Attached files
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EX-32.1 - SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_32-1.htm |
EX-32.2 - SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_32-2.htm |
EX-31.2 - SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - RELIABRAND INC. | exhibit_31-2.htm |
EXCEL - IDEA: XBRL DOCUMENT - RELIABRAND INC. | Financial_Report.xls |
EX-31.1 - SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - RELIABRAND INC. | exhibit_31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014
OR
o
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER: 000-54300
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
|
75-3260541
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer ID No.)
|
720 Evans Court, Suite 103, Kelowna, BC Canada
|
V1X 6G4
|
(Address of principal executive offices)
|
(Zip code)
|
Issuer's telephone number: (778) 478-9997
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by checkmark 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 (§232.405 of this chapter) during the previous 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o | Accelerated Filer | o | |
Non-accelerated filer | o | Smaller reporting company | x | |
(Do not check if 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 o No x
As of May 7, 2014, 98,201,368 shares of the Registrant's Common Stock were issued and outstanding.
1
RELIABRAND INC.
TABLE OF CONTENTS
Page No.
|
||
PART I
|
FINANCIAL INFORMATION
|
3
|
ITEM 1
|
Condensed Consolidated Financial Statements
|
3
|
Condensed Consolidated Balance Sheets as of March 31, 2014 (unaudited) and June 30, 2013
|
3
|
|
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2014 and 2013
|
4
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2014 and 2013
|
5
|
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
6
|
|
ITEM 2
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
ITEM 3
|
Quantitative and Qualitative Disclosures about Market Risk
|
30
|
ITEM 4T
|
Controls and Procedures
|
30
|
PART II
|
OTHER INFORMATION
|
30
|
ITEM 2
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
30
|
ITEM 6
|
Exhibits
|
31
|
SIGNATURE
|
32
|
|
2
RELIABRAND, INC.
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
March 31,
|
June 30,
|
|||||||
2014
|
2013
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
|
$ | 304,972 | $ | 10,488 | ||||
Accounts receivable, net
|
66,602 | 41,929 | ||||||
Inventory, net
|
573,706 | 279,316 | ||||||
Prepaid expenses
|
192,044 | 113,187 | ||||||
TOTAL CURRENT ASSETS
|
1,137,324 | 444,920 | ||||||
OTHER ASSETS
|
||||||||
Deposits
|
5,278 | 5,278 | ||||||
Property and equipment, net (Note 4)
|
92,255 | 132,413 | ||||||
Intellectual and product properties (Note 5)
|
125,000 | 100,000 | ||||||
Patents, net of amortization of $149,306 - March 31, 2014
|
||||||||
and $110,296 - June 30, 2013 (Note 5)
|
1,054,449 | 1,093,459 | ||||||
Product molds, net of amortization of $101,789 - March 31, 2014
|
||||||||
and $58,319 - June 30, 2013 (Note 4)
|
72,093 | 115,563 | ||||||
TOTAL OTHER ASSETS
|
1,349,075 | 1,446,713 | ||||||
Total Assets
|
$ | 2,486,399 | $ | 1,891,633 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable
|
$ | 63,246 | $ | 211,341 | ||||
Accounts payable - related party
|
- | 21,654 | ||||||
Accrued taxes payable
|
5,840 | 4,493 | ||||||
Shareholder advances (Note 7)
|
- | 11,087 | ||||||
Note payable to shareholder (Note 6)
|
78,643 | 96,907 | ||||||
Contingent royalties payable
|
70,000 | 82,264 | ||||||
Royalties payable - related party
|
19,257 | 16,389 | ||||||
Accrued liabilities - related party
|
- | 1,154 | ||||||
TOTAL CURRENT LIABILITIES
|
236,986 | 445,289 | ||||||
LONG TERM LIABILITY - Contingent royalties payable
|
592,907 | - | ||||||
TOTAL LIABILITIES
|
829,893 | 445,289 | ||||||
COMMITMENT AND CONTINGENCIES (Note 8)
|
||||||||
STOCKHOLDERS' EQUITY (Note 9)
|
||||||||
Preferred stock, par value $.0001, 10,000,000 shares authorized, 10,000 issued and outstanding March 31, 2014 and June 30, 2013, respectively
|
1 | 1 | ||||||
Preferred stock, Series B, par value $.0001, 150,000 shares authorized, none issued and outstanding March 31, 2014 and June 30, 2013, respectively
|
- | - | ||||||
Preferred stock, Series C, par value $.0001, 100,000 shares authorized, none issued and outstanding March 31, 2014 and June 30, 2013, respectively
|
- | - | ||||||
Common stock, par value $.0001, 150,000,000 and 100,000,000 shares authorized, respectively; 98,201,368 issued and outstanding - March 31, 2014; 86,822,868 issued and outstanding - June 30, 2013
|
9,820 | 8,686 | ||||||
Paid in Capital
|
5,612,531
|
4,829,967 | ||||||
Subscription receivable
|
(2,253 | ) | (2,253 | ) | ||||
Stock due from shareholder
|
(12,500 | ) | (12,500 | ) | ||||
Common Stock Subscribed
|
250,000 | - | ||||||
Accumulated (Deficit)
|
(4,201,093 | ) | (3,377,557 | ) | ||||
Total Stockholders' Equity
|
1,656,506 | 1,446,344 | ||||||
Total Liabilities and Stockholders' Equity
|
$ | 2,486,399 | $ | 1,891,633 | ||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
|
3
RELIABRAND, INC.
|
||||||||||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
For the three months ended
|
For the nine months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
REVENUES
|
$
|
77,401
|
$
|
19,896
|
$
|
269,233
|
$
|
54,336
|
||||||||
COST OF GOODS
|
28,860
|
14,537
|
125,460
|
57,568
|
||||||||||||
GROSS PROFIT/ (LOSS)
|
48,541
|
5,359
|
143,773
|
(3,232
|
)
|
|||||||||||
EXPENSES
|
||||||||||||||||
Amortization and Depreciation
|
28,513
|
24,512
|
85,216
|
74,652
|
||||||||||||
Accounting, Audit, and Legal fees
|
28,877
|
25,061
|
104,888
|
130,461
|
||||||||||||
Consulting fees
|
16,762
|
4,612
|
111,766
|
73,236
|
||||||||||||
Consulting fees - related parties
|
100,245
|
102,080
|
287,176
|
242,790
|
||||||||||||
Rent expense
|
17,171
|
20,069
|
30,038
|
50,348
|
||||||||||||
Selling, general and administrative
|
35,798
|
51,557
|
311,118
|
188,684
|
||||||||||||
Stock options expense
|
14,000
|
-
|
21,000
|
-
|
||||||||||||
Consulting contract benefits - related party
|
3,142
|
1,154
|
10,065
|
3,462
|
||||||||||||
Stock compensation - officers
|
-
|
838,115
|
-
|
838,115
|
||||||||||||
Total expenses
|
244,507
|
1,067,160
|
961,266
|
1,601,748
|
||||||||||||
NET OPERATING LOSS
|
(195,966
|
)
|
(1,061,801
|
)
|
(817,493
|
)
|
(1,604,980
|
)
|
||||||||
OTHER EXPENSE
|
||||||||||||||||
Interest Expense
|
(2,083
|
)
|
(596
|
)
|
(6,043
|
)
|
(907
|
)
|
||||||||
NET LOSS
|
$
|
(198,049
|
)
|
$
|
(1,062,397
|
)
|
$
|
(823,536
|
)
|
$
|
(1,605,887
|
)
|
||||
NET LOSS PER SHARE - BASIC AND DILUTED
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
||||
WEIGHTED AVERAGE NUMBER OF
|
||||||||||||||||
COMMON SHARES OUTSTANDING
|
98,264,229
|
85,390,924
|
94,333,151
|
80,634,492
|
||||||||||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
RELIABRAND, INC.
|
||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
For the nine months ended
|
||||||||
March 31,
|
March 31, | |||||||
2014
|
2013
|
|||||||
OPERATING ACTIVITIES
|
||||||||
Net loss
|
$ | (823,536 | ) | $ | (1,605,887 | ) | ||
Adjustments to reconcile net loss to net cash used by
|
||||||||
operating activities:
|
||||||||
Stock issued for services
|
59,000 | 17,500 | ||||||
Stock compensation - officers
|
- | 838,115 | ||||||
Stock options expense
|
21,000 | - | ||||||
Depreciation and amortization
|
128,685 | 99,048 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(24,673 | ) | - | |||||
Prepaid expenses
|
(69,899 | ) | (64,049 | ) | ||||
Inventory
|
(294,390 | ) | (160,172 | ) | ||||
Accounts payable
|
(66,903 | ) | 62,595 | |||||
Accounts payable - related party
|
(21,654 | ) | 621 | |||||
Accrued liabilities
|
(7,744 | ) | 2,128 | |||||
Accrued interest - notes payable
|
4,392 | 906 | ||||||
NET CASH (USED BY) OPERATING ACTIVITIES
|
(1,095,724 | ) | (809,195 | ) | ||||
INVESTING ACTIVITIES
|
||||||||
Purchase of property and equipment
|
(6,049 | ) | (41,960 | ) | ||||
Increase in product molds
|
- | (7,000 | ) | |||||
NET CASH (USED BY) INVESTING ACTIVITIES
|
(6,049 | ) | (48,960 | ) | ||||
FINANCING ACTIVITIES
|
||||||||
Proceeds from sale of common stock
|
1,430,001 | 775,231 | ||||||
Proceeds from shareholder advances/ notes
|
1,658 | 77,900 | ||||||
Repayments of notes payable
|
(22,656 | ) | - | |||||
Repayment of shareholder advances
|
(12,745 | ) | - | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
1,396,258 | 853,131 | ||||||
NET INCREASE IN CASH
|
294,484 | (5,024 | ) | |||||
CASH, BEGINNING OF PERIOD
|
10,488 | 27,247 | ||||||
CASH, END OF PERIOD
|
$ | 304,972 | $ | 22,223 | ||||
CASH PAID FOR INTEREST
|
$ | 187 | $ | - | ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Debt Converted to Common Stock Subscribed
|
||||||||
Accounts payable
|
$ | (106,190 | ) | $ | (22,500 | ) | ||
Note Payable - shareholder
|
- | (75,137 | ) | |||||
Purchase of property and equipment
|
- | (42,704 | ) | |||||
Purchase of intellectual properties
|
25,000 | - | ||||||
Common stock subscribed
|
81,190 | 140,341 | ||||||
$ | - | $ | - | |||||
Shares issued for common stock subscribed
|
||||||||
Common stock subscribed
|
$ | - | $ | 853,705 | ||||
Common stock issued
|
- | (853,705 | ) | |||||
$ | - | $ | - | |||||
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
|
5
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Interim periods
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended March 31, 2014 are not necessarily indicative of results for any future period. The condensed consolidated balance sheet at June 30, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended June 30, 2013.
There have been no material changes to our significant accounting policies during the nine months ended March 31, 2014, as compared to the significant accounting policies disclosed in our consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended June 30, 2013.
Nature of Operations and Basis of Presentation
Reliabrand, Inc. (the Company, we, us, our, RLIA), formerly known as A&J Venture Capital Group, Inc., Alco Energy Corp., and Startale Group, Inc., is a Nevada corporation, formed February 22, 2007. Since inception we have had minimal operations and not earned any significant revenues to date. In the previous fiscal year ended June 30, 2013, we had commenced sales of our products, and have started our marketing program. We are in the process of establishing ourselves as a company that will focus its operations on developing the Adiri brand of products and selling them in the open markets. Adiri was one of the first baby bottle manufacturers to offer BPA-free products when it was launched in 2007. The Adiri Natural Nurser bottle achieved more international design recognition than any other bottle of any kind in history, winning 15 internationally recognized product design competitions including tying for first place in the D&AD Design Award (known as the “Yellow Pencils”) in 2008 with the “Apple iPod Touch” from 23,000 international product submissions. The iconic and patented “natural breast shape” and “petal vent” are among the features that reduced colic and improved the infant feeding experiences which led to Adiri earning the prestigious Gold MDEA (Medical Design Excellence Award) along with the design firm Whipsaw, Inc. in 2008. We are currently developing a newer version of the baby bottle that Adiri was previously producing and it will be free of Estrogenic Activity (EA) as well as being BPA-free. The Company intends to aggressively promote and market the bottles and accessories and plans to secure retail distribution outlets for the bottles. The Company’s fiscal year-end is June 30. In the fourth quarter of fiscal year 2013, the Company’s management determined that it exited the development stage, as defined in FASB ASC 915-10. The Company had adjusted its financial statement presentation accordingly.
6
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION – continued
Business Composition
On January 20, 2011, we entered into an Asset Purchase Agreement (the “Agreement”) with 0875505 B.C. Ltd. (“BC Ltd”), a British Columbia, Canadian company. The Agreement provided for us to acquire multiple patents and trademarks acquired by BC Ltd through a receivership proceeding of Adiri, Inc. (Adiri”). Adiri was granted the initial patents and trademarks. These patents and trademarks relate to a baby bottle and related components that BC Ltd expended approximately $1,500,000 in cash in acquiring and further development; as of December 31, 2010 the patents, and related expenses to acquire and maintain the patents, had a net book value, which approximates fair value, of $1,436,768. As part of the Agreement, the Company also acquired $100,000 in cash, total note receivables and accrued interest in the amount of $63,296 owed by Watergeeks, Inc., a related party entity, to BC Ltd, resin inventory of $8,160, pacifier inventory of $6,000, product molds of $5,266, assumed an executory contract with a plastics manufacturer, and assumed accounts payable of approximately $45,176. In exchange, at the closing on April 26, 2011 we issued 35,000,000 shares of our common stock, par value $.0001, post-split.
On March 16, 2012, we entered into a Share Purchase Agreement (the “agreement 2”) with 0875505 B.C. Ltd. (“BC Ltd”), a British Columbia, Canadian company to acquire the company through a share exchange. As noted above, we had already purchased all the assets and liabilities from the company in the above agreement. We decided to purchase the equity in BC Ltd because while we were beginning the process to transfer the patents and trademarks to our company name, we found the process to be very costly and very lengthy. Whereas if we acquired the BC Ltd as a wholly owned subsidiary we would own the patents and trademarks without completing the transfer process, which was most cost effective for our company with our limited cash reserves, and offered the quickest and most cost effective remedy to protect our interests and our shareholders assets. In exchange for the shares of stock of BC Ltd, we agreed to issue to the shareholders of BC Ltd 50,000 shares of our restricted common stock. We also acquired the remaining cash of approximately $3,705 ($3,675CAD).
Liquidity
The Company anticipates that revenue or income for fiscal year 2014 may be limited, but based upon our historical data we expect to continue to show growth. The Company also expects to continue to incur substantial expenses relating to its marketing and sales efforts. As a result, the Company expects to incur losses over the next year unless it is able to realize additional revenues under any current or future agreements. The timing and amounts of such revenues, if any, cannot be predicted with certainty. Accordingly, results of operations for any period may be unrelated to the results of operations for any other period.
The Company will likely need to raise and is pursuing additional funds through strategic collaborations, public or private equity or debt financing, or other funding sources. This funding may not be available on acceptable terms, or at all, and may be dilutive to shareholder interests. If sufficient capital is not available, the Company may be required to delay, reduce the scope of or eliminate one or more of its product offerings, any of which could have a material adverse effect on its business.
7
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION – continued
Basis of Consolidation
The consolidated financial statements include the accounts of Reliabrand, Inc. and its wholly owned subsidiary. Our operations are treated as one operating segment. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.
Foreign Currency Translation
The condensed consolidated interim financial statements are presented in United States dollars (USD). We have determined that our functional currency is U.S. dollars; the foreign currency consolidated financial statements of our subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured using the foreign exchange rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and furniture and equipment are translated by using historical exchange rates. Any re-measurement gain or loss incurred is immaterial to the consolidated financial statements.
Reclassifications
Certain amounts in the period ended March 31, 2013 financial statements have been reclassified to conform to the current period ended March 31, 2014 presentation.
Inventory
The only component of inventory is finished goods inventory, valued on a first in first out basis, and includes production cost, product freight in, and packaging costs. Slow moving and obsolete inventories are written down based on a comparison of on-hand quantities to historical and projected usages. Additionally, reserves for non-cancelable open purchase orders for components the Company is obligated to purchase in excess of projected usage, or for open purchase orders where the market price is lower than the purchase order price, if any, are recorded as other accrued expenses on the balance sheet. As of March 31, 2014 and June 30, 2013, we did not have any such accrued expenses.
8
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION – continued
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of goods has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Thus, we generally recognize sales revenue when shipment of the purchased product has occurred. Cash payments received in advance are recorded as deferred revenue. We currently permit our customers to return or exchange defective products. We have analyzed our quality control procedures and feel that our main exposure is from damages in shipping. Accordingly we do not need to establish a reserve for returns at this time. We will continue to analyze this each period and implement one if the need arises.
Shipping and Handling
Net shipping and handling costs of $19,358 and $6,919 for the period ended March 31, 2014 and 2013, respectively, are included in selling, general and administrative expenses.
Advertising Costs
The Company expenses advertising costs when incurred. During the period ended March 31, 2014 and 2013, we had $121,785 and $86,408 in expenditures on advertising, respectively.
Concentration in Sales and Accounts Receivables to Few Customers
In the nine months ended March 31, 2014 and 2013, our Wal-Mart Canada sales accounted for 64.88% and none, respectively, of our revenues. In the nine months ended March 31, 2014 and 2013, our North American sales accounted for 100.00% and 100.00%, respectively, of our revenues. In the nine months ended March 31, 2014 and 2013, our Wal-Mart Canada account receivables accounted for 93.41% and none, respectively, of our receivable balances.
NOTE 2 – GOING CONCERN
Our financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have sustained operating losses since inception, which raises substantial doubt about the Company’s ability to continue as a going concern.
As of March 31, 2014 we have a working capital surplus of $900,338, and accumulated deficit of $4,201,093. During the period ended March 31, 2014 we had a net loss of $823,536 and cash used in operating activities of $1,095,724. The Company’s ability to continue in existence is dependent on its ability to develop additional sources of capital, and/or achieve profitable operations and positive cash flows. Management’s plan is to aggressively pursue its present business plan. Since inception we have funded our operations through the issuance of common stock and related party loans and advances, and will seek additional debt or equity financing as required. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
9
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 3 – RECENTLY ISSUED ACCOUNTING STANDARDS
Recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations and cash flows.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Computer equipment
|
$
|
7,279
|
$
|
7,279
|
||||
Website
|
15,257
|
15,257
|
||||||
Office furniture and equipment
|
103,526
|
97,477
|
||||||
Leasehold improvements
|
46,855
|
46,855
|
||||||
172,917
|
166,868
|
|||||||
Less accumulated depreciation and amortization
|
(80,662
|
)
|
(34,455
|
)
|
||||
$
|
92,255
|
$
|
132,413
|
March 31,
2014
|
June 30, 2013
|
|||||||
Product production molds
|
$ | 173,882 | $ | 173,882 | ||||
Less accumulated amortization
|
(101,789 | ) | (58,319 | ) | ||||
$ | 72,093 | $ | 115,563 |
Depreciation was $46,207 and $16,134 for the nine months ended March 31, 2014 and 2013, respectively.
The Company also recorded amortization of products molds expense for the nine months ended March 31, 2014 and 2013 of $43,470 and $24,395, respectively, as reflected in cost of goods sold on the accompanying Statement of Operations.
10
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 5 – INTELLECTUAL PROPERTIES AND PATENTS
Patents
Patents and licenses consist of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Adiri patents
|
$
|
800,552
|
$
|
800,552
|
||||
Adiri trademarks
|
359,375
|
359,375
|
||||||
Adiri patent legal fees
|
43,828
|
43,828
|
||||||
1,203,755
|
1,203,755
|
|||||||
Less accumulated amortization
|
(149,306
|
)
|
(110,296
|
)
|
||||
$
|
1,054,449
|
$
|
1,093,459
|
|||||
Plastic technology properties
|
$
|
100,000
|
$
|
100,000
|
||||
Sippy Straw technology
|
25,000
|
--
|
||||||
$
|
125,000
|
$
|
100,000
|
The Company has recorded amortization of patents expense for the nine months ended March 31, 2014 and 2013 of $36,009 and $58,518, respectively.
Asset purchase agreement
On January 2, 2014, we entered into an agreement to purchase certain assets owned by an unrelated company in exchange for 250,000 shares of our restricted common stock valued at $0.10 or $25,000, plus a royalty of $0.31 per unit sold if the retail price is below $19.95, and $0.41 per unit sold if the retail price is $19.95 or more. If the Company decides in the future to not utilize the assets any further, the seller has the first right of refusal to repurchase them back for $37,500. The agreement also contains a non-competition clause for the seller.
NOTE 6 – LOANS PAYABLE - SHAREHOLDER
On March 1, 2012 the Company borrowed $151,410 (CDN$150,000) from one of the Company’s shareholders on an uncollateralized, non-interest bearing, demand note that matures on February 28, 2013. On May 17, 2012, we converted $56,156 USD of the above debt’s principal to shares of our restricted common stock at $0.04 per share. On December 14, 2012, we converted $75,137 USD, or 751,368 shares of our restricted common stock, of the above debt’s principal into shares of our restricted common stock at $0.10 per share. As of March 31, 2014 and June 30, 2013, the remaining balance of $20,117 is outstanding, respectively.
On February 15, 2013 the Company borrowed $50,000 USD from a company owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing an 8% interest rate per annum. During the nine months ended March 31, 2014 and 2013, we accrued $4,056 and $489, respectively, in interest expense in connection with this note, and both the principal and interest are outstanding as of March 31, 2014 and June 30, 2013.
11
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 6 – LOANS PAYABLE – SHAREHOLDER - continued
On June 26, 2013 the Company borrowed $23,300 USD (CDN $24,500) from the same company as above owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing an 8% interest rate per annum and is payable upon demand of the note holder. On August 1, 2013, we made payment in full on this note, leaving no principal outstanding as of September 30, 2013.
The notes payable to shareholders balance comprised of the below, net of accrued interest of $7,753:
March 31,
|
June 30,
|
|||||||
Description
|
2014
|
2013
|
||||||
Uncollateralized note to a related entity bearing no interest per annum which matures on February 28, 2013.
|
$
|
20,117
|
$
|
20,117
|
||||
Uncollateralized note to a related entity bearing 8% interest per annum.
|
50,000
|
50,000
|
||||||
Uncollateralized note to a related entity bearing 8% interest per annum which matures on January 14, 2013.
|
773
|
23,430
|
||||||
Total liabilities
|
70,890
|
93,547
|
||||||
Less current liabilities
|
70,890
|
93,547
|
||||||
Total long term liabilities
|
$
|
-0-
|
$
|
-0-
|
Future maturity of our notes payable is presented in the table below:
For the years ended June 30,
|
||||
2014
|
$
|
70,890
|
NOTE 7 – RELATED PARTY TRANSACTIONS AND BALANCES
Related party transactions
On May 1, 2012 the Company entered into a consulting agreement with a son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $52,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $37,621 and $38,061, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $1,627 in royalties payable, respectively.
12
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 7 – RELATED PARTY TRANSACTIONS AND BALANCES - continued
Related party transactions - continued
On May 1, 2012 the Company entered into a consulting agreement with another son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $52,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $39,503 and $38,061, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $1,627 in royalties payable, respectively.
On May 1, 2012 the Company entered into a consulting agreement with a third son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $52,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $39,592 and $38,061, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $1,627 in royalties payable, respectively.
On January 18, 2013, the Company entered into a consulting agreement with a fourth son of our current President, for his consulting services at a rate of $35,200 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $45,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $30,918 and $25,560, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $449 in royalties payable, respectively.
13
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 7 – RELATED PARTY TRANSACTIONS AND BALANCES - continued
Related party transactions - continued
On May 1, 2011, the Company entered into a consulting agreement with a company controlled by our President and Chief Executive Officer, for his consulting services at a rate of $10,000 per month, and he received a 3.00% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into an amendment of the above consulting agreement, dated May 1, 2011, with the same Company as above, the prior agreement remains in force except for the following provisions, his consulting services will be at a rate of $11,000 per month, and he will also be granted an option to purchase an amount of shares to represent 10% of our issued and outstanding common stock as of December 31st of the prior year. On March 1, 2014, the Company entered into a second amendment of the above consulting agreement, dated May 1, 2011, with the same Company as above, the prior agreement remains in force except for the following provisions, his consulting services will be at a rate of $12,100 per month, he will have the option to convert his accrued royalties payble to shares of the Company’s preferred series “B” stock, and will receive a monthly gas allowance of three hundred dollars ($300), and the provision to grant him stock options was cancelled. For the nine months ended March 31, 2014 and 2013, we recorded $102,300 and $103,047, respectively, in consulting fees – related party expense in connection with these contracts. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $8,064 and $1,953 in royalties payable, respectively.
On September 1, 2013, the Company entered into a consulting agreement with a son of a current shareholder, for his consulting services at a rate of $34,171 USD ($36,000 CAD) per annum, and we will issue him 20,000 shares of our restricted common stock per month of service rendered. The agreement will be in effect for a period of twelve months, ending on August 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ten day written notice. For the period ended March 31, 2013 we recorded $37,243 in consulting fees – related party expense to this individual, including $23,243 paid in cash and $14,000 paid in shares of common stock.
Shareholder advances
In the nine month period ended March 31, 2014, our current President paid operating bills on behalf of the Company totaling $1,658, and was repaid $1,657 in cash.
14
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 7 – RELATED PARTY TRANSACTIONS AND BALANCES - continued
Shareholder advances - continued
During the year ended June 30, 2013, our President advanced the Company $22,552 USD on a non-interest bearing, non-secured, on demand basis, and was repaid $11,465 USD. On February 12, 2014, the Company repaid the remaining balance of $11,087, and as of March 31, 2014 and June 30, 2013, the balance of none and $11,087 USD is outstanding, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Office – warehouse lease
On April 1, 2013 the Company entered into a two year term lease agreement of an office and warehouse space located in Kelowna, BC. The lease commences on May 1, 2013 and requires a monthly payment of approximately $3,600 including related taxes and a $3,623 security deposit. We paid the first and security deposit on January 30, 2013. On January 2, 2014, the company entered into an addendum to lease additional space for an additional monthly payment of $2,454 CDN. Rent expense was $30,038 and $50,348 for the periods ended March 31, 2014 and 2013, respectively. In the three months ended September 30, 2013, we received certain credits from the lessor for various lack of performance issues totaling $9,809 as an offset of rental payments. As part of the lease we agreed to pay the landlord for leasehold improvements made to the offices and warehouse, work was completed as of June 30, 2013. We capitalized $46,855 in leasehold improvements and began depreciating them according to our policies. On July 26, 2013, in full settlement, we also paid the balance owed for these improvements in shares of our common stock (Note 9).
Consulting agreements
On May 6, 2013, the Company entered into a consulting agreement with a third party for product development consulting services to perform product development services. The Consultant shall be paid 2,000,000 shares of our restricted common stock, to be issued as follows: 200,000 shares upon execution of the agreement, 500,000 shares upon completion of the initial project, and the remaining 1,300,000 shares upon successful manufacture and acceptance by the Company of the initial completed product. In addition, the Consultant will be entitled to a 2.50% perpetual royalty on the future sales of the completed product. The agreement will be in effect until completion of the project or upon 10 day written notice of either party. For the year ended June 30, 2013, we issued the initial 200,000 shares of our restricted common stock and recorded $20,000, in total marketing consulting fees in connection with this contract. In the nine month period ended March 31, 2014, we issued an additional 500,000 shares of our restricted common stock and recorded $50,000, in total marketing consulting fees in connection with this contract.
On June 21, 2013, the Company entered into a consulting agreement with a third party for advertising consulting services to perform advertising services at a rate of $7,500 USD and 250,000 shares of our restricted common stock, valued at $25,000, for the initial 90 days beginning June 21, 2013. The agreement was in effect for a period of three months ending on September 30, 2013. For the nine months ended March 31, 2014, we expensed $32,500 in advertising expense in connection with this contract. In March 2014, we cancelled this contract and cancelled the 250,000 shares issued.
15
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES - continued
Consulting agreements - continued
On July 26, 2013, the Company entered into a consulting agreement with a third party for public relations and communications services consulting services at a rate of $17,500 USD and 200,000 shares of our restricted common stock, valued at $20,000, for the 90 day term beginning July 26, 2013. The agreement will be in effect for a period of three months ending on October 26, 2013. For the nine months ended March 31, 2014, we expensed $32,500 in consulting fees expense in connection with this contract.
On November 22, 2013, the Company entered into a consulting agreement with a third party for consulting services as Executive Vice-President at a rate of $5,000 USD and 750,000 stock options to purchase shares of our restricted common stock (Note 10), for the term beginning November 21, 2013. The agreement will be in effect until terminated by written notice, as per the agreement. For the period ended March 31, 2014, we expensed $5,000 in consulting fees expense in connection with this contract.
Royalty agreements
In connection with the common stock subscriptions, described below (Note 10), the Company granted as part of the subscription, a royalty agreement for $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. The Company has recorded a contingent liability for this agreement which is based upon projections of our sales on these products. For nine months ended March 31, 2014, the company recorded additional $124,813 contingent royalties for the proceeds received in connection with these subscriptions. At March 31, 2014 and June 30, 2013, the total contingencies in connection with these subscriptions are $207,077 and $82,264, respectively.
In connection with a second common stock subscription, described below (Note 9), the Company granted as part of the subscription, a royalty agreement for a 5.0% perpetual royalty on the net sales of our current product line. The Company has recorded a contingent liability for this agreement in the amount of $233,360 and is based upon projections of our sales on these products. As of March 31, 2014, the Company accrued a total of $3,957 in royalties payable, and the royalty expense of $2,110, and paid in cash $535 of the previously accrued payable.
In connection with a third common stock subscription, described below (Note 9), the Company granted as part of the subscription, a royalty agreement for a $0.25 perpetual royalty on the per unit sales of a new product line of bottles. The Company has recorded a contingent liability for this agreement in the amount of $149,316 and is based upon projections of our sales on these products. As of March 31, 2014, the Company did not accrue any royalties payable for this agreement.
In connection with a fourth common stock subscription, described below (Note 9), the Company granted as part of the subscription, a royalty agreement for a $0.25 royalty on the per unit sales of the Sippy Straw or Sippy Sure up to the amount of the investment. The Company has recorded a contingent liability for this agreement in the amount of $75,000 and is based upon projections of our sales on these products. As of March 31, 2014, the Company did not accrue any royalties payable for this agreement.
The royalties from the above subscriptions are projected to become due over the next three years in line with our estimated sales; as such we have reflected the current portion of $70,000 and the long term of $592,907 on our balance sheet as of March 31, 2014.
16
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES - continued
Royalty agreement amendment
On February 6, 2014, we agreed to an amendment to the second royalty agreement in Note 8. The Royalty is changed from 5% of the net sales of our product line to a royalty on 2.75% of the gross sales of all our product line.
Inventory Deposits
As of March 31, 2014, the Company has placed deposits with its manufacturer for product totaling approximately $165,321, these deposits represent 50% down payment and the Company expects to pay the remaining balance of approximately $165,000 as the products are completed.
Manufacturing Agreement
On May 27, 2012, the Company entered into an exclusive manufacturing agreement with Nova Genisis, the manufacturing company that produces our products. We agreed to contract with them to manufacture our products for a five year period, if we should cancel this agreement early we will have to pay Nova Genisis a payment for services of $250,000. We also gave a Master License and distribution agreement for Asia for a two year period, and they shall automatically renew for annual terms unless cancelled in advance of renewal. For all product sales within Asia, we agreed to pay Nova Genisis $0.50 per unit sold for the Master License agreement, for the period ended March 31, 2014, we paid $5,760 for sales completed. On December 27, 2013, the Company sent notice to Nova Genisis to terminate the above agreement in six months as per the agreement, June 26, 2014.
NOTE 9 – STOCKHOLDER’S EQUITY
Stock Shares – Authorized
The Company has 150,000,000 common shares authorized at a par value of $0.0001 per share and 10,000,000 shares of preferred stock, par value $0.0001 per share. On April 26, 2012 the Company approved and in December 2012 the Company increased its authorized shares of common stock from 100,000,000 to 150,000,000. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all the directors of the Company. There is currently only three designated classes of preferred shares, “A,” “B,” “C,” see below. The holders of the preferred stock shall have such rights, preferences and privileges as may be determined by the Board of Director’s prior to the issuance of such shares. The preferred stock may be issued in such series as are designated by the Board of Director’s and the Board of Director’s may fix the number of authorized shares of preferred stock for each series and the rights, preferences, and privileges of each series of preferred stock. As of the periods ended March 31, 2014 and June 30, 2013, there were 98,201,368 and 86,822,868 shares of our common stock issued and outstanding, respectively. As of the periods ended March 31, 2014 and June 30, 2013, there were 10,000 shares of our preferred stock issued and outstanding.
17
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 9 – STOCKHOLDER’S EQUITY - continued
Common Shares – Issued and Outstanding
For the period ended March 31, 2014, the Company continued to sell a private placement at $5,000 per unit. A unit consists of 50,000 shares of our restricted common stock and a royalty agreement for pro-rata share of $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. In connection with this royalty agreement, for the nine months ended March 31, 2014, the Company recorded an additional contingent liability for this agreement in the amount of $124,813 and is based upon projections of our sales on these products. For the period ended March 31, 2014, the Company issued forty-four units, consisting of 2,200,000 shares of our restricted common stock and a royalty agreement (Note 8), and received a cash payment of $180,100 and in payment of accounts payable of $45,440.
On July 24, 2013, the Company entered into a subscription agreement with an unrelated individual for 3,000,000 shares of our restricted common stock for $500,000 or $0.16 per share. In addition, the subscribers also received a 5.0% percent perpetual royalty on net sales of the product line, and first right to refusal to sell the product line in Germany, Austria, and Switzerland for both retail and wholesale distribution channels. In addition, the subscriber also agreed to a Lock-up and trickle out agreement. Beginning August 1, 2014 the subscriber agrees to sell a maximum percent of the total shares purchased per year. For the years of August 1, 2014 through July 31, 2015 they can sell 3% per quarter up to a maximum of 12% for the year. For the years ended July 31, 2016, 5% per quarter and 20% for the year, for July 31, 2017, 7% per quarter and 28% for the year, for July 31, 2015, 10% per quarter and 40% for the year. They also further agreed to not sell any shares below $0.10 per share.
On November 12, 2013, the Company entered into a subscription agreement with the same unrelated individual as above for 4,250,000 shares of our restricted common stock for $425,000 or $0.10 per share. In addition, the subscribers also received a royalty agreement for a $0.25 perpetual royalty on the per unit sales of a new product line of bottles. The Company has recorded a contingent liability for this agreement in the amount of $149,316 and is based upon projections of our sales on these products.
On January 2, 2014, the Company entered into a subscription agreement with an unrelated individual for 750,000 shares of our restricted common stock for $75,000 or $0.10 per share. In addition, the subscriber will also receive a royalty agreement for a $0.25 royalty on the per unit sales of a new product, Sippy Sure or Sippy Straw, up to the amount of investment. The Company has recorded a contingent liability for this agreement in the amount of $75,000 and is based upon projections of our sales on these products.
Preferred Stock – Series “A”
On February 26, 2010, we filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock (the "Certificate of Designations") designating ten thousand (10,000) of the Company's previously authorized preferred stock.
The 10,000 Series A Preferred Stock shall have an aggregate voting power of 45% of the combined voting power of the entire Company’s shares, Common Stock and Preferred Stock as long as the Company is in existence. Each holder of the Series A Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the by-laws of the Company, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.
18
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 9 – STOCKHOLDER’S EQUITY - continued
Preferred Stock – Series “A” - continued
Without the vote or consent of the holders of at least a majority of the shares of Series A Preferred Stock then outstanding, the Company may not (i) authorize, create or issue, or increase the authorized number of shares of, any class or series of capital stock ranking prior to or on a parity with the Series A Preferred Stock, (ii) authorize, create or issue any class or series of common stock of the Company other than the Common Stock, (iii) authorize any reclassification of the Series A Preferred Stock, (iv) authorize, create or issue any securities convertible into or exercisable for capital stock prohibited by (i) or (ii), (v) amend this Certificate of Designations or (vi) enter into any merger or reorganization, or disposal of assets involving 20% of the total capitalization of the Company.
Subject to the rights of the holders of any other series of Preferred Stock ranking senior to or on a parity with the Series A Preferred Stock with respect to liquidation and any other class or series of capital stock of the Company ranking senior to or on a parity with the Series A Preferred Stock with respect to liquidation, in the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of record of the issued and outstanding shares of Series A Preferred Stock shall be entitled to receive, out of the assets of the Company available for distribution to the holders of shares of Series A Preferred Stock, prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock and any other series of Preferred Stock ranking junior to the Series A Preferred Stock with respect to liquidation.
The holders of the Series A Preferred Stock shall not be entitled to receive dividends per share of Series A Preferred Stock. The Company shall have no rights to redeem Series A Preferred Stock.
On March 1, 2010, we granted and issued our former President 100 series A preferred stock shares with a value of $10,000 for consulting services rendered, and the expense was included in consulting fees in the statements of operations. On September 18, 2010, these shares were returned and cancelled as per the term of the Binding Letter of Intent with our former President.
On May 2, 2011, we authorized an issue to our President 10,000 shares of Class A Preferred Stock in exchange for him returning and cancelling nine million (9,000,000) shares of our common stock. This Class A preferred stock has the same terms and conditions as discussed above.
Preferred Stock – Series “B”
On March 15, 2014, we filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series B Preferred Stock (the "Certificate of Designations") designating one hundred fifty thousand (150,000) of the Company's previously authorized preferred stock.
The 150,000 Series B Preferred Stock shall accrue a dividend of $4.00 per share per annum as designated by the board of directors. These shares shall be convertible into shares of common stock at the ratio of 200 shares of common stock for each share of preferred “B” for a period of 24 months from the date of issuance. Each holder of the Series B Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, in the equivalent number of the completed converted shares, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the by-laws of the Company, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.
19
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 9 – STOCKHOLDER’S EQUITY - continued
Preferred Stock – Series “C”
On March 15, 2014, we filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series C Preferred Stock (the "Certificate of Designations") designating one hundred thousand (100,000) of the Company's previously authorized preferred stock.
The 100,000 Series C Preferred Stock shall accrue interest at eight percent (8%) per annum as designated by the board of directors, and shall not accrue dividends. These shares shall be convertible into shares of common stock at the ratio of 100 shares of common stock for each share of preferred “C” for a period of 24 months from the date of issuance. For every three (3) shares of converted common stock the holder shall receive one common stock warrant, with an exercise price of $0.10 per share for a period of twenty four months after the date of conversion. Each holder of the Series C Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, in the equivalent number of the completed converted shares, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the by-laws of the Company, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.
Stock Based Compensation
On July 23, 2013, the Company issued 191,100 restricted shares of our common stock for payment of debt owed to our legal counsel for services performed in the amount of $19,000.
On July 26, 2013, the Company issued 400,000 restricted shares of our common stock for payment of accounts payable invoice for leasehold improvements installed at our current office (Note 4) performed by an unrelated third party in the amount of $45,440. The value of the issuance included a royalty agreement as more fully described above for a future product line.
On July 26, 2013, the Company issued 200,000 restricted shares of our common stock for payment of public relations management services performed by an unrelated third party in the amount of $20,000, in payment of the consulting agreement (Note 8). The value of the public relations services is included in consulting fees in our statement of operations.
On September 30, 2013, the Company issued 20,000 restricted shares of our common stock for payment of consulting services performed by a related third party in the amount of $4,000, in payment of the consulting agreement (Note 7). The value of the public relations services is included in consulting fees in our statement of operations.
20
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 9 – STOCKHOLDER’S EQUITY - continued
Stock Based Compensation - continued
On November 4, 2013, the Company issued 500,000 restricted shares of our common stock for payment of product development services performed by an unrelated third party in the amount of $50,000, in payment of the consulting agreement (Note 8). The value of the product development services is included in consulting fees in our statement of operations.
On November 29, 2013, the Company issued 40,000 restricted shares of our common stock for payment of consulting services performed by a related third party in the amount of $4,000, in payment of the consulting agreement (Note 7). The value of the services is included in consulting fees – related parties in our statement of operations.
On January 20, 2014, the Company issued 125,000 restricted shares of our common stock for payment of debt owed to our legal counsel for services performed in the amount of $12,500.
On January 20, 2014, the Company issued 42,500 restricted shares of our common stock for payment of debt owed to our accountant for services performed in the amount of $4,250.
On March 30, 2014, the Company issued 60,000 restricted shares of our common stock for payment of public relations management services performed by an unrelated third party in the amount of $6,000, in payment of marketing services rendered. The value of the marketing services is included in consulting fees in our statement of operations.
NOTE 10 – 2013 STOCK OPTION PLAN
Our board of directors adopted and approved our 2013 Stock Option Plan (“Plan”) on January 18, 2013, which provides for the granting and issuance of up to 30 million (30,000,000) shares of our common stock.
Our board of directors administers our Plan, however, they may delegate this authority to a committee formed to perform the administration function of the Plan. The board of directors or a committee of the board has the authority to construe and interpret provisions of the Plan as well as to determine the terms of an award. Our board of directors may amend or modify the Plan at any time. However, no amendment or modification shall adversely affect the rights and obligations with respect to outstanding awards unless the holder consents to that amendment or modification.
The Plan permits us to grant Non-qualified stock options to our employees, directors and consultants. The options issued under this Plan are intended to be Non-qualified Stock Options in full compliance with Code Section 409A.
The duration of a stock option granted under our Plan cannot exceed ten years. The exercise price of an incentive stock option cannot be less than 100% of the fair market value of the common stock on the date of grant.
The Plan administrator determines the term of stock options granted under our Plan, up to a maximum of ten years, except in the case of certain events, as described below. Unless the terms of an optionee's stock option agreement provide otherwise, if an optionee's relationship with us ceases for any reason other than disability or death, the optionee may exercise any vested options for a period of ninety days following the cessation of service. If an optionee's service relationship with us ceases due to disability or death the optionee or a beneficiary may exercise any vested options for a period of 12 months in the event of disability or death.
21
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 10 – 2013 STOCK OPTION PLAN - continued
Unless the Plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionee may designate a beneficiary, however, who may exercise the option following the optionee's death.
During the year ended June 30, 2013, the Company granted 8,381,150 to our current President, the options become fully vested upon grant and contained an exercise price of $0.10 per share. On November 22, 2013, we granted 750,000 stock options to a consultant at an exercise price of $0.10 per share, and these options will expire five years from the grant date, and will vest as follows, upon signing the agreement 50,000 options will vest, and then at the end of each three month period, 100,000 options, per the agreement (Note 8). As of March 31, 2014, 20,868,850 options were available for future grant.
The value of employee and non-employee stock warrants granted was estimated using the Black-Scholes model with the following assumptions:
January 29, 2013
|
November 22, 2013
|
|||||||
Expected volatility (based on historical volatility)
|
501.71
|
%
|
463.42
|
%
|
||||
Expected dividends
|
0.00
|
0.00
|
||||||
Expected term in years
|
10
|
5
|
||||||
Risk-free rate
|
2.030
|
%
|
1.370
|
%
|
The expected volatility assumption was based upon historical stock price volatility measured on a daily basis. The risk-free interest rate assumption is based upon U.S. Treasury bond interest rates appropriate for the term of the Company’s employee stock options. The dividend yield assumption is based on our history and expectation of dividend payments.
A summary of the options granted to employees and non-employees under the plan and changes during the year ended June 30, 2013 and the period ended March 31, 2014 is presented below:
Number of Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Terms
(In Years)
|
Aggregate Intrinsic Value
|
|||||||||||||
Balance at July 1, 2012
|
-
|
$
|
-
|
|||||||||||||
Granted
|
8,381,150
|
0.10
|
||||||||||||||
Exercised
|
-
|
|||||||||||||||
Forfeited or expired
|
-
|
-
|
||||||||||||||
Balance at June 30, 2013
|
8,381,150
|
$
|
0.10
|
9.58
|
$
|
838,115
|
||||||||||
Exercisable at June 30, 2013
|
8,381,150
|
$
|
0.10
|
9.58
|
$
|
838,115
|
||||||||||
Weighted average fair value of options granted during the year ended June 30, 2013
|
$
|
0.10
|
22
RELIABRAND, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended March 31, 2014 and 2013
(Unaudited)
NOTE 10 – 2013 STOCK OPTION PLAN - continued
Number of Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Terms
(In Years)
|
Aggregate Intrinsic Value
|
|||||||||||
Balance at July 1, 2013
|
8,381,150
|
$
|
0.10
|
|||||||||||
Granted
|
750,000
|
-
|
5.00
|
$ |
105,000
|
|||||||||
Exercised
|
-
|
-
|
||||||||||||
Forfeited or expired
|
-
|
-
|
||||||||||||
Balance at March 31, 2014
|
9,131,150
|
$
|
0.10
|
7.11
|
$ |
943,115
|
||||||||
Exercisable at March 31, 2014
|
8,531,150
|
$
|
0.10
|
7.11
|
$ |
859,115
|
||||||||
Weighted average fair value of options granted during the period ended March 31, 2014
|
$
|
0.10
|
The following table summarizes information about employee stock options under the 2013 Plan outstanding at March 31, 2014:
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||||||||
Range of Exercise Price
|
Number Outstanding at March 31,
2014
|
Weighted Average Remaining Contractual Life (In years)
|
Weighted Average Exercise Price
|
Intrinsic Value
|
Number Exercisable at March 31,
2014
|
Weighted Average Exercise Price
|
Aggregate Intrinsic Value
|
||||||||||||||||||||
$
|
0.10
|
9,131,150
|
7.11
|
$
|
0.10
|
$
|
--
|
8,531,150
|
$
|
0.10
|
$
|
859,115
|
|||||||||||||||
9,131,150
|
7.11
|
$
|
0.10
|
$
|
--
|
8,531,150
|
$
|
0.10
|
$
|
859,115
|
The total value of stock options granted during the period ended March 31, 2014 was $105,000. Period ended March 31, 2014, the Company recorded $21,000 in stock option expense relating to stock option grants, and is reflected in stock options expense in our statement of operations
At March 31, 2014 there was $84,000 of total unrecognized compensation cost related to stock options granted under the plan. That cost is expected to be recognized pro-rata through August 22, 2015. The following table represents the stock options expense for the each of the next three fiscal years ended June 30:
For years ended June 30,
|
Expense
|
|||
2014
|
$ | 14,000 | ||
2015
|
56,000 | |||
2016
|
14,000 | |||
$ | 84,000 |
NOTE 11 – SUBSEQUENT EVENTS (unaudited)
Subscription agreement
In April 2014, the Company sold to an unrelated individual 25,000 shares of our preferred Series “C” stock at $10.00 per share or $250,000. The shares will also accrue interest at eight percent (8%) per annum as designated by the board of directors, and shall not accrue dividends. These shares shall be convertible into shares of common stock at the ratio of 100 shares of common stock for each share of preferred “C” for a period of 24 months from the date of issuance. For every three (3) shares of converted common stock the holder shall receive one common stock warrant, with an exercise price of $0.10 per share for a period of twenty four months after the date of conversion.
23
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read this section in conjunction with our financial statements and the related notes included in this Form 10-Q. Some of the information contained in this section or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategies for our business, statements regarding the industry outlook, our expectations regarding the future performance of our business, and the other non-historical statements contained herein are forward-looking statements.
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
The following discussion and analysis of the Company’s financial condition and results of operations are based on the Company’s financial statements, which the Company has prepared in accordance with U.S. generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Plan of Operations
Presently, the Company is selling the baby bottles through its online website and has begun limited retail distribution as well. The Company is presently in discussion with distributors of baby bottles and related products in over 20 countries worldwide. The Company has entered into agreements with Walmart of Canada to sell the Company’s products in the 338 Walmart stores in Canada. The Company is also in the process of entering into additional agreements with distributors and retailers to sell its products domestically and internationally. The Company also sells its products through its website, www.reliabrand.com.
Overall, during the next 12 months, we cannot predict accurately the amount of capital that we will need to accomplish our plan of operations. The capital needed will vary depending on the projects that we seek. If during the next 12 months, we are unsuccessful in effectuating our plan of operations as described above, we expect to incur total expenditures of at least $1,000,000. In this regard and during such period, we anticipate spending $100,000 on professional fees attributable to fulfilling our reporting obligations under the federal securities laws and $50,000 on general administrative costs and expenditures associated with complying with reporting obligations. We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our marketing plan and operations. We believe that debt financing will not be an alternative for funding the marketing plan. We do not have any agreements or arrangements in place for any future equity financing event. If we are required to raise additional funds, substantial dilution may result to existing shareholders.
Results of Operations for the Three Months Ended March 31, 2014 and the Three Months Ended March 31, 2013
We have revenue of $77,401 for the period ended March 31, 2014 compared to revenue of $19,896 for the period ended March 31, 2013. The increase in our revenue can be attributed to our increase in sales of our products as we market them to consumers. We anticipate that sales will continue to increase as we continue to pursue our business plan, and develop additional sales of our product line.
As of March 31, 2014, we had total assets of $2,486,399 and total liabilities of $829,893 compared to total assets of $1,891,633 and total liabilities of $445,289 as of June 30, 2013. The increase in assets is mainly attributable to purchases of finished goods inventory of our products to be sold. We will purchase additional inventory as the needed to fulfill our sales.
During the three months ended March 31, 2014, we incurred operating expenses in the amount of $244,507. These operating expenses were comprised of consulting fees to related parties, consulting contract benefits, accounting, auditing and legal fees, selling, general and administrative expenses, consulting fees, rent expenses and amortization and depreciation compared to operating expenses of $1,067,160 for the three months ended March 31, 2013. The decrease in expenses is because of in the previous period we granted our President stock options which accounts for a significant decrease in the total expenses, most of our operating expenses continued to increase since the Company is pursuing its business plan and hiring additional consultants to assist with operations, additional travel and marketing to attend trade shows and meet with potential retailers.
For the three months ended March 31, 2014, we paid consulting fees of $100,245 to related parties compared to consulting fees to related parties of $102,080 for the three months ended March 31, 2013.
24
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
For the three months ended March 31, 2014, we paid rent expense of $17,171 compared to rent expense of $20,069 for the three months ended March 31, 2013.
We have begun generating revenues but are dependent upon obtaining financing to pursue marketing and distribution activities. For these reasons, our auditors believe that there is substantial doubt that we will be able to continue as a going concern.
Results of Operations for the Nine Months Ended March 31, 2014 and the Nine Months Ended March 31, 2013
During the nine months ended March 31, 2014, we incurred operating expenses in the amount of $961,266 and had revenues of $269,233. These operating expenses were comprised of accounting and audit fees, legal fees, general and management expenses, rent expense, and amortization expense, compared to operating expenses of $1,601,748 and revenues of $54,336 for the nine months ended March 31, 2013. The decrease in expenses is because of in the previous period we granted our President stock options which accounts for a significant decrease in the total expenses, most of our operating expenses continued to increase since the Company is pursuing its business plan and hiring additional consultants to assist with operations, additional travel and marketing to attend trade shows and meet with potential retailers. .
For the nine months ended March 31, 2014, we paid related party consulting fees of $287,176 to sons of the Company’s President and an entity controlled by our current President compared to consulting fees to the same related parties of $242,790 for the nine months ended March 31, 2013.
Liquidity and Capital Resources
As of March 31, 2014, the Company had a cash balance of $304,972, and as of June 30, 2013, the Company had a cash balance of $10,488.
For the period ended March 31, 2014, the Company continued to sell a private placement at $5,000 per unit. A unit consists of 50,000 shares of our restricted common stock and a royalty agreement for pro-rata share of $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. In connection with this royalty agreement, for the nine months ended March 31, 2014, the Company recorded an additional contingent liability for this agreement in the amount of $124,813 and is based upon projections of our sales on these products. For the period ended March 31, 2014, the Company issued forty-four units, consisting of 2,200,000 shares of our restricted common stock and a royalty agreement and received a cash payment of $180,100 and in payment of accounts payable of $45,440.
On March 1, 2012, the Company borrowed $151,410 (CDN$150,000) from one of the Company’s shareholders on an uncollateralized, non-interest bearing, demand note that matures on February 28, 2013. On May 17, 2012, we converted $56,156 USD of the above debt’s principal to shares of our restricted common stock at $0.04 per share. On December 14, 2012, we converted $75,137 USD, or 751,368 shares of our restricted common stock, of the above debt’s principal into shares of our restricted common stock at $0.10 per share. As of March 31, 2014 and June 30, 2013, the remaining balance of $20,117 is outstanding, respectively.
On February 15, 2013, the Company borrowed $50,000 USD from a company owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing an 8% interest rate per annum. During the nine months ended March 31, 2014 and 2013, we accrued $4,056 and $489, respectively, in interest expense in connection with this note, and both the principal and interest are outstanding as of March 31, 2014 and June 30, 2013.
In the nine month period ended March 31, 2014, our current President paid operating bills on behalf of the Company totaling $1,658, and was repaid $1,657 in cash.
During the year ended June 30, 2013, our President advanced the Company $22,552 USD on a non-interest bearing, non-secured, on demand basis, and was repaid $11,465 USD. On February 12, 2014, the Company repaid the remaining balance of $11,088, and as of March 31, 2014 and June 30, 2013, the balance of none and $11,088 USD is outstanding, respectively.
If the Company is not successful in generating sufficient liquidity from operations or in raising sufficient capital resources on terms acceptable to it, this could have a material adverse effect on its business, results of operations liquidity and financial condition.
The Company presently does not have any available credit, bank financing or other external sources of liquidity. Due to its brief history and historical operating losses, the Company’s operations have not been a source of liquidity. The Company will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, the Company may need to sell additional shares of its common stock or borrow funds from private lenders. There can be no assurance that the Company will be successful in obtaining additional funding.
25
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Critical Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Reliabrand, Inc. and its wholly owned subsidiary. Our operations are treated as one operating segment. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.
Foreign Currency Translation
The condensed consolidated interim financial statements are presented in United States dollars (USD). We have determined that our functional currency is U.S. dollars; the foreign currency consolidated financial statements of our subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured using the foreign exchange rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and furniture and equipment are translated by using historical exchange rates. Any re-measurement gain or loss incurred is immaterial to the consolidated financial statements.
Reclassifications
Certain amounts in the period ended March 31, 2013 financial statements have been reclassified to conform to the current period ended March 31, 2014 presentation.
Inventory
The only component of inventory is finished goods inventory, valued on a first in first out basis, and includes production cost, product freight in, and packaging costs. Slow moving and obsolete inventories are written down based on a comparison of on-hand quantities to historical and projected usages. Additionally, reserves for non-cancelable open purchase orders for components the Company is obligated to purchase in excess of projected usage, or for open purchase orders where the market price is lower than the purchase order price, if any, are recorded as other accrued expenses on the balance sheet. As of March 31, 2014 and 2013, we did not have any such accrued expenses.
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of goods has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Thus, we generally recognize sales revenue when shipment of the purchased product has occurred. Cash payments received in advance are recorded as deferred revenue. We currently permit our customers to return or exchange defective products. We have analyzed our quality control procedures and feel that our main exposure is from damages in shipping. Accordingly we do not need to establish a reserve for returns at this time. We will continue to analyze this each period and implement one if the need arises.
Shipping and Handling
Net shipping and handling costs of $19,358 and $6,919 for the period ended March 31, 2014 and 2013, respectively, are included in selling, general and administrative expenses.
Advertising Costs
The Company expenses advertising costs when incurred. During the period ended March 31, 2014 and 2013, we had $121,785 and $86,408 in expenditures on advertising, respectively.
26
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Concentration in Sales and Accounts Receivables to Few Customers
In the nine months ended March 31, 2014 and 2013, our Wal-Mart Canada sales accounted for 64.88% and none, respectively, of our revenues. In the nine months ended March 31, 2014 and 2013, our North American sales accounted for 100.00% and 100.00%, respectively, of our revenues. In the nine months ended March 31, 2014 and 2013, our Wal-Mart Canada account receivables accounted for 93.41% and none, respectively, of our receivable balances.
Going Concern
Our financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have sustained operating losses since inception, which raises substantial doubt about the Company’s ability to continue as a going concern.
As of March 31, 2014, we have a working capital surplus of $900,337, and accumulated deficit of $4,201,093. During the period ended March 31, 2014, we had a net loss of $823,536 and cash used in operating activities of $1,095,724. The Company’s ability to continue in existence is dependent on its ability to develop additional sources of capital, and/or achieve profitable operations and positive cash flows. Management’s plan is to aggressively pursue its present business plan. Since inception we have funded our operations through the issuance of common stock and related party loans and advances, and will seek additional debt or equity financing as required. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Contractual Obligations
Office – warehouse lease
On April 1, 2013, the Company entered into a two year term lease agreement of an office and warehouse space located in Kelowna, BC. The lease commenced on May 1, 2013 and requires a monthly payment of approximately $3,600 including related taxes and a $3,623 security deposit. We paid the first and security deposit on January 30, 2013. On January 2, 2014, the Company entered into an addendum to lease additional space for an additional monthly payment of $2,454 CDN. Rent expense was $30,038 and $50,348 for the periods ended March 31, 2014 and 2013, respectively. In the three months ended September 30, 2013, we received certain credits from the lessor for various lack of performance issues totaling $9,809 as an offset of rental payments. As part of the lease we agreed to pay the landlord for leasehold improvements made to the offices and warehouse, work was completed as of June 30, 2013. We capitalized $46,855 in leasehold improvements and began depreciating them according to our policies. On July 26, 2013, in full settlement, we also paid the balance owed for these improvements in shares of our common stock.
Consulting agreements
On May 6, 2013, the Company entered into a consulting agreement with a third party for product development consulting services to perform product development services. The Consultant shall be paid 2,000,000 shares of our restricted common stock, to be issued as follows: 200,000 shares upon execution of the agreement, 500,000 shares upon completion of the initial project, and the remaining 1,300,000 shares upon successful manufacture and acceptance by the Company of the initial completed product. In addition, the Consultant will be entitled to a 2.50% perpetual royalty on the future sales of the completed product. The agreement will be in effect until completion of the project or upon 10 day written notice of either party. For the year ended June 30, 2013, we issued the initial 200,000 shares of our restricted common stock and recorded $20,000, in total marketing consulting fees in connection with this contract. In the nine month period ended March 31, 2014, we issued an additional 500,000 shares of our restricted common stock and recorded $50,000, in total marketing consulting fees in connection with this contract.
On June 21, 2013, the Company entered into a consulting agreement with a third party for advertising consulting services to perform advertising services at a rate of $7,500 USD and 250,000 shares of our restricted common stock, valued at $25,000, for the initial 90 days beginning June 21, 2013. The agreement was in effect for a period of three months ending on September 30, 2013. For the nine months ended March 31, 2014, we expensed $32,500 in advertising expense in connection with this contract. In March 2014, we cancelled this contract and cancelled the 250,000 shares issued.
On July 26, 2013, the Company entered into a consulting agreement with a third party for public relations and communications services consulting services at a rate of $17,500 USD and 200,000 shares of our restricted common stock, valued at $20,000, for the 90 day term beginning July 26, 2013. The agreement will be in effect for a period of three months ending on October 26, 2013. For the nine months ended March 31, 2014, we expensed $32,500 in consulting fees expense in connection with this contract.
On November 22, 2013, the Company entered into a consulting agreement with a third party for consulting services as Executive Vice-President at a rate of $5,000 USD and 750,000 stock options to purchase shares of our restricted common stock, for the term beginning November 21, 2013. The agreement will be in effect until terminated by written notice, as per the agreement. For the period ended March 31, 2014, we expensed $5,000 in consulting fees expense in connection with this contract.
27
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Related Party Transactions
On May 1, 2012, the Company entered into a consulting agreement with a son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $52,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $37,621 and $38,061, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $1,627 in royalties payable, respectively.
On May 1, 2012, the Company entered into a consulting agreement with another son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $52,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $39,503 and $38,061, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $1,627 in royalties payable, respectively.
On May 1, 2012, the Company entered into a consulting agreement with a third son of our current President, for his consulting services at a rate of $43,000 USD per annum. The agreement was in effect for a period of twelve months, ending on December 31, 2012, and renewed for successive twelve month terms. He also received one month’s salary as a signing bonus, and he received a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $47,300 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $52,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $39,592 and $38,061, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $1,627 in royalties payable, respectively.
On January 18, 2013, the Company entered into a consulting agreement with a fourth son of our current President, for his consulting services at a rate of $35,200 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive a twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. On March 1, 2014, the Company entered into a new consulting agreement with the same son for his consulting services at a rate of $45,000 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2014, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also receives a $300 gas allowance monthly, and he will continue to receive a 2.50% royalty on all gross sales of the Company. For the periods ended March 31, 2014 and 2013, we recorded $30,918 and $25,560, respectively, in consulting fees – related party expense to this individual. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $6,720 and $449 in royalties payable, respectively.
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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
On May 1, 2011, the Company entered into a consulting agreement with a company controlled by our President and Chief Executive Officer, for his consulting services at a rate of $10,000 per month, and he received a 3.00% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into an amendment of the above consulting agreement, dated May 1, 2011, with the same Company as above, the prior agreement remains in force except for the following provisions, his consulting services will be at a rate of $11,000 per month, and he will also be granted an option to purchase an amount of shares to represent 10% of our issued and outstanding common stock as of December 31st of the prior year. On March 1, 2014, the Company entered into a second amendment of the above consulting agreement, dated May 1, 2011, with the same Company as above, the prior agreement remains in force except for the following provisions, his consulting services will be at a rate of $12,100 per month, he will have the option to convert his accrued royalties payable to shares of the Company’s preferred series “B” stock, and will receive a monthly gas allowance of three hundred dollars ($300), and the provision to grant him stock options was cancelled. For the nine months ended March 31, 2014 and 2013, we recorded $102,300 and $103,047, respectively, in consulting fees – related party expense in connection with these contracts. For the nine months ended March 31, 2014 and 2013, the Company accrued a total of $8,064 and $1,953 in royalties payable, respectively.
Royalty agreements
In connection with certain common stock subscriptions, the Company granted as part of the subscription, a royalty agreement for $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. The Company has recorded a contingent liability for this agreement which is based upon projections of our sales on these products. For nine months ended March 31, 2014, the Company recorded additional $124,813 contingent royalties for the proceeds received in connection with these subscriptions. At March 31, 2014 and June 30, 2013, the total contingencies in connection with these subscriptions are $207,077 and $82,264, respectively.
In connection with a second common stock subscription, the Company granted as part of the subscription, a royalty agreement for a 5.0% perpetual royalty on the net sales of our current product line. The Company has recorded a contingent liability for this agreement in the amount of $233,360 and is based upon projections of our sales on these products. As of March 31, 2014, the Company accrued a total of $3,957 in royalties payable, and the royalty expense of $2,110, and paid in cash $535 of the previously accrued payable.
In connection with a third common stock subscription, the Company granted as part of the subscription, a royalty agreement for a $0.25 perpetual royalty on the per unit sales of a new product line of bottles. The Company has recorded a contingent liability for this agreement in the amount of $149,316 and is based upon projections of our sales on these products. As of March 31, 2014, the Company did not accrue any royalties payable for this agreement.
In connection with a fourth common stock subscription, the Company granted as part of the subscription, a royalty agreement for a $0.25 royalty on the per unit sales of the Sippy Straw or Sippy Sure up to the amount of the investment. The Company has recorded a contingent liability for this agreement in the amount of $75,000 and is based upon projections of our sales on these products. As of March 31, 2014, the Company did not accrue any royalties payable for this agreement.
The royalties from the above subscriptions are projected to become due over the next three years in line with our estimated sales; as such we have reflected the current portion of $70,000 and the long term of $592,907 on our balance sheet as of March 31, 2014.
Royalty agreement amendment
On February 6, 2014, we agreed to an amendment to the second royalty agreement in Note 8. The Royalty is changed from 5% of the net sales of our product line to a royalty on 2.75% of the gross sales of all our product line.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Inflation
Inflation has not materially impacted our results of operations in recent years.
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ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” (as defined by Item 10 of Regulation S-K), the Company is not required to provide information required by this Item, as defined by Regulation S-K Item 305(e).
ITEM 4T - Controls and Procedures
Disclosure controls and procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report, being March 31, 2014, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer. Based upon that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Accounting Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the three month period ended March 31, 2014 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds
For the period ended March 31, 2014, the Company continued to sell a private placement at $5,000 per unit. A unit consists of 50,000 shares of our restricted common stock and a royalty agreement for pro-rata share of $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a 2.5% perpetual royalty on the same product. In connection with this royalty agreement, for the nine months ended March 31, 2014, the Company recorded an additional contingent liability for this agreement in the amount of $124,813 and is based upon projections of our sales on these products. For the period ended March 31, 2014, the Company issued forty-four units, consisting of 2,200,000 shares of our restricted common stock and a royalty agreement and received a cash payment of $180,100 and in payment of accounts payable of $45,440.
On July 23, 2013, the Company issued 191,100 restricted shares of our common stock for payment of debt owed to our legal counsel for services performed in the amount of $19,000.
On July 26, 2013, the Company issued 400,000 restricted shares of our common stock for payment of accounts payable invoice for leasehold improvements installed at our current office performed by an unrelated third party in the amount of $45,440. The value of the issuance included a royalty agreement as more fully described above for a future product line.
On July 26, 2013, the Company issued 200,000 restricted shares of our common stock for payment of public relations management services performed by an unrelated third party in the amount of $20,000, in payment of the consulting agreement. The value of the public relations services is included in consulting fees in our statement of operations.
On September 30, 2013, the Company issued 20,000 restricted shares of our common stock for payment of consulting services performed by a related third party in the amount of $4,000, in payment of the consulting agreement. The value of the public relations services is included in consulting fees in our statement of operations.
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ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds - continued
On November 4, 2013, the Company issued 500,000 restricted shares of our common stock for payment of product development services performed by an unrelated third party in the amount of $50,000, in payment of the consulting agreement. The value of the product development services is included in consulting fees in our statement of operations.
On November 29, 2013, the Company issued 40,000 restricted shares of our common stock for payment of consulting services performed by a related third party in the amount of $4,000, in payment of the consulting agreement. The value of the services is included in consulting fees – related parties in our statement of operations.
On January 20, 2014, the Company issued 125,000 restricted shares of our common stock for payment of debt owed to our legal counsel for services performed in the amount of $12,500.
On January 20, 2014, the Company issued 42,500 restricted shares of our common stock for payment of debt owed to our accountant for services performed in the amount of $4,250.
ITEM 6 - Exhibits
101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RELIABRAND INC.
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Date: May 14, 2014
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By:
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/s/ Antal Markus
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Name: Antal Markus
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Title: CEO, CFO
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