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AVALANCHE INTERNATIONAL, CORP. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements." These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The information contained in this Quarterly Report is intended to provide "Form 10 information" within the meaning of Rule 144(i)(3) under the Securities Act of 1933. Management's Discussion and Analysis of Financial Condition and Results of Operations Company Overview and Description of Business Avalanche International Corporation, a Nevada corporation, is a holding company which recently formed its first subsidiary, Smith and Ramsay Brands, LLC. We also recently acquired certain intellectual property, knowhow, product and capability from Smith and Ramsay, LLC, a Nevada company. Smith and Ramsay Brands, LLC (SRB) is a manufacturer and distributor of premium vape liquid and accessories. SRB currently has a single brand of premium vape liquid, its signature brand Smith and Ramsay, which is in its pre-launch phase, having been manufactured, packaged and beginning to generate revenue in test markets. Smith and Ramsay Brands will operate as a manufacturer and distributor of flavored "smoking" vaporizer liquids for electronic vaporizers and cigarettes. "Vape" is the common term used to refer to the use of vaporizers by consumers which has grown out of the increasing popular use of electronic cigarettes as an alternative to traditional cigarette and other tobacco uses. The use of electronic cigarettes and vaporizers has been accelerated by state and local legislation outlawing the smoking of tobacco products in public places. The Vape marketplace over the past five years has grown to $1.5 billion, according to Vaping News, and has begun to offer various flavors, nicotine levels and other attributes to produce a unique and customized experience. We believe that, as this market matures, there will be a natural rising demand for better quality products and varying flavors appetizing to a diverse consumer base. Through Smith and Ramsay Brands, we plan to provide a wide variety of high quality vapor liquids in a commercial manner to assure product integrity and consistency. SRB plans on rapidly moving into the market place upon launch of its Smith and Ramsay signature brand, expanding aggressively with additional flavors in the signature brand, and expanding through additional new brands and the acquisition and distribution of signature and non-signature accessories. The signature line of premium vape liquid will focus on the Vape store and traditional smoke shop markets, while another brand product line and offerings will focus on the convenience store and gas station marketplace, and other lines will target ethnic-specific markets, etc. Additional products within these brand lines as well as external to these lines will focus on combination hardware/liquid market that includes disposable devices with preloaded liquid, and/or preloaded cartridges for use in specific types of devices. The Company's management consists of Phil Mansour, Chief Executive Officer and Director and Rachel Boulds, Chief Financial Officer. The Company's principal offices are located at 5940 S. Rainbow Blvd., Las Vegas, Nevada 89118. The Company's web domain is www.AvalancheInternationalCorp.com. The signature brand of SRB has a web site: www.SmithAndRamsay.com. The Marketplace and Competition A March 24th, 2014 Wells Fargo Equity Research report bifurcates the market into E-cigarettes and secondary and tertiary markets, referred to as Vapors/Tanks or E-Vapor. The report suggests that the overall market in the US is currently at $2bn dollars with a 65%/35% split between E-Cigarettes to E-Vapor. A Vapenewsmagazine.com report suggests that the growth of the E-Vapor segment is increasing faster that the overall sales of the E-Cig market. It appears that the drivers behind this growth are: 1) natural progression from E-Cigs; 2) affordability, with E-Vapor costing 20% less than rechargeable e-cigarettes, and 40% less than disposable E-Cigs; and 3) the ability to personalize devices, and receive better nicotine delivery and overall product performance. The report states, "Our view that vapor/tank growth is accelerating and taking share from e-cigs, making vapor/tank an increasing threat was substantiated by our survey as respondents expect vapors/tanks to grow at 2x the rate of the e-vapor category in 2014 with attractive margins that rival combustible cigs. Therefore, if the robust growth of the vapor/tank category continues and is not hindered by FDA regulation, we expect big tobacco has no choice but to enter this category either organically or via acquisition." This was further validated by Pamela Gorman, Director of Government Relations at NJOY (a prominent player in the e-Cig space) when she recently announced at the Vape World Expo in June 2014, that NJOY would be making a strategic shift and enter the E-Vapor space. Our observations on E-Vapor market are that it is a fragmented space which can be segmented in the follow categories: Home Brew, Cottage, Regionals, Tier2, and Tier 1. 4 Table of Contents Home Brew This segment consists of tiny entrepreneurs, usually with one or two stores, making their own vape liquids and selling them primarily in their shop and online. Typically, these entrepreneurs only carry their own liquids and maybe one or two Tier 2 brands. Cottage This segment includes small businesses, usually with one to four stores that make their own vape liquids and distribute their liquids in their stores and in their local city or community. Their brand of liquid is limited to a dozen or so flavors and have roughly no more than 2,000 bottles sold per month. Regionals These companies typically have expanded beyond their city boundaries up to 4 states and have 5 to 150 stores carrying their brand. This category ranges in product quality and offerings. Most of these companies range from 6 months old to less than 30 months old while producing less than 10,000 units a month. There appears to be hundreds of these players in this category and it is growing every day. The major challenge for these businesses is to have the necessary resources, knowledge and experience or expertise available to expand their current customer reach. This category includes FuzionVapor.com, Hurricane Vapor, Nikki's Vapor Bar, and Cosmic Fog to name a few. Tier 2 The Tier 2 manufacturers have reached significant regional acceptance and/or national recognition within 3 of the 4 continental time zones in the United States. Typically these groups are in more than 100 stores and have annual gross sales estimated at between three to five million dollars. Companies included in this category are Five Pawns, E-Liquid Solutions, Space Jam Juice, ECBlend, and Vapor Corporation, which has been publicly traded on the OTC and recently upgraded to the NASDAQ (VPCO). Vapor Corporation is primarily a manufacturer of smokeless equipment and also produces its own line of liquids. Tier 1 Top players in the market have sales reaching $20+ million and are often but not always recognized nationally which includes NicQuid, and Johnsons Creek, two leaders in the E-Vapor space. The Wells Fargo Report suggests that the large discrepancy between Nielsen data which captures only $750MM in annual E-Vapor sales and the $2.2bn its survey suggests, is due to the fact that 60% of E-Vapor sales go untracked through channels of online and Vape Shop sales which are below the Tier 2 level. Given the current wide open nature of the market landscape with no clearly dominant market leaders, we feel the barriers to entry and success for our organization to move in with quality products, marketing, distribution and strategic acquisition strategies, are minimal compared to where they will be as the market matures over the next 18 months. Plan of Operations Our objective is to provide a manufacturing platform that is progressively scalable and supplies the needed amount of product in accordance with the sales and marketing plan established within the first 60-90 days of operations by our outsourced sales and marketing group. Initial manufacturing capacities will be established at 5,000 to 15,000 bottles per week using existing manufacturing principles and techniques by June 30, 2014. Quality control processes and procedures will be established from internal expertise and external consultants to insure the operations are in line with cGMP, FDA and ISO guidelines for an operation of this size and will continually be updated as the needs of the organization grow and changes in the regulatory environment occur. As initial manufacturing are finalized being established and solidified, expansion plans are already being established: º Outsource manufacturers have been identified should grow to eclipse our short term ability to produce in house; º Quotes and plans for next level production (15,000 to 100,000 bottles per week) have been solicited to identify capital costs and timelines; and º Quotes and plans for third level production (250,000+ bottles per week) have been solicited to identify broad capital costs and timelines. 5 Table of Contents Marketing Strategies Domestic Domestically, our plan is to outsource sales and marketing to a best of breed sales and marketing firm, to drive initial development of national branding, packaging, social media and full web presence. This initial 90 day plan includes the development of a competitive landscape report and full launch and ongoing marketing plan and budget. During the initial startup campaign while the national marketing strategy is formed and prior to a national launch, the firm will test the market by running a variety of different regional and select small scale national campaigns using a combination of direct sales, call center and business to business sales efforts. Data will gathered and coordinated with the marketing strategy to insure a successful launch and solid development of an initial installed base by the end of the first quarter of operations. The market research will drive initial decisions and a scheduled calendar of Smith and Ramsay Brands, LLC expansion of its signature brand, addition of additional brands through R&D, partnerships, and/or acquisitions, along with additionsof non-liquid offerings. International Internationally, Smith and Ramsay Brands, has started efforts internally to understand and map out the international e-liquid space in an effort to follow the same data driven decision making that is being implemented during its domestic marketing plan process by our external firm. Within four months, an initial international strategy will be outlined along with timeline and budget for board approval. Research and Development Research and development will be focused on expanding the number of brands offered by SRB and within each brand line expanding the lines themselves to include new flavors and different configurations. Intellectual Property We have purchased the following intellectual property from Smith and Ramsay, LLC: Patent / Trademark/knowhow Patent Title / Trademark Recipe for Toasty Monkey Trademark currently in filing process Recipe for Tricky Trademark currently in filing process Recipe for Java Hopper Trademark currently in filing process Recipe for Peaches and Mango Trademark currently in filing process Recipe for Berries and Cream Trademark currently in filing process 10 additional recipes (not currently named) Trademark currently in filing process Smith and Ramsay Trademark currently in filing process Smith and Ramsay Brands Trademark currently in filing process Domain Names www.AvalancheInternationalCorp.com www.Smith AndRamsay.co www.SmithAndRamsay.com www.SmithAndRamsayBrands.co www.SmithAndRamsayBrands.com www.SmithAndRamsayBrands.info www.SmithAndRamsayBrands.net www.SmithAndRamsayBrands.org www.SmithNRamsay.com www.SmithAndRamsay.com 6 Table of Contents Staffing As of May 31, the Company had no fulltime employees other than the Company's officers. Legal Proceedings We are not currently a party to any legal proceedings. Executive Officers The following table contains information with respect to our current executive officers and directors: Name Age Principal Positions Philip Mansour 47 President, CEO and Director Rachel Boulds 44 CFO Philip E. Mansour is our President, Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer, and Director. Since 2007, Mr. Mansour has worked as a consultant focusing on business development, enterprise technology, strategic planning, organizational change management, emerging technology development, organizational efficiency, and executive coaching with a strong focus on emerging technologies. Mr. Mansour's clients come from a wide variety of industries, including pharmaceuticals, health care, medical devices, energy, and media development. He has substantial experience leading start-up operations and multi-billion dollar organizations, as well as working with and introducing process controls both regulated (FDA, ISO, etc.) and as well as those which are not mandated. From January of 2004 to September of 2006, Mr. Mansour served as Vice President for Strategic Initiatives and CTO at Compass Learning. From 1994 to 2002, he was Vice President of Product Development at Pearson Education. From 1992 to 1994, Mr. Mansour was Director of Research and Technology at Jostens Learning Corporation. From 1984 - 1994 he served in a variety of key technology roles within Jostens Learning Corporation and one of its acquisitions, Hartley Courseware. Mr. Mansour holds an MBA Certificate from Tulane University. Rachel Boulds is our Chief Financial Officer. From August 2009 to the present, Ms. Boulds has been engaged in her sole accounting practice, providing all aspects of consulting and accounting services to clients, including the preparation of full disclosure financial statements for public companies in compliance with GAAP and SEC requirements. From August 2004 through July 2009, she was employed as an Audit Senior for HJ & Associates, LLC, where she performed audits and reviews for public and private companies. From 2003 through 2004, Ms. Boulds was employed as an Audit Senior for Mohler, Nixon and Williams in San Jose, CA. From September 2001 through July 2003, Ms. Boulds worked as an ABAS Associate for PriceWaterhouseCoopers in their San Jose, CA office. From April 2000 through February 2001, she was employed as an eCommerce Accountant for the Walt Disney Group's GO.com. Ms. Boulds holds a B.S. in Accounting from San Jose State University and is a licensed CPA in the state of Utah. Term of Office Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. Family Relationships There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers. Involvement in Certain Legal Proceedings To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. Committees of the Board We do not currently have a compensation committee, executive committee, or stock plan committee. 7 Table of Contents Audit Committee We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an "audit committee financial expert" within the definition of Item 407(d)(5)(ii) of Regulation S-K. We believe that, at our current size and stage of development, the addition of a special audit committee financial expert to the Board is not necessary. Nomination Committee Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.When evaluating director nominees, our directors consider the following factors: - The appropriate size of our Board of Directors; - Our needs with respect to the particular talents and experience of our directors; - The knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board; - Experience in political affairs; - Experience with accounting rules and practices; and - The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members. Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds. Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests. Code of Ethics We currently have not adopted a code of ethics for the board or executives. EXECUTIVE COMPENSATION Compensation Discussion and Analysis We presently do not have employment agreements with any of our current management. The Company's compensation methods are currently being developed for approval and implementation. We do not currently provide any compensation to directors for their service as directors but may do so in the future. We are currently in the process of setting up the compensation arrangement for our officers. 8 Table of Contents Summary Compensation Table The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us. SUMMARY COMPENSATION TABLE Nonqualified Non-Equity Deferred Name and Option Incentive Plan Compensation All Other principal Salary Bonus Stock Awards Awards Compensation Earnings Compensation Total position Year ($) ($) ($) ($) ($) ($) ($) ($) Phillip Mansour, President, CEO, 2013 n/a n/a n/a n/a n/a n/a n/a n/a and Director 2012 n/a n/a n/a n/a n/a n/a n/a n/a Rachel Boulds, 2013 n/a n/a n/a n/a n/a n/a n/a n/a CFO 2012 n/a n/a n/a n/a n/a n/a n/a n/a John Pulos, 2013 0 0 0 0 0 0 0 0 former officer 2012 0 0 0 0 0 0 0 0 Outstanding Equity Awards At Fiscal Year-end Table The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year. OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR-END OPTION AWARDS STOCK AWARDS Equity Equity Incentive Incentive Plan Plan Awards: Market Awards: Market or Equity Value Number Payout Incentive Number of Shares of Value of Plan of or Unearned Unearned Awards: Shares Shares Shares, Shares, Number of Number of Number of or Shares of Shares or Shares or Securities Securities Securities of Stock Other Other Underlying Underlying Underlying Stock That That Rights Rights Unexercised Unexercised Unexercised Option Have Have That Have That Options Options Unearned Exercise Option Not Not Not Have Not (#) (#) Options Price Expiration Vested Vested Vested Vested Name Exercisable Unexercisable (#) ($) Date (#) ($) (#) (#) John Pulos, former officer 0 0 0 0 0 0 0 0 0 9 Table of Contents Compensation of Directors Table The table below summarizes all compensation paid to our directors for our last completed fiscal year. DIRECTOR COMPENSATION Fees Earned Non-Equity Non-Qualified or Incentive Deferred All Paid in Plan Compensation Other Cash Stock Awards Option Awards Compensation Earnings Compensation Total Name ($) ($) ($) ($) ($) ($) ($) John Pulos, former director 0 0 0 0 0 0 0 Securities Authorized for Issuance Under Equity Compensation Plans To date, we have not adopted a stock option plan or other equity compensation plan and have not issued any stock, options, or other securities as compensation. Disclosure of Commission Position of Indemnification for Securities Act Liabilities In accordance with the provisions in our articles of incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 10 Table of Contents SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of July 15, 2014, the current beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of the our common stock and by the executive officers and directors as a group, based on a total of 2,535,000 shares of common stock issued and outstanding as of July 15, 2014: Name and address of Amount of Title of class beneficial owner beneficial ownership(2) Percent of class Philip E. Mansour 5940 S. Rainbow Blvd. Common Las Vegas, NV 89118 0 0.00 % Rachel Boulds 5940 S. Rainbow Blvd. Common Las Vegas, NV 89118 0 0.00 % All Officers and Directors as a Group 0 0.00 % Common Other 5% owners Philou Ventures, LLC (1) 109 East 17th Street, Suite 25 Cheyenne, WY 82001 1,875,000 73.96 % (1) Guillermo D. Jalil is the Manager of Philou Ventures, LLC and, in that capacity, has the authority to direct voting and investment decisions with regard to stock. (2) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date. Other than the shareholders listed above, we know of no other person who is the beneficial owner of more than five percent (5%) of our common stock. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE Except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since our incorporation or in any presently proposed transaction which, in either case, has or will materially affect us: 1. None Director Independence We are not a "listed issuer" within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we do not have any independent directors. 11 Table of Contents Description of Securities Our authorized capital stock consists of 75,000,000 shares of common stock, with a par value of $0.001 per share. As of July 15, 2014, there were 2,535,000 shares of our common stock issued and outstanding. We have not issued any shares of preferred stock. Common Stock Our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our common stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors. Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our common stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefore. Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to such holders. In the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock. Dividend Policy We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Warrants and Options We have not issued any options or warrants to purchase our capital stock. Nevada Anti-Takeover Laws Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company. Market Information Our common stock is quoted under the symbol "AVLP" on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. ("FINRA") and the OTCQB operated by OTC Markets Group, Inc. Few market makers continue to participate in the OTCBB system because of high fees charged by FINRA. The criteria for listing on either the OTCBB or OTCQB are similar and include that we remain current in our SEC reporting. Our reporting is presently current and, since inception, we have filed our SEC reports on time. Through the end of our most recent fiscal year, there was no trading in our securities. There is no assurance that a sustained regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company. As of July 10, 2014, the last trading price for our common stock was $10.00 per share. 12 Table of Contents Penny Stock The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by ruleor regulation. The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities. Results of Operations for the three months ended May 31, 2014 compared to the three months ended May 31, 2013. Revenue During the three months ended May 31, 2014, revenue was $3,741 compared to $0 for the three months ended May 31, 2013. Revenue in the current period was from sales of our new vape liquid business. Expenses During the three months ended May 31, 2014, the Company reported a total operating expense of $32,306 compared to $6,214 during the three months ended May 31, 2013, an increase of $26,092 in total expenses. The increase in operating expenses is due to the increase in professional fees and administration associated with compliance and filing obligations. Net loss The Company had a net loss of $30,746 for the three months ended May 31, 2014, compared to a net loss of $6,214, for the three months ended May 31, 2013, an increase of $24,532 or approximately 394%. The increase in net loss was due to a net increase in operating expenses as described above. Results of Operations for the six months ended May 31, 2014 compared to the six months ended May 31, 2013. Revenue During the six months ended May 31, 2014, revenue was $3,741 compared to $0 for the three months ended May 31, 2013. Revenue in the current period was from sales of our new vape liquid business. Expenses During the six months ended May 31, 2014, the Company reported a total operating expense of $36,882 compared to $13,832 during the six months ended May 31, 2013, an increase of $23,050 in total expenses. The increase in operating expenses is due to the increase in professional fees and administration associated with compliance and filing obligations. Net loss The Company had a net loss of $35,322 for the six months ended May 31, 2014, compared to a net loss of $13,832, for the six months ended May 31, 2013, an increase of $21,490 or approximately 155%. The increase in net loss was due to a net increase in operating expenses as described above. Results of Operations for the fiscal years ended November 30, 2013 and 2012*The following discussion should be read in conjunction with the annual financial statements included in the Company's Annual Report on Form 10-K filed February 28, 2014, which are incorporated herein by reference* 13 Table of Contents Revenue During the fiscal years ended November 30, 2013 and November 30, 2012, the Company generated no revenue. Expenses During the fiscal year ended November 30, 2013, the Company reported total operating expense of $ 20,351 as compared to $20,276 during the fiscal year ended November 30, 2012, an increase of $75. The increase in legal and accounting was offset by the decrease in consulting and operation and administration. Net Loss The company had a net loss of $20,351 as compared to $20,276 during the fiscal year ended November 30, 2012, an increase of $75. The increase in legal and accounting was offset by the decrease in consulting and operation and administration. Liquidity and Capital Resources Management currently believes that the Company may not have sufficient working capital needed to meet its current fiscal obligations. In order to continue to meet its fiscal obligations beyond the next twelve months, management has plans to pursue various financing alternatives including, but not limited to, raising capital through the equity markets and debt financing. Should the Company not be successful at raising capital through the issuance of capital stock, the Company may consider raising capital by the issuance of debt. However, unless the appropriate features, such as convertible options, are attached to the debt instruments, this form of financing is less desirable until such time as the Company may be in a position to reasonably foresee the generation of cash flow to service and repay debt. The Company does not currently have plans to issue debt. As of May 31, 2014, we had an accumulated deficit of $76,349 and a working capital deficit of $30,746. For the six months ended May 31, 2014, net cash used in operating activities was $3,938 and we received $7,046 from financing activities. Going Concern These interim unaudited financial statements have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that the Company's assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the interim unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company not be unable to continue as a going concern. Off Balance Sheet Arrangements As of May 31, 2014, there were no off balance sheet arrangements. Critical Accounting Policies In December 2001, the SEC requested that all registrants list their most "critical accounting polices" in the Management Discussion and Analysis. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Currently, we do not believe that any accounting policies fit this definition. Recently Issued Accounting Pronouncements We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow. |