MAPLE TREE KIDS, INC. - 10-Q - Management's Discussion and Analysis of Financial Conditions of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) The following management's discussion and analysis should be read in conjunction
with our financial statements and the notes thereto and the other financial
information appearing elsewhere in this report. In addition to historical
information, the following discussion contains certain forward-looking
information. See "Special Note Regarding Forward Looking Statements" above for
certain information concerning those forward looking statements.
We are a web-based retailer of clothing, accessories and other personalized
gifts for children. We currently sell our products through our website
www.polkadotpatch.com. We do not have any stores or outlets. We are in the
process of rebranding our business under the name Maple Tree Kids. We are
devoting a substantial amount of our efforts promoting our personalized children
products, creating a new logo, marketing and sales collateral, and creating a
new website, www.mapletreekids.com and as a result of these corporate
development efforts, we are considered a development stage company.
We acquire our products from 35 wholesale vendors all located in the United
States who will also drop-ship the inventory we purchase from them to our
customers. We do not manufacture any of our own products. We have not entered
into any formal supply agreements with these vendors. We are required to pay in
full for products purchased from these vendors upon delivery. If the prices
charged by these vendors increase and we are not able to pass on the increased
price to our customers, then our margins will be reduced and this will affect
our potential for future profitability.
On May 19, 2014, we entered into a website development agreement with The
Calgary Web Design Network. Pursuant to the terms of the Agreement, we have
agreed to pay The Calgary Web Design Network a fee of $15,000 for preparing
design specifications, programming and consulting services in the building of
the Company's new website, mapletreekids.com. This new website is intended to
increase the sales of our personalized infant products to the market. The
Agreement will commence only upon us making a 50% deposit or $7,500 payment to
The Calgary Web Design Network.
Principal Factors Affecting our Financial Performance.
Our operating results are primarily affected by the following factors:
· Our auditors have issued a going concern opinion. This means
that there is substantial doubt that we can continue as an
ongoing business for the next 12 months.
· Our ability to achieve and maintain profitability and positive
cash flow is dependent upon:
· Our ability to develop and continually update our websites;
· Our ability to procure and maintain on commercially reasonable
terms relationships with third parties from whom we acquire
· Our ability to identify and pursue mediums through which we
will be able to market our products;
· Our ability to attract new customers to our websites who are
interested in purchasing our products; and
· Our ability to manage our costs and maintain low overhead.
· Based upon current plans, we expect to incur operating losses
in future periods because we will continue to be in the
development stage developing our Maple Tree Kids website to
sell personalized children products that will be located at
www.mapletreekids.com and will be incurring expenses and not
generating significant revenues.
· We are dependent upon our relationship with our major
customer. This customer accounted for approximately 80%, of
our total revenues for the six months ended June 30, 2014 and
2013. This major customer is not contractually obligated to
purchase any minimum amount of products from us and can
discontinue buying products from us at any time. If we fail to
maintain this relationship, our sales will be significantly
diminished. Any change in the terms of our sales to our major
customer could have a material impact on our financial
position and results of operations.
· Our sales are dependent on our ability to attract retail
customers to our website on cost-effective terms. Our strategy
to attract customers to our website includes viral marketing,
the practice of placing advertisements and offering giveaways
on various highly rated baby weblogs or "blogs", online
journals that are updated frequently and available to the
public, postings on online communities such as Facebook,
MySpace, Yahoo!(R) Groups and amateur websites such as
YouTube.com, and other methods of getting Internet users to
refer others to our website by e-mail or word of mouth; search
engine optimization, marketing our website via search engines
by purchasing sponsored placement in search results; and
entering into affiliate marketing relationships with website
providers to increase our access to Internet consumers. We
expect to rely on word of mouth marketing as the primary
source of traffic to our website, with search engine
optimization and affiliate marketing as secondary sources.
Results of Operations for the three months and six months ended June 30, 2014
and June 30, 2013 and the period August 12, 2005 (inception date) to June 30,
We generated revenues of $4,084 and $3,731 for the three months ended June 30,
2014 and 2013, respectively and $5,771 and $8,859 for the six months ended June
30, 2014 and 2013, respectively and was a cumulative amount of $757,605 for the
period from our inception on August 12, 2005 to June 30, 2014. This increase in
revenue in 2014 for the three months ended June 30, 2014 versus June 30, 2013
was due to sales generated from our sole shareholder and officer selling various
inventory gift baskets by attending flea market events. The gift baskets were
made up of the inventory she transferred to the Company. The decrease for the
six months ended June 30, 2014 versus June 30, 2013 was due to a decrease in the
volume of items sold to our major customer.
Our ability to generate a significant level of revenues, however, is very
uncertain for future reporting periods. We continue to be a development stage
company since our sole officer and shareholder is devoting substantially all of
her efforts to rebranding our company under the name Maple Tree Kids to sell
more personalized children products to the market and creating related marketing
and sales collateral, a new logo and new website among other things.
Cost of Sales
Our cost of sales was $2,719 and $3,175 for the three months ended June 30, 2014
and 2013, respectively and $3,814 and $6,362 for the six months ended June 30,
2014 and 2013, respectively and was a cumulative amount of $472,267 from the
date of our inception on August 12, 2005 to June 30, 2014. The decrease in the
cost of sales for 2014 was due to our decrease in revenue in 2014 as we sold our
merchandise to fewer retail customers in 2014.
We generated gross profit of $1,365 and $556 for the three months ended June 30,
2014 and 2013, respectively and $1,957 and $2,497 for the six months ended June
30, 2014 and 2013, respectively and a cumulative amount of $285,338 for the
period from the date of our inception on August 12, 2005 to June 30, 2014. The
increase in the gross profit percentage for the three months ended June 30, 2014
versus June 30, 2013, 33% in 2014 and 15% in 2013, was due an increase in our
profit margins from selling our gift baskets at flea market events, as mentioned
Our operating expenses were $3,702 and $1,670 for the three months ended June
30, 2014 and 2013, respectively and $11,821 and $4,038 for the six months ended
June 30, 2014 and 2013, respectively and a cumulative amount of $231,859 for the
period from the date of our inception on August 12, 2005 to June 30, 2014. The
increase in our operating expenses for the three month periods in 2014 and 2013
was due primarily to the increase in fees for professional services of
approximately $2,000. The increase in our operating expenses for the six month
periods in 2014 and 2013 was due primarily to the increase in fees for
professional services of approximately $8,000.
Net Income (Loss)
Our net income (loss) for the three months ended June 30, 2014 and 2013 was
$(2,337) and $(1,114), respectively and for the six months ended June 30, 2014
and 2013 was $(9,864) and $(1,541), respectively and a cumulative amount of
$53,479 for the period from the date of our inception on August 12, 2005 to June
30, 2014. The increase in net losses in 2014 was due to the reasons stated
Impact of Potential Loss of our Major Customer on our Liquidity
Currently sales to our major customer constitute approximately 80% of our total
revenue. Any substantial decrease in selling our products to them will
substantially affect our operating results and liquidity. Although we currently
have a satisfactory relationship with our major customer, if they were to
terminate their relationship or stop ordering products from us, these events
would currently result in a loss of substantially all of our revenue which would
have a material impact on the liquidity of our Company. It is uncertain how long
our major customer will continue to order products from us as we do not have any
assurances from them as to how long they will continue ordering products from
us. We do not have an exclusive agreement with them for selling our type of
products to them.
In the event that the Company is not able to retain our major customer or obtain
new customers, we will incur increased operating losses and we will need to
raise additional capital to maintain our current operations or cease operations.
We presently are seeking to increase our web-based sales by attracting new
customers to our websites. We are not presently negotiating any agreements with
any new major customers.
Liquidity and Capital Resources
As of June 30, 2014, we had cash of $4,283, total assets of $7,105 and negative
working capital of $7,367 compared to $4,484 in cash, $4,484 in total assets and
$2,901 in working capital as of December 31, 2013. The decrease in working
capital is attributable to our increase in operating losses in 2014.
The following table provides detailed information about our net cash flow for
all financial statement periods presented in this Report:
August 12, 2005
June 30, June 30,
2014 2013 2014
Net cash provided by (used in) operating activities $ (9,797) $ (1,734) $ 55,129
Net cash provided by (used in) investing activities $ (404) $ 0 $ (404)
Net cash provided by (used in) financing activities $ 10,000 $ 0 $ (50,442)
Net cash inflow (outflow)
$ (201) $ (1,734) $ 4,283
Cash used in operating activities in the six months ended June 30, 2014
consisted of net loss as well as the effect of changes in working capital. Cash
used in operating activities in the six months ended June 30, 2014 was $9,797,
which consisted of a net loss of $9,864 and an increase in working capital of
$67. The decrease in working capital was due an increase in accounts receivable
of $127, a decrease in inventory of $1,087 and a decrease in accrued liabilities
Cash used in operating activities in the six months ended June 30, 2013
consisted of net loss as well as the effect of changes in working capital. Cash
used in operating activities in the six months ended June 30, 2014 was $1,734,
which consisted of a net loss of $1,541 and a decrease in working capital of
$193. The decrease in working capital was due to a decrease in accrued
liabilities of $193.
Cash used in operating activities from August 12, 2005 (inception) to June 30,
2014 consisted of net income as well as the effect of changes in working
capital. Cumulative cash provided by operating activities was $55,129, which
consisted of a net income of $53,479 and cash provided by working capital of
$1,650. The cash used by working capital consisted of an increase in accounts
receivable of $127, decrease in inventory of $1,087 offset by an increase in
accrued liabilities of $690.
During the six months ended June 30, 2014 we had $404 of investing activities
from the purchase of computer equipment and software. We had investing
activities from August 12, 2005 (inception) to June 30, 2014 of $404.
During the six months ended June 30, 2014, we had net cash provided by financing
activities of $13,378 as compared to net cash flows provided by financing
activities of $0 for the six months ended June 30, 2013 an increase of $13,378.
This increase in cash provided by financing activities is due to an increase in
shareholder loan payable of $13,378. We have net used in financing activities of
$50,442 for the period August 12, 2005 (inception date) to June 30, 2014. We had
an increase proceeds from the sale of our common stock to our sole shareholder
of $7,000 offset by net distributions to shareholders of ($54,064).
During the year ended December 31, 2014, our total cash requirements may exceed
our cash balances. Currently, we do not have sufficient cash in our bank
accounts to cover our estimated expenses for the next 12 months. Our current
average monthly negative cash flow is approximately $2,000 per month. Based on
our current cash position at June 30, 2014 we do not have enough cash on hand to
fund our current operations. We anticipate meeting our future cash requirements
through a combination of equity financing from the proceeds of our offering and
debt financing from our principal shareholder to fund the costs of this offering
and the costs of being a public reporting company. Although we anticipate
meeting our future cash requirements though, among other things, debt financing
from our principal shareholder, we do not currently have any agreements with our
principal shareholder to provide such financing, written or unwritten.
We estimate that our operating expenses, based on us being able to raise the
necessary equity capital, will be approximately $100,000 as described in the
table below. These estimates may change significantly depending on the nature of
our future business activities and our ability to raise capital from
shareholders or other sources.
Target completion Estimated
Description date or period Expenses
Legal and accounting fees 12 months $ 25,000
Further development of Maple Tree Kids website December 2014 10,000
Marketing and advertising 12 months 25,000
Salaries and consulting fees 12 months 22,000
General and administrative 12 months 18,000
We intend to meet our cash requirements for the next 12 months through a
combination of debt financing and equity financing. We have an effective
registration statement on file with the Securities and Exchange Commission but
currently do not have any arrangements in place for the completion of any
financings and there is no assurance that we will be successful in completing
any further financings or raising any capital. There is no assurance that any
financing will be available or if available, on terms that will be acceptable to
us. We may not raise sufficient funds to fully carry out any business plan.
Off-Balance Sheet Arrangements
As of the date of this report, we have no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to our stockholders.
The effect of inflation on our revenues and operating results has not been
Critical Accounting Policies
Our financial statements are impacted by the accounting policies used and the
estimates and assumptions made by management during their preparation. A
complete listing of these policies is included in Note 2 of the notes to our
financial statements for the quarter ended June 30, 2014 and 2013 and for the
period August 12, 2005 (date of inception) to June 30, 2014. We have identified
below the accounting policies that are of particular importance in the
presentation of our financial position, results of operations and cash flows,
and which require the application of significant judgment by management.
Sales to consumers are recorded when goods are shipped and are reported net of
allowances for estimated returns and allowances in the accompanying statements
of operations. The customer authorizes us to charge their credit card at the
time of purchase with the understanding their credit card will be charged upon
shipment. We recognize revenue based on the below three criteria. Our policy is
to allow the return of any unused merchandise purchased from us for any reason
for a 15-day period after the date of sale.
Delivery has occurred. We have our vendors drop ship inventory to our customers
and we recognize revenue when we are notified that shipment has occurred.
Fee is fixed or determinable. The price is deemed to be fixed and determinable
based on our successful collection history and our arrangement with our
Collectability is reasonably assured. We determine for all of our customers
whether collectability is reasonably assured pursuant to our credit review
policy. All credit card payments are approved and processed through our website.
We evaluate the criteria outlined in FASB ASC Subtopic 605-45, Revenue
Recognition-Principal Agent Considerations, in determining whether it is
appropriate to record the gross amount of product sales and related costs or the
net amount earned as commissions. Generally, according to this accounting
principle, when we are primarily obligated in a transaction, subject to
inventory risk, have latitude in establishing prices and selecting suppliers, or
have several but not all of these indicators, revenue is recorded gross. If we
are not primarily obligated and amounts earned are determined using a fixed
percentage, a fixed-payment schedule, or a combination of the two, we generally
record the net amounts as commissions earned.
Based on the above facts, we recognize all revenue as a Principal, not an agent.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
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