UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
(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
|
DAVI
LUXURY BRAND GROUP, INC.
For the quarter ended December 31,
2011
FORM 10-Q
TABLE OF CONTENTS
PART I
|
1
|
ITEM 1. FINANCIAL STATEMENTS.
|
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. REMOVED AND RESERVED.
|
12
|
ITEM 5. OTHER INFORMATION
|
12
|
ITEM 6. EXHIBITS
|
12
|
PART I
ITEM 1. FINANCIAL STATEMENTS.
DAVI LUXURY BRAND GROUP, INC.
|
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
September 30, 2011
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash
|
|
$
|
57,363
|
|
|
$
|
121,193
|
|
Accounts receivable, net
|
|
|
192,847
|
|
|
|
113,249
|
|
Inventory
|
|
|
71,760
|
|
|
|
21,176
|
|
Prepaids
|
|
|
7,634
|
|
|
|
48,095
|
|
Total current assets
|
|
|
329,604
|
|
|
|
303,713
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
27,452
|
|
|
|
31,784
|
|
Trademarks
|
|
|
50,000
|
|
|
|
50,000
|
|
Security deposit
|
|
|
21,600
|
|
|
|
21,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
428,656
|
|
|
$
|
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
|
|
Derivative liability
|
|
|
43,421
|
|
|
|
39,900
|
|
Total current liabilities
|
|
|
171,212
|
|
|
|
127,465
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
171,212
|
|
|
|
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
|
|
|
(577,538
|
)
|
|
|
(554,825
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
257,444
|
|
|
|
279,632
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
428,656
|
|
|
$
|
407,097
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements
DAVI LUXURY BRAND GROUP, INC.
|
STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
2011
|
|
2010
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
Royalty revenues
|
|
$
|
101,846
|
|
|
$
|
—
|
|
Product sales
|
|
|
92,867
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
194,713
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(9,217
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
185,496
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(19,192
|
)
|
|
|
(31,040
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Derivative expense
|
|
|
(3,521
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(22,713
|
)
|
|
$
|
(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
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(22,713
|
)
|
|
$
|
(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
|
|
|
(50,584
|
)
|
|
|
—
|
|
Prepaids
|
|
|
40,461
|
|
|
|
(425
|
)
|
Accounts payable and accrued expenses
|
|
|
27,226
|
|
|
|
21,465
|
|
Accounts payable - related parties
|
|
|
13,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
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
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 $577,538 since its inception,
has working capital of $158,392, 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.
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, and $91,000 of sales of Le Grand Cru to Korean Air for re-sale
on-board and through its Skyshop Magazine. 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
during the quarter ended December 31, 2011 totaled approximately $9,200 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 $23,000 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 $330,000 of current assets and working capital of $158,000. 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 $23,000, but our net cash used in operating activities was approximately
$64,000. The cash used in operating activities exceeded our net loss primarily because of increases in our accounts receivable
and purchases of inventory. These cash outlays were partly offset by 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 $91,000 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
were effective as of the end of the period covered by this report.
Based upon our evaluation,
we also concluded that there was no change in our internal control over financial reporting during our most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control 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. REMOVED
AND RESERVED.
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 pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act
|
|
|
|
32.2
|
|
Certification of 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
|
|
|
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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: February 8, 2012
|
By:
|
/s/
Parrish Medley
|
|
|
Parrish Medley
President and Chief Executive Officer
(Principal Executive Officer)
|
Dated: February 8, 2012
|
By:
|
/s/
J. Bernard Rice
|
|
|
J. Bernard Rice
Chief Financial Officer (Principal
Financial Officer)
|
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