Phreadz USA, LLC
(A development-stage company)
Financial Statements
As of February 28, 2010
PHREADZ USA, LLC
(A development-stage company)
Financial Statements
As of February 28, 2010
TABLE OF CONTENTS
| | Page |
| | |
| Financial Statements: | |
| | |
| Balance Sheet | 2 |
| | |
| Statement of Operations | 3 |
| | |
| Statement of Members’ Capital | 4 |
| | |
| Statement of Cash Flows | 5 |
| | |
| Notes to Financial Statements | 6 |
PHREADZ USA, LLC
(A development-stage company)
Balance Sheets
(Unaudited)
| | | | | | | |
| | | | | | | |
| | | February 28, 2010 | | | May 31, 2009 | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash | | $ | 2,269 | | | $ | 33,616 | |
| Accounts receivable | | | 761 | | | | - | |
| Deposit and deferred charges | | | 12,500 | | | | 5,000 | |
| | | | | | | | | |
| Total current assets | | | 15,530 | | | | 38,616 | |
| | | | | | | | | |
| Total assets | | | 15,530 | | | | 38,616 | |
| | | | | | | | | |
| LIABILITIES AND MEMBERS’ EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable and accrued expenses | | | 116,965 | | | | 20 | |
| Interest payable | | | 20,231 | | | | 603 | |
| Notes payable | | | 339,500 | | | | - | |
| | | | | | | | | |
| Total current liabilities | | | 476,696 | | | | 623 | |
| | | | | | | | | |
| Long Term Loan payable | | | 135,000 | | | | 135,000 | |
| | | | | | | | | |
| Total liabilities | | | 611,696 | | | | 135,623 | |
| | | | | | | | | |
| Commitments and contingencies | | | - | | | | - | |
| Member subscription receivable | | | (235 | ) | | | (90 | ) |
| Members’ capital | | | (595,930 | ) | | | (96,917 | ) |
| Total members' capital | | | (596,166 | ) | | | (97,007 | ) |
| Total liabilities and members' equity | | $ | 15,530 | | | $ | 38,616 | |
The accompanying notes are an integral part of these Financial Statements.
PHREADZ USA, LLC
(A development-stage company)
Statements of Operations
For the three months amd nine months ended February 28, 2009 and for the period from April 3, 2009 (inception) to February 28, 2010
(Unaudited)
| | | | | | | | | Inception | |
| | | Three months ended | | | Nine months ended | | | April 3, 2009 to | |
| | | February 28, 2010 | | | February 28, 2010 | | | February 28, 2010 | |
| | | | | | | | | | |
| Revenues | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Accounting | | | 73 | | | | 10,219 | | | | 10,247 | |
| Bank Charges | | | 165 | | | | 830 | | | | 1,146 | |
| Consulting Fees | | | 56,800 | | | | 279,452 | | | | 359,977 | |
| Corporate Finance Fees | | | 7,500 | | | | 7,500 | | | | 7,500 | |
| Legal Fees | | | - | | | | 125,745 | | | | 125,745 | |
| License Fees | | | - | | | | 1,195 | | | | 1,195 | |
| Office | | | - | | | | 4,179 | | | | 4,199 | |
| Rent | | | (760 | ) | | | 3,240 | | | | 3,240 | |
| Travel | | | 13 | | | | 22,171 | | | | 27,685 | |
| Total operating expenses | | | 63,791 | | | | 454,531 | | | | 540,934 | |
| Net loss before other items | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Other Expense | | | - | | | | - | | | | - | |
| Interest expense (related party) | | | 13,131 | | | | 44,626 | | | | 55,230 | |
| | | | | | | | | | | | | |
| Net loss | | $ | (76,922 | ) | | $ | (499,157 | ) | | $ | (596,164 | ) |
The accompanying notes are an integral part of these Financial Statements.
PHREADZ USA, LLC
(A development-stage company)
Statement of Members’ Capital
For the period from April 3, 2009 (inception) to February 28, 2010
(Unaudited)
| | | Members’ Capital Accounts | |
| | | Number of units | | | Amount | |
| | | | | | | |
| Inception of LLC, April 3, 2009 | | | 1,200 | | | $ | 12 | |
| | | | | | | | | |
| Members’ contributions | | | 7,800 | | | | 78 | |
| Net loss for period from April 3, 2009 (inception) to May 31, 2009 | | | — | | | | (97,007 | ) |
| Balances, May 31, 2009 | | | 9,000 | | | | (96,917 | ) |
| | | | | | | | | |
| Capital contributions | | | 16,856 | | | | 169 | |
| Net loss for the period | | | | | | | (140,044 | ) |
| | | | | | | | | |
| Balances, August 31, 2009 | | | 25,856 | | | $ | (236,792 | ) |
| | | | | | | | | |
| Member unit cancellations | | | (2,396 | ) | | | (24 | ) |
| Net loss for the period | | | | | | | (282,192 | ) |
| | | | | | | | | |
| Balances, November 30, 3009 | | | 23,460 | | | $ | (519,008 | ) |
| | | | | | | | | |
| Net loss for the period | | | | | | | (76,922 | ) |
| | | | | | | | | |
| Balances, February 28, 2010 | | | 23,460 | | | $ | (595,930 | ) |
The accompanying notes are an integral part of these Financial Statements.
PHREADZ USA, LLC
(A development-stage company)
Statements of Cash Flows
For the nine months ended February 28, 2009 and for the period from April 2, 2009 (inception) to February 28, 2010
(Unaudited)
| | | | | | Inception | |
| | | Nine months ended | | | April 3, 2009 to | |
| | | February 298, 2010 | | | February 28, 2010 | |
| Cash flows used in operating activities: | | | | | | |
| Net loss | | $ | (499,157 | ) | | $ | (596,164 | ) |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | | | | | - | |
| | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts payable | | | 116,945 | | | | 116,965 | |
| Accounts receivable | | | (761 | ) | | | (761 | ) |
| Interest payable | | | 44,626 | | | | 55,229 | |
| Member subscription receivable | | | 145 | | | | 55 | |
| Prepaid | | | (7,500 | ) | | | (12,500 | ) |
| | | | | | | | | |
| Net cash used in operating activities | | | (345,702 | ) | | | (437,176 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Issuance of member capital | | | (145 | ) | | | (55 | ) |
| Proceeds from loan | | | 314,500 | | | | 439,500 | |
| Net cash provided by financing activities | | | 314,355 | | | | 439,445 | |
| | | | | | | | | |
| Net increase in cash and cash equivalents | | | (31,347 | ) | | | 2,269 | |
| Cash and cash equivalents, beginning of period | | | 33,616 | | | | - | |
| | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 2,269 | | | | 2,269 | |
| | | | | | | | | |
| Non Cash Transaction: | | | | | | | | |
During the fiscal year ended May 31, 2009 the Company obtained $125,000 in financing and became obligated to pay $10,000 in bonus interest for such funds.
During the period ended August 31, 2009 the Company obtained $175,000 in financing and became obligated to pay $14,000 in bonus interest for such funds.
During the period ended November 30, 2009 the Company obtained $87,500 in financing and became obligated to pay $7,000 in bonus interest for such funds.
During the period ended February 28, 2010 the Company obtained $52,000 in financing and became obligated to pay $4,000 in bonus interest for such funds.
The accompanying notes are an integral part of these Financial Statements.
PHREADZ USA, LLC
(A development-stage company)
Notes to Financial Statements
1. Organization and Business
Phreadz USA, LLC (“Phreadz” or “Company”) is a limited liability company, which was organized in Nevada on April 3, 2009. The Company has an authorized Membership Interest capital of $10,000 divided into 10,000 Membership Interests (“Membership Interests ”) of $1.00 each, of which 100 Membership Interests have been issued fully paid or credited fully paid and are legally and beneficially owned by the Members. On May 28, 2009 by resolution the Membership Interest capital was amended to 9,000 fully paid Units beneficially owned by Members at a par value of $0.01. On August 25, 2009 by resolution the Membership interest capital was amended to 26,000 units authorized, with 16,856 further units issued for a total issued and outstanding of 25,856 member units. On November 13, 2009 by resolution the Member units were amended to 23,460 issued and outstanding. Phreadz is headquartered in Flemington, NJ.
The Company is governed by it’s Board of Directors (the “Board”) comprised of three Directors, two of which shall be appointed and removed at the request of the James Hunt, and one at the request of John Wright, in each case by written notice to the Company. A Director need not be a resident of the United States.
As reflected in the accompanying financial statements, the Company is in the development stage with no operations, has a net loss of ($76,922) for the period from December 1, 2009 to February 28, 2010, and a net loss of ($596,164) for the period from April 3, 2009 (Inception) to February 28, 2010. The Company has a working capital deficit of ($461,166) and has used cash in operations of ($437,176) from the period April 3, 2009 (inception) to February 28, 2010. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
2. Summary of Significant Accounting Policies
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The Company is considered a development-stage entity and has disclosed inception-to-date information within these financial statements.
Use of estimates
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires management to make estimates and assumptions that effect the accounting for and recognition of assets, liabilities, stockholders’ equity, revenue and expenses. Estimates and assumptions are made because certain information is dependent on future events. Actual results could differ from those estimates.
PHREADZ USA, LLC
(A development-stage company)
Notes to Financial Statements
Recent accounting pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurement, effective July 1, 2008. SFAS No. 157 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date and establishes a framework for measuring fair value. It establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and expands the disclosures about instruments measured at fair value. SFAS No. 157 requires consideration of a company's own creditworthiness when valuing liabilities.
The Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, effective July 1, 2008. SFAS No. 159 provides an option to elect fair value as an alternative measurement basis for selected financial assets, financial liabilities, unrecognized firm commitments and written loan commitments which are not subject to fair value under other accounting standards. As a result of adopting SFAS No. 159, the Company did not elect fair value accounting for any other assets and liabilities not previously carried at fair value.
Determination of Fair Value
At May 31, 2009, the Company applied fair value to all assets based on quoted market prices, where available. For financial instruments for which quotes from recent exchange transactions are not available, the Company determines fair value based on discounted cash flow analysis and comparison to similar instruments. Discounted cash flow analysis is dependent upon estimated future cash flows and the level of interest rates. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.
The methods described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If readily determined market values became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its methods of determining fair value are appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
Valuation Hierarchy
SFAS No. 157 establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
Level 1. Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 assets and liabilities include debt and equity securities and derivative financial instruments actively traded on exchanges, as well as U.S. Treasury securities and U.S. Government and agency mortgage-backed securities that are actively traded in highly liquid over the counter markets.
PHREADZ USA, LLC
(A development-stage company)
Notes to Financial Statements
Level 2. Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs that are observable or can be corroborated, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 assets and liabilities include debt instruments that are traded less frequently than exchange traded securities and derivative instruments whose model inputs are observable in the market or can be corroborated by market observable data. Examples in this category are certain variable and fixed rate non-agency mortgage-backed securities, corporate debt securities and derivative contracts.
Level 3. Inputs to the valuation methodology are unobservable but significant to the fair value measurement. Examples in this category include interests in certain securitized financial assets, certain private equity investments, and derivative contracts that are highly structured or long-dated.
Application of Valuation Hierarchy
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Revenue recognition and cost of revenues
The Company has not had any revenues or cost of revenues to date.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and money market funds with maturities of three months or less at the date of acquisition by the Company.
Property and Equipmentt
Property and equipment are stated at cost. Depreciation is being applied on the straight-line method over five years. Leasehold improvements and equipment under capital leases are amortized over the shorter of the estimated useful life or the life of the lease.
Maintenance and repairs are charged to expense as incurred while renewals and improvements are capitalized.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and capital lease obligations are carried at cost, which approximates their fair market value because of the short-term maturity of these instruments. The carrying amount of the long-term capital lease obligations is also assumed to approximate fair value.
Web Site
The Company capitalizes the costs incurred to build web site infrastructure and applications. Cost incurred for subsequent updates and operations are expensed as incurred.
PHREADZ USA, LLC
(A development-stage company)
Notes to Financial Statements
Comprehensive income
Comprehensive income includes all changes in equity except those resulting from investments by and distributions to members.
Business segment reporting
The Company manages its operations in one business segment.
Since the Company is a limited liability company, the net income (loss) flows through to the members of the Company. Accordingly, the Company does not recognize income tax expense or tax assets or liabilities.
3. Notes Payable and Related Party Transaction
A member of the Company loaned $125,000 USD to the Company by Agreement dated May 15, 2009. The loan terms include a $10,000 interest bonus and will accrue simple interest at a rate of 8% per annum. The note matures on April 30, 2012 and shall become due and payable at that time including accrued interest and the interest bonus. The $125,000 USD was received in two parts on May 5, 2009 and May 14, 2009. Interest accrued at the rate of 8% annually was $2,692.6 for the quarterly period ending November 30, 2009 and $6,017.88 for the period April 3, 2009 (inception) to November 30, 2009.
A member of the Company loaned $100,000 USD to the Company by Agreement dated August 10, 2009. The loan terms include an $8,000 interest bonus and accrues simple interest at a rate of 8% per annum. The note matures on December 31, 2009. I Interest accrued at the rate of 8% annually was $2,154.08 for the quarterly period ending November 30, 2009 and $2,580.16 for the period April 3, 2009 (inception) to November 30, 2009.
A member of the Company loaned $75,000 USD to the Company by Agreement dated August 20, 2009. The loan terms include an $6,000 interest bonus and accrues simple interest at a rate of 8% per annum. The note matures on December 31, 2009. Interest accrued at the rate of 8% annually was $1,615.56 for the quarterly period ending November 30, 2009 and $1,668.82 for the period April 3, 2009 (inception) to November 30, 2009.
A member of the Company loaned $12,500 USD to the Company by Agreement dated Septembert 29, 2009. The loan terms include a $1,000 interest bonus and accrues simple interest at a rate of 8% per annum. The note matured on December 31, 2009 and by agreement was extended to March 31, 2009. Interest accrued at the rate of 8% annually was $139.07 for the quarterly period ending November 30, 2009 and for the period April 3, 2009 (inception) to November 30, 2009.
A member of the Company loaned $50,000 USD to the Company by Agreement dated Septembert 29, 2009. The loan terms include a $4,000 interest bonus and accrues simple interest at a rate of 8% per annum. The note matured on December 31, 2009 and by agreement was extended to March 31, 2009. Interest accrued at the rate of 8% annually was $650.96 for the quarterly period ending November 30, 2009 and for the period April 3, 2009 (inception) to November 30, 2009.
PHREADZ USA, LLC
(A development-stage company)
Notes to Financial Statements
3. Notes Payable and Related Party Transaction (continued)
A member of the Company loaned $25,000 USD to the Company by Agreement dated November 15, 2009. The loan terms include a $2,000 interest bonus and accrues simple interest at a rate of 8% per annum. The note matured on December 31, 2009 and by agreement was extended to March 31, 2009. Interest accrued at the rate of 8% annually was $41.42 for the quarterly period ending November 30, 2009 and for the period April 3, 2009 (inception) to November 30, 2009.
A member of the Company loaned $50,000 USD to the Company by Agreement dated December 11, 2009. The loan terms include a $4,000 interest bonus and accrues simple interest at a rate of 8% per annum. The note matured on January 31, 2010 and by agreement was extended to March 31, 2009. Interest accrued at the rate of 8% annually was $875.84 for the quarterly period ending February 28, 2010 and for the period April 3, 2009 (inception) to February 28, 2010.
A member of the Company loaned $2,000 USD to the Company on no terms.
| Short Term Note Payable | | February 28, 2010 | | | May 31, 2009 | |
| i. Interest at 8% per annum, due on December 31, 2009: | | | | | | |
| - extended to March 31, 2010 | | $ | 100,000 | | | $ | - | |
| - Interest Bonus | | | 8,000 | | | | - | |
| Total | | $ | 108,000 | | | $ | - | |
| | | | | | | | | |
| ii. Interest at 8% per annum, due on December 31, 2009: | | | | | | | | |
| - extended to March 31, 2010 | | $ | 75,000 | | | $ | - | |
| - Interest Bonus | | | 6,000 | | | | - | |
| Total | | $ | 81,000 | | | $ | - | |
| | | | | | | | | |
| iii. Interest at 8% per annum, due on December 31, 2009: | | | | | | | | |
| - extended to March 31, 2010 | | $ | 12,500 | | | $ | - | |
| - Interest Bonus | | | 1,000 | | | | - | |
| Total | | $ | 13,500 | | | $ | - | |
| | | | | | | | | |
| iv. Interest at 8% per annum, due on December 31, 2009: | | | | | | | | |
| -Extended to March 31, 2010 | | $ | 50,000 | | | $ | - | |
| -Interest Bonus | | | 4,000 | | | | - | |
| Total | | $ | 54,000 | | | $ | - | |
| | | | | | | | | |
| v. Interest at 8% per annum, due on December 31, 2009: | | | | | | | | |
| -Extended to March 31, 2010 | | $ | 25,000 | | | $ | - | |
| -Interest Bonus | | | 2,000 | | | | - | |
| Total | | $ | 27,000 | | | $ | - | |
| | | | | | | | | |
| vi. Interest at 8% per annum, due on January 31, 2009: | | | | | | | | |
| -Interest Bonus | | | 4,000 | | | | - | |
| -Extended to March 31, 2010 | | $ | 50,000 | | | $ | - | |
| Total | | $ | 54,000 | | | $ | - | |
| | | | | | | | | |
| vii. No Terms: | | | | | | | | |
| -Member advance | | $ | 2,000 | | | $ | - | |
| | | $ | 2,000 | | | $ | - | |
| | | | | | | | | |
| Total | | $ | 339,500 | | | $ | - | |
PHREADZ USA, LLC
(A development-stage company)
Notes to Financial Statements
3. Notes Payable and Related Party Transaction (continued)
| Long Term Note Payable | | February 28, 2010 | | | May 31, 2009 | |
| I Interest at 8% per annum, due on April 30, 2012: | | | | | | |
| - Bernard (USD$125,000) | | $ | 125,000 | | | $ | 125,000 | |
| - Interest Bonus | | | 10,000 | | | | 10,000 | |
| | | | | | | | | |
| Total | | $ | 135,000 | | | $ | 135,000 | |
4. Commitments and Contingencies
(a) Employment Agreements
As of May 1, 2009, the Company executed a consulting agreement with Kosso Kossmann for $10,000 per month and includes the following reference to intellectual property development; ….Consultant assigns to Phreadz USA, LLC entire right, title and interest in anything created, currently in beta testing, or developed by Consultant under this Agreement with Phreadz USA, LLC ("Work Product") including all patents, copyrights, trade secrets and other proprietary rights. This assignment is conditioned upon full payment of the compensation due Consultant under this Agreement. Consultant shall, execute and aid in the preparation of any papers that Phreadz USA, LLC may consider necessary or helpful to obtain or maintain-at Phreadz USA, LLC’s expense any patents, copyrights, trademarks or other p.roprietary rights to any Intellectual Property in development, developed, or created by Consultant.
On August 10, 2009, the Company entered into a Letter of Intent with Atwood Minerals and Mining Corp., (“Atwood”) an OTC BB issuer (symbol “AWMM”) regarding a reverse merger transaction (the “Transaction”) among the Company, Atwood, and Phreadz USA, LLC (“Phreadz”).
On January 29, 2010 A Notice of Termination Letter of Intent was received for the December 31, 2009 expiry of the August 10, 2009 Letter of Intent with Atwood. A liquidating fee of $7,500 was paid to Atwood by the August 10, 2009 LOI.
On February 18, 2010 the Company entered into a further LOI with Atwood.
5. Subsequent events
On March 29, 2010 by resolution the Membership interest capital was increased to 27,074 units authorized, with 3,614 further units issued for a total issued and outstanding of 27,074 member units.
On March 18, 2010 a Note Payable was executed with a related party.The note was for $5,000 with a maturity date of June 30, 2010 and carries an 8% per annum interest rate. Additionally the lender agreed to forgive $3,500 if a reverse merger transaction was completed prior to June 30, 2010.
PHREADZ USA, LLC
(A development-stage company)
Notes to Financial Statements
5. Subsequent events (continued)
On March 23, 2010 with funds received a Note Payable was executed for $5,000 with a maturity date of June 30, 2010 and carries an 8% per annum interest rate. Additionally the lender agreed to forgive $3,500 if a reverse merger transaction was completed prior to June 30, 2010.
On March 23, 2010, $85,000 was received into an associated company with common members, UDM USA, LLC., and a Secured Promissory Note, a Subscription Agreement and an Intellectual Property Security Agreement (collectively “the Agreements”) was executed for $85,000. Phreadz USA, LLC received no proceeds from this $85,000. Phreadz USA, LLC is a party to the Agreements and contingently liable. The Secured Promissory Note carries an 8% annual interest rate, maturing June 30, 2010, and was entered into pursuant to the terms of the Subscription Agreement. The Subscription Agreement grants the right to the lender to receive $85,000 of an amount of securities in any subsequent equity financing on the same terms of a subsequent financing with no further consideration to the resultant issuer on the basis that a reverse merge transaction is completed prior to June 30, 2010. The Intellectual Property Security Agreement grants the lender a first priority security interest over certain Software Intellectual Property.
On March 25, 2010 a Note Payable was executed with funds received on March 26, 2010. The note was for $50,000 with a maturity date of June 30, 2010 and carries an 8% per annum interest rate.
