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[August 14, 2014]
TRAIL ONE, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) OVERVIEW AND OUTLOOK Trail One was formed in the state of Nevada on September 9, 2010 to establish retail sales of automobile license plate tags to the general public. The Company expects to generate its corporate revenue from the sale of its license plate tags.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. The Company follows the same accounting policies in the preparation of interim reports.
The Company has adopted a fiscal year end of September 30.
Trail One, Inc. is presently marketing an automobile license plate tag as an accessory.
The Company may market Trail One through a combination of direct sales, referrals and networking within the industry. To date the Company has not generated any sales and has a limited operating history.
To date, the Company, has not generated any sales revenues, has incurred expenses and has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise. In addition, the Company will require additional financing to fund future operations. The Company requires additional capital to complete the development and commercialization of its license plate tags. Management is currently seeking additional sources of equity or debt financing; however the Company does not have any commitments or definitive or binding arrangements for such funds. There can be no assurance that such funds, if available at all, can be obtained on terms reasonable to the Company. If the Company is unsuccessful in raising additional capital it will need to reduce costs and operations substantially.
Based on our current operating plan, we do not expect to generate revenue that is sufficient to cover our expenses for the next three months, and we will need to obtain additional financing to operate our business for the next three months. Our "burn rate" is approximately $2,099 per month. Most of our expenses are anticipated to be legal, accounting, transfer agent, and other costs associated with being a public company. Additional financing, whether through equity security sales, debt instruments, and private financing to fund operations, may not be available, or if available, may be on terms unacceptable to us. Our ability to maintain sufficient liquidity is dependent on our ability to raise additional capital.
The Company is currently considering expanding its business by acquiring the business or equity of another entity without the Company paying any material amount of cash consideration (a "Reverse Merger Transaction"). Any Reverse Merger Transaction may be structured as an acquisition of assets or equity by the Company issuing stock, exchanging stock and other equity interests, merging with another entity or entities or entering into any transaction with similar effect. In connection with any Reverse Merger Transaction, the Company will likely assume the obligations of the acquired business, which may include debt or other financing, and may incur other debt or other financing. The amount of stock that the Company may issue in any Reverse Merger Transaction will likely result in a change in control of the Company. The Company is currently negotiating, on a non-binding basis, the terms and conditions of a Reverse Merger Transaction with a business entity. If the Reverse Merger Transaction is consummated, the Company would continue as a smaller reporting company. No assurance may be given, however, that such negotiations will conclude with terms and conditions that would be acceptable to us or that any such Reverse Merger Transaction would be consummated.
If we issue additional equity securities to raise funds, the ownership percentage of our existing security holder would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock. Debt incurred by us would be senior to equity in the ability of debt holders to make claims on our assets. The terms of any debt issued could impose restrictions on our operations. If adequate funds are not available to satisfy either short or long-term capital requirements, our operations and liquidity could be materially adversely affected and we could be forced to cease operations.
Change of Control On May 24, 2013 (the "Closing Date"), the Company's largest shareholder Mr.
Ralph Montrone entered into a Security Purchase Agreement (the "SPA") with Mr.
Mohammad Omar Rahman. Pursuant to the SPA, Mr. Montrone sold his 10,000,000 issued and outstanding shares of common stock, representing approximately 55.6% of the issued and outstanding shares of the Company, to Mr. Rahman. As of the Closing Date, Mr. Rahman was appointed the new CEO and elected by shareholders to serve as a Director of the Company.
13 -------------------------------------------------------------------------------- Table of Contents Results of Operations for the Three Months Ended June 30, 2014 and 2013 Revenue The Company had no revenues during the three months ending June 30, 2014 and June 30, 2013.
Operating Expenses Total operating expenses were $5,975 for the three months ended June 30, 2014 compared to $3,436 for the three months ended June 30, 2013, an increase of $2,539. The increase in operating expense for the three months ended June 30, 2014 compared to June 30, 2013 was due primarily to increases in our general and administrative expenses.
Interest Expense Total interest expense was $322 for the three months ended June 30, 2014 compared to $996 for the three months ended June 30, 2013, a decrease of $674.
Net loss For the reasons above, our net loss for the three months ended June 30, 2014 was $6,297 compared to $4,432 for the three months ended June 30, 2013, an increase of $1,865 or approximately 42%.
Results of Operations for the Nine Months Ended June 30, 2014 and 2013 Revenue The Company had no revenues during the nine months ending June 30, 2014 and June 30, 2013.
Operating Expenses Total operating expenses were $16,004 for the nine months ended June 30, 2014 compared to $13,408 for the nine months ended June 30, 2013, an increase of $2,596. The increase in operating expense for the nine months ended June 30, 2014 compared to June 30, 2013 was due primarily to an increase of $1,690 in general and administrative costs and an increase of $906 in professional fees.
Interest Expense Total interest expense was $663 for the nine months ended June 30, 2014 compared to $2,673 for the nine months ended June 30, 2013, a decrease of $2,010.
Net loss For the reasons above, our net loss for the nine months ended June 30, 2014 was $16,667 compared to $16,081 for the nine months ended June 30, 2013, an increase of $586 or approximately 4%.
LIQUIDITY AND CAPITAL RESOURCES We believe that our existing sources of liquidity will not be sufficient to fund our operations, anticipated capital expenditures, working capital and other financing requirements for at least the next twelve months. In the event the Company is unable to achieve profitable operations in the near term, it may require additional equity and/or debt financing, or reduce expenses, including officer's compensation, to reduce such losses. However, we cannot assure that such financing will be available to us on favorable terms, or at all. We will continue to monitor our expenditures and cash flow position. At some time in the future, however, we may need to obtain additional financing to complete our business plan. There is no assurance that we will be able to obtain such financing if needed and the failure to do so could negatively impact the viability of our Company to continue with this business and the business may fail.
14 -------------------------------------------------------------------------------- Table of Contents The following table summarizes total assets, accumulated deficit, stockholder's equity (deficit) and working capital at June 30, 2014: June 30, 2014 Total Assets $ 0 Accumulated (Deficit) $ (111,883 ) Stockholders' Equity (Deficit) $ (31,351 ) Working Capital (Deficit) $ (31,351 ) Since our inception, we have incurred an accumulated deficit of $111,883. Our cash and cash equivalent balances were $0 at June 30, 2014. As of June 30, 2014 we had negative working capital of $31,351 and total current liabilities were $31,351.
Net cash used in operating activities totaled $25,997 for the nine months ended June 30, 2014. Operating expenses were $16,004 for the nine months ended June 30, 2014, and primarily consisted general and administrative expenses and professional fees incurred in preparing our filings for the Securities and Exchange Commission ("SEC").
Financing Activities Net cash provided by financing activities totaled $25,997 for the nine months ended June 30, 2014.
During the nine months ended June 30, 2014 Mr. Montrone advanced the Company $10. On October 13, 2013 Mr. Montrone forgave and released the Company of this debt. Amount forgiven was recorded as additional paid in capital.
During the nine months ended June 30, 2014, the Company has received short term loans totaling $25,996 from Highline Research Group, in exchange for unsecured promissory notes carrying 5% interest, due on demand.
Since inception, our capital needs have entirely been met by these sales of stock and short term debt financings.
Satisfaction of Our Cash Obligations for the Next Twelve Months Our plan for satisfying our cash requirements for the next twelve months is through generating revenue from TOCNC Tags, sale of shares of our common stock, third party financing, and/or traditional bank financing. Consequently, we intend to make appropriate plans to insure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.
We will have additional capital requirements during the fiscal year ending September 30, 2014. We do not expect to be able to satisfy our cash requirements through our product sales, and therefore we will attempt to raise additional capital through the sale of our common stock and debt financing activities.
15 -------------------------------------------------------------------------------- Table of Contents We cannot assure that we will have sufficient capital to finance our growth and business operations or that such capital will be available on terms that are favorable to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future.
Based on our current operating plan, we do not expect to generate revenue that is sufficient to cover our expenses for at least the next twelve months. In addition, we do not have sufficient cash and cash equivalents to execute our operations for at least the next twelve months. We will need to obtain additional financing to conduct our day-to-day operations, and to fully execute our business plan. We will raise the capital necessary to fund our business through a subsequent offering of equity securities. Additional financing, whether through public or private equity or debt financing, arrangements with security holders or other sources to fund operations, may not be available, or if available, may be on terms unacceptable to us.
Our ability to maintain sufficient liquidity is dependent on our ability to raise additional capital. If we issue additional equity securities to raise funds, the ownership percentage of our existing security holders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock. Debt incurred by us would be senior to equity in the ability of debt holders to make claims on our assets.
The terms of any debt issued could impose restrictions on our operations. If adequate funds are not available to satisfy either short or long-term capital requirements, our operations and liquidity could be materially adversely affected and we could be forced to cease operations.
Inflation The rate of inflation has had little impact on the Company's results of operations and is not expected to have a significant impact on the continuing operations.
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout management's Discussion and Analysis or Plan of Operation where such policies affect our reported and expected financial results. Note that our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
Revenue Recognition Sales are recorded when products are shipped to customers and collectability is reasonably assured. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue from sales for which payment has been received, but shipment to our customers has not occurred. The Company has not recorded revenues to date.
Recently Issued Accounting Pronouncements In June 2014, FASB issued and the Company adopted Accounting Standards Update (ASU) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, Development Stage Entities, from the FASB Accounting Standards Codificatio®. A development stage entity is one that devotes substantially all of its efforts to establishing a new business and for which: (a) planned principal operations have not commenced; or (b) planned principal operations have commenced, but have produced no significant revenue. For example, many start-ups or even long-lived organizations that have not yet begun their principal operations or do not have significant revenue would be identified as development stage entities. For public business entities, the presentation and disclosure requirements in Topic 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted.
16 -------------------------------------------------------------------------------- Table of Contents In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to: - Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and - Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, "Technical Corrections and Improvements" in Accounting Standards Update No.
2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012.
The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
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