trident Brands and was organized to handle the company’s international operations and sub-license trademarks and/or products in international markets.

5


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

The Company has authorized capital of 300,000,000 common shares with a par value of $0.001 per share. 32,311,887 common shares were issued and outstanding as of May 31, 2019 and 32,311,887 as of July 22, 2019.

6


ITEM 1. FINANCIAL STATEMENTS

The unaudited financial statements for the quarter ended May 31, 2019 immediately follow.


7



TRIDENT BRANDS INCORPORATED
Consolidated Balance Sheets
(Unaudited)

   
As of
   
As of
 
   
May 31, 2019
   
November 30, 2018
 
ASSETS
           
             
Current Assets
           
Cash and Cash Equivalents
 
$
1,653,948
   
$
3,133,303
 
Accounts Receivable, net of allowance of $5,671 and $32,383 respectively
   
519,633
     
357,492
 
Inventory
   
2,602,822
     
2,055,063
 
Prepaid and other current assets
   
208,560
     
123,599
 
Total Current Assets
   
4,984,963
     
5,669,457
 
                 
Fixed Assets-Furniture & Fixtures, net
   
8,604
     
31,663
 
Note Receivable, net of allowance of $617,010 and $617,010, respectively
   
-
     
-
 
Intangible Assets, net
   
400,000
     
393,580
 
                 
TOTAL ASSETS
 
$
5,393,567
   
$
6,094,700
 
                 
LIABILITIES & STOCKHOLDERS' DEFICIT
               
                 
Current Liabilities
               
Accounts Payable
 
$
1,625,071
   
$
1,289,833
 
Accrued Liabilities
   
3,031,433
     
2,994,453
 
Derivative Liability
   
4,294,374
     
892,000
 
Convertible Debt, net of discount of $2,757,603
   
15,747,364
     
-
 
Total Current Liabilities
   
24,698,242
     
5,176,286
 
                 
Convertible Debt, net of discount of $2,082,975
   
-
     
13,617,805
 
                 
Total Liabilities
   
24,698,242
     
18,794,091
 
                 
Stockholders' Deficit
               
Common stock, $0.001 par value, 300,000,000 shares authorized;
               
32,311,887 shares issued and outstanding as of May 31, 2019 and November 30, 2018
   
32,312
     
32,312
 
Additional paid-in capital
   
9,945,488
     
9,564,737
 
Non-Controlling Interest in Subsidiary
   
(223,873
)
   
(170,999
)
Accumulated Deficit
   
(29,058,602
)
   
(22,125,441
)
Total Stockholders' Deficit
   
(19,304,675
)
   
(12,699,391
)
                 
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT
 
$
5,393,567
   
$
6,094,700
 




See Notes to Unaudited Consolidated Financial Statements

8



TRIDENT BRANDS INCORPORATED
Consolidated Statements of Operations
(Unaudited)


   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
May 31, 2019
   
May 31, 2018
   
May 31, 2019
   
May 31, 2018
 
                         
Revenues, net
 
$
450,148
   
$
1,630,933
   
$
1,395,155
   
$
3,492,633
 
                                 
Cost of Sales
   
286,461
     
1,517,312
     
896,826
     
3,322,107
 
Gross Profit
   
163,687
     
113,621
     
498,329
     
170,526
 
                                 
General & Administrative Expenses
   
(2,127,642
)
   
(1,028,030
)
   
(4,011,885
)
   
(2,672,171
)
                                 
Loss from Operations
   
(1,963,955
)
   
(914,409
)
   
(3,513,556
)
   
(2,501,645
)
                                 
Other Income (Expenses)
                               
Interest Expense, net
   
(1,127,110
)
   
(501,790
)
   
(1,981,361
)
   
(965,378
)
Derivative loss
   
(663,020
)
   
-
     
(1,491,118
)
       
Total Other Income (Expenses)
   
(1,790,130
)
   
(501,790
)
   
(3,472,479
)
   
(965,378
)
                                 
Net Loss
 
$
(3,754,085
)
 
$
(1,416,199
)
 
$
(6,986,035
)
 
$
(3,467,023
)
                                 
Net loss attributable to Trident
   
(3,718,587
)
   
(1,412,836
)
   
(6,933,161
)
   
(3,450,031
)
Net loss attributable to Non-Controlling Interests
   
(35,498
)
   
(3,363
)
   
(52,874
)
   
(16,992
)
                                 
Loss per share - Basic and diluted
 
$
(0.12
)
 
$
(0.04
)
 
$
(0.21
)
 
$
(0.11
)
                                 
Weighted average number of common shares outstanding - Basic and diluted
   
32,311,887
     
32,311,887
     
32,311,887
     
32,311,887
 




See Notes to Unaudited Consolidated Financial Statements

9



TRIDENT BRANDS INCORPORATED
Consolidated Statements of Changes in Stockholders' Deficit
From the quarter ended May 31, 2019 and 2018
(Unaudited)


   

   
Common
   
Additional
   
   
       
    Common    
Stock
   
Paid-in
    Accumulated     Non-Conrolling    
 
    Stock
   
Amount
   
Capital
    Deficit     Interest     Total
 
                                     
Balance, November 30, 2017
   
32,311,887
   
$
32,312
   
$
7,869,962
   
$
(13,751,420
)
 
$
(124,649
)
 
$
(5,973,795
)
                                                 
Stock Options Expenses
   
-
     
-
     
787,990
     
-
     
-
     
787,990
 
Net loss,  February 28, 2018
   
-
     
-
     
-
     
(2,037,195
)
   
(13,629
)
   
(2,050,824
)
Balance, February 28, 2018
   
32,311,887
   
$
32,312
   
$
8,657,952
   
$
(15,788,615
)
 
$
(138,278
)
 
$
(7,236,629
)
                                                 
Beneficial Conversion Feature on Convertible Debt
   
-
     
-
     
500,000
     
-
     
-
     
500,000
 
Stock Options Expenses
   
-
     
-
     
136,088
     
-
     
-
     
136,088
 
Net loss,  May 31, 2018
   
-
     
-
     
-
     
(1,412,836
)
   
(3,363
)
   
(1,416,199
)
Balance, May 31, 2018
   
32,311,887
   
$
32,312
   
$
9,294,040
   
$
(17,201,451
)
 
$
(141,641
)
 
$
(8,016,740
)
                   
-
                         
                                                 
Balance, November 30, 2018
   
32,311,887
   
$
32,312
   
$
9,564,737
   
$
(22,125,441
)
 
$
(170,999
)
 
$
(12,699,391
)
                                                 
Stock Options Expense
   
-
     
-
     
283,899
     
-
     
-
     
283,899
 
Net loss,  February 28, 2019
   
-
     
-
     
-
     
(3,214,574
)
   
(17,376
)
   
(3,231,950
)
Balance, February 28, 2019
   
32,311,887
   
$
32,312
   
$
9,848,636
   
$
(25,340,015
)
 
$
(188,375
)
 
$
(15,647,442
)
                                                 
Stock Options Expense
   
-
     
-
     
96,852
     
-
     
-
     
96,852
 
Net loss,  May 31, 2019
   
-
     
-
     
-
     
(3,718,587
)
   
(35,498
)
   
(3,754,085
)
Balance, May 31, 2019
   
32,311,887
   
$
32,312
   
$
9,945,488
   
$
(29,058,602
)
 
$
(223,873
)
 
$
(19,304,675
)



See Notes to Unaudited Consolidated Financial Statements

10



TRIDENT BRANDS INCORPORATED
Consolidated Statements of Cash Flows
(unaudited)


   
Six Months
   
Six Months
 
   
Ended
   
Ended
 
   
May 31, 2019
   
May 31, 2018
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(6,986,035
)
 
$
(3,467,023
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Amortization of debt discount
   
1,236,628
     
546,684
 
Amortization of license, IP
   
-
     
24,250
 
Depreciation expense
   
4,191
     
4,192
 
Derivative Loss
   
1,491,118
     
-
 
Stock options expense
   
380,751
     
924,078
 
Changes in operating assets and liabilities:
               
Accounts Receivable
   
(162,141
)
   
179,726
 
Interest Receivable
   
-
     
(8,543
)
Prepaid expenses
   
(84,961
)
   
48,599
 
Inventory
   
(547,759
)
   
(1,419,862
)
Accounts payable and accrued liabilities
   
372,218
     
681,043
 
Cash used in operating activities
   
(4,295,990
)
   
(2,486,856
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Sale of Fixed Assets
   
18,868
     
-
 
Additions of Intangible Assets
   
(6,420
)
   
(126,425
)
Cash used in investing activities
   
12,448
     
(126,425
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from convertible debt
   
2,804,187
     
1,500,000
 
Cash provided by financing activities
   
2,804,187
     
1,500,000
 
                 
Net change in cash and cash equivalents
   
(1,479,355
)
   
(1,113,281
)
                 
Cash and cash equivalents at beginning of period
   
3,133,303
     
3,143,788
 
                 
Cash and cash equivalents at end of period
 
$
1,653,948
   
$
2,030,507
 
                 
Supplemental disclosure of cash flow information:
               
                 
Cash paid for:
               
Income taxes
 
$
-
   
$
-
 
Interest
 
$
254,184
   
$
-
 
                 
NON-CASH TRANSACTIONS
               
Unpaid intangible asset acquired
 
$
-
   
$
200,000
 
Beneficial conversion feature
 
$
-
   
$
500,000
 
Debt discount related to derivative liability
 
$
1,911,256
   
$
-
 




See Notes to Unaudited Consolidated Financial Statements

11



TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
May 31, 2019
(Unaudited)


NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Trident Brands Incorporated (f/k/a Sandfield Ventures Corp.) (“we”, “our”, “the Company”) was incorporated under the laws of the State of Nevada on November 5, 2007.  The Company was formed to engage in the acquisition, exploration and development of natural resource properties.

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

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim financial statements of Trident Brands Incorporated have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Trident’s Form 10-K filed with SEC.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2018 as reported in the Form 10-K have been omitted.

Customer Concentration

The Company had three major customers that accounted for approximately 71.4% and $995,576 of sales for the six month period ended May 31, 2019 and 77.7% of the accounts receivable compared to one major customer that accounted for 90.5% and $5,116,161 of sales and 59.7% of the accounts receivable for the 12 month period ended November 30, 2018.

Fair Value of Financial Instruments

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

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

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

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

12

TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
May 31, 2019
(Unaudited)


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

The carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and note payable. The fair value of the Company’s long-term debt is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value. As of May 31, 2019 the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, except for a derivative liability, related to the embedded conversion option on the 2018 convertible notes, with a fair value as of May 31, 2019 of $4,294,374. The derivative liability was fair valued using Level 3 inputs.

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

Balance at November 30, 2018
 
$
892,000
 
Unrealized derivative loss included in other expense
   
1,491,118
 
Debt discount related to derivative liability
   
1,911,256
 
Balance at May 31, 2019
 
$
4,294,374
 

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

The following are the assumptions used for derivative instruments valued using the Black Scholes option pricing model as of May 31, 2019:
 
Market value of stock on measurement date
 
$
0.445
 
Market value of stock on May 31, 2019
 
$
0.440
 
Risk-fee interest rate
   
1.96
%
Dividend yield
   
0
%
Volatility factor as of measurement date and balance sheet date
 
104.70% and 111.82
%
Term as of measurement date and balance sheet date
 
1.13 yrs and 1.00 yr
 

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605). The new standard’s core principal is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring good or services to a customer. The principles in the standard are applied in five steps: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. We adopted Topic 606 as of December 1, 2018 using the modified retrospective transition method. The adoption of Topic 606 did not have any material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

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

13

TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
May 31, 2019
(Unaudited)


In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. This became effective December 1, 2018. The adoption did not have any material impact on the Company’s consolidated financial statements.

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

NOTE 3.  GOING CONCERN

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

As of May 31, 2019, the Company had $1,653,948 in cash and cash equivalents. However, the Company has generated losses, negative working capital and has an accumulated deficit as of May 31, 2019. These factors raise substantial doubt about the ability of the Company to continue as a going concern.  The Company  completed additional long term financing with the non-US institutional investor, receiving proceeds of $3,400,780 on November 30, 2018 and $2,804,187 on April 13, 2019 through the issuance of secured convertible promissory notes. The investor has agreed to make additional investments of $3,795,033 ($10,000,000 in the aggregate). Management believes that our present and available financial resources will be enough to fund our operations for the next twelve months from the date these financial statements are issued due to, i) the approval of new financing available to the Company of up to $10,000,000, of which $3,795,033 is still available, ii) anticipated growth of product sales from our current customer base and new customers, iii) introduction of higher margin products; and iv) controlling of our expenses. However, unless Management is able to extend the maturity date of the notes or obtain additional financing, the Company may not be able to meet it’s debt obligations which come due on May 31, 2019. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

14

TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
May 31, 2019
(Unaudited)


NOTE 4.  WARRANTS AND OPTIONS

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

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

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

The total outstanding stock options as of May 31, 2019 are 3,215,000. The Company used the Black-Scholes model to value the stock options at $1,107,836 when first issued. For the period ended May 31, 2019, the Company expensed $8,875 as compensation expense compared to $924,078 in the comparable prior year period. The Company also used the Black-Scholes model to value the re-priced stock options at $275,024 and the options with the extended expiration date at $96,852 which were also expensed in the period. Following are the assumptions used in the valuation of the re-priced and extended options: Discount rates between 0.90% and 2.10%; Volatility between 85.51% and 79.75%; and with terms of 2.5 and 3.0 years for the re-priced options and discount rate of 1.93%, volatility of 107.15% and term of 1.33 year for the extended options.

The following table represents stock option activity for the period ended May 31, 2019:

   
Number of
Options
   
Weighted Average
Exercise Price
   
Contractual Life
in Years
   
Intrinsic
Value
 
                         
Outstanding - November 30, 2018
   
4,640,000
   
$
1.02
     
2.45
       
Exercisable - November 30, 2018
   
3,332,500
   
$
1.03
     
1.84
     
-0-
 
Granted
   
-0-
                         
Exercised or Vested
   
-0-
                         
Forfeited or Expired
   
1,425,000
                         
                                 
Outstanding - May 31, 2019
   
3,215,000
   
$
2.50
     
2.92
         
Exercisable - May 31, 2019
   
3,215,000
   
$
2.50
     
2.92
   
$
128,600
 

All the outstanding warrants have expired as of May 31, 2019.

The following table represents warrant activity for the period ended May 31, 2019:

15

TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
May 31, 2019
(Unaudited)



   
Number of
Warrants
   
Weighted Average
Exercise Price
   
Contractual Life
in Years
   
Intrinsic
Value
 
                         
Outstanding – November 30, 2018
   
225,000
   
$
1.35
     
0.20
     
 
Exercisable - November 30, 2018
   
-0-
                         
Granted
   
-0-
                         
Exercised or Vested
   
-0-
                         
Cancelled or Expired
   
225,000
                         
                                 
 Outstanding – May 31, 2019
   
-0-
   
$
0.0
     
0.00
         

NOTE 5.  RELATED PARTY TRANSACTIONS

The Company neither owns nor leases any real or personal property. The Company is paying a director $750 per month rent for use of office space and services.

NOTE 6.  NOTE RECEIVABLE

On September 12, 2017 the Company entered into a note purchase agreement with Fengate Trident LP (“Fengate”) pursuant to which, in consideration for the issuance of 811,887 of our common shares to Fengate, we purchased outstanding secured convertible promissory notes of Mycell Technologies LLC having an aggregate balance due and payable of $511,141 in principal and $94,526 in interest accrued as at September 12, 2017.  The purchased notes, which were originally issued to LPF (MCTECH) Investment Corp. on January 22, 2016, February 5, 2016, and May 19, 2016, bear simple interest on unpaid principal at the rate of ten percent per annum.  The outstanding principal and accrued interest is convertible at the option of the note holder into securities of Mycell. The accrued interest as at May 31, 2019 is $105,869. The Company reserved a full allowance of $617,010 as of May 31, 2019.

NOTE 7. CONVERTIBLE DEBT

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

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

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

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

16

TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
May 31, 2019
(Unaudited)


On September 26, 2016, the Company entered into a securities purchase agreement with a non-US institutional investor, pursuant to which, in consideration for proceeds of $4,100,000, the Company issued a secured convertible promissory note in the amount of $4,100,000. Pursuant to the securities  purchase agreement, the investor has agreed, from time to time after January 1, 2017, to make additional investments at the Company’s request of up to $5,900,000 ($10,000,000 in the aggregate) in one or more tranches of not less than one tranche during any 60 day period. The funding of any tranche under the agreement (other than the first $4,100,000 which has been funded) is subject to the mutual agreement of the parties as to the use of funds.

On May 9, 2017, the Company received the second tranche of funding with proceeds of $4,400,000 and on May 16, 2018 the third tranche of $1,500,000 for a total investment by the investor of $10,000,000.

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

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

Due to the notes being convertible to common shares of the Company, a beneficial conversion feature analysis was performed. The intrinsic value of the conversion feature of the notes amounted to $3,333,334 and was recognized as a debt discount. As of May 31, 2019, $2,855,377 of the debt discount was amortized to interest of which $713,018 was amortized during the current six  month period compared to $546,684 for the six month period in the prior year. The unamortized discount as of May 31, 2019 is $477,957.

On November 30, 2018 the Company and Fengate entered into a Securities Purchase Amendment Agreement pursuant to which the Company has agreed to issue to Fengate an additional convertible promissory note (the “2018 Convertible Note”) of up to $10,000,000, subject to certain terms and conditions.  Each portion of the principal amount advanced pursuant to the 2018 Convertible Note will bear interest at the rate of twelve percent (12%) per annum and will be payable monthly in arrears to Fengate.  Outstanding principal and interest will continue to be secured by the general security agreement dated September 26, 2016, which forms a part of the Agreement.  The holder of the note may also elect from time to time to convert all or a portion of the outstanding principal and interest into common shares of the Company at a 25% discount to the average closing price of the common shares during the 10 trading days immediately prior to the applicable conversion date.   The 2018 Convertible Note will mature on May 31, 2020.

On November 30, 2018 the Company received the first tranche of funding with proceeds of $3,400,780. The 2nd tranche of $2,804,187 was received on April 13, 2019 while the balance of $3,795,033 shall be funded and issued in one or more tranches within 30 days of receipt of written request from the Company.

The Company intends to use the proceeds of the secured convertible note for general working capital purposes including, without limitation, product development, inventory, and marketing and selling expenses.

The Company analysed the embedded conversion option on the convertible notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option on the 2018 Convertible Note qualified for derivative accounting.  The Company used the Black-Scholes model to value the embedded conversion option at $892,000 on the issuance date of November 30, 2018 and $1,911,246 on the issuance date of April 13, 2019.  The assumptions used were a discount rate of 2.80% and 1.96%, volatility rate of 79.57% and 104.7% and a term of 1.50 and 1.13 years respectively. The Company used the Black-Scholes model to re-value the embedded conversion options issued on November 30, 2018 at $2,353,634 and the one on April 13, 2019 at $1,940,740 as of May 31, 2019. The change of $1,491,118 was recorded as a derivative loss. The assumptions used were a discount rate of 1.96%, volatility of 111.98% and a term of 1.00 year.  The fair value of the embedded conversion options were recorded as debt discount and will be amortized over the term of the 2018 and 2019 Convertible Notes. The amortization recognized in the current period was $523,610. The unamortized Discount for the two notes as of May 31, 2019 is $2,279,645.

17

TRIDENT BRANDS INCORPORATED
Notes to Consolidated Financial Statements
May 31, 2019
(Unaudited)



NOTE 8. INTANGIBLE ASSETS

On December 22, 2017, Trident exercised its option under our Exclusive License Agreement (dated March 1, 2015) to purchase the Brain Armor® brand from DSM Nutrition Products LLC (“DSM”). Subsequently, the parties have executed applicable trademark assignment and purchase agreements necessary to transfer all global intellectual property rights in the Brain Armor brand to Trident. In lieu of a $400,000USD cash payment to DSM for the value of the Brain Armor® brand as initially intended, the Company agreed to meet certain conditions, that when satisfied will have an equivalent value of $400,000USD. The costs incurred to meet these conditions are being charged to intangible assets. As of May 31, 2019, the Company has recorded $400,000 of costs to the asset account. Of this amount $200,000 will be paid over time as the Company purchases omega-3 oil from DSM pursuant to its exclusive supply agreement. During the 6 months ended May 31, 2019, payments of $ 71,280 were made to DSM in connection with this liability and $49,680 in the prior year.



18


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Forward Looking Statements

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the interim consolidated financial statements, and notes thereto, for the quarter ended May 31, 2019 contained under Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”) and in conjunction with the annual consolidated financial statements, and notes thereto, contained in the Annual Report on Form 10-K for the fiscal year ended November 30, 2018 (“Form 10-K”).  Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to July 22, 2019.
 
Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws.  Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives.  In some cases, forward-looking statements can be identified by terms such as “anticipate”, “estimate”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, the negatives of such terms, and other similar expressions concerning matters that are not historical facts. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources.  Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.
 
Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities.  While we consider these assumptions to be reasonable, based on information currently available, they may prove to be incorrect.  Forward-looking statements are also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect.  These factors are more fully described in the “Risk Factors” section at Item 1A of the Form 10-K.
 
Forward-looking statements contained in this commentary are based on our current estimates, expectations and projections, which we believe are reasonable as of the date of this report.  You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date.  Other than as required under securities laws, we do not undertake to update any forward-looking information at any particular time.
 
All dollar amounts in this MD&A are expressed in thousands of U.S. dollars unless otherwise noted.
 
Business Developments

On January 4, 2019 the Company re-priced the majority of all prior options granted to $0.40.

On November 30, 2018 the Company and Fengate entered into a Securities Purchase Amendment Agreement pursuant to which the Company has agreed to issue to Fengate an additional convertible promissory (the “2018 Convertible Note”) of up to $10,000,000, subject to certain terms and conditions.  Each portion of the principal amount advanced pursuant to the 2018 Convertible Note will bear interest at the rate of twelve percent (12%) per annum and will be payable monthly in arrears to Fengate.  Outstanding principal and interest will continue to be secured by the general security agreement dated September 26, 2016, which forms a part of the Agreement.  The holder of the note may also elect from time to time to convert all or a portion of the outstanding principal and interest into common shares of the Company at a 25% discount to the average closing price of the common shares during the 10 trading days immediately prior to the applicable conversion date.   The 2018 Convertible Note will mature on May 31, 2020.

19


On November 30, 2018 the Company received the first tranche of funding with proceeds of $3,400,780.

On March 11, 2019, each convertible note including the 2018 Convertible Note disclosed in Note 7 to the consolidated financial statements were amended to extend the maturity dates to May 31, 2020.

On April 13, 2019 the Company received the 2nd tranche of funding with proceeds of $2,804,187.

The Company intends to use the proceeds of the secured convertible note for general working capital purposes including, without limitation, product development, inventory, and marketing and selling expenses.

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

Effective June 1, 2019, Mark Holcombe resigned as the President and Chief Financial Officer of the Company. He will continue to serve as a director and senior advisor. Mr. Holcombe’s resignation did not result from any disagreement with the Company regarding it’s practices, policies or otherwise. Scott Chapman, a director and Chair of the Corporate Governance Committee was concurrently appointed President. Mr. Chapman will step down as Chair of the Audit Committee due to the loss of independence resulting from his appointment. Peter Salvo, the Vice President, Finance, Corporate Secretary, and Controller of the Company assumes the positions of Principal Financial Officer and Principal Accounting Officer.

Results of Operations

The following summary of our results of operations should be read in conjunction with our unaudited consolidated financial statements for the three and six month periods ended May 31, 2019 and May 31, 2018.

Our operating results for three month periods ended May 31, 2019 and May 31, 2018 are summarized as follows:

   
Three Months
Ended
   
Three Months
Ended
 
   
May 31, 2019
   
May 31, 2018
 
             
Revenues
 
$
450,148
   
$
1,630,933
 
Gross Profit
 
$
163,687
   
$
113,621
 
Operating Expenses
 
$
2,127,642
   
$
1,028,030
 
Other Expenses
 
$
1,790,130
   
$
501,790
 
Net Loss
 
$
(3,754,085
)
 
$
(1,416,199
)
                 
Add back:
               
Net Interest Expense
 
$
1,127,110
   
$
501,790
 
Depreciation
 
$
2,095
   
$
2,096
 
Amortization
 
$
-0-
   
$
12,125
 
                 
EBITDA
 
$
(2,624,880
)
 
$
(900,188
)

Revenues and Gross Profits

Sales in the second quarter of 2019 decreased to $450,148 versus $1,630,933 in the prior period. The decrease was the result of a commercial shift away from high-volume private label product sales to high-margin branded product sales in the current period.  Gross profit increased to $163,687 versus $113,621 with significant margin improvement in the period to 36.4% of revenues versus 7.0% of revenues in the prior period. This improvement is attributable to strong growth of Brain Armor® and P2N Peak Performance Nutrition® branded products. Management expects revenue and profit contribution improvement as commercial efforts continue to gain market traction. 

20


Operating Expenses

Our operating expenses for the three month periods ended May 31, 2019 and May 31, 2018 are summarized below:

   
Three Months
Ended
   
Three Months
Ended
 
   
May 31, 2019
   
May 31, 2018
 
                 
Professional Fees
 
$
576,985
   
$
83,637
 
General & Administrative Expenses
 
$
1,035,692
   
$
739,461
 
Marketing, Selling & Warehousing Expenses
 
$
418,821
   
$
97,448
 
Management Salary
 
$
38,250
   
$
25,500
 
Director's Fees
 
$
8,500
   
$
22,500
 
Rent
 
$
49,394
   
$
59,484
 
Royalty
 
$
-0-
   
$
-0-
 

Operating expenses for the three month period ended May 31, 2019 were $2,127,642 as compared to $1,028,030 for the comparative period in 2018, an increase of 107.0%.  The increase in our operating expenses was primarily due to increased general and administrative costs as well as marketing and promotional expenses as we build out our organization and roll-out our product offering.  These costs are expected to continue to increase throughout 2019 as we continue to develop and commercialize our product offerings. Legal fees, included in professional fees, increased by $496,408 relating to ongoing litigation costs.

Other Expenses

Other expenses for the three month period ended May 31, 2019 increased to $1,790,130 versus $501,790 in the comparative period in 2018. The increase was primarily due to a derivative loss of $633,020 and an increase in interest expense due to higher debt levels and the impact of certain other items including the beneficial conversion feature related to the convertible notes entered into in 2016, 2017, 2018 and 2019.

EBITDA

Reported net loss for the three month period May 31, 2019 was $3,754,085 compared to $1,416,199 in the comparative period in 2018. After deducting interest, depreciation and amortization, EBITDA for the three month period ended May 31, 2019 was (2,624,880) compared to ($900,188) in 2018. EBITDA included a non-cash option expense of $96,852 for the three month period May 31, 2019 compared to $136,088 in 2018 and a derivative loss of $663,020.

Six Month Periods Ended May 31, 2019 and May 31, 2018

Our operating results for six month periods ended May 31, 2019 and May 31, 2018 are summarized as follows:

   
Six Months
Ended
   
Six Months
Ended
 
   
May 31, 2019
   
May 31, 2018
 
             
Revenues
 
$
1,395,155
   
$
3,492,633
 
Gross Profit
 
$
498,329
   
$
170,526
 
Operating Expenses
 
$
4,011,885
   
$
2,672,171
 
Other Expenses
 
$
3,472,479
   
$
965,378
 
Net Loss
 
$
(6,986,035
)
 
$
(3,467,023
)
                 
Add back:
               
Net Interest Expense
 
$
1,981,361
   
$
965,378
 
Depreciation
 
$
4,191
   
$
4,191
 
Amortization
 
$
-0-
   
$
24,250
 
                 
EBITDA
 
$
(5,000,483
)
 
$
(2,473,204
)

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Revenues and Gross Profits

Sales for the first half of 2019 decreased to $1,395,155 versus $3,492,633 in the prior period. The decrease was the result of a commercial shift away from high-volume private label product sales to high-margin branded product sales in the current period. Gross profit increased to $498,329 versus $170,526 with significant margin improvement in the period to 35.7% of revenues versus 4.9% of revenues in the prior period. This improvement is attributable to strong growth of Brain Armor® and P2N Peak Performance Nutrition® branded products. Management expects revenue and profit contribution improvement as commercial efforts continue to gain market traction. 

Operating Expenses

Our operating expenses for the six month periods ended May 31, 2019 and May 31, 2018 are summarized below:

   
Six Months
Ended
   
Six Months
Ended
 
   
May 31, 2019
   
May 31, 2018
 
                 
Professional Fees
 
$
631,410
   
$
122,160
 
General & Administrative Expenses
 
$
2,355,335
   
$
2,156,726
 
Marketing, Selling & Warehousing Expenses
 
$
831,524
   
$
205,794
 
Management Salary
 
$
77,250
   
$
51,500
 
Director's Fees
 
$
23,000
   
$
45,000
 
Rent
 
$
93,366
   
$
62,241
 
Royalty
 
$
-0-
   
$
28,750
 

Operating expenses for the six month period ended May 31, 2019 were $4,011,885 as compared to $2,672,171 for the comparative period in 2018, an increase of 50.1%.  The increase in our operating expenses was primarily due to increased general and administrative costs as well as marketing and promotional expenses as we build out our organization and roll-out our product offering. These costs are expected to continue to increase throughout 2019 as we continue to develop and commercialize our product offerings. Legal fees, included in professional fees, increased by $524,162 relating to ongoing litigation costs.

Other Expenses

Other expenses for the six month period ended May 31, 2019 increased to $3,472,479 versus $965,378 in the comparative period in 2018. The increase was due to an increase in interest expense due to higher debt levels and the impact of certain other items including the beneficial conversion feature related to the convertible notes entered into in 2016, 2017, 2018 and 2019.

EBITDA

Reported net loss for the six month period May 31, 2019 was $6,986,035 compared to $3,467,023 in the comparative period in 2018. After deducting interest, depreciation and amortization, EBITDA for the six month period ended May 31, 2019 was ($5,000,483) compared to ($2,473,204) in 2018. EBITDA included a non-cash option expense of $380,751 for the six month period May 31, 2019 compared to $924,078 in 2018 and a derivative loss of $1,491,118.

Balance Sheet Data

The following table provides selected balance sheets data as at May 31, 2019 and May 31, 2018.

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Balance Sheet Data:

   
May 31, 2019
   
May 31, 2018
 
             
Cash and cash equivalents
 
$
1,653,948
   
$
2,030,507
 
Total assets
 
$
5,393,567
   
$
6,099,556
 
Total liabilities
 
$
24,698,242
   
$
14,116,296
 
Stockholders'  (deficit)
 
$
(19,304,675
)
 
$
(8,016,740
)

During the second quarter of 2019 total liabilities increased as a result of an increase in convertible debt of $5,355,274 and derivative liability of $4,294,374 compared to the second quarter of 2018.

Strategic Orientation

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

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

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

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

While we have yet to achieve profitability, we are making significant progress against our commercial objectives. We expect revenue and margin to increase as we continue to strengthen distribution partnerships while capitalizing on product innovation, supply-chain optimization and brand equity within our current portfolio.

Liquidity and Capital Resources

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

As of May 31, 2019, the Company had $1,653,948 in cash and cash equivalents. However, the Company has generated losses, negative working capital and has an accumulated deficit as of May 31, 2019. These factors raise substantial doubt about the ability of the Company to continue as a going concern.  The Company  completed additional long term financing with the non-US institutional investor, receiving proceeds of $3,400,780 on November 30, 2018 and $2,804,187 on April 13, 2019 through the issuance of secured convertible promissory notes. The investor has agreed to make additional investments of $3,795,033 ($10,000,000 in the aggregate). Management believes that our present and available financial resources will be enough to fund our operations for the next twelve months from the date these financial statements are issued due to, i) the approval of new financing available to the Company of up to $10,000,000, of which $3,795,033 is still available, ii) anticipated growth of product sales from our current customer base and new customers, iii) introduction of higher margin products; and iv) controlling of our expenses. However, unless Management is able to extend the maturity date of the notes or obtain additional financing, the Company may not be able to meet it’s debt obligations which come due on May 31, 2019. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations
 
Except for the transactions noted in Business Developments, there have been no material changes outside the normal course of business in our contractual obligations since January 3, 2015.
 
Critical Accounting Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements.  The estimates and assumptions made require us to exercise our judgment and are based on historical experience and various other factors that we believe to be reasonable under the circumstances.  We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes.  The use of estimates is pervasive throughout our financial statements.  There have been no material changes to the critical accounting estimates disclosed under the heading “Critical Accounting Estimates” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of the Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls Over Financial Reporting

Our management, with the participation of our principal executive officer and principal financial officer have concluded that there have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter ended May 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
 
 
ITEM 6. EXHIBITS
 
The following exhibits are included with this quarterly filing:

Exhibit No.
 
Description
     
3.1
 
Articles of Incorporation*
3.2
 
Bylaws*
31.1
 
Sec. 302 Certification of Chief Executive Officer
31.2
 
Sec. 302 Certification of Chief Financial Officer
32.1
 
Sec. 906 Certification of Chief Executive Officer
32.2
 
Sec. 906 Certification of Chief Financial Officer
101
 
Interactive data files pursuant to Rule 405 of Regulation S-T. **

*    Document is incorporated by reference and can be found in its entirety in our Registration Statement on Form SB-2, SEC File Number 333-148710, at the Securities and Exchange Commission website at www.sec.gov.

** To be filed by amendment.

 
25


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

July 22, 2019
Trident Brands Incorporated
   
   
 
/s/ Anthony Pallante
 
 
By: Anthony Pallante
 
(Chief Executive Officer & Chair of the Board)
   
   
 
/s/ Peter Salvo
 
 
By:Peter Salvo
 
(Principle Financial Officer)
   
   
 
/s/ Scott Chapman
 
 
By: Scott Chapman
 
(President & Director)
 



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