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LOTE > SEC Filings for LOTE > Form 10-K on 21-Jan-2014All Recent SEC Filings

Show all filings for LOT78, INC.

Form 10-K for LOT78, INC.


21-Jan-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as "anticipate," "expect," "intend," "plan," "believe," "foresee," "estimate" and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Plan of Operation

As of September 30, 2013, we had $274,312 of cash on hand. We incurred operating expenses in the amount of $1,066,916 during the year ended September 30, 2013. 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 our material commitments have been mentioned in Note 13.

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.

Revenues

We earned revenues of $777,110 for the year ended September 30, 2013 compared to revenues of $560,368 for the year ended September 30, 2012. The increase in revenues for the year ended September 30, 2013 can be attributed to new stores buying our collection for the FW13 season. Bloomingdales, East Dane (Mens division of Shop Bop), The Tannery, and Blue One were some of the stores which bought our collection in the current period. Furthermore, our existing stores of Net a Porter, Shop Bop and Mr Porter also increased their orders with us in 2013 compared to 2012.

Cost of Goods Sold

Cost of goods sold for the year ended September 30, 2013 were $588,230 compared to $349,791 for the year ended September 30, 2012. Cost of goods sold represented 76% of sales for the year ended September 30, 2013 as compared to 63% for the year ended September 30, 2012. This increase in cost of goods sold as a percentage of sales for the year can be attributed to the higher revenues achieved in this quarter. For the year ended September 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 which had an impact on the value of cost of goods sold going up during the year. There were no write offs for stock or discounted sales for in the year 2012.

Expenses

For the year ended September 30, 2013 total expenses increased $737,752, or 224%, to $1,066,916. 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, the cost of appointing a CEO and CFO during the year. We have also incurred one off costs relating to professional fees and consultancy services pursuant to the share exchange agreement and raising debt finance in the region of $185,000.

       Working Capital
                                   At                At
                             September 30,     September 30,
                                  2013              2012           Difference
       Current Assets      $        531,929 $          222,164 $      (309,765)
       Current Liabilities $      1,358,481 $        1,314,957 $         43,524
       Working Capital     $      (826,552) $      (1,092,793) $      (266,241)




 Cash Flows
                                                      Year Ended      Year Ended
                                                     September 30,   September 30,
                                                         2013            2012
 Net Cash (Used) Provided by Operating Activities  $     (932,730) $       366,179
 Net Cash (Used) Provided by Investing Activities  $         2,050 $       (1,206)
 Net Cash (Used) Provided by Financing Activities  $     1,142,049 $     (365,298)
 Net Effect of Foreign Currency Translation        $        62,943 $             3
 Net (Decrease) Increase in Cash During the Period $       274,312 $         (322)

For the year ended September 30, 2013, net cash used in operating activities was $932,730 as a result of changes in our working capital and a year end net loss of $899,935.

For the year ended September 30, 2013, net cash provided by financing activities was $1,142,049 as a result of proceeds from debt of $830,142 along with proceeds from the sale of common stock for $825,000. We repaid $282,192 of debt and our bank overdraft decreased by $230,901.

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 year ended September 30, 2013 we have managed to raise $1,655,142 through debt and equity 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 September 30, 2013 is $274,312.

Our Company has funded some of its operations through debt financing with related party transactions.

As of September 30, 2013, our Company is obligated to David Hardcastle, a shareholder, for a non-interest loan with a balance of $636,533.

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.

Going Concern

For the year ended September 30, 2013, our Company has a comprehensive loss of $834,115 and an accumulated deficit of $2,271,672. 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.

Future Financing

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.

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.

Off-Balance Sheet Arrangements

As of September 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 that are material to stockholders.

Contractual Obligations

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.

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.

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