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EX-32.1 - EX32_1 - AVALANCHE INTERNATIONAL, CORP.ex32_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the quarterly period ended August 31, 2014
   
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the transition period from __________ to __________
   
  Commission File Number:  333-179028

 

Avalanche International, Corp.

(Exact name of registrant as specified in its charter)

 

Nevada 38-3841757
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

5940 S. Rainbow Blvd, Las Vegas, NV 89118
(Address of principal executive offices)

 

(888) 863-9490
(Registrant’s telephone number)
 
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

 

Indicated 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 [X] Yes [ ] 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.

 

[ ] Large accelerated filer

[ ] Non-accelerated filer

[ ] Accelerated filer

[X] Smaller reporting company

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,108,400 common shares as of October 14, 2014.

 

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 [  ] No [X]

 

 

 

 

TABLE OF CONTENTS

 

 
PART I – FINANCIAL INFORMATION
 
Item 1: Consolidated Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 8
Item 4: Controls and Procedures 8
 
PART II – OTHER INFORMATION
 
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 4: Mine Safety Disclosures 10
Item 5: Other Information 11
Item 6: Exhibits 11

 

2

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1 Consolidated Balance Sheets as of August 31, 2014 (unaudited) and November 30, 2013
F-2

Consolidated Statements of Operations for the Three and Nine Months ended August 31, 2014 and 2013 (unaudited)

F-3 Consolidated Statements of Cash Flows for the Nine Months ended August 31, 2014 and 2013 (unaudited)
F-4 Notes to Consolidated Financial Statements (unaudited)

 

3

 

Avalanche International, Corp. and subsidiary

Consolidated Balance Sheets

 

  August 31,  November 30,
   2014  2013
  (unaudited)  (audited)
ASSETS          
Current Assets:          
Cash  $12,168   $—   
Accounts receivable   154    —   
Inventory   13,180    —   
     Total current assets   25,502    —   
Product license   15,750    —   
     Total assets  $41,252   $—   
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current Liabilities          
Accounts payable and accrued expenses  $104,133   $3,520 
Loans from Related Party   —      14,107 
Other liabilities   2,641    —   
Due to an officer   2,130    —   
Accrued officer compensation   1,860    —   
Total current liabilities   110,764    17,627 
     Total liabilities   110,764    17,627 
Stockholders' Equity (Deficit)          
Preferred stock, $0.001 par value,10,000,000 shares authorized, 12,000 and 0 shares issued and outstanding, respectively   12    —   
Common stock, $0.001 par value; 75,000,000 shares authorized; 5,092,400 and 5,070,000 shares issued and outstanding, respectively   5,092    5,070 
Additional paid-in capital   128,499    18,330 
Accumulated deficit   (203,115)   (41,027)
Total stockholders’ equity (deficit)   (69,512)   (17,627)
      Total liabilities and stockholders’ equity  $41,252   $—   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-1

 

Avalanche International, Corp. and subsidiary

Consolidated Statements of Operations

(Unaudited)

 

  Three Months Ended
August 31,
  Nine Months Ended
August 31,
   2014  2013  2014  2013
Revenue  $6,431   $—     $10,172   $—   
Cost of revenue   1,098    —      3,279    —   
Gross margin   5,333    —      6,893    —   
Operating Expenses:                    
Advertising and marketing   61,193    —      61,193    —   
Professional fees   16,424    2,293    28,617    11,415 
Officer compensation   18,360    —      18,360    —   
General and administrative   36,122    426    60,811    5,135 
Total operating expense   132,099    2,719    168,981    16,550 
Net loss from operations   (126,766)   (2,719)   (162,088)   (16,550)
Loss before income tax   (126,766)   (2,719)   (162,088)   (16,550)
Provision for income taxes   —      —      —      —   
Net loss  $(126,766)  $(2,719)  $(162,088)   (16,550)
Loss per common share Basic and diluted  $(0.02)  $(0.00)  $(0.03)  $(0.00)
 Weighted average common shares Basic and diluted   5,075,478    2,535,000    5,071,839    2,535,000 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-2

 

Avalanche International, Corp. and subsidiary
Consolidated Statements of Cash Flows (Unaudited)

 

  For the Nine Months Ended
August 31,
   2014  2013
Cash flows from operating activities:          
Net loss  $(162,088)  $(16,550)
Changes in operating assets and liabilities:          
    (Increase) in accounts receivable   (154)   —   
     Decrease in prepaid expenses   —      3,333 
   (Increase) in inventory   (13,180)   —   
   (Increase) in product license   (15,750)   —   
     Increase in accounts payable and accrued expense   108,709    3,609 
     Increase in other liabilities   4,771    —   
     Increase in accrued compensation   1,860    —   
Net cash used in operating activities   (75,832)   (9,608)
Cash flows from investing activities:   —      —   
Cash flows from financing activities:          
Proceeds from related party note   —      9,608 
Proceeds from issuance of preferred stock   60,000    —   
Proceeds from issuance of common stock   28,000    —   
Net cash provided by financing activities   88,000    9,608 
Increase in cash   12,168    —   
Cash, beginning of period   —      —   
Cash, end of period  $12,168   $—   
Supplemental Disclosures:          
Cash paid for interest  $—     $—   
Cash paid for income tax  $—     $—   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3

 

Avalanche International, Corp. and subsidiary

Notes to the Consolidated Financial Statements

August 31, 2014

(Unaudited)

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and business operations

Avalanche International, Corp. (“the Company”) was incorporated under the laws of the State of Nevada, U.S. on April 14, 2011. The company had plans to distribute crystallized glass tile in the North American markets to wholesale customers. On May 14, 2014, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Agreement”) with our sole officer and director, John Pulos. Pursuant to the Agreement, the Company transferred all assets to Mr. Pulos. In exchange for this assignment of assets, Mr. Pulos agreed to assume and cancel all liabilities due to him. In conjunction with the change in management it was decided to abandon this line of business and become a holding company with operations at the subsidiary levels only. The Company formed its first wholly owned subsidiary, Smith and Ramsay Brands, LLC (SRB), on May 19, 2014. The Company acquired certain intellectual property, knowhow, product, name license and other capabilities from Smith and Ramsay, LLC, a Nevada company. Smith and Ramsay is a manufacturer and distributor of eLiquids for the burgeoning eVapor or "Vape" marketplace.   "Vape" is the common term used to refer to the use of vaporizers by consumers which has grown out of the increasing popular use of electronic cigarettes and other devices as an alternative to traditional tobacco products including cigarettes.  The eVapor marketplace has been rapidly expanding over the past 5 years.

 

SRB manufactures its signature brand of eLiquid, Smith and Ramsay, a line that features all natural flavors that are produced in the United States.  The Company’s goal is to maintain a high standard of quality and to insure the production and warehouse environments, processes and procedures continue to meet or exceed guidelines of the FDA, and are in line with ISO and cGMP standards.

 

Basis of Presentation

The accompanying unaudited consolidated financial statements 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 ("SEC") for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments necessary in order for the financial statements to not be misleading have been reflected herein. Operating results for the interim period ended August 31, 2014 are not necessarily indicative of the results that can be expected for the full year. The Company has adopted a November 30 year end.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In management’s opinion, all adjustments necessary for a fair statement of the results for the interim periods have been made, and all adjustments are of a normal recurring nature.

 

Principles of Consolidation

The consolidated financial statements include the accounts of Avalanche International, Corp. and its wholly-owned subsidiary Smith and Ramsay Brands, LLC. All significant intercompany accounts and transactions have been eliminated.

 

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. There were no cash equivalents as of August 31, 2014 and November 30, 2013.

 

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method; market value is based upon estimated replacement costs. As of August 31, 2014 inventory consists of 6,468 of the Company’s 15ml vape liquid bottles and $2,184 of accessories.

 

Fair Value of Financial instruments

For certain of the Company’s non-derivative financial instruments, including cash and cash equivalents, receivables, prepaids, inventory, accounts payable, accrued liabilities, and notes payable, the carrying amount approximates fair value due to the short-term maturities of these instruments. The estimated fair value of long-term debt is based primarily on borrowing rates currently available to the Company for similar debt issues. The fair value approximates the carrying value of long-term debt.

 

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

F-4

 

·Level 1. Observable inputs such as quoted prices in active markets;
·Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
·Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

As of August 31, 2014, the company had no assets or liabilities that would be considered level 1, 2 or 3.

  

Revenue Recognition

Sales of products and related costs of products sold are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable, and (iv) collectability is reasonably assured. These terms are typically met upon the prepayment or invoicing, and shipment of products.

 

Income Taxes

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry-forwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence; it is more likely than not such benefits will be realized. The Company’s deferred tax assets were fully reserved at August 31, 2014.

 

The Company accounts for its income taxes using the Income Tax topic of the FASB ASC 740, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

 

Basic and diluted net loss per share

The Company computes net loss per share of common stock in accordance with FASB ASC 260, Earnings per Share (“FASB ASC 260”). Under the provisions of FASB ASC 260, basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants and the conversion of convertible promissory notes. There were no such common stock equivalents outstanding as of August 31, 2014 and 2013.

 

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect.  These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued, that might have a material impact on its financial position or results of operations.

 

NOTE 2 – GOING CONCERN

 

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has an accumulated deficit of $203,115 as of August 31, 2014 and a net loss of $162,088 for the nine months ended August 31, 2014, raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with loans and/or private placement of common stock.

 

NOTE 3 – PRODUCT LICENSE

 

The Company licenses certain intellectual property, knowhow, product and capability from Smith and Ramsay, LLC, a Nevada company. Currently the Company is paying a minimum per bottle licensing fee of $4,500 per month for the perpetual licensing rights, recipes, industry advice, brand and company names, etc.,  for the first year pending the final approval of the per bottle fee agreement.

 

F-5

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

As of November 30, 2013, the Company owed the former Director $14,107. The loan was non-interest bearing, due upon demand and unsecured. Per the terms of the May 14, 2014 Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations this loaned was credited to additional paid in capital.

 

As of August 31, 2014, the Company owed its new CEO $2,130 for expense reimbursement. The amount due for expense reimbursement is non-interest bearing, due upon demand and unsecured.

 

NOTE 5 – OTHER LIABILITIES

 

As of August 31, 2014, the Company owed $1,500 to a third party for a short term advance to the Company and $1,141 for expense reimbursement. All are non-interest bearing, due upon demand and unsecured.

  

NOTE 6 - COMMON STOCK

 

The Company is authorized to issue 75,000,000 common shares with a par value of $0.001 per share.

 

On August 22, 2014, the Company approved a two for one stock split. All shares have been retroactively adjusted to reflect the split.

 

During the quarter ended August 31, 2014, the Company issued 22,400 shares of common stock at a price of $1.25 per share for total cash proceeds of $28,000.

 

NOTE 7 - PREFERRED STOCK

 

The Company is authorized to issue 10,000,000 preferred shares with a par value of $0.001 per share.

 

On July 31, 2014, the Board of Directors designated a series of preferred stock titled Class A Convertible Preferred Stock consisting of 50,000 shares. Each share of Class A Convertible Preferred Stock (“preferred stock”) has a stated value of $5.00 per share. The holders of preferred stock have no voting rights. The holders are entitled to receive cumulative dividends at a rate of 10% of the stated value per annum, payable twice a year, subject to the availability of funds and approval by the Board of Directors. In the discretion of the Board of Directors dividends may be paid with common stock. In the event of liquidation or dissolution of the Company each holder of preferred stock shall be entitled to be paid in cash $5 per share,

 

At any time after August 31, 2015, a holder of preferred stock may, at their option, convert all or a portion of their outstanding shares into common stock on a one for one basis. On February 1, 2016, all issued and outstanding preferred stock shall be automatically converted into shares of common stock.

 

During the quarter ended August 31, 2014, the Company issued 12,000 shares of preferred stock at a price of $5.00 per share for total cash proceeds of $60,000.

 

F-6

 

NOTE 8 – CONSOLIDATION

 

The consolidated financial statements include the accounts of Avalanche International, Corp. and its wholly-owned subsidiary Smith and Ramsay Brands, LLC. A separate presentation of each Company as of August 31, 2014 and for the nine months ended August 31, 2014 is as follows.

 

  Avalanche International, Corp  Smith and Ramsay Brands, LLC  Elimination  Consolidated
Current Assets:                    
Cash  $11,626   $542   $—     $12,168 
Accounts receivable   —      154    —      154 
Inventory   —      13,180    —      13,180 
Intercompany   61,308    —      61,308    —   
Total current assets   72,934    13,876    61,308    25,502 
Product license   .-    15,750    —      15,750 
     Total assets  $72,934   $29,626   $61,308   $41,252 
Current Liabilities                    
Accounts payable and accrued expenses  $42,628   $61,505   $—     $104,133 
Other liabilities   —      2,641    —      2,641 
Due to an officer   —      2,130    —      2,130 
Accrued officer compensation   1,860    —      —      1,860 
Intercompany   —      61,308    61,308    —   
Total current liabilities   44,488    127,584    61,308    110,764 
     Total liabilities   44,488    127,584    61,308    110,764 
Stockholders' Equity (Deficit)                    
      Preferred stock   12    —      —      12 
Common stock   5,092    —      —      5,092 
Additional paid-in capital   128,499    —      —      128,499 
Accumulated deficit   (105,157)   (97,958)   —      (203,115)
Total stockholders’ equity (deficit)   28,446    (97,958)   —      (69,512)
      Total liabilities and stockholders’ equity  $72,934   $29,626   $61,308   $41,252 

 

 

F-7

 

  Avalanche International, Corp  Smith and Ramsay Brands, LLC  Consolidated
Revenue  $—     $10,172   $10,172 
Cost of revenue   —      3,279    3,279 
Gross margin   —      6,893    6,893 
Operating Expenses:               
Advertising and marketing   —      61,193    61,193 
Professional fees   28,617    —      28,617 
Officer compensation   6,360    12,000    18,360 
General and administrative   29,154    31,657    60,811 
Total operating expense   64,131    104,850    168,981 
 Net (loss) from operations  $(64,131)  $(97,957)  $(162,088)

NOTE 9 - SUBSEQUENT EVENTS

 

In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to August 31, 2014 through the October 15, 2014 and has determined that it does not have any material subsequent events to disclose in these financial statements except for the following.

 

Subsequent to August 31, 2014 the Company sold 2,000 shares of preferred stock for total cash proceeds of $10,000.

 

Subsequent to August 31, 2014 the Company sold 16,000 shares of common stock for total cash proceeds of $20,000.

 

Subsequent to August 31, 2014 the Company’s Board of Directors approved the launch of a new subsidiary, Puff Systems, which will be dedicated to the manufacturing and distribution of eVapor hardware and accessories.

 

On September 12, 2014, the Company executed a promissory note with Lord Abstract, LLC for $10,000. The Note has a onetime loan fee of $1,000 and is due October 12, 2014. There will be a onetime thirty day grace period due to the nature of the Company’s capital raise.

 

On September 24, 2014, the board of directors appointed Milton C. Ault II, Joshua Smith, and Jeanette Maines to serve as members of our board of directors. In addition, Mr. Ault was appointed to serve as Chairman of the board of directors.

 

F-8

 

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

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Company Overview and Description of Business

 

Avalanche International Corporation, a Nevada corporation, is a holding company which recently formed its first subsidiary, Smith and Ramsay Brands, LLC. We also recently acquired certain intellectual property, knowhow, product and capability from Smith and Ramsay, LLC, a Nevada company. Smith and Ramsay Brands, LLC (SRB) is a manufacturer and distributor of premium vape liquid and accessories. SRB currently has a single brand of premium vape liquid, its signature brand Smith and Ramsay, which is in its pre-launch phase, having been manufactured, packaged and beginning to generate revenue in test markets. Smith and Ramsay Brands operates as a manufacturer and distributor of flavored liquids for electronic vaporizers and eCigarettes. “Vape” is the common term used to refer to the use of vaporizers by consumers which has grown out of the increasing popular use of electronic cigarettes as an alternative to traditional cigarette and other tobacco uses.  The use of electronic cigarettes and vaporizers has been accelerated by state and local legislation outlawing the smoking of tobacco products in public places.  The Vape marketplace over the past five years has grown to $1.5 billion, according to Vaping News, and has begun to offer various flavors, nicotine levels and other attributes to produce a unique and customized experience. We believe that, as this market matures, there will be a natural rising demand for better quality products and varying flavors appetizing to a diverse consumer base. Through Smith and Ramsay Brands, we plan to provide a wide variety of high quality vapor liquids in a commercial manner to assure product integrity and consistency.

 

SRB plans on rapidly moving into the market place upon launch of its Smith and Ramsay signature brand, expanding aggressively with additional flavors in the signature brand, and expanding through additional new brands and the acquisition and distribution of signature and non-signature accessories. The signature line of premium vape liquid will focus on the Vape store and traditional smoke shop markets, while another brand product line and offerings will focus on the convenience store and gas station marketplace, and other lines will target ethnic-specific markets, etc. Additional products within these brand lines as well as external to these lines will focus on combination hardware/liquid market that includes disposable devices with preloaded liquid, and/or preloaded cartridges for use in specific types of devices.

 

The Company’s management consists of Phil Mansour, Chief Executive Officer and Director and Rachel Boulds, Chief Financial Officer.

 

The Company's principal offices are located at 5940 S. Rainbow Blvd., Las Vegas, Nevada 89118. The Company’s web domain is www.AvalancheInternationalCorp.com. The signature brand of SRB has a web site: www.SmithAndRamsay.com.

 

The Marketplace and Competition

 

A March 24, 2014 Wells Fargo Equity Research report bifurcates the market into eCigarettes and secondary and tertiary markets, referred to as Vapors/Tanks or E-Vapor. The report suggests that the overall market in the US is currently at $2bn dollars with a 65%/35% split between eCigarettes to E-Vapor.

 

A Vapenewsmagazine.com report suggests that the growth of the eVapor segment is increasing faster that the overall sales of the eCigarette market. It appears that the drivers behind this growth are: 1) natural progression from eCigarettes; 2) affordability, with eVapor costing 20% less than rechargeable eCigarettes, and 40% less than disposable eCigarettes; and 3) the ability to personalize devices, and receive better nicotine delivery and overall product performance.

 

The report states, “Our view that vapor/tank growth is accelerating and taking share from eCigarettes, making vapor/tank an increasing threat was substantiated by our survey as respondents expect vapors/tanks to grow at 2x the rate of the eVapor category in 2014 with attractive margins that rival combustible cigs. Therefore, if the robust growth of the vapor/tank category continues and is not hindered by FDA regulation, we expect big tobacco has no choice but to enter this category either organically or via acquisition.”

 

This was further validated by Pamela Gorman, Director of Government Relations at NJOY (a prominent player in the eCigarettespace) when she recently announced at the Vape World Expo in June 2014, that NJOY would be making a strategic shift and enter the eVapor space.

 

Our observations on the eVapor market are that it is a fragmented space which can be segmented in the follow categories: Home Brew, Cottage, Regionals, Tier 2, and Tier 1.

 

4

 

Home Brew

 

This segment consists of tiny entrepreneurs, usually with one or two stores, making their own vape liquids and selling them primarily in their shop and online. Typically, these entrepreneurs only carry their own liquids and maybe one or two Tier 2 brands.

 

Cottage

 

This segment includes small businesses, usually with one to four stores that make their own vape liquids and distribute their liquids in their stores and in their local city or community. Their brand of liquid is limited to a dozen or so flavors and have roughly no more than 2,000 bottles sold per month.

 

Regionals

 

These companies typically have expanded beyond their city boundaries up to four states and have 5 to 150 stores carrying their brand. This category ranges in product quality and offerings. Most of these companies range from six months old to less than 30 months old while producing less than 10,000 units a month. There appears to be hundreds of these players in this category and it is growing every day. The major challenge for these businesses is to have the necessary resources, knowledge and experience or expertise available to expand their current customer reach. This category includes FuzionVapor.com, Hurricane Vapor, Nikki’s Vapor Bar, and Cosmic Fog to name a few.

 

Tier 2

 

The Tier 2 manufacturers have reached significant regional acceptance and/or national recognition within three of the four continental time zones in the United States. Typically these groups are in more than 100 stores and have annual gross sales estimated at between three to five million dollars. Companies included in this category are Five Pawns, eLiquid Solutions, Space Jam Juice, ECBlend, and Vapor Corporation, which has been publicly traded on the OTC and recently upgraded to the NASDAQ (VPCO). Vapor Corporation is primarily a manufacturer of smokeless equipment and also produces its own line of liquids.

 

Tier 1

 

Top players in this market have sales reaching $20+ million and are often but not always recognized nationally which includes NicQuid, and Johnsons Creek, two leaders in the eVapor space.

 

The Wells Fargo Report suggests that the large discrepancy between Nielsen data which captures only $750MM in annual eVapor sales and the $2.2bn its survey suggests, is due to the fact that 60% of eVapor sales go untracked through channels of online and Vape Shop sales which are below the Tier 2 level.

 

Given the current wide open nature of the market landscape with no clearly dominant market leaders, we feel the barriers to entry and success for our organization to move in with quality products, marketing, distribution and strategic acquisition strategies, are minimal compared to where they will be as the market matures over the next 18 months.

 

Plan of Operations

 

Our objective is to provide a manufacturing platform that is progressively scalable and supplies the needed amount of product in accordance with the sales and marketing plan established within the first 60-90 days of operations by our outsourced sales and marketing group.

 

Initial manufacturing capacities will be established at 5,000 to 15,000 bottles per week using existing manufacturing principles and techniques. Quality control processes and procedures will be established from internal expertise and external consultants to insure the operations are in line with cGMP, FDA and ISO guidelines for an operation of this size and will continually be updated as the needs of the organization grow and changes in the regulatory environment occur.

 

As initial manufacturing is finalized and solidified, expansion plans are already being established:

 

  • Outsource manufacturers have been identified should growth eclipse our short term ability to produce in house;
  • Quotes and plans for next level production (15,000 to 100,000 bottles per week) have been solicited to identify capital costs and timelines; and
  • Quotes and plans for third level production (250,000+ bottles per week) have been solicited to identify broad capital costs and timelines.

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Marketing Strategies

 

Domestic

 

Domestically, our plan is to outsource sales and marketing to a best of breed sales and marketing firm, to drive initial development of national branding, packaging, social media and full web presence. This initial 90 day plan includes the development of a competitive landscape report and full launch and ongoing marketing plan and budget. During the initial startup campaign while the national marketing strategy is formed and prior to a national launch, the firm will test the market by running a variety of different regional and select small scale national campaigns using a combination of direct sales, call center and business to business sales efforts. Data will be gathered and coordinated with the marketing strategy to insure a successful launch and solid development of an initial installed base. The market research will drive initial decisions and a scheduled calendar of Smith and Ramsay Brands, LLC expansion of its signature brand, addition of additional brands through R&D, partnerships, and/or acquisitions, along with additions of non-liquid offerings.

 

International

 

Internationally, Smith and Ramsay Brands, has started efforts internally to understand and map out the international eLiquid space in an effort to follow the same data driven decision making that is being implemented during its domestic marketing plan process by our external firm. Within four months, an initial international strategy will be outlined along with timeline and budget for board approval.

 

Research and Development

 

Research and development will be focused on expanding the number of brands offered by SRB and within each brand line expanding the lines themselves to include new flavors and different configurations.

 

Intellectual Property

 

We have purchased the following intellectual property from Smith and Ramsay, LLC:

 

Patent / Trademark/knowhow  Patent Title / Trademark
Recipe for Toasty Monkey  Trademark currently in filing process
Recipe for Tricky  Trademark currently in filing process
Recipe for Java Hopper  Trademark currently in filing process
Recipe for Peaches and Mango  Trademark currently in filing process
Recipe for Berries and Cream  Trademark currently in filing process
10 additional recipes (not currently named)  Trademark currently in filing process
Smith and Ramsay  Trademark currently in filing process
Smith and Ramsay Brands  Trademark currently in filing process

 

Domain Names

 

www.AvalancheInternationalCorp.com

www.Smith AndRamsay.co

www.SmithAndRamsay.com

www.SmithAndRamsayBrands.co

www.SmithAndRamsayBrands.com

www.SmithAndRamsayBrands.info

www.SmithAndRamsayBrands.net

www.SmithAndRamsayBrands.org

www.SmithNRamsay.com

www.SmithAndRamsay.com

www.mithAndRamsay.com

 

Staffing

 

As of August 31, the Company had no fulltime employees other than the Company’s officers.

 

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Results of Operations for the three months ended August 31, 2014 compared to the three months ended August 31, 2013.

 

Revenue

During the three months ended August 31, 2014, revenue was $6,431 compared to $0 for the three months ended August 31, 2013. Revenue in the current period was from sales of our new vape liquid business.

 

Expenses

During the three months ended August 31, 2014, the Company reported a total operating expense of $132,099 compared to $2,719 during the three months ended August 31, 2013, an increase of $129,380 in total expenses. In the current quarter we incurred $61,193 in marketing expense and $18,360 of officer compensation expense, neither of which we had in the previous year.

 

Professional fees increased $14,131 to $16,424 for the three months ended August 31, 2014 from $2,293 for the three months ended August 31, 2013. The increase is mainly due to additional legal expense.

 

General and administrative expense increased $35,696 to $36,122 for the three months ended August 31, 2014 from $426 for the three months ended August 31, 2013. The increase is a result of increased operations for Smith and Ramsay Brands, LLC.

 

Net loss

The Company had a net loss of $126,766 for the three months ended August 31, 2014, compared to a net loss of $2,719, for the three months ended August 31, 2013, an increase of $124,047. The increase in net loss was due to a net increase in operating expenses as described above.

 

Results of Operations for the nine months ended August 31, 2014 compared to the nine months ended August 31, 2013.

 

Revenue

During the nine months ended August 31, 2014, revenue was $10,172 compared to $0 for the nine months ended August 31, 2013. Revenue in the current period was from sales of our new vape liquid business.

 

Expenses

During the nine months ended August 31, 2014, the Company reported a total operating expense of $168,981 compared to $16,550 during the nine months ended August 31, 2013, an increase of $152,431 in total expenses. In the current period we incurred $61,193 in marketing expense and $18,360 of officer compensation expense, neither of which we had in the previous year.

 

Professional fees increased $17,202 to $28,617 for the nine months ended August 31, 2014 from $11,415 for the nine months ended August 31, 2013. The increase is mainly due to additional legal expense.

 

General and administrative expense increased $55,676 to $60,811 for the nine months ended August 31, 2014 from $5,135 for the nine months ended August 31, 2013. The increase is a result of increased operations for Smith and Ramsay Brands, LLLC.

 

Net loss

The Company had a net loss of $162,088 for the nine months ended August 31, 2014, compared to a net loss of $16,550, for the nine months ended August 31, 2013, an increase of $145,538. The increase in net loss was due to a net increase in operating expenses as described above.

 

Liquidity and Capital Resources

 

Management currently believes that the Company may not have sufficient working capital needed to meet its current fiscal obligations. In order to continue to meet its fiscal obligations beyond the next twelve months, management has plans to pursue various financing alternatives including, but not limited to, raising capital through the equity markets and debt financing.

 

Should the Company not be successful at raising capital through the issuance of capital stock, the Company may consider raising capital by the issuance of debt. However, unless the appropriate features, such as convertible options, are attached to the debt instruments, this form of financing is less desirable until such time as the Company may be in a position to reasonably foresee the generation of cash flow to service and repay debt. The Company does not currently have plans to issue debt.

 

As of August 31, 2014, we had an accumulated deficit of $203,115 and a working capital deficit of $85,262. For the nine months ended August 31, 2014, net cash used in operating activities was $75,832 and we received $88,000 from financing activities.

 

On September 12, 2014, the Company executed a promissory note with Lord Abstract, LLC for $10,000. The Note has a onetime loan fee of $1,000 and is due October 12, 2014. There will be a onetime thirty day grace period due to the nature of the Company’s capital raise.

 

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Going Concern

 

These interim unaudited financial statements have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that the Company’s assets will be realized and liabilities settled in the ordinary course of business.  Accordingly, the interim unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company not be unable to continue as a going concern.

 

Off Balance Sheet Arrangements

 

As of August 31, 2014, there were no off balance sheet arrangements.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Currently, we do not believe that any accounting policies fit this definition.

 

Recently Issued Accounting Pronouncements

 

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Management has evaluated the effectiveness of our internal control over financial reporting (ICFR) as of August 31, 2014 based on the control criteria established in a report entitled Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO. Based on our assessment and those criteria, our management has concluded that our internal control over financial reporting had the following deficiencies and material weaknesses as of August 31, 2014:

 

1) Certain control procedures were unable to be verified due to performance of the procedure not being sufficiently documented. As an example, some procedures requiring review of certain reports could not be verified due to there being no written notation on the report by the reviewer. Because we were unable to verify these procedures, we conclude that as of August 31, 2014 there were control deficiencies related to the preparation and review of our interim and annual consolidated financial statements, in particular with respect to certain account reconciliations, journal entries and spreadsheets. While none of these control deficiencies resulted in audit adjustments to our 2013 interim or annual financial statements, they could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected, and therefore we have determined that these control deficiencies constitute material weaknesses.

 

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2) Certain of our personnel had access to various financial application programs and data that was beyond the requirements of their individual job responsibilities. While this control deficiency did not result in any audit adjustments to our 2013 interim or annual consolidated financial statements, it could result in a material misstatement to our interim or consolidated financial statements that would not be prevented or detected, and therefore we have determined that this control deficiency constitutes a material weakness.

 

3) We did not maintain a level of personnel sufficient to execute certain computing controls over our information technology structure. While this control deficiency did not result in any audit adjustments to our 2013 interim or annual financial statements, it could result in a material misstatement to our interim or consolidated financial statements that would not be prevented or detected, and therefore we have determined that this control deficiency constitutes a material weakness.

 

4) We did not maintain adequate segregation of duties within certain areas impacting our financial reporting. While this control deficiency did not result in any audit adjustments to our 2013 interim or annual financial statements, it could result in a material misstatement to our interim or consolidated financial statements that would not be prevented or detected, and therefore we have determined that this control deficiency constitutes a material weakness.

 

To the extent reasonably possible given our resources, we will seek the advice of outside consultants and utilize internal resources to implement additional internal controls to address the above identified material weaknesses. We are taking steps to implement additional review and approval procedures applicable to our financial reporting process, and are in the planning phase of creating and implementing new information technology policies and procedures related to controls over information technology operations, security and change management.

 

Through these steps, we believe that we are addressing the deficiencies that affected our internal control over financial reporting as of August 31, 2014. Because the remedial actions require upgrading certain of our information technology systems, relying extensively on manual review and approval processes, and possibly hiring of additional personnel, we may not be able to conclude that these material weaknesses have been remedied until these controls have been successfully operation for some period of time.

 

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. It is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. It also can be circumvented by collusion or improper management override.

 

Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process certain safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over our financial reporting.

 

This report does not include an attestation of our registered public accounting firm regarding internal control over financial reporting, pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

 

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

We have not had any changes or disagreements with our accountants required to be disclosed pursuant to Item 304 of Regulation S-K.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A: Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item.

 

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

 

On July 18, 2014, the company sold 2,400 shares of common stock to an accredited investor for total cash proceeds of $3,000. The proceeds were used for general operating expenses.

 

On July 25, 2014, the company sold 4,000 shares of common stock to an accredited investor for total cash proceeds of $5,000. The proceeds were used for general operating expenses.

 

On July 28, 2014, the company sold 4,000 shares of common stock to an accredited investor for total cash proceeds of $5,000. The proceeds were used for general operating expenses.

 

On July 30, 2014, the company sold 4,000 shares of preferred stock to accredited investors for total cash proceeds of $20,000. The proceeds were used for general operating expenses.

 

On August 4, 2014, the company sold 2,000 shares of preferred stock to accredited investors for total cash proceeds of $10,000. The proceeds were used for general operating expenses.

 

On August 15, 2014, the company sold 3,000 shares of preferred stock to an accredited investor for total cash proceeds of $15,000. The proceeds were used for general operating expenses.

 

On August 18, 2014, the company sold 1,000 shares of preferred stock to an accredited investor for total cash proceeds of $5,000. The proceeds were used for general operating expenses.

 

On August 20, 2014, the company sold 4,000 shares of common stock to an accredited investor for total cash proceeds of $5,000. The proceeds were used for general operating expenses.

 

On August 25, 2014, the company sold 8,000 shares of common stock to an accredited investor for total cash proceeds of $10,000. The proceeds were used for general operating expenses.

 

On August 28, 2014, the company sold 2,000 shares of preferred stock to an accredited investor for total cash proceeds of $10,000. The proceeds were used for general operating expenses.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

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Item 5. Other Information

 

On July 31, 2014, pursuant to the approval of our board of directors and a majority of our shareholders, we amended and restated our articles of incorporation. As amended and restated, our articles of incorporation provide for 75,000,000 shares of authorized common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock. Our preferred stock may be designated by our board of directors in one or more series, with the rights and features of each series to be set forth in the specific designation.

 

Also on July 31, 2014, our board of directors designated a series of preferred stock titled Class A Convertible Preferred Stock. Class A Convertible Preferred Stock consists of 50,000 total shares, with a stated value of $5.00 per share. Shares of Class A Convertible Preferred Stock are entitled to cumulative dividends at a rate of 10% per year, with dividend payments coming due on August 1, 2015 and February 1, 2016. In the discretion of the board of directors, dividends may be paid in cash or in shares of common stock valued at $5.00 per share. In the event of a liquidation, shares of Class A Convertible Preferred Stock are entitled to a liquidation payment, in preference to the class of common stock, of $5.00 per share. At any time after August 31, 2015, shares of Class A Convertible Preferred Stock are convertible to shares of common stock at a rate of 1:1, at the option of the holder. On February 1, 2016, all then issued and outstanding shares of Class A Convertible Preferred Stock will be automatically converted to shares of common stock at the 1:1 conversion rate.

 

Item 6. Exhibits

 

Exhibit Number Description of Exhibit
3.1 Amended and Restated Articles of Incorporation
3.2 Bylaws(1)
3.3 Certificate of Designation of Class A Convertible Preferred Stock
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2014 formatted in Extensible Business Reporting Language (XBRL).

 

(1) Incorporated by reference to Registration Statement on Form S-1 filed on January 17, 2012.

 

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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.

 

  Avalanche International, Corp.
   
Date: October 15, 2014
   
By:

/s/ Phillip Mansour

Phillip Mansour

Title: Chief Executive Officer and Director

 

   
Date: October 15, 2014
   
By:

/s/ Rachel Boulds

Rachel Boulds

Title: Chief Financial Officer

 

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