Attached files
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EX-32.2 - SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_32-2.htm |
EX-31.2 - SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_31-2.htm |
EX-31.1 - SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_31-1.htm |
EXCEL - IDEA: XBRL DOCUMENT - RELIABRAND INC. | Financial_Report.xls |
EX-32.1 - SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_32-1.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
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FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2012
OR
o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER: 000-54300
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
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75-3260541
|
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer ID No.)
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430 Banks Road Suite 100, Kelowna, BC Canada
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V1X 6A3
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(Address of principal executive offices)
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(Zip code)
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Issuer's telephone number: (778) 478-9997
N/A
(Former name, former address and former fiscal year, if changed since last report.)
(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 February 7, 2013, 83,811,503 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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Condensed Consolidated Balance Sheets as of December 31, 2012 (unaudited) and June 30, 2012
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3
|
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Unaudited Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2012 and 2011, cumulative during development stage from February 22, 2007 (inception) through December 31, 2012
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4
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Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2012 and 2011, and cumulative during development stage from February 22, 2007 (inception) through December 31, 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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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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22
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ITEM 4T
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Controls and Procedures
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22
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PART II
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OTHER INFORMATION
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23
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ITEM 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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23
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ITEM 6
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Exhibits
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23
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SIGNATURE
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24
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2
RELIABRAND, INC.
|
||||||||
(Formerly known as A&J Venture Capital Group, Inc.)
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||||||||
(A DEVELOPMENT STAGE ENTERPRISE)
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||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
December 31,
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June 30,
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|||||||
2012
|
2012
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|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
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$ | 181,650 | $ | 27,247 | ||||
Inventory
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204,625 | 171,505 | ||||||
Deposits - utilities
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4,292 | 4,292 | ||||||
Prepaid expenses (Note 5)
|
168,445 | 48,506 | ||||||
TOTAL CURRENT ASSETS
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559,012 | 251,550 | ||||||
OTHER ASSETS
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||||||||
Property and equipment, net (Note 6)
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91,454 | 28,796 | ||||||
Intellectual and product properties (Note 7)
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100,000 | 143,828 | ||||||
Patents, net of amortization of $105,359 - December 31, 2012
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||||||||
and $70,273 - June 30, 2012 (Note 7)
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1,312,090 | 1,303,348 | ||||||
Product molds, net of amortization of $35,238 - December 31, 2012
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||||||||
and $18,974 - June 30, 2012 (Note 7)
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69,344 | 78,608 | ||||||
TOTAL OTHER ASSETS
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1,572,888 | 1,554,580 | ||||||
Total Assets
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$ | 2,131,900 | $ | 1,806,130 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable
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$ | 69,820 | $ | 52,230 | ||||
Accounts payable - related party
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10,200 | 12,290 | ||||||
Accrued taxes payable
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404 | 174 | ||||||
Note Payable to shareholder (Note 8)
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40,558 | 95,254 | ||||||
Royalties payable - related party
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4,949 | - | ||||||
Accrued liabilities - related party
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7,692 | 5,385 | ||||||
TOTAL CURRENT LIABILITIES
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133,623 | 165,333 | ||||||
STOCKHOLDERS' EQUITY
|
||||||||
Preferred stock, par value $.0001, 10,000,000
|
||||||||
shares authorized, 10,000 issued and outstanding
|
||||||||
December 31, 2012 and June 30, 2012
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1 | 1 | ||||||
Common stock, par value $.0001, 150,000,000 shares authorized – December 31, 2012,
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||||||||
And 100,000,000 shares authorized – June 30, 2012
|
||||||||
85,207,868 issued and outstanding - December 31, 2012
|
||||||||
59,677,500 issued and outstanding - June 30, 2012
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8,521 | 5,968 | ||||||
Paid in Capital
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3,912,773 | 2,148,338 | ||||||
Subscription receivable
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(2,253 | ) | (2,440 | ) | ||||
Stock due from shareholder
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(12,500 | ) | - | |||||
Common Stock Subscribed
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- | 853,705 | ||||||
(Deficit) accumulated during the development stage
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(1,908,265 | ) | (1,364,775 | ) | ||||
Total Stockholders' Equity
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1,998,277 | 1,640,797 | ||||||
Total Liabilities and Stockholders' Equity
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$ | 2,131,900 | $ | 1,806,130 | ||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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3
RELIABRAND, INC.
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(Formerly known as A&J Venture Capital Group, Inc.)
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(A DEVELOPMENT STAGE ENTERPRISE)
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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||||||||||||||||||||
Cumulative
|
||||||||||||||||||||
from
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||||||||||||||||||||
February 22, 2007
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For the three months ended
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For the six months ended
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(Inception)
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||||||||||||||||||
December 31,
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December 31,
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to
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||||||||||||||||||
2012
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2011
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2012
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2011
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December 31, 2012
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||||||||||||||||
REVENUES
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$ | 18,779 | $ | 954 | $ | 29,463 | $ | 954 | $ | 43,063 | ||||||||||
COST OF GOODS
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21,437 | 2,736 | 38,054 | 2,736 | 57,871 | |||||||||||||||
GROSS LOSS
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(2,658 | ) | (1,782 | ) | (8,591 | ) | (1,782 | ) | (14,808 | ) | ||||||||||
EXPENSES
|
||||||||||||||||||||
Amortization and Depreciation
|
29,422 | 15,497 | 50,140 | 30,923 | 162,238 | |||||||||||||||
Accounting, Audit, and Legal fees
|
47,217 | 33,597 | 105,400 | 75,796 | 397,817 | |||||||||||||||
Consulting fees
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29,205 | 108 | 68,624 | 3,551 | 211,675 | |||||||||||||||
Consulting fees - related parties
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68,988 | 42,726 | 140,710 | 86,533 | 487,450 | |||||||||||||||
Rent expense
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15,986 | 13,688 | 30,279 | 19,322 | 105,752 | |||||||||||||||
Selling, general and administrative
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75,377 | 25,603 | 137,127 | 43,130 | 332,954 | |||||||||||||||
Consulting contract benefits - related party
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1,154 | 1,154 | 2,308 | 3,077 | 9,190 | |||||||||||||||
Inventory impairment
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- | - | - | - | 114,278 | |||||||||||||||
Loss on bad debt
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- | - | - | - | 68,491 | |||||||||||||||
Total expenses
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267,349 | 132,373 | 534,588 | 262,332 | 1,889,845 | |||||||||||||||
NET OPERATING (LOSS)
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(270,007 | ) | (134,155 | ) | (543,179 | ) | (264,114 | ) | (1,904,653 | ) | ||||||||||
OTHER INCOME (EXPENSE)
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||||||||||||||||||||
Interest Income
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- | 844 | - | 1,687 | 3,914 | |||||||||||||||
Interest Expense
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(311 | ) | (2,000 | ) | (311 | ) | (2,667 | ) | (7,526 | ) | ||||||||||
NET (LOSS)
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$ | (270,318 | ) | $ | (135,311 | ) | $ | (543,490 | ) | $ | (265,094 | ) | $ | (1,908,265 | ) | |||||
NET (LOSS) PER SHARE - BASIC
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* | * | $ | (0.01 | ) | * | ||||||||||||||
WEIGHTED AVERAGE NUMBER OF
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||||||||||||||||||||
COMMON SHARES OUTSTANDING
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82,425,952 | 59,677,000 | 78,307,976 | 59,480,405 | ||||||||||||||||
* less than $(.01) per share
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||||||||||||||||||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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4
RELIABRAND, INC.
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(Formerly known as A&J Venture Capital Group, Inc.)
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(A DEVELOPMENT STAGE ENTERPRISE)
|
||||||||||||
UNAUDTIED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||||||
Cumulative
|
||||||||||||
from
|
||||||||||||
February 22, 2007
|
||||||||||||
For the six months ended
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(Inception)
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|||||||||||
December 31,
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to
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|||||||||||
2012
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2011
|
December 31, 2012
|
||||||||||
OPERATING ACTIVITIES
|
||||||||||||
Net (loss)
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$ | (543,490 | ) | $ | (265,094 | ) | $ | (1,908,265 | ) | |||
Adjustments to reconcile net income (loss) to net cash used by
|
||||||||||||
operating activities:
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||||||||||||
Stock issued for services
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4,500 | 5,504 | 194,500 | |||||||||
Depreciation and amortization
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66,404 | 33,634 | 197,525 | |||||||||
Inventory impairment
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- | - | (106,516 | ) | ||||||||
Bad debt expense
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- | - | 68,491 | |||||||||
Changes in operating assets and liabilities:
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||||||||||||
Accounts receivable
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- | - | - | |||||||||
Accrued interest - notes receivable
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- | (1,687 | ) | (3,355 | ) | |||||||
Accounts payable
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40,085 | 39,527 | 130,825 | |||||||||
Accounts payable - related party
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(2,090 | ) | 43,989 | 58,617 | ||||||||
Prepaid expenses
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(119,939 | ) | (2,990 | ) | (212,736 | ) | ||||||
Inventory
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(33,120 | ) | (685 | ) | (88,228 | ) | ||||||
Accrued liabilities
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7,486 | 3,098 | 13,045 | |||||||||
Accrued interest - notes payable
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311 | 1,353 | 1,115 | |||||||||
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||||||||||||
NET CASH (USED BY) OPERATING ACTIVITIES
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(579,853 | ) | (143,351 | ) | (1,654,982 | ) | ||||||
INVESTING ACTIVITIES
|
||||||||||||
Deposit in products and product molds
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- | (123,038 | ) | - | ||||||||
Cash received from the BC Ltd. asset acquisition
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- | - | 103,705 | |||||||||
Purchase of property and equipment
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(35,008 | ) | (6,090 | ) | (54,126 | ) | ||||||
Increase in capitalized patent costs
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- | (4,343 | ) | (4,343 | ) | |||||||
Increase in intellectual properties
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- | (94,448 | ) | - | ||||||||
Increase in product molds
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(7,000 | ) | - | (106,457 | ) | |||||||
NET CASH (USED BY) INVESTING ACTIVITIES
|
(42,008 | ) | (227,919 | ) | (61,221 | ) | ||||||
FINANCING ACTIVITIES
|
||||||||||||
Proceeds from sale of common stock
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756,135 | 120,000 | 1,249,390 | |||||||||
Proceeds from shareholder advances
|
20,129 | 50,912 | 342,610 | |||||||||
Proceeds from notes payable
|
- | 192,480 | 343,890 | |||||||||
Repayment of shareholder advances
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- | (20,128 | ) | (38,037 | ) | |||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
776,264 | 343,264 | 1,897,853 | |||||||||
NET INCREASE (DECREASE) IN CASH
|
154,403 | (28,006 | ) | 181,650 | ||||||||
CASH, BEGINNING OF PERIOD
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27,247 | 29,873 | - | |||||||||
CASH, END OF PERIOD
|
$ | 181,650 | $ | 1,867 | $ | 181,650 | ||||||
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
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$ | - | $ | - | $ | 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 | ) | ||||||||
$ | - | $ | - | $ | - | |||||||
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 | ) |
5
UNAUDTIED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
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
|
$ | (22,500 | ) | $ | - | $ | (27,500 | ) | ||||
Accounts payable - related party
|
- | - | (93,555 | ) | ||||||||
Notes payable
|
- | - | (248,636 | ) | ||||||||
Accrued interest
|
- | - | (1,364 | ) | ||||||||
Note Payable - shareholder
|
(75,137 | ) | - | (231,582 | ) | |||||||
Purchase of property and equipment
|
(42,704 | ) | (42,704 | ) | ||||||||
Common stock subscribed
|
140,341 | - | 645,341 | |||||||||
$ | - | $ | - | $ | - | |||||||
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 six months ended December 31, 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 six months ended December 31, 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 six months ended December 31, 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 fiscal 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).
7
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION - continued
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.
Basis of Consolidation
The consolidated financial statements include the accounts of Reliabrand, Inc. and its wholly owned subsidiary, BC Ltd. 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.
8
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION - continued
Reclassifications
Certain amounts in the period ended December 31, 2011 financial statements have been reclassified to conform to the current period ended December 31, 2012 presentation.
Inventory
The only component of inventory is finished goods inventory, valued on a first in first out basis, and includes production cost, product freight in, and packaging costs.
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) collectability 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 permit 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
Net shipping and handling costs of $4,977 and income of $225 for the period ended December 31, 2012 and 2011, respectively, are included in cost of goods.
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 December 31, 2012 we have a working capital surplus of $425,389, and accumulated deficit of $1,908,265. During the six month period ended December 31, 2012 we had a net loss of $543,490 and cash used in operating activities of $579,853. 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.
9
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 4 – PREPAID EXPENSES
Prepaid expenses consisted of the following at December 31, 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 | |||
AM Santos
|
Legal fee retainer
|
2,000 | |||
Nova Genisis
|
Prepayment for product molds production
|
156,657 | |||
Total
|
$ | 168,445 |
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:
December 31, 2012
|
June 30, 2012
|
|||||||
Computer equipment
|
$ | 4,848 | $ | 4,054 | ||||
Website
|
15,257 | 15,257 | ||||||
Office furniture and equipment
|
88,228 | 11,310 | ||||||
108,333 | 30,621 | |||||||
Less accumulated depreciation and amortization
|
(16,879 | ) | (1,825 | ) | ||||
$ | 91,454 | $ | 28,796 |
December 31, 2012
|
June 30, 2012
|
|||||||
Product production molds
|
$ | 104,582 | $ | 97,582 | ||||
Less accumulated amortization
|
(35,238 | ) | (18,974 | ) | ||||
$ | 69,344 | $ | 78,608 |
Depreciation was $15,054 and $806 for the six months ended December 31, 2012 and 2011, respectively. The Company also recorded amortization of products molds expense for the six months ended December 31, 2012 and 2011, of $16,264 and $2,711, respectively, 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 six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 6 – INTELLECTUAL PROPERTIES AND PATENTS
Patents
Patents and licenses consist of the following:
December 31, 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
|
(105,359 | ) | (70,273 | ) | ||||
$ | 1,312,090 | $ | 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 six month period ended December 31, 2012 and 2011 of $35,086 and $30,117, respectively.
NOTE 7 – LOANS PAYABLE - SHAREHOLDER
On August 26, 2011 the Company borrowed $203,523 (CDN$200,000) from one of the 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 one of the 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. On December 14, 2012, we converted $75,137 USD, or 751,368 shares of our restricted common stock, of the above debt’s principal into shares of our restricted common stock at $0.10 per share.
On October 23, 2012 the Company borrowed $20,130 (CDN$20,000) from Verity Enterprises Ltd a company owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and matures on January 14, 2013. We accrued $311 in interest expense in connection with this note, and both the principal and interest are outstanding as of December 31, 2012.
11
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 7 – LOANS PAYABLE – SHAREHOLDER - continued
The loan payable balance comprised of:
December 31,
|
June 30,
|
|||||||
Description
|
2012
|
2012
|
||||||
Uncollateralized note to a related entity bearing no interest per annum which matures on February 28, 2013.
|
$ | 20,117 | $ | 95,254 | ||||
Uncollateralized note to a related entity bearing 8% interest per annum which matures on January 14, 2013.
|
20,130 | - | ||||||
Less current liabilities
|
40,247 | 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
|
$
|
40,247
|
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, a 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 six month period ended December 31, 2012, we recorded $22,295 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,178 in royalties payable.
On May 1, 2012 the Company entered into a consulting agreement with Kyle Markus, a 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 six month period ended December 31, 2012, we recorded $22,295 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,178 in royalties payable.
On May 1, 2012 the Company entered into a new consulting agreement with Anthony Markus, a 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 six month period ended December 31, 2012, we recorded $22,295 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,178 in royalties payable.
12
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS AND BALANCES - continued
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 six month period ended December 31, 2012, we recorded $60,000 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,415 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 $1,900 ($1,860 CAD) per month; beginning in May 2011, we began paying the owner of the building directly. Rent expense was $11,418 and $11,035 for the six months ended December 31, 2012 and 2011, respectively.
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 $18,861 and none for the six months ended December 31, 2012 and 2011.
Consulting agreement
On May 16, 2012 the Company entered into a consulting agreement with a third party 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 six month period ended December 31, 2012 and 2011, we recorded $39,999 and none, respectively, in total consulting fees expense in connection with this contract. On December 7, 2012, the Company terminated this agreement for cause.
On July 24, 2012, the Company entered into a consulting agreement with a third party 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 six month period ended December 31, 2012, we recorded $10,500, 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.
13
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES – continued
License and exclusive marketing agreement - continued
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, beginning once the commercial has been produced, 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.
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. 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 150,000,000 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 December 31, 2012 and June 30, 2012, there were 85,207,868 and 59,677,500 shares of our common stock issued and outstanding, respectively. As of the periods ended December 31, 2012 and June 30, 2012, there were 10,000 shares of our preferred stock issued and outstanding.
14
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 10 – STOCKHOLDER’S EQUITY - continued
Common Shares – Issued and Outstanding
In the six months ended December 31, 2012, we closed several private placements for an aggregate total of $756,135, or 7,561,350 shares of our restricted common stock. As of December 31, 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 six months ended December 31, 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. On November 6, 2012, the Company issued 1,500 restricted shares of our common stock for final payment of the services, valued at $1,500, rendered under the agreement above.
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 $42,703.
On November 15, 2012, the Company issued 200,000 restricted shares of our common stock for payment of debt owed to a legal counsel for services performed in the amount of $20,000.
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 December 31, 2012 is presented below:
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 December 31, 2012
|
-
|
|||
Exercisable at December 31, 2012
|
-
|
16
RELIABRAND, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended December 31, 2012 and 2011
(Unaudited)
NOTE 10 – STOCKHOLDER’S EQUITY - continued
Common Stock Warrants
On April 19, 2012, the Board determined it was in the best interest of the Company to cancel all of the outstanding warrants. As of 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)
Related party consulting agreements
On January 18, 2013, 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 $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, 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.
On January 18, 2013, the Company entered into a consulting agreement with Kyle Markus, the son of our current President, for his consulting services at a rate of $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, 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.
On January 18, 2013, 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 $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, 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.
On January 18, 2013, the Company entered into a new consulting agreement with Michael Markus, the son of our current President, for his consulting services at a rate of $35,200 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, 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.
On January 18, 2013, the Company entered into an amendment of the consulting agreement, dated May 1, 2011, with Marant Holdings Inc., a company controlled by our President and Chief Executive Officer. The prior agreement remains in force except for the following provisions, his consulting services will be at a rate of $11,000 per month, and he will also receive an option to purchase 8,131,150 shares of the Company’s common stock for $0.10 per share. On January 1, each year that the consulting agreement is in force, he will be granted an option to purchase an amount of shares to represent 10% of our issued and outstanding common stock as of December 31st of the prior year.
Supplier agreement
On January 22, 2013, the Company entered into a supplier agreement with Wal-Mart Canada Corp. (Wal-Mart) to supply 150 of its stores initially. The agreement provides for the terms and conditions for the purchases of the Company’s products by Wal-Mart, as well as the payment terms for the purchases.
17
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read this section in conjunction with our financial statements and the related notes included in this Form 10-Q. Some of the information contained in this section or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategies for our business, statements regarding the industry outlook, our expectations regarding the future performance of our business, and the other non-historical statements contained herein are forward-looking statements.
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 Company’s financial statements, which the Company has 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 BPA Free 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 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.
Results of Operations for the Three Months Ended December 31, 2012 and the Three Months Ended December 31, 2011
We have revenue of $18,779 for the period ended December 31, 2012 compared to revenue of $754 for the period ended December 31, 2011. The increase in our revenue can be attributed to our increase in sales of our products as we market them to consumers, we anticipate that sales will continue to increase as we continue to pursue our business plan, and develop additional sales of our product line.
As of December 31, 2012, we had total assets of $2,131,900 and total liabilities of $133,623 compared to total assets of $1,806,130 and total liabilities of $165,333 as of June 30, 2012. The increase in assets are mainly attributable to purchases of finished goods inventory of our products to be sold. We will purchase additional inventory as the needed to fulfill our sales.
During the three months ended December 31, 2012, we incurred operating expenses in the amount of $267,349. 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 $132,373 for the three months ended December 31, 2011. The increase in expenses is because of the Company pursuing its business plan and hiring additional consultants to assist with operations, additional travel and marketing to attend trade shows and meet with potential retailers.
For the three months ended December 31, 2012, we paid consulting fees of $68,988 to related parties compared to consulting fees to an entity controlled by our current President of $42,726 for the three months ended December 31, 2011.
For the three months ended December 31, 2012, we paid rent expense to an unrelated party of $15,986 compared to no rent expense to the unrelated party and $13,688 in rent to a related party for the three months ended December 31, 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.
18
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Results of Operations for the Six Months Ended December 31, 2012 and the Six Months Ended December 31, 2011
During the six months ended December 31, 2012, we incurred operating expenses in the amount of $534,588 and had revenues of $29,463. These operating expenses were comprised of accounting and audit fees, legal fees, general and management expenses, rent expense, and amortization expense, compared to operating expenses of $262,332 and revenues of $954 for the six months ended December 31, 2011.
For the six months ended December 31, 2012, we paid consulting fees of $140,710 to an entity controlled by our current President compared to consulting fees to the same related party of $86,533 for the six months ended December 31, 2011.
Liquidity and Capital Resources
As of December 31, 2012, the Company had a cash balance of $181,650, and as of June 30, 2012, the Company had a cash balance of $27,247.
For the six months ended December 31, 2012, the Company raised $756,135 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 7,561,350 shares of its common stock. All these shares have been issued. The Company is utilizing the proceeds from this offering to fund its current operations.
During the six months ended December 31, 2012, the Company entered into royalty cancellation agreements with two 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 six months ended December 31, 2012, the Company secured termination agreements for its outstanding warrants from the warrant holders, and cancelled all 490,000 of its outstanding warrants, in exchange for no consideration.
On March 1, 2012 the Company borrowed $151,410 (CDN$150,000) from one of the 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. On December 14, 2012, we converted $75,137 USD, or 751,368 shares of our restricted common stock, of the above debt’s principal into shares of our restricted common stock at $0.10 per share.
On October 23, 2012 the Company borrowed $20,130 (CDN$20,000) from Verity Enterprises Ltd a company owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and matures on January 14, 2013. We accrued $311 in interest expense in connection with this note, and both the principal and interest are outstanding as of December 31, 2012.
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 sales of our common stock. 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.
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.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Critical Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Reliabrand, Inc. and its wholly owned subsidiary, BC Ltd. 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 December 31, 2011 financial statements have been reclassified to conform to the current period ended December 31, 2012 presentation.
Inventory
The only component of inventory is finished goods inventory, valued on a first in first out basis, and includes production cost, product freight in, and packaging costs.
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) collectability 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 permit 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
Net shipping and handling costs of $4,977 and income of $225 for the period ended December 31, 2012 and 2011, respectively, are included in cost of goods.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Contractual Obligations
In May, 2011, the Company began renting office space on a month-to-month basis for approximately $1,900 ($1,860 CAD) per month. For the six months ended December 31, 2012 and 2011, the rent expense was $11,418 USD and $11,035 USD, 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 $2,690 (CDN $2,500) plus related taxes and a $2,690 (CDN $2,500) security deposit For the six months ended December 31, 2012 and 2011, the warehouse rental expense was $18,861 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 December 31, 2012, we recorded $22,295 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,178 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 December 31, 2012, we recorded $22,295 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,178 in royalties payable.
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 December 31, 2012, we recorded $22,295 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,178 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 December 31, 2012, we recorded $60,000 in consulting fees – related party expense in connection with this contract. As of December 31, 2012, the Company accrued a total of $1,415 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. She also received a signing bonus of 1,000,000 shares of our restricted common stock valued at $40,000. For the six month period ended December 31, 2012 and 2011, we recorded $39,999 and none, respectively, in total consulting fees expense in connection with this contract. On December 7, 2012, the Company terminated this agreement for cause.
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 by Ideal, 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.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
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 a total cumulative total of $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.
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. The agreement was terminated effective October 31, 2012. For the six month period ended December 31, 2012, we recorded $10,500 in total consulting fees expenses in connection with this agreement.
On November 15, 2012, the Company issued 200,000 restricted shares of our common stock in satisfaction of a debt owed to legal counsel for services performed in the amount of $20,000.
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
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report, being December 31, 2012, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer. Based upon that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures were not effective as at the end of the period covered by this report. There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting. Our auditors 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 has examined our controls and has implemented changes to improve the flow of information regarding equity transactions to address this material weakness.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer to allow timely decisions regarding required disclosure.
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ITEM 4T - Controls and Procedures - continued
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
There were no changes in our internal controls over financial reporting during the three month period ended December 31, 2012 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds
For the three months ended December 31, 2012, the Company raised $423,948 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 4,241,350 shares of its common stock. All of these shares have been issued. The Company is utilizing the proceeds from this offering to fund its current operations.
During the six months ended December 31, 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 six months ended December 31, 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
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.
RELIABRAND INC.
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Date: February 12, 2013
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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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