UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended May 31, 2008.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period to .
----------- -----------
Commission File Number 333-150061
INNOCENT, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 98-0585268
- ------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
755 Baywood Drive, Second Floor
Petaluma, CA 94954
---------------------------------------------------------------
(Address of principal executive offices) (zip code)
(707) 658-4650
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(Registrant's telephone number, including area code)
None
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] 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. See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
<page>
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ X ]
(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 [ X ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of July 14, 2008, there were
7,000,000 shares of common stock, par value $0.001, outstanding.
<page>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INNOCENT, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
May 31, 2008
(Unaudited)
BALANCE SHEETS
STATEMENTS OF OPERATIONS
STATEMENTS OF CASH FLOWS
STATEMENT OF STOCKHOLDERS' EQUITY
NOTES TO FINANCIAL STATEMENTS
F-1
<page>
INNOCENT, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
2008 2007
---- ----
(Unaudited) (Audited)
ASSETS
------
Current assets
Cash $ 7,207 $ -
Accounts receivable 1,000 -
--------- ---------
Total current assets 8,207 -
--------- ---------
Security deposit 333 -
--------- ---------
Total assets $ 8,540 $ -
========= =========
LIABILITIES & STOCKHOLDERS'EQUITY
---------------------------------
Current liabilities
Accounts payable and accrued liabilities $ 17,495 $ 3,980
--------- ---------
Total current liabilities 17,495 3,980
--------- ---------
Stockholders' Equity
Common stock $0.001 par value;
75,000,000 shares authorized;
7,000,000 shares and 4,000,000 issued and outstanding 7,000 4,000
Additional paid-in capital 27,000 -
Subscription Receivable - ( 4,000)
Deficit accumulated during the development stage ( 42,955) ( 3,980)
--------- ---------
Total Stockholders' Equity ( 8,955) ( 3,980)
--------- ---------
Total Liabilities and Stockholders' Equity $ 8,540 $ -
========= =========
The accompanying notes are an integral part of these financial statements
F-2
<page>
INNOCENT, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<table>
<caption>
Three months Three months Nine months September 27,2006 September 27,2006
Ended Ended Ended (Inception) Through (Inception) Through
May 31, May 31, May 31, May 31, May 31,
2008 2007 2008 2007 2008
---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c>
Sales $ - $ - $ 2,123 $ - $ 2,123
------------ ------------ ------------ ------------ ------------
Cost of goods sold - - 1,655 - 1,655
------------ ------------ ------------ ------------ ------------
Gross profit - - 468 - 468
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Accounting and audit fees $ 3,000 $ - $ 8,000 $ - $ 11,500
Consulting 11,000 - 13,400 - 13,400
General and administrative 2,443 - 6,655 - 6,655
Management - - 2,000 - 2,000
Organization costs - - - 480 480
Telephone - - 2,174 - 2,174
Travel and promotion 474 - 7,214 - 7,214
------------ ------------ ------------ ------------ ------------
16,917 - 39,443 480 43,423
------------ ------------ ------------ ------------ ------------
Income (loss) before provision
for income tax ( 16,917) - ( 38,975) ( 480) ( 42,955)
Provision for income tax - - - - -
------------ ------------ ------------ ------------ ------------
Net income (loss) $( 16,917) $ - $( 38,795) $( 480) $( 42,955)
------------ ------------ ------------ ------------ ============
Net income (loss) per share $( 0.01) $( 0.00) $( 0.01) $( 0.00)
============ ============ ============ ============
Weighted average number of
common shares outstanding 7,000,000 4,000,000 5,423,358 4,000,000
============ ============ ============ ============
</table>
The accompanying notes are an integral part of these financial statements
F-3
<page>
INNOCENT, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<table>
<caption>
Nine months September 27,2006 September 27,2006
Ended (Inception) Through (Inception) Through
May 31, May 31, May 31,
2008 2007 2008
---- ---- ----
<s> <c> <c> <c>
Operating Activities:
Net income (loss) $( 38,975) $( 480) $( 42,955)
Adjustment to reconcile net income to net cash
provided by (used for) operating activities:
Accounts receivable ( 1,000) - ( 1,000)
Security deposit ( 333) - ( 333)
Accounts payable and accrued liabilities 13,515 480 17,495
------------ ----------- -----------
Net cash provided by (used for) operating
activities ( 26,793) - ( 26,793)
------------ ----------- -----------
Financing Activities:
Proceeds from issuance of common stock 34,000 - 34,000
------------ ----------- -----------
Net cash provided by (used for) financing 34,000 - 34,000
activities
------------ ----------- -----------
Net Increase (Decrease) In Cash 7,207 - 7,207
Cash At The Beginning Of The Period - - -
------------ ----------- -----------
Cash At The End Of The Period $ 7,207 $ - $ 7,207
============ =========== ===========
Schedule Of Non-Cash Investing And Financing
- --------------------------------------------
Activities - None
- -----------------
Supplemental Disclosure
- -----------------------
Cash paid for:
Interest $ - $ - $ -
============ =========== ===========
Income Taxes $ - $ - $ -
============ =========== ===========
</table>
F-4
The accompanying notes are an integral part of these financial statements
<page>
INNOCENT, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
September 27, 2006 (Inception) Through May 31, 2008
(Unaudited)
<table>
<caption>
Deficit
Accumulated
Common Shares Additional During the
---------------------- Paid-in Subscription Development
Number Par Value Capital Receivable Stage Total
------ --------- ------- ---------- ----- -----
<s> <c> <c> <c> <c> <c> <c>
Balances, September 27, 2006,
Common stock subscription at $0.001 4,000,000 $ 4,000 $ - $( 4,000) $ - $ -
Net gain (loss) for the period ended
August 31, 2007 - - - - ( 3,980) ( 3,980)
--------- -------- -------- --------- --------- --------
Balances, August 31, 2007 4,000,000 4,000 - ( 4,000) ( 3,980) ( 3,980)
--------- -------- -------- --------- --------- --------
Issued for cash:
Subscription paid for - - - 4,000 - 4,000
Common stock October, 2007 - at $0.010 3,000,000 3,000 27,000 - 30,000
Net gain (loss) for the period ended May 31, 2008 - - - - ( 38,975) (38,975)
--------- -------- -------- -------- --------- --------
Balances, May 31, 2008 7,000,000 $ 7,000 $ 27,000 $ - $( 42,955) $( 8,955)
========= ======== ======== ======== ========= =======
</table>
F-5
The accompanying notes are an integral part of these financial statements
<page>
INNOCENT, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2008
(Unaudited)
Note 1 Nature and Continuance of Operations
------------------------------------
Organization
------------
The Company was incorporated in the State of Nevada, United States
of America on September 27, 2006, and its fiscal year end is
August 31. The Company is engaged in sales of new food products
produced or developed by North American companies to foreign
markets.
Going Concern
-------------
These financial statements have been prepared on a going concern
basis. The Company has a working capital deficiency of $9,288, and
has accumulated deficit of $42,955 since inception. Its ability to
continue as a going concern is dependent upon the ability of the
Company to generate profitable operations in the future and/or to
obtain the necessary financing to meet its obligations and repay
its liabilities arising from normal business operations when they
come due. The outcome of these matters cannot be predicted with
any certainty at this time. These factors raise substantial doubt
that the company will be able to continue as a going concern.
Management plans to continue to provide for its capital needs by
the issuance of common stock and related party advances. These
financial statements do not include any adjustments to the amounts
and classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going concern.
Unaudited Interim Financial Statements
-------------------------------------
The accompanying unaudited interim financial statements have been
prepared in accordance with United States generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB of Regulation S-B. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have
been condensed or omitted pursuant to such rules and regulations.
However, except as disclosed herein, there have been no material
changes in the information disclosed in the notes to the financial
statements for the year ended August 31, 2007, included in the
Company's S-1 filed with the Securities and Exchange Commission.
The interim unaudited financial statements should be read in
conjunction with those financial statements included in the Form
S-1. In the opinion of Management, all adjustments considered
necessary for a fair presentation, consisting solely of normal
recurring adjustments, have been made. Operating results for the
nine months ended May 31, 2008 are not necessarily indicative of
the results that may be expected for the year ending August 31,
2008.
F-6
<page>
Innocent, Inc.
(A Development Stage Company)
Notes to the Financial Statements
May 31, 2008
(Unaudited) - Page 2
Note 2 Summary of Significant Accounting Policies
------------------------------------------
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States of America. Because a precise determination of many
assets and liabilities is dependent upon future events, the
preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful
judgement. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies
summarized below:
Development Stage Company
-------------------------
The Company complies with Financial Accounting Standard Board
Statement ("FAS") No. 7 and The Securities and Exchange Commission
Act Guide 7 for its characterization of the Company as development
stage.
Revenue Recognition
-------------------
Sales are recognized when revenue is realized or realizable and
has been earned. The Company's policy is to recognize revenue when
risk of loss and title to the product transfers to the customer.
Net sales is comprised of gross revenues less expected returns,
trade discounts and customer allowances, which include costs
associated with off-invoice mark-downs and other price reductions,
as well as trade promotions and coupons. These incentive costs are
recognized at the later of the date on which the Company
recognizes the related revenue or the date on which the Company
offers the incentive.
Impairment of Long-lived Assets
-------------------------------
Capital assets are reviewed for impairment in accordance with FAS
No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets", which was adopted effective January 1, 2002. Under FAS
No. 144, these assets are tested for recoverability whenever
events or changes in circumstances indicate that their carrying
amounts may not be recoverable. An impairment charge is recognized
for the amount, if any, which the carrying value of the asset
exceeds the fair value.
Research and Development
------------------------
Research and development expenditures are expensed as incurred.
Foreign Currency Translation
----------------------------
The financial statements are presented in United States dollars.
In accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation", since the functional
currency of the Company is U.S.dollars, the foreign currency
monetary assets and liabilities are re-measured into U.S. dollars
using the foreign
F-7
<page>
Innocent, Inc.
(A Development Stage Company)
Notes to the Financial Statements
May 31, 2008
(Unaudited) - Page 3
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Foreign Currency Translation - (cont'd)
----------------------------
exchange rate that prevailed at the balance sheet date. Revenue
and expenses are translated at weighted average rates of exchange
during the year and stockholders' equity accounts and furniture
and equipment are translated by using historical exchange rates.
Any re-measurement gain or loss incurred is reported in the income
statement.
Net Loss per Share
------------------
Basic loss per share includes no dilution and is computed by
dividing loss available to common stockholders by the weighted
average number of common shares outstanding for the period.
Dilutive losses per share reflects the potential dilution of
securities that could share in the losses of the Company. Because
the Company does not have any potentially dilutive securities, the
accompanying presentation is only of basic loss per share.
Stock-based Compensation
------------------------
The Company has not adopted a stock option plan and has not
granted any stock options. Accordingly no stock-based compensation
has been recorded to date.
Income Taxes
------------
The Company uses the asset and liability method of accounting for
income taxes in accordance with FAS No. 109 "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
temporary differences between the financial statements carrying
amounts of existing assets and liabilities and loss carryforwards
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of the Company's financial instruments
consisting of cash, accounts payable and accrued liabilities,
agreement payable and due to related party approximate their
carrying value due to the short-term maturity of such instruments.
Unless otherwise noted, it is management's opinion that the
Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments.
Recent Accounting Pronouncements
--------------------------------
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measures". This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles (GAAP), expands disclosures about fair value
F-8
<page>
Innocent, Inc.
(A Development Stage Company)
Notes to the Financial Statements
May 31, 2008
(Unaudited) - Page 4
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Recent Accounting Pronouncements - (cont'd)
---------------------------------
measurements, and applies under other accounting pronouncements
that require or permit fair value measurements. SFAS No. 157 does
not require any new fair value measurements. However, the FASB
anticipates that for some entities, the application of SFAS No.
157 will change current practice. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, which for the Company would be the fiscal year
beginning February 1, 2008. The Company is currently evaluating
the impact of SFAS No. 157 but does not expect that it will have a
material impact on its financial statements.
In September 2006, the FASB issued SFAS No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement
Plans." This Statement requires an employer to recognize the over
funded or under funded status of a defined benefit post retirement
plan (other than a multiemployer plan) as an asset or liability in
its statement of financial position, and to recognize changes in
that funded status in the year in which the changes occur through
comprehensive income. SFAS No. 158 is effective for fiscal years
ending after December 15, 2006 which for the Company would be
February 1, 2007. The Company does not expect that the
implementation of SFAS No. 158 will have any material impact on
its financial position and results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin
("SAB") No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements." SAB No. 108 addresses how the effects of
prior year uncorrected misstatements should be considered when
quantifying misstatements in current year financial statements.
SAB No. 108 requires companies to quantify misstatements using a
balance sheet and income statement approach and to evaluate
whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative
factors. SAB No. 108 is effective for periods ending after
November 15, 2006 which for the Company would be February 1, 2007.
The Company is currently evaluating the impact of adopting SAB No.
108 but does not expect that it will have a material effect on its
financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities". This
Statement permits entities to choose to measure many financial
assets and financial liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The Company is
currently assessing the impact of SFAS No. 159 on its financial
position and results of operations.
F-9
<page>
Innocent, Inc.
(A Development Stage Company)
Notes to the Financial Statements
May 31, 2008
(Unaudited) - Page 5
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Recent Accounting Pronouncements - (cont'd)
---------------------------------
In December 2007, the FASB issued two new statements: (a.) SFAS
No. 141(revised 2007), Business Combinations, and (b.) No. 160,
Noncontrolling Interests in Consolidated Financial Statements.
These statements are effective for fiscal years beginning after
December 15, 2008 and the application of these standards will
improve, simplify and converge internationally the accounting for
business combinations and the reporting of noncontrolling
interests in consolidated financial statements. The Company is in
the process of evaluating the impact, if any, on SFAS 141 (R) and
SFAS 160 and does not anticipate that the adoption of these
standards will have any impact on its consolidated financial
statements.
(a.) SFAS No. 141 (R) requires an acquiring entity in a business
combination to: (i) recognize all (and only) the assets acquired
and the liabilities assumed in the transaction, (ii) establish an
acquisition-date fair value as the measurement objective for all
assets acquired and the liabilities assumed, and (iii) disclose to
investors and other users all of the information they will need to
evaluate and understand the nature of, and the financial effect
of, the business combination, and, (iv) recognize and measure the
goodwill acquired in the business combination or a gain from a
bargain purchase.
(b.) SFAS No. 160 will improve the relevance, comparability and
transparency of financial information provided to investors by
requiring all entities to: (i) report noncontrolling (minority)
interests in subsidiaries in the same manner, as equity but
separate from the parent's equity, in consolidated financial
statements, (ii) net income attributable to the parent and to the
non-controlling interest must be clearly identified and presented
on the face of the consolidated statement of income, and (iii) any
changes in the parent's ownership interest while the parent
retains the controlling financial interest in its subsidiary be
accounted for consistently.
In March 2008, the FASB issued SFAS No. 161, Disclosures About
Derivative Instruments and Hedging Activities - an amendment of
FASB Statement No. 133 ("SFAS No. 161"). SFAS No. 161 expands
quarterly disclosure requirements in SFAS No. 133 about an
entity's derivative instruments and hedging activities. SFAS No.
161 is effective for fiscal years beginning after November 15,
2008. The adoption of SFAS No. 161 is not expected to have a
material impact on the Company's financial condition, results of
operations or cash flows.
F-10
<page>
Innocent, Inc.
(A Development Stage Company)
Notes to the Financial Statements
May 31, 2008
(Unaudited) - Page 6
Note 3 Stockholders' Equity
--------------------
The total number of common shares authorized that may be issued by
the Company is 75,000,000 shares with a par value of one tenth of
one cent ($0.001) per share and no other class of shares is
authorized.
During the period from September 27, 2006 (inception) to May 31,
2008, the Company issued 4,000,000 shares of common stock at
$0.001 per share to its directors for total proceeds of $4,000 and
3,000,000 shares of common stock at $0.010 per share for total
proceeds of $30,000.
To May 31, 2008, the Company has not granted any stock options and
has not recorded any stock-based compensation.
Note 4 Related Party Transactions
--------------------------
a) The President of the Company provides management services to
the Company. During the period ended May 31, 2008 management
services of $2,000 (August 31, 2007 - $Nil) were charged to
operations.
b) A director of the Company provides consulting services to the
Company. During the period ended May 31, 2008 consulting
services of $3,400 (August 31, 2007 - $Nil) were charged to
operations.
F-11
<page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward Looking Statements
- --------------------------
This quarterly report contains forward-looking statements. Forward-looking
statements are projections of events, revenues, income, future economic
performance or management's plans and objectives for our future operations. In
some cases, you can identify forward-looking statements by terminology such as
"may", "should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors" and the risks set out below, any of which may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. These risks include, by way of example and not in
limitation:
- - the uncertainty of profitability based upon our history of losses;
- - risks related to failure to obtain adequate financing on a timely basis and on
acceptable terms to continue as going concern;
- - risks related to our international operations and currency exchange
fluctuations;
- - risks related to product liability claims;
- - other risks and uncertainties related to our business plan and business
strategy.
This list is not an exhaustive list of the factors that may affect any of our
forward-looking statements. These and other factors should be considered
carefully and readers should not place undue reliance on our forward-looking
statements.
Forward looking statements are made based on management's beliefs,estimates and
opinions on the date the statements are made and we undertake no obligation to
update forward-looking statements if these beliefs, estimates and opinions or
other circumstances should change. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
Our financial statements are stated in United States dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles. In this quarterly report, unless otherwise specified, all dollar
amounts are expressed in United States dollars and all references to "common
stock" refer to the common shares in our capital stock.
As used in this quarterly report, the terms "we", "us", "our", the "Company" and
"Innocent" mean Innocent, Inc., unless otherwise indicated.
<page>
Our Current Business
- --------------------
We were formed on September 27, 2006. Our plan is to build a diverse portfolio
of grocery product lines and brands produced by small and mid size North
American manufacturers and sell them to Eastern European and Russian Market
through a network of local and national distributors.
The two key elements of our short term plan (twelve-month period) are to create
our initial portfolio of products we want to sell to the foreign market and do a
test market of these products.
We plan to create a portfolio of grocery products by sourcing them through
industry trade shows, directly contacting North American manufacturers,
searching through food industry publications, ads and referrals. We are planning
to start with two to three products in each of the following categories:
- - Natural and organic products (all-natural and heart healthy snack bars made
with real ingredients like fruits and nuts, high quality organic chocolates,
organic cereals, and energy bars);
- - Gluten free, wheat free, yeast free products (Gluten free cookies, crisps,
baking mixes, cereals, spice blends, etc.);
- - Salt free or low sodium dietary products (Low sodium, low fat and low calorie
sauces, marinades, vinaigrettes, granolas, trial mixes, etc.);
- - Specialty gourmet products that carry uniquely American flavors (dry rubs and
seasoning blends, barbeque sauces, marinades, etc.).
We plan to buy samples and small quantities of chosen products from vendors
throughout the United States and ship them to our distributor ("Neon City") for
testing on the local market. Neon City will utilize their existing contacts to
introduce the products to buyers at local grocery chains as well as to food
service operators. As of date of this report we did two trial shipments to
Russia and have done preliminary testing of several product samples.
Our company will create a list of prospective products based on feedback we will
receive from our distributor. We will obtain all the necessary information about
prospective products we wish to include in our portfolio from the manufacturers
for the purpose of developing a sale support system. We will evaluate the
consumer response to the introduced new products. Then we will develop a more
detailed plan of operations including types of products and next order volumes.
RESULTS OF OPERATIONS
The following is a discussion and analysis of our results of operation for the
nine month period ended May 31, 2008, and the factors that could affect our
future financial condition. This discussion and analysis should be read in
conjunction with our unaudited financial statements and the notes thereto
included elsewhere in this quarterly report. Our financial statements are
prepared in accordance with United States generally accepted accounting
principles. All references to dollar amounts in this section are in United
States dollars unless expressly stated otherwise.
<page>
Financial Data Summary
- ----------------------
Nine Months September 27, 2006
Ended (Inception) Through
May 31, May 31,
2008 2007
---- ----
Revenue $ 2,123 $ -
General and Administrative Expenses $ 39,443 480
--------- ----------
Net Loss $ 38,795 $ 480
========= ==========
Revenue
- -------
Our gross revenue for the nine-month period ended May 31, 2008, was $2,123,
compared to $Nil for the period from September 27, 2006 (Inception) to May 31,
2007. Our cost of goods sold for the same nine-month period ended May 31, 2008
was $1,655 resulting in a gross profit of $468.
Operating Costs and Expenses
- ----------------------------
The major components of our expenses for the nine-month period ended May 31,
2008, and for the period ended May 31, 2007, are outlined in the table below:
September 27, 2006
Nine Months (Inception) Through
Ended May 31, May31,
2008 2007
---- ----
Accounting and audit fees $ 8,000 $ -
Consulting 13,400 -
General and administrative 6,655 -
Management 2,000 -
Organization costs - 480
Telephone 2,174 -
Travel and promotion 7,214 -
---------- -----------
$ 39,443 $ 480
========== ===========
Operating Expenses
The increase our operating cost for the nine months ended May 31, 2008, compared
to the period ended May 31, 2007, was due to the increase in general and
administrative costs, management fees, travel expenses and the increase in
professional fees associated with our reporting obligations under the Securities
Exchange Act of 1934. All these increases are associated to the increase in our
corporate activities and increase in expenses related to implementation of our
business plan.
<page>
Liquidity and Capital Resources
- -------------------------------
Working Capital
- ---------------
Nine Months Year Ended
Ended May 31, August 31,
2008 2007
---- ----
Current Assets $ 8,207 $ -
Current Liabilities 17,495 3,980
Working Capital Deficiency $ (9,288) $ (3,980 )
Cash Flows
- ----------
September 27, 2006
Nine Months (Inception) Through
Ended May 31, May31,
2008 2007
---- ----
Cash used in Operating Activities $ 26,793 $ -
Cash used by Investing Activities - -
Cash provided by Financing Activities 34,000 -
Net Increase in Cash $ 7,207 $ -
We had cash of $7,207, accounts receivable of $1,000 and accounts payable and
accrued liabilities of $17,495 for a working capital deficiency of $9,288 as of
May 31, 2008.
We expect spending approximately $12,000 on the initial testing of new products
in the foreign market. As well, we anticipate spending an additional $10,000 on
professional fees, general administrative costs and expenditures associated with
complying with reporting obligations. Total expenditures over the next 12 months
are therefore expected to be $22,000. Accordingly, we will need to obtain
additional financing in order to complete our full business plan.
Cash Used In Operating Activities
- ---------------------------------
We used cash in operating activities in the amount of $26,793 during the
nine-month period ended May 31, 2008 and $Nil during the period ended May 31,
2007. Cash used in operating activities was funded by cash from financing
activities. Cash From Investing Activities No cash was used or provided in
investing activities during the nine-month period ended May 31, 2008.
<page>
Cash from Financing Activities
- -------------------------------
To May 31, 2008, the Company has funded its initial operations through the
issuance of 7,000,000 shares of capital stock for proceeds of $34,000.
Due to the "start up" nature of our business, we expect to incur losses as it
expands. To date, our cash flow requirements have been primarily met by equity
financings. Management expects to keep operating costs to a minimum until cash
is available through financing or operating activities. Management plans to
continue to seek other sources of financing on favorable terms; however, there
are no assurances that any such financing can be obtained on favorable terms, if
at all. If we are unable to generate sufficient profits or unable to obtain
additional funds for our working capital needs, we may need to cease or curtail
operations. Furthermore, there is no assurance the net proceeds from any
successful financing arrangement will be sufficient to cover cash requirements
during the initial stages of the Company's operations. For these reasons, our
auditors believe that there is substantial doubt that we will be able to
continue as a going concern.
Going Concern
- -------------
The audited financial statements for the year ended August 31, 2007, included in
our registration statement on the Form S-1 filed with Securities and Exchange
Commission, have been prepared on a going concern basis, which implies that our
company will continue to realize its assets and discharge its liabilities and
commitments in the normal course of business. Our company has generated $2,123
in revenues since inception and has never paid any dividends and is unlikely to
pay dividends or generate substantial earnings in the immediate or foreseeable
future. The continuation of our company as a going concern is dependent upon the
continued financial support from our shareholders, the ability of our company to
obtain necessary equity financing to achieve our operating objectives, and the
attainment of profitable operations. As at May 31, 2008, our company has
accumulated losses of $42,955 since inception. As we do not have sufficient
funds for our planned operations, we will be required to raise additional funds
for operations.
Due to the uncertainty of our ability to meet our current operating expenses
and the capital expenses noted above, in their report on the annual financial
statements for the year ended August 31, 2007, our independent auditors included
an explanatory paragraph regarding concerns about our ability to continue as a
going concern. Our financial statements contain additional note disclosures
describing the circumstances that lead to this disclosure by our independent
auditors.
The continuation of our business is dependent upon us raising additional
financial support. The issuance of additional equity securities by us could
result in a significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.
Future Financings
- -----------------
We anticipate that additional funding will be required in the form of equity
financing from the sale of our common stock. However, we cannot provide
investors with any assurance that we will be able to raise sufficient funding
from the sale of our common stock to fund our marketing plan and operations. At
this time, we cannot provide investors with any assurance that we will be able
to raise sufficient funding from the sale of our common stock or through a loan
from our directors to meet our obligations over the next twelve months. We do
not have any arrangements in place for any future equity financing.
<page>
Off-Balance Sheet Arrangements
- ------------------------------
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
stockholders.
Risks and Uncertainties
- -----------------------
WE FACE RISKS ASSOCIATED WITH CHANGING INDUSTRY
The food marketing and distribution industry is undergoing accelerated change as
producers, manufacturers, distributors and retailers seek to lower costs and
increase services in a highly competitive environment of relatively static
overall demand. Failure to develop a successful response to changing market
conditions over the long term could have a material adverse effect on the
Company's business and financial condition.
WE ARE IN A LOW MARGIN BUSINESS AND ITS PROFITABILITY MAY BE NEGATIVELY IMPACTED
BY FOOD PRICE DEFLATION AND OTHER FACTORS.
The food marketing and distribution industry is characterized by relatively high
inventory turnover with relatively low profit margins. The Company intends to
make a significant portion of its sales at prices that are based on the cost of
products it re-sells plus a percentage markup. As a result, the Company's profit
levels may be negatively impacted during periods of food price deflation, even
though its gross profit percentage may remain relatively constant. The food
marketing and distribution industry is sensitive to international, national and
regional economic conditions. The Company's operating results may be adversely
affected by other factors, including difficulties with the collectability of
accounts receivable, inventory control, competitive price pressures, severe
weather conditions and unexpected increases in fuel or other
transportation-related costs. Therefore the Company can provide no assurance
that one or more of these factors will not adversely affect its future operating
results.
OUR INTERNATIONAL OPERATIONS INVOLVE MANY RISKS.
We are subject to the risks generally associated with doing business abroad.
These risks include foreign laws and regulations, foreign consumer preferences,
political unrest, disruptions or delays in shipments and changes in economic
conditions in countries to which we sell products. These factors, among others,
may affect our cost of doing business and our ability to sell products. If any
of these or other factors make the conduct of business in Russia undesirable or
impractical, our business may be materially and adversely affected.
WE OPERATE IN VERY COMPETITIVE MARKETS.
Competition in the food marketing and distribution industry is intense. The
Company's primary competitors are multinational food distributors (such as Kraft
Foods, Inc., Nestle, etc.), national food distributors, and regional food
distributors who distribute its product lines in overseas markets. The principal
competitive factors include product price, quality and assortment of product
lines, schedules and reliability of delivery, and the range and quality of
customer services. Our competitors are well established and significantly better
<page>
funded than us. Due to limited financing, and fierce competition from
multinational food distributors we may not be able to generate revenues and will
have to cease operations.
BECAUSE WE WILL BE SELLING FOOD PRODUCTS, WE MAY FACE THE RISK OF EXPOSURE TO
PRODUCT LIABILITY CLAIMS.
Innocent, like any other re-seller of food products, faces the risk of exposure
to product liability claims in the event that the use of products re-sold by it
causes injury or illness. With respect to product liability claims, the Company
will seek contractual indemnification and insurance coverage from parties
supplying its products, but this indemnification or insurance coverage is
limited, as a practical matter, to the creditworthiness of the indemnifying
party and the policy limits of any insurance provided by suppliers. If Innocent
will not have adequate insurance or contractual indemnification available,
product liability relating to defective products could materially reduce its net
income and earnings per share.
BECAUSE WE HAVE NO LONG-TERM CONTRACTS WITH SUPPLIES AND DO NOT CONTROL THE
ACTUAL PRODUCTION OF THE PRODUCTS WE RE-SELL, WE MAY BE UNABLE TO MAINTAIN
ADEQUATE INVENTORY OF THE PRODUCTS.
Innocent intends to obtain all of its food products from third-party suppliers.
The company does not plan to have long-term contracts with its suppliers
committing them to provide products to it. Although the Company's purchasing
volume should provide leverage when dealing with suppliers, suppliers may not
provide the food products and supplies Innocent needs in the quantities it
requests. Because the Company does not control the actual production of the
products it re-sells, the Company is also subject to delays caused by
interruption in production based on conditions outside its control. These
conditions include job actions or strikes by employees of suppliers, weather,
crop conditions, transportation interruptions and natural disasters or other
catastrophic events. Innocent's inability to obtain adequate supplies of its
food products, as a result of any of the foregoing factors or otherwise, could
mean that Innocent could not fulfill its obligations to customers, and customers
may turn to other wholesalers or distributors.
WE MAY BE ADVERSELY AFFECTED BY CURRENCY EXCHANGE RATE FLUCTUATIONS
Although we generally purchase products in U.S. dollars, the cost of these
products, which will be shipped overseas, may be affected by changes in the
value of the relevant currencies. Price increases caused by currency exchange
rate fluctuations may make our products less competitive or have an adverse
effect on our margins. Our international revenues and expenses generally are
derived from sales and operations in foreign currencies, and these revenues and
expenses may be materially affected by currency fluctuations, including amounts
recorded in foreign currencies and translated into U.S. dollars for financial
reporting. As a result, foreign currency fluctuations may have a material
adverse effect on our results of operations and financial condition.
THERE IS SUBSTANTIAL UNCERTAINTY AS TO WHETHER WE WILL CONTINUE OPERATIONS.
If we discontinue operations, you could lose your investment. Our auditors have
discussed their uncertainty regarding our business operations in their audit
report dated February 25, 2008. This means that there is substantial doubt that
we can continue as an ongoing business for the next 12 months. The financial
statements do not include any adjustments that might result from the uncertainty
about our ability to continue in business. As such, we may have to cease
operations and you could lose your entire investment.
<page>
WE LACK AN OPERATING HISTORY AND HAVE LOSSESS WHICH WE EXPECT TO CONTINUE INTO
THE FUTURE.
There is no assurance that our future operations will result in profitable
revenues. If we cannot generate sufficient revenues to operate profitably, our
business will fail. We were incorporated on September 27, 2006 and we have
realized revenues of $2,123 during the period from Incorporation on September
27, 2006 to May 31, 2008, while we have incurred net loss of $42,955 in the same
period. We have very little operating history upon which an evaluation of our
future success or failure can be made. Based upon current plans, we expect to
incur operating losses in future periods because we will be incurring expenses
which may exceed expected revenues. We cannot guarantee that we will be
successful in generating revenues in the future. Failure to generate revenues
will cause us to go out of business.
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR BUSINESS MAY FAIL.
Our business plan calls for ongoing expenses in connection with the marketing
and re-sale of food product lines. We have generated $2,123 in revenue from
operations to date. In order to expand our business operations, we anticipate
that we will have to raise additional funding. If we are not able to raise the
funds necessary to fund our business expansion objectives, we may have to delay
the implementation of our business plan. We do not currently have any
arrangements for financing. Obtaining additional funding will be subject to a
number of factors, including general market conditions, investor acceptance of
our business plan and initial results from our business operations. These
factors may impact the timing, amount, terms or conditions of additional
financing available to us. The most likely source of future funds presently
available to us is through the sale of additional shares of common stock.
BECAUSE OUR MANAGEMENT DOES NOT HAVE PRIOR EXPERIENCE IN FOOD SALES AND
MARKETING, OUR BUSINESS HAS A HIGHER RISK OF FAILURE.
Our directors do not have experience in food sales and marketing industry. As a
result, we may not be able to recognize and take advantage of opportunities
without the aid of qualified marketing and business development consultants. Our
directors' decisions and choices may not be well thought out and our operations,
earnings and ultimate financial success may suffer irreparable harm as a result.
WE DEPEND ON KEY PERSONNEL
Our future success will depend in part on the continued service of key
personnel, particularly Vera Barinova, our President and Chief Executive
Officer. Our future success will also depend on our ability to attract and
retain key managers, sales people and others. We face intense competition for
these individuals from well established multinational, national and regional
food marketing and distribution companies. We may not be able to attract
qualified new employees or retain existing employees, which may have a material
adverse effect on our results of operations and financial condition.
BECAUSE OUR DIRECTORS OWN 57.14% OF OUR OUTSTANDING STOCK, THEY WILL MAKE AND
CONTROL CORPORATE DECISIONS THAT MAY BE DISADVANTAGEOUS TO MINORITY
SHAREHOLDERS.
Our directors, own approximately 57.14% of the outstanding shares of our common
stock. Accordingly, they will have significant influence in determining the
outcome of all corporate transactions or other matters, including the election
of directors, mergers, consolidations and the sale of all or substantially all
of our assets, and also the power to prevent or cause a change in control.
<page>
The interests of these individuals may differ from the interests of the other
stockholders and thus result in corporate decisions that are disadvantageous to
other shareholders.
OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S
PENNY STOCK REGULATIONS AND THE FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK
Our stock is a penny stock. The Securities and Exchange Commission has adopted
Rule 15g-9 which generally defines "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. Our securities are
covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and "accredited investors". The term "accredited investor" refers
generally to institutions with assets in excess of $5,000,000 or individuals
with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these 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 agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in, and limit the marketability of, our common stock.
In addition to the "penny stock" rules promulgated by the Securities and
Exchange Commission, the Financial Industry Regulatory Authority has adopted
rules that require that in recommending an investment to a customer, a broker-
dealer must have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the National Association of Securities Dealers believes that
there is a high probability that speculative low-priced securities will not
be suitable for at least some customers. The National Association of Securities
Dealers' requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy
and sell our stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
<page>
ITEM 4T.CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Exchange Act, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures at May 31, 2008, which is the end of the period covered by this
report. This evaluation was carried out by our principal executive officer and
our principal financial officer. Based on this evaluation, our principal
executive officer and our principal financial officer have concluded that the
design and operation of our disclosure controls and procedures are effective as
at the end of the period covered by this report.
There were no changes in our internal control over financial reporting during
the fiscal period ended May 31, 2008 that have materially affected or are
reasonably likely to materially affect, our internal control over financial
reporting.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed by our company in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by our company in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS.
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
<page>
ITEM 6. EXHIBITS
Exhibit
Number Title of Document
------- -----------------
3.1 Articles of Incorporation *
3.2 Bylaws *
10.1 Sales and Distribution Agreement*
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*Incorporated by reference to similarly numbered exhibits filed with the
Company's Registration Statement on Form S-1 on April 3, 2008.
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.
Innocent, Inc.
/s/ Vera Barinova
-------------------------------
Vera Barinova
President, Chief Executive
Officer, and Director
Dated: July 14, 2008
/s/ Aleksandr Kryukov
-----------------------------
Aleksandr Kryukov
Chief Financial Officer, Secretary
Treasurer, principal accounting
officer and Director
Dated: July 14, 2008