MDAV Davi Luxury Brand Group Inc New (CE)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q/A (Amendment No. 1)
(Mark One) S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2011
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number:	000-53609
Davi Luxury Brand Group, Inc.
(Exact name of registrant as specified in its charter)
NEVADA		26-2463412
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
9426 Dayton Way Beverly Hills, CA 90210
(Address of principal executive offices) (310) 288-8393
(Registrant’s telephone number)
(Former Name or Former Address, if Changed Since Last Report
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 S 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S 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.
Large accelerated filer Non-accelerated filer	£ £	Accelerated Filer Smaller reporting company	£ S
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of February 8, 2012 the issuer had 76,040,000 shares of common stock issued and outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

 

*EXPLANATORY NOTE – RESTATEMENT OF FINANCIAL INFORMATION – The Registrant is filing this Form 10-Q/A amending the Form 10-Q for the period ended December 31, 2011 originally filed on February 10, 2012 to amend and restate financial statements and other financial information.

 

The restated unaudited quarterly financial statements in this Form 10-Q/A result from the recognition of product sale income on inventory that had not yet been purchased by the ultimate consumer and the Company cannot reasonably estimate future returns. The adjustment results in an increase in the total net loss for the period and has no effect on the Company’s historical or future revenues, cash or total assets.

 

The following items have been amended as a result of the restatement described above:

 

·

Part I – Item 1 – Financial Statements

·

Item 1 – Notes to Financial Statements

·

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

 

No Changes were made to other disclosures in this Form 10-Q/A for the period ended December 31, 2011

 

 

 

DAVI LUXURY BRAND GROUP, INC.

For the quarter ended December 31, 2011

FORM 10-Q/A
(Amendment No. 1)

 

TABLE OF CONTENTS

PART I	1
ITEM 1.  FINANCIAL STATEMENTS (RESTATED).	1
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	7
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	11
ITEM 4.  CONTROLS AND PROCEDURES.	11
PART II	11
ITEM 1.  LEGAL PROCEEDINGS.	11
ITEM 1A.   RISK FACTORS.	12
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	12
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.	12
ITEM 4.  MINE SAFETY DISCLOSURES.	12
ITEM 5.  OTHER INFORMATION	12
ITEM 6.  EXHIBITS	12

PART I

ITEM 1. FINANCIAL STATEMENTS (RESTATED).

 

DAVI LUXURY BRAND GROUP, INC.

BALANCE SHEETS

 

		December 31, 2011				September 30, 2011
		(Unaudited)
		(Restated)
ASSETS
Current assets:
Cash		$	57,363			$	121,193
Accounts receivable, net			192,847				113,249
Inventory			77,421				21,176
Prepaids			7,634				48,095
Total current assets			335,265				303,713
Fixed assets, net			27,452				31,784
Trademarks			50,000				50,000
Security deposit			21,600				21,600
Total assets		$	434,317			$	407,097
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	73,791			$	46,565
Accounts payable - related parties			54,000				41,000
Deferred revenue			83,005				-
Derivative liability			43,421				39,900
Total current liabilities			254,217				127,465
Total liabilities			254,217				127,465
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 750,000,000 shares authorized; 75,090,000  shares issued and outstanding at December 31, 2011 and  September 30, 2011			75,090				75,090
Additional paid-in capital			759,892				759,367
Accumulated deficit			(654,882	)			(554,825	)
Total stockholders’ equity			180,100				279,632
Total liabilities and stockholders’ equity		$	434,317			$	407,097

 

See accompanying notes to financial statements

 

 

DAVI LUXURY BRAND GROUP, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended December 31,
		2011				2010
		(Restated)
Sales:
Royalty revenues		$	101,846			$	-
Product sales			9,862				-
Total sales			111,708				-
Cost of goods sold			(3,556	)			-
Gross profit			108,152				-
Costs and expenses:
Wages and professional fees			143,249				30,560
Product development			15,000				-
General and administrative			46,439				480
Total costs and expenses			204,688				31,040
Loss from operations			(96,536	)			(31,040	)
Other expense
Derivative expense			(3,521	)			-
Net loss		$	(100,057	)		$	(31,040	)
Weighted average number of common shares outstanding - basic and diluted			75,090,000				60,327,391
Net loss per share - basic and diluted		$	(0.00	)		$	(0.00	)

 

See accompanying notes to financial statements

 

 

DAVI LUXURY BRAND GROUP, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended December 31,
		2011				2010
		(Restated)
Cash flows from operating activities
Net loss		$	(100,057	)		$	(31,040	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation			4,332				-
Stock based compensation			525				-
Derivative expense			3,521				-
Changes in operating assets and liabilities
Accounts receivable			(79,598	)			-
Inventory			(56,245	)			-
Prepaids			40,461				(425	)
Accounts payable and accrued expenses			27,226				21,465
Accounts payable - related parties			13,000				-
Deferred revenue			83,005				-
Net cash used in operating activities			(63,830	)			(10,000	)
Cash flows from financing activities
Contribution to capital			-				10,000
Net cash provided by financing activities			-				10,000
Net change in cash			(63,830	)			-
Cash, beginning of period			121,193				-
Cash, end of period		$	57,363			$	-
Supplemental disclosure of cash flow information:
Income taxes paid		$	-			$	-
Interest paid		$	-			$	-
Supplementary disclosure of noncash financing activities:
Capital contributions - forgiveness of debt		$	-			$	49,202
Stock issued for trademark purchase		$	-			$	50,000

 

See accompanying notes to financial statements

 

 

DAVI LUXURY BRAND GROUP, INC.

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

 

Note 1           ORGANIZATION AND NATURE OF OPERATIONS - RESTATED

 

Davi Luxury Brand Group, Inc. (the “Company”) was incorporated in the State of Nevada on July 26, 2007.  The Company is developing a skin care/cosmetics business based on a series of all-natural grape-based luxury branded skin care products marketed under the “Davi Skin” and “Davi” brand names. The Company’s goal is to develop, manufacture and market a line of high quality skin care products that are sold as prestige products principally through limited distribution channels to complement the images associated with the “Davi Skin” and “Davi” brands. The Company’s business plan is to initially target high-end luxury hotels and resorts, and in-flight and duty-free shops in order to establish our brand as a luxury product used in first class locations. Thereafter, its goal is to expand its sales efforts to upscale department stores, specialty retailers, prestige hotels, salons and spas. A limited number of the Company’s products are also available for sale through the Company’s www.daviskin.com website.

 

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.  Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.  At December 31, 2011, the Company had not yet achieved profitable operations, has accumulated losses of $654,882 since its inception, has working capital of $81,048, and expects to incur further losses in the deployment of its business plan, all of which raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but believes that the Company will be able to obtain additional funds from continuing royalty revenues, from additional equity financings, and/or related party advances. However there is no assurance that additional funding will available and that the Company will continue to operate.  

 

Note 2           BASIS OF PRESENTATION

 

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the Company’s financial position as of December 31, 2011, and the results of operations and cash flows for the three months ended December 31, 2011 and 2010. The adjustments made are of a normal recurring nature. The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The operating results for the three months ended December 31, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2012. The accompanying unaudited financial statements should be read in conjunction with the audited financial statements for the year ended September 30, 2011, which are included in our Annual Report on Form 10-K, and the risk factors contained therein.

 

Note 3           RELATED PARTY TRANSACTIONS

 

On January 25, 2011, the Company entered into an employment agreement with Parrish Medley, pursuant to which Mr. Medley agreed to serve as the Company’s Chief Executive Officer. The employment agreement is effective retroactively to January 1, 2011, and will continue until January 1, 2015, subject to earlier termination as provided in the employment agreement. Under the employment agreement, Mr. Medley is entitled to be paid $8,000 per month for his service as Chief Executive Officer. As of December 31, 2011, Mr. Medley had not been paid for all of his services under the employment agreement and, accordingly, a payable to Mr. Medley in the amount of $18,000 is included in accounts payable-related party in the accompanying financial statements.

 

 

On January 25, 2011, the Company entered into a consulting agreement with Carlo Mondavi, Chairman of the Board of Directors of the Company, pursuant to which Mr. Mondavi agreed to perform services for the Company regarding public relations and marketing matters relating to the Company’s products marketed under the “Davi Skin” and “Davi” brand names, including marketing of such products through upscale department stores, specialty retailers, prestige hotels and resorts, salons and spas, on cruise ships, and in-flight and duty-free shops.  The consulting agreement is effective retroactively to January 1, 2011, and will continue until January 1, 2015, unless otherwise terminated earlier by either party upon 30 days’ written notice.  Under the consulting agreement, Mr. Mondavi is entitled to be paid $8,000 per month. As of December 31, 2011, Mr. Mondavi had not been paid for all of his services under the consulting agreement and, accordingly, a payable to Mr. Mondavi in the amount of $36,000 is included in accounts payable-related party in the accompanying financial statements.

 

 

Note 4           EQUITY

 

Common Stock

During August 2011, the Company sold 700,000 shares (the “Shares”) and a one-year warrant to purchase up to 299,600 shares of our common stock (the “Warrant Shares”) to a single accredited investor for an aggregate purchase price of $52,500. The warrant is exercisable at a price of $0.15 per share.  The relative fair value of the 299,600 warrants was estimated to be $5,945 using the Black-Scholes option pricing model based on the following assumptions: expected dividend yield 0%, expected volatility 148%, risk-free interest rate 1%, and expected life of 1 year. The Shares have a price protection feature that ensures the aggregate value of the Shares is equal to or greater than $52,500 on August 10, 2012. If exercised, the Warrant Shares will have a price protection feature that ensures the value of the Warrant Shares on the date that is one year after the date the Warrant Shares are purchased is equal to or greater than the aggregate price paid for the Warrant Shares. In connection with the sale of the Shares during the fiscal year ended September 30, 2011, the Company applied the guidance of FASB ASC Topic No. 815-40. Accordingly, the price protection features attached to the Shares are accounted for as derivative liabilities at the date of sale and adjusted to fair value through earnings at each reporting date. The resulting value was allocated to the proceeds received and applied as a discount to the stock payable account in paid-in capital on the balance sheet. At December 31, 2011, the approximate fair value of this derivative is $43,000, resulting in a derivative expense of approximately $3,500.

On February 15, 2011, the Company entered into a one year Employment Agreement with J. Bernard Rice as Chief Financial Officer of the Company (the “Rice Employment Agreement”). In accordance with the Rice Employment Agreement, Mr. Rice is to be issued 50,000 shares of the Company’s common stock on April 1, July 1, and October 1, 2011 and January 1, 2012. During April 2011, 50,000 shares (valued at $45,000 or $0.90 per share) were issued to Mr. Rice in accordance with the Rice Employment Agreement, as payment for the period February 15 to May 15, 2011. As of December 31, 2011 $8,000 had been accrued as stock based compensation, which amount is included in paid-in capital in the accompanying financial statements, for his compensation from May 15, 2011 to December 31, 2011 based on the prevailing common stock prices on the dates the shares were supposed to be issued. During April 2011, Mr. Rice was appointed as a member of the Company’s Board of Directors. In consideration for his service, Mr. Rice is entitled to receive 25,000 shares of the Company’s common stock on a quarterly basis, beginning on May 16, 2011, which shares will be issued in arrears provided that Mr. Rice is still a member of the Board on the issuance date. As of December 31, 2011, $6,700 had been accrued as stock based compensation, which amount is included in paid-in capital in the accompanying financial statements, for his Board member services based on the prevailing common stock prices on the dates the shares were supposed to be issued.

 

Common Stock Warrants

 

A summary of the Company’s warrant activity and related information for the three months ended December 31, 2011 is provided below:

 

				Number of
	Exercise Price			Warrants
Outstanding and exercisable at September 30, 2011	$	0.15 – 0.60			1,449,600
Warrants exercised		-			-
Warrants granted		-			-
Warrants expired		-			-
Outstanding and exercisable at December 31, 2011	$	0.15 – 0.60			1,449,600

 

 

Stock Warrants as of December 31, 2011
Exercise				Warrants				Remaining		Warrants
Price				Granted				Life (Years)		Exercisable
$	0.60				1,150,000			1.00			1,150,000
$	0.15				299,600			.61			299,600
					1,449,600						1,449,600

 

 

Share-Based Compensation Expense

Total non-cash compensation expense related to the issuance of stock for the three months ended December 31, 2011 and 2010 totaled $525 and $0 respectively. There was no expense related to the issuance of warrants during the respective periods.

 

Note 5           COMMITMENTS

 

As of January 18, 2011, the Company entered into a lease with Resco LP, a California limited partnership, the landlord of the office that the Company is leasing. Under the lease, the Company occupies approximately 1,500 square feet of office space at 9426-9428 Dayton Way, Beverly Hills, California. The lease is for a term of two years, commencing February 1, 2011 and ending January 31, 2013, unless terminated earlier in accordance with the lease. The Company’s monthly rent expense under the lease is approximately $5,000 per month, plus payments of 10% of common area operating expenses.

On November 28, 2011, the Company entered into a one-year agreement with a professional skincare formulator to improve and enhance its existing skin care products and to develop additional skin care products. In exchange for the services, the Company is required to make twelve monthly payments of $15,000 each, with the last payment due on November 1, 2012.

From time to time, the Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect the Company’s financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. The Company expenses legal costs in the period incurred. No assurance can be given that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the Company in the future, and these matters could relate to prior, current or future transactions or events. The Company is not currently a party to any litigation.

 

Note 6           SUBSEQUENT EVENTS

 

On January 25, 2012, the Company issued 250,000 shares of common stock to Mr. Rice, as payment of employee compensation for the period from May 15, 2011 through February 15, 2012 and board member compensation for the period from April 27, 2011 through April 26, 2012. The stock was valued at prices ranging from $0.185 to $0.008 per share on the dates the shares were payable to Mr. Rice and totaled an aggregate of approximately $15,525 of which $14,700 had been accrued as a stock payable as of December 31, 2011 in the accompanying financial statements.

 

Note 7           RESTATEMENT FOOTNOTE  

 

On or about May 7, 2012, management of the Company concluded that the Company’s financial statements for the three months ended December 31, 2011 should no longer be relied upon because of an error in such financial statements. These financial statements recognized the sale of Davi Le Grand Cru face cream to Korean Air for the ultimate sale to Korean Air’s customers on board its flights through its Skyshop Magazine and through its on-line shop (www.cyberskyshop.com). The Davi Le Grand Cru face cream sold to Korean Air contained an implied right of return and accordingly, revenues and the related cost of goods sold should not have been recognized until the product was sold to Korean Air’s customers and the Company could reasonably estimate future returns.

 

As a result of correctly recording the portion of the Davi Le Grand Cru face cream which remained in inventory at December 31, 2011 Product Sales decreased by $83,005, Cost of Goods Sold decreased by $5,661 and the Company’s Net Loss increased by $77,344 in the accompanying Statement of Operations for the three months ended December 31, 2011. Additionally, Inventory increased by $5,661 and Deferred Revenue increased by $83,005 in the accompanying Balance Sheet at December 31, 2011.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-looking statements

This Quarterly Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including our plans to develop, market and sell new skincare products, and implement our growth strategy, any projections of revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements included in this document are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. These statements by their nature involve substantial risks and uncertainties, such as our ability to establish a new business and develop, market and sell new skincare products, and implement our growth strategy, certain of which are beyond our control .   Although we believe that the expectations reflected in the Forward-Looking Statements contained herein are reasonable, should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the Forward-Looking Statements. Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks and uncertainties, including any other factors referred to in our press releases and reports filed with the Securities and Exchange Commission. All subsequent Forward-Looking Statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are described under “Risk Factors” and elsewhere in this report.

Introductory Comment

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” and “our company” refer to Davi Luxury Brand Group, Inc., a Nevada corporation, formerly known as Dafoe Corp.

Organizational History

Davi Luxury Brand Group, Inc. was incorporated in the State of Nevada on July 26, 2007 under the name “ Dafoe Corp. ”  Until September 2010, we were engaged in the acquisition and exploration of mineral properties. During the fiscal year ended September 30, 2010, the Company lost all of the mineral rights that it owned. In November 2010, our Board became aware of the availability of the “Davi Skin” skin care brand and certain related intellectual properties that were used by a luxury brand skin care company that had ceased operations. Upon completion of our research and analysis, we decided to change our line of business and enter into the luxury brand skin care business based on the “Davi Skin” brand.

On December 22, 2010, we acquired certain trade names and trademarks, an Internet address, and logos that were previously used by Davi Skin, Inc. in connection with a line of luxury branded skincare products for men and women distributed by Davi Skin, Inc. As a result, we now own all of the rights to the “Davi Skin” brand, logo, website address and other marketing rights.

 

During January 2011, this company changed its name to “Davi Luxury Brand Group, Inc.” and moved its executive offices from Carson City, Nevada, to Beverly Hills, California.

 

 

Plan of Operation and Current Business

 

Our goal is to develop a skin care/cosmetics business based on a series of all-natural grape-based luxury branded skin care products marketed under the “Davi Skin” and “Davi” brand names. We intend to develop, manufacture and market a line of high quality skin care products that are sold as prestige products principally through limited distribution channels to complement the images associated with the “Davi Skin” and “Davi” brands. Our business plan is to initially target high-end luxury hotels and resorts, and in-flight and duty-free shops in order to establish our brand as a luxury product used in first class locations. Thereafter, our goal is to expand the targeted scope of our sales efforts to upscale department stores, specialty retailers, prestige hotels, salons and spas. In addition, we plan to have our products available for sale through our www.daviskin.com website.

Current Operations and Business Arrangements.

Since having initiated our new business in January 2011, and in accordance with our business plan, we have commenced selling DAVI branded luxury skin care products through the following arrangements:

Peninsula Hotels . In January 2011, we entered into an agreement with Gilchrist & Soames to provide Peninsula Hotels with our “DAVI” and “DAVI SKIN” branded in-room skin care and related amenities. The Peninsula Hotel chain purchases our “DAVI” and “DAVI SKIN” branded products directly from our manufacturer and pays us a fee for each product purchased. The DAVI and DAVI SKIN products are provided by Peninsula Hotels to their hotel clients as in-room amenities. We believe the Peninsula Hotel chain currently uses these products at all of their nine existing Peninsula Hotels worldwide. We anticipate that this arrangement will continue through 2012.

Korean Air--In Flight Amenities . In January 2011, we also entered into a multi-year agreement with Korean Air to be the exclusive First Class and Business Class in-flight amenity provider for all Korean Air flights worldwide. Korean Air commenced providing DAVI branded amenity travel bags that contain DAVI skin care products to its passengers in May 2011. These products are currently available on all Korean Air flights. Korean Air purchases the DAVI amenity products directly from our manufacturer and we receive a royalty fee for those products.

Korean Air--Direct Product Sales . In November 2011, we launched a new sales program to sell our Le Grand Cru face cream directly to Korean Air’s passengers. Korean Air has added our Davi Le Grand Cru luxury face cream to the products that it offers for sale on board its flights. In addition, Korean Air has also included our Davi Le Grand Cru luxury face cream in the Skyshop Magazine that is distributed to all passengers on its flights, and now offers our Davi Le Grand Cru face cream for sale on Korean Air’s on-line shop (www.cyberskyshop.com). Korean Air purchases these products directly from us.

On-Line Sales . We currently maintain our corporate website at www.daviskin.com. We have recently launched our e-commerce initiative on that website by offering for sale our Davi Le Grand Cru luxury face cream. We are in the process of developing other DAVI branded skin care products that we intend to market and sell. We anticipate that we will include some of these other products on our website during 2012.

Results of Operations

 

Three Months Ended December 31, 2011 vs. Three Months Ended December 31, 2010

 

Sales

Revenues generated during the three months ended December 31, 2011 were primarily the result of (i) agreements we entered into during early 2011 for the sale of “DAVI” branded skin care products to Peninsula Hotels for use as amenities to the hotel’s guests, and to Korean Air as on-board amenities for use by Korean Air’s first class and business class passengers, and (ii) direct sales of Le Grand Cru face cream on board Korean Air flights, in Korean Air’s Skyshop Magazine and on Korean Air’s on-line shop. During the quarter ended December 31, 2011 we generated approximately $102,000 of royalty revenues from Davi Skin branded products provided to the Peninsula Hotels and Korean Air. Additionally, we shipped 1,400 jars of Le Grand Cru face cream to Korean Air for re-sale on-board and through its Skyshop Magazine for which revenue is recognized upon the ultimate sale of the jars to Korean Air’s customers. As such, at December 31, 2011 we had Deferred Revenue of $83,005 relating to unsold inventory and recorded sales totalling $7,995 resulting from the sales of Le Grand Cru by Korean Air to its customers. We also had some minor sales of our Le Grand Cru skin crème through our on-line store. The on-line store did not operate through most of fiscal 2011, and offered only the Le Grand Cru Face Cream. We intend to offer additional products on that site during 2012.

We did not generate any revenues during the three-month period ended December 31, 2010 because we had abandoned our planned prior mineral rights operations in September 2010, and, therefore, had no operations until we commenced our new skin care business in December 2010. Although we acquired the “Davi Skin” brand and related rights in the quarter ended December 31, 2010, we did not have any skin care products that we could market and, as a result, we did not generate any revenues during that quarter.

 

Cost of Goods Sold

Cost of goods sold during the quarter ended December 31, 2011 totaled approximately $3,600 and consisted primarily of the cost of skin care products sold to Korean Air for direct sales in their Skyshop Magazine and on-line shop. Since both Peninsula Hotels and Korean Air purchase the DAVI branded hotel room amenities and skin care products directly from our manufacturer, we don’t have any cost of goods sold relating to royalty payments made to us under our Peninsula Hotel and Korean Air agreements.

Wages and Professional Fees

Wages and professional fees for the quarter ended December 31, 2011 totaled approximately $143,000. Such fees resulted primarily from employment and consulting agreements with our two executive officers, Parrish Medley and Bernie Rice, and our Chairman, Carlo Mondavi, and totaled approximately $49,000. Additionally, we incurred marketing fees totaling approximately $35,000 during the quarter ended December 31, 2011. The remainder of the periods’ expenses were legal and accounting fees incurred primarily in connection with the preparation and filing with the Securities and Exchange Commission of our public company reports.

Wages and professional fees for the quarter ended December 31, 2010 totaled approximately $31,000 and consisted primarily of legal and accounting services. We did not have any salaried employees in the quarter ended December 31, 2010.

We anticipate that we will have to hire additional employees and contractors as our company grows and as we continue to incur marketing fees related to the launch of our new skin care products.

Product Development

Product development for the quarter ended December 31, 2011 totaled $15,000. On November 28, 2011, we entered into a one-year agreement with a professional skincare formulator to improve and enhance our existing skin care products and to develop additional skin care products. In exchange for the services, we agreed to make twelve monthly payments of $15,000 each, with the last payment due on November 1, 2012. Since we did not acquire our skin care assets until the end of December 2010, no product development costs were incurred during the quarter ended December 31, 2010.

 

General and Administrative Expenses

General and administrative expenses totaled approximately $46,000 for the quarter ended December 31, 2011, and consisted primarily of rent, depreciation, travel and general office expenses. On January 18, 2011, we entered into a lease for approximately 1,500 square feet of office space. Our rent expense under the lease amounts to approximately $15,000 per quarter, plus payments of 10% of common area operating expenses. We anticipate that our travel and other general office expenses will increase in the future as we continue to increase our business activities and launch our new skincare business. Because we did not conduct any active business during the comparable quarter last year, general and administrative expenses were nominal in the quarter ended December 31, 2010.

 

Other Expense

Other expense for the quarter ended December 31, 2011 is the result of a price protection feature included on 700,000 shares of common stock sold for $52,500 during August 2011. The price protection features attached to the shares are accounted for as derivative liabilities at the date of sale and adjusted to fair value through earnings at each reporting date. When the proceeds were received in August 2011, the Company recognized a derivative liability of $23,520, which approximated the fair value of the derivative on that date. At December 31, 2011, the approximate fair value of this derivative is $43,000, resulting in a derivative expense of approximately $3,500.

 

 

Net Loss

Our net loss for the quarters ended December 31, 2011 and 2010 totaled approximately $100,000 and $31,000, respectively, despite the fact that operations during the two periods were vastly different. We expect to continue incurring losses through 2012 as we continue expanding our skin care line.

Liquidity and Capital Resources

As of December 31, 2011, we had approximately $335,000 of current assets and working capital of $81,000. To date, our operating activities have been primarily financed from the sales of our securities, stockholder advances, contributed capital and royalty payments received from sales of our skin care products to an international airline and a luxury hotel chain.

During the quarter ended December 31, 2011, we incurred a net loss of approximately $100,000, but our net cash used in operating activities was approximately $64,000. The cash used in operating activities was less than our net loss primarily because of increases in our accounts receivable and purchases of inventory. These cash outlays were partly offset by the deferral of approximately $83,000 of revenue from Korean Air and an increase in our accounts payable and, in an effort to preserve cash, by the deferral of $13,000 of compensation payable to Mr. Medley and Mr. Mondavi. As of December 31, 2011 we had approximately $193,000 in outstanding accounts receivable, of which $82,000 has been collected since that date.

 

The Company had no financing activities during the quarter ended December 31, 2011. Net cash provided by financing activities during the quarter ended December 31, 2010 consisted of a $10,000 capital contribution from our former Chief Executive Officer.

 

During January 2011 we raised $637,500 primarily from the sale to two foreign investors of 1,150,000 units at $0.50 per unit, each unit consisting of one share of common stock and one warrant. Each warrant may be exercised for the purchase of one share of the Company’s common stock at a price of $0.60 per share and expires on December 31, 2012. The warrants are redeemable by the Company at any time commencing June 30, 2011, upon 30 days’ notice, at a price of $0.05 per warrant, provided that for the 20 trading days prior to the day on which the Company gives notice, the average closing “bid” price of our common stock has been at least $3.00.

We also raised $52,500 in August 2011 from the sale to an accredited investor of 700,000 shares of our common stock at a price of $0.075 per share and a warrant to purchase up to 299,600 shares of our common stock at an exercise price of $0.15 per share. The warrant expires on August 10, 2012.

The royalty revenues we expect to receive from Korean Air and the Peninsula Hotel chain, and other anticipated future revenues we expect to generate from sales of our skin care products through on-board/duty free airline sales and other channels are not expected to be sufficient to fund both our working capital needs for the next twelve months and our necessary growth and business plan expenditures. Accordingly, we will have to raise additional financing to fund all of our expected additional product manufacturing costs and other anticipated expenditures related to the roll-out of our retail products. In addition, we will have to purchase additional inventories of bottles and other supplies in connection with the on-board/duty free, retail and internet sales of skin care products. Our business plan also calls for us to market our products through other distribution channels, which will require us to incur additional marketing expenses. Because we do not have any cash reserves, and because our projected revenues from existing arrangements are not anticipated to be sufficient, we will have to raise additional funds to fund our operations in 2012, including our new retail sales and online marketing initiatives and our other distribution activities.

We presently do not have any available credit, bank financing or other external sources of liquidity. Currently, our only source of revenues is derived from the agreements that we have entered into with the foregoing international airline and luxury hotel chain. Sales of our skincare products to the international airline and the luxury hotel chain since the inception of the agreements, January 2011 through December 31, 2011 resulted in approximately $300,000 of royalty revenue. Direct product sales of our Davi Le Grand Cru Luxury face cream to Korean Airlines for sale to their passengers began in November 2011 and totaled $7,995 as of December 31, 2011. Although these revenues are expected to continue, and we expect to generate additional revenues from sales through our website of our Davi Le Grand Cru Luxury face cream and other skin care products we expect to release, our general and administrative expenses are expected to increase, and we will have to incur additional product branding and marketing expenses. As a result, despite our sale of an aggregate of $627,500 of common stock in 2011, we believe that we will have to obtain additional capital from the sale of additional securities or by borrowing funds from private lenders. There is no assurance that we will be successful in obtaining additional funding.

Our current status as a micro-cap company that has limited operations is expected to make it difficult to obtain financing through the issuance of equity or debt securities. If we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.  If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations. No assurance can be given that we will be able to obtain sufficient capital to meet our requirements.

Inflation and changing prices have had no effect on our continuing operations over our two most recent fiscal years.

Off-balance sheet arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Critical accounting policies and estimates

 

There are no material changes to the critical accounting policies and estimates described in the section entitled “Critical Accounting Policies and Estimates” under Item 7 in our Annual Report on Form 10-K for the year ended September 30, 2011.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with, or submit to, the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our chief executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive and financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.

Based on that evaluation, our chief executive and financial officers concluded that our disclosure controls and procedures have not been effective as a result of a weakness in the design of internal controls over financial reporting during the three months ended December 31, 2011. Such internal control weaknesses, in the aggregate, represent material weaknesses, including: (i) lack of segregation of incompatible duties; and (ii) insufficient Board of Directors representation

 

These weaknesses are due to our inadequate staffing during the period covered by this report and our lack of working capital to hire additional staff. Although management will periodically re-evaluate this situation, at this point it considers that the risk associated with such lack of segregation of duties and the potential benefits of adding employees to segregate such duties are not cost justified. We intend to hire additional accounting personnel to assist with financial reporting as soon as our finances will allow.

 

There have not been any changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS.

Not applicable.

ITEM 1A. RISK FACTORS.

Information regarding risk factors appears under “Risk Factors” included in Item 1A, Part I, and under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended September 30, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

No unregistered securities were issued during the three months ended December 31, 2011. On January 25, 2012, we issued 250,000 shares of common stock to our Chief Financial Officer, J. Bernard Rice, as payment of employee and board member compensation for the period from April 1, 2011 through February 15, 2012. The stock was valued at prices ranging from $0.185 to $0.008 per share and totaled an aggregate of approximately $15,525 of which $14,700 had been accrued as a stock payable as of December 31, 2011 in the accompanying financial statements. The foregoing shares were issued in reliance upon an exemption from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable 

ITEM 5. OTHER INFORMATION

On February 15, 2011, the Company entered into a one-year employment agreement with Mr. Rice, this Company's Chief Financial Officer. Accordingly, effective February 15, 2012, Mr. Rice will resign as this Company's Chief Financial Officer. At that time, Mr. Rice will also resign as a director of the Company. Mr. Rice's resignation is not the result of a disagreement with the Company on any matter relating to the Company's operations, policies or practices.

ITEM 6. EXHIBITS

31.1		Certification of Chief Executive Officer and interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1		Certification of Chief Executive Officer and interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation
101.LAB		XBRL Taxonomy Extension Label
101.PRE		XBRL Taxonomy Extension Presentation

 

 

  

SIGNATURES

In accordance with 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.

	DAVI LUXURY BRAND GROUP, INC.
Dated: May 14, 2012	By:	/s/ Parrish Medley
		Parrish Medley Chief Executive Officer and interim Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)