Attached files
file | filename |
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EX-4.1 - RxBids | v209635_ex4-1.htm |
EX-4.2 - RxBids | v209635_ex4-2.htm |
EX-3.2 - RxBids | v209635_ex3-2.htm |
EX-4.4 - RxBids | v209635_ex4-4.htm |
EX-2.1 - RxBids | v209635_ex2-1.htm |
EX-4.3 - RxBids | v209635_ex4-3.htm |
EX-17.1 - RxBids | v209635_ex17-1.htm |
EX-10.2 - RxBids | v209635_ex10-2.htm |
EX-17.2 - RxBids | v209635_ex17-2.htm |
EX-10.1 - RxBids | v209635_ex10-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
report (Date of earliest event reported): January 26, 2010
RXBIDS
(Exact
name of registrant as specified in Charter)
Nevada
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000-53373
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20-1226081
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(State
of other Jurisdiction of
incorporation)
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(Commission
file no.)
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(IRS
employer identification no.)
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18-B
Neal Court
Oceanside, NY
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11572
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (516) 740-2929
9050
W. Warm Springs Rd. #12-2129
Las
Vegas, Nevada 89148
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation to the registrant under any of the following
provisions:
¨
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Written
communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
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CAUTIONARY
NOTE ON FORWARD-LOOKING STATEMENTS
Certain
information contained in or filed as exhibits to this Current Report on Form
8-K, and public statements of our management related thereto, includes or may
include “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Statements which are not
historical reflect our current expectations and projections about the
registrant, RxBids, a Nevada corporation (to be renamed “Xsovt Brands, Inc.”)
(the “Company”), the
business, assets and liabilities of Xsovt, LLC, a New York limited liability
company (“Xsovt”), which
was recently acquired by the Company as described herein, and the Company’s and
Xsovt’s future results, performance, liquidity, financial condition, prospects
and opportunities. Forward-looking statements are by nature subject to
assumptions and risks and based upon information currently available to the
Company and its management and their interpretation of what are believed to
be significant factors affecting the Company’s business, including many
assumptions regarding future events. Such forward-looking statements
include statements regarding, among other things, Xsovt’s:
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·
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ability
to produce, market and generate sales of its
products;
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·
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ability
to develop and introduce new
products;
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·
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projected
future sales, profitability and other financial
metrics;
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·
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ability
to attract and retain key members of its management
team;
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·
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future
financing plans;
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·
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anticipated
needs for working capital;
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·
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anticipated
trends in its industry;
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·
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ability
to expand its sales and marketing and other operational
capabilities;
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·
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ability
to operate our business through a U.S. public company;
and
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·
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competition
existing today or that will likely arise in the
future.
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Forward-looking
statements, which involve assumptions and describe our future plans, strategies,
and expectations, are generally identifiable by use of the words “will,” “may,”
“should,” “would,” “could,” “expect,” “anticipate,” “estimate,” “believe,”
“intend,” “seek,” or “project” or the negative of these words or other
variations on these words or comparable terminology. Actual results,
performance, liquidity, financial condition and results of operations, prospects
and opportunities could differ materially and perhaps substantially from those
expressed in, or implied by, these forward-looking statements as a result of
various risks, uncertainties and other factors. In light of these risks
and uncertainties, and especially given the start-up nature of Xsovt’s business,
there can be no assurance that the results stated in or implied by the
forward-looking statements contained herein will in fact occur. Potential
investors should not place undue reliance on any forward-looking
statements. Except as expressly required by the federal securities laws,
there is no undertaking to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, changed
circumstances or any other reason.
Neither
the information on the Company’s current or future website nor Xsovt’s website
is, and such information shall not be deemed to be, a part of this Report or
incorporated in filings the Company makes with the Securities and Exchange
Commission.
1
Item 1.01 Entry
into a Material Definitive Agreement.
Securities
Purchase Agreement
On
January 26, 2011 (the “Effective Date”), RxBids, a
Nevada corporation (the “Company”) entered into that
certain Securities Purchase Agreement (the “SPA”) by and among the
Company, Avi Koschitzki (“Koschitzki”), the sellers
signatory thereto (the “Sellers”), and Jenson
Services, Inc., a Utah corporation (“Jenson Services”), pursuant to
which Koschitzki acquired a controlling interest in the Company from the Sellers
(the “Change in
Control”).
Pursuant
to the SPA, Koschitzki acquired 2,680,000 shares (the “Purchased Shares”) of common
stock, par value $0.01 per share, of the Company (the “Common Stock”) for $350,000 in
cash, $250,000 of which was paid on the Effective Date, $50,000 of which is to
be paid no later than 45 days following the Effective Date and $50,000 of which
is to be paid no later than 90 days following the Effective Date. In
addition, under the terms of the SPA, within three (3) business days following
the consummation of Reorganization (as defined below), the Company shall issue
to Jenson Services or its assigns, in consideration of cancellation of all
(approximately $12,700) Company debt owed to Jenson Services, 440,000 shares of
Common Stock, after giving effect to the Reorganization. The term “Reorganization” means the
following transactions that are expected to occur following the Effective Date:
(i) a 1 for 12 reverse stock split of the Common Stock (the “Split”) which is expected to
occur in the weeks following the Effective Date; (ii) the acquisition by the
Company of Xsovt, LLC, a New York limited liability company (“Xsovt”) (as further described
below) and (iii) the consummation of a minimum $200,000 and a maximum $1,500,000
preferred stock and warrant financing of the Company (as further described
below).
Also
pursuant to the terms of the SPA:
1.
Todd Albiston (“Albiston”), a director of the
Company, resigned his position;
2.
Mack Bradley, a director
of the Company and the Company’s President and Chief Executive Officer (“Bradley”), resigned his
officer positions as the Company’s President and Chief Executive Officer.
Bradley has agreed to remain as a director of the Company until the consummation
the Split;
3.
Koschitzki was appointed
as a director of the Company (subject to compliance with SEC Rule 14f-1) as well
as the President, Chief Executive Officer and Secretary of the Company, leaving
him as the sole officer of the Company (Koschitzki will also assume the role of
Chairman of the Company’s Board of Directors to the extent additional directors
are added in the future); and
4.
The Company and Bradley
have granted to each other reciprocal options such that: (i) the Company shall
have the option, exercisable at any time following the Effective Date, to sell
and assign the Company’s existing operating business and all assets and
liabilities relating to such business to Bradley in consideration of the
extinguishment of $20,000 in Company debt presently owed to Bradley (the “Consideration”) and (ii)
Bradley shall have the option, exercisable at any time, to cause the Company to
sell and assign such existing business and all assets and
liabilities relating to such business to Bradley for the
Consideration.
Bradley
was one of the Sellers under the SPA. The SPA includes customary
representations of Koschitzki, the Sellers and the Company. In connection
with the Change in Control, the Company moved its headquarters from 9050 W. Warm
Springs Rd. #12-2129, Las Vegas, Nevada 89148 to 18-B Neal Court, Oceanside, NY
11572.
The SPA
is filed as Exhibit 2.1 to this Current Report on Form 8-K, and the preceding
summary of the material provisions of the SPA is qualified in its entirety by
reference to the complete text of Exhibit 2.1.
2
Also on
the Effective Date, and pursuant to the requirements of the SPA: (i) Jenson
Services terminated an Option Agreement, dated August 26, 2010, under which
Bradley had granted to Jenson Services an option to purchase 1,900,000 shares of
Common Stock that were owned by Bradley; and (ii) Albiston terminated an Option
Agreement, dated August 26, 2010, under which Trescha Peeples (a former director
of the Company and a Seller) had granted to Albiston an option to purchase
160,000 shares of Common Stock that were owned by Ms. Peeples. The shares
of Common Stock that were the subject of such options were included as part of
the Purchased Shares acquired by Koschitzki pursuant to the SPA.
Item 2.01 Completion
of Acquisition.
Securities
Exchange Agreement
As of the
Effective Date, the Company also completed an acquisition of Xsovt and its
business, assets and liabilities by means of a Securities Exchange Agreement,
dated as of the Effective Date (the “SEA”), by and among
Koschitzki, Brenda Koschitzki (Koschitzki’s wife), the Avi Koschitzki 2010 Trust
and the Koschitzki Children’s Trust, which are trusts formed by Koschitzki for
the benefit of his family (collectively, the “Koschitzki Parties”), and the
Company.
Pursuant
to the SEA, the Koschitzki Parties exchanged with the Company 100% of the
membership interests in Xsovt for an aggregate of: (i) 3,500 shares of the newly
designated Series B Convertible Preferred Stock of the Company (the “Series B Preferred”), (ii)
19,128,467 shares of Common Stock, which shares of Common Stock will be issued
effective as of the Effective Date but following the consummation of the Split
and (iii) $350,000 in cash, $250,000 of which was paid on the Effective Date,
$50,000 of which is to be paid no later than 45 days following the Effective
Date and $50,000 of which is to be paid no later than 90 days following the
Effective Date.
As a
result of the Company’s acquisition of Xsovt, Xsovt became a wholly-owned
subsidiary of the Company, and the Company will operate the business of Xsovt
going forward. It is expected that the name of the Company will be changed
to “Xsovt Brands, Inc.” in order to more properly reflect the new business of
the Company.
The SEA
is filed as Exhibit 10.1 to this Current Report on Form 8-K, and the preceding
summary of the material provisions of the SEA is qualified in its entirety by
reference to the complete text of Exhibit 10.1.
Description
of Series B Preferred Stock
Pursuant
to the terms of the SEA, and as partial consideration for the Company’s
acquisition of Xsovt, The Avi Koschitzki 2010 Trust, of which Koschitzki is the
trustee, was issued 3,500 shares of newly designated Series B Preferred.
The Series B Preferred carries the following rights:
1.
Until converted into
shares of Common Stock, the Series B Preferred will afford the holder thereof a
non-dilutable 35% interest in the Company in the aggregate, meaning that the
3,500 shares of Series B Preferred will convert into 35% of the then outstanding
shares of Common Stock whenever such conversion takes place;
2.
The 3,500 shares of Series
B Preferred have the voting power (which shall vote together with the holders of
Common Stock as a single class) of 52.5% of the outstanding Common Stock on an
as converted basis due to the fact that each share of Series B Preferred shall
be entitled to cast such number of votes as shall be equal to one and a half
(1.5) times the number of shares of the Common Stock into which such Series B
Preferred is convertible; and
3
3.
Conversion of the shares
of Series B Preferred into shares of Common Stock is contingent in that such
conversion (into 35% of the then outstanding Common Stock) will only be
permitted upon the Company’s attaining $75 million in audited gross revenue in
any fiscal year and are subject to mandatory conversion upon the Company
achieving two (2) consecutive years of $75 million in audited gross
revenue. Furthermore, any such conversion will be limited to 33% of the
initial issuance of Series B Preferred Stock in any twelve (12) month period,
subject to certain exceptions such as a change of control or liquidation of the
Company.
The
Certificate of Designation of the Series B Preferred is filed as Exhibit 4.2 to
this Current Report on Form 8-K, and the preceding summary of the material
provisions of the Series B Preferred is qualified in its entirety by reference
to the complete text of Exhibit 4.2.
CERTAIN
INFORMATION REGARDING THE BUSINESS OF XSOVT
Overview
Formed in
2010, Xsovt an exciting new company that has developed a new footwear paradigm
in the multi-billion dollar footwear industry. The founders of Xsovt have
worked since the fall of 2008 and dedicated nearly $1.2 million of their own
capital to developing the XsovtTM brand
and refining several innovative footwear concepts including lines for men, women
and children.
Xsovt has
adopted a novel approach to the design, comfort, and construction of shoes and
slippers, as well as the packaging in which the products are sold.
Technology and comfort are incorporated in every stage of the design process to
make fashion fun and comfortable. In its initial product launch, scheduled
for August 2011, Xsovt will synthesize elements of style, quality and comfort
comparable to high end footwear at a competitive price point. The design
impetus for Xsovt’s debut product line is what we call our “Crossover line”,
incorporating the benefits a casual shoe and a comfortable slipper, designed for
both lounging at home or for a casual evening out. This design innovation
epitomizes Xsovt’s maxim: “Freedom to Move
and Strength to Stand TM”.
Targeted
Demographics
While
Xsovt plans to eventually offer a wide array of shoe and boot lines for men,
women and children, management is initially concentrating its marketing efforts
towards the 18-24 year old demographic with its Crossover products. The
Crossover line will also be available in children’s and adult sizes in age and
gender appropriate colors and finishes. The goal is to maximize product
exposure to this sector through a variety of mediums including: retail, internet
and interactive contests. This demographic is style driven, predisposed to
social shopping and meets the disposable-income criteria for the Crossover’s
price point. Furthermore, this demographic is expected to embrace Xsovt’s
culture and allow the company to sell its innovative shoe design vertically to
the target customer’s family and friends. The Crossover will provide the
wearer an unprecedented comfort experience both indoors and outdoors, without
sacrificing style.
Marketing,
Branding and Distribution
Since the
beginning of 2010, Xsovt has developed a comprehensive marketing strategy to
support the product branding, pre-product launch, product launch and the ongoing
organic sales and marketing strategies in order to build and sustain the Xsovt
brand. The marketing strategies are expected to be launched at the WSA
Show and at MAGIC (the largest industry trade shows) in Las Vegas, Nevada in
February 2011. The marketing strategy is laser focused to target
distributors and wholesalers, as well as to build consumer demand. Xsovt’s
marketing tactics, when combined with its corporate culture aimed at
incentivizing its sales force, are expected to position the brand at the
forefront of our key demographic.
4
Product
Distribution: Wholesale and Retail
Brand
building is essential for Xsovt’s long term growth and development.
Management intends to market through traditional retail channels, e-tailers and
also directly to consumers through mall kiosks (so called RMUs) and
Xsovt.com.
On the
wholesale side, Xsovt has identified select retailers and boutiques from among
the approximately 30,000 U.S. specialty footwear stores as potential outlets for
its wholesale rollout. Xsovt will also make use of sales representatives
to bolster its sales reach in other regions. On a parallel track, Xsovt
has identified and begun negotiations with well known malls in the New York and
New Jersey area for its initial retail rollout. Retail RMUs/Mall Kiosks
would allow the hundreds of thousands of daily mall patrons to see, touch and
feel the products and their trendy and functional packaging. Xsovt’s
frontline retail sales forces will be at the heart of its company culture to
engage the customer.
E-Marketing
Strategy
The Xsovt
team has also developed what it believes is a novel online strategy that
includes a focused yet potentially viral marketing strategy that is designed to
maximize brand awareness and compliment Xsovt’s online sales and marketing
capability which is in development. These strategies are focused on the
older teen through young adult subset of the market comprised of 18–24 year olds
in order to promote Xsovt’s brand awareness both vertically and horizontally
through active and engaging social media marketing and incentives.
Manufacturing
We expect
to use independent manufacturers in China to produce our products, with
substantially all of the production being undertaken by one or more independent
manufacturers in China who we expect may operate both on purchase order or a
long term contract basis. We intend to maintain our own quality control
staff in China to oversee all manufacturing, testing, packaging and
shipments.
Locations
Xsovt’s
headquarters is in Oceanside, New York with a contemplated distribution and
fulfillment facility in Las Vegas, Nevada that would provide both East Coast and
West Coast distribution. Xsovt believes that this will be sufficient for
its current needs and further believes that additional warehouse space is
available on commercially reasonable terms. Xsovt intends to roll out
retail mall locations on a region by region basis in order to maximize coverage
and for efficient targeted marketing and advertising campaigns in those
areas.
Formation
of Xsovt
In
connection with formation of Xsovt, the following transactions involving Avi
Koschitzki, the new President, Chief Executive Officer, Secretary and director
of the Company, took place:
1.
On November 1, 2010,
Koschitzki assigned all of his right, title and interest in all of the assets
associated with Xsovt’s business to Xsovt in consideration of the issuance to
the Koschitzki Parties of 100% of the membership interests in Xsovt;
and
2.
On November 1, 2010, Out
of the Box Design, LLC, a New York limited liability company wholly-owned by
Koschitzki (collectively with its predecessors, “OOTBD”), assigned all of its
and its predecessors’ right, title and interest in all of the assets associated
with Xsovt’s business to Xsovt in consideration of (i) $60,000 in cash; (ii) the
issuance by Xsovt of a promissory note in the principal amount of $290,000
payable to OOTBD (which will be used to satisfy debts and liabilities of OOTBD
in connection with the winding down of its business); and (iii) Xsovt’s
assumption of an accrued liability of OOTBD to a third party in the amount of
$197,000, which liability was incurred by a predecessor of OOTBD for the benefit
of the business of Xsovt.
5
As a
result of these transactions, the liabilities of Xsovt (specifically (i) the
$290,000 note payable by Xsovt to OOTBD; (ii) the accrued liability of $197,000
assumed by Xsovt from OOTBD and (iii) a $150,000 loan made by a third party
investor to Xsovt) became liabilities of the Company through Xsovt as its
wholly-owned subsidiary.
RISK
FACTORS
Xsovt’s
short and long-term success is subject to many risk factors beyond our
control. Potential investors should carefully consider the following risk
factors related to our company as well as general investor risks. If any
of the following risks occur, our business, financial condition or results of
operations could be adversely affected. In that case, the value of our
securities could decline and stockholders may lose all or part of their
investment.
Risks
Related to the Start-Up Nature of Xsovt
Xsovt
has no operating history and is expected to incur significant operating
losses during its start-up stage.
Xsovt was
only formally established in October 2010 and has no operating history. We
have not sold any of our proposed products. Therefore, there is no
historical financial information upon which to base an evaluation of our
performance. We are a “start-up” company, and thus our prospects must be
considered in light of the uncertainties, risks, expenses, and difficulties
frequently encountered by companies in their early stages of operations, and
there is a significant risk that we may be unable to achieve our near or longer
term operational goals. This is even more so as we have elected to operate
our business as a public company, which greatly increases the risks associated
with our company. We have generated losses since inception and we expect
to continue to run at a loss until we establish our business. We expect to
incur substantial operating expenses over the next several years as our product
development and marketing activities increase. The amount of future losses
and when, if ever, we will achieve profitability are uncertain.
We
will need to raise additional capital to operate our business.
Our
current cash on hand will sustain our operations only for a very limited
time. As a result, we will quickly need an infusion of capital to continue
our operations and will need further capital in 2011 (approximately $5-7
million) in order to progress our business plan. As such, we will need to
seek additional sources of financing, which might not be available on favorable
terms, if at all. There is no assurance that we will be able to raise the
additional funds needed to fund our business. If we are not able to raise
such sufficient capital, our continued operations will be in jeopardy and we may
be forced to cease operations and sell or otherwise transfer all or
substantially all of our remaining assets in the near future. Moreover,
any additional sources of financing will likely involve the issuance of our
equity securities, which would have a dilutive effect on the holders of our
securities.
6
We
are not currently profitable and may never become profitable.
We expect
to incur substantial losses and negative operating cash flow for the foreseeable
future, and we may never achieve or maintain profitability. Even if we are
able to launch one or more products, we expect to incur substantial losses for
at least 15 months and may never become profitable.
We also
expect to experience negative cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. As a result, we will need
to generate significant revenues in order to achieve and maintain
profitability. We may not be able to generate these revenues or achieve
profitability in the future. Our failure to achieve or maintain
profitability would negatively impact the value of our securities and
potentially require us to cease operations, which would result in the loss of
your investment.
Our
current and future operations substantially depend on our management team and
our ability to hire other key personnel, the loss of any of whom could disrupt
our business operations.
Our
business does and will depend in substantial part on the continued service of
Mr. Avi Koschitzki, Xsovt’s founder, as well as other key executives and
managers that we have retained or plan to retain. The loss of the services
of Mr. Koschitzki or any of our other key personnel would significantly impede
implementation and execution of our business strategy and result in the failure
to reach our goals. We do not carry key person life insurance for any of
our officers or employees, and although we are presently applying for such
insurance, there is a risk that we may be unable to obtain it, which would leave
us completely uncompensated for the loss of our key executives.
We
presently have a limited number of employees. Our future viability and
ability to achieve our sales and profit will also depend on our ability to
attract, retain and motivate highly qualified personnel in the diverse areas
required for continuing our operations. There is a risk that we will be
unable to attract, train or retain qualified personnel, both near term or in the
future, and our failure to do so would severely damage our
prospects.
We
do not presently have a Chief Financial Officer with U.S. public company
experience.
We do not
presently have a Chief Financial Officer that is familiar with the accounting
and reporting requirements of a U.S. publicly-listed company. Finding such
a candidate, as well as one with experience in the footwear or retail sector,
will be critical to our ability to operate as a public company. No
assurances can be given that we will be able to identify or afford the financial
requirements of qualified candidates. Although we are seeking such a
candidate, we may be unable to find one on agreeable terms or at all, and our
failure to fill this position in a timely and effective manner will negatively
impact our business.
Risks
Relating To Our Business
Our
ability to achieve our operational goals will depend on our ability to
anticipate fashion trends.
Our
viability as a company will depend largely on the strength of our brand, on our
ability to anticipate, understand and react to the rapidly changing fashion
tastes of footwear consumers and to provide appealing merchandise in a timely
and cost effective manner. Our products must appeal to a potentially broad range
of consumers and our target demographic in particular, whose preferences cannot
be predicted with certainty and are subject to rapid change. We are also
dependent on customer receptivity to our products and our marketing
strategies. There can be no assurance that consumers will accept or prefer
our brand, that we will respond quickly enough to changes in consumer
preferences or that we will be able introduce acceptable new models and styles
of footwear or accessories to our target consumers. Achieving market
acceptance for new products also will likely require us to exert substantial
product development and marketing efforts and expend significant funds to create
consumer demand. A failure to introduce new products that gain market
acceptance could adversely affect our ability to generate sales and the image of
our brand, resulting in significant harm to our business.
7
If
raw materials do not meet our specifications, prices increase, or shortages
occur, we could experience interruptions in manufacturing, increased costs,
higher product return rates, a loss of sales, or a reduction in our gross
margins.
Our
independent manufacturers use various raw materials in the production of our
footwear that must meet our specifications and, in some cases, additional
technical requirements. If these raw materials and the end product do not
perform to our specifications or consumer satisfaction, we could experience a
higher rate of customer returns and deterioration in the image of our brand,
which could have a material adverse effect on our business, results of
operations, and financial condition.
In
addition, there may be significant increases in the prices of the raw materials
used in our products, which would likely increase the cost of our products from
our independent manufacturers. Our gross profit margins will be adversely
affected to the extent that the selling prices of our products do not increase
proportionately with increases in their costs. Any significant unanticipated
increase in the prices of raw materials could materially affect our results of
operations. No assurances can be given that we will be protected from
future changes in the prices of such raw materials.
Also, we
will depend on a limited number of key sources for sheepskin, a principal raw
material for our initial product. The top grade sheepskin used in Xsovt
footwear is in high demand and limited supply. Sheep are susceptible to
hoof and mouth disease, which can result in the extermination of an infected
herd and could have a material adverse effect on the availability of top grade
sheepskin for our products. Additionally, the supply of sheepskin can be
adversely impacted by weather conditions and harvesting decisions that are
completely outside our control. Our potential inability to obtain top
grade sheepskin for our products could impair our ability to meet our production
requirements for our products in a timely manner and could lead to inventory
shortages, which can result in lost sales, delays in shipments to customers,
strain on our relationships with customers and diminished brand loyalty.
There have also been significant increases in the prices of top grade sheepskin
as the demand for this material has increased. Any further price increases will
likely raise our costs, increase our costs of sales and decrease our
profitability unless we are able to pass the higher prices on to our
customers.
If
we do not accurately forecast consumer demand, we may have excess inventory to
liquidate or have difficulty filling our customers’ orders.
Because
the footwear industry has relatively long lead times for design and production,
we must plan our production tooling and projected volumes many months before
consumer tastes become apparent. The footwear industry is subject to
fashion risks and rapid changes in consumer preferences, as well as the effects
of weather, general market conditions and other factors affecting demand.
We may thus fail to accurately forecast styles, colors and features that will be
in demand. If we overestimate demand for any products or styles, we may be
forced to liquidate excess inventories at a discount to customers, resulting in
higher markdowns and lower, or negative, gross margins. Further, the
excess inventories may prolong our cash flow cycle, resulting in reduced cash
flow and increased liquidity risks. Conversely, if we underestimate
consumer demand for any products or styles or have factory delays on a
substantial amount of product, we could have inventory shortages. This
could result in lost potential sales, delays in shipments to customers, strains
on our relationships with customers, and diminished brand
loyalty.
8
Our
operational and financial viability will be influenced by the sales and
distribution capabilities of our wholesale and distribution
partners.
Our
operational and financial viability is and will directly related to the ability
of our wholesalers, distributors, e-commerce business and retail store partners
to market and sell our brand through to the consumer. There is a risk that
we may not even be able to establish or maintain commercial relationships with
such parties, which would adversely impact our business. Even if we are
able to establish such relationships, if a distributor fails to meet sales
goals, it may be difficult and costly to either locate an acceptable substitute
distributor or convert to a wholesale direct model. If a change becomes
necessary, we may experience increased costs, loss of customers, as well as
substantial disruption and a resulting loss of sales. We currently do not
have long-term contracts with any of these parties. Sales to these parties
are generally on an order-by-order basis and are subject to rights of
cancellation and rescheduling by our customers. We use the timing of
delivery dates in our customer orders to forecast our sales and earnings for
future periods. If any of our major customers including independent
distributors experience a significant downturn in its business, or fail to
remain committed to our products or brands, then these customers could postpone,
reduce, or discontinue purchases from us. Also, challenging economic
conditions may impair the ability of our customers to pay for products and any
of our major customers may realize a financial collapse or bankruptcy. As
a result, we could experience a decline in sales or gross margins, write downs
of excess inventory, increased discounts or extended credit terms to our
customers, or an increase in bad debt expense, which could have a material
adverse effect on our business, results of operations, financial condition, cash
flows and our stock price.
Because
we depend on independent manufacturers, we face challenges in maintaining a
continuous supply of goods that meet our quality standards.
We expect
to use independent manufacturers in China to produce our products, with
substantially all of the production being undertaken by 3 independent
manufacturers in China. We do not expect to maintain our own manufacturing
capability and will therefore depend on these manufacturers’ ability to finance
the production of goods ordered and to maintain manufacturing capacity.
The manufacturers in turn depend upon their suppliers of raw materials. We
will not exert direct control over either the independent manufacturers or their
raw materials suppliers, so we may be unable to obtain timely delivery of
acceptable products.
In
addition, we currently do not have long-term contracts with these independent
manufacturers, and any of them may unilaterally terminate their relationship
with us at any time or seek to increase the prices they charge us. As a
result, we are not assured of an uninterrupted supply of products of an
acceptable quality from our independent manufacturers. If there is an
interruption, we may not be able to substitute suitable alternative
manufacturers because substitutes may not be available or they may not be able
to provide us with products or services of a comparable quality at an acceptable
price or on a timely basis. If a change in our independent manufacturers
becomes necessary, we would likely experience increased costs as well as
substantial disruption of our business, which could result in an inability to
generate or a loss of sales, which would greatly damage our
business.
Our
independent manufacturers are located outside the U.S., where we are subject to
the risks of international commerce.
All of
our third party manufacturers will be in China or other offshore locations, with
substantially all production expected to be performed by 3 independent
manufacturers in China. Foreign manufacturing is subject to numerous
risks, including the following:
9
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tariffs,
import and export controls and other non-tariff barriers such as quotas
and local content rules on raw materials and finished products, including
the potential threat of anti-dumping duties and
quotas;
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increasing
transportation costs;
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poor
infrastructure and shortages of equipment, which can delay or interrupt
transportation and utilities;
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restrictions
on the transfer of funds;
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changing
economic conditions;
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changes
in governmental policies and regulations including environmental
regulations in China, the U.S. and
elsewhere;
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customary
business traditions in China, such as local holidays which are
traditionally accompanied by high levels of turnover in the
factories;
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labor
unrest, which can lead to work stoppages and interruptions in
transportation or supply;
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shipping
delays, including those resulting from labor issues, work stoppages or
other delays at the port of entry or port of
departure;
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political
instability, which can interrupt commerce and make travel
dangerous;
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expropriation
and nationalization; and
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adverse
changes in consumer perception of goods from China, trade or political
relations with China
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These
factors could severely interfere with the manufacture or shipment of our
products which could make it difficult to obtain adequate supplies of quality
products when we need them, thus materially affecting our sales and results of
operations.
Our
business could suffer if our independent manufacturers or suppliers violate
labor or other laws.
Our
independent contract manufacturers and suppliers must comply with all local laws
and regulations governing human rights working conditions and environmental
protection before we are willing to place business with them.
Nevertheless, we do not control the labor practices of these factories and
suppliers. If one of them violates our labor standards by, for example,
using convicted, forced or indentured labor or child labor, fails to pay
compensation in accordance with local law or fails to operate its factories in
compliance with local safety or environmental requirements, we likely would
immediately cease dealing with that manufacturer or supplier, and we could
suffer an interruption in our product supply chain. In addition, the
manufacturers’ or designated suppliers’ actions could damage our reputation and
the value of our brands, resulting in negative publicity and discouraging
customers and consumers from buying our products.
10
We
conduct business outside the U.S., which exposes us to foreign currency and
other risks.
While our
purchases from the Chinese factories are currently denominated in U.S. dollars,
certain operating and manufacturing costs of the factories are or may be
denominated in the Chinese currencies. As a result, fluctuations in the
Chinese currencies versus the U.S. dollar could impact our purchase prices from
the factories in the event that they adjust their selling prices
accordingly.
Failure
to adequately protect our trademarks and other intellectual property rights and
counterfeiting of our brands could divert sales, damage our brand image and
adversely affect our business.
We
utilize trademarks, trade names, copyrights, trade secrets, trade dress and
designs and other intellectual property on our products or otherwise in our
business. We believe that having distinctive marks that are readily
identifiable is an important factor in creating a market for our goods, in
identifying us, and in distinguishing our goods from the goods of others.
We believe that our intellectual property rights are critically important to our
brand, our viability as a company and our competitive position. We may
discover products that are counterfeit reproductions of our products or that
otherwise infringe on our intellectual property rights. We cannot assure
you that the actions we have taken to establish and protect our trademarks and
other intellectual property rights are or will be adequate to prevent imitation
of our products by others or, if necessary, successfully challenge another
party’s counterfeit products or products that otherwise infringe on our
intellectual property rights on the basis of trademark or patent
infringement. If we are unsuccessful in challenging another party’s
products on the basis of trademark or other intellectual property infringement,
or if we are required to change our name or use a different logo, continued
sales of such competing products by third parties could harm our brand and
adversely impact our business, financial condition, and results of operations by
resulting in the shift of consumer preference away from our products. We
may face significant expenses and liability in connection with the protection of
our intellectual property rights, and if we are unable to successfully protect
our rights or resolve intellectual property conflicts with others, our business
or financial condition could be adversely affected.
We also
rely on trade secrets, confidential information and other proprietary
information related to, among other things, the formulation of material and
product development, especially where we do not believe patent protection is
appropriate or obtainable. Using third-party manufacturers and compounding
facilities may increase the risk of misappropriation of our trade secrets,
confidential information and other unpatented proprietary information. We
presently do not have agreements in place to protect against such actions, which
puts our business at significant risk. Even if we implement the use of
agreements that seek to protect our intellectual property, confidential
information and other proprietary information, these may not effectively protect
such intellectual property and information and may not be sufficient to prevent
unauthorized use or disclosure of such trade secrets and information. A
party to one of these agreements may breach the agreement and we may not have
adequate remedies for such breach. As a result, our trade secrets,
confidential information and other proprietary information may become known to
others, including our competitors. Furthermore, as with any trade secret,
confidential information or other proprietary information, others, including our
competitors, may independently develop or discover such trade secrets and
information, which would render them less valuable to us.
11
Third
parties may claim that we are infringing their intellectual property rights, and
such claims may be costly to defend, may require us to pay licensing fees,
damages, or other amounts, and may prevent, or otherwise impose limitations on,
the manufacture, distribution or sale of our products.
From time
to time, third parties may claim that we are infringing their intellectual
property rights, and we may be found to infringe those intellectual property
rights. While we do not believe that any of our proposed products infringe the
valid intellectual property rights of third parties, we may be unaware of the
intellectual property rights of others that may cover some of our proposed
products. If we are forced to defend against such third-party claims,
whether or not such claims are resolved in our favor, we could encounter
expensive and time-consuming litigation, which could divert our management and
key personnel from business operations. If we are found to be infringing
on the intellectual property rights of other companies, we may be required to
pay damages or ongoing royalty payments, or comply with other unfavorable
terms. If we are found to be infringing on the intellectual property
rights of other companies, we may not be able to obtain license agreements on
terms acceptable to us, or at all, and this may prevent us from manufacturing,
marketing or selling certain products. Thus, such third-party claims may
significantly reduce the sales of our products or increase our cost of goods
sold. Any such reductions in sales or cost increases could be significant,
and could have a material and adverse affect on our business.
Risks
Related to Our Industry
Because
the footwear market is sensitive to decreased consumer spending and economic
cycles, if general economic conditions deteriorate, potential customers may not
purchase from us or may not be able to pay for our products in a timely
manner.
The
footwear industry historically has been subject to cyclical variation and
decline in performance when consumer spending decreases or softness appears in
the retail market. Many factors affect the level of consumer spending in
the footwear industry, including:
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general
business conditions;
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interest
rates;
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financial
market conditions;
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the
availability of consumer credit;
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change
in demographic spending;
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weather;
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taxation;
and
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consumer
confidence in future economic
conditions.
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Consumer
purchases of discretionary items, including our products, may decline during
recessionary periods and also may decline at other times when disposable income
is lower. A downturn in economies where we or our distribution partners
sell products may reduce sales, which would negatively impact our results of
operations.
We
face intense competition, including competition from companies with
significantly greater resources than ours, and if we are unable to compete
effectively with these companies, our market share may decline and our business
could be harmed.
The
footwear industry is highly competitive, and the recent growth in the market for
casual footwear and other products has encouraged the entry of many new
competitors into the marketplace as well as increased competition from
established companies. We are a start-up company, and our competitors are
well established and have significantly greater financial, technological,
engineering, manufacturing, marketing and distribution resources than we do, as
well as greater brand awareness in the footwear market. Our competitors
include athletic and footwear companies, branded apparel companies and retailers
with their own private labels. Their greater capabilities in these areas may
enable them to better withstand periodic downturns in the footwear industry,
compete more effectively on the basis of price and production and more quickly
develop new products. In addition, access to offshore manufacturing has
made it easier for new companies to enter the markets in which we compete,
further increasing competition in the footwear industry.
12
Additionally,
efforts by our competitors to dispose of their excess inventories may
significantly reduce prices that we can expect to receive for the sale of our
competing products and may cause our customers to shift their purchases away
from our products.
We
believe that our ability to compete depends on a number of factors, including
the quality, style and authenticity of our products and the strength of our
brand, as well as many factors beyond our control. Maintaining our
competitiveness depends on our ability to defend our products from infringement,
our continued ability to anticipate and react to consumer tastes and our
continued ability to deliver quality products at an acceptable price. If we are
unable to compete in our market, our sales and earnings will decline, as will
the value of our business, financial condition and securities.
Consolidations,
restructurings and other ownership changes in the retail industry could affect
the ability of our wholesale customers to purchase and market our
products.
In the
future, retailers in the U.S. may undergo changes that could decrease the number
of stores that carry our products or increase the concentration of ownership
within the retail industry, including consolidating their operations, undergoing
restructurings, undergoing reorganizations, or realigning their
affiliations. These consolidations could result in a shift of bargaining
power to the retail industry and in fewer outlets for our products. Such
consolidations could also result in price and other competition that could
reduce our margins and our net sales.
Risks
Related to Our Securities
Our
majority shareholder, Avi Koschitzki, controls and will control our company for
the foreseeable future, including the outcome of matters requiring shareholder
approval.
Our
founder Avi Koschitzki controls and will control, directly or indirectly
together with his family, more than a majority of the outstanding shares of
Common Stock and will, by reason of the Series B Preferred Stock described
below, have the power to vote in excess of 50% of the Common Stock (together
with any shares of Common Stock held by him or his family). Consequently,
Mr. Koschitzki will have the ability, acting alone, to control the election of
our directors and, subject to certain exceptions, the outcome of corporate
actions requiring shareholder approval, such as: (i) a merger or a sale of our
company, (ii) a sale of all or substantially all of our assets, and (iii)
amendments to our articles of incorporation and bylaws. This concentration
of voting power and control could have a significant effect in delaying,
deferring or preventing an action that might otherwise be beneficial to our
other shareholders and be disadvantageous to our shareholders with interests
different from those of Mr. Koschitzki. Mr. Koschitzki also has
significant control over our business, policies and affairs as a director and
President and Chief Executive Officer of our company.
Additionally,
this significant concentration of share ownership may adversely affect the
trading price for our common stock because investors often perceive
disadvantages in owning stock in companies with controlling
shareholders.
13
Importantly,
a trust for the benefit of Mr. Koschitzki’s family (of which he is trustee) owns
shares of Series B Preferred Stock of our company. The Series B Preferred
Stock has full voting rights on an “as converted basis” and will, until
converted, always have the voting power of 52.5% of the outstanding common stock
on an as converted basis in addition to the voting rights of any
shares of common stock held by Mr. Koschitzki or his family. The Series B
Preferred Stock will be convertible in the future only upon achievement of
certain operational milestones, but until the time of conversion, the
shares of common stock underlying the Series B Preferred Stock will be protected
from any dilution whatsoever such that, upon and regardless of when the Series B
Preferred Stock is converted, it will convert into, in the aggregate, 35% of the
then outstanding common stock following such conversion. The existence of
the Series B Preferred Stock will work to ensure that Mr. Koschitzki will have
the ability to control our affairs for the foreseeable future. You should
not invest in our company in reliance on your ability to have any control over
our company.
We
may be burdened by the liabilities of the public company which acquired Xsovt or
auditing or governance questions regarding such company.
On
January 26, 2011, the business of Xsovt, owned by Xsovt, LLC, was acquired by
RxBids, an existing publicly-listed company. RxBids’ current operating
business has generated very little revenue and has incurred losses to
date. Moreover, RxBids is currently subject to liabilities and
contingencies as well as oversight by the Securities and Exchange Commission
(the “SEC”). There
is therefore a risk that problems associated with RxBids’ current business could
negatively (perhaps severely) impact us in the future, including:
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claims
against our management or controlling shareholders by existing
shareholders for breaches of fiduciary duty in connection with the
acquisition of Xsovt, the concurrent financing that occurred with such
acquisition or other corporate actions of
RxBids;
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unknown
or unsatisfied claims or liabilities relating to RxBids’ current operating
business by or owing to third
parties;
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questions
raised by the SEC regarding our accounting for the acquisition or RxBids’
historical financial statements or operations;
or
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other
governance and/or regulatory issues associated with
RxBids.
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We may
have limited recourse against the persons from whom Koschitzki acquired control
of RxBids. In addition, our management may be unable to face these
challenges should they arise do to a lack of knowledge of the relevant facts or
a lack of financing to protect our company from litigation or regulatory
investigations. Finally, these issues would likely distract our management
at a critical time when we will be formulating and executing the initial launch
of Xsovt’s products. Should any of these occur, our business and results
of operations would be adversely affected, even to the point where we could be
forced to suspend operations, in which case you could lose your investment in
our company.
Shares
eligible for future sale may cause dilution and adversely affect the market for
our common stock.
We have a
very significant number of shares of common stock underlying securities of our
company, the future exercise, conversion or sale of which could cause
significant dilution to holders of our common stock and depress the price of our
publicly-traded stock. These include the shares of common stock underlying
our Series A Preferred Stock, our Series B Preferred Stock and several class of
common stock purchase warrants. If and when these securities are exercised
or converted into shares of our common stock, our shares outstanding will
increase and you will suffer dilution. Also, any such increase in our
outstanding securities, and any sales of such shares, could have a material
adverse effect on the market for our common stock and the market price of our
common stock.
14
An
active and visible trading market for our common stock may not
develop.
The
current market for our common stock is highly illiquid. We cannot predict
whether an active market for shares of our common stock will develop in the
future. In the absence of an active trading market:
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Investors
may have difficulty buying and selling or obtaining market
quotations;
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Market
visibility for shares of our common stock may be limited;
and
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A
lack of visibility for shares of our common stock may have a depressive
effect on the market price for shares of our common
stock.
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The
Company is listed for quotation on OTC Bulletin Board. The OTC Bulletin
Board is an unorganized, inter-dealer, over-the-counter market that provides
significantly less liquidity than NASDAQ or the NYSE AMEX. No assurances
can be given that our common stock will ever trade on the OTC Bulletin Board,
much less a senior market like NASDAQ or NYSE AMEX. For so long as our
common stock is listed on the OTC Bulletin Board, the trading price of the
common stock is expected to be subject to significant fluctuations in response
to variations in quarterly operating results, changes in estimates,
announcements of achievements by our company or our competitors, general
conditions in the industry in which we operate and other factors. These
fluctuations, as well as general economic and market conditions, may have a
material or adverse effect on the market price of shares of our common
stock.
Moreover,
there is a risk that our common stock could be delisted from the OTC Bulletin
Board, in which case it might be listed on the so called “Pink Sheets”, which is
even more illiquid than the OTC Bulletin Board.
The
market price for shares of our common stock may be volatile.
The
market price for shares of our common stock may be volatile and subject to wide
fluctuations in response to factors including the following:
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actual
or anticipated fluctuations in our quarterly or annual operating
results;
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changes
in financial estimates or
projections;
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conditions
in markets generally;
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changes
in the economic performance or market valuations of other footwear or
similar companies;
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announcements
by us or our competitors of new products, acquisitions, strategic
partnerships, joint ventures or capital
commitments;
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addition
or departure of key personnel;
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our
intellectual property position; and
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general
economic or political conditions in the United States or
elsewhere.
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15
In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also materially and
adversely affect the market price of shares of our common stock.
We
will incur increased costs as a result of being a public company.
As a
public company, we will incur significant legal, accounting and other
expenses. Laws such as the Sarbanes-Oxley Act of 2002 have required
changes in corporate governance practices of public companies. We expect these
rules and regulations to increase our legal, accounting and financial compliance
costs and to make certain corporate activities more time-consuming and
costly. In addition, we will incur additional costs associated with our
public company reporting requirements. We cannot predict or estimate the
amount of additional costs we may incur or the timing of such costs. Such
costs and time required to comply with these rules could drain our resources,
distract management and generally make achieving our operating goals much more
difficult and could thus cause our business to suffer.
Our
common stock may be considered a “penny stock,” and thereby be subject to
additional sale and trading regulations that may make it more difficult to
sell.
Our
common stock, which is currently and will be for the foreseeable future quoted
for trading on the OTC Bulletin Board, may be considered to be a “penny stock”
if it does not qualify for one of the exemptions from the definition of “penny
stock” under applicable SEC rules. Our common stock may be a “penny stock”
if it meets one or more of the following conditions: (i) the stock trades at a
price less than $5.00 per share; (ii) it is not traded on a “recognized”
national exchange; or (iii) is issued by a company that has been in business
less than three years with net tangible assets less than $5 million. The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers participating in sales of our common stock will be
subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9
promulgated under the Securities Exchange Act of 1934, as amended. For
example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny stocks and to
obtain a manually signed and dated written receipt of the document at least two
business days before effecting any transaction in a penny stock for the
investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny
stocks to approve the account of any investor for transactions in such stocks
before selling any penny stock to that investor. This procedure requires
the broker-dealer to: (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives. Compliance
with these requirements may make it more difficult and time consuming for
holders of our common stock to resell their shares to third parties or to
otherwise dispose of them in the market or otherwise.
We
do not expect to pay dividends for the foreseeable future.
Although
the shares of our Series A Preferred Stock do carry a cumulative dividend, we do
not expect to pay dividends on our common stock for the foreseeable
future. Accordingly, any potential investor who anticipates the need for
current dividends should not purchase our securities.
16
Item
3.02 Unregistered Sales of Equity Securities.
Preferred
Stock and Warrant Financing
As of the
Effective Date, the Company consummated a closing (yielding gross proceeds of
$300,000 to the Company) of a minimum $200,000 (8 units) and a maximum
$1,000,000 (40 units, with a Company option for an additional $500,000 (20
units)) private placement (the “Private Placement”) of units,
with each unit consisting of: (i) 25,000 shares of newly designated Series A 6%
Cumulative Convertible Preferred Stock of the Company (the “Series A Preferred”) which
carries an initial conversion price of $0.25 per share, (ii) Class A Common
Stock purchase warrants to purchase 100,000 shares of Common Stock at $0.375 per
share and (iii) Class B common stock purchase warrants to purchase 100,000
shares of Common Stock at $0.875 per share (the Class A warrants and Class B
warrants are collectively referred to herein as the “Warrants”). The Company
entered into individual subscription agreements with each of the investors in
the Private Placement (the “Subscription
Agreements”).
Under the
terms of the Private Placement, the Company is permitted to sell up to an
additional $1,200,000 worth of Series A Preferred and Warrants. The
securities sold to the investors in the Private Placement were not registered
under the Securities Act of 1933, as amended (the “Securities Act”), or any state
securities laws, in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act and Regulation D promulgated under
that section. At the time of their issuance, the securities were deemed to
be restricted securities for purposes of the Securities Act, and the
certificates representing the securities bear legends to that
effect.
Terms
of the Series A Preferred
The
following is a summary of the terms of the Series A Preferred:
Dividends:
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The
Series A Preferred carries an annual 6% cumulative dividend, payable
quarterly in arrears (i) beginning in the fiscal quarter that is 9 months
following the Effective Date or (ii) upon a liquidation or redemption (the
“Dividend”).
Dividends may be paid in cash or shares of Common Stock as determined by
the Company in its discretion.
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Liquidation
Preference:
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In
the event of any liquidation, dissolution or winding up of the Company,
the proceeds shall be paid to the stockholders of the Company out of funds
legally available therefor as follows: first pay $0.25 (the “Original Purchase
Price”) plus accrued dividends on each share of Series A
Preferred. The balance of any proceeds shall be distributed to
holders of Common Stock. A merger or consolidation (other than one
in which the existing stockholders of the Company own a majority by voting
power of the outstanding shares of the surviving or acquiring corporation)
or a sale, lease, transfer or other disposition of all or substantially
all of the assets of the Company will be treated as a liquidation event (a
“Deemed Liquidation
Event”), thereby triggering payment of the liquidation preferences
described above unless the holders of majority of the Series A Preferred
elect otherwise.
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Voting
Rights:
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The
Series A Preferred shall vote together with the Common Stock on an
as-converted basis and not as a separate
class.
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17
Protective
Provisions:
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So
long as 50%
of the shares of Series A Preferred are outstanding, the Company will not,
without the written consent of the holders of at least 50% of the
Company’s Series A Preferred outstanding, either directly or by amendment,
merger, consolidation, or otherwise:
(i)
liquidate, dissolve or wind-up the affairs of the Company, or effect any
Deemed Liquidation Event;
(ii)
amend, alter, or repeal any provision of the Articles of Incorporation or
Bylaws of the Company in a manner adverse to the Series A Preferred;
or
(iii) increase
the authorized number of shares of Series A Preferred.
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Optional
Conversion:
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The
Series A Preferred initially converts to shares of Common Stock at any
time at the option of holder at $0.25 per
share, the initial conversion price of the Series A Preferred (as may be
adjusted from time to time pursuant to the terms hereof, the “Conversion Price”),
subject to adjustments for stock dividends, splits, combinations and
similar events and as described below under “Anti-Dilution
Protection.” Stockholders exercising optional conversion shall
not be entitled to receive any Dividend.
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Mandatory
Conversion:
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Each
share of Series A Preferred will automatically convert into Common Stock
at the then applicable Conversion Price in the event of the closing of any
offering of securities by the Company which generates gross proceeds to
the Company of $3,000,000 or more, or (ii) upon the written consent
of the holders of 50% of the Series A
Preferred.
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Redemption:
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The
Series A Preferred shall be redeemable by the Company in its discretion
upon 15 days written notice to the holders of the Series A Preferred at a
price per share equal to one times the Original Purchase Price per
share.
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Anti-Dilution
Protection:
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Subject
to certain customary exemptions, in the event that the Company issues
additional securities at a purchase price less than the then applicable
Conversion Price, the Conversion Price shall be adjusted pursuant to a
customary “weighted average”
formula.
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Terms
of the Warrants
The
following is a summary of the terms of the Warrants:
Class
A Warrants:
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Each
Class A Warrant included within each Unit will grant to the each investor
the right, for a period of three (3) years from the Effective Date, to
subscribe for a number of shares of Common Stock equal to four (4) shares
of Common Stock for every share of Series A Preferred purchased by the
such investor (i.e., 100% warrant coverage) at an exercise price equal to
$0.375 per share (150% of the Conversion Price) (the “Class A Exercise Price”).
The Class A Exercise Price shall be subject to the same anti-dilution
protection described above with regard to the Series A
Preferred.
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18
Class
B Warrants:
|
|
The
Class B Warrants will grant to the each investor the right, for a period
of three (3) years from the Effective Date, to subscribe for a number of
shares of Common Stock equal to four (4) shares of Common Stock for every
share of Series A Preferred (i.e., 100% warrant coverage) at an exercise
price equal to $0.875 per share (350% of the Conversion Price) (the “Class B Exercise Price”).
The Class B Exercise Price shall be subject to the same anti-dilution
protection described above with regard to the Series A
Preferred.
Other
than with respect to exercise price, the Warrants are
identical.
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Registration
Rights
The
Subscription Agreements grant investors in the Private Placement with certain
rights to have their securities registered for resale. All shares of
Common Stock issuable upon conversion of the Series A Preferred and the Warrants
are referred to herein for these purposes as “Registrable
Securities.” The holders of Registrable Securities will be
entitled to “piggyback” registration rights on all registration statements of
the Company, subject to the right of the Company and its underwriters to reduce
the number of shares proposed to be registered to any degree in their
discretion. The registration expenses (exclusive of stock transfer taxes,
underwriting discounts and commissions) will be borne by the Company. Such
registration rights will terminate for each investor upon a Deemed Liquidation
Event or when all shares held by an investor are eligible to be sold without
restriction under Rule 144.
The
Certificate of Designation of the Series A Preferred, and the form of Warrants
are filed as Exhibits 4.1, 4.3 and 4.4 to this Current Report on Form 8-K,
respectively, and the preceding summary of the material provisions of such
instruments is qualified in its entirety by reference to the complete text of
such exhibits.
Item 5.01 Changes in Control of
Registrant
The
Company hereby incorporates in this Item the disclosure set forth in Items 1.01
and 5.02 to this Current Report on Form 8-K.
Item
5.02
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Departure
of Directors and Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangement of
Officers.
|
In
connection with the Change in Control, on January 26, 2011:
(a) Todd
Albiston resigned as a member of the Board of Directors of the Company (the
“Board”), effective
immediately upon consummation of the Change in Control. Mr. Albiston did
not resign as a result of any disagreements with the Company on any matter
relating to the Company’s operations, policies or practices; and
(b) Mack
Bradley resigned as a the President and Chief Executive Officer of the Company,
effective immediately upon consummation of the Change in Control, and further
resigned as member of the Board effective upon the consummation of the
Split. Mr. Bradley did not and will not resign as a result of any
disagreements with the Company on any matter relating to the Company’s
operations, policies or practices; and
19
(c) Koschitzki
was appointed as President and Chief Executive Officer of the Company and as a
member of the Board to replace the vacancy caused by the resignation of Mr.
Albiston, effective immediately upon consummation of the Change in Control
(subject to compliance with SEC Rule 14f-1). Koschitzki will also assume
the role of Chairman of the Board to the extent additional directors are added
in the future. The following is a summary of biographical information
regarding Mr. Koschitzki:
Avi Koschitzki,36. Mr.
Koschitzki is Xsovt’s founder and an expert in the design, sourcing and quality
control procedures for manufactured products. From 2003 to 2010, Mr.
Koschitzki founded and acted as the principal of a series of affiliated
companies collectively known as Out of the Box Group, which specialized in the
design and production of custom interior furnishings for luxury hotels and
resorts. In 2005, Mr. Koschitzki was instrumental in helping to procure
many amenities for the Wynn Las Vegas Hotel aimed at enhancing the guest
experience, including more than 80 custom-made products. In 2006, Out of
the Box opened a Las Vegas satellite office, and in 2007 it opened a Hong Kong
office to service its growing portfolio of hotel and resorts, including
properties in New York, Las Vegas, Dubai, Shanghai and Hong Kong. From
1999 to 2003, Mr. Koschitzki founded and operated Kay Media, Inc., a print
brokerage business. By 2000, Kay Media had grown into an established
promotional products and catalog company. In 2001, the company pioneered
an order and managerial control process that allowed employees of large
organizations to more easily order promotional products online through a
streamlined and cost effective process.
Other
than as disclosed in this Current Report on Form 8-K, there are no material
plans, contracts or arrangements to which Mr. Koschitzki is a party or in which
he participates nor has there been any material amendment to any plan, contract
or arrangement by virtue of Koschitzki’s appointment as an officer or director
of the Company.
The
resignations letters of Mr. Albiston and Mr. Bradley are included as Exhibits
17.1 and 17.2 to this Current Report on Form 8-K, respectively.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in
Fiscal Year.
Please
see Items 2.01 and 3.02 of this Current Report on Form 8-K for a description of
the Company’s newly designated Series A Preferred and Series B
Preferred.
On
January 26, 2011, the Board, acting by unanimous written consent, adopted an
Amended and Restated Bylaws of the Company, which is filed as Exhibit 3.2 to
this Current Report on Form 8-K. A summary of the material changes to the
Amended and Restated Bylaws compared to the Company’s previous bylaws is as
follows:
20
Item/Right
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Amended & Restated Bylaws
|
Previous Bylaws
|
||
Ability
of Board to postpone a stockholders’ meeting
|
The
Board may postpone a stockholder’s meeting in its
discretion.
|
No
equivalent power.
|
||
Ability
of stockholders to call a special meeting
|
Two-thirds
of stockholders may call a special meeting.
|
Fifty
percent of stockholders may call a special meeting.
|
||
Agenda
items for special stockholders meetings
|
Agenda
items in special meetings called by stockholders limited to those not
recently considered or to be considered at the next annual
meeting.
|
No
corresponding provision.
|
||
Proposing
stockholders must appear at the meeting
|
If
a stockholder does not appear in person or by proxy at a special meeting,
such stockholder’s agenda items need not be considered.
|
No
corresponding provision.
|
||
Removal
of board members for cause
|
Stockholders
may only remove board members by a 2/3 majority and for cause (as
defined).
|
A
majority of stockholders may remove the board for cause. Cause is
undefined.
|
||
Indemnification
|
Indemnity
as specified in the Certificate of Incorporation; new directors elected in
a contested election not entitled to indemnification without the consent
of a majority of continuing board members.
|
Mandatory
indemnification for directors and officers of the corporation, subject to
certain exceptions.
|
||
Voting
in a contested election
|
Directors
elected by majority of votes cast, or, in a contested election, by
plurality.
|
Directors
elected by majority of votes cast.
|
||
Board
size
|
Board
size shall be between 1 and 9.
|
Board
consists of two directors.
|
||
Amendment
of Bylaws
|
|
Stockholders
may only amend the bylaws by a 2/3 majority. Directors may amend
bylaws by majority vote.
|
|
Bylaws
may be amended by majority vote of stockholders of
directors.
|
The above
summary is qualified in its entirety by reference to a copy of the Amended and
Restated Bylaws, a copy of which is attached to this Current Report on Form 8-K
as Exhibit 3.2 that is incorporated herein by reference.
Item
9.01 Financial Statements and Exhibits.
(a) Financial
Statements of Business Acquired.
The
financial statements required pursuant to Item 9.01(a) of Form 8-K are not being
filed herewith. Such financial statements will be filed by amendment not later
than 71 calendar days after the date the Current Report on Form 8-K reporting
the closing of the acquisition is required to be filed, or April 13, 2011,
pursuant to Item 9.01(a)(4) of Form 8-K.
(b) Pro
Forma Financial Information
The pro
forma financial information required to be filed pursuant to Item 9.01(b) of
Form 8-K is not being filed herewith. Such pro forma financial information will
be filed by amendment not later than 71 calendar days after the Current Report
on Form 8-K reporting the closing of the acquisition is required to be filed, or
April 13, 2011, pursuant to Item 9.01(b)(2) of Form 8-K.
21
(d) Exhibits
Exhibit No.
|
Description
|
|
2.1
|
Securities
Purchase Agreement, dated January 26, 2011, by and among the Company, Avi
Koschitzki, the sellers signatory thereto and Jenson Services,
Inc.
|
|
3.2
|
Amended
and Restated Bylaws of the Company
|
|
4.1
|
Certificate
of Designations of Series A 6% Convertible Preferred Stock of the
Company
|
|
4.2
|
Certificate
of Designations of Series B Convertible Preferred Stock of the
Company
|
|
4.3
|
Form
of Class A Warrant issued to the investors in the Private
Placement
|
|
4.4
|
Form
of Class B Warrant issued to the investors in the Private
Placement
|
|
10.1
|
Securities
Exchange Agreement, dated as of January 26, 2011, by and among Avi
Koschitzki, Brenda Koschitzki, the Avi Koschitzki 2010 Trust, the
Koschitzki Children’s Trust and the Company
|
|
10.2
|
Form
of Subscription Agreement for investors in the Private
Placement
|
|
17.1
|
Resignation
Letter of Todd Albiston, dated January 26, 2011
|
|
17.2
|
|
Resignation
Letter of Mack Bradley, dated January 26,
2011
|
22
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
February
1, 2011
|
RXBIDS
|
||
By:
|
/s/
Avi Koschitzki
|
||
Name:
|
Avi
Koschitzki
|
||
Title:
|
President
and Chief Executive
Officer
|