ITEM 1 - DESCRIPTION OF BUSINESS OVERVIEW
Our Corporate Organization
The Company was incorporated in the State of Nevada, United States of America on February 22, 2007 as Startale Group, Inc. and its fiscal year end is June 30.
Our name was changed to Alco Energy Inc. effective May 21, 2008 and on June 4, 2009, our name was changed to A & J Venture Capital Group, Inc. On February 4, 2011, we changed our name to Reliabrand Inc.
Our principal offices are located at 720 Evans Court, Suite 103, Kelowna, BC Canada V1X 6G4. Our telephone number is (778) 478-9997.
Our Business
On January 20, 2011, Reliabrand Inc. fka A & J Venture Capital Group, Inc. (the “Company”) entered into an Asset Purchase Agreement (the “Agreement”) with 0875505 B.C. Ltd. (“0875505 BC”), a British Columbia, Canada company. This transaction closed on April 26, 2011.
The Company acquired multiple patents and trademarks previously owned by Adiri, Inc. (“Adiri”) and ultimately acquired by 0875505 BC. These patents and trademarks relate to a baby bottle and related components that 0875505 BC expended approximately $1,500,000 in acquiring and further development. The Company issued 35,000,000 shares of its common stock, par value $.0001, to 0875505 BC for these assets.
ITEM 1 - DESCRIPTION OF BUSINESS OVERVIEW - continued
Our Business - continued
The Company acquired from 0875505 BC all right, title, interest, applications and registrations of all the trademarks and patents of Adiri acquired by 0875505 BC in the following jurisdictions: Australia, Brazil, Canada, Chile, China, Columbia, the European Union, Hong Kong, Israel, Japan, Mexico, New Zealand, Russia, South Africa, South Korea, Switzerland, Taiwan, and the United States. There are four U.S. patents, one European Patent (EP) patent application (valid until 2019), and one Canadian patent covering Adiri’s unique breast shaped nipple There are additional U.S. utility & design patent applications pending as well as a Patent Cooperation Treaty (PCT) application filed along with numerous International Registered Trademarks.
With the acquisition of these assets including the patents and trademarks, the Company has developed and has begun manufacturing a newer version of the Adiri baby bottles and related components such as sippy cups. The Company intends to aggressively promote and market the bottles and hopes to secure widespread retail distribution outlets for the bottles. To achieve that goal, the Company has begun negotiation with large retail chains to supply the Adiri bottles for sale to retail customers. The Company manufactures the baby bottles and accessories in China.
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.
Competitive Business Conditions, Competitive Position in the Industry and Methods of Competition
The Company will compete with much larger companies in the baby bottle and related baby products that have significantly longer operating histories and are much better capitalized as well as having well-known names that consumers know. The Company’s competitive position within the industry is negligible in light of that fact. Older, well-established baby bottle companies with records of success currently attract customers. The Company expects to compete with these companies based on the unique design of the Company’s baby bottles and components. Mr. Markus, the Company’s sole officer and director, presently devotes his full time to its operations.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, Including Duration
At present, the Company has the patents and trademarks it acquired from 0875505 BC Ltd. in April, 2011 as described above. The Company has filed additional patent and trademark applications and anticipates making additional filings in the future as the Company begins manufacturing products.
The Company’s web site, www.reliabrand.com, is copyrighted under United States law and is a registered domain name owned directly by the Company.
ITEM 1 - DESCRIPTION OF BUSINESS OVERVIEW - continued
Research and Development
The Company currently intends to continue producing the Adiri baby bottle and components. As the Company generates anticipated revenues from the future sales of baby products, the Company may begin research and development into other baby products. At the present time, the Company does not have any research and development (“R & D”) personnel and it may not ever reach the level of operations and revenues which would be required to sustain such an R & D department. If an R & D department is established, there can be no assurances that the R & D would be successful in developing or patenting any new products or enhancements on existing patents or that any such potential patents would generate any significant revenue, if any, to the Company.
The Company has not expended any material amount in research and development activities during the last two fiscal years but anticipate that we will be spending more money on research and development in the future. We have developed, created and paid for molds for the Adiri transitional cap, H2Glo cap, MD+ Nurser and have hired a design engineer to design the 3.0 version of our baby bottle.
Number of Total Employees and Number of Full-Time Employees
The Company presently utilizes the services of consultants and has no full-time employees. The services of Antal Markus, our CEO, are provided pursuant to a consulting agreement with his company, Marant Holdings, Inc. The services of several related party individuals are also provided pursuant to consulting agreements with the individuals. The Company utilizes the services of outside consultants as needed. The Company does not anticipate adding any employees at the present time.
ITEM 1A.
ITEM 1A. - RISK FACTORS
In addition to the other information included in this Form 10-K, the following risk factors should be considered in evaluating the Company’s business and future prospects. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to the Company and its business. You should also read the other information included in this Form 10-K, including the financial statements and related notes.
We lack an operating history and have losses which we expect to continue into the future.
There is no assurance our future operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably, our business will fail. We were incorporated on February 28, 2007 and we have realized minimal revenues to date. We have very little operating history upon which an evaluation of our future success or failure can be made. Our net loss since inception on February 28, 2007 to June 30, 2014 is $4,484,553. Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses and are just beginning to generate revenues. We cannot guarantee that we will be successful in generating revenues in the future. Failure to generate revenues will cause us to go out of business.
If we do not obtain additional financing, our business may fail.
Our business plan calls for ongoing expenses in connection with the marketing and sales of our baby products. We have not generated any significant revenue from operations to date. In order to expand our business operations, we anticipate that we will have to raise additional funding. If we are not able to raise the funds necessary to fund our business expansion objectives, we may have to delay the implementation of our business plan. We do not currently have any arrangements for financing. Obtaining additional funding will be subject to a number of factors, including general market conditions, investor acceptance of our business plan and initial results from our business operations. These factors may impact the timing, amount, terms or conditions of additional financing available to us. The most likely source of future funds presently available to us is through the sale of additional shares of common stock.
We have few customers and we cannot guarantee we will ever have any significant amount of customers. Even if we obtain customers, there is no assurance that we will make a profit.
We have few customers since we have only begun to have a retail presence in stores in Canada within the past fiscal year. We have not established ourselves sufficiently in the retail market and online to have many repeat customers and we cannot guarantee we ever will have any. If we are unable to attract enough customers once we commence sales of our baby bottles, we will have to suspend or cease operations.
ITEM 1A. - RISK FACTORS - continued
Because we are small and do not have much capital, we must limit marketing our services to potential customers and distributors. As a result, we may not be able to attract enough customers to operate profitably. If we do not make a profit, we may have to suspend or cease operations.
Because we are small and do not have much capital, we must limit marketing our website and personal contacts to potential customers. The promotion of our products via our website is how we will initially generate revenues. Because we will be limiting our marketing activities, we may not be able to attract enough customers to buy our products to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations.
Because our management does not have prior experience in the marketing and sale of products via the Internet, we may have to hire individuals or suspend or cease operations.
Because our management does not have prior experience in retail sales via the Internet, we may have to hire additional experienced personnel to assist us with our operations. If we need the additional experienced personnel and we do not hire them, we could fail in our plan of operations and have to suspend operations or cease operations entirely.
Any change to government regulation/administrative practices may have a negative impact on the ability to operate and reach profitability.
The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business. If the government were to regulate the manufacture of our products or if the materials we use to manufacture our products were deemed unsafe by regulators, it would have a detrimental effect on our business. We are unaware of any proposed regulations that would potentially affect our business.
The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate profitably.
Because our auditors have expressed substantial doubt about our ability to continue as a going concern, we may find it difficult to obtain additional financing.
The accompanying financial statements have been prepared assuming that we will continue as a going concern. As discussed in Note 2 to the financial statements, we were recently incorporated, and we do not have a history of earnings, and as a result, our auditors have expressed substantial doubt about our ability to continue as a going concern. Continued operations are dependent on our ability to complete equity or debt financings or generate profitable operations. Such financings may not be available or may not be available on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Risks Related to Our Stock
The OTC Market is a quotation system, not an issuer listing service, market or exchange. Therefore, buying and selling stock on the OTCMarket is not as efficient as buying and selling stock through an exchange. As a result, it may be difficult for you to sell your common stock or you may not be able to sell your common stock for an optimum trading price.
The OTC Market is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in over-the-counter securities. Because trades and quotations on the OTC Market involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTC Market, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price one was quoted by the OTC Market at the time of the order entry.
Orders for OTC Market securities may be cancelled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTC Market. Due to the manual order processing involved in handling OTC Market trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not able to sell shares of common stock at the optimum trading prices.
ITEM 1A. - RISK FACTORS - continued
The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTC Market if the common stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper” loss due to the price spread. Moreover, dealers trading on the OTC Market may not have a bid price for securities bought and sold through the OTC Market. Due to the foregoing, demand for securities that are traded through the OTC Market may be decreased or eliminated.
We are subject to the penny stock rules and these rules may adversely affect trading in our common stock.
Our common stock is a “low-priced” security under rules promulgated under the Securities Exchange Act of 1934. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.
Our stock price may be volatile, which may result in losses to our stockholders.
Historically, the market prices of companies quoted on the Over-The-Counter market generally have been very volatile and have experienced sharp share price and trading volume changes.
The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many of the following factors, some of which are beyond our control:
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variations in our operating results;
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announcements of technological innovations, new services or product lines by us or our competitors;
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changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;
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changes in operating and stock price performance of other companies in our industry;
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additions or departures of key personnel; and
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future sales of our common stock.
In general, domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock. In particular, the market prices for stocks of companies in volatile markets often reach levels that bear no established relationship to the operating performance of these companies. These market prices are generally not sustainable and could vary widely. In certain instances, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated.
We will incur increased costs and compliance risks as a result of being a public company.
As a public company, we will incur significant legal, accounting and other expenses. We will incur costs associated with our public company reporting requirements. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including certain requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and the Financial Industry Regulatory Authority (“FINRA”). We expect these rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time-consuming and costly.
We also expect these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance if we chose to do so in the future. Thus, we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
If we fail to maintain the adequacy of our internal controls, our ability to provide accurate financial statements and comply with the requirements of the Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price to decrease substantially.
ITEM 1A. - RISK FACTORS - continued
We have committed limited personnel and resources to the development of the external reporting and compliance obligations that would be required of a public company. We have taken measures to evaluate how we can address and improve our financial reporting and compliance capabilities and we are in the process of instituting changes to satisfy our obligations in connection with joining a public company, when and as such requirements become applicable to us. Prior to taking these measures, we did not believe we had the resources and capabilities to do so. We plan to obtain additional financial and accounting resources to support and enhance our ability to meet the requirements of being a public company. We will need to continue to improve our financial and managerial controls, reporting systems and procedures, and documentation thereof. If our financial and managerial controls, reporting systems or procedures fail, we may not be able to provide accurate financial statements on a timely basis or comply with the Sarbanes-Oxley Act of 2002 as it applies to us. Any failure of our internal controls or our ability to provide accurate financial statements could cause the trading price of our common stock to decrease substantially.
U.S. investors may experience difficulties in attempting to effect service of process and to enforce judgments based upon U.S. federal securities laws against the company and its sole non-U.S. resident officer and director.
Our director and sole officer, Antal Markus, is not resident of the United States. Consequently, it may be difficult for investors to effect service of process on Mr. Markus in the United States and to enforce in the United States judgments obtained in United States courts against Mr. Markus based on the civil liability provisions of the United States securities laws. Since substantially all of our tangible assets are located in Canada, it may be difficult or impossible for U.S. investors to collect a judgment against us. Further, any judgment obtained in the United States against us may not be enforceable in Canada.
We do not expect to pay dividends in the foreseeable future.
We have never paid any dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
We have the right to issue additional common stock without the consent of shareholders. This would have the effect of diluting your ownership in the company and could decrease the value of your stock.
There are additional authorized but unissued shares of our common stock that may be later issued by our management for any purpose without the consent or vote of the stockholders that would dilute a stockholder’s percentage ownership of the company. Our articles of incorporation authorize the issuance of up to 150,000,000 shares of common stock.
ITEM 1B.
ITEM 1B. - UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2
ITEM 2 - DESCRIPTION OF PROPERTY
Our principal offices are located at 720 Evans Court, Suite 103, Kelowna, BC Canada V1X 6G4. Our telephone number is (778) 478-9997. We entered into a two year lease of our office and warehouse space on April 1, 2013. Our monthly rent is $3,600. On January 2, 2014, the Company entered into an addendum whereby we leased additional space for an additional lease payment of $2,454 CDN. The Company believes that our facilities are sufficient for our current operations.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
No officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management. We are not aware of any pending or threatened legal proceedings which involve Reliabrand, its directors or officers. Our Bylaws provide that we shall have a minimum of one director. There is no stated maximum number of directors allowed but such number may be fixed from time to time by action of the stockholders or of the directors. Our address for service of process in Nevada is 1645 Village Center Circle, Las Vegas, NV 89134.
ITEM 4
ITEM 4 - MINE SAFETY DISCLOSURES
N/A
PART II
ITEM 5
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company’s common stock is currently listed on the OTC Markets under the symbol “RLIA.” Prior to April 5, 2011, the Company’s stock was listed on the OTC Bulletin Board under the symbols “AJVE”, “ACOE” and “SLEG”.
For the period from January 1, 2012 to date, the table sets forth the high and low closing bid prices based upon information obtained from inter-dealer quotations on the OTC Bulletin Board without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Recent Sales of Unregistered Securities
During the year ended June 30, 2014, the Company closed several private placements for aggregate proceeds of $775,000, or 7,750,000 shares, respectively, at the price of $0.10 per share, for total net proceeds of $415,203, net of costs. The Company relied on exemptions from registration under Regulation S, Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
For the year ended June 30, 2014, the Company completed a private offering of its securities. The offering was comprised of units consisting of 50,000 shares of our common stock, in restricted form, and a royalty agreement for pro-rata share of $1.00 per sale of a specific future product, up to the amount of the initial investment, subsequently converting to a 2.5% perpetual royalty on the same product. For the year ended June 30, 2014, the Company issued forty-four units, consisting of 2,200,000 shares of our restricted common stock and a royalty agreement for which it received proceeds of $220,000. The Company relied on exemptions from registration under Regulation S, Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
Holders
As of June 30, 2014, we have 98,471,371 shares of our Common Stock issued and outstanding held by 123 shareholders of record.
Dividends
The Company has never paid any cash dividends on its capital stock and does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. The Company intends to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.
Securities Authorized For Issuance under Equity Compensation Plans
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.
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - continued
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.
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.
For the year ended June 30, 2014, the Company granted no stock options. There are 21,618,850 available for future grants.
Increase of authorized common stock shares
In December 2012, the Company increased its authorized shares of common stock from 100,000,000 to 150,000,000.
Designation of Preferred Stock
During the year ended June 30, 2014, the Company designated two new classes of preferred stock. The Company designated 150,000 shares of its unissued preferred stock as Series B Convertible Stock (“Series B”) which accrues dividends at an annual rate of $4.00 per share and is convertible for a period of twenty four months from the date of issuance for shares of the Company’s common stock at a rate of one Series B share for two hundred (200) shares of common stock. As of June 30, 2014, the Company had none issued and outstanding shares of its Series B.
During the year ended June 30, 2014, the Company designated 100,000 shares of its preferred shares as Series C Preferred Stock (“Series C”). The Series C has a purchase price of $10 per share and accrues interest at annual rate of eight percent (8%). The Series C are convertible for a period of twenty four (24) months from the date of issuance for shares of the Company’s common stock at a rate of one hundred (100) shares of common stock for each share of Series C. The Series C upon conversion also are granted three (3) warrants to purchase shares of the Company’s common stock at a price of $.10 per warrant. As of June 30, 2014, the Company had issued and outstanding 50,000 shares of its Series C.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
N/A
ITEM 7
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
The Company’s strategy is to manufacture baby bottles and the related components initially and to offer those products for sale via the Company’s website, wholesale to specialty baby products retailers, or through distributors throughout the world.
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 amount of 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.
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
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 arrangements in place for any future equity financing. If we are required to raise additional funds, substantial dilution may result to existing shareholders. Our auditors have raised substantial doubt concerning our ability to continue as a going concern. Please see our audited financial statements contained in our Form 10-K for the period ended June 30, 2014.
Results of Operations for the Year Ended June 30, 2014 and the Year Ended June 30, 2013
We had revenues of $308,991 for the year ended June 30, 2014 compared to revenues of $114,946 for the year ended June 30, 2013. The increase in sales of $194,045 or 59.00% is due to our retail sales increasing through our website, and beginning wholesale sales to WalMart Canada in pursuit of our marketing plan for our products.
During the year ended June 30, 2014, we incurred operating expenses in the amount of $1,246,380. These operating expenses were comprised of amortization and depreciation expenses, accounting and audit fees, consulting fees, rent expense, general and management expenses, and transfer agent fees. This compared to operating expenses of $2,000,059 for the year ended June 30, 2013. The decrease was primarily due to the Company not issuing stock based compensation for the year ended June 30, 2014.
As of June 30, 2014, we had total assets of $2,508,096 and total liabilities of $908,050 compared to total assets of $1,891,633 and total liabilities of $445,289 as of June 30, 2013. Of the total assets as of June 30, 2014, current assets were $1,202,024 and consisted of cash of $188,763, inventory of $557,558, accounts receivable of $58,054 and prepaid expenses of $397,649. Other assets were $1,306,072 and consisted of patents of $1,041,446, intellectual properties of $125,000, net property and equipment of $76,745, deposits of $5,278, and product molds of $57,603. Total liabilities consisted of $81,923 in accounts payable, in notes payable - shareholder $131,965, in contingent royalties payable $662,907, in royalties payable - related party of $25,300 and accrued taxes payable of $5,955.
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, 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. As a condition to the Agreement, we had to implement our previously authorized 100-to-1 reverse stock split and change the Company’s name to “Reliabrand, Inc.”
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 the monthly rent is 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 $47,372 and $62,897 for the years ended June 30, 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.
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 $22,552 USD. As of June 30, 2014, the balance was zero.
We began generating revenue for the year ended June 30, 2012 and had revenues of $308,991 for the year ended June 30, 2014. However, we continue to be 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.
The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during the periods shown. The Company does not anticipate paying dividends in the near future, if ever.
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
Liquidity and Capital Resources
As of June 30, 2014 and 2013, the Company had a cash balance of $188,763 and $10,488, respectively.
We issued 1,698,500 and 974,500 shares as payment to certain vendors for services during the years ended June 30, 2014 and 2013, respectively.
For the year ended June 30, 2014, the Company issued 7,750,000 shares of its common stock in private placements pursuant to exemptions from registration under Regulations S, D and Section 4(2) of the Securities Act.
For the year ended June 30, 2014, the Company issued forty-four units, consisting of 2,200,000 shares of our restricted common stock and a royalty agreement, for which it received gross proceeds of $220,000.The Company relied on exemptions from registration under Regulation S, Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
In April 1,2014, the Company sold to an unrelated individual 25,000 shares of our preferred Series “C” stock at $10.00 per share or $250,000.
In May 5, 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.
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, other than the net proceeds from the Offering. Due to its brief history and historical operating losses, the Company’s operations have not been a source of liquidity. The Company will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, the Company may need to sell additional shares of its common stock or borrow funds from private lenders. There can be no assurance that the Company will be successful in obtaining additional funding.
The Company will need additional investments in order to continue operations. Additional investments are being sought, but the Company cannot guarantee that it will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of the Company’s common stock and a downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if the Company is able to raise the funds required, it is possible that it could incur unexpected costs and expenses, fail to collect significant amounts owed to it, or experience unexpected cash requirements that would force it to seek alternative financing. Further, if the Company issues additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of the Company’s common stock. If additional financing is not available or is not available on acceptable terms, the Company will have to curtail its operations.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates, and the recognition of revenues and expenses for the reporting periods. These estimates and assumptions are affected by management's application of accounting policies.
Contractual Obligations
On September 6, 2011, we entered into a non-cancellable contract to purchase 72,000 baby bottles and components from a 3rd party supplier in the amount of $135,360, and we have fully pre-paid this commitment. In the year ended June 30, 2012, we purchased an additional $119,372 of inventory from the same 3rd party supplier; we have fully paid for all the product shipments. As of June 30, 2012, we found that we had defective and substandard products, we have checked our inventory and have destroyed and disposed of the unusable inventory and recorded an inventory loss of $110,397 which is reflected in our statement of operations. As of June 30, 2014, the Company did not have purchase commitments.
License and exclusive marketing agreement
For the year ended June 30, 2013, the Company started a new 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 pro-rata share of a 2.5% perpetual royalty on the same product. In connection with this royalty agreement, the Company recorded a contingent liability for this agreement in the amount of $82,264 and is based upon projections of our sales on these products. For the year ended June 30, 2013, the Company issued twenty-seven units, consisting of 1,450,000 shares of our restricted common stock and a royalty agreement (Note 9), and received a cash payment of $145,000. For the year ended June 30, 2014, the Company issued forty-four units, consisting of 2,200,000 shares of our restricted common stock and a royalty agreement (Note 9), and received a cash payment of $220,000. For year ended June 30, 2014, the company recorded additional $124,813 contingent royalties for the proceeds received in connection with these subscriptions. At June 30, 2014 and 2013, the total contingencies in connection with these subscriptions are $207,077 and $82,264, respectively.
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - continued
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.
As of June 30, 2014 and 2013, the Company’s management believes that there are no outstanding legal proceedings which would have a material adverse effect on the financial position of the Company.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Reliabrand, Inc.
We have audited the accompanying consolidated balance sheet of Reliabrand, Inc. as of June 30, 2014, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended June 30, 2014. Reliabrand, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Reliabrand, Inc. as of June 30, 2013 were audited by other auditors, whose report dated September 30, 2013 expressed an unqualified opinion and included an emphasis of matter paragraph regarding substantial doubt in Reliabrand, Inc.’s ability to continue as a going concern.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Reliabrand, Inc. as of June 30, 2014, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company incurred a net loss during period of $1,106,996 and has an accumulated deficit of $4,484,553, which raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
/s/ MartinelliMick PLLC
MartinelliMick PLLC
Spokane, WA
October 31, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Reliabrand Inc.
We have audited the consolidated balance sheet of Reliabrand Inc. as of June 30, 2013, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Reliabrand Inc. as of June 30, 2013, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/Farber Hass Hurley LLP
Farber Hass Hurley LLP
Granada Hills, California
September 30, 2013
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - continued
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RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 1 - HISTORY, NATURE OF OPERATIONS, AND BASIS OF PRESENTATION
History, 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 year ended June 30, 2013, we have commenced sales of our products, and have started our marketing program. We are in the process of establishing ourselves as a company that will focus its operations on developing the Adiri brand of products and sell them in the open markets. Adiri was one of the first baby bottle manufacturers to offer BPA-free products when it was launched in 2007. The Adiri Natural Nurser bottle achieved more international design recognition than any other bottle of any kind in history, winning 15 internationally recognized product design competitions including tying for first place in the D&AD Design Award (known as the “Yellow Pencils”) in 2008 with the “Apple iPod Touch” from 23,000 international product submissions. The iconic and patented “natural breast shape” and “petal vent” are among the features that reduced colic and improved the infant feeding experiences which led to Adiri earning the prestigious Gold MDEA (Medical Design Excellence Award) along with the design firm Whipsaw, Inc. in 2008. We are currently developing a newer version of the baby bottle that Adiri was previously producing and it will be free of Estrogenic Activity (EA) as well as being BPA-free (Note 5). The Company intends to aggressively promote and market the bottles and accessories and plan to secure retail distribution outlets for the bottles. The Company’s 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.
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 $.001, 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, as of June 30, 2012, these shares are pending to be issued, and were issued on September 11, 2012. We would also acquired the remaining cash of approximately $3,705 USD.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Basis
These consolidated financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (GAAP).
Consolidation Policy
The accompanying June 30, 2014 financial statements include the Company’s accounts and the accounts of its subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s ownership of its subsidiary as of June 30, 2014 is as follows:
Our operations are treated as one operating segment. All inter-company balances and transactions have been eliminated.
Liquidity and Capital Resources
The Company anticipates that revenue for fiscal year 2015 may be insufficient to fully cover it’s expenses. The Company also expects to continue to incur substantial expenses relating to its marketing and sales efforts. As a result, the Company expects to incur losses over the next year unless it is able to realize additional revenues under any current or future agreements. The timing and amounts of such revenues, if any, cannot be predicted with certainty. Accordingly, results of operations for any period may be unrelated to the results of operations for any other period.
The Company will likely need to raise and is pursuing additional funds through strategic collaborations, public or private equity or debt financing, or other funding sources. This funding may not be available on acceptable terms, or at all, and may be dilutive to shareholder interests. If sufficient capital is not available, the Company may be required to delay, reduce the scope of or eliminate one or more of its product offerings, any of which could have a material adverse effect on its business. If the Company is not able to secure additional capital by the end of its fiscal year, it may be forced to terminate operations altogether in 2015.
Basis of Consolidation
The consolidated financial statements include the accounts of Reliabrand, Inc. and its wholly owned subsidiary, BC Ltd.
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.
As of June 30, 2014 we have a working capital surplus of $293,974, and accumulated deficit of $4,484,553. During the year ended June 30, 2014 we had a net loss of $1,106,996 and cash used in operating activities of $1,475,790. There is substantial doubt regarding 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. However, there can be no assurances the Company will be successful in these pursuits. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase that are readily convertible to cash to be cash equivalents.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Concentration in Sales and Accounts Receivables to Few Customers
In the year ended June 30, 2014, our WalMart Canada and miscellaneous wholesale CFO Group sales accounted for 53.02% and 1.35%, respectively, of our revenues. In the year ended June 30, 2013, our North American and Russian sales accounted for 83.64% and 16.36%, respectively, of our revenues. In the year ended June 30, 2014 our WalMart Canada and miscellaneous wholesale vendors receivables accounted for 95.49% and 4.51%, respectively, of our receivable balances. In the year ended June 30, 2013 our WalMart Canada and CFO Group account receivables accounted for 89.34% and 10.43%, respectively, of our receivable balances.
Income Taxes
The Company accounts for income taxes under the liability method, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. Tax returns are subject to examination by taxing authorities and returns for fiscal years 2010 - 2014 are still open.
Earnings (Loss) Per Common Share
Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include dilutive options, warrants, and other potential common stock outstanding during the period. There have been no potentially dilutive common shares issued from inception.
Reclassifications
Certain amounts in the 2013 consolidated financial statements have been reclassified to conform to the 2014 presentation.
Fair Value of Financial Instruments
In January 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), to value its financial assets and liabilities. The adoption of ASC 820 did not have a significant impact on the Company’s results of operations, financial position or cash flows. ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. Standards defines fair value as the exchange price that would be paid by an external party for an asset or liability (exit price).
ASC 820, "Fair Value Measurements and Disclosures" establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair values into three levels as follows:
·
Level 1 - Active market provides unadjusted quoted prices for identical assets or liabilities that the company has the ability to access;
·
Level 2 - Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in inactive markets. Level 2 inputs include those other than quoted prices that are observable for the asset or liability and that are derived principally from, or corroborated by, observable market data by correlation of other means. If the asset or liability has a specified term the Level 2 input must be observable for substantially the full term of the asset or liability; and
·
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2014. The Company uses the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments which include cash, inventory, notes receivable, accounts payable, and notes payable are valued using Level 1 inputs and are immediately available without market risk to principal. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature. The Company does not have other financial assets that would be characterized as Level 2 or Level 3 assets.
Use of Estimates in the Preparation of Consolidated financial statements
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Accordingly, actual results could differ from those estimates and assumptions.
Foreign Currency Translation
The consolidated financial statements are presented in United States dollars, since the functional currency of the Company is U.S. dollars; the foreign currency consolidated financial statements of the Company’s 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.
Accounts Receivable, Notes Receivable and Allowance for Doubtful Accounts
Accounts and Notes receivable are stated at face value. The Company analyzes each note receivable each period for probability of collectability. Notes are considered in default when payments have not been received within the agreed upon terms, and are written off when management determines that collection is not probable.
The Company establishes the allowance for doubtful accounts using the specific identification method and may also provide a reserve in the aggregate. The estimates for calculating the aggregate reserve are based on historical information. As of June 30, 2014 and 2013, we have analyzed our accounts receivables and determined that no allowance is necessary.
Furniture and Computer Equipment
Furniture and computer equipment are stated at cost less accumulated depreciation. Maintenance and repairs are charged to operations as incurred. Depreciation is based on the straight-line method over the estimated useful lives of the related assets. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations in the period realized. Accelerated depreciation methods are generally used for income tax purposes.
Depreciation
Depreciation is computed on the straight-line method net of salvage value with useful lives as follows:
Office furniture and equipment 5 years
Leasehold improvements Term of lease
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 (see Note 4). 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 June 30, 2014 and 2013, we did not have any such accrued expenses.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Intangible Assets
In accordance with ASC 350, “Intangibles - Goodwill and other,” goodwill and other intangible assets with indefinite lives are not amortized, but are reviewed annually for impairment and possible adjustment. Other intangible assets with definite lives are amortized over their individual useful lives. Intellectual properties are amortized using the straight-line method over the useful lives (see Note 5).
Patents
Patents are recorded at cost and are amortized on a straight-line basis over their remaining useful lives beginning with the date that the patent is secured by the Company. The original patent useful life is 20 years from the date of issuance. Our patents have various expiration dates ranging from October 2017 through January 2032.
Dividends
The Company has not adopted any policy regarding payment of dividends. No dividends have been paid since the Company’s inception.
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
Shipping and handling costs of $15,910 and $12,836 for the years ended June 30, 2014 and 2013, respectively, are included in cost of sales and general and administrative expenses, respectively.
Advertising Costs
The Company expenses advertising costs when incurred. During the years ended June 30, 2014 and 2013, we had $142,198 and $93,570 in expenditures on advertising, respectively.
Stock-Based Compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached in FASB ASC 505-10. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-10.
Impairment of long lived assets
The Company reviews the recoverability of the carrying value of long-lived assets using the methodology prescribed in ASC 360 "Property, Plant and Equipment." The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon such an occurrence, recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows to which the assets relate, to the carrying amount. If the asset is determined to be unable to recover its carrying value, it is written down to fair value. Fair value is determined based on discounted cash flows, appraised values or other information available in the market, depending on the nature of the assets.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The Company reviews the carrying value of goodwill and non-amortizable intangible assets using the methodology prescribed in ASC 350, "Intangibles-Goodwill and Other." ASC 350 requires that the Company not amortize goodwill and intangible assets with indefinite lives, but instead subject them to impairment tests on at least an annual basis and whenever circumstances suggest that they may be impaired. The Company tests its goodwill and non-amortizable intangible assets for impairment on an annual basis at the end of its June fiscal month. ASC 350 requires the Company to perform a two-step impairment test. Under the first step of the goodwill impairment test, the Company is required to compare the fair value of the asset with its carrying amount, including goodwill. If the fair value an asset exceeds its carrying amount, goodwill is not considered impaired and the Company does not perform the second step. If the results of the first step impairment test indicate that the fair value of a reporting unit does not exceed its carrying amount, then the second step of the goodwill impairment test is required. The second step of the goodwill impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The impairment loss is measured by the excess of the carrying amount of the reporting unit goodwill over the implied fair value of that goodwill. As of June 30, 2013, we did recognize write off in our patents, see Note 5, and in the year ended June 30, 2014, the Company did not recognize any impairment associated with long lived assets.
General Accounting Policy for Contingencies
Certain conditions may exist which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they arise from guarantees, in which case the guarantees would be disclosed.
As of June 30, 2014 and 2013, the Company’s management believes that there are no outstanding legal proceedings which would have a material adverse effect on the financial position of the Company.
Recently Issued Accounting Standards
We have examined all recent accounting pronouncements and believe that none of them will have a material impact on the consolidated financial statements of the Company, except for the following:
In May 2014, the FASB released ASU 2014-9 - Accounting Standards Update 2014-9, Topic 606: Revenue from Contracts with Customers that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. This guidance becomes effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company is currently assessing the impact that this standard will have on its financial statements.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) (ASU 2014-15), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. ASU 2014-15 requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans and requires an express statement and other disclosures when substantial doubt is not alleviated. We, do not expect the adoption of ASU 2014-15 to have material impact on our consolidated financial statements, although there may be additional disclosures upon adoption.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Depreciation was $56,631 and $32,630 for the years ended June 30, 2014 and 2013, respectively.
The Company also recorded amortization of products molds expense for the years ended June 30, 2014 and 2013 of $57,960 and $39,345, respectively, as reflected in cost of goods sold on the accompanying Statement of Operations.
NOTE 4 - INVENTORY
Purchase Commitment
On September 6, 2011, we entered into a non-cancellable contract to purchase 72,000 baby bottles and components from a 3rd party supplier in the amount of $135,360, and we have fully pre-paid this commitment. The Company had no such commitments as of June 30, 2014 or June 30, 2013.
Inventory Write off
In accordance with our accounting policies, we have examined our inventory for obsolete inventory and determined that we had an inventory write down as of June 30, 2013 of $20,722 and is included in cost of goods on the accompanying statement of operations.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 5 - INTELLECTUAL PROPERTIES AND PATENTS
Patents
Patents and licenses consist of the following:
The Company has recorded amortization of patents expense for the years ended June 30, 2014 and 2013 of $52,097 and $72,084, respectively.
During the year ended June 30, 2013, we analyzed our patents in accordance with our accounting policies and determined that nine of our patents were no longer useful to the Company's existing and future operations. As such we recorded a net loss of $181,633, and is shown on the accompanying statement of operations. As of June 30, 2014, we determined that no additional impairment was necessary.
Asset purchase agreement
On January 2, 2014, we entered into an agreement to purchase certain assets own 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 - NOTES PAYABLE TO SHAREHOLDERS
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 June 30, 2014 and 2013, the remaining balance of $20,117 is outstanding, respectively.
On October 23, 2012 the Company borrowed $20,130 (CDN$20,000) from a company owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and matures on January 14, 2013. We accrued $1,623 in interest expense in connection with this note, and the principal and interest are outstanding as of June 30, 2014.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 6 - NOTES PAYABLE TO SHAREHOLDERS - continued
On December 14, 2012 the Company received $50,000 USD from the same company as above owned by one of the Company’s shareholders. Initially this transaction was recorded as a subscription agreement. Subsequent to June 30, 2013 the parties renegotiated the agreement and the funds were reclassified as an uncollateralized, demand note, bearing a 8% interest rate per annum and is payable upon demand of the note holder. The related interest was accrued in the current year. As of June 30, 2014, we accrued $6,256 in interest expense in connection with this note, and the principal and interest are outstanding as of June 30, 2014.
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 a 8% interest rate per annum. Repayment of this note shall be from sales of the Company’s products through WalMart Canada. For each check received from WalMart Canada, the Company shall pay five percent (5%) of the proceeds which shall be applied to the repayment of this Note, including principal and accrued interest. Upon satisfaction of this Note, the note holder shall be entitled to a 2.5% royalty on future sales of the Company’s products through WalMart Canada in perpetuity. During the years ended June 30, 2014 and 2013, we accrued $289 and $1,500, respectively, in interest expense in connection with this note, and on June 21, 2013, we converted $50,000 USD, or 500,000 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 June 30, 2014, we had no remaining balance outstanding.
On April 26, 2013 the Company borrowed $20,000 USD from the same company as above owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and is payable upon demand of the note holder. We accrued $404 in interest expense in connection with this note, and on June 21, 2013, we converted $20,000 USD, or 200,000 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 June 30, 2013, we had no remaining balance outstanding
On April 26, 2013 the Company borrowed $30,000 USD from the same company as above owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and is payable upon demand of the note holder. As of June 30, 2014 and 2013, we accrued $2,433 and $433, respectively, in interest expense in connection with this note. As of June 30, 2014 and 2013, the entire principal amount is outstanding.
On June 26, 2013 the Company borrowed $23,300 USD (CDN $24,500) from the same company as above owned by one of the Company’s shareholders on an uncollateralized, demand note, bearing a 8% interest rate per annum and is payable upon demand of the note holder. As of June 30, 2014 and 2013, we accrued $321 and $21, respectively, in interest expense in connection with this note. On August 2013, we repaid the entire balance due. As of June 30, 2014, only the interest accrued is outstanding.
The notes payable to shareholders balance comprised of the below, net of accrued interest of $11,718.
All notes are payable on demand and appropriately classified as current liabilities.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
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 years ended June 30, 2014 and 2013, we recorded $50,722 and $51,621, respectively, in consulting fees - related party expense to this individual. For the years ended June 30, 2014 and 2013, the Company accrued a total of $7,714 and $3,198 in royalties payable, respectively.
On May 1, 2012 the Company entered into a consulting agreement with a second 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 years ended June 30, 2014 and 2013, we recorded $53,502 and $50,656, respectively, in consulting fees - related party expense to this individual. For the years ended June 30, 2014 and 2013, the Company accrued a total of $7,714 and $3,198 in royalties payable, respectively.
On May 1, 2012 the Company entered into a new 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 years ended June 30, 2014 and 2013, we recorded $53,592 and $51,020, respectively, in consulting fees - related party expense to this individual. For the years ended June 30, 2014 and 2013, the Company accrued a total of $7,714 and $3,198 in royalties payable, respectively.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 7 - RELATED PARTY TRANSACTIONS AND BALANCES - continued
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 years ended June 30, 2014 and 2013, we recorded $43,033 and 35,561, respectively, in consulting fees - related party expense to this individual. For the years ended June 30, 2014 and 2013, the Company accrued a total of $7,714 and $2,019 in royalties payable, respectively.
On May 1, 2011, the Company entered into a consulting agreement with a company controlled by our President and Chief Executive Officer, for his consulting services at a rate of $10,000 per month, and he received a 3.00% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into an amendment of the above consulting agreement, dated May 1, 2011, with the same Company as above, the prior agreement remains in force except for the following provisions, his consulting services will be at a rate of $11,000 per month, and he will also be granted an option to purchase an amount of shares to represent 10% of our issued and outstanding common stock as of December 31st of the prior year. On 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, 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, subsequently, this condition was terminated, and no further granting of options are required. On January 18, 2013 the President received an option to purchase 8,131,150 shares of the Company’s common stock for $0.10 per share (Note 11). For the years ended June 30, 2014 and 2013, we recorded $138,600 and $136,047, respectively, in consulting fees - related party expense in connection with these contracts. As of June 30, 2014 and 2014, respectively, the Company accrued a total of $ $9,257 and $3,837 in royalties payable.
On September 1, 2013, the Company entered into a consulting agreement with a son of a current shareholder, for his consulting services at a rate of $34,171 USD ($36,000 CAD) per annum, and we will issue him 20,000 shares of our restricted common stock per month of service rendered. The agreement 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 June 30, 2014 we recorded $45,571 in consulting fees - related party expense to this individual, including $31,571 paid in cash and $14,000 paid in shares of common stock.
Shareholder advances
In the year ended June 30, 2014, our current President paid operating bills on behalf of the Company totaling $1,658, and was repaid $1,658 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 $11,087, and no outstanding balance remained as of June 30, 2014.
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 security deposit equal to one months rent. We paid the first rent payment 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 $47,372 and 62,897 for the years ended June 30, 2014 and 2013, respectively. For the year ended June 30, 2015, the Company is committed to approximately $54,000 of monthly lease payments. 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).
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 8 - COMMITMENTS AND CONTINGENCIES - continued
Consulting agreements
On May 16, 2012 the Company entered into a consulting agreement with a third party for her consulting services to perform the duties Chief Operating Officer (COO) at a rate of $100,000 USD per annum for the first year, after the first year the base compensation would not be less than $120,000 per year. The agreement was to be in effect for a period of twenty-four months, ending on April 30, 2014, and automatically renewed for successive twelve month terms. On December 7, 2012, the Company terminated this agreement for cause. The Consultant also received a signing bonus of 1,000,000 shares of our restricted common stock valued at $40,000. For the year ended June 30, 2013, we recorded $39,999 in total consulting fees expense in connection with this contract.
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 six month period ended December 31, 2013, 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 six months ended December 31, 2013, 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 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. On February 28, 2014, we terminated our agreement and the consultant forfeited the options that were granted as part of this agreement. For the year ended June 30, 2014, we expensed $9,491 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 pro-rata share of a $1.00 per sale of a specific future product, up to the initial investment, after which this will convert to a pro-rata share of 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 year ended June 30, 2014, the company recorded additional $124,813 contingent royalties for the proceeds received in connection with these subscriptions. At June 30, 2014 and 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 June 30, 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 June 30, 2014, the Company did not accrue any royalties payable for this agreement.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 8 - COMMITMENTS AND CONTINGENCIES - continued
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 June 30, 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 June 30, 2014.
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 June 30, 2014, the Company has placed deposits with its manufacturers for product totaling approximately $375,000. These deposits represent 50% down payment and the Company expects to pay the remaining balance due as the products are completed, and is reflected in the prepaid epr.
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 December 31, 2013, 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.
License and exclusive marketing agreement
On July 11, 2012, the Company entered into a License and Exclusive Marketing Agreement with an unrelated party (Marketer). The Company granted Marketer an exclusive license to promote, advertise, market, sell and distribute the Company’s line of baby products, under the Adiri® brand, through commercials and over the Internet, in North America. The Agreement is for an initial four year term with automatic renewals for three additional two year periods if Marketer generates certain pre-determined sales of the Company’s products during the term of the Agreement.
Products sold through Marketer’s efforts will be sold to Marketer on a consignment basis. After the products are sold, Marketer shall reimburse the Company for the actual costs of manufacturing of the product. The Company shall also receive a 50% royalty of the adjusted proceeds, if any, of these sales generated. As of June 30, 2014 and 2013, no sales have been generated through this arrangement.
The Company also agreed to issue Marketer eight million (8,000,000) shares of our restricted common stock, issuable when certain milestones are completed. The Company agreed to issue three million (3,000,000) shares upon completion of the initial “short-form” commercial, and the remaining five million (5,000,000) shares when Marketer’s gross sales of our products reach $1,000,000. The Company also agreed to pay Marketer a five percent (5%) royalty on the Company’s sales outside of the Marketer network, beginning once the commercial has been produced, this royalty shall continue to be payable to Marketer for a period of eight (8) years following any termination or expiration of the agreement. As of June 30, 2013, no commercial has been completed and as such no related royalties have been recorded. The Company may terminate this agreement with a thirty (30) day notice prior to the end of the current term, or if sales level have not been met by Marketer; Marketer may terminate this agreement with a sixty (60) day notice at any time. The Company retains all rights to our intellectual properties, and has not transferred any interest to Marketer.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 8 - COMMITMENTS AND CONTINGENCIES - continued
Cancellation of royalty agreements and correction of an error
On April 19, 2012, we cancelled two royalty agreements with two unrelated individuals in exchange for 125,000 shares of our restricted common stock valued at $12,500. The original royalty agreements were consideration for principal loans totaling $12,500 and were in force for five years from December 30, 2011, the effective date. The cancellation is effective retroactive to the effective date of the original agreement. On August 24, 2012, we issued 75,000 shares of the common stock and on October 1, 2012 we issued the remaining 50,000 shares of the common stock. In November 2012, we detected an error in recording these transactions. The funds loaned to the Company were originally misclassified as shareholder advances to our current President. As of June 30, 2012, he converted all amounts owed to him into shares of common stock, as a result our President converted an excess of 312,500 shares. To correct the error, we have recorded a common stock receivable for $12,500 from him. He will be returning and cancelling 312,500 shares back to the Company in repayment of the funds incorrectly converted by him.
Supplier agreement
On January 22, 2013, the Company entered into a supplier agreement with Wal-Mart Canada Corp. (Wal-Mart) to supply 150 of its stores initially. The agreement provides for the terms and conditions for the purchases of the Company’s products by Wal-Mart, as well as the payment terms for the purchases.
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 years ended June 30, 2014 and 2013, there were 98,471,368 and 86,822,868 shares of our common stock issued and outstanding, respectively. As of the years ended June 30, 2014 and 2013, there were 10,000 shares of our preferred stock series “A” issued and outstanding. As of the year ended June 30, 2014, there were no shares of our preferred stock series “B” issued and outstanding. As of the year ended June 30, 2014, there were 50,000 shares of our preferred stock series “C” issued and outstanding.
Common Shares - Issued and Outstanding
For the year ended June 30, 2013, the Company issued closed several private placements for an aggregate total of $787,184, or 7,870,000 shares, at the price of $0.10 per share, for total proceeds of $787,184, net of costs.
For the period ended June 30, 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 pro-rata shares of 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.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 9 - STOCKHOLDER’S EQUITY - continued
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
Private Placements Closed and Opened
For the year ended June 30, 2013, the Company started a new 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, the Company recorded a contingent liability for this agreement in the amount of $82,264 and is based upon projections of our sales on these products. For the year ended June 30, 2013, the Company issued twenty-seven units, consisting of 1,450,000 shares of our restricted common stock and a royalty agreement (Note 9), and received a cash payment of $145,000. For the year ended June 30, 2014, the Company issued forty-four units, consisting of 2,200,000 shares of our restricted common stock and a royalty agreement (Note 9), and received a cash payment of $220,000. For year ended June 30, 2014, the company recorded additional $124,813 contingent royalties for the proceeds received in connection with these subscriptions. At June 30, 2014 and 2013, the total contingencies in connection with these subscriptions are $207,077 and $82,264, respectively.
Preferred Stock - Series A
On February 26, 2010, we filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock (the "Certificate of Designations") designating ten thousand (10,000) of the Company's previously authorized preferred stock.
The 10,000 Series A Preferred Stock shall have an aggregate voting power of 45% of the combined voting power of the entire Company’s shares, Common Stock and Preferred Stock as long as the Company is in existence. Each holder of the Series A Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the by-laws of the Company, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.
Without the vote or consent of the holders of at least a majority of the shares of Series A Preferred Stock then outstanding, the Company may not (i) authorize, create or issue, or increase the authorized number of shares of, any class or series of capital stock ranking prior to or on a parity with the Series A Preferred Stock, (ii) authorize, create or issue any class or series of common stock of the Company other than the Common Stock, (iii) authorize any reclassification of the Series A Preferred Stock, (iv) authorize, create or issue any securities convertible into or exercisable for capital stock prohibited by (i) or (ii), (v) amend this Certificate of Designations or (vi) enter into any merger or reorganization, or disposal of assets involving 20% of the total capitalization of the Company.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 9 - STOCKHOLDER’S EQUITY - continued
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.
Convertible 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 from and after the date of the issuance of any shares of Series B Preferred Stock, dividends at the rate per annum of $4.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock). Dividends shall accrue from day to day, whether or not declared, and shall be cumulative, and shall be payable only when, as, and if declared by the Board of Directors. The Corporation shall be under no obligation to pay such Accruing Dividends. 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.
Convertible 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.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 9 - STOCKHOLDER’S EQUITY - continued
In April 1,2014, the Company sold to an unrelated individual 25,000 shares of our preferred Series “C” stock at $10.00 per share or $250,000.
In May 5, 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.
Stock Based Compensation
On August 24, 2012, the Company issued 30,000 restricted shares of our common stock for payment of public relations management services performed by an unrelated third party in the amount of $3,000, 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 November 6, 2012, the Company issued 15,000 restricted shares of our common stock for final payment of the services, valued at $1,500, rendered under the agreement above.
On October 1, 2012, we issued 25,000 restricted shares of our common stock for payment of debt owed to our outside accountant for services performed between January and March 2012, in the amount of $2,500.
On October 1, 2012, we issued 100,000 shares of our restricted common stock for payment of a debt owed to a vendor for our new exhibit booth in the amount of $42,703.
On November 15, 2012, the Company issued 200,000 restricted shares of our common stock for payment of debt owed to a legal counsel for services performed in the amount of $20,000.
On January 16, 2013, the Company issued 130,000 restricted shares of our common stock for payment of a debt owed to an advertiser for services performed in the amount of $13,000, plus $6,500 in a cash payment.
On June 7, 2013, the Company issued 200,000 restricted shares of our common stock for payment of consulting services performed in the amount of $20,000.
On June 21, 2013, the Company issued 250,000 restricted shares of our common stock for payment of consulting services performed in the amount of $25,000.
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.
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.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 9 - STOCKHOLDER’S EQUITY - continued
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 April 8, 2014, the Company issued and aggregate total of 120,000 restricted shares of our common stock for payment of consulting services performed by two related third parties in the amount of $12,000, in payment of their consulting agreements (Note 7). The value of the consulting services is included in consulting fees - related party in our statement of operations.
Common Stock Receivable
As part of the Royalty cancellation agreement (Note 8), we recorded a common stock receivable for $12,500 for the return and cancellation of shares of our common stock from our current President.
Common Stock Warrants
In connection with previous private placements and payables to common stock conversions, we valued the common stock detachable warrants granted during the period ended March 31, 2012, using the Black-Scholes method. The following weighted average assumptions were used to calculate the valued warrants: terms of two years; risk free interest rate of 0.39%; volatility of 96%; and a weighted fair value of $0.126.
A summary of the common stock warrants, exercise price of $0.25, outstanding as of June 30, 2013 is presented below:
No further warrants were issued subsequent to June 30, 2014.
On April 19, 2012, the Board determined it was in the best interest of the Company to cancel all of the outstanding warrants. As of September 30, 2012, the Company collected all of the signatures from the warrant holders agreeing to the cancellations with no consideration.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
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.
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).On February 28, 2014, the consultant and the Company termintated the agreement that granted these options and they were forfeited. As of June 30, 2014, 21,618,850 options were available for future grant.
The value of employee and non-employee stock warrants granted during the years ended June 30, 2014 and 2013 was estimated using the Black-Scholes model with the following assumptions:
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.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 10 - 2013 STOCK OPTION PLAN - continued
A summary of the options granted to employees and non-employees under the plan and changes during the years ended June 30, 2014 and 2013 is presented below:
The following table summarizes information about employee stock options under the 2013 Plan outstanding at June 30, 2014:
The total value of stock options granted during the years ended June 30, 2014 and 2013, was $105,000 and $838,115, respectively. For the years ended June 30, 2014 and 2013, 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, and expensed none and $838,115, respectively, in stock compensation - officers on our statement of operations.
At June 30, 2014 there was no unrecognized compensation cost related to stock options granted under the plan.
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 11 - INCOME TAXES
The net operating loss carryforward is the only component of deferred tax assets for income tax purposes as of June 30, 2014, of approximately $58,435 for Federal USA income taxes and $823,128 for Canadian income taxes which was reduced to zero after considering the valuation allowance of $58,435 and $823,128, respectively, since there is no assurance of future taxable income.
The net operating loss carryforward as of June 30, 2014 expires as follows:
These loss carryovers could be limited under the Internal Revenue Code should a significant change in ownership occur.
The following is an analysis of deferred tax assets for Federal USA taxes as of June 30, 2014 and 2013:
The following is an analysis of deferred tax assets for Canadian taxes as of June 30, 2014 and 2013:
RELIABRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2014 and 2013
NOTE 11 - INCOME TAXES - continued
The following is a reconciliation from the expected statutory federal income tax rate to the Company’s actual Canadian income tax rate for the years ended June 30:
We currently have four years of Federal USA tax returns that are subject to examination, including the fiscal years ended June 30, 2014, 2013, 2012, and 2011, based on their filing dates by taxing authorities. We currently have three years of Canadian tax returns that are subject to examination, including the fiscal years ended June 30, 2014, 2013, 2012 and 2011, based on their filing dates by taxing authorities.
We have adjusted our income tax provision from last year due to the fact that in October 2010, our company relocated to Kelowna, British Columbia, Canada. We have adjusted our figures accordingly, and show the amounts that are allocated to United States Income Tax and Canada Income Tax carryforwards of our Net loss. We currently have no uncertainty of the tax positions that we have taken and believe that we can defend them to any tax jurisdiction.
NOTE 12 - LEGAL MATTERS
In July 2011, the Company became aware of a claim against it by a previously contracted investor/ public relations firm. The agreement with the firm was for services to be performed and payment to be made in the Company’s common stock. The stock was issued to the firm and kept in trust, and the services were not performed in accordance with the agreement.
On January 19, 2012, the Company entered into a settlement agreement with the plaintiff of the above suit. The Company agreed to pay $15,000 in cash and 100,000 shares of our restricted common stock. The Company agreed to pay the cash payment in three equal payments commencing on March 1, 2012, and continuing through May 1, 2012, the Payment in common shares were to be issued on March 1, 2012. On March 30, 2012, we amended the settlement to pay $10,000 as total consideration instead of the original amounts above, and we paid this on April 2, 2012.
On October 27, 2011, the British Columbia Securities Commission issued a Cease Trade Order which prohibits the trading of the Company’s securities in British Columbia until such time as the Company files all required reports with SEDAR, the System for Electronic Analysis and Document Retrieval, operated by the Canadian securities administrators. The Company satisfied all the requests and the Cease Trade Order was lifted as of March 31, 2012.
As of June 30, 2014, the Company has an outstanding arbitration claim concerning certain activities regarding a former consultant. The Company expects to prevail on all counts and the recoveries will be more than any costs associated with it.
NOTE 13 - SUBSEQUENT EVENTS
In accordance with ASC 855-10 “Subsequent Events”, the Company has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued and found there were none that warranted disclosure, except for the below:
On October 30, 2014, a Company officer and shareholder advanced $29,991(USD) ($32,000 CDN) to meet the operating needs of the Company. The Company and its officer will determine an appropriate note and repayment program in future, but anticipate it to be a demand note bearing an 8% interest rate.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A
ITEM 9A - EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In connection with the preparation of this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our CEO and CFO, as of June 30, 2014, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15I and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2014.
Management’s Annual Report on Internal Control over Financial Reporting
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this annual quarterly report, 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 were not 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 year ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting. Our auditors have informed us that we have a material weakness in internal controls regarding recording equity transactions and equity instruments. The Chief Executive Officer and Chief Accounting Officer has examined our controls and has implemented changes to improve the flow of information regarding equity transactions.
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.
This annual report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
As described above there have been no changes in our internal control over financial reporting as defined in Rules 13a - 15(f) and 15d - 15(f) under the Exchange Act during the year ended June 30, 2014 that our certifying officers concluded materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9 - OTHER INFORMATION
None.
PART III
ITEM 10
ITEM 10 -
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors
Below are the names and certain information regarding the Company’s executive officers and directors:
Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified.
Currently, directors are not compensated for their services, although their expenses in attending meetings are reimbursed. Officers are elected by the Board of Directors and serve until their successors are appointed by the Board of Directors. Biographical resumes of each officer and director are set forth below.
On August 19, 2010, Andi Klimm resigned all of his director and officer positions.
On August 18, 2010, Antal Markus was appointed as CEO, Secretary, CFO.
Antal Markus, Director
Mr. Antal Markus has over 20 years of experience in the United States American financial markets. He has been involved in numerous mergers and acquisitions and has successfully listed companies on the Vancouver Stock Exchange. Mr. Markus has served as an officer and director of numerous publicly traded US companies. Mr. Markus has broad knowledge and experience in the inner workings of the US Stock Markets and his wide network of companies looking for investments are an indispensable resource for the company.
Board Committees
The Company currently has not established any committees of the Board of Directors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) Beneficial Ownership Reporting Compliance. During the year ended June 30, 2014, the following persons were officers, directors and more than ten-percent shareholders of the Company’s common stock:
Code of Ethics and Conduct
We currently have a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 and has been filed as Exhibit 14.1 to the Form 10-K. The Code will be designed to deter wrongdoing and to promote:
·
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
·
Full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC, and in other public communications that we made;
·
Compliance with applicable governing laws, rules and regulations;
·
The prompt internal reporting of violations of the Code to the appropriate person or persons; and
·
Accountability for adherence to this Code.
ITEM 10 -
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT - continued
This Code will require the highest standard of ethical conduct and fair dealing of its Chief Financial Officers. While this policy is intended to only cover the actions of our chief executive office as required under Sarbanes-Oxley, we expect that our other officers, directors and employees will also review the Code and abide by its provisions. We believe that our reputation is a valuable asset and must continually be guarded by all associated with us so as to earn the trust, confidence and respect of our suppliers, customers and stockholders.
Our Chief Executive Officer is committed to conducting business in accordance with the highest ethical standards. Our Chief Executive Officer must comply with all applicable laws, rules and regulations. Furthermore, our Chief Executive Officer must not commit an illegal or unethical act, or instruct or authorize others to do so.
Corporate Governance
There have not been any material changes to the procedures by which security holders may recommend nominees to the registrant's board of directors.
We do not have a financial expert serving on our audit committee due its limited operations and available cash.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Consulting Agreements
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, with 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 that his consulting services will be at a rate of $11,000 per month, and he was issued stock options to purchase 8,131,150 shares of the Company’s common stock for $0.10 per share. On January 1, each year that the consulting agreement is in force, he will be granted an option to purchase an amount of shares to represent 10% of our issued and outstanding common stock as of December 31st of the prior year. 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, 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, subsequently, this condition was terminated, and no further granting of options are required. On January 18, 2013, the President received an option to purchase 8,131,150 shares of the Company’s common stock for $0.10 per share. For the years ended June 30, 2014 and 2013, we recorded $138,600 and $136,047, respectively, in consulting fees - related party expense in connection with these contracts. As of June 30, 2014 and 2013, respectively, the Company accrued a total of $ $9,257 and $3,837 in royalties payable.
Compensation of Directors
The Company does not have a policy in effect to pay compensation to its directors for serving as a director. The shares issued to our director, Antal Markus, for his agreement to serve on the Board, was an isolated event.
Stock Option Grants
We did not grant stock options to our sole officer and director during our most recent fiscal year ended June 30, 2014. For the year ended June 30, 2013, Mr. Markus received options to purchase 8,131,150 shares of the Company’s common stock at a price of $0.10 per share for a period of ten (10) years.
Exercises of Stock Options and Year-End Option Values
None of our directors or officers exercised any stock options (i) during our most recent fiscal year ended June 30, 2014, or (ii) since the end of our most recent fiscal year on June 30, 2014.
ITEM 11 - EXECUTIVE COMPENSATION - continued
Outstanding Stock Options
The following table summarizes information about employee stock options under the 2013 Plan outstanding at June 30, 2014:
The total value of employee and non-employee stock options granted during the year ended June 30, 2014 was zero. During year ended June 30, 2014, the Company recorded no stock-based compensation expense relating to stock option grants.
At June 30, 2014, there was no unrecognized compensation cost related to stock options granted under the plan.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of our common stock on June 30, 2013 (after giving effect to the above transaction) based on 98,471,371 shares outstanding on such date, by (i) each person known by us to be the beneficial owner of more than five percent (5%) of our outstanding shares of common stock, (ii) each of our directors, (iii) each of our executive officers, and (iv) by our directors and executive officers as a group. Each person named in the table, has sole voting and investment power with respect to all shares shown as beneficially owned by such person and can be contacted at our address as indicated below.
(1)
Officer, director. Of the shares noted, 360,000 shares are owned by Mr. Markus’ wife. Does not include options to purchase 8,131,150 shares of the Company’s common stock nor the Preferred A shares owned by Mr. Markus.
Changes in Control
On August 18, 2010, our President, Chief Financial Officer, and Director resigned. Prior to his resignation, he appointed a replacement Director to serve on our Board of Directors and as our sole officer until additional directors are elected. On September 30, 2010, we issued 7,500,000 shares of our restricted common stock to our new sole officer and sole director for agreeing to serve our Company in that capacity, valued at $.002 per share for a total expense of $15,000 which is reflected in consulting fees expense.
On September 18, 2010 we entered in a binding letter of agreement with our former President to let him retain the active business contacts, contracts and assets of the Company’s business plan at that time in exchange for his returning 100 (post-split) shares of series “A” preferred stock that he was issued in January 2010 for cancellation and 180,000 (post-split) shares of common stock for cancellation. In addition, as part of this agreement, the amount of outstanding debt owed to him of $95,312, including advances of $94,775 and $537 in accounts payable - related party, was written off and recorded as paid in capital.
The Company has canceled the 100 (post-split) Series A Preferred Stock that were issued and also canceled the 180,000 shares previously owned by Mr. Klimm and returned all those shares to the treasury. On May 2, 2011, we authorized the issuance 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.
There are currently no arrangements which may result in a change in control of the Company.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
On May 1, 2011, the Company entered into a consulting agreement with Marant Holdings Inc., a company controlled by our President and Chief Executive Officer, for his consulting services at a rate of $10,000 per month, with 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 that his consulting services will be at a rate of $11,000 per month, and he was issued stock options to purchase 8,131,150 shares of the Company’s common stock for $0.10 per share. On January 1, each year that the consulting agreement is in force, he will be granted an option to purchase an amount of shares to represent 10% of our issued and outstanding common stock as of December 31st of the prior year. On March 1, 2014, the Company entered into a second amendment of the above consulting agreement with the prior agreement remaining in force except for that his consulting services will be at a rate of $12,100 per month. On January 18, 2013, the President received an option to purchase 8,131,150 shares of the Company’s common stock for $0.10 per share. For the years ended June 30, 2014 and 2013, we recorded $138,600 and $136,047, respectively, in consulting fees - related party expense in connection with these contracts. As of June 30, 2014 and 2013, respectively, the Company accrued a total of $ $9,257 and $3,837 in royalties payable.
On May 1, 2012, the Company entered into consulting agreements with Kyle, Anthony, and Brent Markus, sons of its President, for their respective consulting services at a rate of $43,000, respectively, USD per annum. The agreements were each for a period of twelve months, ending on December 31, 2012, and are automatically renewed for successive twelve month terms. The agreements may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. They each received one month’s salary as a signing bonus, and will each also receive a 2.50% royalty on all gross sales of the Company. On January 18, 2013, the Company entered into new consulting agreements with Kyle, Anthony, and Brent Markus increasing their respective annual compensation to $47,300 each. All others terms remained the same. On March 1, 2014, the Company entered into new consulting agreements with Kyle, Anthony and Brent which had the same terms as previous agreements but increased their annual compensation to $52,000 USD. Each 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 agreements may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. They all receive a $300 gas allowance monthly, and continue to receive a 2.50% royalty on all gross sales of the Company. For the years ended June 30, 2014 and 2013, we recorded $50,722 and $51,621, respectively, in consulting fees - related party expense for each of these individuals. For the years ended June 30, 2014 and 2013, the Company accrued a total of $7,714 and $3,198 in royalties payable, respectively.
On January 18, 2013, the Company entered into a consulting agreement with Michael Markus, the fourth son of our current President, for his consulting services at a rate of $35,200 USD per annum. The agreement will be in effect for a period of twelve months, ending on December 31, 2013, and is automatically renewed for successive twelve month terms. The agreement may be terminated by the Company at any time, or by mutual consent, without consequence with a ninety day written notice. He also received one month’s salary as a signing bonus, and he will also receive a 2.50% royalty on all gross sales of the Company. On March 1, 2014, the Company entered into a new consulting agreement with Michael 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 years ended June 30, 2014 and 2013, we recorded $43,033 and 35,561, respectively, in consulting fees - related party expense to this individual. For the years ended June 30, 2014 and 2013, the Company accrued a total of $7,714 and $2,019 in royalties payable, respectively.
Director Independence
We are not subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board comprised of a majority of “Independent Directors.”
ITEM 14
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees billed to us by our principal accountant for services rendered during the fiscal years ended June 30, 2014 and June 30, 2013 are set forth in the table below:
(1)
Audit fees consists of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.
(2)
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.”
(3)
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
(4)
All other fees consist of fees billed for all other services.
Audit Committee’s Pre-Approval Practice
Insomuch as we do not have an audit committee, our board of directors performs the functions of an audit committee. Section 10A(i) of the Exchange Act prohibits our auditors from performing audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved by the board of directors (in lieu of the audit committee) or unless the services meet certain de minimis standards.
PART IV
ITEM 15
ITEM 15 - EXHIBITS
The following Exhibits are being filed with this Annual Report on Form 10K:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Kelowna, British Columbia, on November 3, 2014.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on November 3, 2014.
By:
/s/ Antal Markus
Antal Markus
Director, Chief Executive Officer
Chief Financial Officer (Principal Financial
Officer), Treasurer, Principal Accounting Officer, Secretary