ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FORWARD LOOKING STATEMENTS
The information in this discussion contains
forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding our
capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts
may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such
as “may,” “will,” “should,” “expect,” “plan,” “intend,”
“anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,”
the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors, including the risks described below, and, from time to time, in other reports
we file with the United States Securities and Exchange Commission (the “
SEC
”). These factors may cause our actual
results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements,
or disclose any difference between its actual results and those reflected in these statements.
We cannot predict all of the risks and uncertainties.
Accordingly, such information should not be regarded as representations that the results or conditions described in such statements
or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any
of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include
information concerning possible or assumed future results of our operations, including statements about potential acquisition or
merger targets; business strategies; future cash flows; financing plans; plans and objectives of management, any other statements
regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other
statements that are not historical facts.
These forward-looking statements represent
our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other
factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results
expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described
in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report.
All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to
us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred
to in this Report.
Except to the extent required by law, we undertake
no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change
in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
As used in this Quarterly Report, the terms
“
we
,” “
us
,” “
our
,” and the “
Company
” mean Armeau Brands
Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report are expressed in U.S. dollars, unless otherwise indicated.
OVERVIEW
Our company was incorporated in the State of
Nevada on March 15, 2011. Our business objectives are to produce and market our own brand of ice wine made from grapes harvested
in Armenia, a ice wine to China and Russia. We seek to significantly expand the production of our icewine, which we believe is
the first ice wine produced in Armenia or its neighboring regions.
Our offices are currently located at 1805-141
Lyon Court, Toronto, Ontario, Canada, M6B 3H2. Our telephone number is (647) 640-3625. We have a website at
www.armeaubrands.com
.
Activities to Date
In the summer of 2011, our company sought proposals
from various icewine experts in Canada with the objective of producing icewine in Armenia.
On August 2, 2011, we accepted an icewine consultation
proposal from Mr. Tilman Hainle of IMBIBEdesign. Mr. Hainle, along with his father, had produced the first icewine in Canada in
1978. Pursuant to this proposal, IMBIBEdesign outlined the scope of work, schedule, deliverables, and terms of agreement for the
icewine design and production process in Armenia. Fees due to IMBIBEdesign under this proposal were approximately $9,700 which
was initially estimated at $8,000 and comprised of billings at an hourly rate of $135/hour.
In September 2011, Mr. Hainle accompanied our
company to Armenia. In Armenia, we contracted Mr. Gagik Melyan, the deputy director of the Scientific Centre of Viticulture for
Armenia, Fruit-Growing and Wine-Making, to accompany our team to various grape growing regions in Armenia and to provide us with
his scientific and expert guidance and supervision of vineyard activities in Armenia for the 2012 season. The Scientific Centre
of Viticulture for Armenia was founded in 1927 and is a research institute engaged in plant breeding since its inception, and in
plant biotechnology since 1990. Activities concern grapes and other fruits. 60% of its budget is directed to germplasm enhancement.
The 40% remaining is equally shared between line development and line evaluation.
On October 11, 2011, we entered into a contractor
agreement with Mr. Melyan where we would compensate him $500 per month in exchange for his expertise. With the help of our experts,
our company identified a village near the town of Areni in the province of Vayots Dzor that had the right climatic and soil conditions
for Icewine production. Two indigenous Armenian grapes, one red and one white, were chosen to create our first vintage.
Our company then began negotiations with various
local wine companies in Armenia, On October 11, 2011, our company and EDVAG Group entered into a wine services agreement (the “Wine
Services Agreement”) whereas EDVAG Group agreed to provide wine-making services to produce a Canadian-style icewine under
the tutelage of Mr. Hainle.
Under this agreement, EDVAG shall manage and
realize the entire winemaking process under the guidance and direction of our company and our technical contractor(s).
We will also reimburse EDVAG for the following
items procured for or on behalf of Armeau in the winemaking process at landed cost plus taxes. This Agreement will continue in
force for a minimum period of 10 years. EDVAG is a wholly managed winemaking company duly registered in Armenia and operating in
the CIS and international markets.
On October 15, 2011, 7000 m2 (0.7 hectares)
of vineyard was reserved in a village in the province of Vayots Dzor Armenia. To reserve the vineyard, the vineyard owner was paid
in advance on an estimated yield. EDVAG paid this advance on our behalf and we paid EDVAG back with an extra 10% service fee as
per our agreement. On January 23, 2012, six tons of white (Voskehat) and three tons of red (Areni) were harvested at a temperature
of -10°C (14°F).
On February 6, 2012, we accepted a proposal
by IMBIBEdesign to travel to Armenia again, this time to oversee the fermentation of our icewine. Pursuant to this proposal, IMBIBEdesign
outlined the scope of work, schedule, deliverables, and terms of agreement for the icewine winemaking in Armenia. Fees due to IMBIBEdesign
under this proposal were approximately $5,200 which included a lump sum of $3,600 and additional services, such as change in the
scope of work by us that was billed at an hourly billing rate of $135/hour.
1250 litres of icewine were produced. The icewine
produced consisted of 950 litres of white icewine (Voskehat grape) and 300 litres of red icewine (Areni grape). The red icewine
was ultimately judged of insufficient quality and rejected. Due to technical problems, the bottling of the white icewine was delayed
until December 2015 when the wine was deemed ready to drink. 4,500 bottles of white icewine were bottled and 200 bottles were sent
to Canada in December 2015 for sampling and evaluation. We are using the remaining 4,300 bottles for tasting and sampling by potential
customers and distributors.
On February 1, 2016, we entered into a distribution
agreement with Alpha Food Services. Pursuant to this agreement, we agreed to grant to Alpha Food Services, for a term of three
years, the exclusive right to sell and distribute our icewine products in Armenia, Russia, and the Commonwealth of Independent
States. The agreement does not apply to our first vintage, which is being used for sample and marketing purposes.
The purchase price of icewine to Alpha Food
includes delivery to Alpha Food’s warehouse. The delivery cost component of the purchase price shall be mutually negotiated
and adjusted between the parties from time to time in response to account for any changes to the delivery requirements. Our company
and Alpha Food shall negotiate any price increases for any icewine products at least 60 days prior to the effective date of any
such increase. Alpha Food shall have the right to order one month of supply of the icewine products at the current price prior
to any increase.
Our company and Alpha Food shall agree on our
price to Alpha Food and Alpha Food’s price to its customers. All parties shall agree on an annual basis, or more frequently
if required, as to the prices at which Alpha Food shall sell the icewine products to its customers.
In the event that our company and Alpha Food
cannot agree on either price within 30 days of commencement of the negotiations, the prices then in effect for each of said prices
will be increased by an amount equal to the change in the Consumer Price Index-All US over a period of months equal to the number
of months since the last price increase for each price. This Agreement shall continue in full force and effect for a period of
three years.
Our Recent Business
During fiscal 2016,
we were unable to raise the necessary funds to achieve our objectives of buying and equipping a wine-making facility in Armeia.
We did not earn any revenues from March 15, 2011 (date of inception) to January 31, 2017. However, we did produce 4,500 bottles
of icewine which will be used for product sampling and marketing to potential customers and distributors. We intend to apply
any proceeds from the sale of our current icewine reserves toward the production of a second vintage. We have not commenced the
marketing stage of our business, other than the review of data and online research, the development of a logo and label, selection
of a bottle, mini-product brochure and the development of a website www.armeaubrands.com, and can provide no assurance that we
will generate revenue from the proposed sale of our beverages.
Change of Control
and Director
On June 5, 2017, Mr. Jaitegh Singh purchased a total of 7,500,000
“restricted” shares of our Company’s common stock from our sole officer and director, Cassandra Tavukciyan, for
aggregate consideration of $345,000. The share purchase was consummated in a private transaction pursuant to a common stock purchase
agreement entered into between Mr. Singh and Ms. Tavukciyan. As a result of the transaction, Mr. Singh holds voting and investment
power over approximately 79% of our issued and outstanding securities.
Concurrent with the share purchase transaction, Cassandra Tavukciyan
resigned as our Chief Executive Officer, Chief Financial Officer and sole director, and was succeeded in those capacities by Jaitegh
Singh.
Results of Operations for the Three Months
Ended April 30, 2017 and 2016
Our operating results for the three periods
ended April 30, 2017 and 2016 are summarized in the table below.
|
|
Three Months
Ended April 30,
2017
|
|
|
Three Months
Ended April 30,
2016
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
443
|
|
|
|
1,306
|
|
Product development
|
|
|
Nil
|
|
|
|
-
|
|
Professional fees
|
|
|
13,155
|
|
|
|
11,895
|
|
Total operating expenses
|
|
|
13,598
|
|
|
|
13,201
|
|
Net Loss
|
|
|
(13,598
|
)
|
|
$
|
(13,201
|
)
|
Revenues
Our revenue during the three month periods
ended April 30, 2017 and 2016 was $Nil.
Operating Expenses
Our operating expenses amounted to $13,598
during the three month period ended April 30, 2017 which comprised primarily of professional fees and general and administrative
costs. For the three month period ended April 30, 2016, our operation expenses amounted to $13,201.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
April 30,
|
|
|
January 31,
|
|
|
|
2017
|
|
|
2017
|
|
Current assets
|
|
$
|
3,749
|
|
|
$
|
12,634
|
|
Current liabilities
|
|
|
69,742
|
|
|
|
65,029
|
|
Working capital (deficit)
|
|
$
|
(65,993
|
)
|
|
$
|
(52,395
|
)
|
As of April 30, 2017, we had $3,749 in cash
and total assets, $69,742 in total liabilities, and a working capital deficit of $65,993. As of January 31, 2017, we had cash and
total assets of $12,634, $65,029 of total liabilities, and a working capital deficit of $52,395. The decrease in cash is due our
ongoing use of cash in operations and the absence of financing activities during the most recent period. . The increase in liabilities
and working capital deficit is due to the fact that we incurred operating expenditures at a greater rate than cash received from
financing activities.
Cash Flows
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows used in operating activities
|
|
$
|
(8,885
|
)
|
|
$
|
(7,578
|
)
|
Cash flows provided by financing activities
|
|
|
—
|
|
|
|
15,000
|
|
Net increase (decrease) in cash during the period
|
|
$
|
(8,885
|
)
|
|
$
|
7,422
|
|
Cash Flows Used in Operating Activities
During the three month period ended April 30,
2017, we have used $8,885 in our operating activities compared to $7,578 during the three months ended April 30, 2016. The increase
in cash used for operating activities is due to the increase in expenditures from professional fees related to our SEC registration
process.
Cash Flows Provided by Financing Activities
During the three month period ended April 30,
2017, we did not raise any cash from financing activities compared to $15,000 received during the three months ended April 30,
2016 from the issuance of shares to our President and Director. .
Anticipated Cash Requirements
We will require additional funds to fund our
budgeted expenses over the next 12 months. These funds may be raised through, equity financing, debt financing, or other sources,
which may result in further dilution in the equity ownership of our shares.
We anticipate that our minimum cash expenses
over the next 12 months (beginning May 2017) will be approximately $54,000 as described in the table below. These estimates may
change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders
or other sources.
Description
|
|
Estimated Expenses
($)
|
|
General and administrative expenses
|
|
|
8,000
|
|
Professional fees
|
|
|
15,000
|
|
Grapes
|
|
|
6,000
|
|
Winemaking fees
|
|
|
10,000
|
|
Bottles
|
|
|
10,000
|
|
Miscellaneous
|
|
$
|
5000
|
|
Total
|
|
|
54,000
|
|
Our general and administrative expenses for
the year will consist primarily of transfer agent fees, bank and interest charges and general office expenses. The professional
fees are related to our regulatory filings throughout the year and include legal, accounting and auditing fees.
Based on our planned expenditures, we will
require approximately $54,000 to proceed with our business plan over the next 12 months. As of April 30, 2017, we had $3,749 cash
on hand. If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business
plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.
We intend to raise the balance of our cash
requirements for the next 12 months from private placements, shareholder loans or possibly a registered public offering (either
self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money through such efforts, we may review
other financing possibilities such as bank loans. At this time we do not have a commitment from any broker-dealer to provide us
with financing. There is no assurance that any financing will be available to us or if available, on terms that will be acceptable
to us.
Even though we plan to raise capital through
equity or debt financing, we believe that the latter may not be a viable alternative for funding our operations as we do not have
sufficient tangible assets to secure any such financing. We anticipate that any additional funding will be in the form of equity
financing from the sale of our common stock. However, we do not have any financing arranged and we cannot provide any assurance
that we will be able to raise sufficient funds from the sale of our common stock to finance our operations. In the absence of such
financing, we may be forced to abandon our business plan.
Going Concern
Our financial statements for the three month
period ended April 30, 2017 have been prepared on a going concern basis and contain an additional explanatory paragraph which identifies
issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our continuation as a company as a going
concern is dependent upon the continued financial support from its shareholder, the ability of us to obtain necessary debt or
equity financing to continue operations, and the attainment of profitable operations. As at April 30, 2017, we have a working
capital deficiency of $65,993 and an accumulated deficit of $120,093 since inception. These factors raise substantial doubt
regarding our ability to continue as a going concern. These interim financial statements do not include any adjustments to
the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary
should we be unable to continue as a going concern.
If our operations and cash flow improve, management
believes that we can continue to operate. However, no assurance can be given that management’s actions will result in profitable
operations or an improvement in our liquidity situation. The threat of our ability to continue as a going concern will cease to
exist only when our revenues have reached a level able to sustain our business operations.
Off-Balance Sheet Arrangements
We have no significant 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,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies
An appreciation of our critical accounting
policies is necessary to understand our financial results. These policies may require management to make difficult and subjective
judgments regarding uncertainties, and as a result, such estimates may significantly impact our financial results. The precision
of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes.
We have applied our critical accounting policies and estimation methods consistently.
Basis of Presentation
The accompanying interim financial statements
of the Company should be read in conjunction with the financial statements and accompanying notes filed with the U.S. Securities
and Exchange Commission for the fiscal year ended January 31, 2017. In the opinion of management, the accompanying interim financial
statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position
and the results of its operations and its cash flows for the periods shown.
Use of Estimates
The preparation of these interim financial
statements in accordance with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported. Actual results could differ materially from these estimates. The results of operations
and cash flows for the period shown are not necessarily indicative of the results to be expected for the full year.
Recent Accounting Pronouncements
We have implemented all new accounting pronouncements
that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements
that have been issued that might have a material impact on its financial position or results of operations.
Changes in and Disagreements with Accountants
on Accounting Procedures and Financial Disclosure
None.