Attached files
file | filename |
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EX-32.1 - SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_32-1.htm |
EX-31.2 - SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_31-2.htm |
EXCEL - IDEA: XBRL DOCUMENT - RELIABRAND INC. | Financial_Report.xls |
EX-32.2 - SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_32-2.htm |
EX-31.1 - SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013
OR
o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER: 000-54300
RELIABRAND INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
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75-3260541
|
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer ID No.)
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720 Evans Court, Suite 103, Kelowna, BC Canada
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V1X 6G4
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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.)
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 Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 14, 2013, 91,383,868 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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ITEM 1
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Condensed Consolidated Financial Statements
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Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and June 30, 2013
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3
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Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2013 and 2012
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4
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Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2013 and 2012
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5
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Notes to Condensed Consolidated Financial Statements (unaudited)
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6
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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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20
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ITEM 3
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Quantitative and Qualitative Disclosures about Market Risk
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25
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ITEM 4T
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Controls and Procedures
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25
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PART II
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OTHER INFORMATION
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25
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ITEM 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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25
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ITEM 6
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Exhibits
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26
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SIGNATURE
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26
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2
RELIABRAND, INC.
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
September 30,
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June 30,
|
|||||||
2013
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2013
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
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$ | 190,783 | $ | 10,488 | ||||
Accounts receivable, net
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46,265 | 41,929 | ||||||
Inventory, net
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274,470 | 279,316 | ||||||
Prepaid expenses
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201,933 | 113,187 | ||||||
TOTAL CURRENT ASSETS
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713,451 | 444,920 | ||||||
OTHER ASSETS
|
||||||||
Deposits
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5,278 | 5,278 | ||||||
Property and equipment, net (Note 4)
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119,602 | 132,413 | ||||||
Intellectual and product properties (Note 5)
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100,000 | 100,000 | ||||||
Patents, net of amortization of $123,299 - September 30, 2013
|
||||||||
and $110,296 - June 30, 2013 (Note 5)
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1,080,456 | 1,093,459 | ||||||
Product molds, net of amortization of $72,809 - September 30, 2013
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||||||||
and $58,319 - June 30, 2013 (Note 4)
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101,073 | 115,563 | ||||||
TOTAL OTHER ASSETS
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1,406,409 | 1,446,713 | ||||||
Total Assets
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$ | 2,119,860 | $ | 1,891,633 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable
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$ | 81,055 | $ | 211,341 | ||||
Accounts payable - related party
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25,701 | 21,654 | ||||||
Accrued taxes payable
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5,521 | 4,493 | ||||||
Shareholder advances (Note 7)
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11,088 | 11,087 | ||||||
Note payable to shareholder (Note 6)
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75,773 | 96,907 | ||||||
Contingent royalties payable
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70,000 | 82,264 | ||||||
Royalties payable - related party
|
6,674 | 16,389 | ||||||
Accrued liabilities - related party
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2,308 | 1,154 | ||||||
TOTAL CURRENT LIABILITIES
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278,120 | 445,289 | ||||||
LONG TERM LIABILITY - Contingent royalties payable
|
310,618 | - | ||||||
COMMITMENT AND CONTINGENCIES
|
||||||||
STOCKHOLDERS' EQUITY (Note 9)
|
||||||||
Preferred stock, par value $.0001, 10,000,000
|
||||||||
shares authorized, 10,000 issued and outstanding
|
||||||||
September 30, 2013 and June 30, 2013, respectively
|
1 | 1 | ||||||
Common stock, par value $.0001, 150,000,000 and 100,000,000
|
||||||||
shares authorized, respecctively;
|
||||||||
91,383,868 issued and outstanding - September 30, 2013
|
||||||||
86,822,868 issued and outstanding - June 30, 2013
|
9,141 | 8,686 | ||||||
Paid in Capital
|
5,194,348 | 4,829,967 | ||||||
Subscription receivable
|
(2,253 | ) | (2,253 | ) | ||||
Stock due from shareholder
|
(12,500 | ) | (12,500 | ) | ||||
Accumulated (Deficit)
|
(3,657,615 | ) | (3,377,557 | ) | ||||
Total Stockholders' Equity
|
1,531,122 | 1,446,344 | ||||||
Total Liabilities and Stockholders' Equity
|
$ | 2,119,860 | $ | 1,891,633 | ||||
The accompanying notes are an integral part of the financial statements
3
RELIABRAND, INC.
|
||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||
For the three months ended
|
||||||||
September 30,
|
||||||||
2013
|
2012
|
|||||||
REVENUES
|
$ | 36,821 | $ | 10,684 | ||||
COST OF GOODS
|
22,539 | 16,617 | ||||||
GROSS PROFIT/ (LOSS)
|
14,282 | (5,933 | ) | |||||
EXPENSES
|
||||||||
Amortization and Depreciation
|
28,316 | 20,718 | ||||||
Accounting, Audit, and Legal fees
|
44,306 | 58,183 | ||||||
Consulting fees
|
30,296 | 39,419 | ||||||
Consulting fees - related parties
|
89,274 | 71,722 | ||||||
Rent expense
|
2,003 | 14,293 | ||||||
Selling, general and administrative
|
95,888 | 61,750 | ||||||
Consulting contract benefits - related party
|
1,154 | 1,154 | ||||||
Total expenses
|
291,237 | 267,239 | ||||||
NET OPERATING LOSS
|
(276,955 | ) | (273,172 | ) | ||||
OTHER EXPENSE
|
||||||||
Interest Expense
|
(3,102 | ) | - | |||||
NET LOSS
|
$ | (280,057 | ) | $ | (273,172 | ) | ||
NET LOSS PER SHARE - BASIC AND DILUTED
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
WEIGHTED AVERAGE NUMBER OF
|
||||||||
COMMON SHARES OUTSTANDING
|
90,214,314 | 74,190,000 |
The accompanying notes are an integral part of the financial statements
4
RELIABRAND, INC.
|
||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
For the three months ended
|
||||||||
September 30,
|
||||||||
2013
|
2012
|
|||||||
OPERATING ACTIVITIES
|
||||||||
Net loss
|
$ | (280,057 | ) | $ | (273,172 | ) | ||
Adjustments to reconcile net loss to net cash used by
|
||||||||
operating activities:
|
||||||||
Stock issued for services
|
24,000 | 3,000 | ||||||
Depreciation and amortization
|
42,806 | 28,850 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(4,336 | ) | - | |||||
Prepaid expenses
|
(88,746 | ) | (15,686 | ) | ||||
Inventory
|
4,846 | (44,814 | ) | |||||
Accounts payable
|
(65,849 | ) | 27,094 | |||||
Accounts payable - related party
|
4,048 | (12,290 | ) | |||||
Accrued liabilities
|
(7,783 | ) | 3,609 | |||||
Accrued interest - notes payable
|
1,523 | - | ||||||
|
||||||||
NET CASH (USED BY) OPERATING ACTIVITIES
|
(369,548 | ) | (283,409 | ) | ||||
INVESTING ACTIVITIES
|
||||||||
Purchase of property and equipment
|
(2,502 | ) | - | |||||
Increase in product molds
|
- | (7,000 | ) | |||||
NET CASH (USED BY) INVESTING ACTIVITIES
|
(2,502 | ) | (7,000 | ) | ||||
FINANCING ACTIVITIES
|
||||||||
Proceeds from sale of common stock
|
575,000 | 334,635 | ||||||
Proceeds from shareholder advances/ notes
|
1,658 | - | ||||||
Repayments of notes payable
|
(22,656 | ) | - | |||||
Repayment of shareholder advances
|
(1,657 | ) | - | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
552,345 | 334,635 | ||||||
NET INCREASE IN CASH
|
180,295 | 44,226 | ||||||
CASH, BEGINNING OF PERIOD
|
10,488 | 27,247 | ||||||
CASH, END OF PERIOD
|
$ | 190,783 | $ | 71,473 | ||||
CASH PAID FOR INTEREST
|
$ | 187 | $ | - | ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Debt Converted to Common Stock Subscribed
|
||||||||
Accounts payable
|
$ | (64,440 | ) | $ | - | |||
Common stock subscribed
|
64,440 | - | ||||||
$ | - | $ | - | |||||
Shares issued for common stock subscribed
|
||||||||
Common stock subscribed
|
$ | - | $ | 853,705 | ||||
Common stock issued
|
- | (853,705 | ) | |||||
$ | - | $ | - |
The accompanying notes are an integral part of the financial statements
5
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three months ended September 30, 2013 and 2012
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Interim periods
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2013 are not necessarily indicative of results for any future period. The condensed consolidated balance sheet at June 30, 2013 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, 2013.
There have been no material changes to our significant accounting policies during the three months ended September 30, 2013, 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, 2013.
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 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, 2013, 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. In the fourth quarter of fiscal year 2013, the Company’s management determined that it exited the development stage, as defined in FASB ASC 915-10. The Company had adjusted its financial statement presentation accordingly.
6
NOTE 1 - BASIS OF PRESENTATION – continued
Business Composition
On January 20, 2011, we entered into an Asset Purchase Agreement (the “Agreement”) with 0875505 B.C. Ltd. (“BC Ltd”), a British Columbia, Canadian company. The Agreement provided for us to acquire multiple patents and trademarks acquired by BC Ltd through a receivership proceeding of Adiri, Inc. (Adiri”). Adiri was granted the initial patents and trademarks. These patents and trademarks relate to a baby bottle and related components that BC Ltd expended approximately $1,500,000 in cash in acquiring and further development; as of December 31, 2010 the patents, and related expenses to acquire and maintain the patents, had a net book value, which approximates fair value, of $1,436,768. As part of the Agreement, the Company also acquired $100,000 in cash, total note receivables and accrued interest in the amount of $63,296 owed by Watergeeks, Inc., a related party entity, to BC Ltd, resin inventory of $8,160, pacifier inventory of $6,000, product molds of $5,266, assumed an executory contract with a plastics manufacturer, and assumed accounts payable of approximately $45,176. In exchange, at the closing on April 26, 2011 we issued 35,000,000 shares of our common stock, par value $.0001, post-split
On March 16, 2012, we entered into a Share Purchase Agreement (the “agreement 2”) with 0875505 B.C. Ltd. (“BC Ltd”), a British Columbia, Canadian company to acquire the company through a share exchange. As noted above, we had already purchased all the assets and liabilities from the company in the above agreement. We decided to purchase the equity in BC Ltd because while we were beginning the process to transfer the patents and trademarks to our company name, we found the process to be very costly and very lengthy. Whereas if we acquired the BC Ltd as a wholly owned subsidiary we would own the patents and trademarks without completing the transfer process, which was most cost effective for our company with our limited cash reserves, and offered the quickest and most cost effective remedy to protect our interests and our shareholders assets. In exchange for the shares of stock of BC Ltd, we agreed to issue to the shareholders of BC Ltd 50,000 shares of our restricted common stock. We also acquired the remaining cash of approximately $3,705 ($3,675CAD).
Liquidity
The Company anticipates that revenue or income for fiscal year 2014 may be limited, but based upon our historical data we expect to continue to show growth. 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 2014.
7
NOTE 1 - BASIS OF PRESENTATION – continued
Basis of Consolidation
The consolidated financial statements include the accounts of Reliabrand, Inc. and its wholly owned subsidiary. Our operations are treated as one operating segment. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.
Foreign Currency Translation
The condensed consolidated interim financial statements are presented in United States dollars (USD). We have determined that our functional currency is U.S. dollars; the foreign currency consolidated financial statements of our subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured using the foreign exchange rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and furniture and equipment are translated by using historical exchange rates. Any re-measurement gain or loss incurred is immaterial to the consolidated financial statements.
Reclassifications
Certain amounts in the period ended September 30, 2012 financial statements have been reclassified to conform to the current period ended September 30, 2013 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. Slow moving and obsolete inventories are written down based on a comparison of on-hand quantities to historical and projected usages. Additionally, reserves for non-cancelable open purchase orders for components the Company is obligated to purchase in excess of projected usage, or for open purchase orders where the market price is lower than the purchase order price, if any, are recorded as other accrued expenses on the balance sheet. As of September 30, 2013 and 2012, we did not have any such accrued expenses.
8
NOTE 1 - BASIS OF PRESENTATION – continued
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of goods has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectibility is reasonably assured. Thus, we generally recognize sales revenue when shipment of the purchased product has occurred. Cash payments received in advance are recorded as deferred revenue. We currently permits our customers to return or exchange defective products. We have analyzed our quality control procedures and feel that our main exposure is from damages in shipping. Accordingly we do not need to establish a reserve for returns at this time. We will continue to analyze this each period and implement one if the need arises.
Shipping and Handling
Net shipping and handling costs of $1,187 and $918 for the period ended September 30, 2013 and 2012, respectively, are included in selling, general and administrative expenses.
Advertising Costs
The Company expenses advertising costs when incurred. During the period ended September 30, 2013 and 2012, we had $58,627 and $20,782 in expenditures on advertising, respectively.
Concentration in Sales and Accounts Receivables to Few Customers
In the period ended September 30, 2013, our WalMart Canada sales accounted for 31.02% of our revenues. In the period ended September 30, 2013, our North American sales accounted for 100.00% of our revenues. In the period ended September 30, 2013, our WalMart Canada account receivables accounted for 99.77% of our receivable balances.
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, which raises substantial doubt about the Company’s ability to continue as a going concern.
As of September 30, 2013 we have a working capital surplus of $435,331, and accumulated deficit of $3,657,615. During the period ended September 30, 2013 we had a net loss of $280,057 and cash used in operating activities of $369,548. 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.
9
NOTE 3 – RECENTLY ISSUED ACCOUNTING STANDARDS
Recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations and cash flows.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30,
2013
|
June 30,
2013
|
|||||||
Computer equipment
|
$
|
7,279
|
$
|
7,279
|
||||
Website
|
15,257
|
15,257
|
||||||
Office furniture and equipment
|
99,979
|
97,477
|
||||||
Leasehold improvements
|
46,855
|
46,855
|
||||||
169,370
|
166,868
|
|||||||
Less accumulated depreciation and amortization
|
(49,768
|
)
|
(34,455
|
)
|
||||
$
|
119,602
|
$
|
132,413
|
September 30, 2013
|
June 30, 2013
|
|||||||
Product production molds
|
$ | 173,882 | $ | 173,882 | ||||
Less accumulated amortization
|
(72,809 | ) | (58,319 | ) | ||||
$ | 101,073 | $ | 115,563 |
Depreciation was $15,314 and $1,436 for the periods ended September 30, 2013 and 2012, respectively.
The Company also recorded amortization of products molds expense for the periods ended September 30, 2013 and 2012 of $14,490 and $8,132, respectively, as reflected in cost of goods sold on the accompanying Statement of Operations.
NOTE 5 – INTELLECTUAL PROPERTIES AND PATENTS
Patents
Patents and licenses consist of the following:
September 30,
2013
|
June 30,
2013
|
|||||||
Adiri patents
|
$
|
800,552
|
$
|
800,552
|
||||
Adiri trademarks
|
359,375
|
359,375
|
||||||
Adiri patent legal fees
|
43,828
|
43,828
|
||||||
1,203,755
|
1,203,755
|
|||||||
Less accumulated amortization
|
(123,299
|
)
|
(110,296
|
)
|
||||
$
|
1,080,456
|
$
|
1,093,459
|
|||||
Plastic technology properties
|
$
|
100,000
|
$
|
100,000
|
||||
$
|
100,000
|
$
|
100,000
|
The Company has recorded amortization of patents expense for the periods ended September 30, 2013 and 2012 of $13,002 and $19,282, respectively.
10
NOTE 6 – LOANS PAYABLE - SHAREHOLDER
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. As of September 30, 2013 and June 30, 2013, the remaining balance of $20,117 is outstanding, respectively.
On October 23, 2012 the Company borrowed $20,130 (CDN$20,000) from 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. During the period ended September 30, 2013, we accrued $409 in interest expense in connection with this note, and both the principal and interest are outstanding as of September 30, 2013 and June 30, 2013.
On April 26, 2013 the Company borrowed $30,000 USD from the same company as above owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and is payable upon demand of the note holder. During the period ended September 30, 2013, we accrued $613 in interest expense in connection with this note, and both the principal and interest are outstanding as of September 30, 2013 and June 30, 2013.
On June 26, 2013 the Company borrowed $23,300 USD (CDN $24,500) from the same company as above owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and is payable upon demand of the note holder. On August 1, 2013, we made payment in full on this note, leaving no principal outstanding as of September 30, 2013.
The notes payable to shareholders balance comprised of the below, net of accrued interest of $5,526:
September 30,
|
June 30,
|
|||||||
Description
|
2013
|
2013
|
||||||
Uncollateralized note to a related entity bearing no interest per annum which matures on February 28, 2013.
|
$
|
20,117
|
$
|
20,117
|
||||
Uncollateralized note to a related entity bearing 8% interest per annum.
|
30,000
|
30,000
|
||||||
Uncollateralized note to a related entity bearing 8% interest per annum.
|
--
|
23,300
|
||||||
Uncollateralized note to a related entity bearing 8% interest per annum which matures on January 14, 2013.
|
20,130
|
20,130
|
||||||
Total liabilities
|
70,247
|
93,547
|
||||||
Less current liabilities
|
70,247
|
93,547
|
||||||
Total long term liabilities
|
$
|
-0-
|
$
|
-0-
|
Future maturity of our notes payable is presented in the table below:
For the years ended June 30,
|
||||
2014
|
$
|
70,247
|
11
NOTE 7 – RELATED PARTY TRANSACTIONS AND BALANCES
Related party transactions
On May 1, 2012 the Company entered into a consulting agreement with a son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son 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 continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended September 30, 2013 and 2012, we recorded $11,825 and $11,545, respectively, in consulting fees – related party expense to this individual. For the three months ended September 30, 2013 and 2012, the Company accrued a total of $963 and $571 in royalties payable, respectively.
On May 1, 2012 the Company entered into a consulting agreement with another son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son 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 continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended September 30, 2013 and 2012, we recorded $13,707 and $11,545, respectively, in consulting fees – related party expense to this individual. For the three months ended September 30, 2013 and 2012, the Company accrued a total of $963 and $571 in royalties payable, respectively.
On May 1, 2012 the Company entered into a consulting agreement with a third son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son 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 continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended September 30, 2013 and 2012, we recorded $13,796 and $11,545, respectively, in consulting fees – related party expense in connection with these contracts. For the three months ended September 30, 2013 and 2012, the Company accrued a total of $963 and $571 in royalties payable, respectively.
On January 18, 2013, the Company entered into a consulting agreement with a fourth 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. For the periods ended September 30, 2013 and 2012, we recorded $10,266 and none, respectively, in consulting fees – related party expense to this individual. For the three months ended September 30, 2013 and 2012, the Company accrued a total of $963 and none in royalties payable, respectively.
On May 1, 2011, the Company entered into a consulting agreement with a company controlled by our President and Chief Executive Officer, for his consulting services at a rate of $10,000 per month, and he received a 3.00% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into an amendment of the above consulting agreement, dated May 1, 2011, with the same Company as above, 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 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. On January 18, 2013 the President received an option to purchase 8,131,150 shares of the Company’s common stock for $0.10 per share (Note 10). For the periods ended September 30, 2013 and 2012, we recorded $33,000 and $30,000, respectively, in consulting fees – related party expense in connection with these contracts. For the three months ended September 30, 2013 and 2012, the Company accrued a total of $1,155 and $686 in royalties payable, respectively.
12
NOTE 7 – RELATED PARTY TRANSACTIONS AND BALANCES - continued
Related party transactions - continued
On September 1, 2013, the Company entered into a consulting agreement with a son of a current shareholder, for his consulting services at a rate of $34,171 USD ($36,000 CAD) per annum, and we will issue him 20,000 shares of our restricted common stock per month of service rendered. The agreement will be in effect for a period of twelve months, ending on August 31, 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 ten day written notice. For the period ended September 30, 2013 we recorded $6,680 in consulting fees – related party expense to this individual, including $2,680 paid in cash and $4,000 paid in shares of common stock.
Shareholder advances
In the three month period ended September 30, 2013, our current President paid operating bills on behalf of the Company totaling $1,658, and was repaid $1,657 in cash.
During the year ended June 30, 2013, our President advanced the Company $22,552 USD on a non-interest bearing, non-secured, on demand basis, and was repaid $11,465 USD. As of September 30, 2013 and June 30, 2013, the balance of $11,088 USD is outstanding.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Office – warehouse lease
On April 1, 2013 the Company entered into a two year term lease agreement of an office and warehouse space located in Kelowna, BC. The lease commences on May 1, 2013 and requires a monthly payment of approximately $3,600 including related taxes and a $3,623 security deposit. We paid the first and security deposit on January 30, 2013. Rent expense for the related lease was $2,002 and none for the periods ended September 30, 2013 and 2012, respectively. In the three months ended September 30, 2013, we received certain credits from the lessor for various lack of performance issues totaling $9,809 as an offset of rental payments. As part of the lease we agreed to pay the landlord for leasehold improvements made to the offices and warehouse, work was completed as of June 30, 2013. We capitalized $46,855 in leasehold improvements and began depreciating them according to our policies. On July 26, 2013, in full settlement, we also paid the balance owed for these improvements in shares of our common stock (Note 9).
Consulting agreements
On May 6, 2013, the Company entered into a consulting agreement with a third party for product development consulting services to perform product development services. The Consultant shall be paid 2,000,000 shares of our restricted common stock, to be issued as follows: 200,000 shares upon execution of the agreement, 500,000 shares upon completion of the initial project, and the remaining 1,300,000 shares upon successful manufacture and acceptance by the Company of the initial completed product. In addition, the Consultant will be entitled to a 2.50% perpetual royalty on the future sales of the completed product. The agreement will be in effect until completion of the project or upon 10 day written notice of either party. For the year ended June 30, 2013, we issued the initial 200,000 shares of our restricted common stock and recorded $20,000, in total marketing consulting fees in connection with this contract. In the three month period ended September 30, 2013, we have not recorded any additional expenses in connection with this contract.
13
NOTE 8 - COMMITMENTS AND CONTINGENCIES - continued
Consulting agreements - continued
On June 21, 2013, the Company entered into a consulting agreement with a third party for advertising consulting services to perform advertising services at a rate of $7,500 USD and 250,000 shares of our restricted common stock, valued at $25,000, for the initial 90 days beginning June 21, 2013. The agreement was in effect for a period of three months ending on September 30, 2013. For the three months ended September 30, 2013, we expensed $32,500 in advertising expense in connection with this contract.
On July 26, 2013, the Company entered into a consulting agreement with a third party for public relations and communications services consulting services at a rate of $17,500 USD and 200,000 shares of our restricted common stock, valued at $20,000, for the 90 day term beginning July 26, 2013. The agreement will be in effect for a period of three months ending on October 26, 2013. For the three months ended September 30, 2013, we expensed $25,000 in consulting fees expense in connection with this contract.
Royalty agreements
In connection with the common stock subscriptions, described below (Note 9), the Company granted as part of the subscription, a royalty agreement for $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. The Company has recorded a contingent liability for this agreement which is based upon projections of our sales on these products. For three months ended September 30, 2013, the company recorded an additional $62,243 for proceeds received in connection with these subscriptions. At September 30, 2013 and June 30, 2013, the total contingencies in connection with these subscriptions are $147,507 and $82,264, respectively.
In connection with a second common stock subscription, described below (Note 9), the Company granted as part of the subscription, a royalty agreement for a 5.0% perpetual royalty on the net sales of our current product line. The Company has recorded a contingent liability for this agreement in the amount of $233,360 and is based upon projections of our sales on these products. As of September 30, 2013, the Company accrued a total of $535 in royalties payable, and the royalty expense of $285.
The royalties from the above subscriptions are projected to become due over the next three years in line with our estimated sales; as such we have reflected the current portion of $70,000 and the long term of $310,618 on our balance sheet as of September 30, 2013.
Inventory Deposits
As of September 30, 2013, the Company has placed deposits with its manufacturer for product totaling approximately $165,000, these deposits represent 50% down payment and the Company expects to pay the remaining balance of approximately $165,000 as the products are completed.
14
NOTE 8 - COMMITMENTS AND CONTINGENCIES - continued
Manufacturing Agreement
On May 27, 2012, the Company entered into an exclusive manufacturing agreement with Nova Genisis, the manufacturing company that produces our products. We agreed to contract with them to manufacture our products for a five year period, if we should cancel this agreement early we will have to pay Nova Genisis a payment for services of $250,000. We also gave a Master License and distribution agreement for Asia for a two year period, and they shall automatically renew for annual terms unless cancelled in advance of renewal. For all product sales within Asia, Nova Genisis agreed to pay the Company $0.50 per unit sold for the Master License agreement.
License and exclusive marketing agreement
On July 11, 2012, the Company entered into a License and Exclusive Marketing Agreement with an unrelated party (Marketer). The Company granted Marketer 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 Marketer generates certain pre-determined sales of the Company’s products during the term of the Agreement.
Products sold through Marketer’s efforts will be sold to Marketer on a consignment basis. After the products are sold, Marketer 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. As of June 30, 2013, no sales have been generated through this arrangement.
The Company also agreed to issue Marketer 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 Marketer’s gross sales of our products reach $1,000,000. The Company also agreed to pay Marketer a five percent (5%) royalty on the Company’s sales outside of the Marketer network, beginning once the commercial has been produced, this royalty shall continue to be payable to Marketer for a period of eight (8) years following any termination or expiration of the agreement. As of June 30, 2013, no commercial has been completed and as such no related royalties have been recorded. 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 Marketer; Marketer 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 Marketer.
NOTE 9 – 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. On April 26, 2012 the Company approved and in December 2012 the Company increased its authorized shares of common stock from 100,000,000 to 150,000,000. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all the directors of the Company. There is currently only one designated class of preferred shares, “A,” see below. The holders of the preferred stock shall have such rights, preferences and privileges as may be determined by the Board of Director’s prior to the issuance of such shares. The preferred stock may be issued in such series as are designated by the Board of Director’s and the Board of Director’s may fix the number of authorized shares of preferred stock for each series and the rights, preferences, and privileges of each series of preferred stock. As of the periods ended September 30, 2013 and June 30, 2013, there were 91,383,868 and 86,822,868 shares of our common stock issued and outstanding, respectively. As of the periods ended September 30, 2013 and June 30, 2013, there were 10,000 shares of our preferred stock issued and outstanding.
Common Shares – Issued and Outstanding
For the period ended September 30, 2013, the Company continued to sell a private placement at $5,000 per unit. A unit consists of 50,000 shares of our restricted common stock and a royalty agreement for pro-rata share of $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. In connection with this royalty agreement, for the three months ended September 30, 2013, the Company recorded an additional contingent liability for this agreement in the amount of $65,243 and is based upon projections of our sales on these products. For the period ended September 30, 2013, the Company issued twenty-three units, consisting of 1,150,000 shares of our restricted common stock and a royalty agreement (Note 8), and received a cash payment of $75,100 and in payment of accounts payable of $45,440.
On July 24, 2013, the Company entered into a subscription agreement with an unrelated individual for 3,000,000 shares of our restricted common stock for $500,000 or $0.16 per share. In addition, the subscribers also received a 5.0% percent perpetual royalty on net sales of the product line, and first right to refusal to sell the product line in Germany, Austria, and Switzerland for both retail and wholesale distribution channels. In addition, the subscriber also agreed to a Lock-up and trickle out agreement. Beginning August 1, 2014 the subscriber agrees to sell a maximum percent of the total shares purchased per year. For the years of August 1, 2014 through July 31, 2015 they can sell 3% per quarter up to a maximum of 12% for the year. For the years ended July 31, 2016, 5% per quarter and 20% for the year, for July 31, 2017, 7% per quarter and 28% for the year, for July 31, 2015, 10% per quarter and 40% for the year. They also further agreed to not sell any shares below $0.10 per share.
15
NOTE 9 – STOCKHOLDER’S EQUITY - continued
Preferred Stock – Series “A”
On February 26, 2010, we 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.
On March 1, 2010, we granted and issued our former President 100 series A preferred stock shares with a value of $10,000 for consulting services rendered, and the expense was included in consulting fees in the statements of operations. On September 18, 2010, these shares were returned and cancelled as per the term of the Binding Letter of Intent with our former President.
16
NOTE 9 – STOCKHOLDER’S EQUITY - continued
Preferred Stock – Series “A” - continued
On May 2, 2011, we authorized an issue to our President 10,000 shares of Class A Preferred Stock in exchange for him returning and cancelling nine million (9,000,000) shares of our common stock. This Class A preferred stock has the same terms and conditions as discussed above.
Stock Based Compensation
On July 23, 2013, the Company issued 191,000 restricted shares of our common stock for payment of debt owed to our legal counsel for services performed in the amount of $19,000.
On July 26, 2013, the Company issued 400,000 restricted shares of our common stock for payment of accounts payable invoice for leasehold improvements installed at our current office (Note 4) performed by an unrelated third party in the amount of $45,440. The value of the issuance included a royalty agreement as more fully described above for a future product line.
On July 26, 2013, the Company issued 200,000 restricted shares of our common stock for payment of public relations management services performed by an unrelated third party in the amount of $20,000, in payment of the consulting agreement (Note 8). The value of the public relations services is included in consulting fees in our statement of operations.
On September 30, 2013, the Company issued 20,000 restricted shares of our common stock for payment of consulting services performed by a related third party in the amount of $4,000, in payment of the consulting agreement (Note 7). The value of the public relations services is included in consulting fees in our statement of operations.
NOTE 10 – 2013 STOCK OPTION PLAN
Our board of directors adopted and approved our 2013 Stock option Plan (“Plan”) on January 18, 2013, which provides for the granting and issuance of up to 30 million (30,000,000) shares of our common stock.
Our board of directors administers our Plan, however, they may delegate this authority to a committee formed to perform the administration function of the Plan. The board of directors or a committee of the board has the authority to construe and interpret provisions of the Plan as well as to determine the terms of an award. Our board of directors may amend or modify the Plan at any time. However, no amendment or modification shall adversely affect the rights and obligations with respect to outstanding awards unless the holder consents to that amendment or modification.
The Plan permits us to grant Non-qualified stock options to our employees, directors and consultants. The options issued under this Plan are intended to be Non-qualified Stock Options in full compliance with Code Section 409A.
The duration of a stock option granted under our Plan cannot exceed ten years. The exercise price of an incentive stock option cannot be less than 100% of the fair market value of the common stock on the date of grant.
17
NOTE 10 – 2013 STOCK OPTION PLAN - continued
The Plan administrator determines the term of stock options granted under our Plan, up to a maximum of ten years, except in the case of certain events, as described below. Unless the terms of an optionee's stock option agreement provide otherwise, if an optionee's relationship with us ceases for any reason other than disability or death, the optionee may exercise any vested options for a period of ninety days following the cessation of service. If an optionee's service relationship with us ceases due to disability or death the optionee or a beneficiary may exercise any vested options for a period of 12 months in the event of disability or death.
Unless the Plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionee may designate a beneficiary, however, who may exercise the option following the optionee's death.
During the year ended June 30, 2013, the Company granted 8,381,150 to our current President, the options become fully vested upon grant and contained an exercise price of $0.10 per share. As of September 30, 2013, 21,618,850 options were available for future grant. There have been no additional grants of stock options as of September 30, 2013.
The value of employee and non-employee stock warrants granted on January 29, 2013 was estimated using the Black-Scholes model with the following assumptions:
January 29, 2013
|
||||
Expected volatility (based on historical volatility)
|
501.71
|
%
|
||
Expected dividends
|
0.00
|
|||
Expected term in years
|
10
|
|||
Risk-free rate
|
2.030
|
%
|
The expected volatility assumption was based upon historical stock price volatility measured on a daily basis. The risk-free interest rate assumption is based upon U.S. Treasury bond interest rates appropriate for the term of the Company’s employee stock options. The dividend yield assumption is based on our history and expectation of dividend payments.
A summary of the options granted to employees and non-employees under the plan and changes during the year ended June 30, 2013 and September 30, 2013 is presented below:
Number of Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Terms
(In Years)
|
Aggregate Intrinsic Value
|
|||||||||||||
Balance at July 1, 2012
|
-
|
$
|
-
|
|||||||||||||
Granted
|
8,381,150
|
0.10
|
||||||||||||||
Exercised
|
-
|
|||||||||||||||
Forfeited or expired
|
-
|
-
|
||||||||||||||
Balance at June 30, 2013
|
8,381,150
|
$
|
0.10
|
9.58
|
$
|
754,304
|
||||||||||
Exercisable at June 30, 2013
|
8,381,150
|
$
|
0.10
|
9.58
|
$
|
754,304
|
||||||||||
Weighted average fair value of options granted during the year ended June 30, 2013
|
$ |
0.10
|
18
NOTE 10 – 2013 STOCK OPTION PLAN - continued
Number of Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Terms
(In Years)
|
Aggregate Intrinsic Value
|
|||||||||||||
Balance at July 1, 2013
|
8,381,150
|
$
|
0.10
|
|||||||||||||
Granted
|
-
|
-
|
||||||||||||||
Exercised
|
-
|
-
|
||||||||||||||
Forfeited or expired
|
-
|
-
|
||||||||||||||
Balance at September 30, 2013
|
8,381,150
|
$
|
0.10
|
9.23
|
$
|
838,115
|
||||||||||
Exercisable at September 30, 2013
|
8,381,150
|
$
|
0.10
|
9.23
|
$
|
838,115
|
||||||||||
Weighted average fair value of options granted during the period ended September 30, 2013
|
$
|
0.10
|
The following table summarizes information about employee stock options under the 2013 Plan outstanding at September 30, 2013:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||||||||
Range of Exercise Price
|
Number Outstanding at September 30, 2013
|
Weighted Average Remaining Contractual Life (In years)
|
Weighted Average Exercise Price
|
Intrinsic Value
|
Number Exercisable at September 30, 2013
|
Weighted Average Exercise Price
|
Aggregate Intrinsic Value
|
|||||||||||||||||||||||
$
|
0.10
|
8,381,150
|
9.23
|
$
|
0.10
|
$
|
--
|
8,381,150
|
$
|
0.10
|
$
|
838,115
|
||||||||||||||||||
8,381,150
|
9.23
|
$
|
0.10
|
$
|
--
|
8,381,150
|
$
|
0.10
|
$
|
838,115
|
During period ended September 30, 2013 the Company has not granted any additional options and has not recorded any additional stock-based compensation expense relating to stock option grants.
At September 30, 2013 there was no unrecognized compensation cost related to stock options granted under the plan.
NOTE 11 – SUBSEQUENT EVENTS (unaudited)
Common stock subscribed
On November 12, 2013, the Company sold a private placement at $425,000 for 4,250,000 shares of our restricted common stock and a royalty agreement for $0.25 per unit of sales of a specific future product.
Since September 30, 2013, the Company has issued sixteen units, consisting of 800,000 share of our restricted common stock and royalty agreement (Note 9), and received cash of $80,000.
19
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
Presently, the Company is selling the baby bottles through its online website and has begun limited retail distribution as well. The Company is presently in discussion with distributors of baby bottles and related products in over 20 countries worldwide. The Company has entered into agreements with Walmart of Canada to sell the Company’s products in the 338 Walmart stores in Canada. The Company is also in the process of entering into additional agreements with distributors and retailers to sell its products domestically and internationally. The Company also sells its products through its website, www.reliabrand.com.
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 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 $100,000 on professional fees attributable to fulfilling our reporting obligations under the federal securities laws and $50,000 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 agreements or arrangements in place for any future equity financing event. If we are required to raise additional funds, substantial dilution may result to existing shareholders.
Results of Operations for the Three Months Ended September 30, 2013 and the Three Months Ended September 30, 2012
We have revenues of $36,821 for the period ended September 30, 2013 compared to revenues of $10,684 for the period ended September 30, 2012. This is due to increases in our WalMart Canada sales of $11,423 or 100% in the three month period ended September 30, 2013 as compared to the same period last year. As well as increases in our retail sales of $14,714 or 138% in the three month period ended September 30, 2013 sales of $25,398, as compared to the same three month period ended last year September 30, 2012 with sales of $10,684.
20
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
As of September 30, 2013, we had total assets of $2,119,860 and total liabilities of $588,738, compared to total assets of $1,891,633 and total liabilities of $445,289 as of June 30, 2013. The increase in assets of $228,227 or 12% is mainly accounted for in the increase in our cash position of $180,295 and $88,746 from an increase in prepaid expenses.
During the three months ended September 30, 2013, our operating expenses increased $23,998 or 9% to $291,237 for the three months ended September 30, 2013 as compared to $267,239 for the same three month period ended September 30, 2012. The main increases in our operating expenses were comprised of advertising and promotion of $37,845, and increases in consulting fees – related party of $17,552; decreases in our expenses were in travel of $19,366, and rent expense of $12,290, as discussed below, in all the remaining categories including: selling, general and administrative expenses, consulting fees, and amortization and depreciation remain fairly constant.
For the three months ended September 30, 2013, we paid consulting fees of $89,274 to related parties compared to consulting fees to related entities of $71,722 for the three months ended September 30, 2012. This was due to increases in fees charged to us, and additional staff required as our business has increased.
For the three months ended September 30, 2013, we recorded rent expense to of $2,003 compared to rent expense of $14,293 for the three months ended September 30, 2012. We received certain credits from the lessor for various lack of performance issues totaling $9,809 as an offset of rental payments, which accounts for the decrease in rent expense.
We have begun generating revenues but are dependent upon obtaining financing to pursue marketing and distribution activities. For these reasons, our auditors believe that there is substantial doubt that we will be able to continue as a going concern.
Liquidity and Capital Resources
As of September 30, 2013, the Company had a cash balance of $190,783, and as of June 30, 2013, the Company had a cash balance of $10,488. The increase in our cash and cash equivalents is due to sales of our restricted common stock in the three months ended September 30, 2013.
For the period ended September 30, 2013, the Company continued to sell a private placement at $5,000 per unit. A unit consists of 50,000 shares of our restricted common stock and a royalty agreement for pro-rata share of $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. In connection with this royalty agreement, for the three months ended September 30, 2013, the Company recorded an additional contingent liability for this agreement in the amount of $65,243 and is based upon projections of our sales on these products. For the period ended September 30, 2013, the Company issued twenty-three units, consisting of 1,150,000 shares of our restricted common stock and a royalty agreement (Note 8), and received a cash payment of $75,100 and in payment of accounts payable of $45,440.
On July 24, 2013, the Company entered into a subscription agreement with an unrelated individual for 3,000,000 shares of our restricted common stock for $500,000 or $0.16 per share. In addition, the subscribers also received a 5.0% percent perpetual royalty on net sales of the product line, and first right to refusal to sell the product line in Germany, Austria, and Switzerland for both retail and wholesale distribution channels. In addition, the subscriber also agreed to a Lock-up and trickle out agreement. Beginning August 1, 2014 the subscriber agrees to sell a maximum percent of the total shares purchased per year. For the years of August 1, 2014 through July 31, 2015 they can sell 3% per quarter up to a maximum of 12% for the year. For the years ended July 31, 2016, 5% per quarter and 20% for the year, for July 31, 2017, 7% per quarter and 28% for the year, for July 31, 2015, 10% per quarter and 40% for the year. They also further agreed to not sell any shares below $0.10 per share.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
During the three months ended September 30, 2013, we issued 191,000 shares of our common stock in restricted form in payment of $19,000 owed to our legal counsel. We also issued 400,000 restricted shares of our common stock for payment of leasehold improvements installed at our current office performed by an unrelated third party in the amount of $45,440. On July 26, 2013, the Company issued 200,000 restricted shares of our common stock for payment of public relations management services performed by an unrelated third party in the amount of $20,000, in payment of the consulting agreement. On September 30, 2013, the Company issued 20,000 restricted shares of our common stock for payment of consulting services performed by a related third party in the amount of $4,000, in payment of the consulting agreement.
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. 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.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates, and the recognition of revenues and expenses for the reporting periods. These estimates and assumptions are affected by management's application of accounting policies.
Contractual Obligations
On April 1, 2013, the Company entered into a two year term lease agreement for office and warehouse space located in Kelowna, BC. The lease commenced on May 1, 2013 and the monthly rental payment is approximately $3,600 including taxes. Rent expense for the related lease was $2,002 and none for the periods ended September 30, 2013 and 2012, respectively. In the three months ended September 30, 2013, we received certain credits from the landlord for various lack of performance issues totaling $9,809 as an offset of rental payments. As part of the lease, we agreed to pay the landlord for leasehold improvements made to the offices and warehouse and the work was completed as of June 30, 2013. We capitalized $46,855 in leasehold improvements and began depreciating them according to our policies. On July 26, 2013, we paid the balance owed for these improvements in shares of our common stock.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
On May 1, 2011, we 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. The terms of the consulting agreement also call for the Company to provide health insurance, vacation, a company credit card, and reimbursement for all reasonable business expenses incurred by him in the performance of his duties. The agreement will be in effect for a five year period ending on May 1, 2016 and is renewable after that period; however, the Company has the option to cancel with or without “cause”. To cancel with “cause” means that there is a breach of fiduciary duties or felonious conduct, and under the agreement the Company may terminate the contract with a 90 day notice. To cancel without “cause”, the Company would be liable for a lump sum payment equal to the balance of the consulting fees remaining under the current year’s consultant agreement.
On January 18, 2013, the Company entered into an amendment of the above consulting agreement with the same Company as above, the prior agreement remains in force except for the following provisions: Mr. Markus’ consulting services will be at a rate of $11,000 per month, and Mr. Markus also received 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, Mr. Markus 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. For the periods ended September 30, 2013 and September 30, 2012, we recorded $33,000 and $30,000, respectively, in consulting fees – related party expense in connection with these contracts. As of September 30, 2013 and 2012, the Company accrued a total of $1,155 and $686, respectively, in royalties payable.
On May 1, 2012, the Company entered into consulting agreements with Kyle, Anthony, and Brent Markus, sons of its President, for their respective consulting services at a rate of $43,000, respectively, USD per annum. The agreements were each for a period of twelve months, ending on December 31, 2012, and are automatically renewed for successive twelve month terms. The agreements may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. They each received one month’s salary as a signing bonus, and will each also receive a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into new consulting agreements with Kyle, Anthony, and Brent Markus increasing their respective annual compensation to $47,300 each. All others terms remained the same. For the periods ended September 30, 2013 and 2012, we recorded $39,328 and $34,635, respectively, in consulting fees – related party expense in connection with these contracts, in total. As of September 30, 2013, the Company accrued a total of $963 and $571, in royalties payable for each agreement.
On January 18, 2013, the Company entered into a consulting agreement with Michael Markus, the fourth son of our current President, for his consulting services at a rate of $35,200 USD per annum. The agreement is 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. For the periods ended September 30, 2013 and September 30, 2012, we recorded $10,266 and none, respectively, in consulting fees – related party expense in connection with this contract and fees charged previous to this contract. For the three months ended September 30, 2013 and September 30, 2012, the Company accrued a total of $963 and none, respectively, in royalties payable.
On September 1, 2013, the Company entered into a consulting agreement with a son of a current shareholder, for his consulting services at a rate of $34,171 USD ($36,000 CAD) per annum, and we will issue him 20,000 shares of our restricted common stock per month of service rendered. The agreement is for a period of twelve months, ending on August 31, 2014, and may be automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence, upon ten days’ written notice. For the period ended September 30, 2013, we recorded $6,680 in consulting fees – related party expense to this individual, including $2,680 paid in cash and $4,000 paid in shares of common stock, in restricted form.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
During the year ended June 30, 2013, our President advanced the Company $22,552 on a non-interest bearing, non-secured demand basis and was repaid $11,465. As of September 30, 2013 and June 30, 2013, the balance of $11,088 is still outstanding.
In connection with the our common stock subscriptions, the Company granted as part of the subscription, a royalty agreement for $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. The Company has recorded a contingent liability for this agreement which is based upon projections of our sales on these products. For three months ended September 30, 2013, the company recorded an additional $62,243 for proceeds received in connection with these subscriptions. At September 30, 2013 and June 30, 2013, the total contingencies in connection with these subscriptions are $147,507 and $82,264, respectively.
In connection with a second common stock subscription, the Company granted as part of the subscription, a royalty agreement for a 5.0% perpetual royalty on the net sales of our current product line. The Company has recorded a contingent liability for this agreement in the amount of $233,360 and is based upon projections of our sales on these products. As of September 30, 2013, the Company accrued a total of $535 in royalties payable, and the royalty expense of $285.
The royalties from the above subscriptions are projected to become due over the next three years in line with our estimated sales; as such we have reflected the current portion of $70,000 and the long term of $310,618 on our balance sheet as of September 30, 2013.
As of September 30, 2013, the Company has placed deposits with its manufacturer for product totaling approximately $165,000, these deposits represent 50% down payment and the Company expects to pay the remaining balance of approximately $165,000 as the products are completed.
On May 27, 2012, the Company entered into an exclusive manufacturing agreement with Nova Genisis, the manufacturing company that produces our products. We agreed to contract with them to manufacture our products for a five year period, if we should cancel this agreement early we will have to pay Nova Genisis a payment for services of $250,000. We also gave a Master License and distribution agreement for Asia for a two year period, and they shall automatically renew for annual terms unless cancelled in advance of renewal. For all product sales within Asia, Nova Genisis agreed to pay the Company $0.50 per unit sold for the Master License agreement.
On July 11, 2012, the Company entered into a License and Exclusive Marketing Agreement with an unrelated party (Marketer). The Company granted Marketer 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 Marketer generates certain pre-determined sales of the Company’s products during the term of the Agreement.
Products sold through Marketer’s efforts will be sold to Marketer on a consignment basis. After the products are sold, Marketer 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. As of June 30, 2013, no sales have been generated through this arrangement.
The Company also agreed to issue Marketer 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 Marketer’s gross sales of our products reach $1,000,000. The Company also agreed to pay Marketer a five percent (5%) royalty on the Company’s sales outside of the Marketer network, beginning once the commercial has been produced, this royalty shall continue to be payable to Marketer for a period of eight (8) years following any termination or expiration of the agreement. As of June 30, 2013, no commercial has been completed and as such no related royalties have been recorded. 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 Marketer; Marketer 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 Marketer.
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.
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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 September 30, 2013, 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 this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2013. Our external auditors have informed us that our disclosure controls surrounding the recording of equity transactions are not effective. There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
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.
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 September 30, 2013 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
The Company sold a total 3,750,000 shares of its unregistered common stock for proceeds of $575,000 under various subscription agreements during the three months ended September 30, 2013.
For the three months ending September 30, 2013, the Company issued 811,000 shares of its unregistered common stock in consideration for services or previously outstanding debt.
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Exhibit
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Number
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Description of Exhibit
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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RELIABRAND INC.
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Date: November 13, 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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