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EX-31.1 - CERTIFICATION - HW Holdings, Inc.exhibit31-1.htm
EX-32.2 - CERTIFICATION - HW Holdings, Inc.exhibit32-2.htm
EX-32.1 - CERTIFICATION - HW Holdings, Inc.exhibit32-1.htm
EX-31.2 - CERTIFICATION - HW Holdings, Inc.exhibit31-2.htm

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 June 30, 2012

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]


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.
6,351,406 common shares issued and outstanding as of August 6, 2012


TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
     
Item 1. Financial Statements 4
     
  Consolidated Balance Sheets – June 30, 2012 (Unaudited) and December 31, 2011 4
     
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) – Three Months and Six Months Ended June 30, 2012 and 2011 6
     
Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 30, 2012 and 2011 8
     
  Notes to Consolidated Financial Statements (Unaudited) 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Controls and Procedures 21
     
PART II – OTHER INFORMATION 22 
     
Item 1. Legal Proceedings 22
     
Item 1A. Risk Factors 22
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
     
Item 3. Defaults Upon Senior Securities 22
     
Item 4. Mine Safety Disclosures 22
     
Item 5. Other Information 22
     
Item 6. Exhibits 22
     
Signatures   23


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, 2011 and notes thereto contained in our Company's Form 10-K filed with the SEC on March 31, 2012. 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, 2012.

HORIYOSHI WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS AS OF
(UNAUDITED)

    June 30,     December 31,  
    2012     2011  
                                                         ASSETS            
             
Current assets:            
             
Cash and cash equivalents $  129,798   $  1,117,750  
             
Accounts receivable (net) of allowance for doubtful accounts of $7,531 and $8,429 as of June 30, 2012 and December 31, 2011, respectively   65,503     37,876  
             
Prepaid expenses and other current assets   87,885     55,166  
             
Inventory, net of reserves of $85,427 and $108,809 as of June 30, 2012, and December 31, 2011, respectively   878,645     877,252  
             
Total current assets   1,161,831     2,088,044  
             
Property and equipment, net   124,569     125,182  
             
Licensing rights, net   668,750     706,250  
             
Total assets $  1,955,150   $  2,919,476  

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



         LIABILITIES AND STOCKHOLDERS' DEFICIT            
             
Current liabilities:            
             
Accounts payable $  65,298   $  218,458  
             
Deferred revenue   7,027     48,435  
             
Accrued expenses   42,060     24,869  
             
Due to director   108,514     30,511  
             
Due to shareholder   1,037,553     737,553  
             
Total current liabilities   1,260,452     1,059,826  
             
Total liabilities $  1,260,452   $  1,059,826  
             
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, 108,110,000 shares authorized, 6,351,406 shares issued and outstanding as of June 30, 2012 and December 31, 2011   6,351     6,351  
             
Additional Paid-in Capital   5,597,594     5,597,594  
             
Accumulated other comprehensive income   (988 )   (4,655 )
             
Accumulated deficit   (4,908,259 )   (3,739,640 )
             
Total stockholders' equity   694,698     1,859,650  
             
Total liabilities and stockholders' equity $  1,955,150   $  2,919,476  

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


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

    Three Months     Three Months  
    Ended     Ended  
    June 30,     June 30,  
    2012     2011  
Revenue, net $ 146,283     38,003  
Cost of sales   86,574     70,084  
           Gross profit (loss)   59,709     (32,081 )
             
Operating Expenses            
           Selling expenses   34,946     48,405  
           General and administrative expenses   564,258     603,804  
           Depreciation and amortization   25,456     1,026  
Total operating expenses   624,660     653,235  
Income (loss) from operations   (564,951 )   (685,316 )
Non-operating income (expenses)            
             Other income   1     56  
             Foreign currency transaction gain/(loss)   (7,969 )   -  
Net (loss) before income taxes   (572,919 )   (685,260 )
             Income taxes   -     -  
Net (loss) $ (572,919 )   (685,260 )
Foreign currency translation adjustments   2,541     -  
Comprehensive loss   (570,378 )   (685,260 )
             
Basic and diluted earnings (loss) per share $  (0.09 )   (0.11 )
Weighted average shares of common stock outstanding – basic and diluted   6,351,406     6,351,406  

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


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

    Six Months     Six Months  
    Ended     Ended  
    June 30,     June 30,  
    2012     2011  
Revenue, net $  462,844     269,288  
Cost of sales   262,685     175,387  
           Gross profit   200,159     93,901  
             
Operating Expenses            
           Selling expenses   92,720     97,994  
             General and administrative expenses   1,216,148     1,058,498  
           Depreciation and amortization   50,884     3,298  
Total operating expenses   1,359,752     1,159,790  
Income (loss) from operations   (1,159,593 )   (1,065,889 )
Non-operating income (expenses)            
             Other income   84     56  
             Foreign currency transaction gain/(loss)   (3,601 )   -  
Net (loss) before income taxes   (1,163,110 )   (1,065,833 )
             Income taxes   -     -  
Net (loss) $  (1,163,110 )   (1,065,833 )
Foreign currency translation adjustment   (988 )   -  
Comprehensive (loss)   (1,164,098 )   (1,065,833 )
             
Basic and diluted earnings (loss) per share $  (0.18 )   (0.17 )
Weighted average shares of common stock outstanding – basic and diluted   6,351,406     6,351,406  

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


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

    Six Months     Six Months  
    Ended     Ended  
    June 30,     June 30,  
    2012     2011  
Cash flows from operating activities            
Net (loss) $  (1,163,110 ) $  (1,065,833 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
       Depreciation   13,384     9,548  
       Amortization   37,500     -  
       Allowance for doubtful accounts   (899 )   18,057  
       Warrants Issued for Services   -     301,327  
       Stock subscription receivable   -     516  
       Foreign currency remeasurement (loss)   (4,418 )   -  
Changes in operating assets and liabilities:            
       Accounts receivable   (26,703 )   (3,410 )
       Prepaid expenses and other assets   (58,199 )   376,745  
       Inventory   (4 )   (604,524 )
       Accounts payable   (96,009 )   (9,585 )
       Deferred revenue   (41,408 )   (9,358 )
       Accrued expenses   (13,247 )   2,533  
Net cash (used) in operating activities   (1,353,113 )   (983,984 )
             
Cash flows from investing activities            
     Purchase of equipment   (12,758 )   (25,805 )
     Payment for licensing rights   -     (750,000 )
Net cash (used) in investing activities   (12,758 )   (775,805 )
             
Cash flows from financing activities            
     Proceeds of loan from shareholders/ directors   378,003     -  
     Repayment of loan from shareholders/ directors   -     (834,012 )
Net cash flows provided by (used in) financing activities:   378,003     (834,012 )
Effect of foreign currency translation on cash and cash equivalents   (84 )   -  
             
Net increase (decrease) in cash $  (987,952 ) $  (2,593,801 )
Cash- beginning of period   1,117,750     5,576,131  
Cash- end of period $  129,798   $  2,982,330  
             
Noncash Investing and Financing Activities:            
             
     Cancellation of supplier agreement $  -   $  629,169  

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


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 from the “Horiyoshi” collection in 2009. The “Horiyoshi” 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. In 2011, the Company launched the Heroes & Demons collection of men’s t-shirts which retails at a suggested price point of approximately $60-$75. 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 4,387,500 shares of common stock to 9,486,653 shares of common stock, all with a par value of $0.01. 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 6,486,600 shares held by him in common stock which left a total of 3,000,053 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 3,000,000 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 6,000,053 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, which opened in London in October 2011.

On January 12, 2012, we enacted a 10 to 1 reverse stock split which decreased the number of shares issued and outstanding to 6,351,406. All share and per share amounts presented in the financial statements have been retroactively adjusted to reflect the effect of the reverse stock split.

Going Concern, Liquidity and Management's Plan

As of June 30, 2012, our Company has accumulated losses of $4,908,259 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, 2012. 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.


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, 2011 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 generally accepted accounting principles, 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. All sales at our branded retail outlet in London are recognized at the point of sale.

Deferred revenue as of June 30, 2012 and December 31, 2011 were $7,027 and $48,435, respectively. Deferred revenue represents prepayments and deposits required from certain customers before delivery of Horiyoshi the Third and Heroes & Demons 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. Based on historical experience, actual returns by our clients have been rare and immaterial across our client base. 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 1% of our sales and reserves have been made accordingly each reporting period. The return reserve based on this percentage of sales has been consistent with actual returns in our brief operating history. The balances of the return reserve as of June 30, 2012 and December 31, 2011 was $2,313.

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. It also consists of cost of purchases for resale of our branded online Horiyoshi the Third and Heroes and Demons stores as well as our branded retail outlet in London. Through May 31, 2011 the Company purchased 100% of its merchandise from Stone Corporation Inc, a related party. 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 Corporation Inc. managed the process of contracting manufacturers and purchasing the materials that were used to produce our clothing and other products. Stone Corporation Inc. was invoiced by the producers and suppliers and passed those charges 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 customers are required to pay all shipping costs for the delivery of their orders.

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. 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 June 30, 2012 and December 31, 2011, the allowance for doubtful accounts was $7,531 and $8,429, respectively.

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 months ended June 30, 2012, the assumed exercise of stock options was anti-dilutive. Therefore, basic and diluted losses per share are the same for all periods presented. At June 30, 2012 there were 400,000 stock warrants that could dilute future earnings.

Foreign currency transactions

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. Products are generally sold in U.S. dollars or Great British pounds.


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

The functional currency of the Company's subsidiaries outside the U.S. is the respective local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate for the period. The resulting translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss) ("'AOCI”).

During the six months ended June 30, 2012 we incurred a foreign currency transaction loss of $3,601, which is included as part of net income, and a foreign currency translation gain of $988, which is included as part of AOCI.

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 June 30, 2012 inventory consists of $819,441 of finished goods, $23,418 of work in process, and $121,213 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 June 30, 2012 and December 31, 2011, there have been reserves of $85,427 and $108,809, respectively, made for inventory on hand.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets for the quarter ended June 30, 2012 were $87,886 and $55,166 for the year ended December 31, 2011. Prepaid expenses and other current assets represent deposits on operating leases and amounts paid for goods and services yet to be received.

Property and Equipment

Property and equipment are recorded at cost and valued at $151,706 for the quarter ending June 30, 2012. Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which is five years for the office equipment, websites, and computers, three years, for software, and seven years for leasehold improvements for financial reporting purposes.


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 three months ended June 30, 2012, the $750,000 non-refundable entry fee has been capitalized as licensing rights on the balance sheet, net of accumulated amortization of $81,250. The cost of the licensing rights is being amortized over 120 months on a straight-line basis.

For the six months ended June 30, 2012, amortization expense related to licensing rights was $37,500.

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 three months ended June 30, 2012 and the year ended December 31, 2011 were $65,298 and $218,458, 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 was not necessary for the Company to separately accrue for vacation or payroll time for the quarter ended June 30, 2012. Our accrued expenses were $42,060 for the three months ended June 30, 2012 and $24,869 for the year ended December 31, 2011.

Fair Value of Financial Instruments

The carrying amount reported in the accompanying consolidated balance sheets for cash, accounts receivable, inventory, accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. It was not practicable to estimate the fair value of notes payable to related parties.

Note 3. Intangible Asset

    June 30, 2012     December 31, 2011  
             
Licensing rights $  750,000   $  750,000  
             
Less, accumulated amortization   (81,250 )   (43,750 )
             
Licensing rights, net $  668,750   $  706,250  

Scheduled amortization is currently estimated as follows:

2012 - remainder of year $  37,500  
2013   75,000  
2014   75,000  
2015   75,000  
2016   75,000  
Thereafter   331,250  
Total $  668,750  

Note 4. Subordinated Notes Payable to Related Party

As of June 30, 2012 and December 31, 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 $108,514 and $30,511, respectively.

As of June 30, 2012 and December 31, 2011, our Company was obligated to Lone Star Capital Limited, for a non-interest bearing demand loan with a balance of $1,037,553 and $737,553, respectively.


Note 5. Property and Equipment

Property and equipment consisted of the following:

    June 30, 2012     December 31, 2011  
Furniture and equipment $  86,080   $  75,824  
Computers and software   24,165     21,928  
Website   8,529     8,529  
Leasehold improvements   32,932     32,611  
  $  151,706   $  138,892  
Less accumulated depreciaton   (27,137 )   (13,710 )
             
Property and equipment, net $  124,569   $  125,182  

Depreciation expense for the six months June 30, 2012 and 2011 was $13,384and $9,548, respectively.

Note 6. 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 March 31, 2012, as consideration for the IP rights, we 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 October 1, 2011 through May 31, 2012 with a running royalty calculated as the greatest of 6% of net sales or $30,000 per month 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 7. 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 vesting period was from January 1, 2011 to December 31, 2011. The amount fully vested at December 31, 2011.


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 warrant and on the closest day to an individual stock option grant. Dividend rates are based on the Company’s dividend history. The expected life of a warrant grant is based on management’s estimate. The fair value of each warrant grant is recognized as a compensation expense over the vesting period of the warrant on a straight line basis. All warrants were vested and expensed as of December 31, 2011. The warrants have no expiration date. There were no additional awards granted during the quarter ended June 30, 2012.

Note 8. Commitments and Contingencies

Operating Leases

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.

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 June 30, 2012:

2012 - remainder of year $  56,141  
2013   89,287  
2014   43,295  
2015   43,295  
2016   42,591  
Thereafter   68,638  
Total $  343,247  

Operating lease rent expense (including real estate taxes and common area maintenance costs) was approximately $55,150 and $12,600 for the six months ended June 30, 2012 and 2011. Rent expense is allocated to operating expenses in the accompanying condensed consolidated statements of operations.

Note 9. 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. However, the introduction of the Heroes and Demons collection and the opening of our branded retail outlet in London will serve to smooth out earnings on a yearly basis going forward.

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. (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 “Horiyoshi” 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. In December 2011, the Company launched the “Heroes & Demons” collection of men’s t-shirts which retail at a suggested price point of $50-$75. 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”). Horiyoshi Worldwide [U.K.] Limited, another subsidiary wholly owned by HHWW, was created in 2011 and operates the Company’s first branded retail outlet in London.

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.

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 4,387,500 shares of common stock to 9,486,653 shares of common stock, all with a par value of $0.01. 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 6,486,600 shares held by him in common stock which left a total of 3,000,053 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 3,000,000 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 6,000,053 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, which opened in London in October 2011.

On January 12, 2012, we enacted a 10 to 1 reverse stock split which decreased the number of shares issued and outstanding to 6,351,406. All share and per share amounts presented in the financial statements have been retroactively adjusted to reflect the effect of the reverse stock split.


Executive Summary

For the three months ended June 30, 2012, we reported net sales of $146,283, an increase of $108,820, or 285%, more than the $38,003 reported for the quarter ended June 30, 2011. Gross margin increased to 41% for the quarter ended June 30, 2012 compared to -84% for the quarter ended June 30, 2011. Operating expenses, which include all selling, general and administrative costs, decreased $28,575, or 4%, to $624,660 for the quarter ended June 30, 2012 as compared to $653,235 for the quarter ended June 30, 2011. Net loss for the quarter ended June 30, 2012 was $572,919 compared to a net loss of $685,260 for the quarter ended June 30, 2011.

For the six months ended June 30, 2012, we reported net sales of $462,844, an increase of $193,556, or 72%, more than the $269,288 reported for the six months ended June 30, 2011. Gross margin increased to 43% for the six months ended June 30, 2012 compared to 35% for the six months ended June 30, 2011. Operating expenses, which include all selling, general and administrative costs, increased $199,962, or 17%, to $1,359,752 for the six months ended June 30, 2012 as compared to $1,159,790 for the six months ended June 30, 2011. Net loss for the six months ended June 30, 2012 was $1,163,110 compared to a net loss of $1,065,833 for the six months ended June 30, 2011.

Results of Operations

The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the three months and six months ended June 30, 2012 and June 30, 2011.

Operating results for the three months and six months ended June 30, 2012 and June 30, 2011 are summarized below:

    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2012     2011     2012     2011  
Revenue $  146,283   $  38,003   $  462,844   $  269,288  
COGS $  86,574   $  70,084   $  262,685   $  175,387  
Gross Profit $  59,709   $  (32,081 ) $  200,159   $  93,901  
Expenses $  624,660   $  653,235   $  1,359,752   $  1,159,790  
Other Income (Loss) $  (7,968 ) $  56   $  (3,517 ) $  56  
Net Loss $  (572,919 ) $  (685,260 ) $  (1,163,110 ) $  (1,065,833 )

Revenue

We earned revenues of $146,283 for the three months ended June 30, 2012 compared to revenues of $38,003 for the three months June 30, 2011. For the six month period ended June 30, 2012 we earned revenues of $462,844 compared to $269,288 for the corresponding period in 2011. Increased revenues in the three month and six month periods can be attributed to increased awareness of Horiyoshi the Third products, expansion of our sales effort to new customers, the opening of our first branded retail store, and the launch of the Heroes & Demons line.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2012 were $86,574 compared to $70,084 for the three months ended June 30, 2011. Cost of goods sold represented 59% of sales for the three months ended June 30, 2012 as compared to 184% for the three months ended June 30, 2011. For the six months ended June 30, 2012, cost of goods sold were $262,685 compared to $175,387 for the corresponding period in 2011. Cost of goods sold represented 57% of sales for the six months ended June 30, 2012 as compared to 65% for the six months ended June 30, 2011. This decrease in COGS as a percentage of sales for the three months and six months ended June 30, 2012 can be attributed to cost savings from moving a portion of production from Japan to Los Angeles, smaller production quantities leading to less markdowns of slow moving inventory, and a larger volume of high margin sales generated from our branded retail store in London.


Expenses

Our total expenses for the three months and six months ended June 30, 2012 and June 30, 2011 are outlined in the table below:

    Three Months Ended     Six Months Ended  
    June 30     June 30  
    2012     2011     2012     2011  
Selling $  34,946   $  48,405   $  92,720   $  97,994  
General and administrative $  564,258   $  603,804   $  1,216,148   $  1,058,498  
Depreciation $  6,706   $  1,026   $  13,384   $  3,298  
Amortization $  18,750   $  -   $  37,500   $  -  
Total expenses $  624,660   $  653,235   $  1,359,752   $  1,159,790  

For the three months ended June 30, 2012, expenses decreased $28,575, or 4%, to $624,660 as compared to $653,235 for the corresponding period in 2011. This decrease can be attributed to less meal and entertainment expenses incurred in 2012. For the six months ended June 30, 2012 expenses increased $199,962, or 17%, to $1,359,752 as compared to $1,159,790 for the corresponding period in 2011. This increase can be attributed the expansion of personnel and office space and additional costs associated with the operation of our first retail outlet in London.

Liquidity and Financial Condition

Working Capital                  
    At     At        
    June 30,     December 31,        
    2012     2011     Change  
Current Assets $  1,161,831   $  2,088,044   $  (926,213 )
Current Liabilities $  1,260,452   $  1,059,826   $  200,626  
Working Capital $  (98,621 ) $  1,028,218   $  (1,126,839 )

Cash Flows            
    Six Months Ended     Six Months Ended  
    June 30,     June 30,  
    2012     2011  
Net Cash Used in Operating Activities $  (1,353,113 ) $  (983,984 )
Net Cash Used by Investing Activities $  (12,758 ) $  (775,805 )
Net Cash (Used) Provided by Financing Activities $  378,003   $  (834,012 )
Net Effect of Foreign Currency Translation $  (84 ) $  -  
Net (Decrease) Increase in Cash During the Period $  (987,952 ) $  (2,593,801 )

For the six months ended June 30, 2012, net cash used in operating activities was $1,353,113 as a result of changes in our working capital and a six month net loss of $1,163,110.

For the six months ended June 30, 2012, net cash used by investing activities was $12,758 as a result of purchases of fixed assets.

For the six months ended June 30, 2012, net cash provided by financing activities was $378,003 as a result of loans from 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 June 30, 2012 is $129,798.

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 June 30, 2012, 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 $108,514.

As of June 30, 2012, our Company was obligated to Lone Star Capital Limited, for a non-interest bearing demand loan with a balance of $1,037,553.

Plan of Operation and Cash Requirements

Our wholly-owned subsidiary, Horiyoshi the Third Limited, began selling its products in 2009. Our wholly owned subsidiary Horiyoshi Worldwide [U.K.] limited, began operating our first branded retail outlet in London in 2011. Our plan of action over the next twelve months is to continue to market and sell the Horiyoshi and Heroes & Demons collections and raise additional capital financing as necessary, to grow operations. We are also developing an additional collection, "'The Thiiird”, from which we anticipate revenue in the 3rd quarter of 2012.

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 six months ended June 30, 2012, our Company has a loss of $1,163,110 and an accumulated deficit of $4,908,259. 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. However, the introduction of the Heroes and Demons collection and the opening of our branded retail outlet in London will serve to smooth out earnings on a yearly basis going forward.


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.

Revenue recognition

Our revenue recognition policy is in accordance with generally accepted accounting principles, 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. All sales at our branded retail outlet in London are recognized at the point of sale.

Deferred revenue as of June 30, 2012 and December 31, 2010 were $7,027 and $48,435, respectively. Deferred revenue represents prepayments and deposits required from certain customers before delivery of Horiyoshi the Third and Heroes & Demons 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. 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 and determined that a reserve is necessary and at June 30, 2012 the allowance for doubtful accounts was approximately $7,531.


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. It also consists of cost of purchases for resale of our branded online Horiyoshi the Third and Heroes and Demons stores as well as our branded retail outlet in London. Through May 31, 2011 the Company purchased 100% of its merchandise for the from Stone Corporation Inc, a related party. 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 Corporation Inc. managed the process of contracting manufacturers and purchasing the materials that were used to produce our clothing and other products. Stone Corporation Inc. was invoiced by the producers and suppliers and passed those charges 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 customers are required to pay all shipping costs for the delivery of their orders.

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 June 30, 2012 inventory consists of $819,441 of finished goods, $23,418 of work in process, and $121,213 of raw materials.

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.

Item 2. 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 3. 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 June 30, 2012 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.

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, 2011.

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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

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.




Exhibit

Description

Number

 

 

 

(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

 

 

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

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: August 14, 2012  
   
  /s/ Mitsuo Kojima
  Mitsuo Kojima
  President, Chief Executive Officer and Director
  (Principal Executive Officer)
   
   
Dated: August 14, 2012 /s/ Darren Takemoto
  Darren Takemoto
  Chief Financial Officer and Secretary
  (Principal Financial Officer and Principal
  Accounting Officer)