0001493152-16-009865.txt : 20160516 0001493152-16-009865.hdr.sgml : 20160516 20160516150539 ACCESSION NUMBER: 0001493152-16-009865 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 46 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160516 DATE AS OF CHANGE: 20160516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XFIT BRANDS, INC. CENTRAL INDEX KEY: 0001623554 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 471858485 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55372 FILM NUMBER: 161653034 BUSINESS ADDRESS: STREET 1: 25731 COMMERCENTRE DRIVE CITY: LAKE FOREST STATE: CA ZIP: 92630 BUSINESS PHONE: (949) 916-9680 MAIL ADDRESS: STREET 1: 25731 COMMERCENTRE DRIVE CITY: LAKE FOREST STATE: CA ZIP: 92630 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

XFit Brands, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Nevada   000-55372   47-1858485
(State or Other Jurisdiction
of Incorporation)
  (Commission
File No.)
  (I.R.S. Employer
Identification No.)
         

 25731 Commercentre Drive,

Lake Forest, CA 92630

     

(949) 916-9680

(Address of Principal Executive Offices)       (Registrant’s Telephone Number)

 

(Former name and address, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

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

 

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

 

Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company [X]

 

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

 

As of May 16, 2016 there were 20,592,500 shares of the issuer’s common stock, $0.0001 par value per share, outstanding.

 

 

 

 
   

  

TABLE OF CONTENTS

 

      Page
PART I - FINANCIAL INFORMATION    
Item 1 Financial Statements:    
  Condensed Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and June 30, 2015   3
  Condensed Consolidated Statements of Operations (Unaudited) for the three and nine month periods ended March 31, 2016 and 2015   4
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine month periods ended March 31, 2016 and 2015   5
  Notes to Condensed Consolidated Financial Statements (Unaudited)   6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations   12
Item 3 Quantitative and Qualitative Disclosure about Market Risk   18
Item 4 Controls and Procedures   18
PART II - OTHER INFORMATION    
Item 1 Legal proceedings   19
Item 1A Risk Factors   19
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds   19
Item 3 Defaults upon Senior Securities   19
Item 4 Mine safety disclosures   19
Item 5 Other information   19
Item 6 Exhibits   20

 

 2 
   

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

XFit Brands, Inc.

Condensed Consolidated Balance Sheets

 

   March 31, 2016   June 30, 2015 
   (Unaudited)     
ASSETS          
Current Assets          
Cash  $32,892   $51,016 
Accounts receivable   182,209    92,823 
Royalties receivable   65,413    75,000 
Inventory   278,993    169,292 
Prepaid expenses   143,974    333,572 
Total Current Assets   703,481    721,703 
Long Term Assets          
Property and equipment, net   37,904    42,292 
Other assets          
Deposits   23,466    27,480 
Intangible assets, net   25,212    52,264 
TOTAL ASSETS  $790,063   $843,739 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities          
Accounts payable  $713,276   $446,063 
Related party payable   95,620    95,620 
Accrued expenses and interest   97,685    129,182 
Customer deposits   108,850    158,467 
Line of credit   34,194     
Total Current Liabilities   1,049,625    829,332 
           
Note payable, net   2,392,056    1,705,417 
Total Liabilities   3,441,681    2,534,749 
           
Commitments and contingencies (Note 8)        
           
Stockholders’ Deficit          
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2016 and June 30, 2015        
Common stock, $0.0001 par value, 1,250,000,000 shares authorized, 20,592,500 and 20,367,500 shares issued and outstanding as of March 31, 2016 and June 30, 2015, respectively   2,059    2,037 
Additional paid in capital   4,502,855    4,317,444 
Accumulated deficit   (7,156,532)   (6,010,491)
Total Stockholders’ Deficit   (2,651,618)   (1,691,010)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $790,063   $843,739 

 

See accompanying notes to the condensed consolidated financial statements.

 

 3 
   

 

XFit Brands, Inc.

Condensed Consolidated Statements of Operations

For the three and nine month periods ended March 31, 2016 and 2015 (Unaudited)

 

  

For the Three Months Ended

March 31,

  

For the Nine Months Ended

March 31,

 
   2016   2015   2016   2015 
Revenues:                    
Product sales  $681,431   $526,826    $ 1, 813,949    $1,300,148 
Royalties       62,500    15,413    192,940 
Net revenues   681,431    589,326    1,829,362    1,493,088 
                     
Cost of revenues   376,140    376,828    1,021,471    982,587 
Gross Profit   305,291    212,498    807,891    510,501 
                     
Operating expenses                    
General and administrative   437,403    310,142    1,284,908    1,187,497 
Sales and marketing   88,305    126,124    262,501    227,845 
Total operating expenses   525,708    436,266    1,547,409    1,415,342 
                     
(Loss) Income from operations   (220,417)   (223,768)   (739,518)   (904,841)
                     
Interest expense   (147,974)   (107,007)   (406,530)   (278,918)
Other income               14,758 
Net (Loss) Income  $(368,391)  $(330,775)  $(1,146,048)  $(1,169,001)
Loss per common share – basic and diluted  $(0.02)  $(0.02)  $(0.06)  $(0.06)
Weighted average shares outstanding – basic and diluted   20,492,500    20,000,000    20,488,955    20,000,000 

 

See accompanying notes to the condensed consolidated financial statements.

 

 4 
   

 

XFit Brands, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine month periods ended March 31, 2016 and 2015 (Unaudited)

 

   Nine Month Periods Ended
March 31,
 
   2016   2015 
Cash flows from operating activities          
Net loss  $(1,146,048)  $(1,169,001)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation and amortization   45,551    11,544 
Amortization of debt issuance costs and loan discount   142,696    106,700 
Stock based compensation   135,000    232,314 
Value of options issued to employees   433     
Changes in operating assets and liabilities:          
Accounts receivable   (89,386)   (75,653)
Royalties receivable   9,587    (6,867)
Inventory   (109,701)   (16,625)
Prepaid expenses   189,598    (9,989)
Deposits   4,014     
Accounts payable   267,222    224,403 
Accrued expenses and interest   62,445    112,763 
Customer deposits   (49,618)   81,530 
Net cash used in operating activities   (538,207)   (508,881)
Cash flows from investing activities          
Acquisition of intangible assets   (9,000)   (11,096)
Purchase of property and equipment   (5,111)   (51,389)
Net cash used in investing activities   (14,111)   (62,485)
Cash flows from financing activities          
Payment of line of credit   (19,227)    
Proceeds from line of credit   53,421     
Payment of related party payable       (42,626)
Debt issuance costs       (25,969)
Proceeds from increase in PIMCO note payable   500,000    500,000 
Net cash provided by financing activities   534,194    431,405 
Net decrease in cash   (18,124)   (139,961)
Cash at beginning of period   51,016    360,323 
Cash at end of period  $32,892   $220,362 
           
Supplemental cash flow information:           
Cash paid for interest  $115,860   $199,689 
Non-cash investing and financing activities:          
Value of common shares issued as a loan fee  $50,000   $ 
Distribution  $   $100,000 
Issuance of common stock in exchange for LLC interests  $   $55,000 

 

See accompanying notes to the condensed consolidated financial statements.

 

 5 
   

 

XFit Brands, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1 - NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

History of the Company

 

XFit Brands, Inc. (“XFit” or the “Company”) was incorporated on September 16, 2014 under the laws of the State of Nevada. The fiscal year of the Company is June 30. XFit’s principal business activity is the design, development, and worldwide marketing and selling of functional equipment, training gear, apparel and accessories for the impact sports market and fitness industry. Products are marketed and sold under the “Throwdown®” brand name to gyms, fitness facilities and directly to consumers via an internet website and through third party catalogues through a mix of independent distributors and licensees throughout the world.

 

These financial statements represent the condensed consolidated financial statements of XFit and its wholly owned operating subsidiaries Throwdown Industries Holdings, LLC (“Holdings”), Throwdown Holdings, LLC (“TDLLC”), and Throwdown Industries, Inc. (“TDINC”). On September 26, 2014, XFit entered into a Contribution and Exchange Agreement with TD Legacy, LLC (“TD Legacy”) and Holdings under which TD Legacy contributed all of its membership interest in Holdings to XFit in exchange for the issuance by XFit of 20,000,000 shares of common stock to TD Legacy. The result of this transaction was that Holdings became a wholly owned subsidiary of XFit.

 

Forward Stock Split

 

On March 28, 2016, the Board of Directors approved a 1-for-5 forward split of its outstanding shares of common stock (and proportional increase of its authorized common stock from 250 million shares to 1.25 billion shares) with a record date of April 14, 2016 and an effective date of April 15, 2016. Prior to the split, the Company had 4,118,500 shares issued and outstanding and after the split, the Company had 20,592,500 shares issued and outstanding. All references in the unaudited condensed consolidated financial statements and notes to unaudited condensed consolidated financial statements, numbers of shares, and share amounts have been retroactively restated to reflect the 1-for-5 forward split, unless explicitly stated otherwise.

 

Basis of presentation

 

The accompanying condensed consolidated financial statements are unaudited, but in the opinion of management, reflect all adjustments necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes as of and for the years ended June 30, 2015 and 2014, which were filed with the Company’s annual report form 10K on September 28, 2015. The results of operations for the nine months ended March 31, 2016 are not necessarily indicative of results that may be expected for the year ending June 30, 2016, or for any other interim period.

 

Basis of Consolidation

 

The condensed consolidated financial statements include the accounts of XFit, Holdings and TDINC. All significant intercompany transactions and balances have been eliminated in consolidation.

 

Recent Accounting Pronouncements

 

The Company has implemented all new accounting standards and does not believe that there are any other new accounting pronouncements that have been issued that may have a material impact on the consolidated financial statements.

 

 6 
   

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (“ASU-2015-03”). ASU 2015-03 requires companies to present debt issuance costs as a direct deduction from the carrying value of that debt liability. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

Income (Loss) per Share

 

The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the period. The diluted net loss per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity. Diluted net loss per share is the same as basic net loss per share due to the lack of dilutive items. As of March 31, 2016 and June 30, 2015, the Company had 2,311,945 and 2,263,060, respectively, of potential shares exercisable that are attributable to the PIMCO warrant, which have been excluded as their effect is anti-dilutive.

 

Use of Estimates

 

Condensed consolidated financial statements prepared in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management has estimated the collectability of its accounts receivable, the valuation of long-lived assets, and equity instruments issued for financing. Actual results could differ from those estimates.

 

Loan Discounts and Loan Fees

 

The Company amortizes loan discounts over the term of the loan using the effective interest method. Costs associated with obtaining financing are capitalized and amortized over the term of the related loans using the effective interest method. As of March 31, 2016 and June 30, 2015, the Company had total gross debt issuance costs of $199,632 and $149,632, respectively. Accumulated amortization of the debt issuance costs was $99,982 and $46,990 as of March 31, 2016 and December 31, 2015, respectively.

 

Subsequent Events

 

In accordance with ASC 855, the Company evaluated subsequent events through May 16, 2016, which was the date the consolidated financial statements were available for issue.

 

NOTE 2 - PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following at:

 

   March 31, 2016   June 30, 2015 
   (Unaudited)     
Office furniture and equipment  $51,794   $46,233 
Warehouse equipment   15,254    13,254 
Molds and dies   4,200    6,650 
Total, cost   71,248    66,137 
Accumulated Depreciation   (33,344)   (23,845)
Property and equipment, net  $37,904   $42,292 

 

Depreciation expense for the nine month periods ended March 31, 2016 and 2015 was $9,499 and $7,532, respectively.

 

 7 
   

 

NOTE 3 - INTANGIBLE ASSETS, NET

 

Intangible assets consisted of the following at:

 

   March 31, 2016   June 30, 2015 
   (Unaudited)     
Transformations exercise fitness program  $62,500   $62,500 
Trademark and patent   7,811    4,396 
Computer software   5,584     
Total, cost   75,895    66,896 
Accumulated amortization   (50,683)   (14,632)
Intangible assets, net  $25,212   $52,264 

 

Amortization expense for the nine months ended March 31, 2016 and 2015 was $36,051 and $3,742, respectively.

 

NOTE 4 - NOTE PAYABLE

 

The note payable is comprised of the following at:

 

   March 31, 2016   June 30, 2015 
   (Unaudited)     
Note payable  $2,620,098   $2,085,128 
Add: accrued interest added to note principal   58,970     
Less: unamortized loan discount   (187,362)   (277,070)
Less: unamortized debt issuance costs   (99,650)   (102,641)
Total note payable, net  $2,392,056   $1,705,417 

 

On June 10, 2014, the Company entered into a Note Purchase Agreement with Pacific Investment Management Company (“PIMCO”) that authorized the issuance of up to $2,500,000. On June 12, 2014, the Company entered into a Senior Secured Note (“Note”) whereby the Company drew $1,500,000. The note bears interest at 14% and an effective interest rate of 21%. This Note is collateralized by all of the assets of the Company.

 

On February 6, 2015, the Company drew down an additional $500,000 of funds on the PIMCO Note Payable. Following the February 6, 2015 draw, the principal balance payable (including accrued interest added to the principal amount) on the PIMCO note was $2,044,300, and the Company had an additional $500,000 available to draw on this loan facility. The full principal balance outstanding related to this note is due in June 2017.

 

The Note includes various covenants, including but not limited to, having annual audited financial statements within 90 days of the end of the fiscal year. Effective March 31, 2016, the Company is in compliance with all covenants.

 

In connection with the Note, the Company granted warrants to acquire up to 10% of the Company’s capital stock based on an aggregate enterprise fair market value of $15.0 million. The Company valued the warrants using the Black-Scholes option pricing model with the following variables: annual dividend yield of 0%; expected life of 10 years; risk free rate of return of 2.92%; and expected volatility of 0%. The Company estimated the value of the warrants to be $377,480, which is recorded as a loan discount and is being amortized under the effective interest method to interest expense over the term of the loan.

 

On September 30, 2015, in consideration of the draw-down of the remaining $500,000 available on the PIMCO Note Payable, the Company issued 50,000 shares of its common stock at a fair value of $50,000 as determined by the Company’s board of directors. This amount was recorded as a loan fee to be amortized over the remaining term of the PIMCO Note Payable.

 

On October 20, 2015, the Company drew the remaining $500,000 available under its delayed draw note facility with PIMCO to increase the principal amount under this note (including the accrued interest added to the principal amount) to $2,620,098. A replacement note was issued on this date to reflect the note increase.

 

During the nine month periods ended March 31, 2016 and 2015, the Company amortized $142,696 and $106,700, respectively, of the loan fees and discount which is recorded as a component of interest expense on the consolidated statements of operations.

 

 8 
   

 

NOTE 5 - BANK LINE OF CREDIT

 

On July 24, 2015, the Company entered into an unsecured line of credit with Wells Fargo Bank for up to $35,000. The line of credit bears interest at prime plus 4% and is personally guaranteed by the Company’s chief executive officer. As of September 30, 2015, the balance payable on the line of credit was $19,224, which amount was repaid on October 23, 2015. After October 23, 2015, the Company renewed the line of credit and borrowed an additional $34,197. This line of credit has an unpaid balance of $34,194 as of March 31, 2016.

 

NOTE 6 - RELATED PARTY TRANSACTIONS

 

Related Party Payable

 

As of March 31, 2016 and June 30, 2015, the Company had $95,620 of salaries and bonuses payable to four of its officers and membership interest holders. These bonuses were to cover income taxes relating to bonuses issued during 2009 and current salaries payable.

 

NOTE 7 - STOCKHOLDERS’ DEFICIT

 

On July 1, 2015, the Company issued 75,000 shares of its common stock valued at $75,000 to an employee as a signing bonus.

 

On July 15, 2015, the board of directors approved the issuance of 317,500 stock options to employees to be utilized on a performance and retention basis.

 

On September 30, 2015, the Company issued 50,000 shares of its common stock valued by the Company’s board of directors at $50,000 to PIMCO as a loan fee in consideration of the additional $500,000 draw-down on the PIMCO Note Payable that was funded on October 20, 2015. (See Note 4-Note Payable).

 

On November 17, 2015, the Company issued options to purchase 215,000 shares of stock to six employees for services rendered. (See Note 8-Commitments and Contingencies-Stock Incentive Plan)

 

On February 23, 2016, the Company issued 50,000 shares of common stock to an employee and 50,000 shares of common stock to a consultant as part of their former agreements with XFit Brands. The shares were valued at $60,000.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

In June 2015, the Company entered into a lease agreement for approximately 25,788 square feet of warehouse and office space under a 38 month operating lease that commenced on October 1, 2015 and expires on October 31, 2018. The lease has monthly payments starting at $8,252 for the period October 1, 2015 through February 28, 2016. Thereafter, monthly payments range from $16,504 to $17,509 over the term of the lease. The Company previously leased office and warehouse facilities under a lease which expired on November 30, 2015 pursuant to which it paid $4,865 per month which included operating expenses, insurance and property taxes.

 

In June 2015, the Company entered into a sublease of a portion of the premises for the period October 1, 2015 through August 31, 2016, at a monthly rental rate of $5,000 plus a pro-rata portion of the utilities.

 

Rent expense for the nine month periods ended March 31, 2016 and 2015, were $119,303 and $44,565, respectively.

 

Litigation

 

From time-to-time, the Company is subject to various litigation and other claims in the normal course of business. The Company establishes liabilities in connection with legal actions that management deems to be probable and estimable. No amounts have been accrued in the condensed consolidated financial statements with respect to any matters.

 

Stock Incentive Plan

 

On October 21, 2014, the Board of Directors and the Company’s sole stockholder adopted the 2014 Stock Incentive Plan. The purpose of the 2014 Stock Incentive Plan is to advance the best interests of the Company by providing those persons who have a substantial responsibility for management and growth of the Company with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with the Company. Further, the availability and offering of stock options and common stock under the plan supports and increases the Company’s ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which the Company depends. The total number of shares available for the grant of either stock options or compensation stock under the plan is 3,000,000 shares of common stock, subject to adjustment. The Board of Directors administers the plan and has full power to grant stock options.

 

 9 
   

 

On November 17, 2015, the Company issued 215,000 aggregate stock options to six employees. The value of the shares issued was determined to be $433 utilizing the Black-Scholes valuation model based on stock value of $1.00 at the date of issuance, a 5 year life of the options, a discount rate of 1.73%, and a zero percent stock volatility rate. The value of the stock options was $433 and was recorded as stock based compensation expense during the nine months ended March 31, 2016.

 

At March 31, 2016, the Company had not issued any shares under the plan and had granted options to purchase 215,000 shares under the plan.

 

Equity Purchase Agreement

 

On December 17, 2014, the Company entered into an Equity Purchase Agreement with Kodiak Capital LLC. The Equity Purchase Agreement provides the Company with financing whereby the Company can issue and sell to Kodiak, from time to time, shares of common stock (the “Put Shares”) up to an aggregate purchase price of $5.0 million (the “Maximum Commitment Amount”) during the commitment period. The commitment period is defined as the period beginning on the trading day immediately following the effectiveness of the registration statement and ending December 31, 2016. In addition, in no event shall Kodiak be entitled to purchase that number of Put Shares which when added to the sum of the number of shares of common stock already beneficially owned by Kodiak would exceed 9.99% of the number of shares of common stock outstanding on the applicable closing date.

 

The Equity Purchase Agreement will terminate when any of the following events occur: (i) Kodiak has purchased an aggregate of $5.0 million of the Company’s common stock, (ii) on December 31, 2016 or (iii) upon written notice from the Company to Kodiak.

 

Registration Rights Agreement

 

On December 17, 2014, the Company entered into a registration rights agreement with Kodiak Capital, LLC under which the Company is obligated to register the shares to be acquired by Kodiak pursuant to that certain Equity Purchase Agreement dated December 17, 2014, under which Kodiak agreed to purchase up to $5 million of XFit common stock, subject to certain conditions.

 

Asset Purchase Agreement

 

On February 26, 2015, the Company entered into an Asset Purchase Agreement to acquire the exclusive rights, title, and interest in the Transformations exercise and fitness program. The purchase price was $62,500 which comprised of a $7,500 cash payment and fifty-five thousand (55,000) shares of the Company’s common stock that was valued at $55,000. The agreement also had a performance based earn out for a period of eighteen (18) months that is based on fifty percent (50%) of all programming services gross revenues derived from the Transformations program, up to a maximum earn out of $187,500. The earn out is payable in tranches and none of the tranches were met as of March 31, 2016.

 

Vendor Credit Agreements

 

On June 18 2015, the Company entered into a Stock Purchase Agreement with Ever Blooming Industrial Limited, whereby the Company issued 100,000 shares of its common stock at $1.00 per share. The purchase price is in the form of a manufacturing credit totaling $100,000 to use for future inventory purchases (the “Vendor Credit”). The Company can use all or part of the Vendor Credit over the next 12 months until the Vendor Credit is exhausted. As of March 31, 2016 and June 30, 2015, the Company had $0 and $100,000, respectively, of Vendor Credit included in prepaid expenses on the condensed consolidated balance sheets.

 

On June 26 2015, the Company entered into a Stock Purchase Agreement with Yayu General Machinery Co., LTD, whereby the Company issued 200,000 shares of its common stock at $1.00 per share. The purchase price is in the form of a manufacturing credit of $200,000 to use for future inventory purchases (the “Vendor Credit”). The Company can use all or part of the Vendor Credit over the next 12 months until the Vendor Credit is exhausted. As of March 31, 2016 and June 30, 2015, the Company had $143,376 and $200,000, respectively, of Vendor Credit included in prepaid expenses in the condensed consolidated balance sheets.

 

 10 
   

 

NOTE 9 - SUBSEQUENT EVENTS

 

On April 15, 2016, we effectuated a 1-for-5 forward stock split of our common stock, or the Stock Split and a proportional increase in our authorized common stock. As a result of the Stock Split, every one share of our pre-Stock Split common stock was reclassified into five shares of our common stock, see comment in Note 1 above.

 

On May 3, 2016, the Company entered into a Securities Purchase Agreement (“SPA”) with a single accredited investor (“Investor”) under which it issued and sold to Investor a promissory note in the principal amount of $125,000 (the “Note”). The Note has a maturity date of December 31, 2016 and an original issue discount of $20,000. In addition, the Company agreed to pay Investor’s expenses in connection with the SPA and issuance of the Note. Accordingly, the Company received net proceeds from Investor of $100,000, which proceeds were used for investor relation services.

 

So long as the Note is outstanding, upon any issuance by us of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Investor in the Note or the Securities Purchase Agreement, then we will notify Investor of such additional or more favorable term and such term, at Investor’s option, shall become a part of the Note and/or Securities Purchase Agreement. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms interest rates, and original issue discounts.

 

Interest shall not accrue on the unpaid principal balance of this Note unless an Event of Default occurs. Upon the occurrence of an Event of Default, the outstanding balance of this Note shall bear interest at the lesser of the rate of fifteen percent (15%) per annum or the maximum rate permitted by applicable law. The Note has a prepayment deadline of November 3, 2016. Events of Default under the Note include failure to pay any amounts when due, including on the prepayment deadline, breach of covenants or representations and warranties or upon voluntary bankruptcy or insolvency proceedings.

 

At any time following the occurrence of an Event of Default, Investor may, by written notice to us, declare all unpaid principal, plus all accrued interest and other amounts due hereunder to be immediately due and payable at an amount equal to 125% of the outstanding principal amount of the Note at the time of the default (“Mandatory Default Amount”); provided, however, that for an Event of Default for failure to pay the Note in full on the Prepayment Deadline, Investor will not accelerate the Note unless we fail to pay the Mandatory Default Amount (plus all accrued interest from and after the Event of Default) on the Maturity Date.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD-LOOKING INFORMATION

 

The following information should be read in conjunction with XFit Brands, Inc. and its subsidiaries (“we”, “us”, “our”, or the “Company”) condensed consolidated unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q that does not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance.

 

Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission filings. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; and advances in technology that can reduce the demand for the Company’s products. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results.

 

Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described elsewhere in this report and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended June, 30, 2015.

 

The Company disclaims any obligation to update the forward-looking statements in this report.

 

Overview

 

XFit Brands, Inc. was incorporated in September 2014 under the laws of the State of Nevada. As used herein, the terms “we,” “us,” “XFIT,” and the “Company” refer to XFit Brands, Inc. and its predecessors, subsidiaries, and affiliates, collectively, unless the context indicates otherwise. Our fiscal year end is June 30. Our principal office address is 25731 Commercentre Drive, Lake Forest, CA 92630. Our telephone number is (949) 916-9680. As of May 16, 2016, we had 8 employees.

 

Our principal business activity is the design, development, and worldwide marketing and selling of functional equipment, training gear, apparel, and accessories for the impact sports market and fitness industry. Our products are marketed and sold under our Throwdown®, XFit Brands®, and Transformations™ brand names to gyms, fitness facilities, and directly to consumers via our internet website and through third party catalogues (which we refer to as our “Direct to Consumer” operations) through a mix of independent distributors and licensees throughout the world. All of our products are manufactured by independent contractors. Our equipment and apparel products are produced both in the United States and abroad.

 

We are an “emerging growth company” within the meaning of the federal securities laws. For as long as we are an emerging growth company, we will not be required to comply with the requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company.

 

Results of Operations

 

For the next twelve months, our current operating plan is focused on the development and sale of training and competition cages, training and protective gear for the Mixed Martial Arts (“MMA”), fitness, training, and exercise industry.

 

Our long term growth strategy includes expanding our presence in the fitness, training, and exercise community; leveraging our MMA core credibility and heritage; developing strategic alliances; and acquiring other companies in the fitness, training, and exercise industry to leverage our asset base, manufacturing infrastructure, market presence, and experienced personnel.

 

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As is discussed further in the Liquidity and Capital Resources section below, we have limited funds to support our operations. Our continuation as a going concern subsequent to the year ended June 30, 2015 is dependent on our ability to obtain additional financing to fund the continued operation of our business model for a long enough period to achieve profitable operations. Based on our current business plan, we currently estimate we will need up to an additional $643,000 of financing to execute our business plan over the next twelve months. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern.

 

Three months ended March 31, 2016 Compared to the Three Months Ended March 31, 2015

 

Our revenue, operating expenses, and net loss from operations for the three month period ended March 31, 2016 as compared to the three month period ended March 31, 2015 are set forth below.

 

   Three Months Ended March 31:       % Change
Increase
 
    2016     2015   Change   (Decrease) 
REVENUES                    
Product sales  $681,431   $526,826   $154,605    29.3%
Royalties       62,500    (62,500)   (100.0)%
Net revenues   681,431    589,326    92,105    15.6%
COST OF REVENUES   376,140    376,828    (688)   (0.2)%
Gross profit   305,291    212,498    92,793    43.7%
OPERATING EXPENSES:                    
General and administrative   437,403    310,142    127,261    41.0%
Sales and marketing   88,305    126,124    (37,819)   (30.0)%
Total operating expenses   525,708    436,266    89,442    20.5%
Loss from operations   (220,417)   (223,768)   3,351    1.5%
Interest expense   (147,974)   (107,007)   (40,967)   (38.3)%
Net loss  $(368,391)  $(330,775)  $(37,616)   11.4%

 

Revenues. Revenues consist of product sales and royalties. Total revenues for the three months ended March 31, 2016 were $681,431, an increase of $92,105, or 15.6%, from $589,326 of total revenues for the three months ended March 31, 2015. Product sales increased $154,605, or 29.3%, to $681,431 for the three months ended March 31, 2016 from $526,826 for the three months ended March 31, 2015. The increase in product sales is attributable to increased selling efforts and momentum during the three months ended March 31, 2016. Royalties from international distributors were none and $62,500 for the three months ended March 31, 2016 and 2015, respectively. The decrease in royalties is attributable to a lack of royalties from our Brazilian partner due to the current economic climate in Brazil.

 

Cost of Revenues. Total cost of revenues for the three months ended March 31, 2016 were $376,140, a decrease of $688, or 0.2%, from $376,828 for the three months ended March 31, 2015. Cost of product sales during the three months ended March 31, 2016 were 55.2% as compared to 71.5% during the three months ended March 31, 2015.

 

Gross Profit. Gross profit increased $92,793 to $305,291 for the three months ended March 31, 2016, from a gross profit of $212,498 for the three months ended March 31, 2015. The increase in gross profit reflects the decrease in product cost of sales during the three months ended March 31, 2016. During the three months ended March 31, 2016, we realized a 44.8% gross profit on our product sales as compared to a 28.5% gross profit on product sales during the three months ended March 31, 2015.

 

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General and Administrative Expenses. General and administrative expenses increased by $127,261, or 41.0%, to $437,403 for the three months ended March 31, 2016 from $310,142 for the three months ended March 31, 2015. General and administrative expenses for the three months ended March 31, 2016 are comprised of salaries and wages of $110,431, professional fees of $48,604, office expenses of $940, insurance of $34,745, rent of $51,366, travel of $20,495, stock-based compensation of $60,000, SEC financial reporting expenses of $66,531, and other of $44,291. General and administrative expenses for the three months ended March 31, 2015 are comprised of salaries and wages of $62,130, professional fees of $45,001, office expenses of $6,173, insurance of $15,514, rent of $15,182, travel of $9,638, SEC registration expenses, (including accounting, legal, audit and filing fees) of $92,942, and other of $63,562. The increase in general and administrative expenses during the three months ended March 31, 2016 is comprised of an increase in salaries and wages of $48,301, an increase in professional fees of $3,603, a decrease in office expenses of $5,233, an increases in insurance expense of $19,231 an increase of $36,184 of rent expense, an increase in travel of $10,857, an increase in stock based compensation of $60,000, a decrease in SEC expenses of $26,411, and a $19,271 decrease in other general and administrative expenses. The overall increase in general and administrative expenses is attributable to an increase in salary and wages, increased rent, an increase in travel, decreased expenses for SEC registration fees, and a decrease in other general and administrative expenses.

 

Sales and Marketing Expense. Sales and marketing expense decreased $37,819, or 30.0%, to $88,305 for the three months ended March 31, 2016 from $126,124 for the three months ended March 31, 2015. This decrease in sales and marketing expenses is primarily due to shifting a major trade show from the spring to the fall, with a net 29.3% increase in our product sales during the three months ended March 31, 2016 and cost reductions.

 

Interest Expense. Interest expense increased by $40,967 to $147,974 for the three months ended March 31, 2016 from $107,007 for the three months ended March 31, 2015. The increase is largely due to the increased interest expense on the increased balance of the delayed draw note with the PIMCO Fund during the three months ended March 31, 2016 and the amortization of loan discounts and loan fees.

 

Net Loss. Net loss increased by $37,616 or 11.4% to a net loss of $368,391 for the three months ended March 31, 2016 from a net loss of $330,775 for the three months ended March 31, 2015. This increase in our net loss is primarily attributable to the increased operating expenses which was offset by our increased revenues, as discussed above.

 

Nine months ended March 31, 2016 Compared to the Nine Months Ended March 31, 2015

 

Our revenue, operating expenses, and net loss from operations for the nine month period ended March 31, 2016 as compared to the nine month period ended March 31, 2015 are set forth below.

 

    Nine Months Ended March 31:        % Change
Increase
 
    2016     2015   Change   (Decrease) 
REVENUES:                    
Product sales  $1, 813,949   $1,300,148   $513,801    39.5%
Royalties   15,413    192,940    (177,527)   (92.0)%
NET REVENUES   1,829,362    1,493,088    336,274    22.5%
COST OF REVENUES   1,021,471    982,587    38,884    4.0%
Gross profit   807,891    510,501    297,390    58.3%
OPERATING EXPENSES:                    
General and administrative   1,284,908    1,187,497    97,411    8.2%
Sales and marketing   262,501    227,845    34,656    15.2%
Total operating expenses   1,547,409    1,415,342    132,067    9.3%
Loss from operations   (739,518)   (904,841)   (165,323)   (18.3)%
Interest expense   (406,530)   (278,918)   127,612    (45.8)%
Other income       14,758    (14,758)   (100.0)%
Net loss  $(1,146,048)  $(1,169,001)  $(22,953)   (2.0)%

 

Revenues. Total revenues for the nine months ended March 31, 2016 were $1,829,362, an increase of $336,274, or 22.5%, from $1,493,088 of total revenues for the nine months ended March 31, 2015. Product sales increased $513,801, or 39.5 %, to $1,813,949 for the nine months ended March 31, 2016 from $1,300,148 for the nine months ended March 31, 2015. The increase in product sales is attributable to the active sales and marketing program launched during 2015. Royalties from international distributors were $15,413, a decrease by $177,527 for the nine months ended March 31, 2016, as compared to $192,940 of royalties for the nine months ended March 31, 2015. The decrease in royalties is attributable to the economic downturn in Brazil which severely impeded our Brazilian partner to sell product and pay royalties.

 

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Cost of Revenues. Total cost of revenues for the nine months ended March 31, 2016 were $1,021,471, an increase of $38,884, or 4.0%, from $982,587 for the nine months ended March 31, 2015. Cost of product sales during the nine months ended March 31, 2016 were 56.3% as compared to 75.6% during the nine months ended March 31, 2015. The increase in costs of revenues is attributable to the increased product and the improved product cost of sales percentages during the nine months ended March 31, 2016. The decrease in product cost of sales is largely attributable to the Company’s transition from U.S. manufacturing to Chinese manufacturing. Due to the increased sales volume, we were also able to leverage on purchasing power and materials management efficiencies.

Gross Profit. Gross profit increased $297,390 to $807,891 for the nine months ended March 31, 2016, from a gross profit of $510,501 for the nine months ended March 31, 2015. The increase in gross profit reflects the increase in product sales and the improved gross profit margin on product sales during the nine months ended March 31, 2016. During the nine months ended March 31, 2016, we realized a 44.2% gross profit on our product sales as compared to a 24.4% gross profit realized on product sales during the nine months ended March 31, 2015.

 

General and Administrative Expenses. General and administrative expenses increased by $97,411, or 8.2%, to $1,284,908 for the nine months ended March 31, 2016 from $1,187,497 for the nine months ended March 31, 2015. General and administrative expenses for the nine months ended March 31, 2016 are comprised of salaries and wages of $329,446, professional fees of $200,470, office expenses of $2,692, insurance of $82,197, rent of $119,303, SEC financial reporting expenses, (including accounting, legal, audit and edgar/XBRL filing service fees) of $229,749, travel of $44,199, stock based compensation of $135,433, and other of $141,419. General and administrative expenses for the nine months ended March 31, 2015 are comprised of salaries and wages of $208,203, professional fees of $146,537, insurance of $36,781, rent of $44,565, office expenses of $14,891, capital commitment fee of $197,314, travel of $39,083, expenses associated with our initial public offering of $384,766, and other of $115,357. The increase in general and administrative expenses during the nine months ended March 31, 2016 is comprised of an increase in salaries and wages of $121,243, an increase of $53,933 in professional fees, a decrease in SEC financial reporting expenses of $155,017, a decrease in office expenses of $12,199, a decrease in capital commitment fee of $197,314, an increase of $45,416 in insurance expense, an increase of $74,738 in rent expense, an increase in travel of $5,116, an increase in stock based compensation of $135,433, and a net $26,062 increase in other general and administrative expenses. The overall increase in general and administrative expenses is attributable to increased expenses for professional fees relating to the audit, accounting, legal fees, an increase in salaries and wages, professional fees, insurance, rent, stock based compensation and other administrative costs, offset by a decrease in capital commitment fees associated with the initial public offering of our securities.

 

Sales and Marketing Expense. Sales and marketing expense increased $34,656, or 15.2%, to $262,501 for the nine months ended March 31, 2016 from $227,845 for the nine months ended March 31, 2015. This increase in sales and marketing expenses is attributable to increased sales and marketing personnel that were employed during the nine months ended March 31, 2016 and increased sales commissions due to a 39.5% increase in product sales.

 

Interest Expense. Interest expense increased by $127,612 to $406,530 for the nine months ended March 31, 2016 from $278,918 for the nine months ended March 31, 2015. The increase is largely due to the increased interest expense on the delayed draw note with the PIMCO Fund during the nine months ended March 31, 2016 and the amortization of $142,696 of loan fees and discounts during the nine months ended March 31, 2016 compared to the $106,700 of amortization in the nine months ending March 31, 2015.

 

Other Income. During the nine months ended March 31, 2015, we realized $14,758 of other income while during the nine months ended March 31, 2016 we did not realize comparable other income.

 

Net Loss. Net loss decreased by $22,953 or 2.0% to a net loss of $1,146,048 for the nine months ended March 31, 2016 from net loss of $1,169,001 for the nine months ended March 31, 2015. This decrease in our net loss is primarily attributable to the increased revenues offset by our increased expenses, as discussed above.

 

Liquidity and Capital Resources

 

Our consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the condensed consolidated financial statements, we incurred a net loss of $1,146,048 during the nine months ended March 31, 2016, and losses are expected to continue in the near term. The accumulated deficit since inception is $7,156,532 at March 31, 2016. These losses may reduce future income taxes, as applicable. We have been funding our operations through private loans and the sale of equity interests in private placement transactions. See our discussion of our Credit Facility with PIMCO and our Equity Purchase Agreement with Kodiak Capital below. Our cash resources are insufficient to meet our planned business objectives without additional financing. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.

 

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Management anticipates that significant additional expenditures will be necessary to further develop our product lines and licensing relationships to expand product sales and royalty revenues before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At March 31, 2016, we had $32,892 of cash on hand. We anticipate that our existing cash and cash equivalents, together with our cash from operating activities will not be sufficient to fund operations and expected growth through at least the next twelve months. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.

 

Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) executing contracts with international licensees; and (c) controlling overhead and expenses. There can be no assurance that we can successfully accomplish these steps and it is uncertain that we will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to us on satisfactory terms and conditions, if at all.

 

In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

 

The success of our ability to continue as a going concern is dependent upon obtaining new customers for our products and new licensees to generate royalty revenues, and maintaining a break even or profitable level of operations. We have incurred operating losses since inception, and this is likely to continue in the near future. We believe that we are able to fund our immediate operations, working capital requirements, and debt service requirements with existing working capital, cash flows generated from operations, and if available, under our equity purchase agreement with Kodiak.

 

Our financial requirements will be dependent upon the financial support through credit facilities and additional sales of our equity securities. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.

 

The downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock or the debt securities may cause us to be subject to restrictive covenants. If additional financing is not available or is not available on acceptable terms, we may have to curtail our operations.

 

Cash, total current assets, total assets, total current liabilities and total liabilities as of March 31, 2016 and June 30, 2015, were as follows:

 

   March 31, 2016   June 30, 2015 
Cash  $32,892   $51,016 
Total current assets  $703,481   $721,703 
Total assets  $790,063   $843,739 
Total current liabilities  $1,049,625   $829,332 
Total liabilities  $3,441,681   $2,534,749 

 

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At March 31, 2016, we had a working capital deficit of $346,144 compared to a working capital deficit of $107,629 at June 30, 2015. Current liabilities increased to $1,049,625 at March 31, 2016 from $829,332 at June 30, 2015, primarily as a result of increases in accounts payable and the bank line of credit, offset by the decrease in customer deposits.

 

Our operating activities used net cash of $538,207 for the nine months ended March 31, 2016 compared to net cash used in operations of $508,881 for the nine months ended March 31, 2015. The net cash used in operations for the nine months ended March 31, 2016, reflects a net loss of $1,146,048, decreased by $323,680 in non-cash charges and by $284,161 net increase in the working capital accounts. The net cash used in operations for the nine months ended March 31, 2015 reflects a net loss of $1,169,001, decreased by $350,558 in non-cash charges and by $309,562 net increase in the working capital accounts.

 

Our net cash used in investing activities was $14,111 for the nine months ended March 31, 2016, comprised of $9,000 of intangible asset acquisitions and $5,111 of equipment acquisitions. Our cash used in investing activities for the nine months ended March 31, 2015, was $62,485 that included $51,389 in purchases of equipment and $11,096 of intangible asset acquisition costs.

 

Our net cash provided by financing activities for the nine months ended March 31, 2016 was $534,194, which consisted of $500,000 in cash proceeds from our October 2015 draw-down on the PIMCO Note Payable, $53,421 in proceeds from the Well Fargo Bank line of credit, offset by payment of $19,227 on the Wells Fargo Bank line of credit. Our net cash provided by financing activities for the nine months ended March 31, 2015 was $431,405 resulting primarily from $500,000 in proceeds from the PIMCO delayed draw note facility. This amount was offset by $42,626 of payment of related party payable and $25,969 of debt issuance costs.

 

Credit Facility

 

On June 10, 2014, we entered into a Note Purchase Agreement (“Agreement”) with PIMCO Funds: Private Account Portfolio Series: PIMCO High Yield Portfolio, a separate investment portfolio of PIMCO Funds, a Massachusetts business trust (“PIMCO”) that authorized the issuance of up to $2,500,000. On June 12, 2014, we entered into a Senior Secured Note (“Note”) whereby we drew $1,500,000. The note bears interest at 14% and matures on June 12, 2017. Interest in payable monthly in arrears, provided that if no event of default has occurred, Obligor can elect to pay cash interest on each payment date at 9%, with the additional unpaid interest due on such dates added to the principal balance, The note bears an effective interest rate of 21%. This Note is collateralized by all of our assets. The Note includes various covenants, including but not limited to, having annual audited financial statements within 90 days of the end of the fiscal year.

 

On February 6, 2015, we drew an additional $500,000 under this facility to increase the principal amount payable (including the accrued interest added to the principal amount) under this note to $2,044,300 and on October 20, 2015, we drew the remaining $500,000 available under this facility to increase the amount payable under this note (with accrued interest) to $2,620,098 as of October 20, 2015. We issued 50,000 shares of our common stock to PIMCO as a loan fee in consideration of the October 2015 draw down. A replacement note was issued on each draw down date to reflect the note increase.

 

Equity Purchase Agreement with Kodiak Capital LLC

 

On December 17, 2014, we entered into an Equity Purchase Agreement (“Equity Purchase Agreement”) with Kodiak Capital LLC. The Equity Purchase Agreement provides us with a financing (the “Financing” ) whereby the registrant can issue and sell to Kodiak, from time to time, shares of our common stock (the “Put Shares” ) up to an aggregate purchase price of $5.0 million (the “Maximum Commitment Amount”) during the Commitment Period (as defined below). Under the terms of the Equity Purchase Agreement, we have the right to deliver from time to time a Put Notice to Kodiak stating the dollar amount of Put Shares (up to $500,000 under any individual Put Notice) that we intend to sell to Kodiak with the price per share based on the following formula: seventy-five percent (75%) of the lowest closing bid price of our common stock during the period beginning on the date of the Put Notice and ending five (5) days thereafter. Under the Equity Purchase Agreement, we may not deliver the Put Notice until after the resale of the Put Shares has been registered pursuant to a registration statement filed with the Securities and Exchange Commission. Additionally, provided that the Equity Purchase Agreement does not terminate earlier, during the period beginning on March 24, 2016 (the trading day immediately following the effectiveness of the registration statement) and ending December 31, 2016, we may deliver the Put Notice or Notices (up to the Maximum Commitment Amount) to Kodiak (the “Commitment Period”). In addition, in no event shall Kodiak be entitled to purchase that number of Put Shares which when added to the sum of the number of shares of common stock already beneficially owned by Kodiak would exceed 9.99% of the number of shares of common stock outstanding on the applicable closing date.

 

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The Equity Purchase Agreement also provides that we are not entitled to deliver a Put Notice, and Kodiak shall not be obligated to purchase any Put Shares, unless each of the following conditions are satisfied: (i) a registration statement has been declared effective and remains effective for the resale of the Put Shares until the closing with respect to the subject Put Notice; (ii) at all times during the period beginning on the date of the Put Notice and ending on the date of the related closing, our common stock has been listed on the Principal Market as defined in the Equity Purchase Agreement (which includes, among others, the Over-the-Counter Bulletin Board and the OTC Market Group’s OTC Link quotation system) and shall not have been suspended from trading thereon; (iii) we have complied with its obligations and is otherwise not in breach of or in default under the Equity Purchase Agreement, the Registration Rights Agreement or any other agreement executed in connection therewith; (iv) no injunction has been issued and remains in force, and no action has been commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Put Shares; and (v) the issuance of the Put Shares will not violate any shareholder approval requirements of the market or exchange on which our common stock are principally listed.

 

The Equity Purchase Agreement will terminate when any of the following events occur: (i) Kodiak has purchased an aggregate of $5.0 million of our common stock, (ii) on December 31, 2016 or (iii) upon written notice from us to Kodiak.

 

The proceeds from the agreement with Kodiak would primarily be used for working capital and general corporate purposes. However, Kodiak is not required to provide funding until certain conditions are met, as described above. The registration statement for the resale of the Put Shares was declared effective by the SEC on March 23, 2016 and we are currenlty in compliance with the other conditions set forth above. However, we must remain in compliance with these conditions before Kodiak will be required to provide funding. There can be no assurance that we will remain in compliance with the requisite conditions under which Kodiak will be required to provide the equity capital.

 

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of our last fiscal quarter ended March 31, 2016, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were effective as of March 31, 2016, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by the SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Going forward from this filing, the Company intends to improve its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

 

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Changes in Internal Control over Financial Reporting

 

During the quarter covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

 18 
   

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, the Company may become a party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. The Company is not involved currently in legal proceedings that could reasonably be expected to have a material adverse effect on its business, prospects, financial condition or results of operations. The Company may become involved in other material legal proceedings in the future.

 

Item 1A. Risk Factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item. Please refer to “Risk Factors” contained in our Annual Report on Form 10-K for the year ended June 30, 2015.

 

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

 

  1. On February 23, 2016, we issued 50,000 shares of common stock to an employee in consideration of services rendered. We did not receive any proceeds from this issuance. The issuance was exempt under Section 4(a)(2) of the Securities Act of 1933, as amended. The shares were valued at $30,000.
     
  2. On February 23, 2016, we issued 50,0000 shares of common stock to a third party consultant in consideration of services rendered under a consulting agreement. We did not receive any proceeds from this issuance. The issuance was exempt under Section 4(a)(2) of the Securities Act of 1933, as amended. The shares were valued at $30,000.
     
  3. See our Current Report on Form 8-K dated May 3, 2016 and filed on May 10, 2016.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information

 

See our Current Report on Form 8-K dated April 11, 2016 and filed on April 14, 2016 related to our increase in authorized common stock from 250 million shares to 1.25 billion shares and proportionate 1-for-5 forward split of our common stock described therein. All references in the unaudited condensed consolidated financial statements and notes to unaudited condensed consolidated financial statements, numbers of shares, and share amounts have been retroactively restated to reflect the 1-for-5 forward split, unless explicitly stated otherwise.

 

 19 
   

 

Item 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
31.1   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification of the Chief Financial Officer pursuant to U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Schema Linkbase Document
     
101.CAL   XBRL Taxonomy Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Labels Linkbase Document
     
101.PRE   XBRL Taxonomy Presentation Linkbase Document

 

 20 
   

 

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 of the undersigned thereunto duly authorized.

 

  XFIT BRANDS, INC
  (Registrant)
     
Date: May 16, 2016 By: /s/ David E. Vautrin
    David E. Vautrin
    Chief Executive Officer
(Principal Executive Officer)
     
Date: May 16, 2016 By: /s/ Robert J. Miranda
    Robert J. Miranda
    Chief Financial Officer
(Principal Accounting Officer)

 

 21 
   

 

EX-31.1 2 ex31-1.htm

 

Exhibit 31.1

 

Chief Executive Officer Certification (Section 302)

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, David E. Vautrin, certify that:

 

(1) I have reviewed this quarterly report on Form 10-Q of XFit Brands, Inc., (Registrant).

 

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

(3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

(4) The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

(b) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(c) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.

 

Date: May 16, 2016

 

  By: /s/ David E. Vautrin
    David E. Vautrin
    Chief Executive Officer

 

 
   

EX-31.2 3 ex31-2.htm

 

Exhibit 31.2

 

Chief Financial Officer Certification (Section 302)

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Robert J. Miranda, certify that:

 

(1) I have reviewed this quarterly report on Form 10-Q of XFit Brands, Inc., (Registrant).

 

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

(3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

(4) The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

(b) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(c) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.

 

Date: May 16, 2016

 

  By: /s/ Robert J. Miranda
    Robert J. Miranda
   

Chief Financial Officer

 

 
   

EX-32.1 4 ex32-1.htm

 

Exhibit 32.1

 

CERTIFICATION OF DISCLOSURE PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of XFit Brands, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, David E. Vautrin, Chief Executive Officer of the Company, certify, pursuant to 18 USC section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 16, 2016

 

By: /s/ David E. Vautrin  
  David E. Vautrin,  
  Chief Executive Officer  
  Principal Executive Officer  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 
   

EX-32.2 5 ex32-2.htm

 

Exhibit 32.2

 

CERTIFICATION OF DISCLOSURE PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of XFit Brands, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Robert J. Miranda, Chief Financial Officer of the Company, certify, pursuant to 18 USC section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 16, 2016

 

By: /s/ Robert J. Miranda  
  Robert J. Miranda,  
  Chief Financial Officer  
  Principal Financial Officer  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 
   

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Mar. 31, 2016
May. 16, 2016
Document And Entity Information [Abstract]    
Entity Registrant Name XFIT BRANDS, INC.  
Entity Central Index Key 0001623554  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Current Fiscal Year End Date --06-30  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   20,595,500
Trading Symbol XFTB  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2016  
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Jun. 30, 2015
Current Assets    
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Accounts receivable 182,209 92,823
Royalties receivable 65,413 75,000
Inventory 278,993 169,292
Prepaid expenses 143,974 333,572
Total Current Assets 703,481 721,703
Long Term Assets    
Property and equipment, net 37,904 42,292
Other assets    
Deposits 23,466 27,480
Intangible assets, net 25,212 52,264
TOTAL ASSETS 790,063 843,739
Current Liabilities    
Accounts payable 713,276 446,063
Related party payable 95,620 95,620
Accrued expenses and interest 97,685 129,182
Customer deposits 108,850 $ 158,467
Line of credit 34,194
Total Current Liabilities 1,049,625 $ 829,332
Note payable, net 2,392,056 1,705,417
Total Liabilities $ 3,441,681 $ 2,534,749
Commitments and contingencies (Note 8)
Stockholders' Deficit    
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2016 and June 30, 2015
Common stock, $0.0001 par value, 1,250,000,000 shares authorized, 20,595,500 and 20,367,500 shares issued and outstanding as of March 31, 2016 and June 30, 2015, respectively $ 2,059 $ 2,037
Additional paid in capital 4,502,855 4,317,444
Accumulated deficit (7,156,532) (6,010,491)
Total Stockholders' Deficit (2,651,618) (1,691,010)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 790,063 $ 843,739
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Jun. 30, 2015
Statement of Financial Position [Abstract]    
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Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 1,250,000,000 1,250,000,000
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Common stock, shares outstanding 20,595,500 20,367,500
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3 Months Ended 9 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Revenues:        
Product sales $ 681,431 $ 526,826 $ 1,813,949 $ 1,300,148
Royalties 62,500 15,413 192,940
Net revenues $ 681,431 589,326 1,829,362 1,493,088
Cost of revenues 376,140 376,828 1,021,471 982,587
Gross Profit 305,291 212,498 807,891 510,501
Operating expenses        
General and administrative 437,403 310,142 1,284,908 1,187,497
Sales and marketing 88,305 126,124 262,501 227,845
Total operating expenses 525,708 436,266 1,547,409 1,415,342
(Loss) Income from operations (220,417) (223,768) (739,518) (904,841)
Interest expense $ (147,974) $ (107,007) $ (406,530) (278,918)
Other income 14,758
Net (Loss) Income $ (368,391) $ (330,775) $ (1,146,048) $ (1,169,001)
Loss per common share - basic and diluted $ (0.02) $ (0.02) $ (0.06) $ (0.06)
Weighted average shares outstanding - basic and diluted 20,592,500 20,000,000 20,592,500 20,000,000
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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities    
Net loss $ (1,146,048) $ (1,169,001)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 45,551 11,544
Amortization of debt issuance costs and loan discount 142,696 106,700
Stock based compensation 135,000 $ 232,314
Value of options issued to employees 433
Changes in operating assets and liabilities:    
Accounts receivable (89,386) $ (75,653)
Royalties receivable 9,587 (6,867)
Inventory 109,701 (16,625)
Prepaid expenses 189,598 $ (9,989)
Deposits 4,014
Accounts payable 267,222 $ 224,403
Accrued expenses and interest 62,445 112,763
Customer deposits (49,618) 81,530
Net cash used in operating activities (538,207) (508,881)
Cash flows from investing activities    
Acquisition of intangible assets (9,000) (11,096)
Purchase of property and equipment (5,111) (51,389)
Net cash used in investing activities (14,111) $ (62,485)
Cash flows from financing activities    
Payment of line of credit (19,227)
Proceeds from line of credit $ 53,421
Payment of related party payable $ (42,626)
Debt issuance costs (25,969)
Proceeds from increase in PIMCO note payable $ 500,000 500,000
Net cash provided by financing activities 534,194 431,405
Net decrease in cash (18,124) (139,961)
Cash at beginning of period 51,016 360,323
Cash at end of period 32,892 220,362
Supplemental cash flow information:    
Cash paid for interest 115,860 $ 199,689
Non-cash investing and financing activities:    
Value of common shares issued as a loan fee $ 50,000
Distribution $ 100,000
Issuance of common stock in exchange for LLC interests $ 55,000
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.4.0.3
Nature of the Business and Significant Accounting Policies
9 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Nature of the Business and Significant Accounting Policies

NOTE 1 - NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

History of the Company

 

XFit Brands, Inc. (“XFit” or the “Company”) was incorporated on September 16, 2014 under the laws of the State of Nevada. The fiscal year of the Company is June 30. XFit’s principal business activity is the design, development, and worldwide marketing and selling of functional equipment, training gear, apparel and accessories for the impact sports market and fitness industry. Products are marketed and sold under the “Throwdown®” brand name to gyms, fitness facilities and directly to consumers via an internet website and through third party catalogues through a mix of independent distributors and licensees throughout the world.

 

These financial statements represent the condensed consolidated financial statements of XFit and its wholly owned operating subsidiaries Throwdown Industries Holdings, LLC (“Holdings”), Throwdown Holdings, LLC (“TDLLC”), and Throwdown Industries, Inc. (“TDINC”). On September 26, 2014, XFit entered into a Contribution and Exchange Agreement with TD Legacy, LLC (“TD Legacy”) and Holdings under which TD Legacy contributed all of its membership interest in Holdings to XFit in exchange for the issuance by XFit of 20,000,000 shares of common stock to TD Legacy. The result of this transaction was that Holdings became a wholly owned subsidiary of XFit.

 

Forward Stock Split

 

On March 28, 2016, the Board of Directors approved a 1-for-5 forward split of its outstanding shares of common stock (and proportional increase of its authorized common stock from 250 million shares to 1.25 billion shares) with a record date of April 14, 2016 and an effective date of April 15, 2016. Prior to the split, the Company had 4,118,500 shares issued and outstanding and after the split, the Company had 20,592,500 shares issued and outstanding. All references in the unaudited condensed consolidated financial statements and notes to unaudited condensed consolidated financial statements, numbers of shares, and share amounts have been retroactively restated to reflect the 1-for-5 forward split, unless explicitly stated otherwise.

 

Basis of presentation

 

The accompanying condensed consolidated financial statements are unaudited, but in the opinion of management, reflect all adjustments necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes as of and for the years ended June 30, 2015 and 2014, which were filed with the Company’s annual report form 10K on September 28, 2015. The results of operations for the nine months ended March 31, 2016 are not necessarily indicative of results that may be expected for the year ending June 30, 2016, or for any other interim period.

 

Basis of Consolidation

 

The condensed consolidated financial statements include the accounts of XFit, Holdings and TDINC. All significant intercompany transactions and balances have been eliminated in consolidation.

 

The Company also consolidates any variable interest entities (“VIEs”), of which it is the primary beneficiary, as defined within Accounting Standards Codification (“ASC”) 810. The Company does not have any VIEs that are required to be consolidated as of March 31, 2016 or June 30, 2015.

 

Recent Accounting Pronouncements

 

The Company has implemented all new accounting standards and does not believe that there are any other new accounting pronouncements that have been issued that may have a material impact on the consolidated financial statements.

  

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (“ASU-2015-03”). ASU 2015-03 requires companies to present debt issuance costs as a direct deduction from the carrying value of that debt liability. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

Income (Loss) per Share

 

The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the period. The diluted net loss per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity. Diluted net loss per share is the same as basic net loss per share due to the lack of dilutive items. As of March 31, 2016 and June 30, 2015, the Company had 2,311,945 and 2,263,060, respectively, of potential shares exercisable that are attributable to the PIMCO warrant, which have been excluded as their effect is anti-dilutive.

 

Use of Estimates

 

Condensed consolidated financial statements prepared in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management has estimated the collectability of its accounts receivable, the valuation of long-lived assets, and equity instruments issued for financing. Actual results could differ from those estimates.

 

Loan Discounts and Loan Fees

 

The Company amortizes loan discounts over the term of the loan using the effective interest method. Costs associated with obtaining financing are capitalized and amortized over the term of the related loans using the effective interest method. As of March 31, 2016 and June 30, 2015, the Company had total gross debt issuance costs of $199,632 and $149,632, respectively. Accumulated amortization of the debt issuance costs was $99,982 and $46,990 for the nine month periods ended March 31, 2016 and 2015, respectively, which was recorded as a component of interest expense on the condensed consolidated statements of operations.

 

Subsequent Events

 

In accordance with ASC 855, the Company evaluated subsequent events through May 16, 2016, which was the date the consolidated financial statements were available for issue.

XML 18 R7.htm IDEA: XBRL DOCUMENT v3.4.0.3
Property and Equipment, Net
9 Months Ended
Mar. 31, 2016
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net

NOTE 2 - PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following at:

 

    March 31, 2016     June 30, 2015  
    (Unaudited)        
Office furniture and equipment   $ 51,794     $ 46,233  
Warehouse equipment     15,254       13,254  
Molds and dies     4,200       6,650  
Total, cost     71,248       66,137  
Accumulated Depreciation     (33,344 )     (23,845 )
Property and equipment, net   $ 37,904     $ 42,292  

 

Depreciation expense for the nine month periods ended March 31, 2016 and 2015 was $9,499 and $7,532, respectively.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets, Net
9 Months Ended
Mar. 31, 2016
Intangible Assets, Net (Excluding Goodwill) [Abstract]  
Intangible Assets, Net

NOTE 3 - INTANGIBLE ASSETS, NET

 

Intangible assets consisted of the following at:

 

    March 31, 2016     June 30, 2015  
    (Unaudited)        
Transformations exercise fitness program   $ 62,500     $ 62,500  
Trademark and patent     7,811       4,396  
Computer software     5,584        
Total, cost     75,895       66,896  
Accumulated amortization     (50,683 )     (14,622 )
Intangible assets, net   $ 25,212     $ 52,264  

 

Amortization expense for the nine months ended March 31, 2016 and 2015 was $35,324 and $3,742, respectively.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.4.0.3
Note Payable
9 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Note Payable

NOTE 4 - NOTE PAYABLE

 

The note payable is comprised of the following at:

 

    March 31, 2016     June 30, 2015  
    (Unaudited)        
Note payable   $ 2,620,198     $ 2,085,128  
Add: accrued interest added to note principal     58,870        
Less: unamortized loan discount     (187,362 )     (277,070 )
Less: unamortized debt issuance costs     (99,650 )     (102,641 )
Total note payable, net   $ 2,392,056     $ 1,705,417  

 

On June 10, 2014, the Company entered into a Note Purchase Agreement with Pacific Investment Management Company (“PIMCO”) that authorized the issuance of up to $2,500,000. On June 12, 2014, the Company entered into a Senior Secured Note (“Note”) whereby the Company drew $1,500,000. The note bears interest at 14% and an effective interest rate of 21%. This Note is collateralized by all of the assets of the Company.

 

On February 6, 2015, the Company drew down an additional $500,000 of funds on the PIMCO Note Payable. Following the February 6, 2015 draw, the principal balance payable (including accrued interest added to the principal amount) on the PIMCO note was $2,044,300, and the Company had an additional $500,000 available to draw on this loan facility. The full principal balance outstanding related to this note is due in June 2017.

 

The Note includes various covenants, including but not limited to, having annual audited financial statements within 90 days of the end of the fiscal year. Effective March 31, 2016, the Company is in compliance with all covenants.

 

In connection with the Note, the Company granted warrants to acquire up to 10% of the Company’s capital stock based on an aggregate enterprise fair market value of $15.0 million. The Company valued the warrants using the Black-Scholes option pricing model with the following variables: annual dividend yield of 0%; expected life of 10 years; risk free rate of return of 2.92%; and expected volatility of 0%. The Company estimated the value of the warrants to be $377,480, which is recorded as a loan discount and is being amortized under the effective interest method to interest expense over the term of the loan.

 

On September 30, 2015, in consideration of the draw-down of the remaining $500,000 available on the PIMCO Note Payable, the Company issued 50,000 shares of its common stock at a fair value of $50,000 as determined by the Company’s board of directors. This amount was recorded as a loan fee to be amortized over the remaining term of the PIMCO Note Payable.

 

On October 20, 2015, the Company drew the remaining $500,000 available under its delayed draw note facility with PIMCO to increase the principal amount under this note (including the accrued interest added to the principal amount) to $2,620,098. A replacement note was issued on this date to reflect the note increase.

 

During the nine month periods ended March 31, 2016 and 2015, the Company amortized $142,696 and $106,700, respectively, of the loan fees and discount which is recorded as a component of interest expense on the consolidated statements of operations.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.4.0.3
Bank Line of Credit
9 Months Ended
Mar. 31, 2016
Line of Credit Facility [Abstract]  
Bank Line of Credit

NOTE 5 - BANK LINE OF CREDIT

 

On July 24, 2015, the Company entered into an unsecured line of credit with Wells Fargo Bank for up to $35,000. The line of credit bears interest at prime plus 4% and is personally guaranteed by the Company’s chief executive officer. As of September 30, 2015, the balance payable on the line of credit was $19,224, which amount was repaid on October 23, 2015. After October 23, 2015, the Company renewed the line of credit and borrowed an additional $34,197. This line of credit has an unpaid balance of $34,194 as of March 31, 2016.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related Party Transactions
9 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Related Party Transactions

NOTE 6 - RELATED PARTY TRANSACTIONS

 

Related Party Payable

 

As of March 31, 2016 and June 30, 2015, the Company has $95,620 and $95,620, respectively, of salaries and bonuses payable to four of its officers and membership interest holders. These bonuses were to cover income taxes relating to bonuses issued during 2009 and current salaries payable.

 

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stockholders' Deficit
9 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Stockholders' Deficit

NOTE 7 - STOCKHOLDERS’ DEFICIT

 

On July 1, 2015, the Company issued 75,000 shares of its common stock valued at $75,000 to an employee as a signing bonus.

 

On July 15, 2015, the board of directors approved the issuance of 317,500 stock options to employees to be utilized on a performance and retention basis.

 

On September 30, 2015, the Company issued 50,000 shares of its common stock valued by the Company’s board of directors at $50,000 to PIMCO as a loan fee in consideration of the additional $500,000 draw-down on the PIMCO Note Payable that was funded on October 20, 2015. (See Note 4-Note Payable).

 

On November 17, 2015, the Company issued options to purchase 215,000 shares of stock to six employees for services rendered. (See Note 8-Commitments and Contingencies-Stock Incentive Plan)

 

On February 23, 2016, the Company issued 50,000 shares of common stock to an employee and 50,000 shares of common stock to a consultant as part of their former agreements with XFit Brands. The shares were valued at $60,000.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies
9 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

In June 2015, the Company entered into a lease agreement for approximately 25,788 square feet of warehouse and office space under a 38 month operating lease that commenced on October 1, 2015 and expires on October 31, 2018. The lease has monthly payments starting at $8,252 for the period October 1, 2015 through February 28, 2016. Thereafter, monthly payments range from $16,504 to $17,509 over the term of the lease. The Company previously leased office and warehouse facilities under a lease which expired on November 30, 2015 pursuant to which it paid $4,865 per month which included operating expenses, insurance and property taxes.

 

In June 2015, the Company entered into a sublease of a portion of the premises for the period October 1, 2015 through August 31, 2016, at a monthly rental rate of $5,000 plus a pro-rata portion of the utilities.

 

Rent expense for the nine month periods ended March 31, 2016 and 2015, were $119,303 and $44,565, respectively.

 

Litigation

 

From time-to-time, the Company is subject to various litigation and other claims in the normal course of business. The Company establishes liabilities in connection with legal actions that management deems to be probable and estimable. No amounts have been accrued in the condensed consolidated financial statements with respect to any matters.

 

Stock Incentive Plan

 

On October 21, 2014, the Board of Directors and the Company’s sole stockholder adopted the 2014 Stock Incentive Plan. The purpose of the 2014 Stock Incentive Plan is to advance the best interests of the Company by providing those persons who have a substantial responsibility for management and growth of the Company with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with the Company. Further, the availability and offering of stock options and common stock under the plan supports and increases the Company’s ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which the Company depends. The total number of shares available for the grant of either stock options or compensation stock under the plan is 3,000,000 shares of common stock, subject to adjustment. The Board of Directors administers the plan and has full power to grant stock options.

 

On November 17, 2015, the Company issued 215,000 aggregate stock options to six employees. The value of the shares issued was determined to be $433 utilizing the Black-Scholes valuation model based on stock value of $1.00 at the date of issuance, a 5 year life of the options, a discount rate of 1.73%, and a zero percent stock volatility rate. The value of the stock options was $433 and was recorded as stock based compensation expense during the nine months ended March 31, 2016.

 

At March 31, 2016, the Company had not issued any shares under the plan and had granted options to purchase 215,000 shares under the plan.

 

Equity Purchase Agreement

 

On December 17, 2014, the Company entered into an Equity Purchase Agreement with Kodiak Capital LLC. The Equity Purchase Agreement provides the Company with financing whereby the Company can issue and sell to Kodiak, from time to time, shares of common stock (the “Put Shares”) up to an aggregate purchase price of $5.0 million (the “Maximum Commitment Amount”) during the commitment period. The commitment period is defined as the period beginning on the trading day immediately following the effectiveness of the registration statement and ending December 31, 2016. In addition, in no event shall Kodiak be entitled to purchase that number of Put Shares which when added to the sum of the number of shares of common stock already beneficially owned by Kodiak would exceed 9.99% of the number of shares of common stock outstanding on the applicable closing date.

 

The Equity Purchase Agreement will terminate when any of the following events occur: (i) Kodiak has purchased an aggregate of $5.0 million of the Company’s common stock, (ii) on December 31, 2016 or (iii) upon written notice from the Company to Kodiak.

 

Registration Rights Agreement

 

On December 17, 2014, the Company entered into a registration rights agreement with Kodiak Capital, LLC under which the Company is obligated to register the shares to be acquired by Kodiak pursuant to that certain Equity Purchase Agreement dated December 17, 2014, under which Kodiak agreed to purchase up to $5 million of XFit common stock, subject to certain conditions.

 

Asset Purchase Agreement

 

On February 26, 2015, the Company entered into an Asset Purchase Agreement to acquire the exclusive rights, title, and interest in the Transformations exercise and fitness program. The purchase price was $62,500 which comprised of a $7,500 cash payment and fifty-five thousand (55,000) shares of the Company’s common stock that was valued at $55,000. The agreement also had a performance based earn out for a period of eighteen (18) months that is based on fifty percent (50%) of all programming services gross revenues derived from the Transformations program, up to a maximum earn out of $187,500. The earn out is payable in tranches and none of the tranches were met as of March 31, 2016.

 

Vendor Credit Agreements

 

On June 18 2015, the Company entered into a Stock Purchase Agreement with Ever Blooming Industrial Limited, whereby the Company issued 100,000 shares of its common stock at $1.00 per share. The purchase price is in the form of a manufacturing credit totaling $100,000 to use for future inventory purchases (the “Vendor Credit”). The Company can use all or part of the Vendor Credit over the next 12 months until the Vendor Credit is exhausted. As of March 31, 2016 and June 30, 2015, the Company had none and $100,000, respectively, of Vendor Credit included in prepaid expenses on the condensed consolidated balance sheets.

 

On June 26 2015, the Company entered into a Stock Purchase Agreement with Yayu General Machinery Co., LTD, whereby the Company issued 200,000 shares of its common stock at $1.00 per share. The purchase price is in the form of a manufacturing credit of $200,000 to use for future inventory purchases (the “Vendor Credit”). The Company can use all or part of the Vendor Credit over the next 12 months until the Vendor Credit is exhausted. As of March 31, 2016 and June 30, 2015, the Company had $143,376 and $200,000, respectively, of Vendor Credit included in prepaid expenses in the condensed consolidated balance sheets.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events
9 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
Subsequent Events

NOTE 9 - SUBSEQUENT EVENTS

 

On April 15, 2016, we effectuated a 1-for-5 forward stock split of our common stock, or the Stock Split and a proportional increase in our authorized common stock. As a result of the Stock Split, every one share of our pre-Stock Split common stock was reclassified into five shares of our common stock, see comment in Note 1 above.

 

On May 3, 2016, the Company entered into a Securities Purchase Agreement (“SPA”) with a single accredited investor (“Investor”) under which it issued and sold to Investor a promissory note in the principal amount of $125,000 (the “Note”). The Note has a maturity date of December 31, 2016 and an original issue discount of $20,000. In addition, the Company agreed to pay Investor’s expenses in connection with the SPA and issuance of the Note. Accordingly, the Company received net proceeds from Investor of $100,000, which proceeds were used for investor relation services.

 

So long as the Note is outstanding, upon any issuance by us of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Investor in the Note or the Securities Purchase Agreement, then we will notify Investor of such additional or more favorable term and such term, at Investor’s option, shall become a part of the Note and/or Securities Purchase Agreement. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms interest rates, and original issue discounts.

 

Interest shall not accrue on the unpaid principal balance of this Note unless an Event of Default occurs. Upon the occurrence of an Event of Default, the outstanding balance of this Note shall bear interest at the rate of fifteen percent (15%) per annum. The Note has a prepayment deadline of November 3, 2016. Events of Default under the Note include failure to pay any amounts when due, including on the prepayment deadline, breach of covenants or representations and warranties or upon voluntary bankruptcy or insolvency proceedings.

 

At any time following the occurrence of an Event of Default, Investor may, by written notice to us, declare all unpaid principal, plus all accrued interest and other amounts due hereunder to be immediately due and payable at the an amount equal to 125% of the outstanding principal amount of the Note at the time of the default (“Mandatory Default Amount”); provided, however, that for an Event of Default for failure to pay the Note in full on the Prepayment Deadline, Investor will not accelerate the Note unless we fail to pay the Mandatory Default Amount (plus all accrued interest from and after the Event of Default) on the Maturity Date.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.4.0.3
Nature of the Business and Significant Accounting Policies (Policies)
9 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
History of the Company

History of the Company

 

XFit Brands, Inc. (“XFit” or the “Company”) was incorporated on September 16, 2014 under the laws of the State of Nevada. The fiscal year of the Company is June 30. XFit’s principal business activity is the design, development, and worldwide marketing and selling of functional equipment, training gear, apparel and accessories for the impact sports market and fitness industry. Products are marketed and sold under the “Throwdown®” brand name to gyms, fitness facilities and directly to consumers via an internet website and through third party catalogues through a mix of independent distributors and licensees throughout the world.

 

These financial statements represent the condensed consolidated financial statements of XFit and its wholly owned operating subsidiaries Throwdown Industries Holdings, LLC (“Holdings”), Throwdown Holdings, LLC (“TDLLC”), and Throwdown Industries, Inc. (“TDINC”). On September 26, 2014, XFit entered into a Contribution and Exchange Agreement with TD Legacy, LLC (“TD Legacy”) and Holdings under which TD Legacy contributed all of its membership interest in Holdings to XFit in exchange for the issuance by XFit of 20,000,000 shares of common stock to TD Legacy. The result of this transaction was that Holdings became a wholly owned subsidiary of XFit.

Forward Stock Split

Forward Stock Split

 

On March 28, 2016, the Board of Directors approved a 1-for-5 forward split of its outstanding shares of common stock (and proportional increase of its authorized common stock from 250 million shares to 1.25 billion shares) with a record date of April 14, 2016 and an effective date of April 15, 2016. Prior to the split, the Company had 4,118,500 shares issued and outstanding and after the split, the Company had 20,592,500 shares issued and outstanding. All references in the unaudited condensed consolidated financial statements and notes to unaudited condensed consolidated financial statements, numbers of shares, and share amounts have been retroactively restated to reflect the 1-for-5 forward split, unless explicitly stated otherwise.

Basis of Presentation

Basis of presentation

 

The accompanying condensed consolidated financial statements are unaudited, but in the opinion of management, reflect all adjustments necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes as of and for the years ended June 30, 2015 and 2014, which were filed with the Company’s annual report form 10K on September 28, 2015. The results of operations for the nine months ended March 31, 2016 are not necessarily indicative of results that may be expected for the year ending June 30, 2016, or for any other interim period.

Basis of Consolidation

Basis of Consolidation

 

The condensed consolidated financial statements include the accounts of XFit, Holdings and TDINC. All significant intercompany transactions and balances have been eliminated in consolidation.

 

The Company also consolidates any variable interest entities (“VIEs”), of which it is the primary beneficiary, as defined within Accounting Standards Codification (“ASC”) 810. The Company does not have any VIEs that are required to be consolidated as of March 31, 2016 or June 30, 2015.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

The Company has implemented all new accounting standards and does not believe that there are any other new accounting pronouncements that have been issued that may have a material impact on the consolidated financial statements.

  

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (“ASU-2015-03”). ASU 2015-03 requires companies to present debt issuance costs as a direct deduction from the carrying value of that debt liability. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Income (Loss) Per Share

Income (Loss) per Share

 

The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the period. The diluted net loss per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity. Diluted net loss per share is the same as basic net loss per share due to the lack of dilutive items. As of March 31, 2016 and June 30, 2015, the Company had 2,311,945 and 2,263,060, respectively, of potential shares exercisable that are attributable to the PIMCO warrant, which have been excluded as their effect is anti-dilutive.

Use of Estimates

Use of Estimates

 

Condensed consolidated financial statements prepared in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management has estimated the collectability of its accounts receivable, the valuation of long-lived assets, and equity instruments issued for financing. Actual results could differ from those estimates.

Loan Discounts and Loan Fees

Loan Discounts and Loan Fees

 

The Company amortizes loan discounts over the term of the loan using the effective interest method. Costs associated with obtaining financing are capitalized and amortized over the term of the related loans using the effective interest method. As of March 31, 2016 and June 30, 2015, the Company had total gross debt issuance costs of $199,632 and $149,632, respectively. Accumulated amortization of the debt issuance costs was $99,982 and $46,990 for the nine month periods ended March 31, 2016 and 2015, respectively, which was recorded as a component of interest expense on the condensed consolidated statements of operations.

 

Subsequent Events

Subsequent Events

 

In accordance with ASC 855, the Company evaluated subsequent events through May 16, 2016, which was the date the consolidated financial statements were available for issue.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.4.0.3
Property and Equipment, Net (Tables)
9 Months Ended
Mar. 31, 2016
Property, Plant and Equipment [Abstract]  
Summary of Property and Equipment

Property and equipment consisted of the following at:

 

    March 31, 2016     June 30, 2015  
    (Unaudited)        
Office furniture and equipment   $ 51,794     $ 46,233  
Warehouse equipment     15,254       13,254  
Molds and dies     4,200       6,650  
Total, cost     71,248       66,137  
Accumulated Depreciation     (33,344 )     (23,845 )
Property and equipment, net   $ 37,904     $ 42,292  

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets, Net (Tables)
9 Months Ended
Mar. 31, 2016
Intangible Assets, Net (Excluding Goodwill) [Abstract]  
Summary of Intangible Assets

Intangible assets consisted of the following at:

 

    March 31, 2016     June 30, 2015  
    (Unaudited)        
Transformations exercise fitness program   $ 62,500     $ 62,500  
Trademark and patent     7,811       4,396  
Computer software     5,584        
Total, cost     75,895       66,896  
Accumulated amortization     (50,683 )     (14,622 )
Intangible assets, net   $ 25,212     $ 52,264  

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.4.0.3
Note Payable (Tables)
9 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Schedule of Note Payable

NOTE 4 - NOTE PAYABLE

 

The note payable is comprised of the following at:

 

    March 31, 2016     June 30, 2015  
    (Unaudited)        
Note payable   $ 2,620,198     $ 2,085,128  
Add: accrued interest added to note principal     58,870        
Less: unamortized loan discount     (187,362 )     (277,070 )
Less: unamortized debt issuance costs     (99,650 )     (102,641 )
Total note payable, net   $ 2,392,056     $ 1,705,417  

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.4.0.3
Nature of the Business and Significant Accounting Policies (Details Narrative) - USD ($)
9 Months Ended 12 Months Ended
Mar. 28, 2016
Sep. 26, 2014
Mar. 31, 2016
Dec. 31, 2015
Jun. 30, 2015
Financing Receivable, Impaired [Line Items]          
Forward split stock description 1-for-5 forward split        
Excess stock shares authorized     250,000,000    
Common stock, shares authorized     1,250,000,000   1,250,000,000
Common stock, shares issued     20,595,500   20,367,500
Common stock, shares outstanding     20,595,500   20,367,500
Antidilutive securities excluded from computation of earnings per share, amount     2,311,945   2,263,060
Gross debt issuance costs     $ 199,632   $ 149,632
Amortization of debt issuance costs     $ 99,982 $ 46,990  
April 15, 2016 [Member]          
Financing Receivable, Impaired [Line Items]          
Common stock, shares issued     4,118,500    
Common stock, shares outstanding     4,118,500    
TD Legacy [Member]          
Financing Receivable, Impaired [Line Items]          
Stock issued during period, shares   20,000,000      
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.4.0.3
Property and Equipment, Net (Details Narrative) - USD ($)
9 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Property, Plant and Equipment [Abstract]    
Depreciation expense $ 9,499 $ 7,532
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.4.0.3
Property and Equipment, Net - Summary of Property and Equipment (Details) - USD ($)
Mar. 31, 2016
Jun. 30, 2015
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 71,248 $ 66,137
Less: Accumulated depreciation (33,344) (23,845)
Total Property and equipment, net 37,904 42,292
Office Furniture and Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross 51,794 46,233
Warehouse Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross 15,254 13,254
Molds and Dies [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 4,200 $ 6,650
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets, Net (Details Narrative) - USD ($)
9 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Intangible Assets, Net (Excluding Goodwill) [Abstract]    
Amortization expense $ 35,324 $ 3,742
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets, Net - Summary of Intangible Assets (Details) - USD ($)
Mar. 31, 2016
Jun. 30, 2015
Total, cost $ 75,895 $ 66,896
Accumulated Amortization (50,683) (14,622)
Intangible assets, net 25,212 52,264
Transformations Exercise Fitness Program [Member]    
Total, cost 62,500 62,500
Trademark and Patent [Member]    
Total, cost 7,811 $ 4,396
Computer Software [Member]    
Total, cost $ 5,584
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.4.0.3
Note Payable (Details Narrative) - USD ($)
9 Months Ended
Oct. 20, 2015
Sep. 30, 2015
Feb. 06, 2015
Feb. 06, 2015
Mar. 31, 2016
Mar. 31, 2015
Jun. 30, 2015
Jun. 12, 2014
Jun. 10, 2014
Debt Instrument [Line Items]                  
Note payable         $ 2,620,098   $ 2,085,128    
Fair value of common stock on note payable         50,000      
Debt issuance costs and loan discount         $ 142,696 $ 106,700      
Warrant [Member]                  
Debt Instrument [Line Items]                  
Percentage of granted warrants acquire         10.00%        
Note payable fair market value         $ 15,000,000        
Dividend yield         0.00%        
Expected life         10 years        
Risk free rate of return         2.92%        
Expected volatility         0.00%        
Estimated value of warrants         $ 377,480        
PIMCO Note Payable [Member]                  
Debt Instrument [Line Items]                  
Company drew an additional funds       $ 500,000          
Note due date     Jun. 30, 2017            
PIMCO Note Payable [Member] | Delayed Draw Note Facility [Member]                  
Debt Instrument [Line Items]                  
Company drew an additional funds       500,000          
Note payable to the PIMCO Funds ("PIMCO")     $ 2,044,300 $ 2,044,300          
PIMCO [Member]                  
Debt Instrument [Line Items]                  
Note payable $ 2,620,098                
Company drew an additional funds 500,000                
Drew down remaining available amount $ 500,000 $ 500,000              
Common stock shares issued on note payable   50,000              
Fair value of common stock on note payable   $ 50,000              
Note Purchase Agreement [Member] | PIMCO [Member]                  
Debt Instrument [Line Items]                  
Note payable issuance                 $ 2,500,000
Note Purchase Agreement [Member] | PIMCO [Member] | Senior Secured Note [Member]                  
Debt Instrument [Line Items]                  
Note payable               $ 1,500,000  
Note bears interest rate               14.00%  
Note effective interest rate               21.00%  
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.4.0.3
Note Payable - Schedule of Note Payable (Details) - USD ($)
Mar. 31, 2016
Jun. 30, 2015
Debt Disclosure [Abstract]    
Note payable $ 2,620,098 $ 2,085,128
Add: accrued interest added to note principal 58,970
Less: unamortized loan discount (187,362) $ (277,070)
Less: unamortized debt issuance costs (99,650) (102,641)
Total note payable, net $ 2,392,056 $ 1,705,417
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.4.0.3
Bank Line of Credit (Details Narrative) - USD ($)
9 Months Ended
Oct. 23, 2015
Jul. 24, 2015
Mar. 31, 2016
Mar. 31, 2015
Sep. 30, 2015
Jun. 30, 2015
Line of credit     $ 34,194   $ 19,224
Line of credit and borrowed additional amount $ 34,197   $ 53,421    
Wells Fargo Bank [Member]            
Line of credit maximum borrowing   $ 35,000        
Lineof credit amount repayment date   Oct. 23, 2015        
Wells Fargo Bank [Member] | Prime Rate [Member]            
Line of credit interest rate   4.00%        
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related Party Transactions (Details Narrative)
9 Months Ended
Mar. 31, 2016
USD ($)
Officers
Jun. 30, 2015
USD ($)
Related Party Transactions [Abstract]    
Salaries and bonuses payable | $ $ 95,620 $ 95,620
Number of officers and membership holders | Officers 4  
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stockholders' Deficit (Details Narrative) - USD ($)
9 Months Ended
Feb. 23, 2016
Nov. 17, 2015
Oct. 20, 2015
Sep. 30, 2015
Jul. 15, 2015
Jul. 02, 2015
Mar. 31, 2016
Mar. 31, 2015
Class of Stock [Line Items]                
Number of common stock shares issued for employee as performance bonus         317,500      
Fair value of common stock on note payable as loan fee in consideration             $ 50,000
Six Employees [Member]                
Class of Stock [Line Items]                
Number of stock options issued   215,000            
Employees [Member]                
Class of Stock [Line Items]                
Number of common stock shares issued 50,000              
Number of common stock value issued $ 60,000              
Consultant [Member]                
Class of Stock [Line Items]                
Number of common stock shares issued for services 50,000              
PIMCO [Member]                
Class of Stock [Line Items]                
Common stock shares issued as loan fee in consideration       50,000        
Fair value of common stock on note payable as loan fee in consideration       $ 50,000        
Company drew an additional funds     $ 500,000          
Signing Bonus [Member]                
Class of Stock [Line Items]                
Number of common stock shares issued           75,000    
Number of common stock value issued           $ 75,000    
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies (Details Narrative)
1 Months Ended 9 Months Ended
Nov. 17, 2015
USD ($)
$ / shares
shares
Jun. 26, 2015
USD ($)
$ / shares
shares
Jun. 18, 2015
USD ($)
$ / shares
shares
Feb. 26, 2015
USD ($)
shares
Dec. 17, 2014
USD ($)
Jun. 30, 2015
USD ($)
ft²
Mar. 31, 2016
USD ($)
shares
Mar. 31, 2015
USD ($)
Oct. 21, 2014
shares
Other Commitments [Line Items]                  
Rent expense             $ 119,303 $ 44,565  
Value of options issued to employees             433  
Cash payment of purchase price             9,000 $ 11,096  
Equity Purchase Agreement [Member] | Kodiak Capital LLC [Member]                  
Other Commitments [Line Items]                  
Long-term purchase commitment, amount         $ 5,000,000   $ 5,000,000    
Noncontrolling interest, ownership percentage by non-controlling owners         9.99%        
Purchase agreement termination closing date         Dec. 31, 2016   Dec. 31, 2016    
Registration Rights Agreement [Member] | Kodiak Capital LLC [Member]                  
Other Commitments [Line Items]                  
Registration payment arrangement, maximum potential consideration         $ 5,000,000        
Asset Purchase Agreement [Member]                  
Other Commitments [Line Items]                  
Total purchase price       $ 62,500          
Cash payment of purchase price       $ 7,500          
Number of common stock shares issued for purchases of assets | shares       55,000          
Number of common stock value issued for purchases of assets       $ 55,000          
Performance based earn out period       18 months          
Performance percentage       50.00%          
Maximum earn out amount       $ 187,500          
Stock Purchase Agreement [Member] | Ever Blooming Industrial Limited [Member]                  
Other Commitments [Line Items]                  
Number of common stock shares issued for consideration of future inventory purchases | shares     100,000            
Common stock price per share | $ / shares     $ 1.00            
Number of common stock value issued for consideration of future inventory purchases     $ 100,000            
Vendor credit period     12 months            
Prepaid expenses             $ 0    
Stock Purchase Agreement [Member] | Yayu General Machinery Co., LTD[Member]                  
Other Commitments [Line Items]                  
Number of common stock shares issued for consideration of future inventory purchases | shares   200,000              
Common stock price per share | $ / shares   $ 1.00              
Number of common stock value issued for consideration of future inventory purchases   $ 200,000              
Vendor credit period   12 months              
Vendor Credit Agreements [Member] | Ever Blooming Industrial Limited [Member]                  
Other Commitments [Line Items]                  
Prepaid expenses           $ 100,000      
Vendor Credit Agreements [Member] | Yayu General Machinery Co., LTD[Member]                  
Other Commitments [Line Items]                  
Prepaid expenses           $ 200,000 $ 143,376    
Six Employees [Member]                  
Other Commitments [Line Items]                  
Number of stock options issued | shares 215,000                
Fair value of shares issued $ 433                
Stock price per share | $ / shares $ 1.00                
Stock options life 5 years                
Stock option discount rate 1.73%                
Stock option volatility rate 0.00%                
Shares based compensation $ 433                
2014 Stock Incentive Plan [Member]                  
Other Commitments [Line Items]                  
Share-based compensation arrangement by share-based payment award, number of shares available for grant | shares                 3,000,000
Number of options issued to purchase shares of common stock | shares             215,000    
Warehouse Facilities [Member]                  
Other Commitments [Line Items]                  
Lease expiration date           Nov. 30, 2015      
Operating leases rent expense           $ 4,865      
October 1, 2015 Through August 31, 2016 [Member] | Premises [Member]                  
Other Commitments [Line Items]                  
Sublease rent expense           $ 5,000      
Lease Agreement [Member]                  
Other Commitments [Line Items]                  
Area of square feet | ft²           25,788      
Operating lease period           38 months      
Lease expiration date           Oct. 31, 2018      
Lease Agreement [Member] | Minimum [Member]                  
Other Commitments [Line Items]                  
Operating leases rent expense           $ 16,504      
Lease Agreement [Member] | Maximum [Member]                  
Other Commitments [Line Items]                  
Operating leases rent expense           17,509      
Lease Agreement [Member] | October 1, 2015 Through February 28, 2016 [Member]                  
Other Commitments [Line Items]                  
Operating leases rent expense           $ 8,252      
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events (Details Narrative) - USD ($)
Apr. 15, 2016
Mar. 28, 2016
Forward split stock description   1-for-5 forward split
Subsequent Event [Member]    
Forward split stock description 1-for-5 forward stock split  
Subsequent Event [Member] | Securities Purchase Agreement [Member] | Investor [Member]    
Promissory note principal amount $ 125,000  
Promissory note maturity date Dec. 31, 2016  
Original issue discount $ 20,000  
Proceeds from Investor $ 100,000  
Promissory note interest rate 15.00%  
Promissory note payable equal to outstanding principal amount of note 125.00%  
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