Attached files
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EX-32.2 - SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_32-2.htm |
EX-31.1 - SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_31-1.htm |
EX-32.1 - SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_32-1.htm |
EX-31.2 - SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012
OR
o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER: 000-54300
RELIABRAND INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada | 75-3260541 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer ID No.) |
430 Banks Road Suite 100, Kelowna, BC Canada | V1X 6A3 |
(Address of principal executive offices) | (Zip code) |
Issuer's telephone number: (778) 478-9997
N/A
(Former name, former address and former fiscal year, 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 o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 4, 2012, 78,916,503 shares of the Registrant's Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format: Yes o No x
1
RELIABRAND INC.
TABLE OF CONTENTS
Page No.
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PART I
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FINANCIAL INFORMATION
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3
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ITEM 1
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Condensed Consolidated Financial Statements
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3
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|
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Condensed Consolidated Balance Sheets as of September 30, 2012 (unaudited) and June 30, 2012
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3
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||
Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2012 and 2011, cumulative during development stage from February 22, 2007 (inception) through September 30, 2012
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4
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Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2012 and 2011, and cumulative during development stage from February 22, 2007 (inception) through September 30, 2012
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5 - 6
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Notes to Condensed Consolidated Financial Statements (unaudited)
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7
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|
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ITEM 2
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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18
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ITEM 3
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Quantitative and Qualitative Disclosures about Market Risk
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23
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ITEM 4T
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Controls and Procedures
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23
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PART II
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OTHER INFORMATION
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24
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ITEM 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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24
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ITEM 6
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Exhibits
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24
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SIGNATURE
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25
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2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELIABRAND, INC.
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||||||||
(A DEVELOPMENT STAGE ENTERPRISE)
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
September 30,
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June 30,
|
|||||||
2012
|
2012
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
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$ | 71,473 | $ | 27,247 | ||||
Inventory
|
216,319 | 171,505 | ||||||
Deposits - utilities
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4,292 | 4,292 | ||||||
Prepaid expenses (Note 5)
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64,192 | 48,506 | ||||||
TOTAL CURRENT ASSETS
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356,276 | 251,550 | ||||||
OTHER ASSETS
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||||||||
Property and equipment, net (Note 6)
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27,360 | 28,796 | ||||||
Intellectual and product properties (Note 7)
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100,000 | 143,828 | ||||||
Patents, net of amortization of $89,555 (Note 7)
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1,327,894 | 1,303,348 | ||||||
Product molds, net of amortization of $27,106 (Note 7)
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77,476 | 78,608 | ||||||
TOTAL OTHER ASSETS
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1,532,730 | 1,554,580 | ||||||
Total Assets
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$ | 1,889,006 | $ | 1,806,130 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable
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$ | 79,325 | $ | 52,230 | ||||
Accounts payable - related party
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- | 12,290 | ||||||
Accrued taxes payable
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231 | 174 | ||||||
Note Payable to shareholder (Note 8)
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95,254 | 95,254 | ||||||
Royalties payable - related party
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2,399 | - | ||||||
Accrued liabilities - related party
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6,538 | 5,385 | ||||||
TOTAL CURRENT LIABILITIES
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183,747 | 165,333 | ||||||
STOCKHOLDERS' EQUITY
|
||||||||
Preferred stock, par value $.0001, 10,000,000
|
||||||||
shares authorized, 10,000 issued and outstanding
|
||||||||
September 30, 2012 and June 30, 2012
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1 | 1 | ||||||
Common stock, par value $.0001, 100,000,000 shares authorized,
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||||||||
78,916,500 issued and outstanding - September 30, 2012
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||||||||
59,677,500 issued and outstanding - June 30, 2012
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7,892 | 5,968 | ||||||
Paid in Capital
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3,251,566 | 2,148,338 | ||||||
Subscription receivable
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(2,253 | ) | (2,440 | ) | ||||
Stock due from shareholder
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(12,500 | ) | - | |||||
Common Stock Subscribed
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98,500 | 853,705 | ||||||
(Deficit) accumulated during the development stage
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(1,637,947 | ) | (1,364,775 | ) | ||||
Total Stockholders' Equity
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1,705,259 | 1,640,797 | ||||||
Total Liabilities and Stockholders' Equity
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$ | 1,889,006 | $ | 1,806,130 | ||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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3
RELIABRAND, INC.
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||||||||||||
(A DEVELOPMENT STAGE ENTERPRISE)
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||||||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||
Cumulative
|
||||||||||||
from
|
||||||||||||
February 22, 2007
|
||||||||||||
For the three months ended
|
(Inception)
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|||||||||||
September 30,
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to
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|||||||||||
2012
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2011
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September 30, 2012
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||||||||||
REVENUES
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$ | 10,684 | $ | - | $ | 24,284 | ||||||
COST OF GOODS
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16,617 | - | 36,434 | |||||||||
GROSS LOSS
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(5,933 | ) | - | (12,150 | ) | |||||||
EXPENSES
|
||||||||||||
Amortization and Depreciation
|
20,718 | 15,426 | 132,816 | |||||||||
Accounting, Audit, and Legal fees
|
58,183 | 42,199 | 350,600 | |||||||||
Consulting fees
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39,419 | 3,443 | 182,470 | |||||||||
Consulting fees - related parties
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71,722 | 43,807 | 418,462 | |||||||||
Rent expense
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14,293 | 5,634 | 89,766 | |||||||||
Selling, general and administrative
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61,750 | 17,527 | 257,577 | |||||||||
Consulting contract benefits - related party
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1,154 | 1,923 | 8,036 | |||||||||
Inventory impairment
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- | - | 114,278 | |||||||||
Loss on bad debt
|
- | - | 68,491 | |||||||||
Total expenses
|
267,239 | 129,959 | 1,622,496 | |||||||||
NET OPERATING (LOSS)
|
(273,172 | ) | (129,959 | ) | (1,634,646 | ) | ||||||
OTHER INCOME (EXPENSE)
|
||||||||||||
Interest Income
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- | 843 | 3,914 | |||||||||
Interest Expense
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- | (667 | ) | (7,215 | ) | |||||||
NET (LOSS)
|
$ | (273,172 | ) | $ | (129,783 | ) | $ | (1,637,947 | ) | |||
NET (LOSS) PER SHARE - BASIC
|
* | * | ||||||||||
WEIGHTED AVERAGE NUMBER OF
|
||||||||||||
COMMON SHARES OUTSTANDING
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74,190,000 | 59,277,783 | ||||||||||
* less than $(.01) per share
|
||||||||||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
|
4
RELIABRAND, INC.
|
||||||||||||
(A DEVELOPMENT STAGE ENTERPRISE)
|
||||||||||||
UNAUDTIED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||||||
Cumulative
|
||||||||||||
from
|
||||||||||||
February 22, 2007
|
||||||||||||
For the three months ended
|
(Inception)
|
|||||||||||
September 30,
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to
|
|||||||||||
2012
|
2011
|
September 30, 2012
|
||||||||||
OPERATING ACTIVITIES
|
||||||||||||
Net (loss)
|
$
|
(273,172
|
)
|
$
|
(129,783
|
)
|
$
|
(1,637,947
|
)
|
|||
Adjustments to reconcile net income (loss) to net cash used by
|
||||||||||||
operating activities:
|
||||||||||||
Stock issued for services
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3,000
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5,504
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193,000
|
|||||||||
Depreciation and amortization
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28,850
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15,426
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159,971
|
|||||||||
Inventory impairment
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-
|
-
|
(106,516
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)
|
||||||||
Bad debt expense
|
-
|
-
|
68,491
|
|||||||||
Changes in operating assets and liabilities:
|
||||||||||||
Accounts receivable
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-
|
(3,929
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)
|
-
|
||||||||
Accrued interest - notes receivable
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-
|
(843
|
)
|
(3,355
|
)
|
|||||||
Accounts payable
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27,094
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11,549
|
117,834
|
|||||||||
Accounts payable - related party
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(12,290
|
)
|
24,494
|
48,417
|
||||||||
Prepaid expenses
|
(15,686
|
)
|
5,280
|
(108,483
|
)
|
|||||||
Inventory
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(44,814
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)
|
-
|
(99,922
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)
|
|||||||
Accrued liabilities
|
3,609
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1,923
|
9,168
|
|||||||||
Accrued interest - notes payable
|
-
|
642
|
804
|
|||||||||
NET CASH (USED BY) OPERATING ACTIVITIES
|
(283,409
|
)
|
(69,737
|
)
|
(1,358,538
|
)
|
||||||
INVESTING ACTIVITIES
|
||||||||||||
Deposit in products and product molds
|
-
|
(196,154
|
)
|
-
|
||||||||
Cash received from the BC Ltd. asset acquisition
|
-
|
-
|
103,705
|
|||||||||
Purchase of property and equipment
|
-
|
(8,2222
|
)
|
(19,118
|
)
|
|||||||
Increase in capitalized patent costs
|
-
|
(4,343
|
)
|
(4,343
|
)
|
|||||||
Increase in intellectual properties
|
-
|
-
|
)
|
-
|
||||||||
Increase in product molds
|
(7,000
|
)
|
-
|
(106,457
|
)
|
|||||||
NET CASH (USED BY) INVESTING ACTIVITIES
|
(7,000
|
)
|
(208,719
|
)
|
(26,213
|
)
|
||||||
FINANCING ACTIVITIES
|
||||||||||||
Proceeds from sale of common stock
|
334,635
|
120,000
|
827,890
|
|||||||||
Proceeds from shareholder advances
|
-
|
19,466
|
322,481
|
|||||||||
Proceeds from notes payable
|
-
|
192,480
|
343,890
|
|||||||||
Repayment of shareholder advances
|
-
|
(20,128
|
)
|
(38,037
|
)
|
|||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
334,635
|
311,818
|
1,456,224
|
|||||||||
NET INCREASE (DECREASE) IN CASH
|
44,226
|
33,362
|
71,473
|
|||||||||
CASH, BEGINNING OF PERIOD
|
27,247
|
29,873
|
-
|
|||||||||
CASH, END OF PERIOD
|
$
|
71,473
|
$
|
63,235
|
$
|
71,473
|
||||||
CASH PAID FOR INTEREST
|
$
|
-
|
$
|
-
|
$
|
5,278
|
||||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||||||
Past president's debt contributed to capital
|
||||||||||||
Shareholder advances on behalf of company
|
$
|
-
|
$
|
-
|
$
|
131,903
|
||||||
Property and equipment net of depreciation exchanged for debt
|
-
|
-
|
(1,573
|
)
|
||||||||
Account payable - related party contributed to capital
|
-
|
-
|
(537
|
)
|
||||||||
Shareholder's debt contributed to capital
|
-
|
-
|
(129,793
|
)
|
||||||||
$
|
-
|
$
|
-
|
$
|
-
|
5
UNAUDTIED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
|
||||||||||||
Cumulative
|
||||||||||||
from
|
||||||||||||
February 22, 2007
|
||||||||||||
For the three months ended
|
(Inception)
|
|||||||||||
September 30,
|
to
|
|||||||||||
2012
|
2011
|
September 30, 2012
|
||||||||||
B.C. Ltd asset acquisition
|
||||||||||||
Fair value of assets acquired
|
$ | - | $ | - | $ | 1,585,688 | ||||||
Less liabilities assumed
|
- | - | (21,034 | ) | ||||||||
Net assets acquired
|
- | - | 1,564,654 | |||||||||
Less shares issued
|
- | - | (1,668,359 | ) | ||||||||
Net cash acquired
|
$ | - | $ | - | $ | (103,705 | ) | |||||
Shares issued for website development
|
||||||||||||
Website development
|
$ | - | $ | (13,125 | ) | $ | (13,125 | ) | ||||
Common stock issued
|
- | 13,125 | 13,125 | |||||||||
$ | - | $ | - | $ | - | |||||||
Debt Converted to Common Stock Subscribed
|
||||||||||||
Accounts payable
|
$ | - | $ | - | $ | (5,000 | ) | |||||
Accounts payable - related party
|
- | - | (93,555 | ) | ||||||||
Notes payable
|
- | - | (248,636 | ) | ||||||||
Accrued interest
|
- | - | (1,364 | ) | ||||||||
Note Payable - shareholder
|
- | - | (156,445 | ) | ||||||||
Common stock subscribed
|
- | - | 505,000 | |||||||||
$ | - | $ | - | $ | - | |||||||
Shares issued for common stock subscribed
|
||||||||||||
Common stock subscribed
|
$ | 853,705 | $ | - | $ | 853,705 | ||||||
Common stock issued
|
(853,705 | ) | - | (853,705 | ) | |||||||
$ | - | $ | - | $ | - | |||||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
|
6
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Interim periods
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2012 are not necessarily indicative of results for any future period. The condensed consolidated balance sheet at June 30, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended June 30, 2012.
There have been no material changes to our significant accounting policies during the three months ended September 30, 2012, as compared to the significant accounting policies disclosed in our consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
Nature of Operations and Basis of Presentation
Reliabrand, Inc. (the Company, we, us, our, RLIA), formerly known as A&J Venture Capital Group, Inc., Alco Energy Corp., and Startale Group, Inc., is in the development stage as defined in FASB ASC 915-10, “Development Stage Entities”. We are a Nevada corporation, formed February 22, 2007. Since inception we have had minimal operations and not earned any significant revenues to date, in the previous fiscal year ended June 30, 2012, we had commenced sales of our products, and have started our marketing program. We are in the process of establishing ourselves as a company that will focus its operations on developing the Adiri brand of products and sell them in the open markets. Adiri was one of the first baby bottle manufacturers to offer BPA-free products when it was launched in 2007. The Adiri Natural Nurser bottle achieved more international design recognition than any other bottle of any kind in history, winning 15 internationally recognized product design competitions including tying for first place in the D&AD Design Award (known as the “Yellow Pencils”) in 2008 with the “Apple iPod Touch” from 23,000 international product submissions. The iconic and patented “natural breast shape” and “petal vent” are among the features that reduced colic and improved the infant feeding experiences which led to Adiri earning the prestigious Gold MDEA (Medical Design Excellence Award) along with the design firm Whipsaw, Inc. in 2008. We are currently developing a newer version of the baby bottle that Adiri was previously producing and it will be free of Estrogenic Activity (EA) as well as being BPA-free. The Company intends to aggressively promote and market the bottles and accessories and plan to secure retail distribution outlets for the bottles. The Company’s filcal year-end is June 30.
Business Composition
On January 20, 2011, we entered into an Asset Purchase Agreement (the “Agreement”) with 0875505 B.C. Ltd. (“BC Ltd”), a British Columbia, Canadian company. The Agreement provided for us to acquire multiple patents and trademarks acquired by BC Ltd through a receivership proceeding of Adiri, Inc. (Adiri”). Adiri was granted the initial patents and trademarks. These patents and trademarks relate to a baby bottle and related components that BC Ltd expended approximately $1,500,000 in cash in acquiring and further development; as of December 31, 2010 the patents, and related expenses to acquire and maintain the patents, had a net book value, which approximates fair value, of $1,436,768. As part of the Agreement, the Company also acquired $100,000 in cash, total note receivables and accrued interest in the amount of $63,296 owed by Watergeeks, Inc., a related party entity, to BC Ltd, resin inventory of $8,160, pacifier inventory of $6,000, product molds of $5,266, assumed an executory contract with a plastics manufacturer, and assumed accounts payable of approximately $45,176. In exchange, at the closing on April 26, 2011 we issued 35,000,000 shares of our common stock, par value $.0001, post-split
On March 16, 2012, we entered into a Share Purchase Agreement (the “agreement 2”) with 0875505 B.C. Ltd. (“BC Ltd”), a British Columbia, Canadian company to acquire the company through a share exchange. As noted above, we had already purchased all the assets and liabilities from the company in the above agreement. We decided to purchase the equity in BC Ltd because while we were beginning the process to transfer the patents and trademarks to our company name, we found the process to be very costly and very lengthy. Whereas if we acquired the BC Ltd as a wholly owned subsidiary we would own the patents and trademarks without completing the transfer process, which was most cost effective for our company with our limited cash reserves, and offered the quickest and most cost effective remedy to protect our interests and our shareholders assets. In exchange for the shares of stock of BC Ltd, we agreed to issue to the shareholders of BC Ltd 50,000 shares of our restricted common stock. We also acquired the remaining cash of approximately $3,705 ($3,675CAD).
Liquidity
The Company anticipates that any revenue or income for fiscal year 2013 may be limited. The Company also expects to continue to incur substantial expenses relating to its marketing and sales efforts. As a result, the Company expects to incur losses over the next year unless it is able to realize additional revenues under any current or future agreements. The timing and amounts of such revenues, if any, cannot be predicted with certainty. Accordingly, results of operations for any period may be unrelated to the results of operations for any other period.
The Company will likely need to raise and is pursuing additional funds through strategic collaborations, public or private equity or debt financing, or other funding sources. This funding may not be available on acceptable terms, or at all, and may be dilutive to shareholder interests. If sufficient capital is not available, the Company may be required to delay, reduce the scope of or eliminate one or more of its product offerings, any of which could have a material adverse effect on its business. If the Company is not able to secure additional capital by the end of its fiscal year, it may be forced to terminate operations altogether in 2013.
7
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
Basis of Consolidation
The consolidated financial statements include the accounts of Reliabrand, Inc. and its wholly owned subsidiary. Our operations are treated as one operating segment. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.
Development Stage Company
We have not generated any significant revenue since inception. The accompanying financial statements have, therefore, been prepared using the accounting formats prescribed for a development stage enterprise (DSE). Although the Company has recognized some nominal amount of revenue, the Company still believes it is devoting substantially all its efforts on developing the business and therefore qualifies as a DSE.
Foreign Currency Translation
The condensed consolidated interim financial statements are presented in United States dollars (USD). We have determined that our functional currency is U.S. dollars; the foreign currency consolidated financial statements of our subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured using the foreign exchange rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and furniture and equipment are translated by using historical exchange rates. Any re-measurement gain or loss incurred is immaterial to the consolidated financial statements.
Reclassifications
Certain amounts in the period ended September 30, 2011 financial statements have been reclassified to conform to the current period ended September 30, 2012 presentation.
Inventory
The only component of inventory is finished goods inventory.
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of goods has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectibility is reasonably assured. Thus, we generally recognize sales revenue when shipment of the purchased product has occurred. Cash payments received in advance are recorded as deferred revenue. We currently permits our customers to return or exchange defective products. We have analyzed our quality control procedures and feel that our main exposure is from damages in shipping. Accordingly we do not need to establish a reserve for returns at this time. We will continue to analyze this each period and implement one if the need arises.
Shipping and Handling
Shipping and handling costs of $918 and $838 for the period ended September 30, 2012 and 2011, respectively, are included in selling, general and administrative expenses.
8
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 2 – GOING CONCERN
Our financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have sustained operating losses since inception.
As of September 30, 2012 we have a working capital surplus of $175,529, and accumulated deficit of $1,638,947. During the period ended September 30, 2012 we had a net loss of $274,172 and cash used in operating activities of $283,409. The Company’s ability to continue in existence is dependent on its ability to develop additional sources of capital, and/or achieve profitable operations and positive cash flows. Management’s plan is to aggressively pursue its present business plan. Since inception we have funded our operations through the issuance of common stock and related party loans and advances, and will seek additional debt or equity financing as required. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – RECENTLY ISSUED ACCOUNTING STANDARDS
Recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations and cash flows.
NOTE 4 – PREPAID EXPENSES
Prepaid expenses consisted of the following at September 30, 2012:
Name
|
Description
|
Amount
|
|||
Thumbprint
|
Technical support fees for future periods
|
$ | 2,500 | ||
MacQuarie Premium Funding
|
Prepayment for commercial insurance
|
1,938 | |||
Wasa Development
|
Prepayment of October 2012 rent
|
1,894 | |||
Space Holdings
|
Prepayment of October 2012 rent
|
3,416 | |||
Schwed, McGinley & Kahle
|
Legal fee retainer
|
5,350 | |||
Galt Hotel
|
Deposit on hotel rooms for trade show
|
4,047 | |||
The Portable Exhibit
|
Deposit on trade show booth
|
23,829 | |||
Nova Genisis
|
Prepayment for product molds production
|
21,218 | |||
Total
|
$ | 64,192 |
9
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 4 – PREPAID EXPENSES - continued
Prepaid expenses consisted of the following at June 30, 2012:
Name
|
Description
|
Amount
|
|||
Thumbprint
|
Technical support fees for future periods
|
$ | 2,500 | ||
MacQuarie Premium Funding
|
Prepayment for commercial insurance
|
1,938 | |||
Schwed, McGinley & Kahle
|
Legal fee retainer
|
5,350 | |||
Nova Genisis
|
Prepayment for product molds production
|
21,510 | |||
Nova Genisis
|
Prepayment for product production
|
17,208 | |||
Total
|
$ | 48,506 |
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, 2012
|
June 30, 2012
|
|||||||
Computer equipment
|
$ | 4,054 | $ | 4,054 | ||||
Website
|
15,257 | 15,257 | ||||||
Office furniture and equipment
|
11,310 | 11,310 | ||||||
30,621 | 30,621 | |||||||
Less accumulated depreciation and amortization
|
(3,261 | ) | (1,825 | ) | ||||
$ | 27,360 | $ | 28,796 |
September 30, 2012
|
June 30, 2012
|
|||||||
Product production molds
|
$ | 104,582 | $ | 97,582 | ||||
Less accumulated amortization
|
(27,106 | ) | (18,974 | ) | ||||
$ | 77,476 | $ | 78,608 |
Depreciation was $1,436 and $367 for the period ended September 30, 2012 and 2011, respectively. The Company also recorded amortization of products molds expense for the period ended September 30, 2012 of $8,132 as reflected in cost of goods sold on the accompanying Statement of Operations.
10
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 6 – INTELLECTUAL PROPERTIES AND PATENTS
Patents
Patents and licenses consist of the following:
September 30, 2012
|
June 30, 2012
|
|||||||
Adiri patents
|
$ | 1,014,246 | $ | 1,014,246 | ||||
Adiri trademarks
|
359,375 | 359,375 | ||||||
Adiri patent legal fees
|
43,828 | - | ||||||
1,417,449 | 1,373,621 | |||||||
Less accumulated amortization
|
(89,555 | ) | (70,273 | ) | ||||
$ | 1,327,894 | $ | 1,303,348 | |||||
Plastic technology properties
|
$ | 100,000 | $ | 100,000 | ||||
Adiri patent legal fees
|
- | 43,828 | ||||||
$ | 100,000 | $ | 143,828 |
The Company has recorded amortization of patents expense for the three month period ended September 30, 2012 and 2011 of $19,282 and $15,059, respectively.
NOTE 7 – LOANS PAYABLE - SHAREHOLDER
On August 26, 2011 the Company borrowed $203,523 (CDN$200,000) from Gerry Dalen, one of Company’s shareholders. In connection with the above note, the Company agreed to restrictive covenants on substantially all of its assets to maintain them free of indebtedness or liens, and that we will maintain our corporate status. On February 27, 2012, we entered into an extension of the above loan agreement, all terms and conditions remain in full force, the only change is the maturity date was extended from the original date of February 28, and extended to August 31, 2012. On May 17, 2012 the principal and interest of this note was converted to restricted shares of our common stock in its entirety.
On March 1, 2012 the Company borrowed $151,410 (CDN$150,000) from Gerry Dalen, one of Company’s shareholders on an uncollateralized, non-interest bearing, demand note that matures on February 28, 2013. On May 17, 2012, we converted $56,166 USD of the above debt’s principal into shares of our restricted common stock at $0.04 per share. Interest was imputed at 3%.
The loan payable balance comprised of:
September 30,
|
June 30,
|
|||||||
Description
|
2012
|
2012
|
||||||
Uncollateralized demand note to a related entity bearing no interest per annum which matures on February 28, 2013.
|
$ | 95,254 | $ | 95,254 | ||||
Less current liabilities
|
95,254 | 95,254 | ||||||
Total long term liabilities
|
$ | -0- | $ | -0- |
Future maturity of our notes payable is presented in the table below:
For the years ended June 30,
|
||||
2013
|
$ | 95,254 |
11
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS AND BALANCES
Related party transactions
On May 1, 2012 the Company entered into a new consulting agreement with Brent Markus, the son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2012, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also received one month’s salary as a signing bonus, and he will also receive a 2.50% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $11,545 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $571 in royalties payable.
On May 1, 2012 the Company entered into a consulting agreement with Kyle Markus, the son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2012, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also received one month’s salary as a signing bonus, and he will also receive a 2.50% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $11,545 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $571 in royalties payable.
On May 1, 2012 the Company entered into a new consulting agreement with Anthony Markus, the son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2012, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also received one month’s salary as a signing bonus, and he will also receive a 2.50% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $11,545 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $571 in royalties payable.
On May 1, 2011, the Company entered into a consulting agreement with Marant Holdings Inc., a company controlled by our President and Chief Executive Officer, for his consulting services at a rate of $10,000 per month, and he will also receive a 3.00% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $30,000 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $686 in royalties payable.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Office lease
In January 2011, the Company rented office space in Canada from a related party, Design Mode Studios, a company owned by a son of our Company’s President, on a month to month basis for approximately $798 ($800 CAD) per month; beginning in February 2011 we took on more rental space within the office and began paying approximately $1,804 ($1,860 CAD) per month; beginning in May 2011, we began paying the owner of the building directly. Rent expense was $5,709 and $5,634 for the three months ended September 30, 2012 and 2011, respectively.
12
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES - continued
Warehouse lease
On October 4, 2011 the Company entered into a month-to-month lease agreement of a warehouse space located in Kelowna, BC. The lease, commencing on October 5, 2011 requires monthly payment of $2,690 (CDN $2,500) plus related taxes and a $2,690 (CDN $2,500) security deposit. Rent expense was $8,584 and none for the three months ended September 30, 2012 and 2011.
Consulting agreement
On May 16, 2012 the Company entered into a consulting agreement with Colleen Preksto for her consulting services to perform the duties Chief Operating Officer (COO) at a rate of $100,000 USD per annum for the first year, after the first year the base compensation will not be less than $120,000 per year. The agreement will be in effect for a period of twenty-four months, ending on April 30, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. She also received a signing bonus of 1,000,000 shares of our restricted common stock valued at $40,000. For the period ended September 30, 2012 and 2011, we recorded $24,999 and none, respectively, in total consulting fees expense in connection with this contract.
On July 24, 2012, the Company entered into a consulting agreement with Lee Fisher for his consulting services to perform public relations services at a rate of $2,000 USD per month for three months beginning August 1, 2012. The agreement will be in effect for a period of three months ending on October 31, 2012, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a thirty day written notice. He also receives 15,000 shares of our restricted common stock for each month of service, or a total of 45,000 shares valued at $4,500. For the period ended September 30, 2012, we recorded $9,000, in total consulting fees expense in connection with this contract.
License and exclusive marketing agreement
On July 11, 2012, the Company entered into a License and Exclusive Marketing Agreement with Ideal Marketing Concepts, LLC (Ideal), an unrelated party. The Company granted Ideal an exclusive license to promote, advertise, market, sell and distribute the Company’s line of baby products, under the Adiri® brand, through commercials and over the Internet, in North America. The Agreement is for an initial four year term with automatic renewals for three additional two year periods if Ideal generates certain pre-determined sales of the Company’s products during the term of the Agreement.
Products sold through Ideal’s efforts will be sold to Ideal on a consignment basis. After the products are sold, Ideal shall reimburse the Company for the actual costs of manufacturing of the product. The Company shall also receive a 50% royalty of the adjusted proceeds, if any, of these sales generated.
The Company also agreed to issue Ideal eight million (8,000,000) shares of our restricted common stock, issuable when certain milestones are completed. The Company agreed to issue three million (3,000,000) shares upon completion of the initial “short-form” commercial, and the remaining five million (5,000,000) shares when Ideal’s gross sales of our products reach $1,000,000. The Company also agreed to pay Ideal a five percent (5%) royalty on the Company’s sales outside of the Ideal network, this royalty shall continue to be payable to Ideal for a period of eight (8) years following any termination or expiration of the
13
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES - continued
License and exclusive marketing agreement - continued
agreement. The Company may terminate this agreement with a thirty (30) day notice prior to the end of the current term, or if sales level have not been met by Ideal; Ideal may terminate this agreement with a sixty (60) day notice at any time. The Company retains all rights to our intellectual properties, and has not transferred any interest to Ideal.
Cancellation of royalty agreements and correction of an error
On April 19, 2012, we cancelled two royalty agreements with two unrelated individuals in exchange for 125,000 shares of our restricted common stock valued at $12,500. The original royalty agreements were consideration for principal loans totaling $12,500 and were in force for five years from December 30, 2011, the effective date. The cancellation is effective retroactive to the effective date of the original agreement. On August 24, 2012, we issued 75,000 shares of the common stock and on October 1, 2012 we issued the remaining 50,000 shares of the common stock. The remaining shares are shown as common stock subscribed for $5,000 as of September 30, 2012. In November 2012, we detected an error in recording these transactions. The funds loaned to the Company were originally misclassified as shareholder advances to our current President. As of June 30, 2012, he converted all amounts owed to him into shares of common stock, as a result our President converted an excess of 312,500 shares. To correct the error, we have recorded a common stock receivable for $12,500 from him. He will be returning and cancelling 312,500 shares back to the Company in repayment of the funds incorrectly converted by him.
NOTE 10 – STOCKHOLDER’S EQUITY
Stock Shares – Authorized
The Company has 100,000,000 common shares authorized at a par value of $0.0001 per share and 10,000,000 shares of preferred stock, par value $0.0001 per share. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all the directors of the Company. There is currently only one designated class of preferred shares, “A,” see below. The holders of the preferred stock shall have such rights, preferences and privileges as may be determined by the Board of Director’s prior to the issuance of such shares. The preferred stock may be issued in such series as are designated by the Board of Director’s and the Board of Director’s may fix the number of authorized shares of preferred stock for each series and the rights, preferences, and privileges of each series of preferred stock. As of the periods ended September 30, 2012 and June 30, 2012, there were 78,916,500 and 59,677,500 shares of our common stock issued and outstanding, respectively. As of the periods ended September 30, 2012 and June 30, 2012, there were 10,000 shares of our preferred stock issued and outstanding.
Increase of authorized common stock shares
On April 26, 2012, The Company increased its authorized shares of common stock from 100,000,000 to 150,000,000.
14
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 10 – STOCKHOLDER’S EQUITY - continued
Common Shares – Issued and Outstanding
In the three months ended June 30, 2012, we closed several private placements for an aggregate total of $238,687, or 2,385,000 shares of our restricted common stock. As of September 30, 2012, all of these shares have been issued.
Preferred Stock – Series “A”
On February 26, 2010, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series “A” Preferred Stock (the "Certificate of Designations") designating ten thousand (10,000) of the Company's previously authorized preferred stock.
The 10,000 Series “A” Preferred Stock shall have an aggregate voting power of 45% of the combined voting power of the entire Company’s shares, Common Stock and Preferred Stock as long as the Company is in existence. Each holder of the Series “A” Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the by-laws of the Company, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.
Without the vote or consent of the holders of at least a majority of the shares of Series “A” Preferred Stock then outstanding, the Company may not (i) authorize, create or issue, or increase the authorized number of
shares of, any class or series of capital stock ranking prior to or on a parity with the Series “A” Preferred Stock, (ii) authorize, create or issue any class or series of common stock of the Company other than the Common Stock, (iii) authorize any reclassification of the Series “A” Preferred Stock, (iv) authorize, create or issue any securities convertible into or exercisable for capital stock prohibited by (i) or (ii), (v) amend this Certificate of Designations or (vi) enter into any merger or reorganization, or disposal of assets involving 20% of the total capitalization of the Company.
Subject to the rights of the holders of any other series of Preferred Stock ranking senior to or on a parity with the Series “A” Preferred Stock with respect to liquidation and any other class or series of capital stock of the Company ranking senior to or on a parity with the Series “A” Preferred Stock with respect to liquidation, in the event of any liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or involuntary, the holders of record of the issued and outstanding shares of Series “A” Preferred Stock shall be entitled to receive, out of the assets of the Company available for distribution to the holders of shares of Series “A” Preferred Stock, prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock and any other series of Preferred Stock ranking junior to the Series “A” Preferred Stock with respect to liquidation.
The holders of the Series A Preferred Stock shall not be entitled to receive dividends per share of Series “A” Preferred Stock. The Company shall have no rights to redeem Series “A” Preferred Stock.
Stock Based Compensation
On July 18, 2012, the Company issued 24,500 restricted shares of our common stock for payment of debt owed to a legal counsel for services performed in the amount of $2,450.
15
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 10 – STOCKHOLDER’S EQUITY - continued
Stock Based Compensation - continued
On August 24, 2012, the Company issued 30,000 restricted shares of our common stock for payment of public relations management services performed by an unrelated third party in the amount of $3,000, in payment of the consulting agreement (Note 9). The value of the public relations services is included in consulting fees in our statement of operations.
Common stock subscribed
As of September 30, 2012, we issued an aggregate total of 16,725,000 shares of our common stock for an aggregate total of $853,705 in common stock subscribed.
On September 26, 2012, we accepted a subscription agreement from an unrelated individual for 55,000 shares of our restricted common stock at $0.10 per share for total net proceeds of $5,500. These shares were issued on October 1, 2012.
On September 27, 2012, we accepted a subscription agreement from an unrelated individual for 500,000 shares of our restricted common stock at $0.10 per share for total net proceeds of $50,000. These shares were issued on October 1, 2012.
On September 28, 2012, we accepted a subscription agreement from an unrelated individual for 380,000 shares of our restricted common stock at $0.10 per share for total net proceeds of $38,000. These shares were issued on October 1, 2012.
Common Stock Receivable
As part of the Royalty cancellation agreement (Note 9), we recorded a common stock receivable for $12,500 for the return and cancellation of shares of our common stock from our current President.
Common Stock Warrants
In connection with previous private placement and payables to common stock conversions, we valued the common stock detachable warrants granted during the period ended March 31, 2012, using the Black-Scholes method. The following weighted average assumptions were used to calculate the valued warrants: terms of two years; risk free interest rate of 0.39%; volatility of 96%; and a weighted fair value of $0.126.
A summary of the common stock warrants, exercise price of $0.25, outstanding as of September 30, 2012 is presented below:
16
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2012 and 2011
(Unaudited)
NOTE 10 – STOCKHOLDER’S EQUITY - continued
Common Stock Warrants - continued
Number of Warrants
|
||||
Balance at June 1, 2011
|
- | |||
Granted
|
490,000 | |||
Exercised
|
- | |||
Forfeited or Expired
|
- | |||
Balance at June 30, 2012
|
490,000 | |||
Exercisable at June 30, 2012
|
490,000 | |||
Balance at July 1, 2012
|
- | |||
Granted
|
- | |||
Exercised
|
- | |||
Forfeited or Expired
|
(490,000 | ) | ||
Balance at September 30, 2012
|
- | |||
Exercisable at September 30, 2012
|
- |
On April 19, 2012, the Board determined it was in the best interest of the Company to cancel all of the outstanding warrants. During the three months ended September 30, 2012, the Company collected all of the signatures from the warrant holders agreeing to the cancellations with no consideration.
NOTE 11 – SUBSEQUENT EVENTS (unaudited)
Management has evaluated subsequent events after the balance sheet date, through the date of issuance of the consolidated financial statements, for appropriate accounting and disclosure. The Company has determined that there were no such events that warrant disclosure or recognition in the consolidated financial statements, except for the below transactions:
Common stock subscribed
On October 1, 2012, we issued an aggregate total of 935,000 shares of our common stock for an aggregate total of $93,500 in common stock subscribed.
Shares issued for cancellation of royalty agreement
On October 1, 2012, we issued 50,000 shares of our restricted common stock to complete the payment of the previously discussed royalty cancellation agreements (Note 9).
Stock Based Compensation
On October 1, 2012, we issued 25,000 restricted shares of our common stock for payment of debt owed to our outside accountant for services performed between January and March 2012, in the amount of $2,500.
On October 1, 2012, we issued 100,000 shares of our restricted common stock for payment of a debt owed to a vendor for our new exhibit booth in the amount of $40,000.
Common Shares – Issued and Outstanding
During October 2012, we closed several private placements for an aggregate total of $125,000, or 1,250,000 shares of our restricted common stock.
Loan Payable – Shareholder
On October 23, 2012 the Company borrowed $20,438 (CDN$20,000) from Gerry Dalen, one of Company’s shareholders on an uncollateralized, non-interest bearing, demand note.
17
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This report, including the documents that we incorporate by reference, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Forward-looking statements in or incorporated by reference in this report include, without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, but are not limited to, the rate and degree of market acceptance of our products, our ability to develop and market new and enhanced products, our ability to obtain financing as and when we need it, competition from existing and new products and our ability to effectively react to other risks and uncertainties described from time to time in our SEC filings, such as fluctuation of quarterly financial results, reliance on third party manufacturers and suppliers, litigation or other proceedings, government regulation and stock price volatility.
In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. We do not undertake any obligation to publicly update or revise any forward-looking statement.
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
The following discussion and analysis of the Company’s financial condition and results of operations are based on the our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Plan of Operations
The Company’s strategy is to manufacture baby bottles and the related components initially and to offer those products for sale via the Company’s website or through distributors throughout the world.
Overall, during the next 12 months, we cannot predict accurately the amount of capital that we will need to accomplish our plan of operations. The amount of capital needed will vary depending on the projects that we seek. If during the next 12 months, we are unsuccessful in effectuating our plan of operations as described above, we expect to incur total expenditures of at least $1,000,000. In this regard and during such period, we anticipate spending $75,000 on professional fees attributable to fulfilling our reporting obligations under the US federal securities laws and $75,000 on general administrative costs and expenditures associated with complying with reporting obligations. We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our marketing plan and operations. We believe that debt financing will not be an alternative for funding the marketing plan. We do not have any arrangements in place for any future equity financing. If we are required to raise additional funds, substantial dilution may result to existing shareholders. Our auditors have raised substantial doubt concerning our ability to continue as a going concern. Please see our audited financial statements contained in our Form 10-K for the period ended June 30, 2012.
Development Stage Company
We have not generated any significant revenue since inception. The accompanying financial statements have, therefore, been prepared using the accounting formats prescribed for a development stage enterprise (DSE). Although we have recognized some nominal amount of revenue, the Company still believes it is devoting, substantially, all its efforts on developing the business and, therefore, still qualifies as a DSE.
We are primarily engaged in producing and marketing its baby products. The production and marketing of the Company’s products and its ongoing research and development activities are and will continue to be subject to extensive competition in the United States. We have limited experience and our success will depend in part on our ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to us will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantage resulting in our transition from Development Stage Enterprise reporting.
Results of Operations for the Three Months Ended September 30, 2012 and the Three Months Ended September 30, 2011
We have revenue of $10,684 for the period ended September 30, 2012 compared to no revenue for the period ended September 30, 2011. We expect to continue in generating revenue throughout the remainder of fiscal year 2013; however the total revenue recognized is not expected to be significant to our operations.
During the three months ended September 30, 2012, we incurred operating expenses in the amount of $267,239. These operating expenses were comprised of accounting, auditing and legal fees, selling, general and administrative expenses, consulting fees, rent expenses and amortization and depreciation compared to operating expenses of $129,959 for the three months ended September 30, 2011.
18
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
For the three months ended September 30, 2012, we paid consulting fees of $71,722 to related parties compared to consulting fees to an entity controlled by our current President of $43,807 for the three months ended September 30, 2011. Our consulting fees – related parties increased as our business is developing and a need for additional help increased. We added additional consultants to perform work in sales and marketing, warehouse management, and inventory control.
For the three months ended September 30, 2012, we paid rent expense to an unrelated party of $8,584 and $5,709 to a related party; compared to none to the unrelated party and $5,634 to the related party for the three months ended September 30, 2011.
We have generated minimal revenues since inception and are dependent upon obtaining financing to pursue marketing and distribution activities. For these reasons, our auditors believe that there is substantial doubt that we will be able to continue as a going concern.
Liquidity and Capital Resources
We have historically financed our operations primarily through the issuance of equity and debt securities and not by relying on traditional commercial bank financing. During the remainder of fiscal year 2013, and for the foreseeable future, we will be highly dependent on our net product revenue to supplement our current liquidity and fund our operations and highly dependent on financing from third parties. We will likely elect to supplement this with further debt or equity offerings or commercial borrowing.
As of September 30, 2012, the Company had a cash balance of $71,473, and as of June 30, 2012, the Company had a cash balance of $27,247. As of September 30, 2012, we had total assets of $1,889,006 and total liabilities of $183,747 compared to total assets of $1,806,130 and total liabilities of $165,333 as of June 30, 2012.
Operating Activities
Cash used in operating activities during the three months ended September 30, 2012 increased to $283,409 as compared to $69,737 used for the three months ended September 30, 2011. The increase was attributable to decreased payables and an increase in prepaid expenses of approximately $73,000.
Investing Activities
Cash used for investing activities during the three months ended September 30, 2012 was $7,000 as compared to $208,719 of cash used for the three months ended September 30, 2011. The significant use of cash for investing activities during the nine months ended September 30, 2011 was primarily attributable to the purchase of product molds needed for anticipated production.
Financing Activities
During the three months ended September 30, 2012, the total net cash provided by financing activities was $334,635, which represented the net proceeds from the issuance of common stock. During the three months ended September 30, 2011, the total net cash provided by financing activities was $311,818, which represented the net proceeds we received from the issuance of common stock, promissory notes and adances from shareholders.
During the three months ended September 30, 2012, the Company raised $238,687 in a private placement of its common stock, conducted in compliance with Regulation S (“Regulation S”) and/or Regulation D (“Regulation D”) of the Securities Act of 1933, as amended (the “Securities Act”), selling 2,385,000 shares of its common stock. The Company also accepted subscriptions during the three months September 30, 2012 from unrelated third parties to purchase an aggregate of 935,000 shares of the Company’s common stock pursuant to Regulation D and Regulation S of the Securities Act for total gross proceeds of $93,500. These shares were issued in October, 2012. The Company is utilizing the proceeds from this offering to fund its current operations.
During the three months ended September 30, 2012, we also issued 16,725,000 shares of our common stock, with a value of $853,705, for satisfaction of previously recorded common stock subscribed from the year ended June 30, 2012.
We also issued 24,500 shares of our common stock in payment of an accounts payable invoice in the amount of $2,450. In addition, we issued 30,000 shares of our common stock for services rendered for public relations with a value of $3,000.
During the three months ended September 30, 2012, the Company entered into royalty cancellation agreements with two unrelated shareholders in exchange for the issuance of an aggregate of 125,000, shares of the Company’s common stock, in restricted form, valued at $12,500. In addition, our President is returning to the Company a total of 312,500 shares of common stock issued to him in error.
During the three months ended September 30, 2012, the Company secured termination agreements for its outstanding warrants from the warrant holders, and cancelled all 490,000 of its outstanding warrants.
If the Company is not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to it, this could have a material adverse effect on its business, results of operations liquidity and financial condition.
The Company presently does not have any available credit, bank financing or other external sources of liquidity, other than the net proceeds from the Offering. Due to its brief history and historical operating losses, the Company’s operations have not been a source of liquidity. The Company will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, the Company may need to sell additional shares of its common stock or borrow funds from private lenders. There can be no assurance that the Company will be successful in obtaining additional funding.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
The Company will need additional investments in order to continue operations. Additional investments are being sought, but the Company cannot guarantee that it will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of the Company’s common stock and a downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if the Company is able to raise the funds required, it is possible that it could incur unexpected costs and expenses, fail to collect significant amounts owed to it, or experience unexpected cash requirements that would force it to seek alternative financing. Further, if the Company issues 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 the Company’s common stock. If additional financing is not available or is not available on acceptable terms, the Company will have to curtail its operations.
Critical Accounting Policies
Critical Accounting Policies and Estimates
In preparing our condensed consolidated financial statements in accordance with accounting principles generally accepted in the U.S. and pursuant to the rules and regulations promulgated by the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/(loss) and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of our Board of Directors.
We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, income taxes, and long-lived assets, have the greatest impact on our condensed consolidated financial statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.
There have been no significant changes to our critical accounting policies and estimates during the three months ended September 30, 2012, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K and 10-K/A for the fiscal year ended June 30, 2012, which were filed with the SEC.
Recent Accounting Pronouncements
See Note 1 of our accompanying condensed consolidated financial statements for a full description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.
Revenue Recognition: We recognize revenue over the period the service is performed or when the product is delivered, depending on shipping method. In general, this requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed and determinable, and (4) collectability is reasonably assured.
Advance payments are deferred until shipment.
Revenue from any up-front fees are recognized on a ratable basis over the term of the respective agreement.
Cost of Revenues, Selling, General and Administrative Expenses and Research and Development Expenses: The primary purpose is to conduct research on the development, testing and delivery of our prototype devices, and the commercialization of our products. During the three months ended September 30, 2012, our focus is on selling and marketing of our products rather than on research and development activities.
Stock-Based Compensation: We measure stock-based compensation expense for all share-based awards granted based on the estimated fair value of those awards at grant-date. The fair values of stock option awards are estimated using a Black-Scholes valuation model. The compensation costs are recognized net of any estimated forfeitures on a straight-line basis over either the employee’s requisite service period, or other such vesting requirements as are stipulated in the stock option award agreements. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Forfeiture rates are estimated at grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Accruals
As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with selected service providers and make adjustments, if necessary. Examples of estimated accrued expenses include:
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fees paid to contract manufacturers in connection with the production of our products; and
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professional service and consulting fees.
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In May, 2011, the Company began renting office space on a month-to-month basis for $1,860 CAD per month. For the three months ended September 30, 2012 and 2011, the rent expense was $5,709 and $5,634, respectively. On October 4, 2011, the Company entered into a month-to-month lease agreement of a warehouse space located in Kelowna, BC. The lease, commencing on November 1, 2011 requires monthly payment of CDN $2,500 plus related taxes and a CDN $2,500 security deposit. For the three months ended September 30, 2012 and 2011, the warehouse rental expense was $8,585 and $0, respectively.
On May 1, 2012 the Company entered into a consulting agreement with Brent Markus, the son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2012, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also received one month’s salary as a signing bonus, and he will also receive a 2.50% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $11,545 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $571 in royalties payable.
On May 1, 2012 the Company entered into a consulting agreement with Kyle Markus, the son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2012, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also received one month’s salary as a signing bonus, and he will also receive a 2.50% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $11,545 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $571 in royalties payable.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
On May 1, 2012 the Company entered into a consulting agreement with Anthony Markus, the son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2012, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also received one month’s salary as a signing bonus, and he will also receive a 2.50% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $11,545 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $571 in royalties payable.
On May 1, 2011, the Company entered into a consulting agreement with Marant Holdings Inc., a company controlled by our President and Chief Executive Officer, for his consulting services at a rate of $10,000 per month, and he will also receive a 3.00% royalty on all gross sales of the Company. For the period ended September 30, 2012, we recorded $30,000 in consulting fees – related party expense in connection with this contract. As of September 30, 2012, the Company accrued a total of $686 in royalties payable.
On May 16, 2012 the Company entered into a consulting agreement with Colleen Preksto for her consulting services to perform the duties Chief Operating Officer (COO) at a rate of $100,000 USD per annum for the first year, after the first year the base compensation will not be less than $120,000 per year. The agreement will be in effect for a period of twenty-four months, ending on April 30, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. She also received a signing bonus of 1,000,000 shares of our restricted common stock valued at $40,000. For the period ended September 30, 2012 and 2011, we recorded $24,999 and none, respectively, in total consulting fees expense in connection with this contract.
On July 11, 2012, the Company entered into a License and Exclusive Marketing Agreement with Ideal Marketing Concepts, LLC (Ideal), an unrelated party. The Company granted Ideal an exclusive license to promote, advertise, market, sell and distribute the Company’s line of baby products, under the Adiri® brand, through commercials and over the Internet, in North America. The Agreement is for an initial four year term with automatic renewals for three additional two year periods if Ideal generates certain pre-determined sales of the Company’s products during the term of the Agreement.
Products sold through Ideal’s efforts will be sold to Ideal on a consignment basis. After the products are sold, Ideal shall reimburse the Company for the actual costs of manufacturing of the product. The Company shall also receive a 50% royalty of the adjusted proceeds, if any, of these sales generated.
The Company also agreed to issue Ideal eight million (8,000,000) shares of our restricted common stock, issuable when certain milestones are completed. The Company agreed to issue three million (3,000,000) shares upon completion of the initial “short-form” commercial, and the remaining five million (5,000,000) shares when Ideal’s gross sales of our products reach $1,000,000. The Company also agreed to pay Ideal a five percent (5%) royalty on the Company’s sales outside of the Ideal network, this royalty shall continue to be payable to Ideal for a period of eight (8) years following any termination or expiration of the agreement. The Company may terminate this agreement with a thirty (30) day notice prior to the end of the current term, or if sales level have not been met by Ideal; Ideal may terminate this agreement with a sixty (60) day notice at any time. The Company retains all rights to our intellectual properties, and has not transferred any interest to Ideal.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
On July 24, 2012, the Company entered into a public relations consulting agreement with an unrelated third party for cash consideration of $2,000 per month and 15,000 shares of the Company’s common stock, in restricted form, for each month of service. The initial term is for three months and commenced on August 1, 2012. After the initial term, the agreement is renewable for twelve months.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Inflation
Inflation has not materially impacted our results of operations in recent years.
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” (as defined by Item 10 of Regulation S-K), the Company is not required to provide information required by this Item, as defined by Regulation S-K Item 305(e).
ITEM 4T - Controls and Procedures
Disclosure controls and procedures
Disclosure Controls and Procedures
As of September 30, 2012, management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on their evaluation, management concluded that, as of September 30, 2012, our disclosure controls and procedures are not effective to ensure that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that it is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our auditors in performing their review of our interim financial statements have informed us that we have a material weakness in internal controls regarding recording equity transactions and equity instruments. The Chief Executive Officer and Chief Accounting Officer are evaluating our existing controls and will implement changes to improve the flow of information regarding equity transactions and the recording of such transactions in accordance with US GAAP.
Our management, including our Chief Executive Officer and Chief Accounting Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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 the controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Control Over Financial Reporting
We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Based on the most recent evaluation, our Chief Executive Officer and Chief Financial Officer have determined that no significant changes in our internal control over financial reporting occurred during our most recent fiscal quarter that have materially affected, or are reasonably like to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds
For the three months ended September 30, 2012, the Company raised $238,687 in a private placement of its common stock, conducted in compliance with Regulation S (“Regulation S”) and/or Regulation D (“Regulation D”) of the Securities Act of 1933, as amended (the “Securities Act”), selling 2,385,000 shares of its common stock. The Company also accepted subscriptions during the three months September 30, 2012 from unrelated third parties to purchase an aggregate of 935,000 shares of the Company’s common stock pursuant to Regulation D and Regulation S of the Securities Act for total gross proceeds of $93,500. These shares were issued in October, 2012. The Company is utilizing the proceeds from this offering to fund its current operations.
During the three months ended September 30, 2012, we also issued 16,725,000 shares of our common stock, with a value of $853,705, for satisfaction of previously recorded common stock subscribed from the year ended June 30, 2012.
We also issued 24,500 shares of our common stock in payment of an accounts payable invoice in the amount of $2,450. In addition, we issued 30,000 shares of our common stock for services rendered for public relations with a value of $3,000.
During the three months ended September 30, 2012, the Company entered into royalty cancellation agreements with two unrelated shareholders in exchange for the issuance of an aggregate of 125,000 shares of the Company’s common stock, in restricted form, valued at $12,500. In addition, our President is returning to the Company a total of 312,500 shares of common stock issued to him in error.
During the three months ended September 30, 2012, the Company secured termination agreements for its outstanding warrants from the warrant holders, and cancelled all 490,000 of its outstanding warrants.
ITEM 6 - Exhibits
Exhibit
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Number
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Description of Exhibit
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31.1
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Section 302 Certification of Chief Executive Officer
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31.2
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Section 302 Certification of Chief Financial Officer
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32.1
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Section 906 Certification of Chief Executive Officer
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32.2
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Section 906 Certification of Chief Financial Officer
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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RELIABRAND INC.
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Date: November 14, 2012
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By:
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/s/ Antal Markus
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Name: Antal Markus
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Title: CEO, CFO
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