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RYUN > SEC Filings for RYUN > Form 10-Q on 14-Aug-2014All Recent SEC Filings

Show all filings for RESPECT YOUR UNIVERSE, INC.

Form 10-Q for RESPECT YOUR UNIVERSE, INC.


14-Aug-2014

Quarterly Report


Note 2 Liquidity and Management's Plan

The Company commenced operations as a development stage enterprise in 2009 and has incurred losses from inception that has primarily been funded through financing activities. As shown in the accompanying condensed financial statements, the Company incurred a net loss of $934,307 and $1,786,634, for the three and six months ended June 31, 2014, and had net cash used in operating activities of $1,979,174, and $2,133,139 for the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, the Company's cash balance was $2,248,304. Although the Company raised $4,774,683 in 2014 (including $130,000 of loans payable issued for stock), the Company expects it will need to raise additional capital during the next 12 months and beyond to support current operations and planned development. These factors raise substantial doubt as to our ability to continue as a going concern.

The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should the Company be unable to continue as a going concern.

Note 3 Basis of Presentation

The accompanying unaudited, interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.

The financial information as of December 31, 2013 is derived from the audited financial statements presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The unaudited interim condensed financial statements should be read in conjunction with the Company's Annual Report on Form 10-K, which contains the audited financial statements and notes thereto.

Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the three and six months ended June 30, 2014 are not necessarily indicative of results for the full fiscal year.

The financial statements for all prior periods have been retroactively adjusted to reflect the June 30, 2014 one-for-two reverse stock split of the Company's common stock (Note 10).


Summary of Significant Accounting Policies

There have been no material changes during 2014 in the Company's significant accounting policies to those previously disclosed in the 2013 Form 10-K except for the following new accounting pronouncements.

New Accounting Pronouncements

On June 19, 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is expected not to have a material impact on the Company's consolidated financial position and results of operations.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled to when products and services are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2017. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates. Some of the more significant estimates relate to revenue recognition, including sales returns and claims from customers, slow-moving and closeout inventories, income taxes and stock-based compensation.

Reclassifications

Interest expense for the three and six months ended June 30, 2013 was reclassified from general and administrative expenses to conform to the current year's presentation.

Note 4 Earnings (Loss) per Share

Basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net loss, adjusted for changes in income or loss that result from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.


The Company had the following potential common stock equivalents:

                                                                June 30, 2014       June 30, 2013
Stock options, exercise price $0.42 - $4.52                          2,563,085           2,111,804
Common stock warrants, conversion price $0.50 - $3.60               30,731,499           4,500,813
Unvested forfeitable restricted stock grants                                                46,875
Total common stock equivalents                                      33,294,584           6,659,492

Since the Company incurred a net loss during the periods, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. Therefore, a separate computation of diluted earnings (loss) per share is not presented.

Note 5 Inventories

Inventories, net, consist of finished goods inventory of $1,550,065 ($0 of which has been classified as non-current) and $1,797,154 ($951,966 of which has been classified as non-current) as of June 30, 2014 and December 31, 2013, respectively. Inventories not expected to be sold within 12 months have been classified as non-current.

Note 6 Property and Equipment

Property and equipment consist of the following as of June 30, 2014 and December
31, 2013:

                                   2014          2013
Leasehold improvements           $   4,373     $   6,773
Construction in progress           202,636       103,461
Computers and office equipment      40,190        41,809
Furniture and fixtures              19,689        19,689
Software                            41,004        41,004
Tradeshow and event equipment        8,522         7,229
                                   316,414       219,965
Accumulated depreciation           (65,307 )     (51,548 )
Property and equipment, net      $ 251,107     $ 168,417

Depreciation expense for the three and six months ended June 30, 2014 was $8,279 and $17,088, respectively, and $25,579 and $51,406, respectively, for the three and six months ended June 30, 2013.

Note 7  Intangible Assets

Intangible assets consist of the following as of June 30, 2014 and December 31,
2013:

                               2014          2013
Patent and trademarks, net   $  40,361     $  44,052
Domain name                    123,535       123,535
Intangible assets, net       $ 163,896     $ 167,587


Amortization expense for the three and six months ended June 30, 2014 was $2,691 and $3,691, and $45,980 and $65,306, respectively, for the three and six months ended June 30, 2013.

Note 8 Note Payable

In December 2013, the Company entered into a term note ("Note") in the principal amount of $500,000, net of discounts of $66. The interest only Note has a maturity date of January 1, 2015 and bears interest of 15% per annum, which is payable quarterly, and is secured by all of the assets of the Company. In connection with the issuance of the Note, the Company issued warrants to purchase up to 150,000 shares of common stock at an exercise price of $0.50 which expire on January 1, 2015.

Note 9 Loans payable - related party

During 2013, the Company was advanced funds totaling $130,000 from a related party in anticipation of participating in a private placement financing. Under the terms of the private placement subscription agreement, the Company is entitled to utilize the proceeds as an interest free loan until the subscription is accepted and the certificates delivered. The advances were repaid through the issuance of common stock and warrants as part of the February 2014 equity raise as further described in Note 10.

Note 10 Stockholders' Equity

Reverse Stock Split

On June 30, 2014, the Company implemented a one-for-two reverse stock split of its common stock. As a result of the reverse stock split, each two (2) outstanding shares of pre-split common stock were automatically combined into one (1) share of post-split common stock. Fractional shares are rounded up to reflect the reverse stock split. All option and share information in the accompanying financial statements for all prior periods have been retroactively adjusted to reflect this stock split.

Stock Issued for Cash

In February 2014, as a continuation of the November 2013 offering, the Company issued 6,673,415 shares of common stock as part of a private placement offering for proceeds of $1,167,067 ($0.20/share), net of direct offering costs of $167,616. The Company, in this private placement, repaid a total of $130,000 of advances - related parties through the issuance of stock and warrants - see Note
9. In conjunction with this offering, one warrant for each share issued was granted. Details of the warrants issued are shown in the table below:

Date Quantity Granted Vesting Schedule Exercise Price Expiration February 2014 6,673,415 Fully vested upon issuance $0.50 3 Years

In May 2014, the Company issued 15,800,000 shares of common stock as part of a private placement offering for proceeds of $2,796,462 ($0.20/share), net of direct offering costs of $363,538. In conjunction with this offering, one warrant for each share issued was granted. Details of the warrants issued are shown in the table below:

Date Quantity Granted Vesting Schedule Exercise Price Expiration May 2014 15,800,000 Fully vested upon issuance $0.50 3 Years


In June 2014, as a continuation of the May 2014 offering, the Company issued 1,400,000 shares of common stock as part of a private placement offering for proceeds of $250,326 ($0.20/share), net of direct offering costs of $29,674. In conjunction with this offering, one warrant for each share issued was granted. Details of the warrants issued are shown in the table below:

Date Quantity Granted Vesting Schedule Exercise Price Expiration June 2014 1,400,000 Fully vested upon issuance $0.50 3 Years

Stock Options

On June 9, 2014, the Board of Directors approved certain revisions to the 2013 Stock Option Plan, resulting in the Company's 2014 Stock Option Plan (the "2014 Plan") whereby the aggregate number of securities reserved for issuance set aside and made available for issuance under the Plan was revised from (i) 11,702,425 shares of the Company's common stock at the time of granting the options (including all options granted by our Company to date) to (ii) 16,181,025 shares of the Company's common stock.

The following is a summary of the Company's stock option activity, for the six months ended June 30, 2014:

                                                                Weighted
                                               Weighted         Average
                                               Average         Remaining        Average
                                               Exercise       Contractual      Intrinsic
                                Options          Price           Life            Value
Balance - December 31, 2013     3,300,710     $     1.78      8.48 Years       $        -
Granted                                 -
Exercised                               -
Forfeited/Cancelled              (278,875 )         1.18
Outstanding - June 30, 2014     3,021,835     $     1.84      8.82 Years       $
Exercisable - June 30, 2014     2,563,085     $     1.60      7.71 Years       $        -

During the three and six months ended June 30, 2014, the Company expensed $25,248 and $37,886 related to stock option grants, respectively, as compared to $14,811 and $83,191 for the three and six months ended June 30, 2013, respectively. At June 30, 2014 approximately $235,000 of stock based compensation expense was expected to be amortized over 2.9 years.

Warrants

The following is a summary of the Company's warrant activity for the six months
ended June 30, 2014:

                                                               Weighted
                                                Weighted        Average
                                                Average        Remaining        Average
                                                Exercise      Contractual      Intrinsic
                                Warrants         Price           Life            Value
Balance - December 31, 2013      6,858,084     $     1.08     2.45 Years      $         -
Granted (1)                     23,873,415           0.50     2.83 Years
Exercised
Forfeited/Cancelled
Outstanding - June 30, 2014     30,731,499     $     0.63     2.64 Years      $         -
Exercisable - June 30, 2014     30,731,499     $     0.63     2.64 Years      $         -

(1) Warrants issued in connection with the 2014 private placements discussed in Note 10, Stockholders' Equity - Stock Issued for Cash.


During the six months ended June 30, 2014 and 2013, the Company expensed $0 and $30,020 respectively, related to stock warrants issued for services.

Note 11 Related Party Transactions

In January 2013, the Company granted 500,000 stock options for services to a third-party consultant that is wholly owned by a former member of the Company's Board of Directors. The options vest over a one-year period and will expire if unexercised, ten years from the date of grant. The fair value of these options on grant date was $227,101. The Company used the Black-Scholes-pricing model to determine the fair value of the options. For the three and six months ended June 30, 2013, total expense related to this transaction was $18,315 and $56,775, respectively. In June 2013, the Company terminated the consulting agreement, in accordance with provisions allowed for in the contract.

During the three months ended June 30, 2013, the Company contracted with an investor relations consulting entity, which is 50% owned by a member of the Company's Board of Directors. During the three months ended June 30, 2013, the Company issued 100,000 stock warrants to this entity, with a fair value of $30,020. For the three months ended June 30, 2013, total expense related to this transaction was $30,020.

In April 2014, the Company issued and repaid a $30,000 unsecured promissory note to an entity owned by a related party, including $2,000 of interest expense.

During the three months ended June 30, 2014, the Company reimbursed a company of which the President of the Company is a director and major shareholder for expenses incurred in connection with the February 2014 and May 2014 private placement offerings. These expenses totaled $18,792 and were classified as offering costs. Also during the quarter, the Board of Director approved the reimbursement of $74,349 of expenses incurred by the President of the Company. These expenses were incurred prior to employment of the President on May 23, 2014 for purposes of raising capital during 2014 and were expensed and paid during the three months ended June 30, 2014.

During the three months ended June 30, 2014, the Company had sales to an entity affiliated with the President of the Company and owned by one of the Directors of the Company. During the three months ended June 30, 2014, sales totaled $9,832 and resulted in a gross margin of $185. In addition, credits totaling $3,241 during the three month ended June 30, 2014, were issued to this entity for products used for equity fundraising purposes. As of June 30, 2014, approximately $3,100 is due from this affiliated entity.

During the three months ended June 30, 2014, the Company had sales to an entity affiliated/owned by the President of the Company. During the three months ended June 30, 2014, sales totaled $613 and resulted in a gross margin loss of $732.

Note 12 Commitments

Lease Obligations

The Company has obligations under operating leases for its corporate office facility and for its retail stores. The leases expire at various dates through 2018. Rent expense classified in General and Administrative expense associated with the Company's operating leases was $40,643 and $83,800 for the three and six months ended June 30, 2014, respectively, as compared to $56,993 and $114,930, respectively, for the three and six months ended June 30, 2013. Amounts in the table below reflect a rent escalation clause for the retail store but does not include contingent rent the Company may incur based on future sales above approximately $105,000 per month.


Inventory Purchase Obligations

As of June 30, 2014, the Company had commitments to purchase approximately $492,000, net of deposits, of inventory related to the Company's future product lines.

Note 13 Contingencies

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results and cash flows.

Note 14 Segment Information

The Company's operating segments are based on how its chief operating decision maker analyzes and makes decisions about the business and allocates resources. Its reportable segments are comprised of four channels: wholesale, retail, e-commerce and other. The Company's wholesale channel generates revenues and incurs expenses in connection with selling the Company's product to other retailers. The retail channel generates revenues and incurs expenses in connection with the Company's retail location. Additionally, the e-commerce channel generates revenues and incurs expenses in connection with the Company's web store. Other includes license and tradeshow related sales and the write-off of excess materials and other production surcharges. All reportable segments operate within the same industry.

The following table represents the Company's activity by operating segment for the three months ending June 30, 2014:


                                                                 Channel
                                   Wholesale       Retail        Ecommerce      Other           Total
Revenue                           $    37,806     $  30,179     $    51,593             -     $  119,578
Cost of goods sold                     47,359        20.916          31,456         6,902        106,633
Gross profit (loss)                    (9,553 )       9,263          20,137        (6,902 )       12,945
Gross margin percent                      -25 %          31 %            39 %                         11 %

Reconciliation of gross profit
(loss) to net loss:
Operating expenses
Selling and marketing                                                                            123,789
Product creation                                                                                   9,556
General and administrative                                                                       795,077
Interest expense                                                                                  18,830
Net loss                                                                                      $ (934,307 )

The following table represents the Company's activity by operating segment for the six months ending June 30, 2014:

                                                                  Channel
                                  Wholesale        Retail       Ecommerce        Other          Total
Revenue                           $  189,196      $  87,475     $  140,853     $       -     $    417,524
Cost of goods sold                   191,687         62,280        104,386         6,902          365,255
Gross profit (loss)                   (2,491 )       25,195         36,467        (6,902 )         52,269
Gross margin percent                      (1 %)          29 %           26 %                           13 %

Reconciliation of gross profit
(loss) to net loss:
Operating expenses
Selling and marketing                                                                             301,774
Product creation                                                                                   69,805
General and administrative                                                                      1,424,654
Interest expense                                                                                   42,670
Net loss                                                                                     $ (1,786,634 )

The following table represents the Company's activity by operating segment for the three months ended June 30, 2013:

                                                                  Channel
                                  Wholesale       Retail        Ecommerce        Other          Total
Revenue                           $  143,317     $ 111,546     $    41,049     $       0     $    295,912
Cost of goods sold                   139,605        32,482          19,611        (1,698 )        190,000
Gross profit                           3,712        79,064          21,438         1,698          105,912
Gross margin percent                       3 %          71 %            52 %                           36 %

Reconciliation of gross profit
(loss) to net loss:
Operating expenses
Selling and marketing                                                                             305,987
Product creation                                                                                  101,663
General and administrative                                                                        840,338
Interest                                                                                              392
Net loss                                                                                     $ (1,142,468 )


The following table represents the Company's activity by operating segment for the six months ended June 30, 2013:

                                                                 Channel
                                  Wholesale       Retail       Ecommerce        Other          Total
Revenue                           $  312,813     $ 252,559     $  118,232     $       -     $    683,604
Cost of goods sold                   286,311        87,286         68,822        22,951          465,370
Gross (loss) profit                   26,502       165,273         49,410       (22,951 )        218,234
Gross margin percent                       8 %          65 %           42 %                           32 %

Reconciliation of gross (loss)
profit to net loss:
Operating expenses
Selling and marketing                                                                            715,923
Product creation                                                                                 238,706
General and administrative                                                                     1,758,120
Interest                                                                                             909
Net loss                                                                                    $ (2,495,424 )

The Company does not allocate its assets among its channels, and as such, no asset allocation is shown in the table above.

Note 15 Subsequent Events

On July 16, 2014, the Company advanced $10,000 to the President of the Company for future expense reimbursement.


Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations

This information should be read in conjunction with the condensed financial . . .

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