UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2014
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission
File Number 000-54816
LOT78,
INC.
(Exact
name of registrant as specified in its charter)
Nevada |
|
26-2940624 |
(State of incorporation) |
|
(I.R.S. Employer Identification No.) |
65
Alfred Road
Studio
209
London
W2 5EU
(Address
of principal executive offices)
00447801480109
(Registrant’s
telephone number)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
☒
Yes ☐ No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☐
Yes ☒No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer |
☐ |
Accelerated
Filer |
☐ |
Non-Accelerated
Filer |
☐ |
Smaller Reporting
Company |
☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes ☒ No
As
of September 22, 2014, there were 282,563,636 shares of the registrant’s $0.001 par value common stock issued and outstanding.
LOT78,
INC.
TABLE
OF CONTENTS
|
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Page |
|
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PART
I. FINANCIAL INFORMATION |
|
|
|
ITEM 1. |
FINANCIAL STATEMENTS |
2 |
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
10 |
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK |
13 |
ITEM 4. |
CONTROLS AND PROCEDURES |
13 |
|
|
PART
II. OTHER INFORMATION |
|
|
13 |
ITEM 1. |
LEGAL PROCEEDINGS |
|
ITEM 1A. |
RISK FACTORS |
13 |
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS |
13 |
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
14 |
ITEM 4. |
MINE SAFETY DISCLOSURES |
14 |
ITEM 5. |
OTHER INFORMATION |
14 |
ITEM 6. |
EXHIBITS |
14 |
|
|
Special
Note Regarding Forward-Looking Statements
Information
included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange
Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Lot78, Inc., formerly known as Bold Energy Inc. (the “Company”), to be materially
different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking
statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable
by use of the words “may,” “will,” “should,” “expect,” “anticipate,”
“estimate,” “believe,” “intend,” or “project” or the negative of these words or
other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may
be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass.
Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result
of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other events occur in the future.
*Please
note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us,"
the "Company," or "LOTE" refers to Lot78, Inc. and its wholly owned subsidiary Lot78 UK Limited.
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
INDEX | |
| | |
Unaudited Consolidated Balance Sheets | |
| 3 | |
| |
| | |
Unaudited Consolidated Statements of Operations | |
| 4 | |
| |
| | |
Unaudited Consolidated Statements of Cash Flows | |
| 5 | |
| |
| | |
Notes to Unaudited Consolidated Financial Statements | |
| 6 | |
LOT78,
INC.
CONSOLIDATED
BALANCE SHEETS
(unaudited)
| |
June 30, | |
September 30, |
| |
2014 | |
2013 |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 79,957 | | |
$ | 274,312 | |
Accounts receivable | |
| 204,714 | | |
| 132,422 | |
Prepaid expenses and other current assets | |
| 19,113 | | |
| 63,735 | |
Inventory, net | |
| 113,640 | | |
| 61,460 | |
Total current assets | |
| 417,424 | | |
| 531,929 | |
Property and equipment, net | |
| 4,839 | | |
| 3,614 | |
Patents, net | |
| 20,655 | | |
| 22,457 | |
Total assets | |
$ | 442,918 | | |
$ | 558,000 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 571,346 | | |
$ | 280,535 | |
Accounts payable – related party | |
| 58,065 | | |
| 26,850 | |
Factoring credit facility | |
| 93,468 | | |
| — | |
Debt due to related parties | |
| 464,864 | | |
| 169,428 | |
Derivative liabilities | |
| 78,454 | | |
| 434,464 | |
Convertible debt due to shareholders | |
| 90,179 | | |
| 124,610 | |
Due to shareholders | |
| 340,687 | | |
| 322,594 | |
Total current liabilities | |
| 1,697,063 | | |
| 1,358,481 | |
Long term debt due to shareholders | |
| 331,161 | | |
| 313,813 | |
Convertible debt, net of discount of $437,365 and $437,500 | |
| 12,838 | | |
| 12,500 | |
Total long term liabilities | |
| 343,999 | | |
| 326,313 | |
Total liabilities | |
$ | 2,041,062 | | |
| 1,684,794 | |
| |
| | | |
| | |
Stockholders’ deficit | |
| | | |
| | |
Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, none issued and outstanding | |
| — | | |
| — | |
Common stock, $0.001 par value per share, 350,000,000 shares authorized, 238,126,950 and 237,403,616 shares issued and outstanding | |
| 238,127 | | |
| 237,404 | |
Additional paid-in capital | |
| 890,923 | | |
| 865,340 | |
Accumulated other comprehensive income (loss) | |
| (22,696) | | |
| 42,134 | |
Accumulated deficit | |
| (2,704,498 | ) | |
| (2,271,672 | ) |
Total stockholders’ deficit | |
| (1,598,144 | ) | |
| (1,126,794 | ) |
Total liabilities and stockholders’ deficit | |
$ | 442,918 | | |
| 558,000 | |
The
accompanying notes are an integral part of the consolidated unaudited financial statements
LOT78,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND
OTHER COMPREHENSIVE LOSS
(unaudited)
| |
Three Months Ended June 30, 2014 | |
Three Months Ended June 30, 2013 | |
Nine
Months
Ended June 30, 2014 | |
Nine Months Ended June 30, 2013 |
Revenue, net | |
$ | 225,983 | | |
$ | 92,591 | | |
| 985,957 | | |
| 302,045 | |
Cost of sales | |
| 235,247 | | |
| 69,082 | | |
| 748,152 | | |
| 246,239 | |
Gross (Loss) Profit | |
| (9,264 | ) | |
| 23,509 | | |
| 237,805 | | |
| 55,806 | |
Expenses | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
$ | 253,094 | | |
$ | 164,632 | | |
| 975,489 | | |
| 557,275 | |
Foreign currency transaction adjustment | |
| | | |
| 4,760 | | |
| | | |
| 4,760 | |
Depreciation and amortization | |
| 1,914 | | |
| 1,063 | | |
| 5,145 | | |
| 3,172 | |
Total expenses | |
| 255,008 | | |
| 170,455 | | |
| 980,634 | | |
| 565,207 | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (11,973 | ) | |
| (7,641 | ) | |
| (46,007 | ) | |
| (28,014 | ) |
Gain on debt forgiveness | |
| | | |
| | | |
| | | |
| 56,421 | |
Gain on derivative liabilities | |
| 71,536 | | |
| | | |
| 356,010 | | |
| | |
Total other income (expense) | |
| 59,563 | | |
| (7,641 | ) | |
| 310,003 | | |
| 28,047 | |
Net loss | |
$ | (204,709 | ) | |
$ | (154,587 | ) | |
| (432,826 | ) | |
| (480,994 | ) |
Foreign currency translation adjustments | |
| (31,254 | ) | |
| 20,133 | | |
| (64,830 | ) | |
| 107,588 | |
Comprehensive (loss) | |
| (235,963 | ) | |
| (134,454 | ) | |
| (497,656 | ) | |
| (373,406 | ) |
Basic and diluted loss per share | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
| (0.00 | ) | |
| (0.00 | ) |
Weighted average shares of common stock outstanding – basic | |
| 237,746,579 | | |
| 232,650,173 | | |
| 237,597,267 | | |
| 184,085466 | |
The
accompanying notes are an integral part of the consolidated unaudited financial statements
LOT78,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
| |
Nine Months Ended | |
Nine Months Ended |
| |
June 30, | |
June 30, |
| |
2014 | |
2013 |
Cash flows from operating activities | |
| | | |
| | |
Net loss | |
$ | (432,826 | ) | |
$ | (480,994 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation | |
| 1,855 | | |
| 297 | |
Amortization | |
| 2,952 | | |
| 2,875 | |
Gain on debt forgiveness | |
| | | |
| (56,421 | ) |
Gain on derivative liabilities | |
| (356,010 | ) | |
| — | |
Debt discount amortization | |
| 338 | | |
| — | |
Stock based compensation | |
| 26,306 | | |
| — | |
Change in operating assets/liabilities: | |
| | | |
| | |
Accounts receivable | |
| (63,032 | ) | |
| 86,928 | |
Prepaid expenses and other current assets | |
| (8,176 | ) | |
| 32,724 | |
Inventory | |
| 7,558 | | |
| (35,582 | ) |
Accounts payable and accrued expenses | |
| 278,996 | | |
| (38,719 | ) |
Net cash (used in) provided by operating
activities | |
| (542,039 | ) | |
| (488,892 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchase of property and equipment | |
| (2,849 | ) | |
| | |
Cash acquired in reverse merger | |
| | | |
| 28,964 | |
Net cash used in investing activities | |
| (2,849 | ) | |
| 28,964 | |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from share sales | |
| | | |
| 325,000 | |
Proceeds from issuance of debt - related parties | |
| 277,486 | | |
| 344,313 | |
Repayment of convertible debt to shareholders | |
| (41,018 | ) | |
| (88,232 | ) |
Change in bank overdraft | |
| — | | |
| (109,714 | ) |
Repayment of shareholder loans | |
| | | |
| (67,165 | ) |
Change in revolving facility | |
| 94,921 | | |
| — | |
Net cash flows provided by financing activities: | |
| 331,389 | | |
| 404,202 | |
| |
| | | |
| | |
Effect of foreign currency on cash and cash equivalents | |
| 19,144 | | |
| 56,675 | |
Net (decrease) increase in cash | |
$ | (194,355 | ) | |
$ | 949 | |
Cash- beginning of period | |
| 274,312 | | |
| — | |
Cash- end of period | |
$ | 79,957 | | |
$ | 949 | |
| |
| | | |
| | |
Cash paid for interest | |
$ | 46,006 | | |
$ | 17,285 | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Supplementary Non-Cash Information | |
| | | |
| | |
Acquisition of Bold Energy Inc | |
| — | | |
| 47,945 | |
The
accompanying notes are an integral part of the consolidated unaudited financial statements
Lot78,
Inc.
Notes
to CONSOLIDATED Financial Statements
Unaudited
| 1. | BASIS
OF PRESENTATION & ORGANIZATION |
Basis
of presentation
The
accompanying unaudited interim financial statements of Lot78, Inc. (the “Company”) have been prepared in accordance
with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange
Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto of the
Company contained in Form 10-K filed with the SEC on January 21, 2014.
In
the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have been reflected herein. The results of operations
for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial
statements that would substantially duplicate the disclosures contained in the audited financial statements for the fiscal year
ended September 30, 2013 as reported in the Company’s Form 10-K have been omitted.
Our
business is subject to seasonal fluctuations. Historically, sales of our products have been higher during the second and fourth
quarters. As a result, our quarterly and annual operating results and comparable sales may fluctuate significantly as a result
of seasonality. Accordingly, results for any one quarter or year are not necessarily indicative
of results to be expected for any other quarter or for any year, and comparable sales for any particular future period may decrease.
The
Company’s financial statements are prepared in conformity with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation
of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient
to cover its operating costs and allow it to continue as a going concern. The Company has an accumulated deficit since inception
to June 30, 2014, of $2,704,498 which raises substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating
losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s
plan is to obtain such resources for the Company through debt and/or equity financing from third parties.
| 3. | FACTORING
CREDIT FACILITY |
The Company
as reported on 01/06/14 has a Purchase and Resale and a Recourse Factoring Agreement with Bibby Trade Services Ltd amounting to
£600,000 ($998,220).
Under
the terms of our factoring facility, the Company may obtain advances of up to 80 percent of eligible accounts receivable, subject
to a 1.8 percent per fixed fee and a factors discount fee of 3.00% above the greater of LIBOR, the base rate quoted from time
to time by Barclays Bank PLC (or its successors). The remainder of the twenty percent is held in a restricted cash reserve account,
which is released to the Company upon payment of the receivable. Bibby has full recourse under the agreement to return any receivables
for which funds have been advanced. As a result, the Company does not reduce its accounts receivable until Bibby has collected
on the invoices that have been factored.
As at June
30, 2014 and September 30, 2013, amounts owed under the Recourse Factoring Facility were $93,468 and NIL, respectively.
During
the Nine months ended June 30, 2014, the Company received $277,486 from Cressida Investments LLC as a short term loan.
Short
term loans from Cressida Investments LLC are unsecured and interest free.
Other
differences in the loan values between September 30, 2013 and June 30, 2014 are due to foreign exchange translations.
Long-term
loans from David Hardcastle are unsecured and are currently non-interest bearing. However, once the Company secures significant
external financing, the long term loans begin accruing interest at bank rate plus 2% per annum and will be payable in quarterly
installments over a 3 year period.
| 5. | CONVERTIBLE
DEBT, DERIVATIVE LIABILITIES & FAIR VALUE MEASUREMENTS |
Convertible
Debt – IIMG
Loans
from Iceberg Investment Management Group (“IIMG”) are unsecured and accrue interest at a rate of 2.5% per annum. During
the Nine months ended June 30, 2014, the Company repaid $41,018 to IIMG.
The
balance payable to IIMG as at June 30, 2014, is $90,179. The notes were due on February 28, 2014 and April 30, 2014, however,
pursuant to communication received from IIMG, it has been agreed that 10% of all future financing raised will be used to pay down
the loans until all principal and accrued interest has been paid in full, unless the Company within its new debt arrangements
has clauses which restricts it from paying down other debts.
At
the option of IIMG, If the loans remain unpaid by the maturity date, all amounts are convertible into common stock of the Company
at 80% of the Company’s volume weighted average price (“VWAP”) for the 5 previous days prior to execution of
the promissory note.
As
at June 30, 2014 $90,179 of the overall debt had been matured.
The
Company has not received any communication from IIMG whether it wishes to activate the clause in converting this amount into common
stock.
Convertible
Debt – Embedded Derivatives
On
August 30, 2013, the Company entered into an Unsecured Senior Convertible Promissory Note (the “Note”) with Banque
Benedict Hentsch & Cie SA (“Banque Benedict”) for the principal sum of Three Hundred and Fifty Thousand Dollars
($350,000) plus simple interest thereon at the rate of ten percent (10%) per annum. Banque Benedict has the option at any time
to convert the Note in whole into shares of the common stock of the Company at the conversion rate of $0.125 per share. Unless
the Note is earlier converted, the total principal and unpaid interest is due on September 1, 2016.
On
September 9, 2013, the Company entered into an Unsecured Senior Convertible Promissory Note (the “Note”) with Monument
Assets & Resources Company Ltd (“Monument Assets”) for the principal sum of One Hundred Thousand Dollars ($100,000)
plus simple interest thereon at the rate of ten percent (10%) per annum. Monument Assets has the option at any time to convert
the Note in whole into shares of the common stock of the Company at the conversion rate of $0.125 per share. Unless the Note is
earlier converted, the total principal and unpaid interest is due on September 1, 2016.
The
above conversion notes contain a reset provision whereby the conversion price on the notes can be reduced based on future equity
transactions of the Company. As a result, the conversion options were classified as derivative liabilities at their fair value
on the date of issuance. The fair value of the derivative liabilities exceeded the principal amount of the notes, resulting in
a full debt discount of $450,000, $338 of which has been amortized to interest expense to June 30, 2014.
As
defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of
similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including
assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those
inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement)
and the lowest priority to unobservable inputs (level 3 measurement).
The three
levels of the fair value hierarchy are as follows:
Level 1 – |
Quoted prices are available
in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions
for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level
1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. |
Level 2 – |
Pricing inputs are other
than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported
date. |
Level 3 – |
Pricing inputs include
significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair value. |
The following
table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted
for at fair value as at June 30, 2014.
Recurring
Fair Value Measures |
|
Level
1 |
Level
2 |
Level
3 |
Total |
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities net September 30, 2013 |
|
$ |
- |
|
|
$ |
- |
|
$ |
434,464 |
|
$ |
434,464 |
Derivative liabilities net June 30, 2014 |
|
$ |
- |
|
|
$ |
- |
|
$ |
78,454 |
|
$ |
78,454 |
The following
table summarizes the changes in the derivative liabilities during the period ended June 30, 2014:
|
|
|
Fair value as of October 1, 2013 |
$ |
434,464 |
Change in fair value |
|
356,010 |
|
|
|
Ending balance as of June 30,
2014 |
$ |
78,454 |
The
gain on derivative liabilities of $356,010 in the accompanying consolidated statement of operations consists of the change in
fair value of $356,010 noted above.
The
Company uses the Black-Scholes option pricing model to value the derivative liability and subsequent re-measurements. Included
in the model are the following assumptions: stock price at valuation date of $0.025, exercise price of $0.125, dividend yield
of zero, years to maturity of 2.18, risk free rate of 0.09 – 0.8 percent, and annualized volatility of 253.27
– 373.55 percent.
| 6. | RELATED
PARTY TRANSACTIONS |
As
of June 30, 2014, the Company owed an officer $58,065 for accounting and consultancy fees.
During
the Nine months ended June, 2014, the Company issued 723,334 shares of common stock valued at $26,306 for services rendered.
| 8. | COMMITMENTS
AND CONTINGENCIES |
In
November 2012, Anio Limited (now named Lot 78 UK Limited) entered into a Consulting and Services Agreement with Iceberg
Investments Management Group Limited, a British Virgin Islands corporation. This document includes a provision that Lot78 UK Ltd
would pay a success fee of USD$770,000 on the closing of any financing in the amount exceeding $3,000,000. The amount of
the success fee purportedly payable reduces if the financing is less than $3,000,000. For these purposes, Iceberg has confirmed
that no success fee would be payable if the financing is less than $1,450,000 and $500,000 whether by equity or loan raised from
or introduced by Banque Benedict Hentsch & CIE SA is excluded. If Iceberg is not successful in obtaining financing
for the Company within 18 months of a potential merger or transaction there are provisions that Lot78 UK Ltd provide a convertible
promissory note.
The
Company is taking legal advice on this document, the enforceability of its provisions and reserves its position as to whether
such fees will be payable under or pursuant to this document.
As
reported in our 8-K filed on August 22, 2014, the Company On August 18, 2014, completed the sale of a total of 44,436,686
shares of its common stock to two accredited investors in a private placement (the “Private Placement”) pursuant to
the terms of stock purchase agreements entered into by and between the Company and each investor (the “Purchase Agreements”).
The sales included (i) 23,993,891 shares sold to LIBANK S.A.L. (Levant Investment Bank) for $424,575 in cash and (ii) 20,442,795
shares sold to Cressida Investments LLC (“Cressida”) as repayment of the full amount of an existing non-recourse,
interest-free and unsecured loan to the Company in the principal amount of £213,000.
eND
OF NOTES TO FINANCIALS
ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
FORWARD-LOOKING
STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking
statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results,
levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements
by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential,
proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements,
you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.
Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely
from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking
statements for any reason.
Overview
Lot78,
Inc. (the “Company”) 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, 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.
Executive
Summary
Our
results for the current quarter has seen a steady growth in revenues to $225,893 in a quarter which generally is a quiet one.
Due to the seasonality of our business, the majority of our sales are booked in second and fourth quarters of the year which co-incide
with the Spring/Summer and Fall/Winter seasons. However, the Company is now looking into opening up further delivery windows to
our customers, which in turn may result in steady revenue stream across all four quarters.
Plan
of Operation
As
of June 30, 2014, we had $79,957 of cash on hand. We incurred operating expenses in the amount of $255,008 during the three months
ended June 30, 2014. These operating expenses were comprised of general and administrative expenses, professional fees, directors’
and consulting fees, and other miscellaneous expenses.
Our
current cash holdings will not satisfy our liquidity requirements and we will require additional financing to pursue our planned
business activities. We are in the process of seeking equity and or debt financing to fund our operations over the next 12 months.
If
we cannot generate sufficient revenues to continue operations, we will suspend or cease our operations.
We
do not expect the purchase or sale of any significant equipment and have no current material commitments.
Management
believes that if subsequent placements are successful, we will generate sufficient sales revenue to cover our operating costs
within the following twelve months thereof. However, additional equity and or debt financing may not be available to us on acceptable
terms or at all, and thus we could fail to satisfy our future cash requirements.
Results
of Operations for the Three and Nine Months Ended June 30, 2014 and 2013
Revenues
We
earned revenues of $225,983 for the three months ended June 30, 2014 compared to revenues of $92,591 for the three months
June 30, 2013 an increase of 144%. For the Nine month period ended June 30, 2014 we earned revenues of $985,957 compared to
$302,045 for the corresponding period in 2013 an increase of 226%. Increased revenues in the Nine month and three month
period ended June 30, 2014 can be attributed to an increased customer base as a result of taking on Archetype Showroom as an
agent for our US market and Four Marketing UK and Four Marketing International for our existing and new UK, European and Rest
of the World market.
Our
core customers revenue for the periods have been steadily increasing across all markets together with new customers coming onto
our books for the current quarter and the next quarter, wherein we have opened new doors for the FW14 season.
Cost
of Goods Sold
Cost
of goods sold for the three months ended June 30, 2014 were $235,247 compared to $69,082 for the three months ended June 30,
2013. Cost of goods sold represented 104% of sales for the three months ended June 30, 2014 as compared to 75% for the three
months ended June 30, 2013. This increase in COGS as a percentage of sales for the three months ended June 30, 2014 can be
attributed to selling a great proportion of our out of season stock to discount retailers in the UK. In the current quarter
these were sold to TJX Europe a subsidiary of TJX Inc and Brand Outlet.
For
the Nine months ended June 30, 2014, cost of goods sold were $748,152 compared to $246,239 for the corresponding period in 2013.
Cost of goods sold represented 76% of sales for the Nine months ended June 30, 2014 as compared to 82% for the Nine months ended
June 30, 2013. The decrease in COGS for the Nine months ended June 30, 2014 as compared to the same corresponding period for 2013,
can be attributed to better prices being negotiated prices with our Italian factories and extra discounts being given due to the
increase in our orders.
Expenses
Expenses
for the three months ended June 30, 2014, expenses were $255,008, compared to $170,455 for the three month ended June 30, 2013
an increase of 50%. This increase is mainly attributable to , larger sample costs due to an increasing expansive collection, the
cost of employing a CFO, increased personnel due to the expansion of operations and commissions payable to Four Marketing and
Archetype Showrooms. This increase has been necessary to expand our operations and the corresponding effect can be seen in the
increased turnover.
For
the Nine months ended June 30, 2014 expenses were $980,634, compared to $565,207 for the corresponding period in 2013 an increase
of 73%. This increase can be attributed to , larger sample costs due to an increasing expansive collection, increased travel costs
for Spring/Summer 2014 and Autumn/Winter 2014 sales, and increased personnel due to the expansion of operations.
Liquidity
and Financial Condition
Working Capital
|
|
At
June
30,
2014 |
|
At
September
30,
2013 |
|
Difference |
Current Assets |
$ |
417,424 |
$ |
531,929 |
$ |
(114,505) |
Current Liabilities |
$ |
1,697,063 |
$ |
1,358,481 |
$ |
(338,582) |
Working Capital |
$ |
(1,279,639) |
$ |
(826,552) |
$ |
(483,087) |
Cash
Flows
|
|
Nine
Months Ended
June
30, 2014 |
|
Nine
Months Ended
June
30, 2013 |
Net Cash (Used)
Provided by Operating Activities |
$ |
(542,039) |
$ |
(488,892) |
Net Cash (Used)
Provided by Investing Activities |
$ |
(2,849) |
$ |
28,964 |
Net Cash Provided
by Financing Activities |
$ |
331,389 |
$ |
404,202 |
Net
Effect of Foreign Currency Translation |
$ |
19,144 |
$ |
56,675 |
Net (Decrease)
Increase in Cash During the Period |
$ |
(194,355) |
$ |
949 |
For
the period ended June 30, 2014, net cash used in operating activities was $542,039 as a result of changes in our working capital,
a net loss of $432,826 and a non cash derivative gain of $356,010.
For
the period ended June 30, 2014, net cash provided by financing activities was $331,389 as a result of proceeds from debt of $277,486,
repayment of convertible debt of $41,018 and change in our factoring facility with our factoring company of $94,921.
We
will require additional funds to fund our budgeted expenses in the future. These funds may be raised through equity financing,
debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. For the period ended
June 30, 2014 we have managed to raise $277,486 through debt financing. There is no assurance that we will be able to maintain
operations at a level sufficient for an investor to obtain a return on their investment in our common stock. Furthermore, we may
continue to be unprofitable. We will need to raise additional funds in the future in order to proceed with our budgeted expenses.
Additionally, there is no assurance that any party will advance additional funds to us in order to enable us to sustain our plan
of operations or to repay our liabilities.
Liquidity
and Capital Resources
Growth
of our operations will be based on our ability to internally finance from operating cash flows, and the ability to raise funds
through equity and/or debt financing to increase sales and production. Our primary sources of liquidity are: (i) cash from sales
of our products; and (ii) financing activities. Our cash balance as of June 30, 2014 is $79,957.
Our
Company has funded some of its operations through debt financing with related party transactions.
Inflation
The
amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position.
The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging
operations with amounts that represent replacement costs or by using other inflation adjustments.
Going
Concern
For
the three months ended June 30, 2014, our Company has a comprehensive loss of $235,963 and an accumulated deficit of $2,704,498.
Our Company intends to fund operations through operational cash flow and equity/debt financing arrangements. These sources may
be insufficient to fund its capital expenditures, working capital and other cash requirements for the future. In response to these
problems, management intends to raise additional funds through public or private placement offerings. These factors, among others,
raise substantial doubt about our Company’s ability to continue as a going concern. The accompanying financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance
Sheet Arrangements
As at June
30, 2014, the Company had a commitment of €106,659.91 ($145,529.24) pertaining to a Letter of credit with our factory in
Italy for goods to be delivered in the next quarter.
Critical
Accounting Policies
Our
financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare for financial statements. A complete summary of
these policies is included in the notes to our financial statements. In general management’s estimates are based on historical
experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable
under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently
Issued Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact
on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
the information under this item.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated
and communicated to our management, including its principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation
under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial
Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2014, due to the material
weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an
audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place
to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our Annual Report
on Form 10-K as filed with the SEC on January 21, 2014, for a complete discussion relating to the foregoing evaluation of Disclosures
and Procedures.
Changes
in Internal Controls Over Financial Reporting
Our
management has also evaluated our internal control over financial reporting, and there have been no significant changes in our
internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
The
Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's
registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
We
know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered
or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM
1A. RISK FACTORS.
We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
the information under this item.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During
the quarter, the Company did not issue shares of common stock.
Subsequent to the quarter,
the Company did not issue shares of common stock.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
Applicable.
ITEM
5. OTHER INFORMATION.
None.
ITEM
6. EXHIBITS
Exhibit
Number |
Description |
Filed |
2.01 |
Share Exchange Agreement by and among the
Company, the controlling stockholders of the Company, Anio Limited (Lot78), and the shareholders of Anio Limited (Lot78) dated
November 12, 2012 |
Filed with the SEC on February 4, 2013 as
part of our Current Report on Form 8-K. |
3.01(a) |
Articles of Incorporation filed with the
Nevada Secretary of State on June 27, 2008 |
Filed with the SEC on September 9, 2008
as part of our Registration Statement on Form S-1. |
3.01(b) |
Certificate of Amendment to Articles of
Incorporation filed with the Nevada Secretary of State on March 14, 2011 |
Filed with the SEC on December 20, 2012
as part of our Quarterly Report on Form 10-Q. |
3.01(c) |
Certificate of Amendment to Articles of
Incorporation filed with the Nevada Secretary of State on January 31, 2013 |
Filed with the SEC on February 4, 2013 as
part of our Current Report on Form 8-K. |
3.01(d) |
Certificate of Amendment to Articles of
Incorporation filed with the Nevada Secretary of State on May 22, 2013 |
Filed with the SEC on November 29, 2013
as part of our Registration Statement on Form S-1. |
3.02 |
Bylaws |
Filed with the SEC on September 9, 2008
as part of our Registration Statement on Form S-1. |
10.01 |
Supply Terms and Conditions |
Filed with the SEC on July 19, 2013 as part
of our Current Report on Form 8-K. |
10.02 |
Unsecured Senior Convertible Promissory
Note, effective August 30, 2013, by and between Lot78, Inc. and Banque Benedict Hentsch & Cie SA. |
Filed with the SEC on September 4, 2013
as part of our Current Report on Form 8-K. |
10.03 |
Unsecured Senior Convertible Promissory
Note, effective September 9, 2013, by and between Lot78, Inc. and Monument Assets & Resources Company Ltd |
Filed with the SEC on September 11, 2013
as part of our Current Report on Form 8-K. |
10.04 |
Purchase and Resale Agreement dated December
30, 2013 by and between Lot78 UK and Bibby. |
Filed with the SEC on January 6, 2014 as
part of our Current Report on Form 8-K. |
10.05 |
Recourse Factoring Agreement dated December
30, 2013 by and between Lot78 UK and Bibby. |
Filed with the SEC on January 6, 2014 as
part of our Current Report on Form 8-K. |
16.01 |
Letter to the SEC from De Joya, Griffith
& Company LLC dated November 19, 2012 |
Filed with the SEC on November 19, 2012
as part of our Current Report on Form 8-K. |
21.01 |
List of Subsidiaries |
Filed with the SEC on November 29, 2013
as part of our Registration Statement on Form S-1. |
31.01 |
Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
Filed herewith. |
31.02 |
Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
Filed herewith. |
32.01 |
Certification of Principal Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Filed herewith. |
32.02 |
Certification of Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Filed herewith. |
101.INS* |
XBRL Instance Document. |
Filed herewith. |
101.SCH* |
XBRL Taxonomy Extension Schema Document. |
Filed herewith. |
101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase
Document. |
Filed herewith. |
101.DEF* |
XBRL Taxonomy Extension Definition Linkbase
Document. |
Filed herewith. |
101.LAB* |
XBRL Taxonomy Extension Label Linkbase Document. |
Filed herewith. |
101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase
Document. |
Filed herewith. |
* Pursuant
to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange
Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
LOT78, INC. |
|
|
Date: September 22, 2014 |
/s/ Oliver Amhurst |
|
By: Oliver Amhurst |
|
Its: President, Principal Executive Officer, Secretary, Treasurer
and Director |
|
|
Date: September 22, 2014 |
/s/ Asgherali Gulamhussein |
|
By: Asgherali Gulamhussein |
|
Its:
Principal Financial Officer, Principal Accounting Officer, Controller and Director
|
Pursuant
to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Date: September 22, 2014 |
/s/ Oliver
Amhurst |
|
By: Oliver Amhurst |
|
Its: President, Principal Executive Officer, Secretary, Treasurer
and Director |
Date: September 22, 2014 |
/s/ Asgherali
Gulamhussein |
|
By: Asgherali Gulamhussein |
|
Its: Principal Financial Officer, Principal Accounting Officer,
Controller and Director |
Exhibit
31.01
CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14
I,
Oliver Amhurst, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Lot78, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
LOT78, INC. |
|
|
Date: September 22, 2014 |
/s/ Oliver Amhurst |
|
By: Oliver Amhurst |
|
Its: President, Principal Executive Officer, Secretary, Treasurer
and Director |
Exhibit
31.02
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14
I,
Asgherali Gulamhussein, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Lot78, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
LOT78, INC. |
|
|
Date: September 22, 2014 |
/s/ Asgherali Gulamhussein |
|
By: Asgherali Gulamhussein |
|
Its:
Principal Financial Officer, Principal Accounting Officer, Controller and Director
|
Exhibit
32.01
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Lot78, Inc. (the “Company”) on Form 10-Q for the period ended June 30,
2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Oliver Amhurst, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
/s/
Oliver Amhurst
By: Oliver
Amhurst
Chief Executive
Officer
Date: September
22, 2014
A
signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement has been provided to
the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit
32.02
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Lot78, Inc. (the “Company”) on Form 10-Q for the period ended June 30,
2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Asgherali Gulamhussein,
Principal Financial Officer, Principal Accounting Officer and Controller of the Company, certify, pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
/s/
Asgherali Gulamhussein
By: Asgherali
Gulamhussein
Chief Financial
Officer
Date: September
22, 2014
A
signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement has been provided to
the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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