LEGACY VENTURES INTERNATIONAL INC. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Quarterly Period Ended September 30, 2016

or

☐      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-199040

LEGACY VENTURES INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

2215-B Renaissance Drive

Las Vegas, Nevada 89119

(Address of principal executive offices)(Zip Code)

1-800-918-3362

(Registrant’s telephone number, including area code )

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐   No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

As of November 3, 2016, the registrant had 64,527,000 shares of its common stock issued and outstanding.

LEGACY VENTURES INTERNATIONAL INC.

QUARTERLY REPORT ON FORM 10-Q

September 30, 2016

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

The following unaudited interim condensed financial statements of Legacy Ventures International Inc. (referred to herein as the “Company,” “we,” “us” or “our”) are included in this quarterly report on Form 10-Q:

Interim Condensed Financial Statements (Unaudited)

LEGACY VENTURES INTERNATIONAL INC.

For the Quarterly Period Ended September 30, 2016

LEGACY VENTURES INTERNATIONAL INC.

For the Period Ended September 30, 2016

Interim Condensed Financial Statements (Unaudited)

LEGACY VENTURES INTERNATIONAL INC.

CONDENSED BALANCE SHEET (Unaudited)

Going concern (Note 2)

Subsequent events (Note 11)

See accompanying notes

LEGACY VENTURES INTERNATIONAL INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

See accompanying notes

LEGACY VENTURES INTERNATIONAL INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

See accompanying notes

LEGACY VENTURES INTERNATIONAL INC.

1.   NATURE OF OPERATIONS

Legacy Ventures International, Inc. (the “Company”) is a Management Company incorporated on March 4, 2014 in the State of Nevada. Upon its acquisition of RM Fresh Brands Inc. (formerly Influx Global Media Inc.) [“RM Fresh”], it was engaged in the food and beverage distribution business whose principal place of business is located at 2215-B Renaissance Drive, Las Vegas, Nevada, 89119 USA. 

On September 30, 2015 (the “Closing”), the Company entered into a Share Exchange Agreement (the “Agreement”) with and among RM Fresh and its stockholders. Pursuant to the Agreement, the Company acquired 100% of the issued and outstanding stocks of RM Fresh in exchange for the issuance of 2,000,000 of the Company’s common stock. As a result of this transaction, RM Fresh became a wholly owned subsidiary of the Company and the former stockholders of RM Fresh owned approximately 7% of the Company’s common stock.

On August 31, 2016, the Company entered into a group of transactions related to RM Fresh. In order to fund the ongoing operation and further development of RM Fresh, the Company 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 to it. As a result of these new investments, the Company’s ownership percentage of RM Fresh has been reduced to twenty percent (20%). In addition, the Company entered into a new Shareholder Agreement with RM Fresh, under which the Company’s stocks in RM Fresh are subject to certain restrictions on transfer until such time as the Company declares a stockholder dividend of its RM Fresh stocks following a going public transaction by RM Fresh, or in the alternative, for one (1) year after RM Fresh completes a going public transaction.

RM Fresh was incorporated on July 29, 2008 under the laws of the Province of Ontario, Canada and is engaged in the business of trading and distribution of food, beverages and body care products.

2.   GOING CONCERN

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. During the current period, the Company has incurred recurring losses from operations and as at September 30, 2016 has a working capital deficiency of $33,759 and accumulated deficit of $3,826,060 which has primarily arisen from a non-cash goodwill impairment charge in the current period. Further, as explained in Note 1, on August 31, 2016, the Company’s ownership percentage of RM Fresh has been reduced to 20%. The Company’s 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 that the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company, in which case the Company may be unable to meet its obligations. Should the Company be unable to realize its assets and discharge its liabilities in the normal course of business, the net realizable value of its 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 the Company be unable to continue in existence.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The 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. The 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.

Use of Estimates

The preparation of the unaudited interim condensed 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 unaudited interim condensed financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to accruals, inventory valuation reserves, allowance for doubtful accounts, intangible assets, goodwill, impairment, income taxes and going concern. Actual results could materially differ from those estimates.

Recently Issued Accounting Standards

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.

4.   LOSS OF CONTROL IN SUBSIDIARY COMPANY

On September 30, 2015, the Company entered into a Share Exchange Agreement with and among RM Fresh and its shareholders, pursuant to which, the Company acquired 100% of the issued and outstanding shares of RM Fresh in exchange for the issuance of 2,000,000 shares of the Company’s common stock. As a result of this transaction, RM Fresh became a wholly owned subsidiary of the Company and the former shareholders of RM Fresh owned approximately 7% of the Company’s shares of common stock.

Subsequently, on August 31, 2016, the Company entered into a group of transactions related to RM Fresh. In order to fund the ongoing operation and further development of RM Fresh, the Company 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, reducing the Company’s ownership percentage of RM Fresh to twenty percent (20%) and is thus accounted for as an available for sale investment. As a result, the unaudited interim condensed financial statements of the Company as at, September 30, 2016, do not include the assets and liabilities of RM Fresh, which is no longer a wholly-owned subsidiary effective August 31, 2016, while the balance sheet as at June 30, 2016 is consolidated and contains the accounts of RM Fresh. The condensed statement of operations of the Company includes the results of the operations of RM Fresh up to August 31, 2016, which is the effective date of change in control, due to loss of control in RM Fresh and consequent de-consolidation. The fair value of the assets and liabilities as at August 31, 2016 and the carrying value of the investments, which resulted in the Company recording a gain of $61,154 in the statement of operations, is as follows:

Management has concluded that the entire available for sale investment in RM Fresh is impaired and hence the investment is written off.

5.   ACCOUNTS AND OTHER RECEIVABLES

Accounts and other receivables as at June 30, 2016 represent trade accounts receivable of $130,343, net of allowance of $48,943, and other receivable of $134,537. Other receivable relates to a distributor listing fee recoverable from a supplier under an arrangement with the Company. All these balances related to RM Fresh.

6.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable at September 30, 2016 comprises of accrued liabilities amounting to $21,417 ($20,574 as at June 30, 2016).

7.   DUE TO STOCKHOLDERS

Amount due to stockholders are unsecured, interest free and is repayable on demand.

8.   NOTES PAYABLE

Outstanding note payable of $51,794 on June 30, 2016 represents unsecured promissory notes amounting to $26,000 and $25,794 issued on April 1, 2015 and March 4, 2016, respectively bearing interest at 20% and 12% per annum, respectively, repayable within a year from issuance date. Interest accrued on these notes during the year ended June 30, 2016 amounted to $6,218.

Further, on August 21, 2015 the Company issued $180,000 convertible notes payable bearing interest at 10% p.a. repayable on February 21, 2017. The principal amount and accrued interest were convertible into common stock of the Company at the option of the holder at any time from the date of issuance at $1. The Company concluded that there is no beneficial conversion feature determined in accordance with the guidance provided in ASC 470. Accordingly, these notes were recognized as liability at the time of issuance. On September 30, 2015, all the Holders exercised their right to convert the outstanding principal amount of these notes, into the Company’s common stock at a price of $1.00 per stock (Note 9).

9.   STOCKHOLDERS’ DEFICIENCY

COMMON STOCK - AUTHORIZED

As at September 30, 2016, the Company authorized to issue 10,000,000 of preferred stock, with a par value of $0.0001 and 100,000,000 of common stock, with a par value of $0.0001.

COMMON STOCK - ISSUED AND OUTSTANDING

On September 9, 2015, the Board of Directors and stockholders of the Company approved a Certificate of Amendment to its Articles of Incorporation to increase the par value of Company’s common stock and preferred stock from no par value to $0.0001 per stock and approved a 1:7 forward split upon the increase of the par value. As a result, the issued and outstanding common stock of the Company increased from 7,400,000 stocks prior to the Forward Split to 51,800,000 stocks following the Forward Split. Prior year amounts have been restated from the earliest period presented, to reflect the effect of the forward split.

9.   STOCKHOLDERS’ DEFICIENCY (continued)

COMMON STOCK - ISSUED AND OUTSTANDING (continued)

On September 30, 2015 the Company issued 2,000,000 of common stock to the former stockholders of RM Fresh pursuant to Share Exchange Agreement. Further, the Principal stockholder of the Company agreed to cancel 25,800,000 of common stock in accordance with the Cancellation Agreement.

As explained in Note 8, on September 30, 2015 the holders of convertible notes payable exercised their option to convert the notes payable including interest into stocks at a price of $1 per stock with the resultant issuance of 180,000 stocks.

During October and December 2015, the Company issued 92,000 of common stock to three investors at a price of $1.25 per common stock and received gross proceeds of $115,000.

On October 1, 2015, the Company issued 250,000 of common stock to a director in connection with joining the board of directors. These stocks were fair valued at $337,500, determined based on the market price on the date of issuance, and recorded as expense under professional fees in the statement of operations.

During October and December 2015, the Company issued 335,000 of common stock to various third parties in connection with providing consulting services. These stocks were fair valued at $452,350, and expensed during the year ended June 30, 2016. 

During February 2016, the Company issued 70,000 of common stock to one investor at a cash price of $0.50 per common stock and received gross proceeds of $35,000.

On January 8, 2016 and March 31, 2016, the Company issued 250,000 each of common stock to two directors in connection with joining the board of directors. These stocks were fair valued at $290,000 and $22,500 respectively, determined based on the market price on the date of issuance, and expensed during the year ended June 30, 2016.

On January 26, 2016, the Company issued 100,000 of common stock to third parties in connection with providing consulting services. These stocks were fair valued at $89,000, determined based on the market price on the date of issuance, and expensed during the year ended June 30, 2016.

At September 30, 2016, there were 29,527,000 of common stock issued and outstanding (June 30, 2016 – 29,527,000 of common stock) of which 15,247,000 stocks are restricted while 14,280,000 are unrestricted. 

The restricted stocks have been issued to various parties through private placements, as start-up capital or as consideration for professional services. These restricted stocks will be available for sale under Rule 144 of the Securities Act of 1933, as amended, when the conditions of Rule 144 have been met.

10.   RELATED PARTY TRANSACTIONS AND BALANCES

The Company’s transactions with related parties were, in the opinion of the management, carried out on normal commercial terms and in the ordinary course of the Company’s business.

Other than disclosed elsewhere in the unaudited interim condensed financial statements, the other related party transaction is management fees of $13,824 charged by entities owned by the stockholders of the Company for providing warehousing and other logistic services up to August 31, 2016, the date of disposal of RM Fresh (quarter ended September 30, 2015: $nil). Amounts owed to entities owned by the stockholders in respect of these services was $nil due to de-consolidation of RM Fresh ($60,145 as at June 30, 2016).

11.   SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events up to November 14, 2016, the date the unaudited interim condensed financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined the following significant subsequent event to report:

On October 28, 2016, the Company issued 35,000,000 shares to a director of a Company in consideration against services performed.

Item 2. Management’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:

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable because we are a smaller reporting company.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective as of September 30, 2016 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits 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 the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure for the reason described below.

Because of our limited operations, we have limited number of employees which prohibits a segregation of duties. In addition, we lack a formal audit committee with a financial expert. As we grow and expand our operations we will engage additional employees and experts as needed. However, there can be no assurance that our operations will expand.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Item 1A. Risk Factors.

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On August 21, 2015, we issued four (4) 10% Convertible Promissory Notes (the “Notes”) in the aggregate principal amount of $180,000 to certain investors. The Notes accrue interest at a rate equal to 10% and have a maturity date of February 21, 2017. The Notes are convertible into Common Stock at a Conversion Price of $1.00 per share. As of the date of this Quarterly Report, the Notes have been fully converted into 180,000 shares of our common stock.

We relied on the exemption from registration provided by the Securities Act of 1933, as amended for the issuance of above securities.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

+ In accordance with the SEC Release 33-8238, deemed being furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

19