Life On Earth, Inc. - Annual Report: 2017 (Form 10-K)

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

FORM 10-K

_____________

(Mark One)

For Fiscal Year Ended: May 31, 2017

OR

For the transition period from _______________ to _______________

Commission file number: 333-190788

Registrant’s telephone number: (866) 928-5070

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

Securities registered under Section 12(g) of the Act: None          

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes ¨  No x

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

As of May 31, 2017 (the last day of the registrant’s most recently completed fourth fiscal quarter), the aggregate market value of the registrant’s 18,717,922 shares of common stock held by non-affiliates of the registrant was $1,494,434, (based on its reported last sale price on May 31, 2017 of $0.08 per share).

As of August 18, 2017, there were 19,217,922 shares of the registrant's common stock, par value $0.001, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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TABLE OF CONTENTS

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FORWARD -LOOKING STATEMENTS

This report contains forward-looking statements. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements using words such as “expects,” “anticipates,” “intends,” “believes” and similar language.

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the sections “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

All references in this Annual Report on Form 10-K to “HISP,” “Hispanica International Delights of America,” the “Company,” “we,” “us” or “our” mean Hispanica International Delights of America, Inc.

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PART I

ITEM 1.   BUSINESS

COMPANY OVERVIEW

We are engaged in the distribution of proprietary, licensed and third party food and beverages throughout the United States. HISP has already begun to distribute fruit juices, nectars, snacks, energy drinks and milk based products throughout the United States and we expect to begin to distribute teas, carbonated drinks, dry goods, preserves, frozen foods and bakery products in the near future. Most of the brands we distribute are distributed under a proprietary basis (through distribution agreements and/or exclusive licensing arrangements). Our Gran Nevada™ brands emulates the flavors, tastes, and traditions which have been known for generations among the Hispanic and other ethnic groups and are now becoming part of the American mainstream diet.

Our objective is to grow as rapidly as possible (both organically and via strategic alliances and acquisitions) using the public capital markets for access to capital. The companies and assets sought by us will be those that already have market penetration in the following segments: (1) Food Distribution and Manufacturing; (2) Beverage Brands and (3) Distribution Food Service.

Our management team has over 30 years of combined experience in the Hispanic food and beverage industry. In July 2016, we acquired the company’s first Direct Store Delivery (“DSD”) in an all cash purchase. HISP has new key personnel with previous managerial experience to begin the implementation of increasing our sales to potentially organically and via acquisitions.

Corporate Structure

Hispanica International Delights of America, Inc. was incorporated on April 15, 2013.

In October 2013, we signed a distribution agreement with Gran Nevada Beverage, Inc. (“Gran Nevada”), an entity related through common management. The agreement provides us with the right to sell and distribute Gran Nevada's beverages in the United States with purchase prices at the then applicable wholesale prices charged to Gran Nevada's distributors. The agreement is for an initial term of five years with automatic renewals of successive five year terms unless terminated.  We initiated sales and distribution operations in March 2014.

In July, 2016, we entered into a Stock Purchase and Sale Agreement to acquire all of the issued and outstanding common stock of Energy Sources Distributors, Inc. (“ESD”) from its three founding shareholders. ESD provides wholesale distribution of specialty beverage products from its headquarters in Gilroy, California. The total purchase price for the acquisition was $450,000 in cash. We retained one of the selling founders as General Manager for a term of twelve (12) months pursuant to an employment agreement to manage operations at the ESD facility in Gilroy, California. ESD is now a wholly-owned subsidiary  of the Company.

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Effective July 5, 2016, the Company entered into a Senior Secured Revolving Credit Facility Agreement (the “Credit Facility”) with TCA Global Credit Master Fund L.P. (“TCA”) for a total amount of $7.5 million. However, as of the execution date of the Credit Facility, only $1.6 million was allocated by TCA to the Company for working capital financing and for any other purpose permitted under the terms of the Credit Facility. Energy Source Distributors, Inc. (“ESD”) is Corporate Guarantor to the Credit Facility. Under the terms of the Credit Facility, the Company paid advisory fees to TCA in the amount of $350,000, through the issuance of 374,332 shares of common stock. On July 5, 2016, the Company borrowed $650,000 from the Credit Facility and used the proceeds to acquire ESD for $450,000; payoff a note payable in the amount of $32,534; $74,466 was used to pay vendors for inventory purchases and $93,000 was paid to TCA for closing fees. The credit facility had a maturity date of January 5, 2017 which was extended for an additional six months. The credit facility requires fees and interest only payments at 12% during the first two months. Principal payments begin in the third month. At the maturity date all unpaid principal and interest is due. During the current quarter the Company issued an additional 157,480 shares of common stock to satisfy a default notice in the amount of $200,000.

On September 9, 2016, the Company announced that it has entered into an exclusive distribution agreement with Plantain Republic, S.A. the maker of the TropicMax brand of plantain chips. The Distribution Agreement gives Hispanica International Delights of America, Inc. the exclusive territories of Northern California.

Sales

The Company currently markets and sells mainstream beverage and food products through its ESD subsidiary, and packaged Hispanic and ethnic beverage and food products. Brands sought by HISP are primarily engaged in the business of developing, manufacturing, marketing and selling unique, premium, nonalcoholic beverages as well as all natural food products that are targeted towards Hispanic and ethnic-neutral consumers.

Production and Distribution

The Company buys prepackaged goods for distribution through various channels. The Company distributes third party brands as well as a proprietary brand named GRAN NEVADA under an exclusive distribution agreement covering the United States. As of August 2017, Hispanica International Delights of America, Inc. (HISP) distributes over 20 brands, mainly through its Energy Source Distribution (ESD) subsidiary, as well as sold the GRAN NEVADA beverages to other wholesalers that are primarily ethnic food distributors and mostly located in the Mid-Atlantic region of the United States. HISP sells to several distributors and regularly seeks to broaden its distribution channels from its current network of a dozen to over 100 by the end of 2017. The Company has engaged third party sales and marketing brokers in many areas of the country. The Company also intends to sell directly to retailers, including large chain stores. Hispanica and its subsidiaries sell to about 2,000 retailers.

Competition

As a distributor of Hispanic and ethnic packaged food products, we expect to have a portfolio of products that will not only include beverages. Our main competitors include Goya Foods, Marquez Brothers International, Diaz Foods, La Fe Foods International, Grace Foods, as well as other regional Ethnic Food Distributors. We will focus on selecting brands of all natural packaged foods. Although some competitors are selling and distributing similar products, they use different packaging options and in particular market foods that have high contents of artificial flavors, colors, and sweeteners as well high sodium contents. Additionally, our competitors import the majority of their distributed products, which are made with lower quality and price point raw materials. We will focus on distributing all natural products as well as obtaining exclusive rights to brands that can be manufactured closer to its U.S. market base.  We are committed to building long-term relationships with our consumers by offering superior, high quality products at the most competitive prices.

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The packaged beverage market is highly competitive. Competitors in our market compete for brand recognition, ingredient sourcing, qualified personnel, distribution and product shelf space.  As a developing company, a majority of our competitors are more established and better capitalized.  The packaged beverage market is generally dominated by the largest beverage providers. Many of our competitors enjoy significant brand recognition and consumer confidence and are able to readily secure shelf space and media attention for their products. Many of our competitors also have existing relationships with the same distribution channels and retailers through which we sell our products. We intend to compete in the market by offering consumers affordable products that taste better and possess a longer shelf life than most products in the market.

Government Regulation

Packaged beverage and juice products are governed by the U.S. Food and Drug Administration. As such, it is necessary for the Company to ensure its products distributed establish, maintain and make available for inspection, records and labels with nutrition information that meet legal food labeling requirements. The Company’s products are manufactured by contracted production facilities that are subject to many regulations, including Food Facility Registration, recordkeeping, Good Manufacturing Practice Requirements, reporting, preventive controls and inspections.

The Company has not incurred research and development expenses for new product development.

Employees

The Company currently has 11 full-time employees. Certain positions are being filled with paid independent contractors or insider owners who do not receive cash compensation but may receive stock compensation. The Company mitigates the need for a production staff by purchasing finished inventory. The Company has contracted with food brokers to represent Gran Nevada to retail stores nationally. In certain regions of the United States, we utilize the services of direct sales and distribution companies, which sell our products through their distribution channels. This can mitigate the need for a large sales and merchandising force. The Company also outsources its logistics to third-parties, which can reduce the need for employees in these roles.

Going Concern Qualification

Several conditions and events cast substantial doubt about the Company’s ability to continue as a going concern. The Company has incurred net losses of $2,980,030 and $400,207 for the years ended May 31, 2017 and 2016, respectively, has limited revenues and requires additional financing in order to finance its business activities on an ongoing basis. The Company’s future capital requirements will depend on numerous factors including, but not limited to, continued progress in finding business opportunities. At May 31, 2017, we had cash on hand of $217,598 and an accumulated deficit of $3,794,579. See “Liquidity and Capital Resources.”

Intellectual Property Protection

The Company is in the process of securing a registered trademark for its name and logo. HISP does not have its trademark registered for Hispanica International Delights of America, Inc. As of the date of this annual report, we do not have any trademarks or copyrights for our intellectual property.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Stamps Act of 2012 (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections 14A(a) and (b) of the Securities Exchange Act of 1934 to hold a nonbinding advisory vote of shareholders on executive compensation and any golden parachute payments not previously approved.

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The Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

We will remain an “emerging growth company: until the earliest of (1) the last day of the fiscal year during which our revenues exceed $1 billion, (2) the date on which we issue more than $1 billion non-convertible debt in a three year period, (3) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement filed pursuant to the Securities Act of 1933, as amended, or (4) when the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.

To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirements to provide only two years of audited financial statements, instead of three years.

ITEM 1A.    RISK FACTORS

As a “Smaller Reporting Company”, we are not required to provide this information.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

As a “Smaller Reporting Company”, we are not required to provide this information.

ITEM 2.   PROPERTIES

We maintain our principal office at 575 Lexington Avenue, 4^th Floor, New York, NY 10022. Our telephone number at that office is (866) 928-5070. The Company currently leases its offices on a month to month basis from the Company's Chief Operating Officer and stockholder for $750 per month.

Our executive offices are in New York City and we have distribution operations in the New York City Tri-State Region, the Washington, D.C. Metro Area, the Houston Metropolitan Area, and in Los Angeles and the Northern California Region.

In connection with the acquisition of ESD, the Company assumed a lease for approximately 12,000 square feet of warehouse space located in Gilroy, California at a base rent of $5,248 per month. The lease terminates on June 30, 2021.

We believe that our existing facilities are suitable and adequate to meet our current business requirements, but we will require a larger, more permanent space as we add personnel consistent with our business plan. We anticipate we will be able to acquire additional facilities as needed on terms consistent with our current lease(s).  We maintain a website at http://www.hispanicadelights.com/ and the information contained on that website is not deemed to be a part of this annual report.

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ITEM 3.  LEGAL PROCEEDINGS

On June 14, 2017, HISP has initiated a lawsuit against TCA Global Credit Master Fund, LP (“TCA”). In the lawsuit, HISP has asserted five claims against TCA: (i) declaratory judgment (for application of Florida law, as opposed to Nevada law); (ii) usury; (iii) violation of the Florida Deceptive and Unfair Trade Practices Act; (iv) breach of contract; and (v) breach of the implied covenant of good faith and fair dealing. Specifically, HISP seeks a declaratory judgment against TCA finding (i) the Nevada choice-of-law clause in the loan documents is invalid and unenforceable; (ii) Florida law applies and governs the loan documents; (iii) the loan documents are illegal, unconscionable, unenforceable, and usurious; (iv) any debt owed and stock issued pursuant to the loan documents should be cancelled and forfeited by TCA, and thus TCA is estopped from collecting such debt and stock; (v) monetary damages should be awarded in an amount according to proof; and (vi) reasonable attorneys’ fees and costs should be awarded.

TCA, not knowing HISP had sued it on June 14, 2017, sued HISP the next day on June 15, 2017. In the lawsuit filed by TCA, TCA has asserted four claims against HISP: (i) amount due on the subject debenture; (ii) amount due on the subject guaranty (only against guarantor Energy Source Distributors, Inc. (“ESD”)); (iii) foreclosure on security; and (iv) breach of the subject securities purchase agreement. TCA seeks monetary damages of $952,323, plus default interest of 25%, attorneys’ fees and costs, and to foreclose on its purported first-priority, perfected security interest on the existing and future assets of HISP (and/or ESD, the guarantor).

On August 7, 2017, HISP voluntarily dismissed without prejudice its lawsuit against TCA and included the claims from its lawsuit as counterclaims in the TCA-filed lawsuit. HISP’s counterclaims against TCA are the same five claims listed above. The style of the remaining, pending lawsuit is TCA Global Credit Master Fund, LP v. Hispanica International Delights of America, Inc., et al., Case No. CACE-17-011122 (08).

There are no other legal or governmental proceedings that are presently pending or, to our knowledge, threatened, to which we are a party.

ITEM 4.   MINE SAFETY DISCLOSURE

Not applicable.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We have two classes of stock outstanding, Common Stock and Preferred Stock.  Our Common Stock is quoted on the OTC Bulletin Board under the symbol “HISP.” The table below sets forth the high and low reported closing prices per share of Common Stock for the period’s indicated. There is no established public trading market for the Preferred Stock.

The Company has not declared dividends and does not intend to in the foreseeable future. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.

Holders

As of August 18, 2017, there were 19,217,922 shares of Common Stock issued and outstanding held by 256 shareholders of record. As of August 18, 2017, there were 1,200,000 shares of Preferred Stock issued and outstanding held by 4 shareholders of record. Preferred shares are not convertible and do not receive dividends.

Dividends

We have never declared any cash dividends with respect to our Common Stock. Future payment of dividends is within the discretion of the Board of Directors and will depend on earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting or that are likely to limit, our ability to pay dividends on our Common Stock, we presently intend to retain future earnings, if any, for use in our business. We have no present intention to pay cash dividends on our Common Stock.

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Recent Sales of Unregistered Securities

Since January 2015, we have issued the following unregistered equity securities in private transactions without registration under the Securities Act:

In January 2015, the Company issued 40,000 shares of common stock to two investors at $0.25 per share. The proceeds were used for operations of the Company.

In March 2015, the Company issued 40,000 shares of common stock to three investors at $0.25 per share. The proceeds were used for operations of the Company.

In April 2015, the Company issued 10,000 shares of common stock to one investor at $0.25 per share. The proceeds were used for operations of the Company.

In April 2015, the Company issued 4,000 shares of common stock to one investors at $0.25 per share for services provided to the Company.

In May 2015, the Company issued 3,000 shares of common stock to one investor at $0.25 per share for services provided to the Company.

In May 2015, the Company issued 124,000 shares of common stock to five investors at $0.25 per share for services provided to the Company.

On May 31, 2015, 12,168,905 shares of our common stock was issued and outstanding.

In June 2015, the Company issued 24,000 shares of common stock to one investor at $0.25 per share. The proceeds were used for operations of the Company.

In June 2015, the Company issued 6,500 shares of common stock to one investor at $0.25 per share for services provided to the Company.

In July 2015, the Company issued 8,000 shares of common stock to one investor at $0.25 per share for services provided to the Company.

In August 2015, the Company issued 4,800 shares of common stock to one investor at $0.25 per share for services provided to the Company.

In September 2015, we issued 500,000 shares of common stock to John Romagosa at $0.25 per share, for services as president of the Company.

In September 2015, we issued 200,000 shares of Series A preferred stock to John Romagosa at $0.001 per share, for services as president of the Company.  

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In September 2015, the Company issued 100,000 shares of common stock to three investors at $0.25 per share for services provided to the Company.

In September 2015, the Company issued 500,000 shares of common stock to John Romagosa at $0.25 per share, for services as president of the Company.

In September 2015, the Company issued 43,266 shares of common stock to Isabella Giordano at $0.25 per share for repayment of a debt owed by the Company plus interest accrued to the date of repayment.

In October 2015, the Company issued 32,000 shares of common stock to three investors at $0.50 per share for services provided to the Company.

In February 2016, the Company issued 14,000 shares of common stock to five investors at $0.50 per share. The proceeds were used for operations of the Company.

In February 2016, the Company issued 8,000 shares of common stock to one investor at $0.50 per share for services provided to the Company.

In March 2016, the Company issued 20,000 shares of common stock to one investor at $0.50 per share. The proceeds were used for operations of the Company.

In March 2016, the Company issued 6,000 shares of common stock to one investor at $0.50 per share for services provided to the Company.

In April 2016, the Company issued 90,000 shares of common stock to four investors at $0.50 per share. The proceeds were used for operations of the Company.

In April 2016, the Company issued 15,000 shares of common stock to one investor at $1.00 per share for services provided to the Company.

During the year ended May 31, 2017 the company issued a total of 2,046,421 shares of common stock to 12 investors for services provided to the Company, at prices ranging from $0.12 to $1.27 per share.

In June 2016, the Company issued 18,315 shares of common stock to Typenex Co-Investment LLC at $0.68 per share for repayment of a debt owed by the Company plus interest accrued to the date of repayment.

In July 2016, the Company issued 52,053 shares of common stock to Typenex Co-Investment LLC at $0.29 per share for repayment of a debt owed by the Company plus interest accrued to the date of repayment.

In September 2016, the Company issued 69,404 shares of common stock to Typenex Co-Investment LLC at $0.28 per share for repayment of a debt owed by the Company plus interest accrued to the date of repayment.

In September 2016, the Company issued 200,000 shares of common stock to Chesapeake Group, Inc.at $0.28 per share for repayment of a debt owed by the Company plus interest accrued to the date of repayment.

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In February 2017, the Company issued 1,501,258 shares of common stock to Typenex Co-Investment LLC at $0.12 per share for warrants exercised by Typenex Co-Investment LLC.

Each of the foregoing transactions were deemed exempt from the registration requirements of the Securities Act of 1933,as amended, in reliance on the exemption at Section 4(a)(2) and/or Regulation A Rule 506 for transaction not involving a public offering.

In March 2017, 1,790,000 shares of common stock that were issued in September and October of 2016, to seven (7) investors as additional compensation to the convertible debt holders, became effective through an S1 Registration.

ITEM 6.   SELECTED FINANCIAL

Not applicable.

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report includes a number of forward looking statements that reflect our current views with respect to future events and financial performance.  Forward looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events.  You should not place undue certainty on these forward looking statements, which apply only as of the date of this annual report.  These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended May 31, 2017 and 2016, the Company received cash proceeds of $0 and $6,000, respectively, as a result of the Company’s sale of common stock. The Company utilized these funds for operations.

In September 2015, the Company received $75,000, net of $12,500 in financing costs, under the terms of the Secured Convertible Promissory Note. In September 2016, the Company received $665,000, net of $138,000 in financing costs, under the terms of the Securities Purchase Agreements.

CASH FLOW

Our primary sources of liquidity have been cash from sales of shares, the issuance of a convertible promissory notes and line of credit. We plan on continuing to raise capital and borrow funds to finance current operations and future growth.

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RESULTS OF OPERATIONS

FOR THE YEAR ENDED MAY 31, 2017 COMPARED TO MAY 31, 2016.

Sales

The acquisition of ESD in July 2016 has allowed us to expand distribution thereby increasing sales by $2,264,293 to a total amount of $2,458,037 for the year ended May 31, 2017 as compared to $193,734 for the year ended May 31, 2016.

Gross Profit

The acquisition of ESD has also allowed us to achieve positive gross profit which we anticipate will reach 30% in the near future.

Operating Expenses

Operating expenses increased by $1,944,985 during the year ended May 31, 2017 mainly due to increases in professional fees of $1,225,908 which are not expected to recur at the current levels and salaries of $348,967, which are expected to increase as our business expands.

Other Expense

In March 2017, the Company discontinued an exclusive distribution agreement with a vendor. In accordance with the distribution agreement, the Company received a “Termination Payment”, as define in the amount of $97,731, which was recorded as other income during the year ended May 31, 2017.

During the year ended May 31, 2017, the Company recorded interest and finance costs of $1,418,496, as compared to $35,438 during the year ended May 31, 2016, and, depreciation and amortization costs of $50,133 during the year ended May 31, 2017 as compared to $0 during the year ended May 31, 2016.

The increase in interest and financing costs reflects the increased debt incurred by the Company to finance operations. The increase in depreciation and amortization costs reflects the equipment and intangible assets acquired from ESD.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. The amounts of assets and liabilities reported in our balance sheet and the amounts of revenues and expenses reported for each of our fiscal periods, are affected by estimates and assumptions which are used for, but not limited to, the accounting for allowance for doubtful accounts, goodwill and intangible asset impairments, restructurings, inventory and income taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of our financial statements.

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Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a “Smaller Reporting Company”, the Company is not required to provide this information.

ITEM 8.   FINANCIAL STATEMENTS

The audited financial statements are included beginning immediately following the signature page to this report. See Item 15 for a list of the financial statements included herein.

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.      CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure the information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the me periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As of May 31, 2017, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer of the effectiveness of the design and opera on of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

The determination that our disclosure controls and procedures were not effective as of May 31, 2017, is a result of inadequate staffing and supervision within the accounting operations of our Company. The Company plans to expand its accounting operations as the business of the Company expands.

MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There have been no changes in our internal controls over financial reporting during the quarter ended May 31, 2017 that have materially affected, or are reasonably likely to materially affect our internal controls.

ITEM 9B.  OTHER INFORMATION

Not applicable.

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PART III

ITEM 10.      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers and Directors

Below are the names and certain information regarding our current executive officers and directors:

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Biographical information of each current officer and director is set forth below.

The Chairman and Chief Executive Officer, Mr.  Fernando “Oswaldo” Leonzo, is a founder of, and has been employed by HISP since its inception in April of 2013. Mr. “Oswaldo” Leonzo has over 13 years’ experience in the Food and Beverage industry both from the distribution side as well as the brand side. He has also been working with contract manufacturers and suppliers as well as logistics companies for transshipments both in the U.S. and overseas for both Export and Imports- primarily in Latin America. For the past 14 years Fernando Oswaldo Leonzo has worked for the following companies: Deep River Snacks (NYC Regional Sales Manager from February to December, 2011), Reeds, Inc. (New York Metropolitan Area Sales Manager from January to December, 2010), Cheeseworks, Inc. (Sales Director from December 2008 to December 2009), Presto Food & Beverage, Inc. (President & CEO from July 2001 to December 2008).; Gran Nevada Beverage, Inc. (President from November 2011 to present).  He served on the board of directors and founded Presto Food & Beverage, Inc. in 2001. Presto’s Hispanic beverage brand, SolMaya, grew from zero to over $2 million in sales. This is primarily why he was selected as a director of HISP. Previously, he worked for almost a decade in the financial industry, initially as a sales executive with regional financial firms and later for a major clearinghouse on Wall Street. Prior to his financial service industry experience, he successfully operated a business that distributed recorded music to retailers in the U.S., Mexico and Colombia. He received his undergraduate degree (B.A.) in International Studies from New York University (NYU). He currently serves on the board of directors of HISP.

The Chief Operations Officer, Treasurer and Director, Robert Gunther is a founder of HISP since its inception in April of 2013. He has 25 years’ experience in manufacturing. For the past five years, he has managed his own sales business under his own name specializing in products for apparel and construction. From December 1988 to December 2008 he was a Sr. Account Executive with Georgia Narrow Fabrics / Premier Narrow Fabrics in New York City. As the one of the firm's producing Account Executives, he generated sales to major accounts including Jockey, Fruit of the Loom, Warner, and VF. The product line included a broad range of knit and woven elastic products. In the mid-80s, he helped develop new apparel customers and manufacturing facilities for Hewlett Manufacturing. From July 1971 to April 1986, he was vice president at Gunther & Sharfman, a family-owned apparel manufacturing business. He participated in design, merchandising, sales, purchasing and manufacturing. His background includes 25 years of experience managing in purchasing and negotiation contracts for materials. Gunther has a BS from Long Island University.  Mr. Gunther’s extensive business experience combined with his personal interest in the business is expected to provide the Board with insight and guidance in matters of corporate finance, business development and industry strategy.

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Director, John Romagosa, is currently the managing director and founder of Latin Sales & Marketing, LLC. (“LSM“), founded in 2012. LSM is a leading brokerage/marketing/consulting firm innovating the retail, foodservice and private label sector of the Hispanic consumer packed goods industry. LSM facilitates the emergence of major Latin manufacturers and US manufacturers for the steadily growing Hispanic market in the USA. Mr. Romagosa's extensive experience and relationships, within the Hispanic and Ethnic Food industry, will benefit the Board of Hispanica as it positions the company, its management, its products, and its distribution channels in becoming a leading edge company in the fastest growing segment of the food industry.

Mr. Romagosa was the managing director and partner of Falcon International Distributors, LLC, a leading ethnic foods distributor on the east coast, holding a chief procurement role for over ten years. Mr. Romagosa helped build that company from $9 million in revenues to over $100 million in revenues during his tenure before successfully selling the business in 2011. He has received Chamber of Commerce awards in New York and New Jersey, and has been responsible for the contribution of over a million pounds of donated products to food banks in the Northeast of the US. Mr. Romagosa is an Alumni of Saint John's University where he studied Finance, Business Administration, and Marketing.

Director, Dr. Bassam Damaj joined the Board of Directors in July 2016 and brings with him the expertise of navigating the public markets. Dr. Bassam Damaj currently serves as President and CEO of Innovus Pharma (OTCQB: INNV). Prior to joining Innovus Dr. Damaj served as President & Chief Executive Officer of Apricus Biosciences, Inc., (NASDAQ: APRI) from December 2009 until November 2012. At Apricus Bio, Dr. Damaj was responsible for the approval of its lead drug, Vitaros, a treatment for erectile dysfunction. Dr. Damaj also signed multimillion dollar partnerships between Apricus Bio and leading pharmaceutical companies such as Abbott, Novartis-Sandoz and Takeda. Before Apricus Bio, Dr. Damaj was a co-founder of Bio-Quant, Inc. and served as the Chief Executive Officer and Chief Scientific Officer and a Director of Bio-Quant's Board of Directors from its inception in June 2000 until its acquisition by Apricus Biosciences in December 2009. In addition, Dr. Damaj was the founder, Chairman, President and Chief Executive Officer of R&D Healthcare, and the co-founder of Celltek Biotechnologies. He also served as a Director of the Board of Directors at CreAgri, Inc. and was a Member of the Scientific Advisory Board of MicroIslet, Inc. He is the author of the Immunological Reagents and Solutions reference book, the inventor of many patents and author of numerous peer reviewed scientific publications. Dr. Damaj won a US Congressional award for the Anthrax Multiplex Diagnostic Test in 2003. Dr. Damaj holds a Ph.D. degree in Immunology/Microbiology from Laval University and completed a postdoctoral fellowship in molecular oncology from McGill University

Randy Berholtz – Director

Mr. Randy Berholtz is our Executive Vice President, Corporate Development and General Counsel. He is also the Secretary of the Company. He was the founding partner of the Sorrento Valley Law Group and is the former Executive Vice President, General Counsel and Secretary of Apricus Biosciences, Inc. (NASDAQ: APRI), a specialty pharmaceutical company. Prior to that time, he was the Vice President, General Counsel and Secretary of ACON Laboratories, Inc., a group of Chinese and US life sciences companies. He has also been the Chief Operating Officer and General Counsel of IngleWood Ventures, L.P., a life sciences venture capital company and the Interim General Counsel and Secretary of Nanogen, Inc. (NASDAQ: NGEN), a genomics tools company. He has also been an attorney with the law firms of Heller Ehrman, LLP, Cooley Godward, LLP, Kirkpatrick & Lockhart, LLP (now K&L Gates) and Cravath, Swaine & Moore. He has a Bachelor of Arts degree from Cornell University, a Master of Arts degree from Oxford University, where he was a Rhodes Scholar, and a Juris Doctor degree from Yale Law School where he was a Senior Editor of The Yale Law Journal and an MBA from the University of San Diego School of Business. 

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Board Committees

The Company has not established any committees of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations. Our three directors perform all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities accordingly.

Shareholder Communications

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.

Code of Ethics

We have adopted a written code of ethics (the “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. To request a copy of the Code of Ethics, please make written request to our Company at 575 Lexington Ave., 4^th Floor, New York, NY 10022.

Compliance with Section 16(a) of the Exchange Act

Our Common Stock is not registered pursuant to Section 12 of the Exchange Act. On July 7^th 2015, our common stock became registered pursuant to section 12g of the exchange act. Accordingly, our officers, directors and principal shareholders are subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act.

ITEM 11.   EXECUTIVE COMPENSATION

The following table sets forth information concerning the total compensation paid or earned by each of our named executive officers (as defined under SEC rules) for the fiscal year ended May 31, 2017. 

Summary Compensation Table for Fiscal Year Ended May 31, 2017

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The Summary Compensation Table omits columns for Bonus, Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation as no such amounts were paid to the named executive officers during the fiscal year ended May 31, 2017.

The following table sets forth information concerning the total compensation paid or earned by each of our named executive officers (as defined under SEC rules) for the fiscal year ended May 31, 2016. 

Summary Compensation Table for Fiscal Year Ended May 31, 2016

The Summary Compensation Table omits columns for Bonus, Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation as no such amounts were paid to the named executive officers during the fiscal year ended May 31, 2016.

The Company has no other plans in place and has never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

Employment Agreements

As a result of our acquisition of EDS, we retained Mr. Jose Castaneda, one of the selling founders, as Sales Manager for a term of twelve (12) months at an annual salary of $58,000, pursuant to an employment agreement to manage operations at the ESD facility in Gilroy, California. The agreement expired in July 2017.

There are no other employment agreements; however, the Company anticipates entering into more employment agreements with key management positions as the Company grows. The Company does not have a standing compensation committee, audit committee, nomination committee, or committees performing similar functions. We anticipate that we will form such committees of the Board of Directors once we have a full Board of Directors.

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Outstanding Equity Awards at Fiscal Year-End

As of May 31, 2017 and 2016, there were no outstanding options or warrants to purchase, or other instruments convertible into, common equity of the Company.

Director Compensation

In September 2015, we issued 500,000 shares of common stock to John Romagosa at $0.25 per share, for services as president of the Company. Also in September 2015, we issued 200,000 shares of Series A preferred stock to John Romagosa at $0.001 per share, for services as president of the Company. John Romagosa, received 60,000 shares in compensation as a non-employee director for serving as such, for serving on committees (if any) of the Board of Directors or for special assignments. Board members are not reimbursed for expenses incurred in connection with attending meetings.  During the years ended May 31, 2017, the company made arrangements to award directors Dr. Bassam Damaj and Randy Berholtz Restrictive Share Units (RSU) at a future date under a Restrictive Share Unit Issuance Program. As of to date the Company has yet to file a registration statement to initiate the RSU program.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information with respect to the beneficial ownership of our Common Stock known by us as of August 18, 2017 by:

Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our Common Stock owned by them, except to the extent such power may be shared with a spouse.

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The percent of class is based on 19,217,922 shares of common stock issued and outstanding as of August 18, 2017.

Securities Authorized For Issuance Under Equity Compensation Plans

We have not adopted any Equity Compensation Plans as of May 31, 2017.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Our CEO, Fernando “Oswaldo” Leonzo, owns no shares in Gran Nevada, however he serves as Gran Nevada’s current President.  Robert Gunther, our Chief Operating Officer owns 12% of the common stock of Gran Nevada.

The Company currently leases its offices on a month to month basis from Mr. Robert Gunther for $750 per month (Note 7). The current officers and directors of the Company are involved in other business activities and may, in the future, become involved in additional business opportunities. There are no contracts, options, warrants, rights, licensing agreements, employment agreements or any other agreements of any kind between HISP and any of its current officers and directors.  If a specific business opportunity becomes available, such person may face a conflict in selecting between our business interest and their other business interests. The policy of the Board is that any personal business or corporate opportunity incurred by an officer or director of HISP must be examined by the Board and turned down by the Board in a timely basis before an officer or director can engage or take advantage of a business opportunity which could result in a conflict of interest.

The founder's Common Shares as disclosed herein were sold to our officers and directors in April 2013. The Company believes that the issuance of these shares was exempt from registration pursuant to Section (2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering. The Founders, Fernando “Oswaldo” Leonzo (Chairman & CEO), Robert Gunther (Treasurer, Secretary, Director & Chief Operations Officer), and Jerry Gruenbaum were issued the following Preferred Shares as founders for services rendered as Officers and Directors as of April 30, 2013, 600,000 Preferred Shares, 300,000 Preferred Shares, and 100,000 Preferred Shares respectively. Jerry Gruenbaum resigned as a director on April 16, 2015.  None of the following parties has, since the date of incorporation, had any material interest, direct or indirect, in any transaction with the Company or in any presently proposed transaction that has or will materially affect us:

•      The Officer and Director;

•      Any person proposed as a nominee for election as a director;

•      Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to the outstanding shares of common stock;

•      Any relative or spouse of any of the foregoing persons who have the same home as such person.  

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Director Independence

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to (and we do not) have our Board of Directors comprised of a majority of “Independent Directors.”

Our Board of Directors has considered the independence of its directors in reference to the definition of “independent director” established by the NASDAQ Marketplace Rule 5605(a)(2). In doing so, the Board of Directors has reviewed all commercial and other relationships of each director in making its determination as to the independence of its directors.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

In July 2015, the Company engaged Raich Ende Malter & Co. LLP as its independent registered public accounting firm.

The aggregate fees billed to the Company for services rendered in connection with the years ended May 31, 2017 and 2016 are set forth in the table below:

Audit Committee’s Pre-Approval Practice

We currently do not have an audit committee. Our board of directors has approved the services described above.

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PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedules

The financial statements of Hispanica International Delights of America, Inc. are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.

Exhibits

The following Exhibits are being filed with this Annual Report on Form 10-K:

(*) Filed herewith

_____________________________________

(a) Incorporated by reference to the Registrant’s Registration Statement on Form S-1/A filed October 15, 2013

(b) Incorporated by reference to the Registrant’s Reports in Form 8-K filed November 4, 2015 and July 8, 2016.

(c) Incorporated by reference to the Registrant’s Form 8K-A filed on September 1, 2017.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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Item 7 - Financial Statements

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders

Hispanica International Delights of America, Inc.

New York, NY

We have audited the accompanying consolidated balance sheets of Hispanica International Delights of America, Inc. and Subsidiary (the “Company”) as of May 31, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ equity (deficiency), and cash flows for each of the years in the two-year period ended May 31, 2017. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hispanica International Delights of America, Inc. and Subsidiary as of May 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the two-year period ended May 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 8. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-2

F-3

F-4

F-5

F-6

Hispanica International Delights of America, Inc. and Subsidiary

Notes to Consolidated Financial Statements

May 31, 2017 and 2016

Note 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Basis of Presentation

The accompanying consolidated financial statements include the financial statements of Hispanica International Delights of America, Inc. (“HISP”) and its wholly owned subsidiary, Energy Source Distributors Inc., (“ESD”) for 2017 and only HISP for 2016 (collectively , the “Company“). All intercompany balances and transactions have been eliminated in consolidation.

HISP was incorporated in Delaware in April 2013 and acquired ESD during July 2016. The Company currently markets and sells traditional Hispanic and other beverages in New York and California.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Revenue Recognition

In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Provision for sales returns is estimated based on the Company's historical return experience. Revenue is presented net of returns.

In March 2017, the Company discontinued an exclusive distribution agreement with a vendor. In accordance with the distribution agreement, the Company received a “Termination Payment”, as define in the amount of $97,731, which was recorded as other income during the year ended May 31, 2017.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Net Loss Per Common Share

Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti -dilutive. As of May 31, 2017, warrants, related to the convertible notes payable could be converted into approximately 730,000 shares of common stock, were outstanding.

F-7

Income Taxes

The Company utilizes the accrual method of accounting for income taxes. Under the accrual method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of the assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized when it is more likely than not that such tax benefits will not be realized.

The Company recognizes the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold, the amount recognized in the consolidated financial statements is the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. The Company recognizes interest and penalties, if any, related to uncertain tax positions as a component of other expense. The Company did not have any unrecognized tax benefits as of May 31, 2017, and does not expect this to change significantly over the next 12 months.

Stock-Based Compensation

The Company accounts for equity instruments issued to employees in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires all share-based compensation payments to be recognized in the financial statements based on the fair value on the issuance date.

Equity instruments granted to non-employees are accounted for in accordance with ASC 505, Equity. The final measurement date for the fair value of equity instruments with performance criteria is the date that each performance commitment for such equity instrument is satisfied or there is a significant disincentive for non-performance.

Cash and Cash Equivalents

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

Accounts Receivable

The Company extends credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers, maintaining an allowance for potential credit losses. Uncollectible accounts are written off at the time they are deemed uncollectible.

Accounts receivable is reported net of an allowance for doubtful accounts, when determined necessary. The allowance is based on management's estimate of the amount of receivables that will actually be collected. As of May 31, 2017 and May 31, 2016, an allowance for doubtful accounts was not necessary.

F-8

Inventory

Inventory consists of finished goods and is stated at the lower of cost (first-in, first-out) or market value.

Advertising

Advertising and promotion costs are expensed as incurred. Advertising and promotion expense amounted to approximately $23,800 and $5,000 for the years ended May 31, 2017 and 2016, respectively.

Shipping and Handling

Shipping and handling costs are included in costs of goods sold.

Recent Pronouncements

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-2, "Leases" (Topic 842), which is intended to improve financial reporting for lease transactions. This ASU will require organizations that lease assets, such as real estate and manufacturing equipment, to recognize assets and liabilities on their balance sheets for the rights to use those assets for the lease term and obligations to make lease payments created by those leases that have terms of greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. This ASU will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures will include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. This ASU will be effective for public entities beginning the first quarter 2019. We do not believe that this ASU will have a material impact on our financial statements.

In November 2015, the FASB issued ASU 2015-17, "Income Taxes, Balance Sheet Classifications of Deferred Taxes." This amendment simplifies the presentation of deferred taxes by requiring that all deferred tax liabilities and assets now be recorded as noncurrent. This amendment is effective for interim and annual reporting periods beginning after December 15, 2016 with early adoption permissible. The Company will adopt this amendment in 2017. This amendment has no material impact on the Company's results of operation.

In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers." This amendment defers the effective date of implementation to after December 15, 2017.

In July 2015, the FASB issued ASU 2015-11, "Inventory. Simplifying the Measurement of Inventory." This amendment only applies to entities that use the first-in, first-out (FIFO) or average cost methods of valuing inventory. Entities would measure inventory at the lower of cost and net realizable value. This amendment aligns measurement of inventory in GAAP with the International Financial Reporting Standards (IFRS). This amendment is effective for annual periods beginning after December 15, 2016 with early adoption permitted. The Company will adopt this amendment in 2017. This amendment has no material impact on the Company's results of operation.

In April 2015, the FASB issued ASU 2015-03 , “Interest -Imputation of Interest. “ This guidance requires debt issuance costs be presented in the balance sheet as a reduction in liability rather than as an asset. This amendment is effective for interim and reporting periods beginning after December 15, 2016 with early adoption permissible. The Company has elected early adoption.

On May 14, 2014, FASB and The International Accounting Standards Board (the “IASB”) issued a new joint revenue recognition standard that supersedes nearly all GAAP guidance on revenue recognition. The core principal of the standard is that revenue recognition should depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard is effective for the Company for the fiscal year 2017 and the effects of the standard on the Company's consolidated financial statements are not known at this time.

F-9

Management does not believe that any other recently issued, but not yet effective, accounting pronouncement, if adopted, would have a material effect on the accompanying consolidated financial statements.

Note 2 - CONCENTRATIONS

Concentration of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. The Company places its cash with high quality credit institutions. At times, balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. Cash in banks is insured by the FDIC up to $250,000 per institution, per entity. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade account receivable credit risk exposure is limited.

Sales and Accounts Receivable

During the year ended May 31, 2017, there were no concentrations of sales to customers. There was one customer with an accounts receivable balances of approximately 30% of the Company’s accounts receivable at May 31, 2017.

During the year ended May 31, 2016, sales to three customers accounted for approximately 81% of the Company's net sales or approximately $156,000. There were no customers with significant accounts receivable balances at May 31, 2016.

Note 3 - ACQUISITION OF ESD AND RELATED CREDIT FACILITY

Effective July 7, 2016, pursuant to our objective of rapid growth, the Company acquired all of the net assets of Energy Source Distributors, Inc. by purchasing all of the outstanding shares of common stock for $450,000.

In July 2016, the Company entered into a Senior Secured Revolving Credit Facility Agreement (the “Credit Facility”) with TCA Global Credit Master Fund L.P. (“TCA”) for a total amount of $7.5 million. However, as of the execution date of the Credit Facility, only $1.6 million was allocated by TCA to the Company for working capital financing and for any other purpose permitted under the terms of the Credit Facility, see Note 7.

Energy Source Distributors, Inc. (“ESD”) is Corporate Guarantor to the Credit Facility. Under the terms of the Credit Facility, the Company paid advisory fees to TCA in the amount of $350,000, through the issuance of 374,332 shares of common stock. On July 5, 2016, the Company borrowed $650,000 from the Credit Facility and used the proceeds to acquire ESD for $450,000; payoff a note payable in the amount of $32,534; $74,466 was used to pay vendors for inventory purchases and $93,000 was paid to TCA for closing fees. The credit facility has a maturity date of December 27, 2017 which may be extended for an additional six months at the lender’s discretion. The credit facility required fees and interest only payments at 12% during the first two months. Principal payments began in the third month. At the maturity date, all unpaid principal and interest is due. During the year ended May 31, 2017, the Company issued an additional 157,480 shares of common stock to satisfy a default notice in the amount of $200,000, which is reported as a component of interest and financing costs in the consolidated statements of operations.

The following table presents the pro forma condensed consolidated statements of operations for the year ended May 31, 2017

F-10

For the period ended July 7, 2016 through May 31, 2017 ESD had sales of $2, 315, 800 and a loss of $205,054.

F-11

Notes to the Pro Forma Condensed Consolidated Financial Information

Pro Forma Note 1. — Basis of presentation

The pro forma Condensed Consolidated Statements of Operations for the years ended May 31, 2017 and 2016 effect to the ESD acquisition as if it had occurred on June 1, 2016 and June 1, 2017, respectively.

Pro Forma Note 2 — Purchase price allocation

Effective July 7, 2016, the Company acquired all of the outstanding stock of ESD and certain assets from ESD for total consideration of $450,000.

The pro forma condensed consolidated financial information includes various assumptions, including those related to the purchase price allocation of the assets acquired from ESD based on management’s estimates.

The following table shows the allocation of the purchase price to the acquired assets:

Pro Forma Note 3 — Pro Forma Adjustments

(a) Reflects the depreciation and amortization of the equipment and customer list above.

(b) Reflects the additional interest expense and finance costs related to the borrowing required for the acquisition of ESD.

Note 4 - LOAN PAYABLE – STOCKHOLDER

In April 2016, a stockholder and officer lent the Company $10,000. The loan bore interest at 18% per annum. The maturity date of the note was July 1, 2016. The loan was repaid on October 17, 2016. Interest expense on the note of $229 was recorded during the year ended May 31, 2017.

F-12

Note 5 - NOTES PAYABLE

During the quarter ended November 30, 2016, the Company entered into Convertible Promissory Note Agreements (The “Convertible Notes”) with Seven (7) individuals (“Holders”) pursuant to which they purchased the Company’s unsecured fixed price convertible promissory notes in the aggregate principal amount of $803,000. The Convertible Notes carry interest at the rate of 5% per annum and mature at various dates through November 7, 2017. The Convertible Notes were issued with a 10% original issue discount. As additional consideration for the purchase of the Convertible Notes, the Company will issue an aggregate of 1,730,000 of its common stock to the Holders. During March 2017, the Company issued 1,790,000 shares of its common stock to the Holders.

Pursuant to the convertible notes, the Company issued Common Stock Purchase Warrants (The “Warrants“). The Warrants allow the Holders to purchase up to an aggregate of 730,000 shares of the Company’s Common Stock at an exercise price of $0.85 per share until September 30, 2021.

Also, under the terms of the Convertible Notes, the Company and the Holders entered into a registration rights agreement covering the 1,730,000 shares issued. Pursuant to the terms of the registration rights agreement, the Company has filed a registration statement with the U.S. Securities and Exchange Commission covering up to an aggregate of 6,033,131 shares of the Company’s common stock. The registration became effective on March 29, 2017.

In September 2014, the Company issued a convertible note for the principal amount of $6,000. The note had an original due date of December 31, 2014. In January 2015, the holder signed an amendment that made the note and accrued interest payable on demand. Interest accrued at 10% per annum. The holder had the option of converting the note in whole or in part into the Company's common stock at the rate of $0.25 per share at any time prior to redemption. In October 2015, the Company repaid $3,000 of principal and $651 of interest. In October 2016, the Company repaid the remaining principal of $3,000 and $636 of interest.

In September 2015, the Company issued a convertible note payable (the “Note”) for the principal amount of $87,500, including an original issue discount ("OID") of $7,500 and loan costs of $5,000. The Note is reported net of unamortized OID and loan costs and bears interest at 10%. The note requires payment of unpaid principal and accrued interest upon maturity in August 2017. Unamortized OID and loan costs totaled $7,735 at May 31, 2016. There is a prepayment premium of 125% of the loan balance being paid prior to the maturity date.

Upon an event of default as described in the Note, the Company would incur penalties and fees and the annual interest rate would increase to 22%. Under the terms of the Note, the Note holder has the right, until the outstanding balance has been paid in full, to convert all or any part of the outstanding balance into shares of fully paid and non-assessable common stock, $0.001 par value per shares of the Company (the “Lender Conversion Shares”), as per the following conversion formula: The number of Lender Conversion Shares equals the amount being converted (the "Conversion Amount") divided by the Conversion Price (the “Lender Conversion Price”).

The Lender Conversion Price is defined in the Note as being $3.00 per share, however, in the event the market capitalization falls below $20,000,000.00 at any time, then in such event (a) the Lender Conversion Price for all lender conversions occurring after the first date of such occurrence shall equal the lower of the Lender Conversion Price and the market price as of any applicable date of conversion.

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Subject to certain conditions, a conversion factor of 70% shall apply to the Lender Conversion Price, subject to the following adjustments: (i) if at any me the average of the three (3) lowest closing bid prices in the twenty (20) trading days immediately preceding any date of measurement is below $1.00, then in such event the then-current conversion factor shall be reduced by 10% for all future conversions; (ii) if at any time after the effective date of the Note, the Lender Conversion Shares are not eligible, then the then-current conversion factor will automatically be reduced by 5%, for all future conversions; and, (iii) in addition to the default effect, as defined, if any major default occurs, as defined, after the effective date of the Note, the conversion factor shall automatically be reduced for all future conversions by an additional 5% for each of the first three (3) major defaults that occur.

Under the terms of the Note, on June 17, 2016, the note holder elected to convert $12,500 of the outstanding principal and accrued interest balance into 18,315 shares of our common stock at a conversion price of $0.6825 per share.

Under the terms of the Note, on July 25, 2016, the note holder elected to convert $15,000 of the outstanding principal and accrued interest balance into 52,053 shares of our common stock at a conversion price of $0.288167 per share.

Under the terms of the Note, on September 13, 2016, the note holder elected to convert $20,000 of the outstanding principal and accrued interest balance into 69,404 shares of our common stock at a conversion price of $0.2882 per share.

On September 21, 2016, the Note was assigned to a new lender. As part of the assignment, the Company incurred early payment premiums and other fees of $ 25,521. The new note holder paid the note balance to the previous holder and simultaneously converted the full outstanding principal of the note, $56,000, including accrued interest balance of $359, into 200,000 shares of our common stock at a conversion price of $0.28 per share.

In March 2016, the Company borrowed $18,500 from an unrelated third party. The loan bears interest at 22% per annum. During the three months ended August 31, 2016 the Company incurred late payment penalties and other fees of approximately $13,304. The outstanding balance including penalties, fees, and accrued interest was repaid in July 2016.

In July 2016, the Company entered into an agreement (“Future Sales Proceeds Purchase Agreement”) with Merchant Cash and Capital, LLC d/b/a Bizfi (the “Buyer”). Under the terms of the agreement, the Company received $167,450 of cash proceeds from the Buyer in exchange for a loan payable in the amount of $214,200 secured by future sales proceeds. In January 2017, the Company entered into a second Future Sales Proceeds Purchase Agreement with the Buyer. Under the terms of the second agreement, the Future Sales Proceeds Purchase Agreement entered into in July 2016 was paid in full and the Company received $128,920 of cash proceeds from the Buyer and in exchange for a loan payable in the amount of $281,400 secured by future sales proceeds

The difference between the aggregate of the Future Sales Proceeds Purchase Agreement pay-off and the cash received and the cash to be paid from both future sales proceeds of $131,400 has been recognized as deferred financing costs and is being amortized over the repayment period. This amount has been reflected as a direct reduction of the loan payable in the accompanying consolidated balance sheets. As of May 31, 2017, unamortized financing costs related to this loan were approximately $46,000. The Company is obligated to make payments equal to 10% of future receipts estimated to be approximately 126 payments of $1,340 to the Buyer each business day until the full amount of the future sales proceeds is repaid.

In July 2016, the Company entered into an agreement (“Purchase and Sale Agreement”) with ESBF California LLC (“ESBF”). Under the terms of the agreement, the Company received $197,370 of cash proceeds from ESBF in exchange for a loan payable in the amount of $266,000 secured by future sales proceeds. In March 2017, the Company entered into a second Purchase and Sale Agreement with ESBF. Under the terms of the second agreement, the Purchase and Sale Agreement entered into in July 2016 was paid in full and the Company received $131,370 of cash proceeds from ESBF in exchange for a loan payable in the amount of $266,000 secured by future sales proceeds.

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The difference between the aggregate of the Purchase and Sale Agreement pay-off and the cash received and the cash to be paid from future sales proceeds of $146,923 was recognized as capitalized financing costs and is being amortized over the repayment period. This amount has been reflected as a direct reduction of the loan payable in the accompanying consolidated balance sheets. As of May 31, 2017, unamortized financing costs related to this loan were approximately $54,000. The Company is obligated to make payments equal to 15% of future receipts estimated to be approximately 183 payments of $1,152 to ESBF each business day until the full amount of the future sales proceeds is repaid.

Note 6 – LINE OF CREDIT

In April 2017, the Company borrowed $15,000 against a credit line facility which the company entered into with Celtic Bank. The facility allows the Company to borrow up to $35,000. Under the terms of the credit line facility, the Company is obligated to repay the loan with interest in 6 average monthly payments of $2,963. At May 31, 2017, the outstanding balance was $11,413.

Note 7 - COMMITMENTS AND CONTINGENCIES

The Company currently leases its office on a month to month basis from the Company's Chief Operating Officer and stockholder for $750 per month.

In connection with the acquisition of ESD, the Company assumed a lease for approximately 12,000 square feet of warehouse space located in Gilroy, California at a base rent of $5,248 per month. The lease terminates on June 30, 2021. In addition, the Company entered into an employment agreement with a general manager for a period of one year at a cost of $58,000. The employment agreement expired in July 2017.

Future minimum annual lease payments are approximately as follows

Rent expense for the years ended May 31, 2017 and 2016 totaled $67,799 and $9,697, respectively.

As of May 31, 2017, the Company is a defendant in a lawsuit with TCA for claims of approximately $950,000 plus interest, and other fees. The Company has filed counter claims against TCA.

As of May 31, 2017, unpaid principal and interest related to the TCA Credit Facility totaled approximately $365,000. Advisory fees totaling $350,000 were recorded as deferred financing costs and $200,000 in interest and financing costs were recognized as a result of a default notice.

The ultimate outcome of these actions cannot be determined. In management’s opinion, settlement of these actions will not have a material adverse effect on the Company’s liquidity or results of operations.

On October 30, 2015, the Company entered into an agreement to acquire a 20% minority equity interest in Just Buns, Inc. in exchange for 20,000 shares to the Company’s common stock. The Company also entered into an exclusive distribution agreement with Just Buns, Inc. to distribute their proprietary Ensaimades sold under the name “Swirly Buns”. As of the date of this filing the Company was unable to finalize these transactions and is no longer pursuing the acquisition or distribution agreement.

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Note 8 - INCOME TAXES

The deferred tax asset consists of the following:

For the years ended May 31, 2017 and 2016, the valuation allowance increased by approximately $1,200,000 and $160,000, respectively.

The deferred tax asset differs from the amount computed by applying the statutory federal and state income tax rates to the loss before income taxes. The sources and tax effects of the differences are as follows:

As of May 31, 2017, the Company has net operating loss carryforwards of approximately $3,820,000 to reduce future federal and state taxable income through 2037.

The Company currently has no federal or state tax examinations in progress, nor has it had any federal or state examinations since its inception. All of the Company's tax years are subject to federal and state tax examinations.

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Note 9 - RELATED PARTY TRANSACTIONS

The Company purchases inventory from a supplier related through common ownership and management. The Chief Executive Officer and chairman of the Company is the supplier's President. In addition, the Chief Financial Officer and Director of the Company has a minority interest in the supplier. The amount of inventory purchased from the supplier during the years ended May 31, 2017 and May 31, 2016 was approximately $0 and $204,000, respectively. As of May 31, 2017 and May 31, 2016, inventory prepayments to this supplier of $-0- and $14,740, respectively, were reported as prepaid expenses in the accompanying consolidated balance sheets. During the year ended May 31, 2017 the Company paid product development consulting fees to this supplier of $7,000. The Company rents office space from its Chief Operations Officer at $750 per month. Included in accounts payable and accrued expenses is $18,000 representing 24 months of rent due.

Note 10 - BASIS OF REPORTING

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred losses from inception of approximately $3,795,000, has a working capital deficiency of approximately $1,125,000 and a net capital deficiency of approximately $720,000, which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon management's plans to raise additional capital from the sale of stock and receive additional loans from related parties. The accompanying condensed consolidated financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

NOTE 11 - SUBSEQUENT EVENTS

Subsequent to May 31, 2017, the Company issued 500,000 shares of its common stock for services.

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