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 February 28, 2015
[  ]	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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,508,500 common shares as of April 15, 2015.

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Consolidated Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4:	Controls and Procedures	20
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	21
Item 1A:	Risk Factors	21
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3:	Defaults Upon Senior Securities	21
Item 4:	Mine Safety Disclosures	21
Item 5:	Other Information	21
Item 6:	Exhibits	21

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

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

 

F-4	Consolidated Balance Sheets as of February 28, 2015 (unaudited) and November 30, 2014
F-5	Consolidated Statements of Operations for the Three Months ended February 28, 2015 and 2014 (unaudited)
F-6	Consolidated Statements of Cash Flows for the Three Months ended February 28, 2015 and 2014 (unaudited)
F-7	Notes to Consolidated Financial Statements (unaudited)

Avalanche International, Corp. and Subsidiary

Consolidated Balance Sheets

 

		February 28, 2015				November 30, 2014
		(unaudited)
ASSETS
Current Assets:
Cash		$	1,271			$	2,247
Accounts receivable			46				—
Prepaids			6,575				9,040
Prepaid stock for services			283,542				—
Inventory			20,758				25,900
Total current assets			312,192				37,187
Other assets			705				526
Product license			42,750				29,250
Total assets		$	355,647			$	66,963
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses		$	70,883			$	76,917
Accounts payable, related party			90,175				88,572
Accrued interest			2,553				388
Accrued compensation			32,073				9,912
Due to related parties			32,935				6,927
Convertible note payable			63,250				63,250
Loans payable			20,000				18,300
Total current liabilities			311,869				264,266
Total liabilities			311,869				264,266
Stockholders' Equity (Deficit):
Common stock, $0.001 par value; 75,000,000 shares authorized; 5,358,500 and 5,144,400 shares issued and outstanding, respectively			5,359				5,144
Class A Preferred stock, $0.001 par value; 50,000 shares authorized, 29,380 and 14,000 shares issued and outstanding, respectively			29				14
Preferred stock, $0.001 par value; 9,950,000 shares authorized, no shares issued and outstanding			—				—
Additional paid-in capital			622,365				203,445
Accumulated deficit			(583,975	)			(405,906	)
Total stockholders’ equity (deficit)			43,778				(197,303	)
Total liabilities and stockholders’ equity		$	355,647			$	66,963

 

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

  Avalanche International, Corp. and Subsidiary
Consolidated Statements of Operation

(unaudited) 

 

		For the Three Months Ended February 28,
		2015				2014
Revenue		$	14,995			$	—
Cost of revenue			8,534				—
Gross margin			6,461				—
Operating Expenses:
Advertising and marketing			8,364				—
Salary expense			22,920				—
Professional fees			5,450				3,818
General and administrative			143,596				758
Total operating expense			180,330				4,576
Net loss from operations			(173,869	)			(4,576	)
Other expense:
Interest expense			(4,200	)			—
Total other expense			(4,200	)			—
Loss before income tax			(178,069	)			(4,576	)
Provision for income taxes			—				—
Net Loss		$	(178,069	)		$	(4,576	)
Loss per common share Basic and diluted		$	(0.03	)		$	(0.00	)
Weighted average common shares Basic and diluted			5,218,650				5,070,000

 

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

Avalanche International, Corp. and Subsidiary
Consolidated Statements of Cash Flows

(unaudited) 

 

		For the Three Months Ended February 28,
		2015				2014
Cash flows from operating activities:
Net loss for the period		$	(178,069	)		$	(4,576	)
Adjustments to reconcile net loss to net cash used by operating activities:
Stock for services			56,708				—
Financing fees			7,000				—
Changes in operating assets and liabilities:
(Increase) in accounts receivable			(46	)			—
Decrease in prepaid expenses			2,465				—
Decrease in inventory			5,142				—
(Increase) in other assets			(13,679	)			—
Increase / (decrease) in accounts payable and accrued expense			(4,431	)			1,826
Increase in accrued interest			2,165				—
Increase in accrued compensation			22,161				—
Net cash used in operating activities			(100,584	)			(2,750	)
Cash flows from investing activities:			—				—
Cash flows from financing activities:
Payments of note payable			(5,300	)			—
Advances from related parties			26,008				2,750
Proceeds from issuance of common stock			2,000				—
Proceeds from issuance of preferred stock			76,900				—
Net cash provided by financing activities			99,608				2,750
Decrease in cash			(976	)			—
Cash, beginning of period			2,247				—
Cash, end of period		$	1,271			$	—
Supplemental Disclosures:
Cash paid for interest		$	—			$	—
Cash paid for income tax		$	—			$	—

 

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

Avalanche International, Corp. and subsidiary

Notes to the Consolidated Financial Statements

February 28, 2015

(Unaudited)

 

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

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, know how, product, name license and other capabilities from Smith and Ramsay, LLC, a Nevada company. Smith and Ramsay Brands, LLC is a manufacturer and distributor of flavored liquids for electronic vaporizers and eCigarettes and distributor of vape accessories. SRB manufactures its premium signature brand of eLiquid, Smith and Ramsay, a line that features all natural flavors produced in the United States. SRB rolled out its flagship product to targeted areas in the fall of 2014, following its pre-launch phase. The Smith and Ramsay line was manufactured, packaged and strategically distributed on a limited basis to generate revenue in test markets. 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.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 

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 February 28, 2015 are not necessarily indicative of the results that can be expected for the full year. The Company has adopted a November 30 year end.

 

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial  statements  which present  fairly  the  financial  condition,  results  of  operations  and  cash  flows  of  the Company for the respective periods being presented.

 

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 period 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 February 28, 2015 and November 30, 2014.

 

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 February 28, 2015 inventory consists of $20,758 of product and 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:

 

·

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 February 28, 2015, the company had no assets or liabilities that would be considered level 1, 2 or 3.

 

Revenue Recognition

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

During the three months ended February 28, 2015, the Company sold $10,236 in products to Vape Nation, generating 67.7% of its revenue.

Income Taxes

The Company follows Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.

 

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.

 

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. Potentially dilutive shares were excluded from the computation as of February 28, 2015 and 2014 since they would have been anti-dilutive.

 

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 3 – 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 $583,975 as of February 28, 2015 and a net loss of $178,069 for the three months ended February 28, 2015, 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 4 – PRODUCT LICENSE

 

Effective May 23, 2014, the Company licenses certain intellectual property, know how, 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., against a royalty stream for twelve months with a 4% royalty fee of gross revenue thereafter in perpetuity. This license also provides in perpetuity the first right of refusal of any new products or flavors developed by Smith and Ramsay, LLC.

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

As of February 28, 2015, the Company owed its CEO $6,883 for expense reimbursement. The amount due for expense reimbursement is non-interest bearing, due upon demand and unsecured.

 

As of February 28, 2015, the Company owed a member of the Board of Directors $2,984 for expense reimbursement. The amount due for expense reimbursement is non-interest bearing, due upon demand and unsecured.

 

As of February 28, 2015, the Company owed MCKEA Holdings, LLC $23,068. Amount is due for both expense reimbursement and short term loans that were made to cover certain operating expenses. The amount due is non-interest bearing, due upon demand and unsecured.

 

During the three months ended February 28, 2015, the Company sold $10,236 in products to Vape Nation, generating 67.7% of its revenue. Vape Nation, is 50% owned by MCKEA Holdings, LLC. MCKEA Holdings, LLC is the majority member of Philou Ventures, LLC, which is our controlling shareholder. Kristine L. Ault is the Manager of MCKEA Holdings, LLC and the wife to the Chairman of Avalanche International, Corp.

 

Cross Click Media, Inc. performs sales, marketing, and investor relation services for the Company. As of February 28, 2015, we have paid approximately $157,000 for these services. As of February 28, 2015 and November 30, 2014, we had accounts payable due to CrossClick Media of $90,175 and $88,572, respectively. MCKEA Holdings, LLC is the controlling shareholder of Cross Click Media, Inc. MCKEA Holdings, LLC is also the majority member of Philou Ventures, LLC, which is our controlling shareholder.

 

NOTE 6 – LOAN PAYABLE

 

On November 26, 2014, the Company executed a promissory note with Argent Offset, LLC for $12,500. The note included a $500 loan fee, accrued interest at 10%, compounded monthly, and was due December 5, 2014. A late payment fee of $500 per day was to be incurred from December 6, 2014 through December 7, 2014 and then increases to $1,000 per day. On February 1, 2015, we entered into a Temporary Forbearance Agreement with Argent. Under the forbearance agreement, we agreed to pay a forbearance fee of $7,500. The full $20,000 now owing will bear interest at an annual rate of 10% until due on August 1, 2015. Further, we have agreed to pay 12.5% of any new funds invested in the company until the amount due is paid in full. Interest accrued on this note as of February 28, 2015 is $466.

 

NOTE 7 – CONVERTIBLE NOTE PAYABLE

 

On November 3, 2014, the Company executed a convertible promissory note for $63,250 with LG Capital Funding, LLC. The note bears interest at 8% per annum and is due on or before November 3, 2015. The note includes a 15% original issue discount and is convertible at a 40% discount any time during the period beginning 180 days following the date of the note. Accrued interest on the note as of February 28, 2014 is $1,622.

NOTE 8 - 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 February 28, 2015, the Company issued 1,600 shares of common stock at a price of $1.25 per share for total cash proceeds of $2,000.

 

During the quarter ended February 28, 2015, the Company issued 200,000 shares of common stock for consulting services. The stock was issued at the closing price on the date of grant of $1.60 for total non-cash expense of $320,000. The expense is being recognized over the six month term of the agreement. As of February 28, 2015, $53,333 has been expensed with the balance debited to prepaid stock for services.

 

During the quarter ended February 28, 2015, the Company issued 12,500 shares of common stock for consulting services. The stock was issued at the closing price on the date of grant of $1.62 for total non-cash expense of $20,250. The expense is being recognized over the six month term of the agreement. As of February 28, 2015, $3,375 has been expensed with the balance debited to prepaid stock for services.

 

NOTE 9 - 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.

 

On January 30, 2015, the Company issued 15,380 shares of preferred stock at a price of $5.00 per share for total cash proceeds of $76,900 to Finiks Capital, LLC.

NOTE 10 – 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 February 28, 2015 and for the three months ended February 28, 2015 is as follows.

 

		Avalanche International, Corp.				Smith and Ramsay Brands, LLC				Elimination				Consolidated
Current Assets:
Cash		$	506			$	765			$	—			$	1,271
Accounts receivable			—				46				—				46
Prepaids			5,605				970				—				6,575
Prepaid stock for services			283,542				—				—				283,542
Inventory			—				20,758				—				20,758
Intercompany			185,322				—				185,322				—
Total current assets			474,975				22,539				185,322				312,192
Other assets			—				705				—				705
Product license			—				42,750				—				42,750
Total assets		$	474,975			$	65,994			$	185,322			$	355,647
Current Liabilities
Accounts payable and accrued expenses		$	57,462			$	13,421			$	—			$	70,883
Accounts payable, related party			23,26				66,849				—				90,175
Accrued interest			2,088				465				—				2,553
Accrued compensation			9,900				22,173				—				32,073
Due to related parties			6,177				26,758				—				32,935
Convertible note payable			63,250				—				—				63,250
Loans payable			—				20,000				—				20,000
Intercompany			—				185,322				185,322				—
Total current liabilities			162,203				334,988				185,322				311,869
Total liabilities			162,203				334,988				185,322				311,869
Stockholders' Equity (Deficit)
Preferred stock			29				—				—				29
Common stock			5,359				—				—				5,359
Additional paid-in capital			622,365				—				—				622,365
Accumulated deficit			(314,981	)			(268,994	)			—				(583,975	)
Total stockholders’ equity (deficit)			312,772				(268,994	)			—				43,778
Total liabilities and stockholders’ equity		$	474,975			$	65,994			$	185,322			$	355,647

NOTE 11 - SUBSEQUENT EVENTS

 

In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to February 28, 2015 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 February 28, 2015, the Company issued 100,000 shares of common stock to Hallmark Investments, Inc., for consulting services to be provided to the Company.

 

On March 17, 2015, the Company executed a convertible promissory note for $10,750 with Strategic IR, Inc. The note bears interest at 10% per annum and is due on or before April 16, 2015. The note includes a one-time loan fee of $1,750 for a total due of $12,500. This note was not repaid by April 16, 2015 resulting in an increase of the interest rate to 21%.

 

On March 27, 2015, the Company executed a convertible promissory note for $100,000 with Dr. Gary Gelbfish. The note bears interest at 10% per annum and is due on or before September 23, 2015.  If not paid by the due date the note and any accrued interest is convertible at the lesser of $0.50 per share or a 50% discount of the average closing price for the twenty days preceding the conversion. In addition, the loan requires a one-time loan fee of $10,000 and the issuance of 50,000 shares of common stock.

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 effect 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 Corp., a Nevada corporation, is a holding company with one subsidiary, Smith and Ramsay Brands, LLC. We have 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 flavored liquids for electronic vaporizers and eCigarettes and accessories. SRB currently has a single brand of premium vape liquid, its signature brand Smith and Ramsay, which began a targeted rollout mid-Fall of 2014 following its pre-launch phase. The Smith and Ramsay line was manufactured, packaged and strategically distributed on a limited basis to generate revenue in test markets. Due to the feedback we received during our test marketing, from our observations of the changing consumer demand in the marketplace and our direct experience with our customers, the Company sought and received Board approval to establish Puff Systems. Puff Systems is a new business unit focused on the manufacturing and distribution of vape devices including pens and vape accessories. Puff Systems was launched as a department of Smith and Ramsay Brands so it could minimize costs while developing its business model and proving concept. The efforts and success of Puff Systems are being evaluated by the Company’s management to determine the unit’s future path. While the Company has chosen to focus primarily on its subsidiary’s business model, it reserves the right to explore other opportunities that either may leverage its current activities, expand organically into new revenue streams or enter new industries that will provide added value for its shareholders. This includes the pursuit of a merger or acquisition of existing businesses from other industries with proceeds from new capital raised.

 

“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. In 2012, Goldman Sachs declared electronic cigarettes one of the top 10 disruptive technologies to watch.

 

This highly competitive and innovative marketplace has made its mark and set a consumer standard by offering a wide and colorful array of varying flavors, nicotine levels and other attributes to produce a truly unique and customized experience. We believe that, as this market matures, there will be a natural rising demand for better quality products and wider range of varying flavors that is appetizing to an even more diverse consumer base. Through Smith and Ramsay Brands, we plan to provide a wide variety of high quality vapor liquids to anticipate and lead this demand in a commercial manner to assure product integrity and consistency.

 

It is the plan of SRB to move into the market place during 2015 and over the next twenty four (24) months following its launch of its Smith and Ramsay signature brand upon threshold funding being reached. Management’s goal is to expand 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

 

The Vape marketplace over the past eight years has grown to $2.5 billion, according to VapeNewsMagazine.com and to over $3.5 billion at the turn of 2015 according to Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research, for Wells Fargo Securities LLC in New York. Herzog was cited as stating, “We have increased conviction that consumption of e-Cigs could surpass consumption of conventional cigs within the next decade [by 2023],” according to an article published on VirginiaBusiness.com. In September of 2013, Forbes Magazine estimated that by 2015 the market for eCigarettes would hold a $3.0 Billion share. Forbes Magazine at the beginning of 2014 reported that market share is now closer to $3.5 Billion thus eclipsing its original projection. In fact, on a health issue perspective, we believe it is noteworthy that Forbes Magazine has issued several positive opinions supporting the Vaping industry and its potential ability to help those desiring to quit or reduce traditional smoking products.

 

A March 24, 2014 Wells Fargo Equity Research report bifurcated the market into eCigarettes and secondary and tertiary markets, referred to as Vapors/Tanks or eVapor. At that time, the report estimated the overall U.S. market was about $2.0 billion dollars with approximately a 65%/35% split between eCigarettes to eVapor. Over 2014, that split was narrowing closer with some recent 2014 year-end estimates at a 40/60 split, with eVapor likely to grow to surpass eCigarettes’ market share within the current decade.

 

A VapeNewsMagazine.com report supports this theory and 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 prediction was realized with every major tobacco brand having an entry already launched in the eCigarette sector by the close of 2014.

 

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. By the close of 2014, NJOY’s products were conveniently distributed in Plexiglas displays located at thousands of stores across the United States.

 

Our observations include a perspective that the eVapor market is a fragmented space that can be segmented into the following categories: Home Brew, Cottage, Regionals, Tier 2, and Tier 1.

 

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 about two 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 25 to 250 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 15,000 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 Virgin Vapor 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 300 stores and have annual gross sales estimated at between five to fifteen million dollars. Companies included in this category are Five Pawns, Cosmic Fog, eLiquid Solutions, Space Jam Juice, ECBlend, Suicide Bunny and Vapor Corporation, which has been publicly traded on the OTC and upgraded to the NASDAQ (VPCO). Vapor Corporation is primarily a manufacturer of smokeless equipment and produces its own line of liquids.

 

Tier 1

 

Top players in this market have sales reaching $25+ 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 $2.2 billion 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 despite the presence of the top five domestic tobacco manufacturers, 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 manufacturing options to support the organic growth begun during our test-marketing phase while continuing to support key wholesale and retail distributors and our strategic partners. These manufacturing options encompass the expanding variety of brands of flavoured eLiquids manufactured by Smith and Ramsay Brands and the innovative devices and accessories that the marketplace will find distinctive in design, quality and value that the Puff Systems brand will build its reputation on. The operations for each business line will need to continue to be progressively scalable and supply the needed amount of product in accordance with their sales and marketing plan as each unit has established.

 

Operational expansion and adjustment in personnel and capacity needs will be addressed through the increase of internal and/or, contract, sales, marketing, and manufacturing capabilities or through strategic acquisition of such capabilities. Decisions on the direction and strategy associated with business and product expansion goals will continue to be made while the business and market place continue to evolve during formative stages of the industry.

 

Marketing Strategies

 

Domestically, our plan was 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 180-day plan included the development of a competitive landscape report and full launch and ongoing marketing plan and budget. During this initial startup campaign, the Company was developing its overall national marketing strategy with the anticipation of its national launch of its premium signature brand, Smith and Ramsay. The firm test marketed Smith and Ramsay in select localities, employing 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 was gathered and analyzed to coordinate with the marketing strategy to insure a successful launch and solid development of an initial installed base. The market research is now driving our decisions and a scheduled calendar of Smith and Ramsay Brands events nationwide that should drive the expansion of its signature brand along with a mixed addition of proprietary brands through R&D, partnerships, and/or acquisitions, along with additions of non-liquid offerings.

International

 

Internationally, Smith and Ramsay Brands continues its efforts internally to understand and map out the international eLiquid space in an effort to follow the same data driven decision making that has been utilized to develop and implemented its domestic marketing plan. Within months, an initial international strategy will be outlined with a 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
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

 

Employees

 

As of February 28, 2015, we employed two permanent management level personnel and work with outside labor and consultants to complete the tasks at hand. We may require additional employees in the future. There is intense competition for capable, experienced personnel and there is no assurance the Company will be able to obtain new qualified employees when required.

Results of Operations for the three months ended February 28, 2015 compared to the three months ended February 28, 2014.

 

Revenue

For the three months ended February 28, 2015, revenue was $14,995 compared to $0 for the three months ended February 28, 2014. Revenue in the current period was from sales of our new vape liquid business including vape pens and accessories.

 

Operating Expenses

Advertising and marketing – while there were no costs incurred in the prior period for advertising and marketing, in the current period for the three months ended February 28, 2015, we incurred $8,364 of advertising and marketing costs in connection with the promotion of our new line of business and products.

 

Salary expense – for the three months ended February 28, 2015, salary expense for our CFO and CEO totaled $22,920. There was no salary expense incurred in the prior year.

 

Professional fees – Professional fees for the three months ended February 28, 2015 were $5,450 compared to $3,818 for the three months ended February 28, 2014. The increase is due to increased legal and audit fees associated with compliance and filing obligations.

 

General and administrative – General and administrative expense for the three months ended February 28, 2015 were $143,596 compared to $758 for the three months ended February 28, 2014. The increase is due to the increased activity associated with starting the new line of business, including $56,708 of non-cash expense for stock issued for services.

 

Net loss

The Company had a net loss of $178,069 for the three months ended February 28, 2015 compared to a net loss of $4,576 for the three months ended February 28, 2014. 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 February 28, 2015, we had an accumulated deficit of $583,975 and a net loss for the three months ended February 28, 2015 of $178,069. For the three months ended February 28, 2015, net cash used in operating activities was $100,584 and we received $99,608 from financing activities.

 

On November 3, 2014, the Company executed a convertible promissory note for $63,250 with LG Capital Funding, LLC. The note bears interest at 8% per annum and is due on or before November 3, 2015. The note includes a 15% original issue discount and is convertible at a 40% discount any time during the period beginning 180 days following the date of the note. Accrued interest on the note as of November 30, 2014 is $1,622.

On November 26, 2014, the Company executed a promissory note with Argent Offset, LLC for $12,500. The note included a $500 loan fee, accrued interest at 10%, compounded monthly, and was due December 5, 2014. A late payment fee of $500 per day was to be incurred from December 6, 2014 through December 7, 2014 and then increases to $1,000 per day. On February 1, 2015, we entered into a Temporary Forbearance Agreement with Argent. Under the forbearance agreement, we agreed to pay a forbearance fee of $7,500. The full $20,000 now owing will bear interest at an annual rate of 10% until due on August 1, 2015. Further, we have agreed to pay 12.5% of any new funds invested in the company until the amount due is paid in full. Interest accrued on this note as of February 28, 2015 is $466.

 

On March 17, 2015, the Company executed a convertible promissory note for $10,750 with Strategic IR, Inc. The note bears interest at 10% per annum and is due on or before April 16, 2015. The note includes a one-time loan fee of $1,750 for a total due of $12,500.

 

On March 27, 2015, the Company executed a convertible promissory note for $100,000 with Dr. Gary Gelbfish. The note bears interest at 10% per annum and is due on or before September 23, 2015.  If not paid by the due date the note and any accrued interest is convertible at the lesser of $0.50 per share or a 50% discount of the average closing price for the twenty days preceding the conversion. In addition, the loan requires a one-time loan fee of $10,000 and the issuance of 50,000 shares of common stock.

 

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 February 28, 2015, 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 as of February 28, 2015 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 the Company has inadequate controls and procedures over financial reporting due to the lack of segregation of duties and lack of a formal review process that includes multiple levels of review. Management believes that the material weakness in its controls and procedures did not have an effect on our financial results.

 

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 first quarter of FY 2015 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.

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

 

The following sets forth certain information concerning securities, which were sold or issued by us without the registration of the securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements. All proceeds are being used to fund operating activities.

 

On December 15, 2015, the Company issued 1,600 shares of common stock at a price of $1.25 per share for total cash proceeds of $2,000. Proceeds were used to fund general operating expenses.

 

On January 30, 2015, the Company issued 15,380 shares of preferred stock at a price of $5.00 per share for total cash proceeds of $76,900 to Finiks Capital, LLC. Proceeds were used to pay loans and accounts payable.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number	Description of Exhibit
3.1	Amended and Restated Articles of Incorporation(2)
3.2	Bylaws(1)
3.3	Certificate of Designation of Class A Convertible Preferred Stock(2)
10.1	Convertible Promissory Note issued to Strategic IR, Inc.
10.2	Convertible Promissory Note issued to Dr. Gary Gelbfish
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 February 28, 2015 formatted in Extensible Business Reporting Language (XBRL).

 

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

⁽²⁾ Incorporated by reference to Quarterly Report on Form 10-Q filed October 15, 2014

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:	April 20, 2015
By:	/s/ Philip Mansour Philip Mansour
Title:	Chief Executive Officer and Director

 

Date:	April 20, 2015
By:	/s/ Rachel Boulds Rachel Boulds
Title:	Chief Financial Officer