The financial statements included
herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally
accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal
recurring accruals) necessary to present fairly the financial position and results of operations for the transition period presented
have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full
year. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto
included in our audited financial statements filed therewith along with the Form 8–K/A Annual Report with the U.S. Securities
and Exchange Commission (SEC) on July 19, 2013, and can be found on the SEC website at www.sec.gov.
ITEM 1.
|
CONDENSED FINANCIAL STATEMENTS
|
INDEX
|
F-1
|
|
|
Unaudited Consolidated Balance Sheets as of June 30, 2013, and Balance Sheet as of September 30, 2012.
|
F-2
|
|
|
Unaudited Consolidated Statement of Operations for the Three and Nine Months Ended June 30, 2013 and 2012.
|
F-3
|
|
|
Unaudited Consolidated Statement of Cash Flows for the Nine Months Ended June 30, 2013 and 2012.
|
F-4
|
|
|
Notes to Unaudited Consolidated Financial Statements
|
F-5
|
LOT78, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
|
|
June 30,
|
|
September 30,
|
|
|
2013
|
|
2012
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
949
|
|
|
$
|
—
|
|
Accounts receivable, net
|
|
|
26,481
|
|
|
|
117,931
|
|
Prepaid expenses and other current assets
|
|
|
6,029
|
|
|
|
47,601
|
|
Inventory, net
|
|
|
95,081
|
|
|
|
56,632
|
|
Total current assets
|
|
|
128,540
|
|
|
|
222,164
|
|
Property and equipment, net
|
|
|
2,998
|
|
|
|
928
|
|
Patents, net
|
|
|
22,072
|
|
|
|
26,427
|
|
Total assets
|
|
$
|
153,610
|
|
|
$
|
249,519
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
316,746
|
|
|
$
|
384,650
|
|
Revolving credit facility
|
|
|
110,637
|
|
|
|
230,907
|
|
Short term debt
|
|
|
431,427
|
|
|
|
161,644
|
|
Due
to shareholders
|
|
|
323,662
|
|
|
|
537,846
|
|
Total current liabilities
|
|
|
1,182,472
|
|
|
|
1,314,957
|
|
Long
term notes due to shareholders
|
|
|
295,773
|
|
|
|
189,899
|
|
Total liabilities
|
|
|
1,478,245
|
|
|
|
1,504,856
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share, 350,000,000 shares authorized, 235,013,616 and 127,638,616 shares issued and outstanding
|
|
|
235,014
|
|
|
|
127,638
|
|
Additional paid-in capital
|
|
|
209,180
|
|
|
|
12,448
|
|
Accumulated other comprehensive income (loss)
|
|
|
83,902
|
|
|
|
(23,686
|
)
|
Deficit accumulated during the development stage
|
|
|
(1,852,731
|
)
|
|
|
(1,371,737
|
)
|
Total stockholders’ deficit
|
|
|
(1,324,635
|
)
|
|
|
(1,255,337
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
153,610
|
|
|
$
|
249,519
|
|
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,
2013
|
|
Three
Months
Ended
June 30,
2012
|
|
Nine Months
Ended
June 30,
2013
|
|
Nine Months
Ended
June 30,
2012
|
Revenue, net
|
|
$
|
92,591
|
|
|
$
|
60,289
|
|
|
$
|
302,045
|
|
|
$
|
347,270
|
|
Cost of sales
|
|
|
69,082
|
|
|
|
44,751
|
|
|
|
246,239
|
|
|
|
231,109
|
|
Gross Profit
|
|
|
23,509
|
|
|
|
15,538
|
|
|
|
55,806
|
|
|
|
116,161
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
164,632
|
|
|
$
|
68,235
|
|
|
$
|
557,275
|
|
|
$
|
217,353
|
|
Foreign currency transaction adjustment
|
|
|
4,760
|
|
|
|
—
|
|
|
|
4,760
|
|
|
|
—
|
|
Depreciation and amortization
|
|
|
1,063
|
|
|
|
1,018
|
|
|
|
3,172
|
|
|
|
3,042
|
|
Total expenses
|
|
|
170,455
|
|
|
|
69,253
|
|
|
|
565,207
|
|
|
|
220,395
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,641
|
)
|
|
|
(2,243
|
)
|
|
|
(28,014
|
)
|
|
|
(1,516
|
)
|
Gain on debt forgiveness
|
|
|
|
|
|
|
—
|
|
|
|
56,421
|
|
|
|
—
|
|
Total other income (expense)
|
|
|
(7,641
|
)
|
|
|
(2,243
|
)
|
|
|
28,407
|
|
|
|
(1,516
|
)
|
Net loss
|
|
$
|
(154,587
|
)
|
|
$
|
(55,958
|
)
|
|
$
|
(480,994
|
)
|
|
$
|
(105,750
|
)
|
Foreign currency translation adjustments
|
|
|
20,133
|
|
|
|
7,456
|
|
|
|
107,588
|
|
|
|
(18,726
|
)
|
Comprehensive income (loss)
|
|
|
(134,454
|
)
|
|
|
(48,502
|
)
|
|
|
(373,406
|
)
|
|
|
(124,476
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares of common stock outstanding – basic
|
|
|
232,650,173
|
|
|
|
34,775,452
|
|
|
|
184,085,466
|
|
|
|
127,638,616
|
|
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,
|
|
|
2013
|
|
2012
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(480,994
|
)
|
|
$
|
(105,750
|
)
|
Adjustments to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
297
|
|
|
|
210
|
|
Amortization
|
|
|
2,875
|
|
|
|
2,609
|
|
Gain on debt forgiveness
|
|
|
(56,421
|
)
|
|
|
—
|
|
Change in operating assets/liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
86,928
|
|
|
|
93,591
|
|
Prepaid expenses and other current assets
|
|
|
32,724
|
|
|
|
130
|
|
Inventory
|
|
|
(35,582
|
)
|
|
|
23,485
|
|
Accounts payable and accrued expenses
|
|
|
(38,719
|
)
|
|
|
238,021
|
|
Net cash provided by (used in) operating activities
|
|
|
(488,892
|
)
|
|
|
252,296
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Cash acquired in reverse merger
|
|
|
28,964
|
|
|
|
—
|
|
Purchase of property and equipment
|
|
|
—
|
|
|
|
(1,118
|
)
|
Net cash provided by (used) in investing activities
|
|
|
28,964
|
|
|
|
(1,118
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Cash proceeds from share sales
|
|
|
325,000
|
|
|
|
—
|
|
Proceeds from short term debt
|
|
|
344,313
|
|
|
|
—
|
|
Repayment of short term debt
|
|
|
(88,232
|
)
|
|
|
(163,638
|
)
|
Change in bank overdraft
|
|
|
(109,714
|
)
|
|
|
—
|
|
Repayment of shareholder loans
|
|
|
(67,165
|
)
|
|
|
(83,459
|
)
|
Net cash flows provided by financing activities:
|
|
|
404,202
|
|
|
|
(247,097
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency on cash and cash equivalents
|
|
|
56,675
|
|
|
|
286
|
|
Net increase (decrease) in cash
|
|
$
|
949
|
|
|
|
4,081
|
|
Cash- beginning of period
|
|
|
—
|
|
|
|
322
|
|
Cash- end of period
|
|
$
|
949
|
|
|
$
|
4,689
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
17,285
|
|
|
$
|
6,114
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplementary Non-Cash Information
|
|
|
|
|
|
|
|
|
Acquisition of Bold Energy, Inc
|
|
|
47,945
|
|
|
|
—
|
|
Purchase of fixed assets on account
|
|
|
2,487
|
|
|
|
|
|
The accompanying notes are an integral part
of the consolidated unaudited financial statements
Lot78,
Inc.
Notes
to 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 8-K/A filed with the
SEC on July 19, 2013.
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, 2012 as reported in the Company’s
Form 8-K/A have been omitted.
Description of Business & Reverse Merger
We were incorporated as Bold Energy Inc. in
the State of Nevada as a for-profit Company on June 27, 2008, to develop a wide range loyalty program based on “Global Club
points” awarded for all purchases made in associated establishments. On November 10, 2009, a change in control occurred when
Bold Energy, Inc. received a resignation notice from Orlando J. Narita from all of his positions with the Company, including President,
CEO, Principal Executive Officer, Treasurer, CFO, Principal Accounting Officer, Secretary, and Director. On November 30, 2009,
Bold Energy, Inc. appointed Eden Clark as its new President, CEO, Principal Executive Officer, Treasurer, CFO, Principal Accounting
Officer, Secretary, Treasurer and as Director.
On February 4, 2013, Bold Energy, Inc. closed
a voluntary share exchange transaction with Anio, Ltd., a limited liability company established under the laws of the United Kingdom,
which conducts its primary line of business under the name “Lot78”, pursuant to a Share Exchange Agreement (the “Exchange
Agreement”) by and among the Company and its controlling stockholders, on the one hand, and Anio Ltd. And the stockholders
of Anio Ltd. (the “Selling Stockholders”), on the other hand.
At the
closing of the transactions contemplated by the Exchange Agreement (the “Closing”), the Company issued
127,638,616 new shares of its common stock to the Selling Stockholders in exchange for 100% of the issued and outstanding
capital stock of Anio Ltd. And Eden Clark and Patrick DeBlois irrevocably cancelled a total of 123,817,552 restricted shares
of common stock of the Company. As a result of the Share Exchange Agreement, Anio Ltd. Became the Company’s
wholly-owned subsidiary, and the Company acquired the business and operations of Anio Ltd. There were 100,574,016 shares of
common stock outstanding prior to the reverse merger. These shares were treated as issued during the nine months ended
June 30, 2013
.
On May 17, 2013, the Company authorized the
issuance of 3,821,064 shares of Common Stock with no cost basis, which were to be backdated to January 31, 2013, as said shares
should have been included in an initial issuance pursuant to that certain Share Exchange Agreement dated November 12, 2012.
Lot78, Inc. was deemed to be the accounting
acquirer in this transaction and as a result this transaction was accounted for as a reverse merger. The historical financial statements
presented in this filing are those of Lot78, Inc. The assets and liabilities of Bold Energy, Inc. were recorded, as of completion
of the merger, at fair value, which is considered to approximate historical cost, and added to those of Lot78, Inc.
Pursuant to the closing of the Share Exchange
Agreement, Eden Clark resigned as the President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and sole
member of the Board of Directors of the Company. Concurrently, Oliver Amhurst was appointed as the Company’s President, Chief
Executive Officer, Chief Financial Officer, Secretary, Treasurer and sole member of the Board of Directors. Subsequent to the Closing,
Mr. Asgherali Gulamhussein was appointed as Chief Financial Officer and Director of the Company.
Our business is
subject to seasonal fluctuations. Historically, sales of our products have been higher during quarter 2 and quarter 4. 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, 2013, of $1,852,731 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.
At June 30, 2013 and September 30, 2012 short term debt consists
of the following:
|
|
June
30,
2013
|
|
September
30,
2012
|
|
|
|
|
|
Loans -
CI LLC
|
|
$
|
129,271
|
|
|
|
137,397
|
|
Loans – Other
|
|
$
|
30,417
|
|
|
$
|
—
|
|
Loans -
Iceberg Investment Management Group
|
|
|
271,739
|
|
|
|
24,247
|
|
Total
Short term debt
|
|
$
|
431,427
|
|
|
$
|
161,644
|
|
Short term 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, 2013,
the Company received $313,012 from IIMG as short term loans, of which, $56,421 have been forgiven and netted off against the balance
due. Short term loans from CI LLC (“CIL”) are unsecured and are interest free. During the nine months ended June 30,
2013, the Company received $31,301 from an individual as short term loans.
|
4.
|
RELATED PARTY TRANSACTIONS
|
As of June 30, 2013, the Company repaid loans
to shareholders of $67,165.
Short term loans from shareholders are unsecured,
non-interest bearing and due on demand. Long-term loans from shareholders are unsecured and are currently non-interest bearing.
However, once the Company secures significant external financing, long term loans from shareholders begin accruing interest at
bank rate plus 2% per annum and will be payable in quarterly installments over a 3 year period.
During the nine months ended June 30, 2013
the Company sold 1,300,000 shares of common stock for $325,000.
On June 5, 2013, the Company effectuated a
forward stock split (the “Forward Split”) of its issued and outstanding common shares whereby every one (1) old share
of the Company’s common stock was exchanged for four (4) new shares of the Company's common stock. As a result, the issued
and outstanding shares of the Company’s common stock as of the Record Date, May 17, 2013, increased from 58,568,404 shares
prior to the Forward Split to 234,273,616 shares following the Forward Split. FINRA confirmed approval of the Forward Split on
June 4, 2013, payable as a dividend to shareholders, and the Forward Split became effective on June 5, 2013. All share and per
share amounts have been adjusted retroactively to the first day of the first period presented in the accompanying consolidated
financial statements.
On July 10, 2013 the Company entered into a Private Placement Subscription
Agreement (the “Subscription Agreement”) with an individual investor (the “Subscriber”). Pursuant to the
Subscription Agreement the Subscriber has agreed to purchase 2,000,000 shares of the Company’s common stock at a set price
of $0.25 per share. The shares were duly issued on said date.
Funds for the above issue were received by the Company on July 12,
2013, and a proportion of these funds were used to repay the bank overdraft subsequent to which the fixed and floating charge on
all property and assets was cancelled together with the Director’s personal guarantee.
The Company has also repaid $156,506 of debt to IIMG from the above
proceeds.
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, 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.
Plan of Operation
As of June 30, 2013, we had $949 of cash on
hand. We incurred operating expenses in the amount of $565,207 during the nine months ended June 30, 2013. These operating expenses
were comprised of general and administrative expenses, professional fees, and 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 private
placements are successful, we will generate sales revenue 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, 2013 and 2012
Revenues
We earned revenues of $92,591 for the three
months ended June 30, 2013 compared to revenues of $60,289 for the three months ended June 30, 2012. For the nine month period
ended June 30, 2013 we earned revenues of $302,045 compared to $347,270 for the corresponding period in 2012. The increase in revenues
for the period ended June 30 2013 can be attributed to an early order from Net a Porter for our 2013 autumn/winter collection.
Decreased revenues in the nine month period ended June 30, 2013 can be attributed to the difference in the timing of deliveries
for the autumn/winter 2012 and 2011 seasons. The Company is reliant on our suppliers to manufacture goods so that we can deliver
products to our wholesale customers each season. As there were delays in the production of the autumn/winter 2011 season, the revenue
related to that season’s deliveries were recorded during the quarter ended December 31, 2011. The autumn/winter 2012 season,
however, was produced and delivered during the quarter ended September 30, 2012. As such, the timing difference caused by the production
and delivery of the autumn/winter 2012 and 2011 seasons caused the decrease in revenue in the nine month period ended June 30,
2013 compared to the same period from the prior year.
Cost of Goods Sold
Cost of goods sold for the three months ended
June 30, 2013 were $69,082 compared to $44,751 for the three months ended June 30, 2012. Cost of goods sold represented 75% of
sales for the three months ended June 30, 2013 as compared to 75% for the three months ended June 30, 2012. For the nine months
ended June 30, 2013, cost of goods sold were $246,239 compared to $231,109 for the corresponding period in 2012. Cost of goods
sold represented 82% of sales for the nine months ended June 30, 2013 as compared to 67 % for the nine months ended June 30, 2012.
This increase in COGS as a percentage of sales for the three months can be attributed to the higher revenues achieved in this quarter.
For the nine months ended June 30, 2013 the increase can be attributed to write offs of obsolete inventory and sales of overstock
inventory at discounted prices during the quarter ended December 31, 2012. During the same quarter, the Company sold many of the
goods from prior seasons to a discount retailer for cost value or minimal margins. In addition, we held a pre-Christmas 2012 discount
sale, where prior season merchandise was sold at depressed margins as well.
Expenses
For the three months ended June 30, 2013,
total expenses increased $101,202, to $170,455, as compared to $69,253 for the corresponding period in 2012. For the nine months
ended June 30, 2013 total expenses increased $344,812, or 157%, to $565,207 as compared to $220,395 for the corresponding period
in 2012. This increase can be attributed to increased professional fees related to the share exchange agreement, larger sample
costs due to an increasing expansive collection, increased travel costs for spring/summer 2013 and autumn/winter 2013 sales, and
increased personnel due to the expansion of operations.
Liquidity and Financial Condition
Working Capital
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
September 30,
2012
|
|
Difference
|
Current Assets
|
$
|
128,540
|
$
|
222,164
|
$
|
93,624
|
Current Liabilities
|
$
|
1,182,472
|
$
|
1,314,957
|
$
|
(132,485)
|
Working Capital
|
$
|
(1,053,932)
|
$
|
(1,092,793)
|
$
|
(38,861)
|
Cash Flows
|
|
|
|
|
|
|
Nine Months Ended
June 30,
2013
|
|
Nine Months Ended
June 30,
2012
|
Net Cash (Used) Provided by Operating Activities
|
$
|
(488,892)
|
$
|
252,296
|
Net Cash (Used) Provided by Investing Activities
|
$
|
28,964
|
$
|
(1,118)
|
Net Cash (Used) Provided by Financing Activities
|
$
|
404,202
|
$
|
(247,097)
|
Net Effect of Foreign Currency Translation
|
$
|
56,675
|
$
|
286
|
Net (Decrease) Increase in Cash During the Period
|
$
|
949
|
$
|
4,081
|
For the nine months ended June 30, 2013,
net cash used in operating activities was $488,892 as a result of changes in our working capital and a nine month net loss of $480,994.
For the nine months ended June 30, 2013, net
cash provided by financing activities was $404,202 as a result of proceeds from short term debt of $344,313 offset by debt repayments
of $88,232, along with proceeds from the sale of common stock for $325,000. We repaid $67,165 to our shareholders and our bank
overdraft decreased by $109,714.
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. 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 may 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, 2013 is $949.
Our Company has funded some of its operations
through debt financing with related party transactions.
As of June 30, 2013, our Company is obligated
to David Hardcastle, a shareholder, for a non-interest bearing demand loan with a balance of $320,896 and a non-interest bearing
long term loan with a balance of $295,773.
As of June 30, 2013, our Company is obligated
to Oliver Amhurst, a shareholder, for a non interest bearing demand loan with a balance of $2,766
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 nine months ended June
30, 2013, our Company has a comprehensive loss of $373,406 and an accumulated deficit of $1,852,731. 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 of June 30, 2013, we had no off balance
sheet transactions that have had, or are reasonably likely to have, a current or future effect on our financial condition, changes
in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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.