Summary of B&D FOOD CORP. - Yahoo! Finance

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

The following discussion should be read in conjunction with the financial statements and notes thereto set forth in Item 1 of this Report. In addition to historical information, this discussion and analysis contains forward-looking statements that relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements include those containing such words as "anticipates", "believes", "estimates", "expects", "hopes", "targets", "should", "will", "will likely result", "forecast", "outlook", "projects" or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from those expressed or implied in the forward-looking statements.

OVERVIEW

The Company (formerly REII Incorporated) is a holding company, which focuses on acquiring, organizing, and developing companies in the food industry, and more specifically in the coffee industry. The Company's management plans to integrate manufacturing and distribution operations in order to achieve maximum return on capital.

In 2005, the Company obtained a manufacturing arm by acquiring BDFC which owns and operates a coffee manufacturing plant. BDFC has the ability to manufacture and pack roasted and ground coffee, instant coffee and several mixtures of coffee and tea like cappuccino and others. Currently, the Company is focusing on selling its coffee products in South America and Eastern Europe. In addition, the Company is looking to acquire a strong marketing capability in the United States.

In the summer of 2008, the Company started work on developing a global trading arm.

On September 28, 2008, pursuant to a transfer agreement dated the same date between Livorno, Daniel Ollech, Jacques Ollech and Mark Radom (the "Purchasers"), Livorno transferred its right, title and interest in, under and to the Note to the Purchasers in accordance with their respective ownership interests in Livorno. On the same date thereof, pursuant to a preferred share subscription agreement, the Purchasers converted 100% of the outstanding principal and interest into 3,735,956 preferred shares (the "Series A Preferred shares") of the Company (the Note having been amended on September 28, 2008 to allow for conversion into preferred shares. The Series A Preferred Shares carry the following rights:

• Cumulative dividend of U.S. $100,000 (it being understood that the Company has no obligation to declare and pay any dividends, but that Purchasers shall receive with a right of first priority pro rata to their ownership in Livorno U.S. $100,000 for every full calendar year that elapses before the Company declares and pays a dividend prior to the Company paying any dividends to holders of its common shares);

• Conversion at the option of each of the Purchasers upon 45 days' written notice into ten shares of the Company's common stock for each share of Series A Preferred Shares to be converted (it being understood that the Company shall take any action necessary to effect a conversion into shares of common stock promptly upon receiving written notice from a Purchaser); and

• Priority in distributions in the event of a liquidation or winding down of the Company's business.

On September 29, 2008, pursuant to a sale and leaseback agreement dated the same date between the Company and SBKF, the Company sold 100% of its ownership in BDFC to and leased back the Brazilian coffee roasting facility for a period of 18 years from SBKF. After offsetting the amounts to be received by the Company in payment for BDFC, the Company will have to make a net annual lease payment to SBKF of U.S. $100,000.

The foregoing description of the agreements and the transactions contemplated thereby is not complete and is qualified in its entirety by reference to the forms of agreement attached hereto as Exhibits 10.1, 10.2. and 10.3.

FINANCIAL CONDITION AND LIQUIDITY

Unless otherwise specified, all figures are as at the Balance Sheet Date.

The Company's total assets as at September 30, 2008, as reflected in the consolidated balance sheet, totaled $6,222,549 compared to $1,747,300 as at December 31, 2007.

The Company's consolidated deficit in working capital amounted to $3,962,673 and the consolidated quick ratio was 0.10%.

The Company has significantly improved its debt to equity position due to two transactions. The first was the sale of its interest in its subsidiary, BDFC. BDFC accounted for approximately $7,945,000 of the total debt of the Company. The second was to convert $14,943,824 of the convertible promissory notes to preferred shares. This has resulted in the decrease to the Company's total debt of approximately $18,300,000. The Company's remaining short-term indebtedness was approximately $669.

The Company's remaining long-term financing is mainly based on convertible promissory notes in the aggregate amount of $3,733,533 issued to third parties.

The shareholders' equity as at September 30, 2008 totaled $162,155 compared to a shareholders' deficit of $19,330,336 as at December 31, 2007. The increase in shareholders' equity is derived primarily from the transactions described above less the operating losses during the nine month period in the aggregate amount of $5,339,373.

One of the Company's shareholders provided a personal guarantee to two banks in Brazil in connection with loans received from those banks by BDFC. The Company had accrued a guarantee fees payable to the shareholder for providing the guarantee, in the amount of $21,250 per quarter. This fee accrual terminated on the sale of BDFC on July 1, 2008.

The Company will need to obtain additional debt or equity financing in the near term in order to have sufficient working capital to execute its business plan or continue as a going concern. The Company is in the process of seeking such financing; however, there is no assurance that it will be able to obtain such financing on satisfactory terms or at all.

NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2007

Net Income (Loss)

The Company's consolidated net income for the third quarter of 2008 amounted to $4,169,031, compared to a consolidated net loss of $2,664,373 for the third quarter of the previous year.

The net income for the third quarter of 2008 increased in comparison to the second quarter of the previous year mainly due to the Company's profit on the sale of the net liabilities of BDFC.

Revenue

The Company was not in operations and therefore did not generate any revenue for the nine months ended September 30, 2008, compared to $75,005 for the third quarter of the previous year.

The revenue from coffee production through the third quarter of 2008 was Nil in light of the Company's management strategy to make sales through a targeted marketing arm to be acquired in the near future. The Company's operations are suspended at this moment due to changes in the structure of its operations, including the refurbishment of its factory in Brazil, which is expected to be completed by the forth quarter of 2008.

Cost of Revenues

As with the Company's revenues in the second quarter of 2008, the cost of revenues was minimal.

General and Administrative Expenses

The consolidated general and administrative expenses for the third quarter of 2008 amounted to $546,333, compared to consolidated general and administrative expenses of $978,036 for the third quarter of the previous year.

The increase in general and administrative expenses was attributable primarily to the additional professional services and traveling expenses of the management of the Company in connection with the suspension of the Company's operations incurred in the third quarter of the previous year.]

Financial Expenses

The consolidated financial expenses for the third quarter of 2008 amounted to $2,505,128, compared to consolidated financial expenses of $1,024,826 for the third quarter of the previous year.

The increase in financial expenses through the second quarter of 2008 results from interest and financing charges related to the convertible notes incurred over the past 12 months.

Inflation

Our results of operations have not been affected by inflation and management does not expect that inflation risk would cause material impact on its operations in the future.

Seasonality

Our results of operations are not materially affected by seasonality and we do not expect seasonality to cause any material impact on our operations in the near future.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Principles of Consolidation-The consolidated financial statements include the accounts of the Company, it's wholly owned subsidiary BDFC Brazil Alimentos LTDA ("BDFC"). All material intercompany accounts, transactions and profits have been eliminated in consolidation.

Use of Estimates-The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reporting period. Significant estimates include accrued warranty costs, as well as revenue and costs recorded under the percentage-of-completion method. Actual results could differ from those estimates.

Cash Equivalents-The Company classifies any highly liquid investments purchased with a maturity of three months or less as cash equivalents.

Accounts Receivable-Accounts receivable are carried at original invoice amount less an estimate for doubtful receivables based on a review of all outstanding amounts at year end. Management determines the allowance for doubtful accounts by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

Property and Equipment-Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets, usually five years.

Revenue Recognition-Substantially all of the Company's revenues are on contracts recognized using the percentage-of-completion method, measured by the ratio of costs incurred to date to estimated total costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies and travels. General and administrative costs are charged to expense as incurred. Losses on contracts are recorded in full as they are identified.

Share-Based Payments-The Company adopted Statement of Financial Accounting Standards No 123(R), "Share-Based Payments" ("SFAS No. 123R") effective January 1, 2006. SFAS No. 123R amends existing accounting pronouncements for share-based payment transactions in which an enterprise receives employee and certain non-employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. SFAS No.123R generally requires such transactions be accounted for using a fair-value-based method. The Company has never issued any stock options to any employees.

Income Taxes-Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is established against deferred tax assets if it is more likely than not that all, or some portion, of such assets will not be realized.

Effective January 1, 2007, we adopted Financial Accounting Standard Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under FIN 48, tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts.

Impairment of Long-Lived Assets-The Company adopts SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company periodically evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

The assumptions used by management in determining the future cash flows are critical. In the event these expected cash flows are not realized, future impairment losses may be recorded. Management has determined that no impairments of long-lived assets currently exist.

Issuance of Shares by Subsidiaries-Sales of stock by a subsidiary is accounted for in accordance with Staff Accounting Bulletin Topic 5H, "Accounting for Sales of Stock by a Subsidiary." The Company has adopted the capital transaction method to account for subsidiary stock sales. Accordingly, increases and decreases in the Company's share of its subsidiary's net equity resulting from subsidiary stock transactions are recorded on the Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity as increases or decreases to Additional paid-in capital.

Concentrations of Credit Risk-Financial instruments that subject the Company to credit risk consist primarily of accounts receivable, which are concentrated in a small number of customers in the Chinese governments. The Company performs ongoing credit evaluations of its customers. To date, there has been no bad debt incurred.

Statement of Cash Flows-In accordance with SFAS No. 95, "Statement of Cash Flows", cash flows from the Company's operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Translation Adjustment-The Brazilian Real ("Real"), the national currency of Brazil, is the primary currency of the economic environment in which the operations of BDFC are conducted. The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes.

The Company translates BDFC's assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date, and the statement of income is translated at average rates during the reporting period. Adjustments resulting from the translation of BDFC's financial statements from Real into U.S. dollars are recorded in stockholders' equity as part of accumulated comprehensive gain - translation adjustments. Gains or losses resulting from transactions in currencies other than Real are reflected in income for the reporting period.

Comprehensive Income-Comprehensive income includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income on its statements of stockholders' equity.

Fair Value of Financial Instruments- The carrying amounts of cash and cash equivalents, accounts receivable, deposits and accounts payable approximate their fair value because of the short maturity of those instruments.

New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157, (FSP 157-2) which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115". This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007.

In June 2007, the FASB ratified Emerging Issue Task Force ("EITF") Issue No. EITF 06-11 Accounting for the Income Tax Benefits of Dividends on Share-Based Payment Awards ("EITF 06-11"). EITF 06-11 provides that tax benefits associated with dividends on share-based payment awards be recorded as a component of additional paid-in capital. EITF 06-11 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007.

In June 2007, the FASB issued EITF Issue No. 07-03, Accounting for Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities ("EITF 07-03"). EITF 07-03 provides guidance on whether non-refundable advance payments for goods that will be used or services that will be performed in future research and development activities should be accounted for as research and development costs or deferred and capitalized until the goods have been delivered or the related services have been rendered. EITF 07-03 is effective for fiscal years beginning after December 15, 2007.

In December 2007, the FASB issued SFAS 141R, "Business Combinations - Revised 2007," which replaces FASB Statement No. 141, "Business Combinations." SFAS 141R establishes principles and requirements intending to improve the relevance, representational faithfulness, and comparability of information that a reporting entity provides in its financial reports about a business combination and its effects. This is accomplished through requiring the acquirer to recognize assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at their acquisition-date fair values. This includes contractual contingencies only if it is more likely than not that they meet the definition of an asset of a liability in FASB Concepts Statement No. 6, "Elements of Financial Statements - a replacement of FASB Concepts Statement No.
3." This statement also requires the acquirer to recognized goodwill as of the acquisition date, measured as a residual. However, this statement improves the way in which an acquirer's obligations to make payments conditioned on the outcome of future events are recognized and measured, which in turn improves the measure of goodwill. This statement also defines a bargain purchases as a business combination in which the total acquisition-date fair value of the consideration transferred plus any noncontrolling interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain attributable to the acquirer. This therefore improves the representational faithfulness and completeness of the information provided about both the acquirer's earnings during the period in which it makes a bargain purchase and the measures of the assets acquired in the bargain purchase.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Stateme0147nts - an amendment of ARB No. 51," which establishes accounting and reporting standards to improve the relevance, comparability, and transparency of financial information in its consolidated financial statements. This is accomplished by requiring all entities, except not-for-profit organizations, that prepare consolidated financial statements to
(a) clearly identify, label, and present ownership interests in subsidiaries held by parties other than the parent in the consolidated statement of financial position within equity, but separate from the parent's equity, (b) clearly identify and present both the parent's and the noncontrolling interest's attributable consolidated net income on the face of the consolidated statement of income, (c) consistently account for changes in parent's ownership interest while the parent retains it controlling financial interest in subsidiary and for all transactions that are economically similar to be accounted for similarly,
(d) measure of any gain, loss or retained noncontrolling equity at fair value after a subsidiary is deconsolidated, and (e) provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This Statement also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years, and interim periods on or after December 15, 2008. The Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company believes that the adoption of SFAS No. 161 will not have a material impact on its consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

MARKET RISK AND CONTINGENT LIABILITIES

The Company is seeking to operate primarily in Brazil, making it susceptible to changes in the economic, political, and social conditions in Brazil. Brazil has experienced political, economic, and social uncertainty in recent years, including an economic crisis characterized by exchange rate instability and Brazilian Real devaluation, increased inflation, high domestic interest rates, negative economic growth, reduced consumer purchasing power and high unemployment. Under its current leadership, the Brazilian government has been pursuing economic stabilization policies, including the encouragement of foreign trade and investment and an exchange rate policy of free market flotation. In the last year, there was an improvement in the Brazilian economic environment. Nevertheless, no assurance can be given that the Brazilian government will continue to pursue these policies, that these policies will be successful if pursued or that these policies will not be significantly altered. In case of a decline in the Brazilian economy, political or social problems or a reversal of Brazil's foreign investment policy it is likely that any such change will have an adverse effect on the Company's results of operations and financial condition. Additionally, inflation in Brazil may lead to higher wages and salaries for employees and increases in the cost of raw materials, which would adversely affect the Company's profitability.

Risks inherent in foreign operations include nationalization, war, terrorism, and other political risks and risks of increases in foreign taxes or changes in U.S. tax treatment of foreign taxes paid and the imposition of foreign government royalties and fees.