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 July 31, 2013

 

OR

 

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

ACT OF 1934

For the transition period from __________ to __________

 

Commission file number: 333-175003

 

AUTHENTIC TEAS INC.

(Exact name of registrant as specified in its charter)

 

Nevada		33-1221102
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

2105 Plantation Village Dorado, Puerto Rico 00646

(Address of principal executive offices)   (zip code)

 

(631) 521-9700

(Registrant’s telephone number, including area code)

 

Suite 1801-1 Yonge Street, Toronto, Ontario, Canada M5E 2A3

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

 

With a copy to:

Philip Magri, Esq.

The Magri Law Firm, PLLC

11 Broadway, Suite 615

New York, NY 10004

T: (646) 502-5900

F: (646) 826-9200

pmagri@magrilaw.com

www.MagriLaw.com

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ x ]     No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes [ x ]     No [ ]

 

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

 

 

Large accelerated filer	[ ]		Accelerated filer	[ ]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[x]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]     No [ x ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [ ]     No [ ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

4,011,600 shares of common stock, par value $0.001 per share, issued and outstanding as of September 6,  2013.

 

 

 

AUTHENTIC TEAS INC.

(A Development Stage Company)

TABLE OF CONTENTS

 

		Page No:
Part I.	Financial Information	2
Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	9
Item 4.	Controls and Procedures	9
Part II.	Other Information	10
Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	10
Item 5.	Other Information	10
Item 6.	Exhibits	11
	Signatures	12

 

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

 

 

Unaudited Financial Statements			Page
Unaudited Balance Sheets			F-1
Unaudited Statement of Operations			F-2
Unaudited Statement of Cash Flows			F-3
Notes to Unaudited  Financial Statements			F-4

 

 

 

AUTHENTIC TEAS INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)

		July 31, 2013				April 30, 2013
ASSETS
Current assets:
Cash		$	581			$	—
Accounts  receivable			163				163
Inventory			3,013				3,112
Prepaid expenses and deposits			2,045				2,045
Total current assets		$	5,802			$	5,320
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	19,562			$	14,888
Related party loan			91,174				88,574
Total current liabilities			110,736				103,462
Stockholders’ Deficit:
Preferred stock, $0.001 par value, 100,000,000  shares authorized, none issued and outstanding			—				—
Common stock, $0.001 par  value, 100,000,000  shares authorized, 4,011,600  shares issued and  outstanding, respectively			4,012				4,012
Additional paid in capital			11,888				11,888
Deficit accumulated during development stage			(120,834	)			(114,042	)
Total stockholders’ deficit			(104,934	)			(98,142	)
Total liabilities and stockholders’ deficit		$	5,802			$	5,320

 

 

See summary of accounting policies and notes to unaudited consolidated financial statements.

  

 

AUTHENTIC TEAS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

 

		Three months				Three months				July 8, 2010 (Date of Inception)
		ended				ended				to
		July 31,				July 31,				July 31,
		2013				2012				2013
Revenue		$	398			$	74			$	15,242
Cost of Sales			99				40				6,519
Gross margin			299				34				8,723
Expenses:
Advertising and promotion			14				—				5,250
General and administrative expenses			7,077				11,712				124,307
Total operating expenses			7,091				11,712				129,557
Net loss		$	(6,792	)		$	(11,678	)		$	(120,834	)
Basic and diluted net loss per common share		$	0.00			$	0.00				N/A
Weighted average number of common shares outstanding			4,011,600				4,011,600				N/A

  

 

See summary of accounting policies and notes to unaudited consolidated financial statements.

 

 

AUTHENTIC TEAS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

		Three months				Three months				July 8, 2010 (Date of Inception)
		ended				ended				to
		July 31,				July 31,				July 31,
		2013				2012				2013
Cash Flows From Operating Activities:
Net loss		$	(6,792	)		$	(11,678	)		$	(120,834	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accounts receivable			—				—				(163	)
Inventory			99				(821	)			(3,013	)
Prepaid expenses and deposits			—				—				(2,045	)
Accounts payable			4,674				6,075				19,562
Net cash used in operating activities			(2,019	)			(6,424	)			(106,493	)
Cash Flows From Financing Activities:
Proceeds from sale of stock			—				—				15,900
Proceeds from related party loan			2,600				10,176				107,765
Repayments of related party debt			—				(14,124	)			(16,591	)
Cash provided by (used in) financing activities			2,600				(3,948	)			107,074
Net change in cash			581				(10,372	)			581
Cash, Beginning of Period			—				12,512				—
Cash, End of Period		$	581			$	2,140			$	581
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	—			$	—			$	—
Income taxes paid		$	—			$	—			$	—

 

See summary of accounting policies and notes to unaudited consolidated financial statements.

 

 

Authentic Teas Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited interim financial statements of Authentic Teas Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Authentic Teas, Inc. form 10-K filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2013 as reported in the Form 10-K have been omitted.

Note 2 — Going Concern

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred, and may continue to incur, losses from operations. The Company will also require additional capital to finance the further development of its business operations and to finance inventory and working capital.

The Company may therefore need to seek additional capital through other issuances of our equity securities, strategic collaborations, grant funding, or any other means we deem appropriate. There is no assurance that such capital will be available on acceptable terms or at all. As a result, there is substantial doubt as to the Company’s ability to continue as a going concern.

In the event the Company is unable to successfully sustain and increase product sales and obtain additional capital, it is unlikely that the Company will have sufficient cash flows and liquidity to finance its business operations as currently contemplated. Accordingly, if the Company determines it will not be able to obtain the necessary financing to address its working capital needs for a reasonable period into the future, it may pursue alternative paths forward for the Company. These paths could include, but not be limited to, sale of the Company or its assets, merger, organized wind-down, going private/dark, fundamental shift in its strategic plan (e.g. abandon commercialization strategy and focus exclusively on licensing), bankruptcy, etc. 

The financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

Note 3 — Related Party Loans

 

As of July 31, 2013, $91,174 is due to the former President and Chief Financial Officer. The loan is unsecured, non-interest bearing and has no specific terms for repayment.

 

Note 4- Subsequent Events

 

On August 23, 2013 (the “Closing Date”), the Company, Hrant Isbeceryan, David Lewis Richardson and Evan Michael Hershfield, constituting all of the executive officers and members of the Board of Directors of the Company (the “Selling Stockholders”), and RDA Equities, LLC, a Puerto Rico limited liability company (“RDA”), entered into a stock purchase agreement (the “Stock Purchase Agreement”) pursuant to which RDA purchased from the Selling Stockholders an aggregate of 2,750,000 shares, par value $0.001 per share, of restricted common stock of the Company (the “Shares”) in consideration for $0.001 per Share (the “Purchase Price”), for an aggregate purchase price of $2,750 (the “Transaction”).

 

Such shares purchased by RDA are deemed to be “restricted securities” under Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and represent approximately 68.6% of the 4,011,600 outstanding shares of common stock of the Company as of such date. Ralph M. Amato is the Managing Member of RDA and has voting and dispositive control over the securities held by RDA.

 

Pursuant to the terms and conditions of the Stock Purchase Agreement, on the Closing Date, the Board of Directors of the Company appointed Joseph Spiteri and Ralph M. Amato as members to the Board of Directors; Hrant Isbeceryan and David Lewis Richardson, the current executive officers of the Company, resigned from the Company; the Board of Directors appointed the Joseph Spiteri as the Company’s Chief Executive Officer, President, Secretary and Treasurer; Ronald J. Everett as the Company’s Chief Financial Officer; and Nicholas P. DeVito as the Company’s Chief Operating Officer; and Hrant Isbeceryan, David Lewis Richardson and Evan Michael Hershfield resigned from the Board of Directors, effective immediately.

 

Also pursuant to the Stock Purchase Agreement, the Company agreed to effectuate a three-for-one (3:1) forward stock split of the Company’s outstanding Common Stock (the “Forward Stock Split”); a business combination by merging the Company with and into a corporation formed in the Commonwealth of Puerto Rico, with the Company being the non-surviving entity and the Puerto Rico corporation being the surviving entity (the “Surviving Corporation”) and with each outstanding share of the Common Stock of the Company being automatically converted into one share of Common Stock of the Surviving Corporation (the “Merger”); and the Surviving Corporation subsequently acquiring certain intellectual property assets of Mobile Data Systems, Inc., a New York corporation (the “Acquisition”). In the event the Merger and Acquisition are not consummated on or prior to the 90th day following the Closing Date, the Company agreed to undertake all reasonable efforts to remove the then current directors and officers of the Company in accordance with applicable corporate law and replace such individuals with Hrant Isbeceryan as President, Chief Executive Officer and director, David Lewis Richardson as Chief Financial Officer, Secretary, Treasurer and director and Evan Michael Hershfield as director, and unless otherwise consented to in writing by Hrant Isbeceryan, cease all actions in connection with the Forward Stock Split, Merger and Acquisition to the extent such actions have not yet been consummated; and retransfer the Shares back to the Selling Stockholders or the Purchase Price.

 

The Forward Stock Split and Merger are currently scheduled to occur on September 13, 2013.

 

As a result of the Transaction, a change in control of the Company occurred on Closing Date. RDA used its working capital as the source of funds for the Transaction.

 

 

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

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management’s plans and objectives for future operations. In some cases, you can identify forward-looking statements by the use of terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this quarterly report on Form 10-Q include statements about:

 

n

Our business plans,

n

Our ability to raise additional finances,

n

Our anticipated future marketplaces, and

n

Our anticipated sales and marketing strategy.

 

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:

 

n

Our ability to continue as a going concern,

n

General economic and business conditions,

n

Our lack of operating history,

n

Our dependence on one manufacturer and distributor to produce our products, and

n

Our brand and reputation may be damaged.

 

any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Cautionary Note Regarding Management’s Discussion and Analysis

 

This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited financial statements and related notes. The discussion and analysis of our financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions. The following discussion should be read in conjunction with our unaudited interim financial statements and the related notes that appear elsewhere in this quarterly report.

 

As used in this quarterly report, the terms “we”, “us” “our” and “Authentic Teas” mean Authentic Teas Inc., a Nevada corporation. Unless otherwise stated, “$” refers to United States dollars.

 

Corporate Overview

 

Corporate History

 

We were incorporated under the laws of the State of Nevada on July 8, 2010. We are a specialty retailer of premium loose-leaf teas. We currently offer our fifteen different types of teas through our online store www.authentic-teas.com. Our long-term goal is to start supplying specialty supermarkets with our teas.

 

Current Business

 

We have entered into a 5-year agreement with the largest herbal tea producer in Armenia: HAM Ltd. Co (“HAM”). We do not have the exclusive right to distribute HAM’s products in North America and HAM has no obligation to supply us with their products. HAM may not continue to supply us with our tea products or HAM may start to supply our competitors with tea products. HAM suspended their online sales program after they started selling to us.

We reach our customers through Google Adwords campaigns and advertising directly on tea related websites and Facebook. We also target the world-wide Armenian diaspora through community websites and direct email campaigns.

Hrant Isbeceryan, our Chief Executive Officer, resigned from his prior occupation as Account Manager on August 15, 2011 to work full-time on our business. He became our first employee. We anticipate that his focus will be on developing new blends and establishing a retail distribution network.

 

Our Teas

 

Currently, the fifteen tea varieties offered by us are as follows:

 

Tea	Ingredient(s)	Organic
Wild Mint	100% wild crafted mountain mint	Yes
Armenian Blend	High mountain wild thyme and finely cut linden flowers	Yes
Aroma of Armenia	Wild cherry leaves, wild mint and Armenian chrysanthemum	Yes
Orient Blend	Roasted wheat, wild oregano, wild time, wild mint, cinnamon, clove and elder flowers	Yes
Mountain Melody	Armenian oregano, wild thyme and elderflowers	Yes
Pomegranate Tea	Pomegranate flowers, rose petals and hibiscus flowers	No
Ani Blend	Wild oregano, wild cherry leaves, hibiscus and black currant leaves	Yes
Noah’s Blend	Mint, Cherry leaves, Mulberry leaves	No
Royal Nectare	Elderflowers and Linden flowers	No
Black Ginger Gold	Black Georgian Tea, Ginger milled, Wild Calendula	No
Spice Black	Black Georgian Tea, Cinnamon, Clove	No
Black First Thyme	Black Georgian tea, Thyme	No
Green Tarragon Mint	Green Georgian Tea, Tarragon and Mint	No
Ginger Green	Green Georgian Tea, Ginger and Sassafras stigma	No
Green Gold	Green Georgian Tea, Cardamom and Sassafras flower	No

 

Six of the eight blends are unique in the marketplace as black and green teas from Georgia in combination with Armenian wild crafted herbs. The other two are new wild-crafted herbal blends. We began selling the new blends on June 2, 2012.

 

Herbs such as oregano, mint, thyme, and many more are abundant in Armenian. All our teas are wild-harvested from the alpine regions of Armenia. Blending ancient and modern methods, we have derived our teas from traditional medieval Armenian manuscripts, which we believe have been refined for contemporary palates and health benefits.

 

Our teas are wild-crafted, meaning the herbs are harvested sustainably in the wild and then processed entirely by hand. The tea crafting takes place in indigenous village areas, where most of the economic benefits generated are returned to local artisans, which helps ensure that a lifestyle and culture steeped in two thousand years of tradition can continue.

 

Skilled harvesting is the first step in producing an outstanding herbal tea, thus HAM begins rigorous quality control at this stage of the tea crafting process. Harvesters are carefully trained in herb collection and handling techniques in accordance with ancient Armenian traditions for tea crafting.

 

We have developed a product called the Highlands Sampler with smaller 15g (as opposed to our regular 50g) pouches with all seven teas in a gift box. The Highlands Sampler is our biggest seller as well as our most profitable item.

 

Packaging

 

We believe that effective packaging design is essential in premium product categories, as consumers equate distinctive packaging with a higher quality product. HAM has previously tried to sell its teas in North America but we believe our packaging is improved from the packaging HAM used. To improve the packaging, we have commissioned an entirely new brand identity (including logo, visuals and a distinguishing style). We designed and produced a new line of contemporary, bilingual (French/English) 50g pouches made of textured rice paper. A band window across the front portion of the bag allows consumers to have a sneak peek of the product. Other important features are the closable zip top and stand-up capabilities to enhance display options for retailers.

 

Organic

 

We believe that the economic challenges faced by Armenia after establishing its independence from the Soviet Union have had a surprisingly positive impact on its environment and contribute directly to the availability of its high-quality teas. We believe that fertilizer and pesticide use was halted in some areas and scaled back in other regions due to its high prices. At the same time, a sharp drop in industrial activity, while detrimental to the economy, resulted in environmental improvements of both airshed and water supply. Four of our seven teas have now been certified 100% organic, two are certified “made with organic ingredients” and only one tea lacks any organic credentials. We work with EcoGlobe LLC, the only organic certifier in Armenia recognized by the United States and Canadian governments, to have each tea certified.

 

To better serve European consumers, our supplier, HAM, decided in 2012 to instead seek organic certification from the International Federation of Organic Agriculture Movements (“IFOAM”). Ham has had difficulties in obtaining certification from IFOAM, which we believe may delay the shipment of our next order. If we are unable to obtain our products from HAM, our sales may be impacted due to lack of inventory.

 

Our Supply

 

We have entered into a 5-year agreement with the largest herbal tea producer in Armenia: HAM. We do not have the exclusive right to distribute HAM’s products in North America and HAM has no obligation to supply us with their products. We cannot guarantee that HAM will continue to supply us with our tea products or that HAM will not supply our competitors with tea products. HAM had previously sold teas directly to consumers in North America but was unsuccessful primarily due to the high shipping costs to North American consumers. Currently HAM has cancelled its consumer program and redirects consumers to our website. HAM is currently our only supplier of tea products.

 

HAM has agreed that the products it ships must meet:

 

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the Specifications Act for the Bureau of Standardization of the Republic of Armenia, regulated by DP 3721991.1814-99, dated 12/07/1999 and which shall not contradict the requirements in force for a similar product in the country of our company; and

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products designated as Organic by the Organic Certification body in the Republic of Armenia, must be recognized as such by the United States (USDA) and by the Canadian Food Inspection Agency.

 

Conventional tea trading involves many players including tea estate holders, outgrowers, small holders, auction markets and factory-based processors. We purchase directly from our supplier bypassing conventional tea auctions and markets which many of our competitors rely upon. In conventional tea production, the typical supply chain timeline from harvesting leaves through processing to supermarket shelf is approximately 20 to 30 weeks. Our operational structure allows for this timeline to be shortened to as little as 4 weeks. Product quality for premium tea is significantly negatively impacted by lengthy timelines as teas degrade in taste and aroma over time. We believe that achieving timeline efficiencies help differentiate our tea’s quality and unique production approach from that of our competitors.

 

The unique nature of our product offerings limits supplier options. At this time, we are limited to working with one supplier; however we may obtain additional suppliers in the future.

 

Armenia

 

Our future operations could be adversely affected by various factors including changes in Armenia’s political or economic conditions. The political system of Armenia is currently stable with four political parties populating its emerging democratic landscape. Armenia has a functioning market economy.

 

Armenia has joined numerous international organizations including the United Nations, World Trade Organization, the Council of Europe, La Francophonie and many others.

 

Externally, the availability of only two export routes out of Armenia means the closing of borders or other trade restrictions imposed by Armenia’s neighbors are an operational risk. Although landlocked, Armenia maintains positive relations with Iran and Georgia through which many of its exports travel. The borders with its two other neighboring countries, Turkey and Azerbaijan, remain closed. We cannot guarantee that we will be able to get our products out of Armenia.

 

Plan of Operation

 

We were incorporated in the State of Nevada on July 8, 2010. We are a specialty retailer of premium loose-leaf teas. We currently offer our fifteen different types of teas through our online store www.authentic-teas.com. Our initial focus is to market directly to consumers through our online store. Our goal is to start supplying specialty supermarkets with our teas.

 

We have entered into a 5-year agreement with HAM, which is the largest herbal tea producer in Armenia. We do not have the exclusive right to distribute HAM’s products in North American and HAM has no obligation to supply us with their products. We cannot guarantee that HAM will continue to supply us with our tea products or that HAM will not supply our competitors with tea products. HAM is currently our only supplier of tea products.

 

Armenia is currently blockaded on two of its four borders by Azerbaijan and Turkey. This situation is a result of a territorial dispute between Armenia and Azerbaijan leading to the Nagorno-Karabakh War (1988-1994). Although Russia, France and the United States are currently attempting to broker an end to this crisis, we believe that this dispute may continue. We believe that this blockade has severely hurt the Armenia economy. If war restarts, our supplies may be interrupted indefinitely. If we cannot obtain our supplies, we will be unable to implement our business plan.

 

We depend on Canada Post to deliver our products. Other courier services like Fedex or UPS are considerably more expensive. Any further disruptions to Canada Post’s business will impact our ability to ship our products, which will cause our financial results to suffer. Further, if Canada Post raises their shipping rates, the cost of shipping our products would increase, which would force us to either increase the selling price of our products or reduce our margin, both of which will have a negative impact on our financial results.

 

The US dollar is the agreed upon currency between our company and our supplier. If the US dollar weakens against other currencies, our products will become more expensive to import forcing us to either increase the selling price or reduce our margin, both of which will have a negative impact on our financial condition. Due to our large profit margins, we do not believe that inflation will have any impact on our net sales or income from continuing operations.

 

We have not made any material or significant accounting estimates or assumptions.

 

Milestones

 

Our supplier, HAM, has been working on obtaining IFOAM organic certification for our products. We are waiting for HAM to obtain this certification before replenishing our inventory. We anticipate that we have enough inventory to continue to Fall 2013. If HAM fails to get certification by the time we run out of inventory, we will either need to find a new supplier with organic certification or sell the tea as non-organic.

 

During the last few months, we participated in numerous film and cultural festivals in Toronto and Montreal where we sold our teas from rented booths. We hope to continue to participate in such events. We also launched a Spanish version of our website, which we anticipate will complement our existing English and French websites. In order to significantly increase our present sales, we must obtain distribution in specialty supermarkets and grocery stores. To date, we have been unsuccessful in obtaining any distribution for our products. Our primary milestone for the next 12 months is to obtain distribution for our products.

 

Since our revenues are insufficient, we anticipate our milestones will have to be financed by shareholders or by management. We do not currently have any formal arrangement in place with any of our shareholders or management and we may be unable to obtain additional funds. The purchase of additional inventory will take priority over all other milestones. If we are unable to obtain additional funds, we plan to delay all of our milestones, other than the purchase of additional products, until we have the funds necessary to complete the next milestone. If we delay our milestones, we anticipate that we would have decreased sales, which may have a material adverse effect on our business, results of operations and financial condition. The impact on our business, results of operations and financial condition may be greater the longer our milestones are delayed.

 

Results of Operations

 

The following discussion of our financial condition and results of operations should be read together with the unaudited interim financial statements and the notes to the unaudited interim financial statements included in this quarterly report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

 

Our operating results for the three month periods ended July 31, 2013 and July 31, 2012 are summarized as follows:

 

 

		Three Month Period Ended July 31, 2013 ($)				Three Month Period Ended July 31, 2012 ($)
Revenue			398				74
Cost of Sales			99				40
Expenses			7,091				11,712
Net Loss			(6,792	)			(11,678	)

 

Revenue and Cost of Sales

 

During the three month period ended July 31, 2013, we generated revenues of $398 with cost of sales of $99, resulting in gross margin of $299, compared to generating revenues of $74 with cost of sales of $40, resulting in gross margin of $34 for the three month period ended July 31, 2012. We generated revenues from the sale of our tea products through our website. The cost of sales consists of the tea, the tea pouches and labels and shipping costs for us to receive the product. Revenues increased negligibly during the three months ended July 31, 2013, as compared to the three months ended July 31, 2012, as summer proved once again to be a challenging season to sell tea. 

 

Our revenues are affected by factors such as the success of our marketing efforts, the size of our customer base, consumer’s preferences, seasonality and general economic conditions.

 

Expenses

 

During the three month period ended July 31, 2013, we incurred expenses of $7,091, consisting of general and administrative expenses of $7,077 and advertising and promotion expenses of $14, compared to incurring expenses of $11,712, consisting of general and administrative expenses of $11,712 and advertising and promotion expenses of $Nil, for the three month period ended July 31, 2012. Our general and administrative expenses primarily consisted of legal and accounting fees, rent and website construction. Our expenses decreased during the three months ended July 31, 2013, as compared to the three months ended July 31, 2012, due to decreased start-up and legal costs.

 

Revenue and Cost of Sales

 

Our supplier has agreed to keep the prices charged to us the same in the short term. However, due to the weakening US dollar, they have forewarned us that they may increase their prices next year. The weakening US dollar also puts us at a disadvantage when we buy Canadian dollars with our US dollar revenue to pay our expenses.

 

Management anticipates expenses to rise over the foreseeable future as marketing expenses increase as a result of our efforts to increase our revenues. Since we only recently commenced business operations, management does not believe past performance is indicative of future performance.

 

Liquidity and Capital Resources

 

Working Capital

 

Our working capital results as at July 31, 2013 and April 30, 2012 are summarized as follows:

		As of July 31, 2013 ($)				As of April 30, 2013 ($)
Current assets			5,802				5,320
Current liabilities			110,736				103,462
Working capital (deficiency)			(104,934	)			(98,142	)

 

As at July 31, 2013, we had cash of $581 and working capital deficiency of $104,934, compared to cash of $Nil and working capital deficiency of $98,142 as at April 30, 2013. We have incurred operating losses since inception, and this is likely to continue in the foreseeable future.

 

We require funds to enable us to address our minimum current and ongoing expenses. Presently, our revenue is not sufficient to meet our operating and capital expenses. Management projects that we may require an additional $67,500 to fund our operating expenditures for the next twelve month period, as follows:

 

Legal, audit and accounting fees		$	24,000
Transfer agent and registrar fee			2,000
Implement Business Plan			36,000
Rent			1,500
Miscellaneous			4,000
Total		$	67,500

 

As of July 31, 2013, we had working capital deficiency of $104,934. Hence, we anticipate that we will require $172,434 additional funds to implement our business plan for the next twelve months.

 

We anticipate that our cash on hand and the revenue that we anticipate generating going forward from our operations will not be sufficient to satisfy all of our cash requirements for the next twelve month period. We currently do not have committed sources of additional financing and may not be able to obtain additional financing, particularly, if the volatile conditions in the stock and financial markets persist. If we require any additional financing, we plan to raise any such additional capital primarily through equity financing and loans from our directors, provided that such funding continues to be available to our company. We plan to continue to seek additional funds from our directors to fund our day-to-day operations until equity financing can be pursued. We have no guarantee that our directors will continue to fund our day-today operations. The issuance of additional equity securities by our Company may result in a significant dilution in the equity interests of our current stockholders. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing as required on a timely basis, we will not be able to meet certain obligations as they become due and we will be forced to scale down or perhaps even cease our operations.

 

Because we are in the development stage and are yet to attain profitable operations, in their report on our financial statements for the period from July 8, 2010 (date of inception) to April 30, 2013, our independent auditors included an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern. We have not yet achieved profitable operations, have accumulated losses since our inception and expect to incur further losses in the development of our business, all of which raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

Cash Flow

 

Our cash flow for the three month period ended July 31, 2013 and for the three month period ended July 31, 2012 is summarized as follows:

 

		Three Month Period Ended July 31, 2013 ($)				Three Month Period Ended July 31, 2012 ($)
Cash used in operating activities			(2,019	)			(6,424	)
Cash provided by investing activities			—				—
Cash provided by financing activities			2,600				(3,948	)
Net increase (decrease) in cash and cash equivalents			581				(10,372	)

 

Cash Flow Used in Operating Activities

 

The decrease in cash used in operating activities during the three months ended July 31, 2013 as compared to the three months ended July 31, 2012 was due to lower costs in legal and auditing fees and in operating the business in general.

 

Cash Flow Provided by Investing Activities

 

No cash was provided by investing activities in the three months ended July 31, 2013 or for the three months ended July 31, 2012.

 

Cash Flow Provided by Financing Activities

 

The increase in cash flow provided by financing activities was related to proceeds received from a loan from our Company’s President in the amount of $2,600. The loan is unsecured, non-interest bearing and has no specific terms for repayment.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable.

  

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer and principal accounting officer evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, these disclosure controls and procedures were ineffective.

 

Because of the inherent limitations in all control systems, our management believes that no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

 

Item 1A. Risk Factors.

 

Not applicable.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 5. Other Information

 

Subsequent Events:

 

As reported by the Company on a Form 8-K filed with the Securities and Exchange Commission on August 27, 2013, on August 23, 2013 (the “Closing Date”), the Company, Hrant Isbeceryan, David Lewis Richardson and Evan Michael Hershfield, constituting all of the executive officers and members of the Board of Directors of the Company (the “Selling Stockholders”), and RDA Equities, LLC, a Puerto Rico limited liability company (“RDA”), entered into a stock purchase agreement (the “Stock Purchase Agreement”) pursuant to which RDA purchased from the Selling Stockholders an aggregate of 2,750,000 shares, par value $0.001 per share, of restricted common stock of the Company (the “Shares”) in consideration for $0.001 per Share (the “Purchase Price”), for an aggregate purchase price of $2,750 (the “Transaction”). Such shares purchased by RDA are deemed to be “restricted securities” under Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and represent approximately 68.6% of the 4,011,600 outstanding shares of common stock of the Company as of such date. Ralph M. Amato is the Managing Member of RDA and has voting and dispositive control over the securities held by RDA.

 

Pursuant to the terms and conditions of the Stock Purchase Agreement, on the Closing Date, the Board of Directors of the Company appointed Joseph Spiteri and Ralph M. Amato as members to the Board of Directors; Hrant Isbeceryan and David Lewis Richardson, the current executive officers of the Company, resigned from the Company; the Board of Directors appointed the Joseph Spiteri as the Company’s Chief Executive Officer, President, Secretary and Treasurer; Ronald J. Everett as the Company’s Chief Financial Officer; and Nicholas P. DeVito as the Company’s Chief Operating Officer; and Hrant Isbeceryan, David Lewis Richardson and Evan Michael Hershfield resigned from the Board of Directors, effective immediately.

 

Also pursuant to the Stock Purchase Agreement, the Company agreed to effectuate a three-for-one (3:1) forward stock split of the Company’s outstanding Common Stock (the “Forward Stock Split”); a business combination by merging the Company with and into a corporation formed in the Commonwealth of Puerto Rico, with the Company being the non-surviving entity and the Puerto Rico corporation being the surviving entity (the “Surviving Corporation”) and with each outstanding share of the Common Stock of the Company being automatically converted into one share of Common Stock of the Surviving Corporation (the “Merger”); and the Surviving Corporation subsequently acquiring certain intellectual property assets of Mobile Data Systems, Inc., a New York corporation (the “Acquisition”). In the event the Merger and Acquisition are not consummated on or prior to the 90th day following the Closing Date, the Company agreed to undertake all reasonable efforts to remove the then current directors and officers of the Company in accordance with applicable corporate law and replace such individuals with Hrant Isbeceryan as President, Chief Executive Officer and director, David Lewis Richardson as Chief Financial Officer, Secretary, Treasurer and director and Evan Michael Hershfield as director, and unless otherwise consented to in writing by Hrant Isbeceryan, cease all actions in connection with the Forward Stock Split, Merger and Acquisition to the extent such actions have not yet been consummated; and retransfer the Shares back to the Selling Stockholders or the Purchase Price.

 

The Forward Stock Split and Merger are currently scheduled to occur on September 13, 2013.

 

As a result of the Transaction, a change in control of the Company occurred on Closing Date. RDA used its working capital as the source of funds for the Transaction.

 

Item 6. Exhibits.

  

Exhibit No:	Description:
10.1(1)	Restricted Stock Purchase Agreement, dated August 23, 2013, by and between RDA Equities, LLC, Authentic Teas, Inc. and Hrant Isbeceryan
10.2(1)	Restricted Stock Purchase Agreement, dated August 23, 2013, by and between RDA Equities, LLC, Authentic Teas, Inc. and Hrant Isbeceryan
10.3(1)	Restricted Stock Purchase Agreement, dated August 23, 2013, by and between RDA Equities, LLC, Authentic Teas, Inc. and Evan Michael Hershfield
31.1*	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer and Principal Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS(2)	XBRL INSTANCE DOCUMENT
101.SCH(2)	XBRL TAXONOMY EXTENSION SCHEMA
101.CAL(2)	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF(2)	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB(2)	XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE(2)	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

* Filed herewith.

 

(1)

Filed as an exhibit to Form 8-K filed on August 27, 2013 and incorporated by reference herein.

(2)    Furnished herewith. Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

AUTHENTIC TEAS INC.

 

 

By: /s/ JOSEPH SPITERI                      

Joseph Spiteri

Chief Executive Officer, President, Chairman, Secretary and Treasurer (Principal Executive Officer)

 

Date: September 6, 2013

 

 

 

By: /s/ RONALD J. EVERETT        

Ronald J. Everett

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

 

Date: September 6, 2013