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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011

or

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 000-53976

HORIYOSHI WORLDWIDE INC.
(Exact name of registrant as specified in its charter)

Nevada 98-0513655
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)  

3113 S. Grand Avenue, Los Angeles, CA, USA 90007
(Address of principal executive offices) (Zip Code)

(213) 741-1920
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, 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.
[X] YES [ ] 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] YES [ ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer [ ]   Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]

1


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act
[ ] YES [X] NO

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
[ ] YES [ ] NO

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
63,514,058 common shares issued and outstanding as of November 8, 2011

2


TABLE OF CONTENTS

Item 1.

Financial Statements

 4
 

Consolidated Balance Sheets – September 30, 2011 (Unaudited) and December 31, 2010

 4

Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended September 30, 2011 and 2010

6

Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2011 and 2010

8
 

Notes to Consolidated Financial Statements

9
Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16
Item 3.

Risk Factors

 21
Item 4.

Controls and Procedures Evaluation of Disclosure Controls and Procedures

 24
Item 5.

Exhibits

 25
Signatures  26

3


Item 1. Financial Statements

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements as of December 31, 2010 and notes thereto contained in our Company's Form 10-K filed with the SEC on April 8, 2011. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

4


HORIYOSHI WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS AS OF

    September 30,     December 31,  
    2011     2010  
    (UNAUDITED)        
                                                         ASSETS            
Current assets:            
Cash and cash equivalents $  1,744,774   $  5,576,131  
Accounts receivable (net) of allowance for doubtful
accounts of $10,852 and $1,696 as of September 30, 2011
and December 31, 2010, respectively
 

51,855
   

70,442
 
Prepaid expenses and other current assets   92,640     1,037,251  
Inventory, net   768,326     -  
Total current assets   2,657,595     6,683,824  
             
Property and equipment, net   83,612     19,724  
Licensing rights, net   725,000     -  
Total assets $  3,466,207   $  6,703,548  
             
LIABILITIES AND STOCKHOLDERS' DEFICIT            
Current liabilities:            
             
Accounts payable $  33,739   $  40,991  
Deferred revenue   -     18,062  
Accrued expenses   32,154     45,377  
Other payables   -     48,100  
Due to shareholder   116,569     132,675  
Related party, demand loan   737,553     2,235,734  
Due to a director   -     18,480  
             
Total current liabilities   920,015     2,539,419  
             
Total liabilities $  920,015   $  2,539,419  
             
Preferred stock, $0.001 par value per share, 100,000,000
shares authorized, 0 shares issued and outstanding
 
-
   
-
 
Common stock, $0.001 par value per share, 1,081,100,000
shares authorized, 63,514,058 shares issued and outstanding
as of September 30, 2011 and December 31, 2010
 

63,514
   

63,514
 
Additional Paid-in Capital   5,389,767     4,937,776  
Stock subscription receivable   -     (516 )
Accumulated deficit   (2,907,089 )   (836,645 )
             
Total stockholders' equity   2,546,192     4,164,129  
             
Total liabilities and stockholders' equity $  3,466,207   $  6,703,548  

The accompanying notes are an integral part of the consolidated financial statements

5



HORIYOSHI WORLDWIDE, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

    Three Months     Three Months  
    Ended     Ended  
    September 30,     September 30,  
    2011     2010  
Revenue, net $  266,046     282,118  
Cost of sales   339,559     135,087  
           Gross profit (loss)   (73,513 )   147,031  
             
Operating Expenses            
           Selling expenses   3,623     23,006  
           General and administrative expenses   905,681     197,918  
           Depreciation and amortization   22,548     282  
Total operating expenses   931,852     221,206  
Income (loss) from operations   (1,005,365 )   (74,175 )
Non-operating income            
             Other income   22     -  
Net (loss) before income taxes   (1,005,343 )   (74,175 )
             Income taxes   -     -  
             
Net (loss) $  (1,005,343 )   (74,175 )
Basic and diluted earnings (loss) per share $  (0.02 )   (0.00 )
Weighted average shares of common stock outstanding – basic and diluted   63,514,058     30,000,000  

The accompanying notes are an integral part of the consolidated financial statements

6



HORIYOSHI WORLDWIDE, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

    Nine Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2011     2010  
Revenue, net $  532,860     441,365  
Cost of sales   461,412     213,644  
           Gross profit   71,448     227,721  
             
Operating Expenses            
           Selling expenses   100,070     62,995  
             General and administrative expenses   2,009,805     369,636  
           Depreciation and amortization   32,096     693  
Total operating expenses   2,141,971     433,324  
Income (loss) from operations   (2,070,523 )   (205,603 )
Non-operating income            
             Other income   79     -  
Net (loss) before income taxes   (2,070,444 )   (205,603 )
             Income taxes   -     -  
             
Net (loss) $  (2,070,444 )   (205,603 )
Basic and diluted earnings (loss) per share $  (0.03 )   (0.01 )
Weighted average shares of common stock outstanding – basic and diluted   63,514,058     30,000,000  

The accompanying notes are an integral part of the consolidated financial statements

7



HORIYOSHI WORLDWIDE, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

    Nine Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2011     2010  
Cash flows from operating activities            
      Net (loss) $  (2,070,444 ) $  (205,603 )
             
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
       Depreciation and amortization   32,096     693  
       Allowance for doubtful accounts   9,156     -  
       Warrants issued for services   451,991     -  
       Stock subscription receivable – write-off   516     -  
       Allowance for inventory valuation   145,655     -  
             
Changes in operating assets and liabilities:            
       Accounts receivable   9,431     (170,272 )
       Prepaid expenses and other assets   944,611     (695,272 )
       Inventory   (913,981 )   -  
       Accounts payable   (7,252 )   -  
       Deferred revenue   (18,062 )   1,753  
       Accrued expenses   (13,223 )   (85,472 )
       Other payables   (48,100 )   -  
             
Net cash (used) in operating activities   (1,477,606 )   (1,154,173 )
             
Cash flows from investing activities            
     Purchase of equipment   (70,984 )   (7,695 )
     Payment for licensing rights   (750,000 )   -  
             
Net cash (used) in investing activities   (820,984 )   (7,695 )
             
Cash flows from financing activities            
     Proceeds of loan from shareholders   -     1,186,222  
     Repayment of loan from shareholder   (1,532,767 )   (35,000 )
             
Net cash flows provided by (used in)            
financing activities:   (1,532,767 )   1,151,222  
             
Net increase (decrease) in cash $  (3,831,357 ) $  (10,646 )
Cash- beginning of period   5,576,131     17,721  
Cash- end of period $  1,744,774   $  7,075  
             
Noncash Investing and Financing Activities:            
             
     Cancellation of supplier agreement $  629,169   $  -  

The accompanying notes are an integral part of the consolidated financial statements

8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Business

Horiyoshi Worldwide, Inc. (HHWW) is a clothing and accessories design and distribution company whose products are inspired by the artwork of Japanese master tattoo artist Yoshihito Nakano - better known as Horiyoshi III. The Horiyoshi name has been internationally recognized for decades and Horiyoshi III is considered by his peers and followers as a legend in his field. The business was established September 1, 2008 to capitalize on the multi-generational legacy of the Tattoo Masters by offering consumers a unique collection of knitwear, t-shirts and accessory items. The Company began selling its products in 2009. The Collection retails at a suggested price point of approximately $140-160 for T-shirts, $480-945 for knits, $600-800 for hoodies, and $280-420 for scarves. The rights to the Horiyoshi III design catalogue are exclusively licensed to Horiyoshi the Third, Inc. (HTT) a wholly owned subsidiary of HHWW (“the Company”).

We were incorporated as Kranti Resources, Inc. (Kranti), in the State of Nevada on November 3, 2006 to engage in the acquisition, exploration, and development of mineral deposits and reserves. The company discontinued its planned mining activities and eventually adopted a new strategy to pursue opportunities in the fashion apparel industry. On May 18, 2010, Benny Gill and Rimpal Samra resigned as Directors of the company and Jaskarn Samra resigned as President. On May 18, 2010, Mitsuo Kojima was appointed as President of Kranti Resources, Inc.

On June 21, 2010, Kranti effected a 2.1622 for one (1) forward stock split of outstanding stock. As a result, the company’s outstanding share count increased from 43,875,000 shares of common stock to 94,866,525 shares of common stock, all with a par value of $0.001. In addition, on June 21, 2010, the company changed its name to Horiyoshi Worldwide Inc. to coincide with the redirection of its business toward fashion apparel. On September 1, 2010, the company entered into a share exchange agreement with Horiyoshi the Third Limited, a Hong Kong corporation, and the shareholders of Horiyoshi the Third Limited for purchase of the company.

On November 5, 2010, President Mitsuo Kojima affected a Share Cancellation Agreement with Kranti and surrendered for cancellation all 64,866,000 shares held by him in common stock which left a total of 30,000,526 shares outstanding.

The share exchange agreement with Horiyoshi the Third Limited was subsequently amended and on November 5, 2010 the acquisition of all of the issued and outstanding common shares of Horiyoshi the Third Limited occurred. In accordance with the closing, Horiyoshi Worldwide, Inc. issued 30,000,000 shares of common stock to the former shareholders of Horiyoshi the Third Limited in exchange for the acquisition of all 10,000 Horiyoshi the Third Limited shares issued and outstanding. Upon close of the acquisition, Horiyoshi Worldwide, Inc. had a total of 60,000,526 shares issued and outstanding.

On June 15, 2011, Horiyoshi Worldwide [UK] Limited (HHWW UK) was incorporated. HHWW UK is a wholly owned subsidiary of HHWW, and is a United Kingdom Corporation. HHWW UK is the owner and operator of the Company’s first branded retail outlet.

Going Concern, Liquidity and Management's Plan

As of September 30, 2011, our Company has accumulated losses of $2,907,089 since inception and has earned no net income since inception. Our Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending December 31, 2011. In response to these problems, management intends to raise additional funds through public or private placement offerings. These factors, among others, raise substantial doubt about our company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

9


Note 2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The unaudited consolidated financial statements include the accounts of Horiyoshi Worldwide, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

The accompanying unaudited Horiyoshi Worldwide, Inc. consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2010 included in the Company's Annual Report on Form 10-K. In the opinion of management, the interim unaudited consolidated financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company's financial position, the results of operations and cash flows for the periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates include: revenue recognition; sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation and recoverability of long-lived assets; property and equipment; contingencies; and income taxes.

On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Cash and cash equivalents

The Company includes in cash and cash equivalents all short-term, highly liquid investments that mature within three months of their acquisition date. Cash equivalents consist principally of investments in interest-bearing demand deposit accounts and liquidity funds with financial institutions and are stated at cost, which approximates fair value. The Company’s main banking relationship is with HSBC Bank at branches in Los Angeles, Hong Kong, and the United Kingdom. For cash management purposes the Company concentrates its cash holdings in accounts at HSBC Bank. The balances in these accounts may exceed the federally insured limit of $250,000 per account by the Federal Deposit Insurance Corporation (FDIC). In case of bank failure, it would have a significantly negative impact on the company’s ability to continue operations.

Revenue recognition

Our revenue recognition policy is in accordance with US GAAP, which requires the recognition of sales when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and the collectability of revenue is reasonably assured. We generally record sales upon shipment of product to customers and transfer of title under standard commercial terms.

10


Return policy

Customers have the right to return merchandise and the return policy is set by senior management and consistent among all of our client relationships. Management monitors returns by clients carefully as we increase the number of retail outlets within our distribution network. Reserves are established to reflect actual and anticipated losses resulting from the returns of defective and unsold merchandise based on historical information. Currently we estimate returns to be approximately 1% of our sales and reserves have been made accordingly each reporting period.

The percentage of sales used in the reserve calculation is based on management’s best estimate.

Cost of sales

Cost of goods sold consists of cost of purchases for resale to stores located in Australia, Canada, Dubai, France, the French West Indies, Italy, Japan, Kuwait, Mexico, the United Kingdom, and the United States. The Company purchased 100% of its merchandise for the year ended December 31, 2010 and the period through May 31, 2011 from Stone Corporation Inc. Stone Corporation Inc. is organized and operates in Japan, and is 80% owned by Lone Star Capital Limited, a Hong Kong company and our principal shareholder and 20% owned by Master Horiyoshi III. Stone manages the process of contracting manufacturers and purchasing the materials that are used to produce our clothing and other products. Stone is invoiced by the producers and suppliers and those charges pass through to Horiyoshi Worldwide, Inc. As of June 1, 2011, the Company ceased its manufacturing relationship with Stone Corporation Inc. and began sourcing from producers and suppliers directly. Our clients are required to pay all shipping costs for the delivery of their orders. As we increase product sales and require larger production runs, and move manufacturing out of Japan, we believe that our cost of goods sold as a percentage of revenue will diminish due to economies of scale.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Customer accounts with balances over 90 days old are considered delinquent. The carrying amount of accounts receivable are reduced by an allowance for doubtful accounts that reflects our Company's best estimate of the amounts that will not be collected. Our Company reviews outstanding accounts and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Our Company provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Currently we estimate doubtful accounts to be approximately 3% of our sales and reserves have been made accordingly each reporting period. Balances that are still outstanding after reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Earnings (Loss) per Share

The Company presents earnings (loss) per share (“EPS”) in accordance with ASC 260,“Earnings per Share. ASC 260 requires dual presentation of basic and diluted EPS. Basic EPS includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Due to the net loss incurred in the three and nine months ended September 30, 2011, the assumed exercise of stock options was anti-dilutive. Therefore, basic and diluted losses per share are the same for all periods presented. At September 30, 2011 there were 400,000 stock options that could dilute future earnings.

Foreign Currency

Foreign currency exposures arise from transactions, including firm commitments and anticipated contracts, denominated in a currency other than an entity's functional currency and from foreign-denominated revenues translated into U.S. dollars. Changes in currency exchange rates may affect the relative prices at which we and our foreign competitors sell products in the same market and collect receivables from such sales.

Changes in currency rates may affect prices at which we conduct business with our vendors and our employees. Payments subject to foreign currency translation are executed at our deposit bank currency spot rate at the time of payment, generally at each month’s end.

11


We generally sell our products and conduct business with our vendors and employees in U.S. dollars but from time to time conduct business transactions in a currency other than U.S. dollars. The company does not currently hedge for the fluctuation of foreign currencies due to the diminutive nature of transactions of this nature.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carry-forwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carry-forwards is provided when it is determined that such assets will more likely than not go unrealized. If it becomes more likely than not that a tax asset will be realized, the related valuation allowance on such assets would be reversed.

The Company accounts for income taxes in accordance with the ASC 740-10-25, which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, it requires recognition of future tax benefits, such as carry forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

Inventory

Inventories, consisting of finished goods, work in process, and raw materials are valued at the lower of cost, as determined by the average cost, or market. Cost includes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition. Prior to June 1, 2011, the Company carried no salable inventory and shipped manufactured goods related to purchase orders directly from Stone Corporation. At September 30, 2011 inventory consists of $762,196 of finished goods and $6,130 of raw materials.

The Company maintains a perpetual inventory and report by product. This is updated daily based upon shipping and sales reports. Due to the high style nature of the Company’s merchandise, reserves are recorded to reduce the carrying value of slow moving, out of season, and broken style merchandise to market value and as additional cost of sales. As of September 30, 2011 and December 31, 2010, there have been reserves of $145,655 and $0, respectively, made for inventory on hand.

Property and Equipment

Property and equipment are recorded at cost and valued at $83,612 and $19,724 at September 30, 2011 and December 31, 2010, respectively. Property and equipment consists of computer technology, software, furniture and office furnishings, and leasehold improvements. Depreciation was $7,096 for the nine months ending September 30, 2011 and $693 for the nine months ended September 30, 2010.

Prepaid Expenses and Other Current Assets

The Company realized a significant decrease in prepaid expense for the quarter ended September 30, 2011 attributed to the receipt of inventory, payments for licensing rights, and termination of manufacturing agreement with Stone Corporation, a related party.

Prior to the quarter ended June 30, 2011, Stone Corporation was the sole manufacturing supplier and important design and development resource to Horiyoshi Worldwide, Inc. Stone Corporation, a Japanese corporation, is 80% owned by Lone Star Capital Limited, a Hong Kong company and principal shareholder of the Company, and 20% owned by Yoshihito Nakano, Master Horiyoshi III, also a significant shareholder of the Company.

12


The services rendered by Stone Corporation encompass design, development and production services. A portion of the decrease in prepaid expenses can be attributed to receipt of inventory from Stone Corporation as a result of the services rendered.

On June 1, 2011, Horiyoshi The Third Limited amended its License Agreement with Stone Corporation. Pursuant to the amended license agreement, the Company holds the exclusive, worldwide rights to use, and sublicense to use, rights related to the mark “HORIYOSHI”, and all derivatives thereof, in connection with the manufacture, promotion, sale and distribution of all products, goods, and services, in all categories, without limitation. The amended license agreement expires on May 31, 2021 and contains five extension options in five year increments. During the quarter ended June 30, 2011, the Company paid Stone Corporation consideration of $750,000 as a non-refundable entry fee into the license agreement and $45,000 as a flat license fee for the month of June 2011. During the quarter ended September 30, 2011 the Company paid Stone Corporation license fees of $90,000. The Company will continue to pay Stone Corporation a flat monthly license fee of $30,000 from October1, 2011 through May 31, 2012 with a running royalty calculated as 6% of net sales commencing on June 1, 2012 and continuing through the date of expiration. On June 1, 2011, $750,000 related to the non-refundable entry fee into the license agreement was reclassified from prepaid expenses to licensing rights on the balance sheet. For the nine months ended September 30, 2011 and September 30, 2010, the amount of licensing rights capitalized on the balance sheet was $725,000, net of $25,000 of accumulated amortization, and $0, net of $0 of accumulated amortization, respectively.

On June 30, 2011 Horiyoshi The Third Limited entered into an Agreement For Settlement of Prepaid Assets and Forgiveness of Debt with Stone Corporation and Lonestar Capital Limited, a Hong Kong company and 80% owner of Stone Corporation. Pursuant to the agreement, the Company absolved its right to receive $629,169 of prepaid assets from Stone Corporation in exchange for Lonestar Capital Limited forgiving $629,169 of debt owed by the Company under its demand loan agreement. The transaction did not have an impact on net income for the nine months ended September 30, 2011.

Prepaid expenses and other current assets for the nine months ended September 30, 2011 were $92,640 and $1,037,251 for the year ended December 31, 2010. Prepaid expenses and other current assets at September 30, 2011 represent deposits on operating leases and amounts paid for goods and services yet to be received.

Accrued Expenses and Other Current Liabilities

Accounts payable are those funds owed to our business partners for goods and services rendered which are related to our business operations. Our accounts payable for the nine months ended September 30, 2011 and the year ended December 31, 2010 were $33,739 and $40,991, respectively.

The Company accrues expenses related to business travel, professional services rendered but not yet paid for and various office expenses and reimbursements. As a result of the limited number of employees and short term nature of their employment it has not been necessary for the Company to separately accrue for vacation or payroll time for the quarter ended September 30, 2011. Our accrued expenses were $32,154 for the nine months September 30, 2011 and $45,377 for the year ended December 31, 2010.

Licensing Rights

On June 1, 2011, Horiyoshi The Third Limited amended its License Agreement with Stone Corporation. As a result, the Company paid Stone Corporation consideration of $750,000 as a non-refundable entry fee into the amended license agreement. For the nine months ended September 30, 2011, the $750,000 non-refundable entry fee has been capitalized as licensing rights on the balance sheet, net of accumulated amortization of $25,000. The cost of the licensing rights is being amortized over 120 months on a straight-line basis.

For the nine months ended September 30, 2011, $25,000 of amortization expense related to licensing rights has been included in cost of goods sold.

Fair Value of Financial Instruments

The carrying amount reported in the accompanying condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. The Company believes the fair value of the revolving credit loan with Stone Corporation approximates fair value because of the accelerating nature of the sales cycle and the related party aspect of the Stone relationship. It was not practicable to estimate the fair value of notes payable to related parties.

13


Note 3. Intangible Asset

    September 30, 2011     December 31, 2010  
    (Unaudited)        
Licensing rights $  750,000   $  -  
Less, accumulated amortization   (25,000 )   -  
Licensing rights, net $  725,000   $  -  

Scheduled amortization is currently estimated as follows:

2012 $  75,000  
2013   75,000  
2014   75,000  
2015   75,000  
2016   75,000  
Thereafter   350,000  
Total $  725,000  

Note 4. Subordinated Notes Payable to Related Party

As of September 30, 2011 and December 31, 2010, our Company was obligated to Steve Suk, a Director of Horiyoshi the Third Limited, for a non-interest bearing demand loan with a balance of $116,569 and $132,675, respectively.

As of September 30, 2011 and December 31, 2010, our Company was obligated to Lone Star Capital Limited, for a non-interest bearing demand loan with a balance of $737,553 and $2,235,734, respectively.

Note 5. Related Party Transactions

On September 17, 2008, Horiyoshi III Worldwide Ltd. (as we then were) entered into a License Agreement with Stone Corporation Inc. d/b/a Stone Japan, a Japanese corporation that is 80% owned by Lone Star Capital Limited, (a Hong Kong company and our principal shareholder) and 20% owned by Yoshihito Nakano, Master Horiyoshi III. Pursuant to the license agreement we hold an exclusive, worldwide, 35 year license, effective September 17, 2008, to use all copyright and trademark rights associated with our products and brand, and to exclusively manufacture and distribute apparel, beauty products, and other products related to our business. No third party is permitted to use the IP licensed to us for the production of non-apparel merchandise. We paid consideration of $10 in respect of the licensed rights. In the event that Stone Japan intends to sell the intellectual property rights licensed to us, we shall have a first right of purchase for those rights so long as the license agreement is in effect to purchase those rights at any time in the seven (7) years preceding the termination of the license agreement. The purchase price shall be equal to two (2) times the average annual gross sales turnover of our products based on the licensed rights during the three years preceding the date of exercise of the right of purchase.

On June 1, 2011, as a result of rising costs in Japan and weakness of the United States Dollar against the Japanese Yen, our Company ceased its manufacturing relationship with Stone Corporation and entered into an amended agreement for licensing rights. Pursuant to the amended license agreement we hold the exclusive, worldwide rights to use, and sublicense to use, rights related to the mark “HORIYOSHI”, and all derivatives thereof, in connection with the manufacture, promotion, sale and distribution of all products, goods, and services, in all categories, without limitation. The amended license agreement expires on May 31, 2021 and contains five extension options in five year increments. During the quarter ended September 30, 2011, as consideration for the IP rights, we paid Stone Corporation license fees of $90,000.

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The Company will continue to pay Stone Corporation a flat monthly license fee of $30,000 from October 1, 2011 through May 31, 2012 with a running royalty calculated as 6% of net sales commencing on June 1, 2012 and continuing through the date of expiration.

On June 30, 2011, Horiyoshi the Third Limited entered into an Agreement For Settlement of Prepaid Assets and Forgiveness of Debt with Lonestar Capital Limited and Stone Corporation. Pursuant to the agreement, our Company absolved its rights to obtain $629,169 of prepaid assets from Stone Corporation in consideration of Lonestar Capital Limited forgiving $629,169 of indebtedness owed under our revolving line of credit.

Note 6. Stock-Based Compensation and Warrants

Stock Awards

On January 1, 2011, we entered into a consulting agreement with Raymond A. Catroppa, CFA. Pursuant to the terms of the consulting agreement, we provided Mr. Catroppa with 400,000 warrants to purchase equity shares at $0.50 per share. The consulting agreement is for a period of twelve months.

The fair value of each warrant granted is estimated on the date of the grant using the Black-Scholes Model. The Black-Scholes Model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based on the U.S. Treasury Bill rate with a maturity based on the expected life of the options and on the closest day to an individual stock option grant. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on historical market prices of the Company’s common stock. The expected life of an option grant is based on management’s estimate. The fair value of each option grant is recognized as a compensation expense over the vesting period of the option on a straight line basis. Warrant expense related to the warrants issued using this estimate is $150,664 for the quarter ending September 30, 2011 and $451,991 for the nine months ended September 30, 2011.

The following weighted-average assumptions were utilized in the fair value calculations for warrants granted:

    Nine months Ended  
    September 30, 2011  
Exercise price $  .50  
Expected dividend yield   0 %  
Expected stock price volatility   230 %  
Risk-free interest rate   .29 %  

Note 7. Commitments and Contingencies

Operating Leases

Prior to the quarter ended September 30, 2011, the Company’s executive offices, sales showroom and support staff were located in the Mandel Building located at 711 S. Olive Street, #504 Los Angeles, CA 90014. These offices are leased under an operating lease which expires in November 2011.

In August 2011, the Company entered into an operating lease agreement and moved our executive offices, sales showroom, and support staff to 3113 S. Grand Avenue, Los Angeles, CA 90007. The lease has term of 2 years and one month and expires in August 2013.

In September 2011, the Company entered into an agreement to lease a building for its first retail store at 19 Connaught Street, London W2. The lease has a term of 7 years and expires at the end of August 2018. The Company accounts for this lease as an operating lease.

The Company also leases certain office equipment under operating lease agreements.

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The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 2011:

2012 $  112,023  
2013   89,028  
2014   43,036  
2015   43,036  
2016   42,332  
Thereafter   68,206  
Total $  397,661  

Operating lease rent expense (including real estate taxes and common area maintenance costs) was approximately $74,932 for the nine months ended September 30, 2011. Rent expense is allocated to operating expenses in the accompanying condensed consolidated statements of operations.

Note 8. Seasonality

To date, with the majority of the Company’s revenues coming from the luxury segment there is seasonality in the revenue steam. The Company attends important design shows that are focused on the Women’s and Men’s spring season and Women’s and Men’s fall season which occur in March and September. This translates into the company booking a large portion of orders and corresponding revenues in the first and third quarter on a yearly basis. As the Company introduces line extensions targeting different customers and retailers, consummates licensing partnerships and completes development of an online store it will serve to smooth out earnings on a yearly basis.

Note 9. Subsequent Events

The Company opened its first branded retail outlet in London on October 10, 2011.

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

The following discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this quarterly report.

Our consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Overview

Horiyoshi Worldwide, Inc., “the Company,” is a clothing and accessories design and distribution company whose products are inspired by the artwork of Japanese master tattoo artist Yoshihito Nakano - better known as Horiyoshi III. The Horiyoshi name has been internationally recognized for decades and Horiyoshi III is considered by his peers and followers as a legend in his field. The business was established September 1, 2008 to capitalize on the multi-generational legacy of the Tattoo Masters by offering consumers a unique collection of knitwear, t-shirts and accessory items. The Company began selling its products in 2009. The Collection retails at a suggested price point of approximately $140-160 for T-shirts, $480-945 for knits, $600-800 for hoodies, and $280-420 for scarves. The rights to the Horiyoshi III design catalogue are exclusively licensed to Horiyoshi the Third, Inc. (HTT) a wholly owned subsidiary of HHWW (“the Company”).

The Company’s design teams are passionate about the art work of Horiyoshi III and take great care integrating the imagery into the Company’s garments. HHWW’s management feels that it is positioning the Company to take advantage of the increasing inflection of design, art and culture in today’s fashion world. By introducing quality clothes that infuse the internationally recognized art work of Horiyoshi III the company believes it is at the vanguard of a growing interest in unique aspects of the art and cultural imagery of the Far East. The Company’s strategy includes the development of a line extension marketed at a lower price point and focused on larger markets. In conjunction a number of new distribution channels are under development. Our goal is to build a brand that is recognized throughout the world for creating quality products with universal appeal.

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We were incorporated as Kranti Resources, Inc., in the State of Nevada on November 3, 2006 to engage in the acquisition, exploration, and development of mineral deposits and reserves. Our Company discontinued its planned mining activities and eventually adopted a new strategy to pursue opportunities in the fashion apparel industry.

On June 21, 2010, our company effected a 2.1622 for 1 forward stock split of outstanding stock. As a result, our company’s outstanding share count increased from 43,875,000 shares of common stock to 94,866,525 shares of common stock, all with a par value of $0.001. In addition, on June 21, 2010, our company changed its name to Horiyoshi Worldwide Inc. to coincide with the redirection of its business toward fashion apparel.

On September 1, 2010, we entered into a share exchange agreement with Horiyoshi the Third Limited, a Hong Kong corporation, and the shareholders of Horiyoshi the Third Limited for purchase of the company.

On November 5, 2010, our president, Mitsuo Kojima entered into a share cancellation agreement with our company and surrendered for cancellation all 64,866,000 shares held by him in common stock which left a total of 30,000,526 shares outstanding.

The share exchange agreement with Horiyoshi the Third Limited was subsequently amended and on November 5, 2010 the acquisition of all of the issued and outstanding common shares of Horiyoshi the Third Limited occurred. In accordance with the closing, we issued 30,000,000 shares of our common stock to the former shareholders of Horiyoshi the Third Limited in exchange for the acquisition of all 10,000 Horiyoshi the Third Limited shares issued and outstanding. Upon close of the acquisition we had a total of 60,000,526 shares issued and outstanding.

On November 29, 2010 we entered in a share issuance agreement with Zyndy Trade Corp., pursuant to which Zyndy has agreed to acquire up to $5 million of our shares of common stock through periodic draw downs at the request of our Company. The price per share to be issued on any draw down shall be set at 75% of the volume weighed average closing prices for the ten days preceding any draw down notice. This agreement is to remain in effect until December 31, 2011.

On January 1, 2011 we entered in a consulting agreement with Raymond A. Catroppa as the company’s chief financial officer and corporate development executive on an interim basis. The consulting agreement provides for the basic remuneration of Mr. Catroppa at the rate of US$60,000 per annum payable in equal monthly installments. The term of the agreement began on January 1, 2011 and continues through January 1, 2012 at which time the employment contract will be re-negotiated unless terminated by either party.

Executive Summary

For the three months ended September 30, 2011, we reported net sales of $266,046, a decrease of $16,072, or 6%, less than the $282,118 reported for the quarter ended September 30, 2010. Gross margin decreased to -28% for the quarter ended September 30, 2011 compared to 52% for the quarter ended September 30, 2010. Operating expenses, which include all selling, general and administrative costs, increased $710,646, or 321%, to $931,852 for the quarter ended September 30, 2011 as compared to $221,206 for the quarter ended June 30, 2010. Net loss for the quarter ended September 30, 2011 was $1,005,343 compared to net loss of $74,175 for the quarter ended September 30, 2010.

For the nine months ended September 30, 2011, we reported net sales of $532,860, an increase of $91,495, or 21%, over the $441,365 reported for the nine months ended September 30, 2010. Gross margin decreased to 13% for the nine months ended September 30, 2011 compared to 52% for the nine months ended September 30, 2010. Operating expenses, which include all selling, general and administrative costs, increased $1,708,648, or 394%, to $2,141,971 for the nine months ended September 30, 2011 as compared to $443,324 for the nine months ended September 30, 2010. Net loss for the nine months ended September 30, 2011 was $2,070,444 compared to net loss of $205,603 for the nine months ended September 30, 2010.

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Results of Operations

The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the quarters ended September 30, 2011 and September 30, 2010.

Operating results for the quarters and nine months ended September 30, 2011 and September 30, 2010 are summarized below:

    Three Months Ended     Nine Months Ended  
    September 30     September 30  
    2011     2010     2011     2010  
Revenue $  266,046   $  282,118   $  532,860   $  441,365  
COGS $  339,559   $  135,087   $  461,412   $  213,644  
Gross Profit $  (73,513 ) $  147,031   $  71,448   $  227,721  
Expenses $  931,852   $  221,206   $  2,141,971   $  433,324  
Other Income $  22   $  -   $  79   $  -  
Net Loss $  (1,005,343 ) $  (74,175 ) $  (2,070,444 ) $  (205,603 )

Revenue

We earned revenues of $266,046 for the quarter ended September 30, 2011 compared to revenues of $282,118 for the three months ended September 30, 2010. For the nine month period ended September 30, 2011 we earned revenues of $532,860 compared to $441,365 for the corresponding period in 2010. Decreased revenues in the quarter ended September 30, 2011 are the result of lower volumes of goods sold due to a product wide increase in our wholesale pricing. Increased revenues in the nine month period can be attributed to increased awareness of Horiyoshi the Third products, intensified participation in fashion and trade shows and expansion of our sales effort to new customers. These increases were realized in the quarters ended March 31, 2011 and June 30, 2011.

Cost of Goods Sold

Cost of goods sold for the quarter ended September 30, 2011 were $339,559 compared to $135,087 for the quarter ended September 30, 2010. Cost of goods sold represented 128% of sales for the quarter ended September 30, 2011 as compared to 48% for the quarter ended September 30, 2010. For the nine month period ended September 30, 2011, cost of goods sold were $461,412 compared to $213,644 for the corresponding period in 2010. Cost of goods sold represented 87% of sales for the nine month period ended September 30, 2011 as compared to 48% for the nine month period ended September 30, 2010. This increase in COGS as a percentage of sales for the quarter ended and nine months ended September 30, 2011 can be attributed to the rising costs of production in Japan, the weakness of the United States Dollar against the Japanese Yen, and markdowns of out of season and slow moving inventory on hand.

Expenses

Our total expenses for the quarters and nine months ended September 30, 2011 and September 30, 2010 are outlined in the table below:

    Three Months Ended     Nine Months Ended  
    September 30     September 30  
    2011     2010     2011     2010  
Selling $  3,623   $  23,006   $  100,070   $  62,995  
General and administrative $  905,681   $  197,918   $  2,009,805   $  369,636  
Depreciation and amortization $  22,548   $  282   $  32,096   $  693  
Total expenses $  931,852   $  221,206   $  2,141,971   $  433,324  

For the quarter ended September 30, 2011, expenses increased $710,646, or 321%, to $931,852 as compared to $221,206 for the corresponding period in 2010. For the nine month period ended September 30, 2011 expenses increased $1,708,647, or 394%, to $2,141,971 as compared to $433,324 for the corresponding period in 2010. These increases can be attributed to significant increases in sales and marketing activities, development of new clothes lines and distribution channels, expansion of personnel, and additional costs associated with the development of our first retail outlet in London.

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Liquidity and Financial Condition

Working Capital                  
    At     At        
    September 30,     December 31,     Increase/  
    2011     2010     (Decrease)  
Current Assets $  2,657,595   $  6,683,824   $  (4,026,229 )
Current Liabilities $  920,015   $  2,539,419   $  (1,619,404 )
Working Capital (deficit) $  1,737,580   $  4,144,405   $  (2,406,825 )

Cash Flows            
    Nine Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010  
Net Cash Used in Operating Activities $  (1,477,606 ) $  (1,154,174 )
Net Cash Used by Investing Activities $  (820,984 ) $  (7,695 )
Net Cash (Used) Provided by Financing Activities $  (1,532,767 ) $  1,151,222  
Net (Decrease) Increase in Cash During the Period $  (3,831,357 ) $  (10,646 )

For the nine months ended September 30, 2011, net cash used in operating activities was $1,477,606 as a result of changes in our working capital and a nine month net loss of $2,070,444.

For the nine months ended September 30, 2011, net cash used by investing activities was $820,984 as a result of purchases of furniture, computers, and office equipment, and a $750,000 payment made as a non-refundable entry fee into an amended license agreement with Stone Corporation.

For the nine months ended September 30, 2011, net cash used by financing activities was $1,532,767 as a result of principal repayments on loans due to shareholders.

We will require additional funds to fund our budgeted expenses in the future. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock. Further, we may continue to be unprofitable. We may need to raise additional funds in the future in order to proceed with our budgeted expenses. Additionally, there is no assurance that any party will advance additional funds to us in order to enable us to sustain our plan of operations or to repay our liabilities.

Liquidity and Capital Resources

Growth of our operations will be based on our ability to internally finance from cash flow, raise equity and/or debt to increase sales and production. Our primary sources of liquidity are: (i) cash from sales of our products; and (ii) financing activities. Our cash balance as of September 30, 2011 is $1,744,774.

Prior to the $5,000,000 in equity financing in December, 2010, our Company funded some of its operations through debt financing with related party transactions.

As of September 30, 2011, our Company was obligated to Steve Suk, a Director of Horiyoshi the Third Limited, for a non-interest bearing demand loan with a balance of $116,569.

As of September 30, 2011, our Company was obligated to Lone Star Capital Limited, for a non-interest bearing demand loan with a balance of $737,553.

Plan of Operation and Cash Requirements

Our wholly-owned subsidiary, Horiyoshi the Third Limited, began selling its products in 2009. We intend to continue sales and distribution of the Horiyoshi Collection through the public company Horiyoshi Worldwide, Inc. Through our wholly-owned subsidiary, Horiyoshi Worldwide [UK] Limited, we intend to sell the Horiyoshi Collection through our own branded retail outlet. Our plan of action over the next twelve months is to continue to market and sell the Horiyoshi Luxury Collection through wholesale and retail channels, develop a line extension to

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be sold at a lower price point and focused on a larger market and raise additional capital financing as necessary, to grow operations.

The success of our operations will be based on our ability to grow by financing the operation through internal cash flow or to raise funds through equity and/or debt financing to invest in marketing, sales and distribution of our product line. The challenging markets for credit and for the sale of luxury apparel resulting from the recent financial crisis and current period of economic stagnation have negatively affected the markets for many luxury goods. The availability of equity and/or debt financings remains uncertain.

Going Concern

For the quarter ended September 30, 2011, our Company has a loss of $1,005,343 and an accumulated deficit of $2,907,089. Our Company intends to fund operations through operational cash flow and equity/debt financing arrangements. These sources may be insufficient to fund its capital expenditures, working capital and other cash requirements for the future. In response to these problems, management intends to raise additional funds through public or private placement offerings. These factors, among others, raise substantial doubt about our Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Seasonality

To date, with the majority of the Company’s revenues coming from the luxury segment there is seasonality in the revenue steam. The Company attends important design shows that are focused on the Women’s and Men’s spring season and Women’s and Men’s fall season which occur in March and September. This translates into the company booking a large portion of orders and corresponding revenues in the first and third quarter on a yearly basis. As the company introduces line extensions targeting different customers and retailers, consummates licensing partnerships and completes development of an online store it will serve to smooth out earnings on a yearly basis.

Critical Accounting Policies

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates include: revenue recognition; sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation and recoverability of long-lived assets; property and equipment; contingencies; and income taxes.

On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Significant Estimates

Our financial statements include some amounts that are based on our management's best estimates and judgments. The most significant estimates relate to the valuation allowance for accounts receivable, returns, valuation of inventory, deferred taxes and various contingent liabilities. It is reasonably possible that the above-mentioned estimates and others may be adjusted as more current information becomes available, and any adjustment could be significant in future reporting periods.

Revenue recognition

Our revenue recognition policy is in accordance with US GAAP, which requires the recognition of sales when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and the

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collectability of revenue is reasonably assured. We record sales upon shipment of product to customers and transfer of title under standard commercial terms.

Deferred revenue as of September 30, 2011 and December 31, 2010 were $0 and $18,062 respectively. Deferred revenue represents prepayments and deposits required from certain customers before delivery of Horiyoshi the Third products.

Return policy

Customers have the right to return merchandise and the return policy is set by senior management and consistent among all of our client relationships. Management monitors returns by clients carefully as we increase the number of retail outlets within our distribution network. Reserves are established to reflect actual and anticipated losses resulting from the returns of defected and unsold merchandise based on historical information. Currently we estimate returns to be approximately 1% of our sales and reserves have been made accordingly each reporting period. The percentage of sales used in the reserve calculation is based on management’s best estimate.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Customer accounts with balances over 90 days old are considered delinquent.

The carrying amount of accounts receivable are reduced by an allowance for doubtful accounts that reflects our Company's best estimate of the amounts that will not be collected. Our Company reviews outstanding accounts and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Our Company provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Currently we estimate doubtful accounts to be approximately 3% of our sales and reserves have been made accordingly each reporting period. Balances that are still outstanding after reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Our Company has assessed accounts receivable and determined that a reserve is necessary and at September 30, 2011 the allowance for doubtful accounts was approximately $10,852.

Cost of goods sold

Cost of goods sold consists of cost of purchases for resale to stores located in Australia, Canada, Dubai, France, the French West Indies, Italy, Japan, Kuwait, Mexico, the United Kingdom, and the United States. The Company purchased 100% of its merchandise for the year ended December 31, 2010 from Stone Corporation Inc. Stone Corporation Inc. is organized and operates in Japan, and is 80% owned by Lone Star Capital Limited, a Hong Kong company and our principal shareholder and 20% owned by Master Horiyoshi III. Stone manages the process of contracting manufacturers and purchasing the materials that are used to produce our clothing and other products. Stone is invoiced by the producers and suppliers and those charges pass through to Horiyoshi Worldwide, Inc. As of June 1, 2011, the Company ceased its manufacturing relationship with Stone Corporation Inc. and began sourcing from producers and suppliers directly. Our clients are required to pay all shipping costs for the delivery of their orders. As we increase product sales and require larger production runs, and move manufacturing out of Japan, we believe that our cost of goods sold as a percentage of revenue will diminish due to economies of scale.

Inventory

Inventories, consisting of finished goods and work in process, are valued at the lower of cost, as determined by the average cost, or market. Cost includes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition. Prior to the quarter ended June 30, 2011, the Company carried no salable inventory and shipped manufactured goods related to purchase orders directly from Stone Corporation.

Income Taxes

The Company accounts for income taxes in accordance with the FASB Codification Topic 740-10-25 (“ASC 740-10-25”), which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, it requires recognition of future tax benefits, such as carry forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

Risks Related to Our Business

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Dependence on Key Personnel

The future success of our company depends largely on the talents and efforts of our principal designer, Master Horiyoshi III, as well as on the talents and abilities of other key members of our team, including our Director and Chief Executive Officer and our independent contractors. Although we believe that our continued operation and growth might be sustained without the ongoing contributions of Master Horiyoshi III or of other personnel; no assurance can be given that our business would not be adversely affected if certain key members of our production team or management ceased to be active in our business. Master Horiyoshi III is also integral to our marketing efforts and his absence would have a material adverse effect on our business. We do not currently maintain key-person life insurance on the life of Master Horiyoshi III.

Fashion and Apparel Industry Risks

We believe that our success depends in substantial part on our ability to stimulate and capture consumer interest with appealing designs, as well as to anticipate and react to changing consumer demands in a timely manner. Although, judging by the industry and media response to our first collections, we have been successful in this regard, there can be no assurance that our success will continue. Because our products have been produced in low volume, limited production runs, we have thus far been immune to losses caused by a failure to sell produced goods caused by changing fashion trends and ensuing rejection of our products at wholesale or retail. However, as we expand our production and distribution, we will be required increasingly to anticipate orders for our products. Although we intend to mitigate the risks of unsold products by securing pre-orders for the bulk of our products, we will nevertheless be required to produce a certain surplus volume of goods in order to anticipate subsequent order and re-orders. Accurately gauging and maximizing the size of our production runs will allow us to minimize our per-unit production costs by maximizing production efficiencies. For example, the cost of producing 1,000 t-shirts in a single run may be significantly lower than the cost of producing two staggered runs of 500 t-shirts. However, if we misjudge the market for our productions, we may be faced with a significant amount of unused fabrics and other materials, or a surplus of unsold finished goods.

We anticipate that the demand for our products will follow the cyclical patterns typical of the fashion and apparel industry. Demand for fashion and apparel products is cyclical and tends to decline in recessionary or politically or economically unstable periods, whether on a global, national or regional level. We believe that the introduction of our products to the retail market in 2009, although critically successful, was undoubtedly hampered by a stagnant, recessionary global retail environment.

Consumer demand for our products is invariably affected by the demand for the products of our competitors. The segment of the fashion apparel industry in which we operate is highly competitive, with numerous regional, national and multi-national designers of apparel and accessories operating worldwide. While none of these designers or manufacturers accounts for a significant percentage of total industry sales, many are significantly larger and have substantially greater resources than we do. In addition, with adequate financial support, appealing independent designers can become competitors within several years of establishing a new label. We believe that the appeal of brands associated with lower market segment products are frequently short-lived or cyclical, often succumbing to the novelty of new competitors in the marketplace. Meanwhile the appeal of exclusive luxury brands tend to withstand shifting fashion trends and competition. Accordingly, we intend to establish and maintain a competitive industry position by maintaining the exclusivity, quality, and longevity of our brand. We intend to achieve this by diligently scrutinizing and monitoring the scope and quality of our product line and retail distribution.

However, there can be no assurance that we will achieve any growth in revenues or earnings, achieve profitability, or sustain or operations. particularly if the current retail environment remains stagnant or further declines, if we fail to accurately gauge our products and production to accommodate shifting retail demand, or if our brand or products fail to achieve or maintain a competitive appeal in the marketplace.

Dependence on and protection of Intellectual Property Rights

On June 1, 2011, Horiyoshi The Third Limited entered into an amended License Agreement with Stone Corporation for the grant of the exclusive, worldwide rights to use, and sublicense to use, rights related to the mark “HORIYOSHI”, and all derivatives thereof, in connection with the manufacture, promotion, sale and distribution of all products, goods, and services, in all categories, without limitation. The amended license agreement expires on May 31, 2021 and contains five extension options in five year increments. Stone Corporation is a Japanese corporation that is 80% owned by Lone Star Capital Limited, (a Hong Kong Company and our prinicipal shareholder), and 20% owned by Yoshihito Nakano, Master Horiyoshi III.

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There is no restriction on the transferability of shares of Stone Corporation. We consider our rights under the License Agreement to be material, and as a result, termination of the License Agreement and the loss of the right to use the Licensed Intellectual Property would have a material adverse effect upon our company. We intend to devote substantial resources to the registration, maintenance, and protection of our intellectual property rights (including the Licensed Intellectual Property). However, there can be no assurance that any protective action taken by us will prevent imitation of our products or infringement of our intellectual property rights by others, or prevent an ensuing loss of revenue or other damages. Furthermore, as we expand our intellectual property rights by producing new products, creating new trademarks, and distributing our collections in new jurisdictions, our efforts may attract third party claims that question the validity of our intellectual property rights. There can be no assurance that any such claims will not succeed in frustrating, restricting, or blocking our ability to produce certain designs or to use certain trademarks in certain countries.

Changes in the Retail Industry could have a material adverse impact on our business

The retail industry periodically experiences business consolidations, restructurings, reorganizations and other ownership changes. Any of the retailers that carry our products may undergo such changes in the future, which could result in a significant contraction of the retail outlets carrying our products, which in turn could have a material adverse impact on our business.

Our ability to continue as a going concern is in substantial doubt

The ability of our company to continue as a going concern is in substantial doubt and is dependent on achieving profitable operations and obtaining the necessary financing in order to develop our business. The outcome of these matters cannot be predicted at this time. Our future operations are dependent on the market’s acceptance of our products in order to ultimately generate future profitable operations, and our ability to secure sufficient financing to fund future expansion or operations. There can be no assurance that our products will be able to secure market acceptance. Management plans to raise additional equity financing to enable our company to complete our development plans. However, there can be no assurance that we will be successful in raising additional financing. Our financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We have limited financial and management resources to pursue our growth strategy

Our growth strategy may place a significant strain on our management, operational and financial resources. We have negative cash flow from operations and continue to seek additional capital. We will have to obtain additional capital either through debt or equity financing. There can be no assurance, however, that we will be able to obtain such financing on terms acceptable to our Company.

If we raise additional funds through the issuance of equity or convertible securities, these new securities may contain certain rights, preferences or privileges that are senior to those of our common shares. Additionally, the percentage of ownership of our company held by existing shareholders will be reduced.

Risks Associated with Our Common Stock

Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares

Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like Amex. Accordingly, shareholders may have difficulty reselling any of their shares.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock

Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than

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established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a formprepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the Financial Industry Regulatory Authority believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The Financial Industry Regulatory Authority requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president and chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principal accounting officer), to allow for timely decisions regarding required disclosure.

As of the end of the fiscal quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president and chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

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Item 1A. Risk Factors.

There have been no material changes to any risk factors affecting our Company as disclosed by us in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. [Removed and Reserved]

Item 5. Other Information

None.

Exhibit Description
Number  
(3) (i) Articles of Incorporation and (ii) Bylaws
3.1

Certificate of Amendment filed with the Nevada Secretary of State on June 17, 2010, effective June 21, 2010. (Incorporated by reference from our Current Report on Form 8-K filed on July 20, 2010).

(10)

Material Contracts

10.1

License Agreement dated September 17, 2008 between Horiyoshi III Worldwide Ltd. and Stone Corporation Inc. (Incorporated by reference from our Current Report on Form 8-K filed on November 8, 2010).

10.2

Share Exchange Agreement among the company, Horiyoshi the Third Limited and the Shareholders of Horiyoshi the Third Limited dated September 1, 2010. (Incorporated by reference from our Current Report on Form 8-K filed on September 3, 2010).

10.3

Amendment to Share Exchange Agreement dated November 5, 2010 with Horiyoshi the Third Limited. (Incorporated by reference from our Current Report on Form 8-K filed on November 8, 2010).

10.4

Share Cancellation Agreement dated November 5, 2010 with Mitsuo Kojima. (Incorporated by reference from our Current Report on Form 8-K filed on November 8, 2010).

10.5

Share Issuance Agreement dated November 29, 2010 with Zyndy Trade Corp.

10.6

Consulting Agreement dated January 1, 2011 with Raymond A. Catroppa (Incorporated by reference from our Current Report on Form 8-K filed on February 28, 2011).

10.7*

License Agreement dated June 1, 2011between Horiyoshi The Third Limited and Stone Corporation Inc.

10.8*

Agreement For Settlement of Prepaid Assets and Forgiveness of Debt dated June 30, 2011 between Horiyoshi The Third Limited, Lonestar Capital Limited, and Stone Corporation Inc.

(21)

Subsidiaries of the Registrant

21.1

Horiyoshi the Third Limited

(31)

Rule 13a-14(a)/15d-14(a) Certifications

31.1

Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer

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Exhibit Description
Number  
31.2

Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer

(32)

Section 1350 Certifications

32.1

Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer

32.2

Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer


*

Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

  HORIYOSHI WORLDWIDE INC.
  (Registrant)
Dated: November 11, 2011  
   
  /s/ Mitsuo Kojima
  Mitsuo Kojima
  President, Chief Executive Officer and Director
  (Principal Executive Officer)
   
   
Dated: November 11, 2011 /s/ Raymond A. Catroppa
  Raymond A. Catroppa, CFA
  Chief Financial Officer and Secretary
  (Principal Financial Officer and Principal
  Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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