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LOTE > SEC Filings for LOTE > Form 10-Q on 27-Feb-2014All Recent SEC Filings

Show all filings for LOT78, INC.

Form 10-Q for LOT78, INC.


27-Feb-2014

Quarterly Report


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 were in line with expectations. Historically, we rely on re orders and online sales for revenues in our first and third quarters with the bulk of our revenue being generated in the second and fourth quarters co-inciding with the Spring/Summer and Fall/Winter seasons.

We are in the process of looking to have pre seasonal deliveries to our customers which if successful will generate greater revenues in our first and third quarters.

Plan of Operation

As of December 31, 2013, we had $49,947 of cash on hand. We incurred operating expenses in the amount of $273,576 during the period ended December 31, 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 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.

Revenues

We earned revenues of $55,730 for the period ended December 31, 2013 compared to revenues of $58,695 for the period ended December 31, 2012. The decrease in revenues for the period ended December 31, 2013 can be attributed to our end of season Fall/Winter 13 stock being sold after the quarter end in February 2014 whereas our old stock for Fall/Winter 12 was sold in December 2012.

Cost of Goods Sold

Cost of goods sold for the period ended December 31, 2013 were $69,409 compared to $75,384 for the period ended December 31, 2012. Cost of goods sold represented 125% of sales for the period ended December 31, 2013 as compared to 128% for the period ended December 31, 2012. For the period ended December 31, 2013 the decrease can be attributed to a lower write down off stock for Fall/Winter 13 compared to Fall/Winter 12.

Expenses

For the period ended December 31, 2013, total general and administrative expenses increased $149,226, or 120%, to $273,576. This increase can be attributed to increased professional fees related to regulatory filings, increased travel costs for Fall/Winter 2013 sales, PR costs, employing an Italian Consultant for liasing with factories, increase in design team staff and salaries of the CEO and CFO whose costs were not incurred in the December 2012 quarter. We have also incurred one off costs relating to professional fees of $12,500, pertaining to preparation of filing of an S-1 document.

Working Capital
                            At               At
                       December 31,     September 30,
                           2013             2013           Difference
Current Assets      $        258,072 $         531,929 $      (273,857)
Current Liabilities $      1,147,217 $       1,358,481 $        211,264
Working Capital     $      (889,145) $       (826,552) $       (62,593)




Cash Flows
                                            Three Months Ended   Three Months Ended
                                               December 31,         December 31,
                                                   2013                 2012
Net Cash (Used) Provided by Operating     $          (220,644) $           (75,228)
Activities
Net Cash (Used) Provided by Investing     $                  - $                  -
Activities
Net Cash (Used) Provided by Financing     $              4,749 $             77,656
Activities
Net Effect of Foreign Currency            $            (8,470) $                 14
Translation
Net (Decrease) Increase in Cash During    $          (224,365) $              2,442
the Period

For the period ended December 31, 2013, net cash used in operating activities was $220,644 as a result of changes in our working capital, a net loss of $57,854 and a non cash derivative gain of $242,250

For the period ended December 31, 2013, net cash provided by financing activities was $4,749 as a result of proceeds from debt of $45,322, and repayment of convertible debt of $40,573.

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 December 31, 2013 we have managed to raise $45,322 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 December 31, 2013 is $49,947.

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 December 31, 2013, our Company has a comprehensive loss of $82,972 and an accumulated deficit of $2,329,526. 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 December 31, 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.

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