Trident Brands Inc - Quarter Report: 2021 August (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

Commission file number 000-53707

Nevada

(State or other jurisdiction of incorporation or organization)

200 South Executive Drive, Suite 101

Brookfield, WI 53005

(Address of principal executive offices, including zip code.)

(262)789-6689

(Telephone number, including area code)

Resident Agents of Nevada

711 S. Carson Street, Suite 4

Carson City, NV 89701

(Name and Address of Agent for Service)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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 last 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.

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 ☒

The number of the registrant’s common shares outstanding as of October 20, 2021 was 32,311,887.

TRIDENT BRANDS INCORORATED

FORM 10-Q

For the quarterly period ended August 31, 2021

TABLE OF CONTENTS

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:

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 four legal subsidiaries, as detailed below.

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

Brain Armor Inc. is 70.5% 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.

Trident Health is 100% owned by Trident Brands and is currently inactive.

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

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

The Company has authorized capital of 300,000,000 common shares with a par value of $0.001 per share. 32,311,887 common shares were issued and outstanding as of August 31, 2021 and 32,311,887 as of October 20, 2021.

ITEM 1. FINANCIAL STATEMENTS

The unaudited financial statements for the quarter ended August 31, 2021 immediately follow.

TRIDENT BRANDS INCORPORATED

Consolidated Balance Sheets

(Unaudited)

See Notes to Unaudited Consolidated Financial Statements

See Notes to Unaudited Consolidated Financial Statements

TRIDENT BRANDS INCORPORATED

Consolidated Statements of Changes in Stockholders’ Deficit

From the quarter ended August 31, 2021 and August 31, 2020

(Unaudited)

See Notes to Unaudited Consolidated Financial Statements

TRIDENT BRANDS INCORPORATED

Consolidated Statements of Cash Flows

(Unaudited)

See Notes to Unaudited Consolidated Financial Statements

TRIDENT BRANDS INCORPORATED

Notes to Consolidated Financial Statements

August 31, 2021

(Unaudited)

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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

The Company is focused on the development of high growth branded and private label consumer products and ingredients within the nutritional supplement, life sciences and food and beverage categories. The Company is in its early growth stage and has transitioned out of its shell status with the Form 8-K 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 the Company 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 the Company’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 2020 as reported in the Form 10-K have been omitted.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates. The ultimate impact from COVID-19 on the Company’s operations and financial results during 2020 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with which the economy recovers. We are not able to fully quantify the impact that these factors will have on our financial results during the remainder of 2021 and beyond, but expect developments related to COVID-19 to continue to materially affect the Company’s financial performance into 2022.

Customer Concentration

Four customers accounted for 17.5%, 16.5%, 15.1% and 12.9% of total revenue for the nine month period ended August 31, 2021 compared to four customers accounting for 22.3%, 17.7%, 13.0% and 10.2% for the 12 month period ended November 30, 2020. One customer accounted for 61.7% of total accounts receivable as of August 31, 2021 compared to three customers accounting for 16.9%, 15.9% and 11.9% as of November 30, 2020.

Fair Value of Financial Instruments

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

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

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

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

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

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 August 31, 2021 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.

Recent Accounting Pronouncements

The Company has evaluated recent accounting pronouncements through the date the financial statements were issued and filed with the Securities and Exchange Commission and believe that there are none that will have a material impact on the Company’s financial statements.

NOTE 3. GOING CONCERN

The accompanying interim 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 August 31, 2021, the Company had $11,185 in cash and a working capital deficit of $8,074,896. The Company also has generated losses and has an accumulated deficit as of August 31, 2021. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Unless Management is able to obtain additional financing, the Company it is unlikely that the Company will be able to meet its funding requirements during the next 12 months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 4. WARRANTS AND OPTIONS

The following table represents stock option activity for the nine month period ended August 31, 2021:

As of August 31, 2021, the Company has no outstanding warrants. All the outstanding warrants have expired.

NOTE 5. CONVERTIBLE DEBT

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

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

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

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

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

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

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

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

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

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

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

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

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

On November 30, 2020, the Company entered into a fourth amendment of the 2016 Convertible Notes and the 2018 and 2019 Convertible Notes wherein the Company will issue to Fengate 29,432,320 shares of Company Preferred Stock (representing $17,659,392 of principal and interest converted into Preferred Stock at the rate of $0.60 per share), in full and complete satisfaction of (i) all amounts owing under the 2016 Convertible Notes through November 30, 2020 (including accrued interest thereon) and (ii) all accrued interest on the 2018 and 2019 Convertible Notes through November 30, 2020. The conversion is expected to occur during the third fiscal quarter of 2021. The 2018 and 2019 Convertible Notes were further amended to (i) eliminate the conversion feature of such notes, (ii) provide for a simple interest rate of 8% per annum, with the first 2 years of interest payable at maturity of the 2018 and 2019 Convertible Notes and the last three years of interest payable quarterly beginning August 31, 2023; and (iii) extend the maturity of such notes until November 30, 2025. Pursuant to this amendment, all notes no longer qualified for derivative accounting. As such, the value of the embedded conversion options of all notes of $5,494,363 was credited to additional paid in capital. The issuance of the Preferred Shares is subject to stockholder approval.

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

On June 30, 2021, the Board of Directors of the Company, unanimously consented to amend its Articles of Incorporation to among other things authorize 29,432,320 shares of Preferred Stock, $0.001 par value. A majority of the Company’s stockholders  have also approved the amendment to the Articles of Incorporation. The effectiveness of these Amendments are subject to the filing of an information statement with the US SEC and  the State of Nevada.

NOTE 6. PAYCHECK PROTECTION PROGRAM (PPP) LOAN

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

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

On June 17, 2021, the Small Business Administration (SBA) approved the Company’s PPP loan forgiveness application.

NOTE 7. NON-CONTROLLING INTEREST INVESTMENT IN BRAIN ARMOR, INC.

On March 30, 2021, a non-US investor subscribed to the acquisition of 333,333 units of the Company’s Brain Armor Inc subsidiary. Each unit is comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock. The 333,333 units were sold at a per unit price of USD $0.30 for an aggregate purchase price of USD $100,000 which was received by the Company on March 30, 2021. The vesting and exercise prices of the warrants are as follows:

On May 5, 2021, a US investor subscribed to the acquisition of 3,333,333 units of the Company’s Brain Armor Inc subsidiary, with each unit being comprised of one share of Brain Armor stock, $0.001 par value and a common stock purchase warrant evidencing the right to purchase one share of Common Stock at a per unit price of USD $0.30 for an aggregate purchase price of USD $1,000,000 of which $100,000 was received by the Company on May 13, 2021 and $100,000 on May 27, 2021. This subscription agreement has since been terminated by mutual agreement of Brain Armor Inc. and the investor.

The vesting and exercise prices of the warrants are as follows:

NOTE 8. COMMITMENTS AND CONTINGENCIES

Everlast License Agreement

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

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

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

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

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

On or about June 30, 2021, the Company, as Debtor, and Trident Sports Nutrition, Inc. and Brain Armor Inc., as garnishee defendants, were served with garnishment summons and complaint in Fond du Lac County, Wisconsin Circuit Court, (Case No. 2021FJ0003). The Plaintiff is Everlast, who is seeking to collect upon a judgment entered in the United States District Court for the Southern District of New York (Case No. 19-CV-503). According to Everlast, the judgment as of June 29, 2021 is in the amount of $745,814.61.

On July 16, 2021, the Company filed an Answer asserting that its assets are subject to the security interest of LDF (MCTECH) Investment Corp. and should not be subject to garnishment. Trident Sports Nutrition, Inc. and Brain Armor Inc. both filed garnishee answers denying that either corporation had control or possession of assets belonging to Trident Brands, Inc. or was otherwise indebted to the Company. The time period for Everlast to respond to these pleadings expires on August 5, 2021.

In addition, Everlast has commenced a proceeding in Waukesha County, Wisconsin Circuit Court (Case No. 21-TJ-90) and the Hon. Daniel P. Murray, Court Commissioner, has ordered the Company, Anthony M. Pallante and Peter Salvo to appear at his office for a supplemental examination on July 29, 2021 to answer under oath concerning the property and financial affairs of the Company. The Company and Messrs. Pallante and Salvo plan on defending against the Order issued by the Court Commissioner on jurisdictional and/or other grounds.

Banc of America Leasing and Capital

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

PIT Mycell

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

Please see Item 3. Legal Proceedings of this Quarterly Report for updates which occurred subsequent to August 31, 2021.

NOTE 9. SUBSEQUENT EVENTS

On September 27, 2021, the Board of Directors of Trident Brands Incorporated, appointed Michael Friedman, as a Board of Director Member, as well as President and Chief Executive Officer of the Company, effective October 1, 2021. Concurrent with Mr. Friedman’s appointment, Scott Chapman and Anthony Pallante resigned as President and CEO of the Company, respectively.

In connection with his appointment as President and CEO, the Company entered into a one-year employment agreement with Mr. Friedman which is renewable by the Company for two 2 year renewal periods. The Agreement provides for an annual base salary of $180,000 and an equity compensation grant of 1,100,000 shares of company common stock which shall vest in 4 equal quarterly installments commencing January 1, 2022. Mr. Friedman is also eligible for annual as well as performance based equity compensation awards. In addition, he is eligible for transaction based cash/equity bonuses equal to three percent of the value of the transaction, including an acquisition.

On October 15, 2021, a Promissory Note was issued to Anthony Pallante, Chairman and a significant stockholder of the Company,  and Grant Roberts.  These Notes are unsecured and were issued to these persons in consideration for payments such persons made to creditors in satisfaction of amounts Company obligations. Mr. Roberts and Mr. Pallante loaned the Company $59,298 and $20,101, respectively. The Notes bear Interest at a rate of 8% per annum. All unpaid principal and accrued interest shall be due and payable upon demand by the Holder at any time subsequent to six (6) months from the date the notes were issued.

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 August 31, 2021 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, 2020 (“Form 10-K”). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available through October 20, 2021.

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.

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 nine month periods ended August 31, 2021 and August 31, 2020.

Our operating results for three month periods ended August 31, 2021 and August 31, 2020 are summarized as follows:

Revenues and Gross Profits

Sales for the three month period ended August 31, 2021 decreased to $26,611 versus $273,044 in the prior period. The decrease was the result of our inability to fulfill various purchase orders due to being out of stock (OOS) of certain SKU’s, as a result of not having sufficient capital to purchase inventory. Subject to receipt of additional funding, we expect this lack of supply to resolve over the next three months, at which time we expect our sales will begin to recover. Gross profit decreased to $13,948 (52.4% of revenues) versus $107,728 (39.5% of revenues). We expect revenue to gradually decrease, unless and until we receive additional funding and secure needed inventory, at which time we expect our revenues to gradually recover. In addition, we intend to continue to look for distribution and supply chain partners to lower our costs.

Operating Expenses

Our operating expenses for the three month period ended August 31, 2021 and August 31, 2020 are summarized below:

Operating expenses for the three month period ended August 31, 2021 were $550,054 as compared to $962,341 for the comparative period in 2020, a decrease of 42.8%. The decrease in our operating expenses was primarily due to a decrease in general & administrative expenses as a result of cost reductions and decreased marketing and selling expenses related to the decrease in sales. Legal expenses also decreased by $131,497. Subject to raising additional capital, we expect our operating expenses to increase as we ramp up our selling activities.

Other Expenses

Other expenses for the three month period ended August 31, 2021 were $64,627 as compared to $11,846,356 for the comparative period in 2020, a decrease of 99.5%. The decrease in other expenses was primarily due to a decrease in non-cash derivative loss of $11,013,316 and a decrease in interest expense of $633,248, of  which $358,474 was due to a decrease in debt and $274,566  due to a decrease in the amortization of debt discount related to the non-cash derivative loss on the revaluation of the embedded conversion option of all the convertible notes. There was also a gain on debt forgiveness of the PPP loan of $135,165. We expect interest expenses to remain constant.

Nine Month Periods Ended August 31, 2021 and August 31, 2020

Our operating results for nine month periods ended August 31, 2021 and August 31, 2020 are summarized as follows:

Revenues and Gross Profits

Sales for the nine month period ended August 31, 2021 decreased to $216,902 versus $679,031 in the prior period. The decrease was the result of our inability to fulfill various purchase orders due to being out of stock (OOS) of certain SKU’s, as a result of not having sufficient capital to purchase inventory. Subject to receipt of additional funding, we expect this lack of supply to resolve over the next three months, at which time we expect our sales will begin to recover. Gross profit decreased to $100,871 (46.5% of revenues) versus $261,546 (38.5% of revenues). We expect revenue to gradually decrease, unless and until we receive additional funding and secure needed inventory, at which time we expect our revenues to gradually recover. In addition, we intend to continue to look for distribution and supply chain partners to lower our costs.

Operating Expenses

Our operating expenses for the nine month period ended August 31, 2021 and August 31, 2020 is summarized below:

Operating expenses for the nine month period ended August 31, 2021 were $1,492,316 as compared to $3,395,631 for the comparative period in 2020, a decrease of 56.1%. The decrease in our operating expenses was primarily due to a decrease in general & administrative expenses as a result of cost reductions and decreased marketing and selling expenses related to the decrease in sales. Legal expenses also decreased by $315,935. Subject to raising additional capital, we expect our operating expenses to increase as we ramp up our selling activities.

Other Expenses

Other expenses for the nine month period ended August 31, 2021 were $464,968, compared to $23,885,505 in the comparative period in 2020, a decrease of 98.1%. The decrease in other expenses was primarily due to a decrease in non-cash derivative loss of $20,614,658 (on the revaluation of the embedded conversion option of all the convertible notes), a $2,680,714 decrease in interest expense, of which $1,068,344 was related to lower debt levels, and $334,988 was related to the elimination of non-cash interest expense related to the impact of amortization of debt discount from convertible notes entered into in 2016, 2017 and 2018 , and a decrease in the amortization of debt discount of $1,279,018 related to the non-cash derivative loss on the revaluation of the embedded conversion option of all the convertible notes. There was also a gain on debt forgiveness of the PPP loan of $135,165. We expect interest expenses to remain constant.

Balance Sheet Data

The following table provides selected balance sheets data as at August 31, 2021 and August 31, 2020.

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:

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:

While we have yet to achieve profitability, we believe we are making significant progress against our long term commercial objectives. We expect revenue to gradually decrease, unless and until we receive additional funding and secure needed inventory, at which time we expect our revenues to gradually recover. In addition, we intend to continue to look for distribution and supply chain partners to lower our costs.

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 August 31, 2021, the Company had $11,185 in cash and a working capital deficit of $8,074,896. The Company has historically generated losses and negative operating cash flows. The Company has an accumulated deficit of $41,214,286 as of August 31, 2021. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Unless management is able to obtain additional financing, it is unlikely that the Company will be able to meet its funding requirements during the next 12 months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Working Capital Deficiency and Need for Additional Capital

Between March 22 and May 27, 2021, Brain Armor, Inc, the Company’s majority owned subsidiary, sold an aggregate of 1,000,000 Units, each comprised of one share of common stock and a warrant to purchase one share of common stock, at a per Unit price of $.30, for gross proceeds of $300,000. On October 15, 2021, a Promissory Note was issued to Anthony Pallante, Chairman and a significant stockholder of the Company,  and Grant Roberts.  These Notes are unsecured and were issued to these persons in consideration for payments such persons made to creditors in satisfaction of amounts Company obligations. Mr. Roberts and Mr. Pallante loaned the Company $59,298 and $20,101, respectively. The Notes bear Interest at a rate of 8% per annum. All unpaid principal and accrued interest shall be due and payable upon demand by the Holder at any time subsequent to six (6) months from the date the notes were issued. 

We currently have a severe and ongoing working capital deficiency. As of August 31, 2021, we had a working capital deficit of approximately $8.1 million, compared to a deficit of approximately $6.4 million as of November 30, 2020. The approximate $1.7 million decrease in working capital deficit was due primarily to (all amounts approximate) an increase in accrued liabilities of $1.3 million.

As disclosed under Item 3. Legal Proceedings, a judgment was entered against us in the Everlast matter in the amount of approximately $740,000. Everlast has since filed a garnishment action seeking to cause third parties who may be holding our money property (including Brain Armor, Inc.) to turn such property over to Everlast to satisfy the judgment it has against us.

In addition, the plaintiff in the Oracle matter has requested a default judgment against us. Accordingly, the Company is currently obligated to pay Everlast approximately $740,000 and to pay Oracle at least $217,000. Consequently, the Company is liable for in excess of $1 million in judgments, in the aggregate. If the Company is compelled to pay these liabilities, there would be a material adverse effect on the financial condition of the Company. On June 30, 2021, Everlast filed garnishment actions seeking to cause third parties who may be holding our money property (including Brain Armor, Inc.) to turn such property over to Everlast to satisfy the judgment it has against us. We have engaged counsel to represent us in connection with this matter.

As of October 20, 2021, we had only minimal cash on hand, and consequently, we are unable to fully implement our current business plan. Accordingly, we have an immediate need for additional capital to fund our operating activities. COVID-19 has thus far adversely affected our revenues and our ability to raise additional capital, so there is no assurance we will be able to grow our business or raise sufficient additional capital on acceptable terms or at all.

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

In the event we do not generate sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we will be unable to implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should we be unable to recover the value of our assets or satisfy our liabilities.

Based on our limited availability of funds, we currently are not in a position to spend on product development, sales and marketing or capital expenditures. We expect to fund any future product development expenditures through a combination of cash flows from operations and proceeds from equity and/or debt financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our product development expenditures, in which case, there could be a material adverse effect on our business and results of operations.

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 fiscal quarter ended August 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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

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

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

On or about June 30, 2021, the Company, as Debtor, and Trident Sports Nutrition, Inc. and Brain Armor Inc., as garnishee defendants, were served with garnishment summons and complaint in Fond du Lac County, Wisconsin Circuit Court, (Case No. 2021FJ0003). The Plaintiff is Everlast, who is seeking to collect upon a judgment entered in the United States District Court for the Southern District of New York (Case No. 19-CV-503). According to Everlast, the judgment as of June 29, 2021 is in the amount of $745,814.61.

On July 16, 2021, the Company filed an Answer asserting that its assets are subject to the security interest of LDF (MCTECH) Investment Corp. and should not be subject to garnishment. Trident Sports Nutrition, Inc. and Brain Armor Inc. both filed garnishee answers denying that either corporation had control or possession of assets belonging to Trident Brands, Inc. or was otherwise indebted to the Company. The time period for Everlast to respond to these pleadings expires on August 5, 2021.

In addition, Everlast has commenced a proceeding in Waukesha County, Wisconsin Circuit Court (Case No. 21-TJ-90) and the Hon. Daniel P. Murray, Court Commissioner, has ordered the Company, and certain members of management to appear at his office for a supplemental examination on July 29, 2021 to answer under oath concerning the property and financial affairs of the Company. The Company and these management membersplan on defending against the Order issued by the Court Commissioner on jurisdictional and/or other grounds.

On October 15, 2021 the Company filed a Brief in Opposition to Plaintiffs Motion for Order Requiring Trident to apply its property to Judgement and appoint a supplemental receiver, citing the fact that all of the Company’s property is subject to a perfected security interest by Fengate. The Company also filed a Reply in Support of its Motion to Dismiss or Quash Order to Appear for Supplemental Examination, arguing that Wisconsin is not the proper forum for this case.  The Company has a hearing on these Briefs scheduled on or about November 17, 2021.

On June 3, 2019, the Company filed a lawsuit against PIT Mycell, LLC, William E. Peterson III, New Age Ventures, LLC, Volker Berl, and Mycell Technologies, LLC (“Mycell”) in the Superior Court in Bergen County, New Jersey, Civil Action No. BER-L-004198-19, in which the Company seeks to require the defendants to perform under and allow the enforcement of certain notes made by Mycell and acquired by the Company in September 2017. The notes are past their stated maturity date of December 31, 2016. The Company also alleges that the parties had entered into a written Settlement Agreement Letter of Intent dated March 14, 2019 (the “Settlement”), but that the defendants repudiated it shortly thereafter. The notes had been the subject of an earlier lawsuit in Virginia in state court in Fairfax County between the Company and PIT Mycell, LLC that the Settlement was intended to resolve. The Company seeks to enforce the notes and the Settlement in the New Jersey lawsuit and requests actual damages in an amount to be proven at trial, attorneys’ fees and litigation costs, specific performance requiring certain defendants to enforce obligations under the notes against Mycell, specific performance requiring the defendants to execute a final Settlement Agreement consistent with the Settlement, an order permitting foreclosure on the collateral for the notes, and declaratory relief. On January 24, 2020, the New Jersey court denied Defendant’s Motions to dismiss the case. The parties have engaged in written discovery and exchanged productions of documents. Mycell filed for bankruptcy on November 25, 2020.  On October 6, 2021 the Court granted a Motion to Sell Property Free and Clear of Liens under Section 363(f) to the only bidder in a bidding auction. Consequently, Mycell will be coming out of the bankruptcy and the Company believes that the automatic stay will be lifted on its other pending litigation matters.  The Company intends to further pursue its legal claims against the defendants..

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

On or about September 15, 2021, Trident Seafoods filed a complaint against the Company for infringement of the Trident Seafood ‘Trident’ trademark.  The complaint was filed in the United States District Court Western District of Washington at Seattle and the case is captioned “Complaint for Trademark Infringement, False Designation of Origin, Unfair Competition, and Violation of the Washington Consumer Protection Act.” Trident Seafood has expressed an interest in resolving the matter and the Company and Trident Seafoods are currently in negotiations to settle this matter.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Between March 22 and May 27, 2021, Brain Armor, Inc, the Company’s majority owned subsidiary, sold an aggregate of 1,000,000 Units, each comprised of one share of common stock and a warrant to purchase one share of common stock, at a per Unit price of $0.30, for gross proceeds of $300,000.

We believe that the foregoing transactions were exempt from the registration requirements under the Securities Act of 1933, as amended (“the Act”), based on the following facts: there was no general solicitation, there was a limited number of purchasers, each of whom the Registrant believes was an “accredited investor” (within the meaning of Regulation D under the Securities Act of 1933, as amended) and was sophisticated about business and financial matters, and all shares issued were subject to restriction on transfer, so as to take reasonable steps to assure that the purchaser was not an underwriter within the meaning of Section 2(11) under the Act.

ITEM 6. EXHIBITS

The following exhibits are included with this quarterly filing:

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.