The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Gridiron BioNutrients, Inc. (the “Company” or “Gridiron”) was formed under the laws of the state of Nevada on July 20, 2017 to develop and distribute a retail line of health water infused with probiotics and minerals. The Company has elected an August 31
st
year end.
Acquisition and Reverse Merger
On October 10, 2017, the Company completed a reverse merger with My Cloudz, Inc. (“My Cloudz”) pursuant to which the Company merged into My Cloudz on October 10, 2017. Under the terms of the merger, the Company shareholders received 70,000,000 common shares of My Cloudz common stock such that the Company shareholders received approximately 57% of the total common shares issued and outstanding following the merger. Due to the nominal assets and limited operations of My Cloudz prior to the merger, the transaction was accorded reverse recapitalization accounting treatment under the provision of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805 whereby the Company became the accounting acquirer (legal acquiree) and My Cloudz was treated as the accounting acquiree (legal acquirer). The historical financial records of the Company are those of the accounting acquirer (GridIron) adjusted to reflect the legal capital of the accounting acquiree (My Cloudz). As the transaction was treated as a recapitalization, no intangibles, including goodwill, were recognized. Concurrent with the effective date of the reverse recapitalization transaction, the Company adopted the fiscal year end of the accounting acquirer of August 31.
At the date of acquisition, My Cloudz had $3,972 of cash, $1,105 of accounts payable and a related party payable of $75,907. Book values for all assets acquired and liabilities assumed equaled fair values as of the date of acquisition.
NOTE 2 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of November 30, 2018 and November 30, 2017 and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s August 31, 2018 financial statements. The results of operations for the periods ended November 30, 2018 are not necessarily indicative of the operating results for the full year.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of accounting policies for Gridiron is presented to assist in understanding the Company’s financial statements. The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting) and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used when accounting for fair value calculations related to embedded conversion features of outstanding convertible notes payable.
Cash
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company had $246,622 and $774,468 of cash and cash equivalents as of November 30, 2018 or August 31, 2018. As of August 31, 2018, the Company held cash of $524,468 with one financial institution in excess of the FDIC insured limit of $250,000.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition
The Company follows ASC 606 of the FASB
Accounting Standards Codification
for revenue recognition. The Company recognizes revenue upon the transfer of promised services to customers in amounts that reflect the consideration to which the Company expects to be entitled the transfer of services. The Company considers revenue earned when all the following criteria are met: (i) the contract with the customer has been identified, (ii) the performance obligations have been identified, (iii) the transaction price has been determined, (iv) the transaction price has been allocated to the performance obligations, and (v) the performance obligations have been satisfied. The Company primarily generates revenues through the sale of products through its website and at industry tradeshows.
Fair Value of Financial Instruments
Fair value of certain of the Company’s financial instruments including cash, prepaid expenses, accounts payable, accrued expenses, notes payable, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.
Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.
Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.
As discussed in
Note 7 – Warrants and Derivative Liability,
the Company valued its derivative liability using Level 3 inputs as of November 30, 2018 and August 31, 2018. The Company did not identify any additional assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 825-10 as of August 31, 2018 and August 31, 2017 respectively.
Income Taxes
Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of ownership occurs.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
Principals of Consolidation
The consolidated financial statements represent the results of Gridiron BioNutrients, Inc,; its wholly owned subsidiary, GridIron Ventures and the assets, processes, and results therefrom. All intercompany transactions and balances have been eliminated. All financial information has been prepared in conformity with accounting principles generally accepted in the United States of America.
Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:
|
|
Estimated Useful Lives
|
Computer Equipment
|
|
3 years
|
Vehicle
|
|
5 years
|
The Company’s property and equipment consisted of the following as of November 30, 2018 and August 31, 2018:
|
|
November 30,
2018
|
|
|
August 31,
2018
|
|
Computer Equipment
|
|
$
|
2,467
|
|
|
$
|
2,467
|
|
Vehicle
|
|
|
2,977
|
|
|
|
-
|
|
Accumulated depreciation
|
|
|
(785
|
)
|
|
|
(530
|
)
|
Net book value
|
|
$
|
4,659
|
|
|
$
|
1,937
|
|
Depreciation expense for the three months ended November 30, 2018 and November 30, 2017 was $255 and $0, respectively.
Inventories
Inventories consist primarily of raw materials, ready to sell product and packing materials and are stated at the lower of cost or net realizable value using the first‑in, first‑out method. The Company periodically assesses the recoverability of its inventory and reduces the carrying value of the inventory when items are determined to be obsolete, defective or in excess of forecasted sales requirements. Inventory write‑downs for excess, defective and obsolete inventory are recorded as a cost of revenue. The Company did not have any write downs of inventory during the three months ended November 30, 2018. Inventory balances were $318,492 and $53,110 as of November 30, 2018 and August 31, 2018, respectively.
Notes Payable
As of November 30, 2018 and August 31, 2018, the Company had two notes payable with a principal balance of $49,500 and $49,500, respectively, owed to two separate noteholders. Each note payable is unsecured with one bearing interest at 5% and the other at 0% respectively. As of November 30, 2018, the Company had an outstanding accrued interest balance of $599, which has been included in the consolidated balance sheets under accounts payable and accrued liabilities.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity, as they would have been anti-dilutive. The conversion of preferred shares and warrants to common shares could potentially bring the amount of common shares to a total of 183,746,071. The preferred conversion and warrants would account for 50,880,000 additional shares along with the 132,637,500 outstanding at November 30, 2018 plus an additional 228,571 that have not been issued yet. There were no potentially dilutive shares outstanding during the periods ended November 30, 2018 and August 31, 2018 respectively.
Dividends
As discussed in
Note 5 – Stockholders Equity (Deficit),
during the year ended August 31, 2018, the Company issued preferred stock which accrues dividends at a rate of 5% annually. There was $16,767 and $4,192 of dividends payable at November 30, 2018 and August 31, 2018, respectively.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising costs totaling $0 during the three months ended November 30, 2018 and $0 during the period ended November 30, 2017.
Stock-Based Compensation
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of subtopic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”) and subtopic 718-20 for awards classified as equity to employees. There was $0 and $0 of stock-based compensation during the three months ended November 30, 2018 and period ended November 30, 2017.
Related Parties
The registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532,
”Disclosure Update and Simplification,”
amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. This analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule was effective as of November 5, 2018. The adoption of this final rule did not have a material impact on the financial statements.
In June 2018, the FASB issued ASU 2018-07,
”Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,”
which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from non-employees. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company elected to early-adopt this standard in the current period; the adoption of this standard did not impact the financial statements.
In November 2016, the FASB issued ASU 2016-18, ”
Statement of Cash Flows (Topic 230): Restricted Cash
,” which provides amendments to current guidance to address the classifications and presentation of changes in restricted cash in the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017. The Company adopted the standard effective January 1, 2018; the adoption of this standard did not have a material impact on the financial statements.
In October 2016, the FASB issued ASU 2016-16, “
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
.” The amendments in this update will require recognition of current and deferred income taxes resulting from an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective for annual and interim periods beginning after December 15, 2017. The Company adopted the standard effective January 1, 2018; the adoption of this standard did not have a material impact on the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
”Financial Instruments – Credit Losses (Topic 326)”
which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. For trade receivables, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The guidance is effective for fiscal years beginning after December 31, 2019, including interim periods within those years. Early application of the guidance is permitted for all entities for fiscal years beginning after December 15, 2018, including the interim periods within those fiscal years. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company does not expect the adoption of this final rule to have a material impact on the financial statements.
In February 2016, the FASB issued ASU 2016-02, “
Leases (Topic 842
)
,”
which supersedes the guidance in ASC 840,
”Leases
.” The purpose of the new standard is to improve transparency and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Although the standard initially required the modified retrospective approach for adoption, in July 2018, the FASB issued ASU 2018-18, allowing companies to initially apply the new lease requirements at the effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Early adoption is permitted. The Company does not expect the adoption of this final rule to have a material impact on the financial statements.
In May 2014, the FASB issued ASU 2014-09,
”Revenue from Contracts with Customers (Topic 606),”
which amends the guidance in ASC 605,
”Revenue Recognition.”
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company will adopt this standard on September 1, 2018 using the full retrospective method restating each prior reporting period presented in future filings. The Company has substantially completed its analysis of the impact of adoption and has concluded the adoption of ASC 606 will not have a significant impact on the Company’s financial statements.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02,
Income Statement Reporting, Comprehensive Income (Topic 220)
. Effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The adoption of this guidance by the Company is not expected to have a material impact on our condensed financial statements and related disclosures.
Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
Accounts Receivable
Accounts receivable balances are established for amounts owed to the Company from its customers from the sale of products. The Company closely monitors the collectability of outstanding accounts receivable and provide an allowance for doubtful accounts based on estimated collections of outstanding amounts. There was $428 and $428 outstanding accounts receivable as of November 30, 2018 and August 31, 2018, respectively.
Trademark
During the period ended August 31, 2017, a related party incurred total costs of $2,800 to acquire a trademark on behalf of the Company. Trademark costs are capitalized as incurred to the extent the Company expects the costs incurred to result in a trademark being awarded. Trademarks are reviewed for impairment loss considerations annually. As of November 30, 2018 and August 31, 2018, the Company had trademarks totaling $2,800 and recorded impairment losses of $0 for the three months ended November 30, 2018 and November 30, 2017 respectively. Trademarks amortized over the expected useful lives when issued. Amortization expense from trademarks are included in general and administrative expenses and totaled $0 for the three months ended November 30, 2018 and November 30, 2017.
NOTE 4 – GOING CONCERN
The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company had a net losses of $91,408 and $22,767 for the three months ended November 30, 2018 and November 30, 2017. The Company has working capital of $64,433 and an accumulated deficit of $1,097,175 as of November 30, 2018. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has plenty of cash balance available for payment of ongoing operating expenses, has experienced losses from operations since inception, and it does not have a source of revenue sufficient to cover its operating costs. Its continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company.
Management plans to fund operations through additional debt and equity financing. Debt instruments may be convertible or non-convertible and will vary based on the Company’s needs and financing options available at such times.
NOTE 5 – RELATED PARTY TRANSACTIONS
During the period of July 20, 2017 (inception) to August 31, 2017, a company director paid a total of $2,800 towards obtaining trademarks, $13,276 towards operating and start up costs and $25 to open the Company bank account.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 6 – STOCKHOLDERS’ EQUITY
Preferred Stock
On July 16, 2018, the Board of Directors and one (1) stockholder adopted and approved a resolution to effect an amendment to our Articles of Incorporation to authorize the creation of 5,000,000 shares, designated as our Preferred Stock. On July 16, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation creating 5,000,000 shares of preferred stock.
On July 30, 2018, the Board of Directors of the Company authorized the designation of 9,000,000 shares of Series A Preferred Stock. On July 31, 2018, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada, creating 900,000 shares of Series A Preferred Stock.
On August 1, 2018, the Board of Directors and one (1) stockholder adopted and approved a resolution to effect an amendment to our Articles of Incorporation to authorize the creation of 25,000,000 shares, designated as our Preferred Stock. On August 1, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation creating 25,000,000 shares of preferred stock.
The preferred stock accrues dividends at a rate of 5% annually, are convertible to common stock at a rate of $0.125 per share at the option of the holder. Further, the preferred stock is redeemable by the Company at a premium during the first 180 days after issuance and another premium after the 180
th
day from issuance.
During the year ended August 31, 2018, the Company issued a total of 8,480,000 of preferred stock and 8,480,000 of warrants for total cash proceeds of $1,006,000.
There were 8,480,000 and 0 preferred shares issued and outstanding as of November 30, 2018 and August 31, 2018, respectively.
Common Stock
The Company is authorized to issue up to 200,000,000 shares of $0.001 par value common stock. During the period ended August 31, 2017, the Company issued a total of 200,000 common shares to the members of its board of directors for services valued at $0.001 per share for a total of $200. During the year ended August 31, 2018, the Company issued a total of 70,000,000 common shares to complete its acquisition and reverse merger as discussed in
Note 1 – Organization and Description of Business
. There were 132,637,500 common shares issued and outstanding as of November 30, 2018 and August 31, 2018, respectively.
Common Stock Subscribed
During the year ended August 31, 2018, the Company accepted four separate common stock subscriptions representing a total of 228,571 common shares for total cash proceeds of $160,000.
NOTE 7 – INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carryforwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carryforward period.
The Company is not aware of any uncertain tax position that, if challenged, would have a material effect on the financial statements for the three months ended November 30, 2018 and November 30, 2017 or during the prior three years applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the consolidated balance sheet. All tax returns for the Company remain open for examination.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 7 – INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
|
|
2018
|
|
|
2017
|
|
Income tax provision at the federal statutory rate
|
|
|
21
|
%
|
|
|
35
|
%
|
Effect on operating losses
|
|
(21%)
|
|
|
(35%)
|
|
|
|
|
-
|
|
|
|
-
|
|
The net deferred tax assets consist of the following:
|
|
November 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net operating loss carry forward
|
|
$
|
1,097,175
|
|
|
$
|
36,243
|
|
Valuation allowance
|
|
|
(1,097,175
|
)
|
|
|
(36,243
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income taxes computed at the statutory rate is as follows:
|
|
November 30,
|
|
|
|
2018
|
|
|
2017
|
|
Tax at statutory rate
|
|
$
|
19,196
|
|
|
$
|
7,968
|
|
Increase in valuation allowance
|
|
|
(19,196
|
)
|
|
|
(7,968
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. As of the date of this report, there are no pending legal proceedings to which the Company is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.
NOTE 9 – WARRANTS AND DERIVATIVE LIABILITY
As discussed in
Note 5 – Stockholders’ Equity (Deficit)
, the Company issued a total of 8,480,000 warrants to purchase common stock as part of its preferred stock offering. The warrants are exercisable for a period of three years at $0.165 per share. Additionally, the warrant holder is entitled to a cashless exercise after six months from issuance in which the holder is entitled to receive a number of shares equal to: [A] the number of outstanding warrant shares under the original issuance multiplied by [B] the greater of the trailing five day volume weighted average price less [A] the number of outstanding warrant shares under the original issuance multiplied by [C] the exercise price of the warrant under the original issuance divided by [D] the lesser of the arithmetic average of the volume weighted average price during the five trailing trading days or the volume weighted average price for the trading day immediately prior to the cashless exercise election. For clarity, the resulting formula is [(A x B) – (A x C)] / D.
The Company analyzed the conversion features of the cashless exercise feature in the warrants issued for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded features should be classified as a derivative liability because the exercise price of these warrants are subject to a variable rate. The Company has determined that warrants are not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has recorded a derivative liability.
GRIDIRON BIONUTRIENTS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
November 30, 2018
NOTE 9 – WARRANTS AND DERIVATIVE LIABILITY (CONTINUED)
Upon issuance, the Company valued the derivative using a Black-Scholes model yielding a total value of $674,012 which was expensed during the year ended August 31, 2018. The Company used the following assumptions upon initial measurement: value per common share of $0.09, a remaining life of 3.0 years, an exercise price of $0.165, a risk free rate of 2.77% and volatility of 195%.
The Company revalued the derivative liability as of November 30, 2018 and recorded a gain of $100,313 on the change in fair value of derivative liabilities for the three months then ended. The Company used the following assumptions upon initial measurement: value per common share of $0.06, a remaining life of 2.67 years, an exercise price of $0.165, a risk free rate of 2.83 and volatility of 208%.
As of November 30, 2018 and August 31, 2018, the Company had derivative liabilities totaling $437,576 and $537,889, respectively.
The following table summarizes all stock warrant activity for the three months ended November 30, 2018:
|
|
Warrants
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Outstanding, August 31, 2018
|
|
|
8,480,000
|
|
|
$
|
0.165
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, November 30, 2018
|
|
|
8,480,000
|
|
|
$
|
0.165
|
|
The following table discloses information regarding outstanding and exercisable warrants at November 30, 2018:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise Prices
|
|
|
Number of
Warrant
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average
Remaining Life
(Years)
|
|
|
Number of
Warrant
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
$
|
0.165
|
|
|
$
|
8,480,000
|
|
|
$
|
0.165
|
|
|
|
2.67
|
|
|
|
8,480,000
|
|
|
$
|
0.165
|
|
|
|
|
|
|
8,480,000
|
|
|
$
|
0.165
|
|
|
|
2.67
|
|
|
|
8,480,000
|
|
|
$
|
0.165
|
|
NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated all events occurring subsequently to these financial statements through January 17, 2019 and determined there are none to disclose.