ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
As a result of closing the Share
Exchange Agreement, the Company is no longer a shell corporation as that term is defined in Rule 405 of the Securities Act and
Rule 12b-2 of the Exchange Act.
FORM 10 DISCLOSURE
As disclosed elsewhere
in this Report, we completed a Share Exchange Agreement with Lot78. Item 2.01(f) and 5.01(a)(8) of Form 8-K states that if the
registrant was a shell company, immediately before the acquisition transaction, then the registrant must disclose the information
that would be required if the registrant were filing a general form for registration of securities on Form 10 under the Exchange
Act.
Accordingly, we
are providing below the information that would be included in a Form 10 if we were to file a Form 10. Please note that the information
provided below relates to the combined enterprises of the Company and Lot78 after the closing of the Share Exchange Agreement,
except that information relating to periods prior to the date of the Share Exchange Agreement relate to Lot78 unless otherwise
specifically indicated.
ITEM 1 BUSINESS
General
Anio Limited (referred
to hereinafter as “Lot78”) is a limited liability company established under the laws of the United Kingdom in 2008,
which conducts its primary line of business under the name Lot78, Inc. Lot78’s fiscal year end is September 30. As a result
of the Share Exchange Agreement with the Company described above under Item 1.01 of this Report, Lot78 became a wholly-owned subsidiary
of the Company and the Company now carries on the business of Lot78 as its primary business. Following the closing of the Share
Exchange Agreement, the Company intends to change its July 31 fiscal year end to September 30.
Lot78 designs, markets,
distributes, and sells apparel under the brand name "Lot78" to fashion-conscious consumers on four continents, including
North America, Europe, Asia, and South America. We seek to be a trend setting leader in the design, marketing, distribution and
sale of luxury street apparel. Our current collection is a full men’s and women’s contemporary ready-to-wear line which
includes leather jackets, t-shirts, sweats, knitwear, accessories, jeans, chinos, home ware, and wool coats. We operate in three
distinct but integrated segments: Wholesale, Consumer Direct and Core Services. Our Wholesale segment sells our products to industry-leading
high-end global department stores, specialty retailers and boutiques; our Consumer Direct segment consists of e-commerce sales
through our branded website located at www.lot78.com; and our Core Services segment provides product design, distribution, marketing
and other overhead resources to the other segments.
Since our inception in
2008, we have developed a recognizable brand, expanded our product offerings, and initiated a growth strategy to expand both our
Wholesale and Consumer Direct segment sales. A close and influential network of global contract manufacturers have greatly aided
the expansion of the Lot78 collection, which started with four men’s leather jackets and developed to become a full men’s
and women’s ready-to-wear fashion and apparel line. We utilize contract manufacturers located in Portugal, Bhutan, and Italy
for the manufacture of our products. The majority of our production is based in the Venetian region of Italy, whose legacy befits
our aesthetic heritage and focus on luxurious quality and innovative style. All garments are sourced, designed and manufactured
by people with unique strengths, skills, and craftsmanship to create premium quality and reliable products that are in high demand
with our targeted affluent demographics. We seek to continue to build our brand recognition that is characterized by unique style,
timelessness, utility, and quality, as opposed to merely following prevailing fads or trends that do not have the same degree of
potential growth or longevity over time.
Our Brand and Products
Since 2008, the Lot78 brand
has developed an androgynous, contemporary image, which can aptly be described as “refined grunge”: a marriage of luxury
and urbanity. We believe that the strength of the Lot78 brand name and image is derived from our emphasis on combining the brand’s
London-based roots with its Italian-inspired construction. Our dedication to quality, utilization of Italian production and craftsmanship
processes, and mastery of London-based urban and street-wear cultural imagery have combined to infuse our fashion and apparel collection
with a unique and avant-guard take on contemporary fashion. We seek to be an innovator in premium lifestyle branding. Our fashion
perspective is significantly influenced by our Founder, Mr. Oliver Amhurst, who is an influential figure in the fashion industry
and has been at the forefront of style for more than a decade.
We currently offer a full
collection of men’s and women’s ready-to-wear garments that we design, market, distribute and sell under the Lot78
brand. Our current men’s and women’s products include leather jackets, t-shirts, sweats, knitwear, accessories, jeans,
chinos, home ware, and wool coats. Lot78 products often sell in the range of £55 to £900 (approximately $87 to $1,417
USD) per item at retail and occasionally we offer specialty items at higher prices. Our products are sold globally through upscale
retailers, boutiques and specialty stores, our branded website located at www.lot78.com, and additional web retailers, such as
Net-A-Porter.com. We intend to continually diversify our product offerings and designs as part of our seasonal collections. We
introduce new collections twice a year during the spring/summer and autumn/winter seasons.
Wholesale Segment
Our Wholesale segment sells
our products to leading high-end global department stores, specialty retailers and boutiques that have the image and merchandising
capability that we demand for the effective presentation of our products. Our products are stocked in Barneys, Harrod’s,
Bloomingdales and Net-A-Porter, and in various specialty and boutique stores throughout the world. We have not entered into any
contracts with any of these retailers. Sales are made when these retailers visit Lot78 each season to view our collection and place
their orders. The orders are then sent to the manufacturer. Our Wholesale segment accounted for approximately 80% of our total
gross sales in 2011. Two of our five employees work in the Wholesale Segment.
Consumer Direct Segment
Our
Consumer Direct segment sells our products from our e-commerce site,
www.lot78.com
, and previously
through our London store, 125 Ledbury Road, which closed on March 31, 2012. We accept and fill all customer orders received through
our website internally. We plan to grow our Consumer Direct segment sales by opening four Lot78 branded retail stores by 2015 in
London, New York, Los Angeles and Hong Kong. Our Consumer Direct segment accounted for approximately 20% of our gross sales in
2011. Two of our five employees work in the Consumer Direct Segment.
Core Services Segment
The Core Services segment
provides product design, distribution, marketing, e-commerce and other overhead resources to the Wholesale and Consumer Direct
segments. Four of our five employees work in the Core Services Segment.
Design and Product Development
Three of our five employees
are part of our design team, which is led by Mr. Amhurst. Our design team is responsible for the design and development of our
products. We do not currently have a formal research and development effort but our design team plans to continue to develop new
merchandise styles for each seasonal collection. The development of our products from concept through manufacturing is engineered
to be not only fashionable but durable as well.
Manufacturing
We outsource all of our
manufacturing to third parties on an order-by-order basis. Currently, we have contract manufacturers in Italy, Portugal, and Bhutan.
These contractors sew and finish Lot78 products to exacting design specifications. We believe we can meet our current production
needs using these and other available contract manufacturers. Our Management oversees the manufacturing and quality control of
our products by visiting the manufacturer factories or by having representatives from the manufacturers visit Lot78. Our Management
also researches and develops new sources of supply for the materials used in the manufacturing of our products.
Sources and Availability of Raw Materials
The fabrics used in our
products are sourced from fabric manufacturers located in Italy, Portugal and Bhutan. Although we do not currently have any long-term
agreements in place for the supply of our fabrics, threads or other components, such high quality fabrics are currently readily
available from a number of suppliers, including mills located both in the United States and abroad.
Quality Control
Our quality control program
ensures that products meet our high quality standards. A consultant to Lot78, who lives in Italy, monitors the quality of the fabrics
used by our contract manufacturers prior to the production of garments and inspects prototypes of each product before production
commences. Final random inspections of our products occur when our products are received in our distribution center. We believe
that our quality control policy is integral in maintaining the quality, consistency and reputation of our products.
Distribution
Our distribution channels
are showrooms we sign up in relevant territories such as the Archetype in New York, which represents our brand in North America.
We intend to expand globally through new and established distribution channels including wholesale, retail, e-commerce, concessions,
and franchise and licensing agreements to further expand global brand exposure and new opportunities to increase sales revenue.
Marketing
We market our products
to domestic and international wholesale customers by participating in industry trade shows around the world and by displaying our
collections in various showrooms.
Wholesale customers can be found in four continents and include specialty stores, major
department stores, and off-price retailers. Our products are sold in the United States and in several other countries in leading,
high-end premium stores, including Barneys, Harrod’s, and Bloomingdales, and in various boutique and specialty stores. We
also sell our products through our branded website, www.lot78.com, and additional web retailers, such as Net-A-Porter.com.
Our marketing and public
relations strategy is designed to communicate the signature design aesthetic and lifestyle of our brand. Our unique, "refined
grunge" style was created by our founder Mr. Oliver Amhurst. Our marketing is done in house by Mr. Amhurst and another employee
of Lot78. Mr. Amhurst oversees every aspect of our marketing, which allows us to set the tone for integrity, consistency and direction
of the Lot78 brand image worldwide. We intend to hire a full-time employee in the spring of 2013 to oversee our marketing.
Our marketing consists
of a variety of channels including: national and international print advertising, strategic outdoor advertising, in-store advertising,
digital advertising, guerilla marketing, involvement in the art community, social media and philanthropic acts. We are also actively
involved in publications and blogs with global exposure in the world’s most reputable fashion publications, such as Vogue,
Tatler and Nottingchic.com, due to our key relationships with influential writers, bloggers and fashion figures. This mix of media
and channels is designed to support the brand's growth across diverse consumer groups and markets. In addition, the brand strategically
cultivates and enjoys a strong and loyal celebrity following. These unpaid celebrity endorsements have been, and continue to be,
highly effective in expanding our brand awareness and affinity.
Dependence on One or a Few Major Customers
We are highly dependent
upon one or a few major customers. During the year ended September 30, 2012, Net-a-Porter represented 43% of our gross sales. During
the year ended September 30, 2011, Net-a-Porter accounted for 30% of our gross sales. We have not entered into any specific long-term
agreements with Net-a-Porter for the sale of our products. Net-a-Porter, as well as several of our other customers, purchase our
products by submitting a Purchase Order to us. Upon delivery of our products, we provide an Order Confirmation to the customer,
along with our general Supply Terms & Conditions. A copy of our general Supply Terms & Conditions is filed herewith as
Exhibit 10.01 and is incorporated herein by reference.
Our Wholesale segment sells
our products to various global department stores, specialty retailers and boutiques including Barneys, Harrod’s, Bloomingdales,
and Net-A-Porter. In total, we now have 20 stores that make up our Wholesale business.
Our Consumer Direct segment
sells our products from our branded website, www.lot78.com. Customers of our website include the general public from around the
world.
Business Strategy
Over the next five years,
our growth strategy will focus on the following five key areas:
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Increase Global
Wholesale Sales
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We
aim to expand our Wholesale segment by employing three key showrooms at global trade shows that we participate in, with the intention
of further penetrating the Asian, European and American markets. The trade show circuit operates in conjunction with the global
fashion weeks (Milan, Paris, London and New York). We believe that increased involvement in trade shows will enable us to further
expose the Lot78 brand, explore a larger sales field and develop new relationships with retailers, which will potentially lead
to increased revenues and greater brand awareness.
Furthermore,
we intend to hold our first Lot78 runway show in 2014 in London, which will allow influential fashion bloggers, writers and buyers
to experience the brand and its unique image in person. We believe that holding a Lot78 runway show has the potential to provide
exposure of Lot78 to the press, create brand awareness to a new consumer base and stimulate a new network of wholesale opportunity.
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Invest in Online
Development and E-commerce Activity
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We
currently offer a globally accessible transactional website, www.lot78.com, which allows anyone with Internet access to purchase
our products online. We are currently working with a website developer to make key operational advances to our website such as
development of user-friendly
operations and layout improvements. Further, we intend to present a greater
number of products on our website and expand into further marketing techniques such as affiliate marketing and advertisement opportunities.
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Establish Stores
and Seek Franchise Partnership Opportunities
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We
plan to launch the first branded Lot78 retail store in 2014 in London to engage a new consumer base. We feel that the introduction
of our own stores will allow for stronger brand positioning and increased exposure. We intend to open three additional branded
retail stores in New York, Los Angeles and Hong Kong in 2015 to expose the brand to the impressive buying opportunity of the American
and Asian markets.
We
will also seek joint licensing agreements with key global partners through expansion into new categories such as fragrances, footwear
and accessories, with a focus on retaining the key elements of the brand’s identity.
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Diversify and Expand
our Product Portfolio
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We
will continue to expand and strengthen our current product portfolio while exploring opportunities to diversify into new product
categories within a ready-to-wear line. We believe that diversification engages new consumer interest and enables the brand to
benefit from a proactive and developing brand image while stimulating revenue from increased buyer interest and awareness of the
brand. Furthermore, we anticipate that expansion of our collection will enable wholesale activity to flourish as well as increased
online sales.
Our team currently includes five
employees with varied skills and backgrounds who engage in overlapping roles and responsibilities for different segments of our
business. In the next five years, we aim to increase the number of direct in-house employees to nine people. Further, we intend
to allocate a specific area(s) of our business strategy to a specific employee or employees and will focus on developing that employee’s
skills in that area of responsibility. Such areas of responsibility will include sales, website and social media, design and production,
marketing, public relations, administration, finance and product development. The expansion of our team will allow for focused
development of all areas of our business.
Seasonality of Business
90% of our business works
on a seasonal basis. We achieve our highest sales twice a year from our Autumn/Winter collection, which we receive monies from
in July and August, and our Spring/Summer collection, which we receive monies from in January and February. The remaining 10% of
our sales are non-seasonal and come in weekly from our e-commerce website, which presently is a very small part of our business.
Research and Development Activities
During the past two years,
approximately £100,000 ($151,080 USD) has been spent on research and development. Our research and development activities
focused on several different aspects of the business such as salaries to our designer and consultant in Italy, business trips to
our manufacturers, attending fabric fairs, marketing, etc.
Trademarks
The “Lot78”
brand is trademarked worldwide. Generally, our trademarks remain valid and enforceable so long as we continue to use the marks
in commerce and the required registration renewals are filed. We consider our trademarks to be valuable assets in the marketing
of our products and seek to protect them from infringement worldwide.
Government Regulation on the Business
Our business operations
are subject to several international and domestic laws including labor and employment laws, laws governing advertising and promotions,
privacy laws, safety regulations, import/export restrictions, consumer protection regulations that govern product standards and
labeling, and several other regulations. We believe that we are currently in material compliance with all such applicable laws.
All of our products are
manufactured outside of the United Kingdom. These products are imported and are subject to customs laws, which impose tariffs as
well as import quota restrictions for apparel. While importation of goods from foreign countries from which we buy our products
may be subject to embargo if shipments exceed quota limits, we currently are not restricted by quotas in the operation of our business.
In addition, custom duties and tariffs do not comprise a material portion of the cost of our products.
Our e-commerce website
and online content are subject to government regulation of the Internet in many areas, including user privacy, telecommunications,
data protection, and commerce. The application of these laws and regulations to our business is often unclear and sometimes may
conflict. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy,
advertising, etc. apply to the Internet. Nonetheless, laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Due to the increasing popularity and use of the Internet, it is possible
that laws and regulations may be adopted covering issues such as user privacy, content, quality of products and much more. Further,
the growth and development of the market for e-commerce may prompt calls for more stringent consumer protection laws, which may
impose additional burdens on companies conducting business online. Compliance with these regulations may involve significant
costs or require changes in business practices that result in reduced revenue. Noncompliance could result in penalties being imposed
on us or orders that we stop the alleged noncompliant activity. We believe that we are currently in material compliance with
all such applicable laws.
We are also subject to
environmental laws and regulations, including restrictions on the use of certain materials in our products. We have not and do
not expect to incur any significant expenses to comply with any regulations governing the discharge of hazardous materials or other
environment protection measures.
Competition
The retail apparel industry
is highly competitive. We compete with numerous designers and manufacturers of apparel and accessories, domestic and international,
including Rag & Bone, Alexander Wang, and Acne Jeans. Some of our competitors may be significantly larger, have substantially
greater resources and may be able to adapt to changes in consumer preferences or retail requirements more quickly, devote greater
resources to the building and sustaining of their brand identity and the marketing and sale of their products, or adopt more aggressive
pricing policies than we can. As a result, we may not be able to compete as effectively and may not be able to maintain or grow
the demand for our brand.
Our competitive strength
will depend on our ability to:
•
anticipate and respond to changing consumer demands in a timely manner;
•
maintain and increase favorable brand recognition;
•
develop and produce high quality products that appeal to consumers;
•
appropriately price our products;
• maintain the high quality
of our products;
•
ensure product availability;
• expand our product portfolio;
• add members to our team who
possess the skills, know-how and desire to help us succeed;
• maintain an active role in
the fashion industry;
• effectively market our products
and brand name;
•
effectively present our products at retail; and
• maintain and build relationships
with key industry leaders.
Although we operate in
a highly competitive market, we seek to distinguish Lot78 products by emphasizing superior quality, durability and craftsmanship.
We believe that we have a competitive advantage in comparison to our competitors in the quality of our fabrics and craftsmanship,
the unique style of Lot78, the superiority of our fits, and our price points.
Employees
As of the date of this
Report, we employed a total of five employees. Four of these employees are full-time and one employee is part-time. Our employees
perform overlapping roles and responsibilities for different segments of our business.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC
at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information
on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and
other filings electronically on the SEC’s web site,
www.sec.gov
.
Our website address is www.lot78.com. Information
on our website does not constitute part of this Report or any other report we file or furnish with the SEC.
ITEM 1A RISK FACTORS
RISKS RELATING TO OUR INDUSTRY
Our business may be negatively impacted
by general economic conditions and the current global financial crisis.
Our performance is subject
to worldwide economic conditions and their impact on levels of consumer spending that affect not only the consumer, but also retailers,
our largest customers. The United States and global economies have suffered from a prolonged recession for the past several years
and as a result, consumer spending has deteriorated significantly from pre-recession levels and may remain depressed, or be subject
to further deterioration, for the foreseeable future. The worldwide apparel industry is heavily influenced by general economic
cycles. Purchases of high-fashion apparel and accessories tend to decline in periods of recession or uncertainty regarding future
economic prospects, as disposable income declines. During periods of recession or economic uncertainty, we may not be able to maintain
or increase our sales to existing customers, make sales to new customers, open and operate retail stores, maintain sales levels
from our online website, or maintain or increase our international operations. As a result, our operating results may be adversely
and materially affected by continued downward trends or uncertainty in the United States and across the globe.
Our continued operations depend on current
fashion trends. If our designs and products do not continue to be fashionable, our business could be adversely affected.
Our success depends in
large part on our ability to develop, market and deliver innovative and stylish products that are consistent with and build on
our brand image at a pace and intensity competitive with others in the apparel industry. The innovation of our Lot78 brand is critical
to our success and competitive position. The apparel industry is subject to rapidly evolving fashion trends and shifting consumer
demands. If we are unable to continue to develop and offer unique products to our customers, our sales will decline. We cannot
be certain that high-fashion apparel will continue to be in demand. Should the trend steer away from high-fashion, our sales could
significantly decrease and our business could be adversely affected. In addition, our future designs and plans to expand our product
offerings may not be successful, and any unsuccessful designs or product offerings could adversely affect our business.
Our business and the success of our products
could be harmed if we are unable to maintain our brand image.
Our sales to date have
been due in large part to our brand image. If we are unable to timely and appropriately respond to changing consumer demand, our
brand name and brand image may be impaired. Even if we react appropriately to changes in consumer preferences, consumers may consider
our brand image to be outdated or associate our brand with styles that are no longer popular. In the past, many apparel companies
have experienced periods of rapid growth in sales and earnings followed by periods of declining sales and losses. Our business
may be similarly affected in the future.
We face intense competition, including
competition from companies with significantly greater resources than ours, and if we are unable to compete effectively with these
companies, our market share may decline and our business could be harmed.
We face intense competition
in the apparel industry from other established companies. A number of our competitors may have significantly greater financial,
technological, manufacturing, sales, marketing and distribution resources than we do. Their greater capabilities in these areas
may enable them to better withstand periodic downturns in the apparel industry, compete more effectively on the basis of price
and production, and more quickly develop new products. In addition, there are low barriers of entry into this industry and new
companies may enter the markets in which we compete, further increasing competition in the industry. We believe that our ability
to compete successfully depends on a number of factors, including the style, quality and price of our products and the strength
of our brand name, as well as many factors beyond our control. We may not be able to compete successfully in the future, and increased
competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows
that are sufficient to expand our development and marketing of new products, which would adversely impact the trading price of
our common stock.
The worldwide apparel industry is subject to ongoing pricing
pressures.
The high fashion apparel
industry is subject to significant pricing pressures caused by many factors, including intense competition, consolidation in the
retail industry, pressure from retailers to reduce the costs of products and changes in consumer spending patterns. These factors
may cause us to reduce our sales prices for sales of products to retailers and directly to consumers which could cause our gross
margins to decline. If our sale prices decline and we are unable to offset such price reductions with comparable reductions in
our operating costs, our future operating results could be adversely affected.
Our ability to conduct business in international
markets may be affected by legal, regulatory, political and economic risks.
We conduct business on
four continents, accordingly, we face a number of risks inherent in doing business in international markets as well as legal, regulatory,
political and economic factors, many of which are beyond our control. These factors include, among other things:
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political instability or acts of terrorism, which disrupt trade with the countries in which our manufacturers, suppliers or customers are located;
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difficulties in managing our foreign operations;
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local business practices that do not conform to legal or ethical guidelines;
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adoption of additional or revised quotas, restrictions or regulations relating to imports or exports;
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additional or increased customs duties, tariffs, taxes and other charges on imports or exports;
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significant fluctuations in the value of the Great Britain pound against foreign currencies;
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increased difficulty in protecting our intellectual property rights in foreign jurisdictions;
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social, legal or economic instability in the foreign markets in which we do business, which could influence our ability to sell our products in these international markets;
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restrictions on the transfer of funds between the United Kingdom and foreign jurisdictions; and
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our ability to locate and open desirable retail locations.
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Increases in the price of raw materials
or their reduced availability could increase our cost of goods.
The principal fabrics used
in our business are cotton, blends, synthetics and wools. The prices we pay our manufacturers, who source our suppliers, are dependent
in part on the market price for raw materials—primarily cotton—used to produce them. The price and availability of
cotton may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions,
transportation costs, work stoppages, government regulations, economic climates and other unpredictable factors. Cotton prices
worldwide have increased significantly in the past year, and the outlook for future prices is uncertain. Increases in raw material
costs or decreases or unavailability in supply of raw materials, together with other factors, could result in a decrease of our
sales unless we are able to pass higher prices on to our customers.
RISKS RELATED TO OUR BUSINESS
We have not been profitable in our operations
and may never achieve profitability required to sustain our operations.
For the year ended September
30, 2012, our net sales were $560,368, however, after deducting the cost of goods sold of $349,791, operating losses of $329,164,
interest and finance charges of $6,908, and foreign currency translation adjustments of $40,727, our comprehensive loss is $166,222.
In the foreseeable future, we expect to continue to incur significant operating losses and to not be profitable. No assurance can
be given that we can ever achieve profitability. We may not achieve our business objectives and the failure to achieve such goals
would have an adverse impact on us.
Our current cash holdings are insufficient
to meet our cash requirements. Accordingly, we will need to raise additional capital to continue our business and if we are unable
to do so, we will be forced to delay, reduce or cease our operations.
Our current cash and cash
equivalents are insufficient to meet our anticipated cash requirements. At September 30, 2012, we had $0 in cash, accordingly,
we will need to seek additional capital to sustain our business operations. We are in the process of seeking equity financing to
fund our operations over the next 12 months. We cannot be certain that additional capital will be available when needed or that
our actual cash requirements will not be greater than anticipated. Financing opportunities may not be available to us, or if available,
may not be available on favorable terms. The availability of financing opportunities will depend on various factors, such as market
conditions and our financial condition and outlook. In addition, if we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued
securities may have rights, preferences or privileges senior to those of existing stockholders. If we obtain additional debt financing,
a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness,
and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to
obtain financing on terms favorable to us, or at all, we will be unable to continue operations.
Our current liabilities exceed our current
assets by a substantial amount. We can provide no assurance that we will be able to obtain additional financing to repay these
liabilities and we may be forced to cease all operations.
As of the year ended September
30, 2012, our current liabilities are $1,314,957 and our current assets are $222,164, resulting in a net capital deficiency of
$1,092,793. Our current liabilities include $236,249 in accounts payable, $805,792 in accrued expenses and other payables, $83,025
in taxes and social security and $189,891 in short term debt. We expect to continue to incur significant liabilities in the operation
of our business. We require additional funds in order for us to sustain our current operations and to repay these liabilities.
However, we can provide no assurance that we will be able to obtain additional financing to continue our operations or to reduce
our operating expenses enough to meet our existing obligations. As a result, we could be required to cease all operations, liquidate
our assets, seek bankruptcy protection or other alternatives.
We have a “going concern”
opinion from our auditors, indicating the possibility that we may not be able to continue to operate
.
Our independent registered
public accountants have expressed substantial doubt about our ability to continue as a going concern. For the year ended September
30, 2012, our comprehensive loss from operations was $166,222 and we have a significant net capital deficiency of $1,092,793. The
“going concern” opinion could materially limit our ability to raise additional funds by issuing new debt or equity
securities or otherwise. If we fail to raise sufficient capital, our ability to continue our operations will be significantly impaired.
As a result we may have to liquidate our business and investors may lose their investments. Investors should consider our independent
registered public accountant’s comments when deciding whether to invest in the Company.
Our recent sales have declined as a result
of a variety of factors, which may result in volatility of our stock price.
Our quarterly sales and
operating results have varied significantly in the past and can be expected to fluctuate in the future due to a number of factors,
many of which are beyond our control. For example, we earned revenues of $560,368 for the year ended September 30, 2012, compared
to revenues of $703,276 for the year ended September 30, 2011. This decrease in revenues can be attributed to two factors: (1)
Our wholesale orders from a major store in the U.S. were cut from twelve stores to one store for the Autumn/Winter 2012 season,
due to production issues in the Spring/Summer 2012 line. They have since increased the number of stores to seven for the Autumn/Winter
2013 season. (2) Our consumer direct sales decreased due to the closure of our retail store, 125 Ledbury Road. Furthermore, we
experience fluctuations in our sales due to the seasonal nature of our business. As a result of these specific and other general
factors, our operating results will likely continue to vary from quarter to quarter and the results for any particular quarter
may not be necessarily indicative of results for the full year. Any shortfall in sales from levels expected by securities analysts
and investors could cause a decrease in the trading price of our common stock.
We depend on a few major customers for
our product revenue, accordingly, the loss of one or more of them could cause a significant decrease in our revenue.
To date, a significant
portion of our revenue has resulted from sales to a limited number of customers. During the year ended September 30, 2012, sales
to Net-a-Porter represented 43% of our gross sales. During the year ended September 30, 2011, sales to Net-a-Porter accounted for
30% of our gross sales. In the near future, we expect to continue to depend upon a limited number of customers for a substantial
portion of our revenue. The loss of a major customer or the reduction, delay or cancellation of orders from one or more of
our major customers could cause our revenue to decline and our losses to increase. For example, our sales significantly decreased
from September 30, 2011 to September 30, 2012 because our wholesale orders from a major store in the U.S. were cut from twelve
stores to one store for the Autumn/Winter 2012 season and our consumer direct sales decreased due to the closure of our retail
store, 125 Ledbury Road., Because we currently depend on a limited number of customers, our revenue from quarter to quarter or
year to year may be volatile. Adverse changes in our revenue or operating results as a result of changes in the number of
or volume of sales to major customers could substantially reduce the trading price of our common stock.
If we are able to increase our business
operations, we may not be able to effectively manage future growth, which may have a material adverse effect on our future operating
results.
We anticipate that our
future growth, if any, will depend upon various factors, including the strength of our brand image, the market success of our current
and future products, the success of our growth strategies, competitive conditions and our ability to manage our future growth.
Future growth may place a significant strain on our management and operations. Further, our operational, administrative, financial
and legal procedures and controls would need to be expanded. As a result, we may need to train and manage an increasing number
of employees, which could distract our management team from our business. Our future success will depend substantially on the ability
of our management team to manage growth. If we are unable to anticipate or manage our future growth effectively, our future operating
results could be adversely affected.
We may be unsuccessful in implementing
our planned international expansion, which could impair the value of our brand, harm our business and negatively affect our results
of operations.
Our growth strategy is
dependent in part on our ability to open and operate branded retail stores. By 2015, we plan to open approximately four branded
retail stores in various international markets. As we expand, we may incur significant costs relating to starting up, maintaining
and expanding foreign operations. Costs may include, but are not limited to, obtaining prime locations for stores, setting up foreign
offices and hiring personnel. We may be unable to open and operate stores successfully and our growth may be limited, unless we
are able to:
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identify desirable markets and sites for store locations;
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negotiate acceptable lease terms;
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efficiently build and equip stores;
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hire, train and retain competent store personnel;
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manage inventory effectively to meet the needs of the stores on a timely basis;
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successfully integrate stores into our existing operations;
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manage foreign currency risk effectively;
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satisfy the fashion preferences of customers in new geographic areas; and
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achieve acceptable operating margins from the stores.
We cannot be sure that
we can successfully open stores or that our stores will be profitable. Additionally, our expansion may place increased demands
on our operational, managerial and administrative resources and these increased demands may cause the Company to operate its business
less efficiently.
Our business could be harmed if we fail
to maintain proper inventory levels.
We place orders with our
manufacturers for some of our products prior to the time we receive all of our customers' orders. We do this to minimize purchasing
costs, the time necessary to fill customer orders and the risk of non-delivery. We also maintain an inventory of certain products
that we anticipate will be in greater demand. However, we may be unable to sell the products we have ordered in advance from manufacturers
or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale
of excess inventory at discounted prices could significantly impair our brand image and have a material adverse effect on our operating
results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail
to supply the quality products that we require at the time we need them, we may experience inventory shortages. Inventory shortages
might delay product shipments, negatively impact key relationships with our customers, and diminish brand loyalty.
We rely on contract manufacturing of
our products. Our inability to secure production sources meeting our quality, cost, working conditions and other requirements,
or failures by our contractors to perform, could harm our sales and reputation.
We source our products
from international manufacturers. As a result, we must locate and secure production that meets our demands. We depend on our manufacturers
to maintain adequate financial resources and maintain sufficient development and manufacturing capacity. We do not have material
long-term contracts with any of our manufacturers, and these manufacturers generally may unilaterally terminate their relationship
with us at any time. Our dependence on contract manufacturers could subject us to a number of risks if these manufacturers do not
meet our quality, cost, working conditions and other requirements or if they fail to materially perform, any of which could seriously
harm our sales and reputation. Further, if we need to place greater demands on our current manufacturers due to increased customer
demands, or seek additional or replacement manufacturers, we may be unable to do so on terms that are acceptable to us, if at all.
We rely on third-party suppliers who
provide fabrics to our manufacturers to create our products. We have limited control over them and may not be able to obtain quality
products on a timely basis or in sufficient quantity.
We do not manufacture our
products or the raw materials used to create our products and instead rely on third-party suppliers to supply the materials to
our manufacturers. We have no material long-term contracts with these suppliers, and we compete with other companies for fabrics,
raw materials, and production. We may experience a significant disruption in the supply of fabrics or raw materials from current
sources or, in the event of a disruption, we may be unable to locate alternative materials suppliers of comparable quality at an
acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier,
we may be unable to locate additional supplies of fabrics or raw materials on terms that are acceptable to us, or at all, or we
may be unable to locate any supplier with sufficient capacity to meet our requirements or to fill our orders in a timely manner.
Identifying a suitable supplier is an involved process that requires us to become satisfied with their quality control, responsiveness
and service, financial stability and labor and other ethical practices. Even if we are able to expand existing fabric sources,
we may encounter delays in production and added costs as a result of the time it takes to train suppliers in our methods, products
and quality control standards. Delays related to supplier changes could also arise due to an increase in shipping times if new
suppliers are located farther away from our markets or from other participants in our supply chain. Any delays, interruptions or
increased costs in the supply of fabrics for our products could have an adverse effect on our ability to meet customer demand for
our products and result in lower net revenue and income from operations both in the short and long term.
Our business is subject to risks associated
with manufacturing overseas.
All of our products are
manufactured overseas. Our ability to import products in a timely and cost-effective manner may be affected by conditions at ports
or issues that otherwise affect transportation, such as port and shipping capacity, labor disputes and work stoppages, political
unrest, severe weather, or security concerns. These issues could delay importation of products or require us to locate alternative
ports to avoid disruption to our customers. These alternatives may not be available on short notice, if at all, or could result
in higher transit costs, which could have an adverse impact on our business and financial condition.
Further, our imported products
are subject to customs laws, which impose tariffs, as well as import quota restrictions on apparel. While importation of goods
from foreign countries from which we buy our products may be subject to embargoes if shipments exceed quota limits, we currently
are not restricted by quotas in the operation of our business. However, we have no guarantee that regulations on imported goods
will not materially change or that our business will not be adversely affected by duties, tariffs or embargoes in the future.
Violation of labor laws and practices
by our manufacturers and suppliers could harm our business.
We require our manufacturers
and suppliers to operate in compliance with applicable laws and regulations. While the Company promotes ethical business practices,
we do not control our manufacturers or suppliers or their labor practices. The violation of labor or other laws by any of our manufacturers
or suppliers, or divergence of their labor practices from those generally accepted as ethical in the local markets, could interrupt
or otherwise disrupt the shipment of our products, harm the value of our trademarks, damage our reputation or expose us to potential
liability for their wrongdoings.
A privacy breach could damage our reputation
and our relationship with our customers, expose the Company to litigation risk and adversely affect our business.
As part of our normal course
of business, we collect, process and retain sensitive and confidential customer information. Despite security measures we have
in place, our facilities and systems may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or
lost data, programming and/or human errors, or other similar events. Any security breach involving the misappropriation, loss or
other unauthorized disclosure of confidential information could severely damage our reputation and our relationships with our customers,
expose the Company to risks of litigation and liability and adversely affect our business.
The loss of our Chief Executive Officer
or other key personnel would have an adverse impact on our future development and could impair our ability to succeed.
Our performance is substantially
dependent upon the expertise of our Founder and Chief Executive Officer, Oliver Amhurst, and other key personnel. In addition to
his executive officer functions, Mr. Amhurst heads our design team, marketing, and several other aspects of our business operations
and his leadership has been instrumental to our business. The death or disability of Mr. Amhurst, temporary or permanent loss of
his services, or any negative market or industry perception with respect to him, could have a material adverse effect on our business.
Our other employees have also made significant contributions to the Company. The unexpected loss of services of one or more of
these individuals could also have a material adverse effect on us. We do not maintain "key man" insurance with respect
to Mr. Amhurst or any of our other key personnel, and any of them may leave us at any time, which could severely disrupt our business
and future operating results.
Our sole officer and director may not
be subject to suit in the United States, which may prevent investors in our Company from obtaining or enforcing judgments against
him under United States Securities Laws.
Our sole officer and director,
Mr. Oliver Amhurst, is a resident of Great Britain. As a result, it may be difficult or impossible for our investors to effect
service of process within the United States upon him, to bring suit against him in the United States or to enforce in the United
States courts any judgment obtained there against him predicated upon any civil liability provisions of the United States federal
securities laws. Investors should not assume that British courts will either enforce judgments of United States courts obtained
in actions against Mr. Amhurst predicated upon the civil liability provisions of the United States federal securities laws or the
securities or "blue sky" laws of any state within the United States or enforce, in original actions, liabilities against
him upon the United States federal securities laws or any such state securities or “blue sky” laws.
Our sole officer and director beneficially owns a large percentage
of our common stock and may be able to exert significant influence and control over us and may make decisions that do not always
coincide with the interests of other stockholders.
As of the date of this
Report, our sole executive officer and director, Mr. Oliver Amhurst, beneficially owns approximately 31.691 percent of our
common stock and is our largest stockholder. As a result, Mr. Amhurst is in a position to exert significant control over us and
has the ability to substantially influence all matters submitted to our stockholders for approval, including the election and removal
of directors, any merger, consolidation or sale of all or substantially all of our assets, an increase in the number of shares
authorized for issuance under stock option plans, and to control our management and affairs. Accordingly, such concentration of
ownership may have the effect of delaying, deferring or preventing a change in or discouraging a potential acquirer from making
a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would be beneficial to other
stockholders.
Our Articles of Incorporation exculpates
our officers and directors from certain liability to our Company or our stockholders.
Our Articles of Incorporation
contain a provision limiting the liability of our officers and directors for their acts or failures to act, except for acts involving
intentional misconduct, fraud or a knowing violation of law. This limitation on liability may reduce the likelihood of derivative
litigation against our officers and directors and may discourage or deter our stockholders from suing our officers and directors
based upon breaches of their duties to our Company.
Our success depends on the continued
protection of our trademarks.
Our trademarks are important
to our success and competitive position, and the loss of or inability to enforce our trademarks could harm our business. We have
devoted and will continue to devote substantial resources to the establishment and protection of our trademarks on a worldwide
basis. Despite any precautions we may take to protect our trademarks, policing unauthorized use of them is difficult, expensive
and time-consuming, and we may be unable to adequately protect our trademarks or determine the extent of any unauthorized use,
particularly in those foreign countries where the laws do not protect proprietary rights as fully as in the United States or United
Kingdom. Our efforts to establish and protect our trademarks may not be adequate to prevent imitation or counterfeiting of our
products by others or to prevent others from seeking to block sales of our products for violating their trademarks. Unauthorized
copying of our products or unauthorized use of our trademarks may decrease sales of our products and cause significant damage to
our brand name and our ability to effectively represent ourselves to our customers. Also, we cannot assure you that others will
not assert rights in, or ownership of, our trademarks, that our trademarks would be upheld if challenged or that we would, in that
event, not be prevented from using our trademarks, any of which could have a material adverse effect on our financial condition
and results of operations. Further, we could incur substantial costs in legal actions relating to our use of our trademarks or
the use of our trademarks by others. Even if we are successful in these actions, the costs we incur could have a material adverse
effect on us.
RISKS ASSOCIATED WITH OUR COMMON STOCK
The Company’s stock price may be
volatile.
The market price of the
Company’s common stock is likely to be highly volatile and could fluctuate widely in price in response to various potential
factors, many of which will be beyond the Company’s control, including the following:
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additions or departures of key personnel;
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the Company’s ability to execute its growth strategies;
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operating results that fall below expectations;
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loss of any strategic relationship;
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economic and other external factors; and
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period-to-period fluctuations in the Company’s financial results.
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In addition, the securities
markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance
of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company’s
common stock.
We do not expect to pay dividends in
the foreseeable future.
We do not intend to declare
dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth
of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable
to sell their shares on favorable terms or at all. We cannot assure you of a positive return on investment or that you will not
lose the entire amount of your investment in our common stock.
We may in the future issue additional
shares of our common stock which would reduce investors’ ownership interests in the Company and which may dilute our share
value.
Our Articles of Incorporation
and amendments thereto authorize the issuance of 75,000,000 shares of common stock, par value $0.001 per share. The future issuance
of all or part of our remaining authorized common stock may result in substantial dilution in the percentage of our common stock
held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance
of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the
shares held by our investors, and might have an adverse effect on any trading market for our common stock.
The Company’s common stock is currently
deemed to be “penny stock”, which makes it more difficult for investors to sell their shares
.
The Company’s common
stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock
rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and
trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been
operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other
than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as
a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject
to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s
securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose
of the Company’s securities.
FINRA sales practice requirements may limit a stockholder’s
ability to buy and sell our stock.
The Financial Industry
Regulatory Authority (“FINRA”) has adopted rules that relate to the application of the SEC’s penny stock rules
in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable
for that customer, prior to recommending the investment. 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, FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at
least some customers. FINRA’s requirements make it more difficult for broker/dealers to recommend that their customers buy
our common stock, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further,
many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to
make a market in our common stock, reducing a shareholder’s ability to resell shares of our common stock.