Item 2. Mana
gement’s
Discussion and Analysis of Financial Condition and Results of Operations.
The
information set forth in this Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995,
including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii)
our strategy for financing our business. Forward-looking statements are statements other than historical information or statements
of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”,
“intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete
financing and purchase capital expenditures, growth of our business including entering into future agreements with companies,
and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial needs.
Although
we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the
bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections,
the inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by us
or any other person that our objectives or plans will be achieved.
We
assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions
affecting forward-looking statements.
Our
revenues and results of operations could differ materially from those projected in the forward-looking statements as a result
of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of
the our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates,
and changing government regulations domestically and internationally affecting our products and businesses.
You
should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and
the other financial data appearing elsewhere in this Quarterly Report.
US
Dollars are denoted herein by “USD”, "$" and "dollars".
Overview
We
were incorporated on March 4, 2014 under the laws of the State of Nevada. Since September 15, 2015, we have operated through a
wholly-owned subsidiary RM Fresh Brands Inc. (“RM Fresh”), who services food and beverage retailers and distributors
who are looking for innovative, trend-setting products across North America and in international markets. With a focus on sustainable,
category changing consumables, RM Fresh acquired the rights to distribute an extensive portfolio of highly desirable brands, including
Boxed Water, Cleansify, Uncle Si’s Iced Tea, Chef 5-Minute Meals, Gurkha Cigars, Shimla Foods, Aloe Gloe and Arriba Horchata.
Through a network of sub-distribution partners across Canada, RM Fresh provides national product distribution and brokerage services.
RM Fresh has an emerging focus on the United States and Middle East through the establishment of sub-distribution partners.
On August 31, 2016, in order to fund
the ongoing operation and further development of RM Fresh, we consented to new third party investments into RM Fresh in the approximate
total amount of $175,000, made in the form of cash and retirement of indebtedness owed by RM Fresh. As result of these new investments
into RM Fresh, our ownership percentage of the company has been reduced to twenty percent (20%). In addition, we entered into a
new Shareholder Agreement with RM Fresh, under which our shares in RM Fresh are subject to certain restrictions on transfer until
such time as we declare a shareholder dividend of our RM shares following a going public transaction by RM Fresh, or in the alternative,
for one (1) year after RM Fresh completes a going public transaction. Further, we disposed of an inter-company liability owed to
us by RM Fresh in the amount of CDN$166,961. The liability was documented under a Demand Promissory Note issued to us by RM Fresh.
We then assigned the note to an investor in RM Fresh in exchange for $3,000. Finally, we entered into a mutual Release agreement
with RM Fresh. Under the Release, we released and discharged all liabilities owed to us by RM Fresh (with the exception of the
Demand Promissory Note). RM Fresh in turn released us of all liabilities owing to RM Fresh and released us all ongoing contractual
and financial responsibilities to RM Fresh, including our contractual obligation to further fund management fees or other expenses
to be incurred by RM Fresh.
Going
forward, we are continuing as a holding company owning a 20% ownership stake in RM Fresh. Our management is also reviewing additional
opportunities for new business.
Results
of Operations – Three Months Ended September 30, 2016 and September 30, 2015
For the three months ended September
30, 2016, the Company generated $74,042 in revenue. The Company had yet to generate revenue as of the three months ended September
30, 2015. The increase in revenue is from sales made by RM Fresh. The Company's unaudited interim condensed financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The financial statements do not include any adjustment relating to recoverability and classification
of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The
Company has a minimum cash balance available for payment of ongoing operating expenses, has experienced losses from operations,
and it does not have a source of revenue. Its continued existence is dependent upon its ability to continue to execute its operating
plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will
be available, or will be available on terms acceptable to the Company.
Revenue
and gross profit
Revenue of $74,042 during the three
months ended September 30, 2016, represents sales made by RM Fresh. The Company had no revenue during the three months ended September
30, 2015. The Company made a gross profit of $23,377 during the three months ended September 30, 2016, as opposed to $0 gross profits
during the three months ended September 30, 2015, mainly through increased sales and a relatively favorable exchange rate.
Operating
Expenses
Our
total operating expenses were $30,515 and $57,718 for the three months ended September 30, 2016 and 2015, respectively. The
decrease is primarily due to a decrease of $40,299 in professional fees.
Translation
Adjustment
Translation
adjustment as a result of the currency exchange rate between U.S. Dollar and Canadian Dollar was $0 for the three months ended
September 30, 2016, compared to $6,704 for the three months ended September 30, 2015.
Comprehensive
Gain (Loss)
We
reported a comprehensive gain of $53,276 and loss of ($1,460,670) for the three months ended September 30, 2016 and 2015, respectively.
The increase is primarily due to a significant increase in expense due to impairment of goodwill as a result of the acquisition
of RM Fresh Brand Inc. as explained above.
Liquidity
and Capital Resources
As
of September 30, 2016, we had cash balance of $4,777. As of June 30, 2016, we had cash balance of $2,993. The increase represents
normal business variation.
The
following is a summary of the Company's cash flows provided by (used in) operating, investing, and financing activities for the
three months ended September 30, 2016 and 2015 respectively:
|
|
For the
three months ended
September 30, 2016
$
|
|
|
For the
three months ended
September 30, 2015
$
|
|
Net Cash Used in Operating Activities
|
|
|
(3,409
|
)
|
|
|
(55,283
|
)
|
Net Cash Provided by Investing Activities
|
|
|
-
|
|
|
|
3,671
|
|
Net Cash Provided by Financing Activities
|
|
|
5,193
|
|
|
|
113,301
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
1,784
|
|
|
|
61,689
|
|
Net
Cash Used in Operating Activities
For the three months ended September
30, 2016, net cash used in operating activities was $3,409, primarily attributable to the $61,154 net gain due to loss of control
in subsidiary.
For
the three months ended September 30, 2015, net cash used in operating activities was $55,283, primarily attributable to our net
loss of $1,453,966 adjusted by impairment of goodwill of $1,394,135, increase of $1,343 in prepaid expenses, and increase of $3,205
in accrued expenses and other liabilities.
Net
Cash Provided by Investing Activities
For
the three months ended September 30, 2016, net cash provided by investing activities was $0, compared to $3,671 for the three
months ended September 30, 2015. The decrease is due to deconsolidation of RM Fresh due to loss of control.
Net
Cash Provided by Financing Activities
For
the three months ended September 30, 2016, net cash provided by financing activities was $5,193, compared to $113,301 for the
three months ended September 30, 2015. The decrease is mainly attributable to the Company not issuing convertible notes to investors
in the same amount as in 2015.
We
have limited assets and have generated no revenues since inception. We are also dependent upon the receipt of capital investment
or other financing to fund our ongoing operations and to execute our business plan of seeking a combination with a private operating
company. In addition, we are dependent upon certain related parties to provide continued funding and capital resources.
Going
Concern
Our unaudited interim condensed financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. We have incurred recurring losses from operations and as at September 30, 2016 has accumulated
deficit of $$3,826,060 which has primarily arisen from a non-cash goodwill impairment charge in the current period. We anticipate
that the Company will attain profitable status and improve our liquidity through the acquisition of RM Fresh as explained in Note
2 to our financial statements and continued business development and additional debt or equity investment in the Company. Our
continued existence is dependent upon our ability to continue to execute our operating plan and to obtain additional debt or equity
financing. There can be no assurance that the necessary debt or equity financing will be available, or will be available on terms
acceptable to us, in which case we may be unable to meet our obligations. Should we be unable to realize our assets and discharge
our liabilities in the normal course of business, the net realizable value of our assets may be materially less than the amounts
recorded in the financial statements. The financial statements do not include any adjustments relating to the recoverability of
recorded asset amounts that might be necessary should we be unable to continue in existence.
Critical
Accounting Policies and Estimates
Basis
of Presentation and Consolidation
The
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America and are expressed in United States dollars (“USD”).
The Company’s unaudited interim
condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) for interim financial information and the rules and regulations of the SEC and are expressed
in US dollars. Accordingly, the unaudited interim condensed financial statements do not include all information and footnotes required
by US GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited interim condensed
financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair
presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending June
30, 2017 or for any other interim period. The unaudited interim condensed financial statements should be read in conjunction with
the audited financial statements of the Company and the notes thereto as of and for the year ended June 30, 2016.
The
Company’s fiscal year-end is June 30. The parent Company’s functional currency is the US dollar. The subsidiary
operates in Canadian dollars. The Company’s reporting currency is the U.S. dollar.
Use
of Estimates
The
preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Areas involving significant estimates
and assumptions include inventory valuation reserves, allowance for doubtful account, intangible assets, goodwill, impairment,
income taxes, accruals and going concern assessment. These estimates are reviewed periodically, and, as adjustments become
necessary, they are reported in earnings in the period in which they become known. Actual results could materially differ from
those estimates.
Cash
Cash
includes cash on hand and balances with banks.
Inventories
Inventories
which comprise of finished goods, is valued at the lower of cost and market value, with cost being determined on a first-in, first-out
basis. The cost of finished goods consists of purchase price, freight, custom duties and other delivery expenses. Net realizable
value is the estimated selling price in the ordinary course of business, less any applicable selling costs. The Company
evaluated the carrying value of inventory on a regular basis, taking into account such factors as historical and anticipated future
sales compared with quantities on hand and the price the Company expects to obtain for products in market compared with historical
cost.
Revenue
Recognition
The
Company recognizes revenues when they are earned, specifically when all of the following conditions are met:
☐
ownership of the goods have been transferred to the customers. Ownership of the goods is transferred to the customers when
the good are transferred to a designated carrier in accordance with shipping terms agreed with the customer.
☐
there
is persuasive evidence that an arrangement exists;
☐
there
are no significant obligations remaining;
☐
amounts
are fixed or can be determined; and
☐
the
ability to collect is reasonably assured.
Accounts
Receivable
Accounts
receivable are stated at outstanding balances, net of an allowance for doubtful accounts. The allowance for doubtful accounts
is established through provisions charged against income. Accounts deemed to be uncollectible are charged against the allowance
and subsequent recoveries, if any, are credited to the allowance. Management’s periodic evaluation of the adequacy of the
allowance is based on past experience, aging of the receivables, adverse situations that may affect a customer’s ability
to pay, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires estimates
that may be susceptible to significant change. Unpaid balances remaining after the stated payment terms are considered past due.
The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit
risk exposure is limited.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with FASB ASC Topic 705 “Cost of Sales and Services”.
Costs related to raw materials purchased, are included in inventory or cost of goods sold, as appropriate. While amounts charged
to customers for shipping product are included in revenues, the related outbound freight costs are included in expenses as incurred.
Segment
Reporting
The
Company operates in one operating segment based on the activities for the Company in accordance with ASC Topic 280-10. Operating
segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
Goodwill
and Identifiable Intangible Assets
Goodwill
and other identifiable intangible assets with indefinite lives that are not being amortized, such as trade names, are tested at
least annually for impairment and are written down if impaired. Identifiable intangible assets with finite lives are amortized
over their estimated useful lives and are reviewed for impairment whenever facts and circumstances indicate that their carrying
values may not be fully recoverable. The intangible asset is being amortized over its estimated useful life of 5 years using the
straight-line method.
Earnings
(Loss) Per Share
The
Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
Topic 260-10 which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings
per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity. Diluted earnings per share exclude all potentially dilutive shares if their effect
is anti-dilutive. There were no potentially dilutive shares outstanding as at September 30, 2016 and June 30, 2016.
Foreign
Currency Translation
The
functional currency of the Company is the US dollar. Transactions denominated in currencies other than the functional currency
are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.
Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains
or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. The
translation gains and losses resulting from the changes in exchange rates are reported in accumulated other comprehensive gain
(loss).
Fair
Value of Financial Instruments
Accounting
Standards Codification Topic 820 “
Fair Value Measurements and Disclosures
” (“ASC 820”) defines
fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of
assets and liabilities. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
Level
1 - Valuation based on quoted market prices in active markets for identical assets or liabilities.
Level
2 - Valuation based on quoted market prices for similar assets and liabilities in active markets.
Level
3 - Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s
best estimate of what market participants would use as fair value.
In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Fair value estimates discussed herein
are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments or interest
rates that are comparable to market rates. These financial instruments include, accounts receivable, accounts payable and accrued
liabilities, due to stockholders, due to related parties and notes payable. The Company's cash, which is carried at fair value,
is classified as a Level 1 financial instruments. Bank accounts are maintained with financial institutions of reputable credit,
therefore, bear minimal credit risk.
Impairment
of Long-Lived Assets
The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts
of the assets may not be recoverable through undiscounted future cash flows. If impairment exists based on expected future undiscounted
cash flows, a loss is recognized in income. The amount of the impairment loss is the excess of the carrying amount of the impaired
asset over the fair value of the asset, typically based on discounted future cash flows.
Income
Taxes
The
Company accounts for under ASC Topic 740 Accounting for Income Taxes. The Company provides for federal and provincial income
taxes payable, as well as for those deferred because of the timing differences between reporting income and expenses for financial
statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in
tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary,
to reduce deferred income tax assets to the amount that is more likely than not to be realized.
Recently
Issued Accounting Pronouncements
The
Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not
have a material effect on the financial position, results of operations or cash flows of the Company.
Off
Balance Sheet Arrangements
We
do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital
resources that are material to an investment in our securities.