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EX-32.1 - SECTION 906 CERTIFICATION - NAKED BRAND GROUP INC.exhibit32-1.htm
EX-31.1 - SECTION 302 CERTIFICATION - NAKED BRAND GROUP INC.exhibit31-1.htm
EX-31.2 - SECTION 302 CERTIFICATION - NAKED BRAND GROUP INC.exhibit31-2.htm
EXCEL - IDEA: XBRL DOCUMENT - NAKED BRAND GROUP INC.Financial_Report.xls
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EX-32.2 - SECTION 906 CERTIFICATION - NAKED BRAND GROUP INC.exhibit32-2.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 October 31, 2012

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to ____________

Commission file number 000-52381

NAKED BRAND GROUP INC.
(Exact name of registrant as specified in its charter)

Nevada 99-0369814
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)  

#2 34346 Manufacturers Way Abbotsford BC Canada V2S 7M1
(Address of principal executive offices) (zip code)

604.855.4767
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]           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).

Yes [X]           No [  ]

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

  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 [  ]          No [X]


2

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 28,122,000 common shares issued and outstanding as of December 17, 2012.


3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Our interim financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

These financial statements have been prepared by our management and are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with such Securities and Exchange Commission rules and regulations. In the opinion of management, the accompanying statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the results of the interim periods presented. The results for these interim periods are not necessarily indicative of the results for the entire year. It is suggested that these interim financial statements be read in conjunction with our January 31, 2012 annual audited financial statements.



Naked Brand Group Inc.
CONSOLIDATED BALANCE SHEETS
As at October 31, 2012 and January 31, 2012

    October 31,        
    2012        
    (unaudited)     January 31, 2012  
             
ASSETS            
   Current assets            
       Cash $  33,094   $  50,356  
       Accounts receivable, net of allowance for doubtful accounts of $4,895 and $4,000, respectively (note 6)   76,916     37,991  
       Inventory (note 7)   449,378     68,840  
       Prepaid expenses   12,638     3,850  
             
   Total current assets   572,026     161,037  
       Property and equipment, net (note 8)   2,450     1,371  
       Intangible assets, net (note 9)   59,709     24,302  
       Deferred financing fees   220,121     -  
TOTAL ASSETS $  854,306   $  186,710  
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
   Current liabilities            
       Accounts payable $  292,153   $  103,222  
       Notes payable (note 10)   -     59,308  
       Related party payables (note 12)   14,070     62,610  
             
   Total current liabilities   306,223     225,140  
       Convertible promissory notes (note 11)   381,357        
TOTAL LIABILITIES   687,580     225,140  
             
STOCKHOLDERS' EQUITY (DEFICIENCY) (note 13)            
   Common stock            
       Authorized 
              100,000,000 common shares, par value $0.001 per share 
              (January 31, 2012: unlimited without par value) 
       Issued and outstanding 
              27,222,000 common shares (January 31, 2012: 6,069,251)
  27,222     638,972  
   Accumulated paid-in capital   1,784,553     -  
   Accumulated deficit   (1,632,038 )   (667,930 )
   Accumulated other comprehensive Loss   (13,011 )   (9,472 )
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)   166,726     (38,430 )
             
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $  854,306   $  186,710  

The accompanying notes are an integral part of these unaudited financial statements.

1



Naked Brand Group Inc.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
for the three and nine ended October 31, 2012 and 2011
(Unaudited)

    Three Months Ended     Nine Months Ended  
    October 31,     October, 31  
    2012     2011     2012     2011  
                         
Net sales $  59,254   $  21,446   $  151,502     89,025  
Cost of sales   39,354     17,922     101,298     57,881  
Gross profit   19,900     3,524     50,204     31,144  
Operating Expenses                        
   General and administrative expenses   531,870     88,981     947,347     453,597  
   Foreign currency transactions   11,050     1,131     13,408     1,914  
Total operating expenses   542,920     90,112     960,755     455,511  
Operating loss   (523,020 )   (86,588 )   (910,551 )   (424,367 )
Other income (expense)                        
   Finance fees & discounts   (17,971 )   (244 )   (29,287 )   (569 )
   Interest   (13,762 )   (1,052 )   (24,254 )   (3,062 )
   Miscellaneous income   -     24     19     413  
    (31,733 )   (1,272 )   (53,522 )   (3,218 )
Net Loss   (554,753 )   (87,860 )   (964,073 )   (427,585 )
Other comprehensive income (loss)                        
     Foreign Currency translation adjustments, net of tax   646     (6,936 )   (3,539 )   (7,364 )
Comprehensive loss $  (554,107 ) $  (94,796 ) $  (967,612 ) $  (434,949 )
Net loss per share, basic and diluted $  (0.02 ) $  (0.01 ) $  (0.04 ) $  (0.05 )
Weighted average number of shares
     outstanding, basic and diluted
  27,092,391     12,801,740     22,398,367     8,625,919  

The accompanying notes are an integral part of these unaudited financial statements.

2



Naked Brand Group Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine months ended October 31, 2012 and 2011
(Unaudited)

    October 31, 2012     October 31, 2011  
    (unaudited)     (unaudited)  
For the nine months ended,   2012     2011  
             
Cash flows from operating activities            
   Net loss $  (964,073 ) $  (427,585 )
   Adjustments to reconcile net loss to net cash used in operating activities            
         Depreciation & amortization   7,716     2,091  
         Amortization of deferred financing fees   17,379     -  
         Accretion of debt discount   2,298     -  
         Change in provision for doubtful accounts   747     628  
         Stock distributions to contractors   182,453     561  
         Stock based compensation to management   31,809     262,657  
   Increase (decrease) in cash resulting from change in:            
         Accounts receivable   (39,478 )   (9,615 )
         Prepaid expenses   (8,770 )   (5,056 )
         Inventory   (380,239 )   (63,309 )
         Accounts payable   48,328     70,585  
Net cash used in operating activities   (1,101,830 )   (169,043 )
             
Cash flows from investing activities            
   Purchase of property & equipment   (41,605 )   -  
   Cash obtained on acquisition of Search By Headlines.com Corp.   386,777     -  
   Acquisition of intangible assets   (2,466 )   (755 )
Net cash provided by (used in) investing activities   342,706     (755 )
             
Cash flows from financing activities            
   Net proceeds from share issuance   105,099     134,923  
   Payments to repurchase shares   -     (2 )
   Net advances from line of credit   -     10,910  
   Proceeds from convertible promissory notes   400,000     -  
   Acquisition costs of acquisition of Search By Headlines.com Corp.   (34,979 )   -  
   Advances from Naked Brand Group Inc. prior to the merger   328,701     -  
   Advances (repayments) of related party payables   (48,830 )   24,902  
   Repayment of notes payable   (9,207 )   -  
Net cash provided by in financing activities   740,784     170,733  
Effect of exchange rate changes on cash   1,078     (935 )
Net change in cash   (17,262 )   -  
Cash at beginning of period   50,356     -  
Cash at end of period $  33,094   $  -  

3



Naked Brand Group Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine months ended October 31, 2012 and 2011
(Unaudited)

Cash paid during the year for:            
   Interest paid $  14,930   $  3,062  
   Taxes   -     -  
Non-cash financing activities            
   Related party payable refinancing to note payable $  -   $  9,845  
   Debt settlement agreements   13,134     -  
   Conversion of related party payable to equity   375,000     -  
   Accounts payable acquired on acquisition of Search By Headlines.com Corp.   153,631     -  
   Discount on debt financing   20,940     -  
   Deferred financing costs   237,500     -  
   Forgiveness of related party payable recorded in retained earnings   -     22,813  

The accompanying notes are an integral part of these unaudited financial statements.

4



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

1.        Organization and Nature of Business

Naked Brand Group Inc. (the “Company”) was incorporated in the State of Nevada on May 17, 2005, as Search By Headlines.com Corp. with 100,000,000 authorized common shares with a par value of $0.001 per share. During the year ended July 31, 2010, the Company ceased operations as a specialized internet search engine that featured news in a format that allowed users to search or submit news by headline. On July 30, 2012, the Company closed an Acquisition Agreement with Naked Boxer Brief Clothing Inc. (“Naked”) whereby Naked’s owners became the sole directors of the Company and Naked stockholders exchanged their shares for a total of 13.5 million shares of the Company, representing 50% of the Company (the “Acquisition”). Effective August 29, 2012, the Company completed a merger with a subsidiary, Naked Brand Group Inc., a Nevada corporation, which was incorporated solely to effect a change of name. As a result, the Company changed its name from “Search By Headlines.com Corp.” to “Naked Brand Group Inc.”

Naked Boxer Brief Clothing Inc. was incorporated under the federal laws of Canada on May 21, 2009 as In Search of Solutions Inc. and changed its corporate name on May 17, 2010. The Company commenced business operations on February 1, 2010 as a manufacturer and seller of direct and wholesale undergarments in Canada to consumers and retailers. The Company has been realizing revenues from its operations since September, 2010.

As a result of the Acquisition, Naked became a wholly-owned subsidiary of the Company and the Company’s business became the manufacture and sales of direct and wholesale undergarments in Canada and the United States to consumers and retailers. The Company operates out of Abbotsford, British Columbia, Canada

Unless otherwise noted, references to years are for calendar years ended December 31. For example, the three and nine months ending October 31, 2012 is referred to as “2012” in these notes to the consolidated financial statements.

2.        Going Concern

These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

As at October 31, 2012, the Company had not yet achieved profitable operations, and expects to incur further losses in the development of its business. To remain a going concern, the Company will be required to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations as they come due. Management plans to obtain the necessary financing through the issuance of equity or debt to existing stockholders. Should the Company not be able to obtain this financing, it may need to substantially scale back operations or cease business. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty.

5



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

3.        Significant accounting policies

The accompanying consolidated unaudited interim financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) for interim financial information, using the same accounting policies and methods as used in the annual financial statements of Naked for the year ended January 31, 2012 included as an exhibit to the Company’s amended form 8-K filed on November 5, 2012. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.

The accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for fair presentation of statement of financial position, results of operations and cash flows for the interim periods presented. Operating results for the three and nine months ended October 31, 2012 are not necessarily indicative of the results that may be expected for the year ended January 31, 2013.

The balance sheet at January 31, 2012 has been derived from the audited consolidated financial statements of Naked at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for annual financial statements.

These unaudited financial statements should be read in conjunction with the most recent audited financial statements of Naked for the year ended January 31, 2012.

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current period financial statements.

Principles of Consolidation and Basis of Accounting

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Naked Boxer Brief Clothing Inc. All inter-company transactions and balances were eliminated.

The comparative figures are those of Naked (Note 4). As the acquisition of shares in Naked was a capital transaction, the transaction was accounted for as a reverse merger with Naked as the acquirer.

Application of reverse takeover accounting results in the following:

The consolidated financial statements of the combined entity are issued under the name of the legal parent, the Company, but are considered a continuation of the financial statements of the legal subsidiary, Naked, for accounting purposes. Comparative amounts are those of Naked.

As Naked is deemed to be the acquirer for accounting purposes, its assets and liabilities are included in the consolidated balance sheets for the continuing entity at their historical carrying values. The Company’s assets and liabilities at the date of the transaction are also included in the consolidated balance sheets at their historical carrying values.

6



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

Reporting Currency and Foreign Currency

The Company’s functional currency changed from Canadian dollars to US dollars on July 30, 2012, triggered by the Acquisition and an accumulation of other factors. Balances denominated in foreign currencies were re-measured at the date of change using the exchange rate in effect on that date. Revenue and expense items were translated at average rates for the period up to the date of change and translation adjustments accumulated in other comprehensive income up to the date of change were retained in that account.

Subsequent to July 30, 2012, transactions denominated in foreign currencies are translated at the exchange rate in effect on the transaction date. Foreign currency gains and losses are recorded as a gain or loss on the consolidated statements of operations.

The functional currency of Naked is the Canadian dollar. Financial statements of foreign operations for which the functional currency is the local currency are translated into US dollars with assets and liabilities translated at the current rate on the balance sheet date and revenue and expense items translated at the average rates for the period. Translation adjustments are recorded as accumulated other comprehensive income (loss) in stockholders’ equity.

Segment Reporting

The Company uses several factors in identifying and analyzing reportable segments, including the basis of organization, such as differences in products, and geographical areas. The Company has determined that as of October 31, 2012 and 2011, there is only a single reportable segment.

4.        Reverse Acquisition

On July 30, 2012, the Company closed the Acquisition pursuant to an Acquisition Agreement with Naked and SBH Acquisition Corp., the Company’s former subsidiary, whereby the Company acquired 100% of the issued and outstanding shares of Naked in exchange for 13,500,000 shares of common stock of the Company. Concurrent with the closing, 100,000 share purchase warrants outstanding, exercisable into 100,000 shares of common stock of Naked at $0.75 per share, were converted into warrants entitling the holders to purchase 214,506 shares of the Company’s common stock at an exercise price of $0.75 per share until July 30, 2014.

To facilitate the Acquisition, Naked agreed to: (i) continue from the federal jurisdiction of Canada to the jurisdiction of the State of Nevada and (ii) merge with our subsidiary, SBH Acquisition Corp., with Naked remaining as the surviving corporation. The continuation of Naked from Canada to the State of Nevada was completed on July 27, 2012 and the merger of Naked and SBH Acquisition Corp., with Naked as the surviving corporation, was completed on July 30, 2012. As a result of the foregoing, Naked became a wholly-owned subsidiary of the Company.

As the former stockholders of Naked now control 50% of the issued and voting shares of the Company and former management of Naked comprise more than 50% of the Board of Directors of the Company, the transaction was accounted for as a reverse acquisition and recapitalization of Naked. As Naked is deemed to be the acquirer for accounting purposes, its assets and liabilities are included in the consolidated balance sheet for the continuing entity at their historical carrying values and these consolidated financial statements are presented as a continuation of Naked.

The Company’s assets, liabilities and results of operations have been included in these consolidated financial statements from July 30, 2012, the date of the Acquisition.

7



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

For accounting purposes, the transaction is reflected as a recapitalization of Naked and consideration for the Acquisition was deemed to be the book value of the net assets of the Company acquired on July 30, 2012, which approximates their fair values. The net identifiable assets of the Company at the date of the Acquisition were as follows:

Cash & subscription receivable $  380,826  
Accounts payable and advances payable   (108,789 )
Due to a related party   (44,843 )
       
Net assets acquired $  227,194  

The carrying value of the net assets acquired was credited to the share capital of the combined entity. $375,000 in advances made to Naked in conjunction with the acquisition was debited against net assets as this was included in the portion of proceeds. In addition, acquisition costs of $34,951 paid were recorded as a charge against the equity of Naked balance sheets for the continuing entity at their historical carrying values and these consolidated financial statements are presented as a continuation of Naked.

5.        Loss per share

The basic and diluted net loss per share was computed using the weighted-average number of shares of common stock outstanding during the period, less any shares subject to repurchase or forfeiture. The weighted average number of common shares outstanding has been retroactively adjusted to reflect the recapitalization of Naked pursuant to the Acquisition on July 30, 2012. As such, weighted average common shares outstanding prior to the Acquisition have been adjusted by the exchange ratio established upon closing of the Acquisition. There were no shares of common stock subject to repurchase or forfeiture for the three and nine months ended October 31, 2012 and 2011. Because the Company is in a net loss position, it has excluded stock options and warrants from the calculation of diluted net loss per share because these securities are anti-dilutive for all periods presented.

Net loss per share was determined as follows:

    Three months ended October     Nine months ended October  
    31,     31,  
    2012     2011     2012     2011  
Numerator                        
   Net loss $  (554,753 ) $  (87,860 ) $  (964,073 ) $  (427,585 )
Denominator                        
   Weighted average common shares outstanding   27,092,391     12,801,740     22,398,367     8,625,919  
   Basic and diluted net loss per share $  (0.02 ) $  (0.01 ) $  (0.04 ) $  (0.05 )
Anti-dilutive securities not included in diluted loss per share   3,547,506     400,000     3,547,506     400,000  

8



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

6.        Accounts Receivable

On October 6, 2011, Naked entered into a factoring agreement with Liquid Capital Exchange Corp. (“Liquid”) whereby it sells select accounts receivable with recourse. Liquid purchases eligible accounts receivable at a discount of 3.75% and is further discounted by 1/8 of 1% if the number of days elapsed from the date of purchase of the receivable exceeds 28 days. The Company bears the risk of credit loss on the receivables at all times. These receivables are accounted for as a secured borrowing arrangement and not as a sale of financial assets. Factor expense charged to operations for the three and nine months ended October 31, 2012 was $nil and $6,351, respectively (recorded as finance charges on the income statement) (2011:$nil and $nil, respectively).

On July 26, 2012 the Company terminated the factoring agreement and bought back all amounts outstanding under the factoring agreement for a total of $31,555. Pursuant to the termination of the factoring agreement, the Company was released from the corresponding general security agreement

7.        Inventory

Inventory at October 31, 2012 and January 31, 2012 consisted of the following:

    October 31, 2012     January 31, 2012  
Raw materials $  86,087   $  17,377  
Work in process   77,334     -  
Inventory of goods for sale (finished goods)   285,957     51,463  
             
Total inventory $  449,378   $  68,840  

Balances are recorded at historical cost, less amounts for potential declines in value. Management has determined that no inventory reserve or write downs are required as at October 31, 2012 and January 31, 2012.

8.        Property and Equipment

Property and equipment at October 31, 2012 and January 31, 2012 consisted of the following:

  October 31, 2012     January 31, 2012  
             
    Cost     Net book value  
             
Furniture & fixtures $  1,413   $  1,408  
Computer equipment   3,641     1,169  
             
Less: accumulated amortization   (2,604 )   (1,206 )
Total $  2,450   $  1,371  

Depreciation expense for the three and nine months ended October 31, 2012 was $533 and $1,398 respectively (2011: $218 and $666).

9



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

9.        Intangible Assets

    October 31, 2012     January 31, 2012  
             
Trademarks and Trade names $  24,202   $  23,066  
Website   40,579     3,707  
             
Less: accumulated amortization   (5,072 )   (2,471 )
Total $  59,709   $  24,302  

Amortization expense for the three and nine months ended October 31, 2012 was $5,145 and $6,318, respectively (2011: $466 and $1,425, respectively).

10.      Notes Payable

On July 12, 2012, the Company received a bridge loan of $200,000 pursuant to a Term Sheet, in anticipation of the Company entering into an operating loan of up to $800,000 with Kalamalka Partners Ltd. (“Kalamalka”) at a future date. The loan was bearing interest at 12% per annum, with interest payable monthly. The loan was secured by the shares of Naked owned by a director of the Company and a personal guarantee from the director. This guarantee terminated upon the completion of the Acquisition of Naked on July 30, 2012. On August 10, 2012, the Company entered into an Agency and Interlender Agreement (the “Agency Agreement”) with Kalamalka and this bridge loan was repaid in full (Note 11).

At January 31, 2012, notes payable included a payable of $9,308 which had been advanced by a former related party of Naked. The note was unsecured, non-interest bearing and was repaid during the nine months ended October 31, 2012.

There were no outstanding notes payable at October 31, 2012.

At January 31, 2012, Naked had entered into a note payable for $50,000 with the Company. The note was bearing simple interest at 8% per annum, calculated monthly, with interest payable at maturity. The note was due on June 30, 2012. Upon closing of the Acquisition of Naked by the Company, this note, along with additional loans made between the Company and Naked up to the date of the acquisition, became proceeds in consideration of the agreement and were no longer payable.

11.      Long term Debt

    October 31, 2012     January 31, 2012  
             
Convertible promissory notes payable, bearing interest at 12% per annum, due August 16, 2014. $  400,000   $  -  
Less: debt discount   (18,643 )   -  
    381,357     -  
Less: current portion   -     -  
  $  381,357   $  -  

10



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

On August 10, 2012, the Company and its wholly owned subsidiary, Naked, entered into the Agency Agreement with Kalamalka and certain lenders (the “Lenders”) as set out in the Agency Agreement whereby the Company agreed to borrow up to $800,000 from the Lenders under a revolving loan arrangement by the issuance of convertible promissory notes (the “Notes”) from time to time as such funds are required by the Company.

In connection with the closing of the Agency Agreement, the Company issued four convertible promissory notes in the aggregate principal amount of $400,000 and an aggregate of 100,000 share purchase warrants to the Lenders (the “Lender Warrants”). The Lender warrants are exercisable into one common share of the Company as follows: 25,000 Lender Warrants are exercisable at $0.25 until August 10, 2015, 25,000 Lender Warrants are exercisable at $0.50 until August 10, 2015 and 50,000 Lender Warrants are exercisable at $0.25 until August 10, 2014.

The convertible notes bear interest at 12% per annum, calculated and payable monthly. The principal amount outstanding under any note and all accrued and unpaid interest therein, are convertible into common shares of the Company at $0.75 per share at any time at the option of the lender.

The convertible notes are secured by a first priority general security agreement over the present and future assets of the Company.

The convertible notes may be prepaid at any time at the option of the Company with 60 days’ written notice to the Agent. Prepayments must be accompanied by a 1% prepayment fee and the prepaid amount will form a pool of stand-by funds that will continue to accrue interest at a rate of 4% per annum, calculated and payable monthly.

Funds advanced under the loan are restricted for inventory and accounts receivable whereby we can fund up to 90% of our accounts receivable and inventory. “Inventory” includes raw materials in transit and in our possession, materials in the course of production, work in progress and unsold finished goods, all valued at cost. Receivables are marginable until 60 days from the invoice date, after which time such receivables shall have no value for margining purposes, except that up to $10,000 of receivables will be marginable if such receivables are more than 60 days old but less than 90 days old. At the time of filing the company was in compliance with this covenant.

Pursuant to the guidance of ASC 470-20 Debt with Conversion and Other Options, the Company allocated the proceeds from the issuance of the Notes between the Notes and the detachable Lender warrants using the relative fair value method. The fair value of the Lender warrants of $22,100 at issuance resulting in a debt discount at issuance of $20,940, which is being amortized using the effective interest method over the term of the convertible notes. During the three and nine months ended October 31, 2012, the Company recorded interest expense of $2,298 in respect of the accretion of this discount.

In consideration for the convertible debt issued, the Company issued an aggregate of 1,148,000 share purchase warrants to non-Lenders as follows: 948,000 share purchase warrants to the Agent as consideration for facilitating the loan (the “Agent’s Warrants”) and 200,000 share purchase warrants to certain non-lenders as consideration for a $200,000 bridge loan provided to the Company prior to the closing of the Agency Agreement (the “Bridge Loan Warrants”). The fair value of the Agent’s Warrants and the Bridge Loan Warrants of $237,500 was recorded as a deferred financing charge and is being amortized to income over the term of the convertible notes using the effective interest method. During the three and nine months ended October 31, 2012, the Company had recorded financing expense of $17,379 in respect of the amortization of these charges.

11



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

The fair value of the Agents Warrants, the Lender Warrants and the Bridge Loan Warrants was determined using the Black Scholes option pricing model with the following weighted average assumptions:

Risk-free interest rate 0.29%
Expected life (years) 2.20
Expected volatility 201.94%
Dividend yields 0.00%

12.      Related Party Payables

At October 31, 2012, related party payables included advances from shareholders in the amount of $14,070 (January 31, 2012: $62,610). All shareholder advances are unsecured. The table below summarizes the balance, interest rate and repayment terms of the advances at October 31, 2012 and January 31, 2012:

    October 31, 2012     January 31, 2012  
             
Bearing interest at 19.50% per annum, repayable upon demand $  2,266   $  11,741  
Bearing interest at 3.50% per annum, repayable upon demand   -     20,286  
Bearing interest at 4.00% per annum, repayable upon demand   -     10,405  
Non-interest bearing, repayable upon demand   11,804     19,184  
Non-interest bearing, payable upon Company holding greater than $356,762CAD in cash or cash equivalents   -     994  
    14,070     62,610  
Less: current portion   (14,070 )   (62,610 )
             
  $  -   $  -  

During the three and nine months ending October 31, 2012 the Company incurred interest expense on the shareholder advances of $40 and $8,791 respectively (2011: $758 and $1,881 respectively).

13.      Stockholders’ Equity

Authorized

There is 100,000,000 common voting stock with a par value of $0.001 authorized for issuance.

12



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

Issued and Outstanding

As of October 31, 2012, the Company had 27,222,000 of common stock issued and outstanding.

As of January 31, 2012, Naked had the following class of shares of common stock issued and outstanding:

   
January 31, 2012
 
    Shares     Amount  
Class B common stock   1,005,000   $  96,580  
Class C common stock   1,300,000     127,954  
Class D common stock   690,100     67  
Class E common stock   2,630,820     276,802  
Class F common stock   443,331     137,569  
    6,069,251   $  638,972  

Pursuant to the Acquisition (Note 3), all classes of common stock of Naked were exchanged for one class of common stock of the Company.

Equity Transactions

During the nine months ended October 31, 2012:

i)

On October 5, 2012, the Company issued 14,000 shares at $0.50 per share for gross proceeds of $7,000.

   
ii)

On September 24, 2012, the Company issued 200,000 units at $0.50 per unit for gross proceeds of $100,000. Each unit consisted of one common share of the Company and one share purchase warrant. Each warrant is exercisable into one share of common stock at an exercise price of $0.75 per share for a period of two years.

   
iii)

As part of the acquisition agreement with Search By Headlines.com Corp., stockholders exchanged shares of Naked for shares of common stock in the capital of the Company at a ratio of 2.145060, where Naked stockholders received a total of 13.5 million common stock in the capital of the Company.

   
iv)

Naked awarded 147,062 Class E common shares, prior to the merger, to consultants for work performed. Naked determined that the fair value on the grant date of these shares was $33,213 and recorded the entire amount as general and administration expense in the financial statements for the nine months ended October 31, 2012. The fair value of $0.21 per share was determined by the value of the shares exchanged during the acquisition agreement.

   
v)

Prior to the merger, Naked issued 63,321 shares of Class E common stock fair valued at $13,134, in addition to $8,238 cash, to extinguish debt of $21,372. This resulted in a loss of $125. The fair value of the Class E shares was based on the last traded transaction of our stock which was the acquisition agreement between Naked Boxer Brief Clothing Inc. and Search By Headlines.com Corp.

13



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

vi)

Naked granted 14,006 Class E common shares, prior to the merger, to a director of the Company for director fees earned. Naked determined that the fair value on the grant date of these shares was $2,947 and recorded the entire amount as compensation expense in the financial statements for the nine months ended October 31, 2012. The fair value of $0.21 per share was determined by the value of the shares exchanged during the acquisition agreement.

During the year ended January 31, 2012:

i)

Naked issued 443,331 Class F common shares at CAD$0.30 per share (translated on the transaction date as US$0.31 per share) for gross proceeds of $137,569. As part of an incentive structure for investments, subscribers were issued 50,000 Class G share purchase warrants when the total investment by a single subscriber was greater than CAD$30,000. Pursuant to this arrangement, 100,000 warrants were issued in connection with this private placement. Each Class G share purchase warrant entitled the holder thereof the right to purchase one Class F common share at CAD$0.75 per share until July 26, 2014. The warrants were accounted for as equity and included in the net share capital of the Class F common shares.

   
ii)

Naked granted 5,500 Class E common shares to a customer. Sales to the customer were not contingent upon the issuance of shares. Naked determined the fair value on the grant of these shares of $577. The fair value of CAD$0.10 per share (translated on the transaction date as US$0.105 per share) was determined by previous share offerings of the same or similar share classes.

   
iii)

Naked granted 40,000 Class E common shares to directors of Naked for director fees earned. The fair value on the grant date of these shares of $4,177 was recorded as compensation expense in the financial statements for the year ended January 31, 2012. The fair value of CAD$0.10 per share (translated on the transaction date as US$0.104 per share) was determined by previous share offerings of the same or similar share classes.

   
iv)

Naked granted 675,000 Class E common shares to officers and directors of Naked for management services rendered. The fair value on the grant date of these shares of $70,767 was recorded as compensation expense in the financial statements for the year ended January 31, 2012. The fair value of CAD$0.10 (translated on the transaction date as US$0.105 per share) per share was determined by previous share offerings of the same or similar share classes.

   
v)

Pursuant to a directors resolution dated May 11, 2011, a director and officer of Naked was granted 1,860,320 Class E common shares as part of an incentive-based compensation package. These shares are transferrable but were subject to cancellation if certain company performance targets were not met. The performance target dates were over five years and were subject to an annual review whereby 20% of these shares could be cancelled at each annual review if the milestone had not been met. Upon execution of the Acquisition (Note 3), the cancellation provisions of these shares were no longer effective and the shares were no longer subject to performance milestones. Consequently, the fair value of these equity based awards was recorded as compensation expense in the amount of $195,036 in the financial statements for the year ended January 31, 2012. The fair value of CAD$0.10 per share (translated on the transaction date as US$0.105 per share) was determined by previous share offerings of the same or similar share classes

   
vi)

Naked repurchased 5,100 Class D common shares from a former officer of the Company for $2 consideration. These shares were returned to the treasury and cancelled.

14



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

vii)

Naked issued 50,000 Class C common shares at CAD$0.15 per share (translated on the transaction date as US$0.147 per share) for gross proceeds of $7,363. This transaction was the result of the exercising of 50,000 Class C warrants issued during the year ended January 31, 2011.

Stock Option Plan

In connection with the closing of the Acquisition, the Company adopted the 2012 Stock Option Plan (the “Plan”), pursuant to which the Company may grant stock options to directors, officers, employees and consultants. The maximum number of shares reserved for issue under the plan is 5,400,000 shares.

The Plan is administered by our board of directors, except that it may, in its discretion, delegate such responsibility to a committee comprised of at least two directors. Each option, upon its exercise, entitles the optionee to acquire one share of our common stock, upon payment of the applicable exercise price. The exercise price will be determined by the board of directors at the time of grant. Stock options may be granted under the Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the Plan.

Stock Based Compensation

A summary of the status of the Company’s outstanding stock options for the nine months ended October 31, 2012 is presented below:

          Weighted     Weighted Average  
    Number of     Average     Grant Date  
    Shares     Exercise Price     Fair Value  
Outstanding at January 31, 2011 and 2012   -              
Granted   1,885,000   $  0.25     0.24  
                   
Outstanding at October 31, 2012   1,885,000   $  0.25        
                   
Exercisable at October 31, 2012   634,364   $  0.25        

At October 31, 2012 the following stock options were outstanding, entitling the holder thereof to purchase common shares of the Company as follows:

  Exercise Expiry Remaining
Number Price Date Contractual Life
1,000,000 $0.25   (1) July 30, 2022 9.75
285,000 $0.25   (2) July 30, 2014 1.75
600,000 $0.25   (3) October 9, 2017 4.94
       
1,885,000      

  (1)

The stock options are vesting over a period of two years from the grant date. At October 31, 2012 none of these options had vested and the Company had recognized stock based compensation expense of $31,809 in respect of these options. Remaining stock based compensation expense of $217,874 will be recognized over the remaining vesting term of these options.

     
  (2)

These stock options are vesting over a period of two years from the grant date. At October 31, 2012, 34,364 of these options had vested and the Company had recognized stock based compensation expense of $7,326 in respect of these options during the nine months ended October 31, 2012. Remaining stock based compensation expense of $53,435 will be recognized over the remaining vesting term of these options.

15



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

  (3)

These stock options had fully vested at October 31, 2012 and the Company had recognized stock based compensation expense of $140,603 in respect of these options during the nine months ended October 31, 2012.

The aggregate intrinsic value of stock options outstanding is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. At October 31, 2012, the aggregate intrinsic value of stock options outstanding was $1,979,250.

During the three and nine months ended October 31, 2012, the Company recognized a fair value of $179,738 and $179,738, respectively of stock based compensation expense (2011: $Nil and $Nil, respectively).

The fair value of each option award was estimated on the date of the grant using the Black-Scholes option pricing model based on the following weighted average assumptions:

Expected term of stock option (years)* 4.24
Expected volatility 247.27%
Risk-free interest rate 0.57%
Dividend yields 0.00%

*As the Company has insufficient historical data on which to estimate expected the term of the options, the Company has elected to apply the short-cut method to determine the expected term under the guidance of Staff Accounting Bulletin No. 110 (“SAB 110”).

Share Purchase Warrants

At October 31, 2012, the Company had 1,662,506 share purchase warrants outstanding as follows:

  Exercise Expiry
Number Price Date
214,506 $0.75 July 30, 2014
498,000 $0.25 August 10, 2014
500,000 $0.50 August 10, 2014
200,000 $0.75 September 24, 2014
150,000 $0.25 August 10, 2015
100,000 $0.50 August 10, 2015
     
1,662,506    

16



Naked Brand Group Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(Unaudited)

A summary of the Company’s share purchase warrants outstanding is presented below:

                Weighted  
    Number of           Average  
    Warrants           Exercise Price  
Outstanding at January 31, 2011   350,000     CAD$     0.15  
Granted   100,000     CAD$     0.75  
Exercised   (50,000 )   CAD$     0.15  
Expired   (300,000 )   CAD$     0.15  
Outstanding at January 31, 2012   100,000     CADS     0.75  
Cancelled   (100,000 )   CAD$     0.75  
Re-issued pursuant to the Acquisition (Note 4)   214,506     USD$     0.75  
Issued   1,448,000     USD$     0.32  
                   
Outstanding at October 31, 2012   1,662,506   $       0.37  

12.      Customer Concentrations

The Company has concentrations in the volume of business transacted with a particular customer. The loss of this customer could have an adverse affect on the Company’s business. During the three and nine months ended October 31, 2012 and 2011, the Company had concentrations of sales with one customer equal to 22% and 14%, respectively (2011: 31% and 0%, respectively), of total revenues. The customer had $9,728 in outstanding receivables as at October 31, 2012 and $Nil at January 31, 2012.

13.      Subsequent Events

Subsequent to October 31, 2012, the Company issued 900,000 common shares at $0.25 per share including 500,000 units at $0.25 per unit for gross proceeds of $225,000. Each unit consisted of share of common stock and one share purchase warrant. Each warrant is exercisable into one share of common stock at a price of $0.50 per share for a period of two years.

17


4

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

Forward-Looking Statements

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, including the risks in the section entitled “Risk Factors”, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include: a continued downturn in international economic conditions; any adverse occurrence with respect to the development or marketing of our apparel products; our ability to successfully bring apparel products to market; product development or other initiatives by our competitors; fluctuations in the availability and cost of materials required to produce our products; any adverse occurrence with respect to distribution of our products; potential negative financial impact from claims, lawsuits and other legal proceedings or challenges; and other factors beyond our control. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Cautionary Note Regarding Management’s Discussion and Analysis

This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes. The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions. The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and the related notes that appear elsewhere in this quarterly report.

Our unaudited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

As used in this quarterly report, the terms “we”, “us” “our” and “the Company” mean Naked Brand Group Inc. and our wholly-owned subsidiary, Naked Boxer Brief Clothing Inc..

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “common shares” refer to the common shares in our capital stock.

Current Business and Plan of Operations

Our principal executive offices are located at #2 34346 Manufacturers Way, Abbotsford, British Columbia V2S 7M1, and our telephone number is (604) 855-4767. Our common stock is quoted on the OTCQB under the symbol “NAKD”.

We were incorporated in the State of Nevada on May 17, 2005. Following incorporation, we commenced the business of marketing websites and accessories throughout North America. However, as we were not successful in developing our business marketing websites and accessories prior to the entry into the acquisition agreement and had no source of revenue from our business plan, we determined to seek out a new business opportunity to increase value for our shareholders.


5

Naked Boxer Brief Clothing Inc. (“Naked”) was incorporated under the federal laws of Canada on May 21, 2009 as “In Search of Solutions Inc.” and changed its corporate name to “Naked Boxer Brief Clothing Inc.” on May 17, 2010. It commenced business operations on February 1, 2010 as a manufacturer and seller of direct and wholesale men’s undergarments to consumers and retailers. Naked has been realizing revenues from its operations since September, 2010. Naked continued from the federal jurisdiction of Canada to the jurisdiction of the State of Nevada on July 27, 2012. As part of the continuation, all classes of shares of Naked, including the Class C, D, E and F common shares, were converted into one class of common shares of the Nevada corporation.

On July 30, 2012, we closed an Acquisition Agreement dated February 28, 2012, as amended (the “Acquisition Agreement”), with Naked whereby we acquired 100% of the issued and outstanding shares of Naked in exchange for 13,500,000 shares of our common stock (the “Acquisition”). As, upon closing, the former stockholders of Naked controlled 50% of the our issued and outstanding shares of common stock and former management of Naked comprised more than 50% of our board of directors, the acquisition was accounted for as a reverse acquisition, with Naked deemed to be the acquirer for accounting purposes. As a result, its assets and liabilities are included in the consolidated balance sheet for the continuing entity at their historical carrying values and these consolidated financial statements are presented as a continuation of Naked. The merger of Naked and SBH Acquisition Corp. was completed on July 30, 2012. As a result of the foregoing, Naked became a wholly-owned subsidiary of our company.

Effective August 29, 2012, we completed a merger with a newly-formed subsidiary, Naked Brand Group Inc., a Nevada corporation, which was incorporated solely to effect a change of name. As a result, effective August 29, 2012, we changed our name from “Search By Headlines.com Corp.” to “Naked Brand Group Inc.”.

Our primary operations are conducted through our wholly-owned subsidiary, Naked. We will continue to produce men’s undergarments and we expect to begin selling t-shirts during the last month of the third quarter of fiscal 2013. We also intend to ship limited styles of women’s underwear by the end of the third quarter of fiscal 2013.

Recent Corporate Developments

Since the commencement of our third quarter ended October 31, 2012, we have experienced the following significant corporate developments:

1.

On August 10, 2012, we entered into an Agency and Interlender Agreement (the “Agency Agreement”) with Kalamalka Partners Ltd. (“Kalamalka”) and certain lenders (the “Lenders”) as set out in the Agency Agreement whereby we agreed to borrow up to $800,000 from the Lenders under a revolving loan arrangement by the issuance of convertible promissory notes (the “Notes”) from time to time as such funds are required by us. The Notes are secured by a general security agreement over the present and future assets of the Company and will bear interest at 12% per annum, calculated and payable monthly. The principal amount outstanding under any Note and all accrued and unpaid interest therein, are convertible into common shares of the Company at $0.75 per share at any time at the option of the Lender.

  

This significant development allows the Company to fund inventory levels beyond initial purchase orders so Naked can have sufficient inventory on hand. It also allows for Naked to finance its accounts receivable in an efficient and economical way.

  

In connection with the closing of the Agency Agreement, the Company issued four Notes in the aggregate principal amount of $400,000 and an aggregate of 100,000 share purchase warrants to the Lenders (collectively, the “Lender Warrants”). Each of the Lender Warrants are exercisable into one common share of the Company as follows: 25,000 Lender Warrants are exercisable at $0.25 until August 10, 2015, 25,000 Lender Warrants are exercisable at $0.50 until August 10, 2015 and 50,000 Lender Warrants are exercisable at $0.25 until August 10, 2014.



6

2.

Since the commencement of our third quarter, we have raised an aggregate of $332,000 through the issuance shares and units of our common stock. We issued 200,000 units at a price of $0.50 per unit for gross proceeds of $100,000 on September 24, 2012. Each unit consisted of one common share and one share purchase warrant exercisable into one share of common stock at $0.75 per share for a period of two years. In November, 2012, we issued an aggregate of 500,000 units at a price of $0.25 per unit and 400,000 shares at a price of $0.25 per share for gross proceeds of $225,000 with each unit consisting of one share of common stock and one share purchase warrant. Each warrant is exercisable into one share of common stock at a price of $0.50 per share for a period of two years.

  
3.

On November 12, 2012, we announced that we shipped products to 39 of Nordstrom`s best stores across the United States and on Nordstrom.com, giving us an immediate distribution channel through one of the nation`s most sought after department stores. The Nordstrom launch was supported by a national public relations and marketing campaign, giving us the opportunity to expand into 117 Nordstrom full-line stores. The initial order from Nordstrom will represent approximately 60% of year to date revenue for the Company at the time of shipment.

  
4.

On October 9, 2012, we entered into a binding memorandum of understanding with Shark Investments, LLC (“Shark”), whereby Shark has agreed to provide consulting services to our company, including assistance with brand management, celebrity alignment, strategic retail placement, manufacturing strategy, strategic and creative development of licensed products and financing assistance, for a two year period. Under the terms of the Agreement, Shark will be paid a monthly fee of $5,000, effective September 1, 2012. We also granted to Shark 600,000 stock options, each exercisable into one share of our common stock at a price of $0.25 per share until October 9, 2017. During the term of the agreement, the Company shall have the right to use and permit the use of Daymond John’s name and approved likenesses and approved biographical information in connection with developing, securing financing, producing, marketing or otherwise promoting the Naked Brand; provided Company obtains Shark’s prior written approval in each instance.

Outlook

The Company will continue to operate in the underwear market in quarter four and has no current plans to change operations. We shipped our initial order to major US retailer, Nordstrom, on November 2, 2012. We anticipate sales for quarter four to be $350,000 to $400,000 from revenue in North America.

We have begun development of a sub-line to open up distribution channels in the lower end of the market. This development came at the request of one of our customers, Holt Renfrew. Holt Renfrew is creating a department store called “hr2” to sell products to individuals at a lower end of the market.

The Company plans to draw up to another $100,000 in debt in connection with the Agency Agreement to fund further inventory and receivables financing requirements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2012

The following discussion of our financial condition and results of operations should be read together with the unaudited interim financial statements and the notes to the unaudited interim financial statements included in this quarterly report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

Revenue

During the three months ended October 31, 2012, we generated net sales of $59,254 compared to $21,446 for the same period in 2011, an increase of $37,808. Net sales increased as a result of new customers and from increased orders from existing key customers, including increased orders from our largest customer, Holt Renfrew, as a result of an auto-replenishment program commencing in the second quarter of 2012. We shipped to 60 stores versus 43 stores year over year. We expect further increases in net sales going into our fourth quarter as a result of orders which were shipped in November, 2012.


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Sales declined over the previous quarter due late shipment of inventory which caused our new cotton line to be introduced in quarter four.

Concurrently, we had an increase in cost of sales due to the higher volume of sales. Our gross profit margin increased to 34% in the quarter ended October 31, 2012 from 16% in the quarter ended October 31, 2011. This was due to significant cost savings as a result of more efficient shipping pricing policies. Beginning in the current fiscal quarter, we moved some of our production of our cotton line to Turkey to increase quality and to further lower the costs of production, which we expect will impact our profit margins favorably going forward.

Operating Expenses

    Three months ended October 31,     Change  
General and administrative   2012     2011       %  
Bad debts $  179   $  -     179     N/A  
Bank charges and interest   3,823     589     3,234     548.9  
Consulting   13,601     4,749     8,852     186.4  
Depreciation   5,627     683     4,944     724.1  
Insurance   2,436     841     1,595     189.6  
Inventory loss   13,895     829     13,066     1576.7  
Marketing   57,257     24,313     32,944     139.0  
Occupancy and rent   6,018     5,742     276     4.8  
Office and miscellaneous   15,167     2,283     12,883     564.1  
Product development   11,589     13,421     (1,832 )   (13.6 )
Professional fees   100,229     9,029     91,200     1010.1  
Salaries and benefits   64,330     16,418     47,912     291.8  
Share based compensation   179,738     -     179,738     N/A  
Transfer agent and filing fees   15,235     -     15,235     N/A  
Travel   25,514     9,400     16,114     171.4  
Warehouse management   17,232     -     17,232     N/A  
Total $  531,870   $  88,981     442,889     508.1  

There was an increase in general and administrative expenses to $531,870 for the three months ended October 31, 2012, compared to $88,981 for the three months ended October 31, 2011. The largest change was non-cash share based compensation expense for Shark’s contract valued at $140,603 and calculated using the Black Scholes model. The value of management’s stock options expensed for the period was $31,809 and represented the first period of this expense. Our marketing expenses increased because we added a public relations firm since last year and paid for product placement into a music video. We also had additional expenses incurred to maintain our listing on the public market, including increased professional fees and significant professional fees associated with the closing of the long-term financing agreement and new contracts with advisors. In October, we added a third party logistics company to handle all of our warehouse management in the United States for U.S. customers. The costs incurred were mostly one-time setup costs and receiving of initial inventory. Inventory loss increased because of spoilage due to inadequate staffing.

Salaries and benefits also increased by $47,912 to $64,330 in the three months ended October 31, 2012 (2011: $16,418) due to the hiring of one full time staff member to support the finance team, a production manager and a technical supervisor during July 2012, and as a result of salary increases to existing management. At the end of the period, the Company laid off the production manager due to lack of available work.

Other income and expenses

We incurred interest expenses of $13,762 for the three months ended October 31, 2012 as compared to $1,053 for the same period in 2011, an increase of $12,709. This increase in interest is attributable to the loan advances made in connection with the Acquisition and in connection with the revolving loan agreement entered into in August, 2012 and accretion expense associated with the financing agreement.


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Financing charges increased to $17,971 for the three months ended October 31, 2012 from $244 for the three months ended October 31, 2011. This increase was due to non-cash financing fees associated with the warrants issued in connection with the Agency Agreement in August 2012. For the quarter ending October 31, 2011, there were only insignificant financing charges related to our factoring relationship with Liquid Capital Corporation, which has since been terminated.

Net loss and comprehensive loss

Our net loss for the three months ended October 31, 2012 was $554,753, or $0.02 per share, as compared to a net loss of $87,860, or $0.01 per share, for the three months ended October 31, 2011, as a result of the increased general and administrative expenses described above.

Our other comprehensive income for the three months ended October 31, 2012 was $646, as compared to a comprehensive loss of $6,936 for the three months ended October 31, 2011. The increase in other comprehensive loss was due to the changes in foreign currency translation gains and losses.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 2012

Revenue

During the nine months ended October 31, 2012, we generated net sales of $151,502 compared to $89,025 during the same period in 2011. The increase of $62,477 was primarily a result of increases in sales from retail customers, both as a result of new customers and increased sales to existing customers. We shipped to 103 stores during the year versus 76 in the year prior. Average sales per customer increased partially as a result of the implementation of a minimum order volume, and as result of these customers seeing higher turnover of our product.

We had an increase in cost of sales as a result of the higher volume of sales. Our gross profit margin remained consistent from period to period, at 33% for the nine months ended October 31, 2012 and 35% for the nine months ended October 31, 2011.

Operating Expenses

    Nine months ended October 31,     Change  
General and administrative   2012     2011       %  
Bad debts $  3,403   $  628     2,775     441.9  
Bank charges and interest   5,235     1,552     3,683     237.3  
Consulting   76,764     8,874     67,890     765.0  
Depreciation   7,717     2,091     5,626     269.1  
Directors fees   3,002     4,080     (1,078 )   (26.4 )
Insurance   4,479     3,137     1,342     42.8  
Inventory loss   15,788     872     14,916     1710.6  
Marketing and advertising   115,604     40,500     75,104     185.6  
Occupancy and rent   19,216     19,190     26     0.1  
Office and miscellaneous   56,400     13,265     43,135     325.2  
Product development   38,751     20,094     18,657     92.8  
Professional fees   206,693     19,431     187,262     963.7  
Salaries and benefits   127,090     46,381     80,709     174.0  
Share based compensation   179,738     258,577     (78,839 )   (30.5 )
Transfer agent and filing fees   15,235     -     15,235     N/A  
Travel   55,000     14,925     40,075     268.5  
Warehouse management   17,232     -     17,232     N/A  
Total $  947,347   $  453,597     493,750     108.1  


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General and administrative expenses were $947,347 for the nine months ended October 31, 2012, compared to $453,597 for the nine months ended October 31, 2011. Increases to general and administrative expenses were attributable to an increase in marketing costs of $75,104 as a result of increased public relations activities and increased sample giveaways as a result of adding more product lines; specifically, we added a public relations firm in May on a monthly retainer (non-contractual) of $5,000 per month. Office expenses increased by $43,135 as a result of increased postages attributable to increased sample giveaways and in association with our increased head office infrastructure. Product development costs increased by $18,657 and consulting and contractor fees increased by $67,890 as a result of the launch of our new cotton collection and color lines. Professional fees increased by $187,262, primarily due to the development and execution of the Acquisition Agreement, including auditing and quarterly review fees, as well as legal fees associated with entering into various consulting and financing agreements. Travel expenses increased by $40,075 as a result of trips to Turkey to develop relationships with manufacturers in anticipation of outsourcing production of our cotton line, as well as trips to the United States to develop other product relationships. In October, we added a third party logistics company to handle all of our warehouse management in the United States for U.S. customers. The costs incurred were mostly one-time setup costs and receiving of initial inventory. Inventory loss increased because of spoilage due to inadequate staffing.

Depreciation and amortization expenses for the nine months ended October 31, 2012 and October 31, 2011 totaled $7,716 and $2,092 respectively. This increase was due to the addition of two new computers and a server to our property and equipment increases from our new website launched in August 2012.

Other income and expenses

Financing charges increased to $29,287 for the nine month period ended October 31, 2012 compared to $569 for the nine months ending October 31, 2011. This increase was due to a $5,000 financing fee for a short term inventory loan associated with the $200,000 note payable and $17,379 for the amortization of financing fees associated with obtaining the revolving loan in August 2012. The remaining increase was a result of financing from our factoring company on increased accounts receivable sales from increased sales and a financing fee of 3.5% on the buyout of the accounts receivable. This factoring relationship ended in July 2012. For the quarter ending October 2011, there were only insignificant financing charges related to our expired line of credit with our banking institution.

Net loss and comprehensive loss

Our net loss for the nine months ended October 31, 2012 was $964,073, or $0.04 per share, as compared to a net loss of $427,585, or $0.05 per share, for the nine months ended October 31, 2011, as a result of the increased general and administrative expenses described above.

Our other comprehensive loss for the nine months ended October 31, 2012 was $3,539 as compared to an other comprehensive loss of $7,364 for the nine months ended October 31, 2011. The increase in other comprehensive loss was due to the changes in foreign currency translation gains and losses.

LIQUIDITY AND FINANCIAL CONDITION

On August 10, 2012, we entered into the Agency Agreement with Kalamalka and certain Lenders as set out in the Agency Agreement whereby we agreed to borrow up to $800,000 from the Lenders under a revolving loan arrangement by the issuance of Notes from time to time as such funds are required by us. The Notes are secured by a general security agreement over the present and future assets of the Company and bear interest at 12% per annum, calculated and payable monthly. The principal amount outstanding under any Note and all accrued and unpaid interest therein, are convertible into common shares of the Company at $0.75 per share at any time at the option of the Lender.

In connection with the closing of the Agency Agreement, the Company issued four Notes in the aggregate principal amount of $400,000 and an aggregate of 100,000 share purchase warrants to the Lenders. Each of the Lender Warrants are exercisable into one common share of the Company as follows: 25,000 Lender Warrants are exercisable at $0.25 until August 10, 2015, 25,000 Lender Warrants are exercisable at $0.50 until August 10, 2015 and 50,000 Lender Warrants are exercisable at $0.25 until August 10, 2014.


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The Company is required to maintain a borrowing base equivalent to a discount factor of 0.90 multiplied by the value of the sum of the value of its inventory plus its accounts receivable. “Inventory” is agreed to include raw materials in transit to and in possession of the Borrower, materials in the course of production, work in progress and unsold finished goods, all valued at cost. Receivables are marginable until 60 days from the invoice date, after which time such receivables shall have no value for margining purposes, except that up to $10,000 of receivables will be marginable if such receivables are more than 60 days old but less than 90 days old.

The Company is required to repay to the standby account when the margining requirements are not met. In that event, the Company pays 4% per annum on those funds.

This significant development allows the Company to fund inventory levels beyond initial purchase orders so Naked can have sufficient inventory on hand. It also allows for Naked to finance its accounts receivable in an efficient and economical way. The ability to raise further funds up to $800,000 greatly increases working capital and our ability to fund orders quickly.

The Company plans to draw up to another $100,000 in debt pursuant to the revolving loan arrangement.

Future Financing

Provided below is a financing table showing gross cash proceeds from share issuances over the operating life of Naked:

2011 Fiscal Year $  217,171  
2012 Fiscal Year $  134,923  
2013 nine months ending October 31 $  762,728  
Total cash proceeds to date $  1,114,822  

We secured a long term financing arrangement with Kalamalka whereby we can fund up to 90% of our accounts receivable and inventory. “Inventory” includes raw materials in transit and in our possession, materials in the course of production, work in progress and unsold finished goods, all valued at cost. Receivables are marginable until 60 days from the invoice date, after which time such receivables shall have no value for margining purposes, except that up to $10,000 of receivables will be marginable if such receivables are more than 60 days old but less than 90 days old.

In the long term, to remedy the deficiency in financing for proposed future operations, we intend to raise funds from equity and debt financings.

Working Capital (Consolidated)

    As at October 31,     As at Jan 31,  
    2012     2012  
    (unaudited)     (audited)  
             
Current Assets $ 572,026   $ 161,037  
Current Liabilities $ 306,223   $ 225,140  
Working Capital (Deficit) $ 265,803   $ (64,103 )

Our increase in working capital is primarily attributable to a significant increase in inventory due to a large purchase order received from Nordstrom, which was shipped in November, 2012. This increased production was financed through the long term revolving loan agreement entered into with Kalamalka in August, 2012. At October 31, 2012, we required further financing to continue to meet ongoing operating obligations, which were financed subsequent to October 31, 2012 through equity issuances.


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CASH FLOWS

    Nine Months Ended October 31,  
    2012     2011  
             
Cash Flows Used In Operating Activities $ (1,101,830 ) $ (169,043 )
Cash Flows Provided by (used in) Investing Activities   342,706     (755 )
Cash Flows Provided By Financing Activities   740,784     170,733  
Effect of Foreign Exchange on Cash   1,078     (935 )
Net change in Cash During Period   (17,262 )   0  

Operating Activities

Cash flows used in our operating activities was $1,101,830 for the nine months ended October 31, 2012. The cash used during the period was primarily a result of cash used to pay for inventory for the addition of Nordstrom as a customer which totaled net outlays of $380,239. We were able to manage cash flow through increases in accounts payable of $48,328 to offset increases to accounts receivable which resulted in decreases in cash of $39,478, outlays for prepaid deposits and expenses of $8,770, and a net loss adjusted for other reconciliations of $721,665. The Company was able to increase operating activity outflows due to a new financing agreement and receiving cash in the second quarter from the Company prior to the Acquisition.

Investing Activities

Investing activities provided cash of $342,706 during the nine months ended October 31, 2012, compared to cash used of $755 for the nine months ended October 31, 2011. Cash was provided through the transaction with the Company in connection with the Acquisition. For the nine months ending October 31, 2012, we paid $40,194 in website development costs to develop and launch a new website with the remainder of outflows for trademark acquisitions.

Financing Activities

Financing activities provided cash of $740,784 for the nine month period ended October 31, 2012, compared to providing $170,733 for the nine months ended October 31, 2011. The financing provided during the nine months ended October 31, 2012 was from proceeds of $400,000 from the issuance of the Notes for inventory and accounts receivable financing. Prior to the Acquisition, the Company advanced loans of $328,701 that were forgiven as part of the due to cash acquired on the Acquisition of $380,826. During the period, we issued 214,000 shares for proceeds of $105,999 to cover operating costs for the third quarter.

The Company had net outflows to related parties of $48,830. Accounted for in these outflows were payments on outstanding loans to each of the director’s parents. Both directors continue to advance funds to the Company for expenditures and predict this trend continuing for the fourth quarter.

Non-cash transactions

For the nine months ending October 31, 2012, certain non-cash transactions affected our cash position. $375,000 in loans advanced to Naked were converted to equity as part of the Acquisition Agreement. $13,134 in accounts payable was settled as part of debt settlement agreements in exchange for shares of our common stock. As part of the Acquisition, we acquired $153,631 in accounts payable. The Company had $220,221 in deferred financing charges.

Effect of Foreign Exchange on Cash

The change in our foreign currency exchange is the result of the Canadian dollar’s change in value against the United States dollar during each period.


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Commitments and capital expenditures

We do not anticipate that we will expend any significant amount on capital expenditures like equipment over the next twelve months or enter into any other material commitments.

Going Concern

As at October 31, 2012, we had not yet achieved profitable operations and expect to incur further losses in the development of our business, which casts substantial doubt about our ability to continue as a going concern. To remain a going concern, we will be required to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations as they come due. Management plans to obtain the necessary financing through the issuance of equity or debt. Should we be unable to obtain this financing, we may need to substantially scale back operations or cease business. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances that we will be able to obtain additional financing through private placements, and/or bank financing or other loans necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us.

These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

CRITICAL ACCOUNTING POLICIES

Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts

Sales are recorded when title and risk of loss has passed to the customer, when persuasive evidence of a sales arrangement exists, the selling price is fixed and determinable and collectability is reasonably assured, generally when products are shipped to customers. Provisions for estimated returns, discounts and credits are provided for in the same period the related sales are recorded.

Accounts receivables consist of amounts due from customers and are recorded upon the shipment of product to customers. Credit terms are extended to customers in the normal course of business and no collateral is required. We estimate an allowance for doubtful accounts based on historical losses, existing economic conditions and the financial stability of our customers. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If we made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue recognized could result.

Inventory

Inventory is stated at the lower of cost or market value. Cost is determined using the weighted average method, which under the circumstances, management believes will provide for the most practical basis for the measurement of periodic income. Management periodically reviews inventory for slow moving or obsolete items and considers realizability based on our marketing strategies and sales forecasts to determine if an allowance is necessary. If market value is below cost, then an allowance is created to adjust the inventory carrying amount to reflect this.


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Intangible Assets

Indefinite-lived intangible assets, consisting of costs to acquire trademarks with an indefinite life, are recorded at cost, net of impairment charges, if applicable. Indefinite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Included in intangible assets are costs to acquire trademarks. Trademarks have an indefinite life, so no amortization has been taken.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the related carry amounts may not be recoverable. Such a review involves comparing the carrying value of the assets with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, we would recognize an impairment loss at that date for the amount by which the carrying amount of the asset exceeds its fair value.

Income Taxes

The current income tax represents the amount of income taxes expected to be paid or the benefit expected to be received for the current year taxable income or loss. Deferred income taxes are recognized for the future tax consequences of temporary differences arising between the carrying value of assets and liabilities for financial statement and tax reporting purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.

We recognize the impact of a tax position in the financial statements if the position is more likely than not to be sustained upon examination on the technical merits of the position. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. The most significant estimates we made are those relating to uncollectible receivables, inventory valuation and obsolescence, product returns, and stock compensation expense.

Accounting for Stock-Based Compensation

ASC Topic 718, Compensation – Stock Compensation, requires that compensation expense for employee stock-based compensation be recognized over the requisite service period based on the fair value of the award, at the date of grant. We account for the granting of equity based awards to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all equity based awards is expensed over the service provision period with a corresponding increase to common stock. The fair value of equity based awards is estimated using the most recent share offering of the same or similar share classes (approximate market value).


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Based on guidance in ASC 505-50, Equity Based Payments to Non-Employees, stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date are measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.

Foreign Exchange

During the period, the Company’s functional currency changed to US dollar. This change occurred because the Company entered into promissory notes denominated in US dollars, along with continued financings in US dollars triggered a change in functional currency. Transactions denominated in foreign currencies are translated at the exchange rate in effect on the transaction date. Foreign currency gains and losses are expensed as incurred on the consolidated statements of operations.

The functional currency of Naked is the Canadian dollar. Financial statements of foreign operations for which the functional currency is the local currency are translated into US dollars with assets and liabilities translated at the rate of exchange in effect at the balance sheet date and revenue and expense items translated at the average rates for the period. Translation adjustments are recorded as accumulated other comprehensive income (loss) in stockholders’ equity. We use the US dollar as our reporting currency for consistency with registrants of the Securities and Exchange Commission (“SEC”).

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

RECENT ACCOUNTING PRONOUNCEMENTS

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, could have a material effect on the accompanying financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer, principal financial officer and principal accounting officer, to allow timely decisions regarding required disclosure.


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Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(c) and 15d – 15(e)) as at October 31, 2012. Based upon that evaluation, our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, concluded that, as at October 31, 2012, our disclosure controls and procedures were not effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. The conclusion reached by our chief executive officer and our chief financial officer was a result of the material weaknesses described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:

  (i)

inadequate segregation of duties and effective risk assessment;

     
  (ii)

insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines;

     
  (iii)

lack of independent directors and audit committee;

     
  (iv)

inadequate security and restricted access to computer systems, including insufficient disaster recovery plans; and

     
  (v)

no written whistle-blower policy.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Remediation of Material Weaknesses

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2013 assessment of the effectiveness of our internal control over financial reporting.

Subject to receipt of additional financing, we intend to undertake the below remediation measures to address the material weaknesses described in this Form 10-Q. Such remediation activities include the following:

  (i)

establishing an independent audit committee as additional board members are retained;

     
  (ii)

obtaining a qualified VP Finance to assist in the preparation of our public filings and assist on accounting matters; and

     
  (iii)

updating the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.

The remediation efforts set out above are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.


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Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter 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.

Much of the information included in this quarterly report includes or is based upon estimates, projections or other “forward-looking statements”. Such forward-looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Such estimates, projections or other “forward-looking statements” involve various risks and uncertainties as outlined below. We caution readers of this quarterly report that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward-looking statements”. In evaluating us, our business and any investment in our business, readers should carefully consider the following factors.

Risks Associated with our Company

Risks Related To Our Business

We have a limited operating history which makes it difficult to evaluate our company or future operations.

Naked commenced operations in 2010. Since beginning operations, we have generated limited total revenues. For the nine months ended October 31, 2012, our revenues were $151,502 (2011: $89,025). As a relatively new company, we are subject to many risks associated with the initial organization, financing, expenditures and impediments inherent in a new business. Potential investors should evaluate an investment in our company in light of the obstacles that may be encountered by a start-up company in a competitive market.

Our limited operating experience and limited brand recognition in new international markets may limit our expansion strategy and cause our business and growth to suffer.

Our future growth depends, to an extent, on our international expansion efforts. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in any new market. We may also encounter difficulty expanding into new international markets because of limited brand recognition leading to delayed acceptance of our undergarments by customers in these new international markets. Our failure to develop new international markets or disappointing growth outside of existing markets will harm our business and results of operations.


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Our auditors’ opinion on our January 31, 2012 financial statements includes an explanatory paragraph regarding there being substantial doubt about our ability to continue as a going concern.

For the year ended January 31, 2012, we incurred a net loss of $550,484. We anticipate generating losses for at least the next 12 months. Therefore, there is substantial doubt about our ability to continue operations in the future as a going concern, as described by our auditors with respect to the financial statements for the year ended January 31, 2012. Our future operating capital depends on our revenues and ability to raise capital through equity investments. Future equity investments will be dilutive to existing shareholders and the terms of securities issued may be more favorable for new investors. Further, in obtaining further equity investments, we may incur substantial costs including investment banking fees, legal fees and accounting fees. Our business operations may fail if our actual cash requirements exceed our estimates and we are not able to obtain further financing. If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in our company.

Our success depends on our ability to maintain the value and reputation of our brand.

Our success depends on the value and reputation of the Naked brand. The Naked name is integral to our business as well as to the implementation of our strategies for expanding our business. Maintaining, promoting and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high quality customer experience. We rely on social media as one of our marketing strategies to have a positive impact on both our brand value and reputation. Our brand could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity. Negative publicity regarding the production methods of any of our suppliers or manufacturers could adversely affect our reputation and sales and force us to locate alternative suppliers or manufacturing sources. Additionally, while we devote considerable efforts and resources to protecting our intellectual property, if these efforts are not successful the value of our brand may be harmed, which could have a material adverse effect on our financial condition.

An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products.

Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, particularly those in Canada and the United States, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability of consumer credit, levels of unemployment, tax rates and the cost of consumer credit. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. The current volatility in the United States economy in particular has resulted in an overall slowing in growth in the retail sector because of decreased consumer spending, which may remain depressed for the foreseeable future. These unfavorable economic conditions may lead consumers to delay or reduce purchase of our products. Consumer demand for our products may not reach our sales targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets, particularly in North America. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.

Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.

Our business is subject to significant pressure on pricing and costs caused by many factors, including intense competition, constrained sourcing capacity and related inflationary pressure, pressure from consumers to reduce the prices we charge for our products and changes in consumer demand. These factors may cause us to experience increased costs, reduce our sales prices to consumers or experience reduced sales in response to increased prices, any of which could have a material adverse effect on our financial conditions, operating results and cash flows.


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If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our sales and profitability.

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. If we are unable to introduce new products in a timely manner or our new products are not accepted by our customers, our competitors may introduce similar products in a more timely fashion. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. Our failure to effectively introduce new products that are accepted by consumers could have a material adverse effect on our financial condition.

Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for our products.

To ensure adequate inventory supply, we must forecast inventory needs and place orders with our manufacturers based on our estimates of future demand for particular products. Our ability to accurately forecast demand for our products could be affected by many factors, including an increase or decrease in customer demand for our products or for products of our competitors, our failure to accurately forecast customer acceptance of new products, product introductions by competitors, unanticipated changes in general market conditions, and weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast customer demand we may experience excess inventory levels or a shortage of products available for sale in our stores or for delivery to guests. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would adversely affect our results of operations and could impair the strength and exclusivity of our brand. Conversely, if we underestimate customer demand for our products, our manufacturers may not be able to deliver products to meet our requirements, and this could result in damage to our reputation and customer relationships.

The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer.

The fabrics used by our suppliers and manufacturers include synthetic fabrics whose raw materials include petroleum-based products. Our products also include natural fibers, including cotton. Our costs for raw materials are affected by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials could have a material adverse effect on our cost of goods sold, results of operations, financial condition and cash flows.

We rely on third-party suppliers to provide fabrics for and to produce our products, and we have limited control over them and may not be able to obtain quality products on a timely basis or in sufficient quantity.

We do not manufacture our products or the raw materials for them and rely instead on third-party suppliers. Many of the specialty fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be available, in the short-term, from only one or a very limited number of sources. We may experience a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier manufacturer, we may be unable to locate additional suppliers of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with their quality control, responsiveness and service, financial stability and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products and quality control standards. Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from other participants in our supply chain. Any delays, interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet customer demand for our products and result in lower net revenue and income from operations both in the short and long term. We have occasionally received, and may in the future continue to receive, shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell those products and related increased administrative and shipping costs. Additionally, if defects in the manufacture of our products are not discovered until after such products are purchased by our guests, our guests could lose confidence in the technical attributes of our products and our results of operations could suffer and our business could be harmed.


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We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenue and profitability.

The market for undergarments is highly competitive. Competition may result in pricing pressures, reduced profit margins or lost market share or a failure to grow our market share, any of which could substantially harm our business and results of operations. We compete directly against wholesalers and direct retailers of undergarments, including large, diversified companies with substantial market share and strong worldwide brand recognition, such as Calvin Klein and Armani. Many of our competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, marketing, distribution and other resources than we do. Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. In contrast to our “grassroots” marketing approach, many of our competitors promote their brands through traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements, and have substantial resources to devote to such efforts. Our competitors may also create and maintain brand awareness using traditional forms of advertising more quickly than we can. Our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do, such as catalog sales or an extensive franchise network, as opposed to distribution through retail stores, wholesale or internet, and many of our competitors have substantial resources to devote toward increasing sales in such ways.

Any material disruption of our information systems could disrupt our business and reduce our sales.

We are increasingly dependent on information systems to operate our e-commerce website, process transactions, respond to customer inquiries, manage inventory, purchase, sell and ship goods on a timely basis and maintain cost-efficient operations. Any material disruption or slowdown of our systems, including a disruption or slowdown caused by our failure to successfully upgrade our systems, system failures, viruses or other causes, could cause information, including data related to customer orders, to be lost or delayed which could result in delays in the delivery of merchandise to our customers or lost sales, which could reduce demand for our merchandise and cause our sales to decline. If changes in technology cause our information systems to become obsolete, or if our information systems are inadequate to handle our growth, we could lose customers.

Our fabrics and manufacturing technology are not patented and can be imitated by our competitors.

The intellectual property rights in the technology, fabrics and processes used to manufacture our products are owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain intellectual property protection for our products is therefore limited and we currently own no patents or exclusive intellectual property rights in the technology, fabrics or processes underlying our products. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing and other resources than we do, they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenue and profitability could suffer.


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Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position.

We currently rely on trademarks, as well as confidentiality procedures, to establish and protect our intellectual property rights. We cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent infringement of such rights by others, including imitation of our products and misappropriation of our brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States or Canada, and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished and our competitive position may suffer.

Our future success is substantially dependent on the continued service of our senior management.

Our future success is substantially dependent on the continued service of our senior management and other key employees. The loss of the services of our senior management or other key employees could make it more difficult to successfully operate our business and achieve our business goals. We also may be unable to retain existing personnel that are critical to our success, which could result in harm to our customer and employee relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs.

Because a significant portion of our sales are generated in Canada, fluctuations in foreign currency exchange rates have negatively affected our results of operations and may continue to do so in the future.

The reporting currency for our consolidated financial statements is the US dollar. In the future, we expect to continue to derive a significant portion of our net revenue and incur a significant portion of our operating costs in Canada, and changes in exchange rates between the Canadian dollar and the US dollar may have a significant, and potentially adverse, effect on our results of operations. Our primary risk of loss regarding foreign currency exchange rate risk is caused by fluctuations in the exchange rates between the US dollar and the Canadian dollar. Because we recognize net revenue from sales in Canada in Canadian dollars, if the Canadian dollar weakens against the US dollar it would have a negative impact on our Canadian operating results upon translation of those results into US dollars for the purposes of consolidation. The exchange rate of the Canadian dollar against the US dollar has been relatively consistent in the last twelve months and our results of operations have benefited from the strength in the Canadian dollar. If the Canadian dollar were to weaken significantly relative to the US dollar, our net revenue would decline and our income from operations and net income could be adversely affected. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on our results of operations.

Our ability to source our merchandise profitably or at all could be hurt if new trade restrictions are imposed or existing trade restrictions become more burdensome.

The United States and the countries in which our products are produced or sold internationally have imposed and may impose additional quotas, duties, tariffs, or other restrictions or regulations, or may adversely adjust prevailing quota, duty or tariff levels. Countries impose, modify and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. Trade restrictions, including tariffs, quotas, embargoes, safeguards and customs restrictions, could increase the cost or reduce the supply of products available to us or may require us to modify our supply chain organization or other current business


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Risk Related to our Stock and Public Reporting Requirements

Because we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and may experience further dilution.

We are authorized to issue up to 100,000,000 shares of common stock, of which 28,122,000 shares are issued and outstanding as of December 17, 2012. Our board of directors has the authority to cause us to issue additional shares of common stock, and to determine the rights, preferences and privileges of such shares, without consent of any of our shareholders. Consequently, our shareholders may experience more dilution in their ownership of our stock in the future.

Trading on the OTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our shareholders to resell their shares.

Our common stock is quoted on the OTCQB quotation system. Trading in stock quoted on the OTCQB 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 OTCQB is not a stock exchange, and trading of securities on the OTCQB is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the NYSE. Accordingly, shareholders may have difficulty reselling any of their shares.

A decline in the price of our common stock could affect our ability to raise further working capital, may adversely impact our ability to continue operations and we may go out of business.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our shareholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and such other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’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 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 form prepared 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.


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FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) 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, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA 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.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

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

Effective October 5, 2012, we sold 14,000 shares at $0.50 per share for gross proceeds of $7,000 to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in an offshore transaction in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.


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Item 5. Other Information.

None.

Item 6. Exhibits.

Item 6. Exhibits.

Exhibit
Number
Description of Exhibit
(3) Articles of Incorporation and Bylaws
3.1 Articles of Incorporation (incorporated by reference from our registration statement on Form SB- 2, as filed with the Commission on December 8, 2006)
3.2 Articles of Merger (incorporated by reference from Exhibit 10.1 of our current report on Form 8- K, as filed with the Commission on August 30, 2012)
3.3 Bylaws (incorporated by reference from our registration statement on Form SB-2, as filed with the Commission on December 8, 2006)
(10) Material Contracts
10.1 Acquisition Agreement dated February 28, 2012 among our company, Naked Boxer Brief Clothing Inc. and SBH Acquisition Corp. (incorporated by reference from Exhibit 10.1 of our current report on Form 8-K, as filed with the Commission on March 1, 2012)
10.2 Loan Agreement dated January 16, 2012 among our company and Naked Boxer Brief Clothing Inc. (incorporated by reference from Exhibit 10.1 to our current report on Form 8-K, as filed with the Commission on January 17, 2012)
10.3 General Security Agreement dated January 16, 2012 among our company and Naked Boxer Brief Clothing Inc. (incorporated by reference from Exhibit 10.2 to our current report on Form 8-K, as filed with the Commission on January 17, 2012)
10.4 Addendum to Loan Agreement dated April 4, 2012 among our company and Naked Boxer Brief Clothing Inc. (incorporated by reference from Exhibit 10.1 to our current report on Form 8-K, as filed with the Commission on April 12, 2012)
10.5 Second Addendum to Loan Agreement dated April 11, 2012 among our company and Naked Boxer Brief Clothing Inc. (incorporated by reference from Exhibit 10.2 to our current report on Form 8-K, as filed with the Commission on April 12, 2012)
10.6 Third Addendum to Loan Agreement dated May 7, 2012 among our company and Naked Boxer Brief Clothing Inc. (incorporated by reference from Exhibit 10.1 to our current report on Form 8- K, as filed with the Commission on May 8, 2012)
10.7 Fourth Addendum to Loan Agreement dated June 13, 2012 among our company and Naked Boxer Brief Clothing Inc. (incorporated by reference from Exhibit 10.1 to our current report on Form 8-K, as filed with the Commission on June 14, 2012)
10.8 Fifth Addendum to Loan Agreement dated July 6, 2012 among our company and Naked Boxer Brief Clothing Inc. (incorporated by reference from Exhibit 10.1 to our current report on Form 8- K, as filed with the Commission on July 11, 2012)
10.9 Form of $0.05 Subscription Agreement (incorporated by reference from Exhibit 10.9 to our  current report on Form 8-K, as filed with the Commission on July 31, 2012)


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Exhibit
Number
Description of Exhibit
10.10 Form of $0.25 Subscription Agreement (incorporated by reference from Exhibit 10.10 to our current report on Form 8-K, as filed with the Commission on July 31, 2012)
10.11 Form of Pooling Agreement among our company and certain former shareholders of Naked Boxer Brief Clothing Inc., dated June 27, 2012 (incorporated by reference from Exhibit 10.11 to our current report on Form 8-K, as filed with the Commission on July 31, 2012)
10.12 Employment Agreement with Joel Primus dated July 30, 2012 (incorporated by reference from Exhibit 10.12 to our current report on Form 8-K, as filed with the Commission on July 31, 2012)
10.13 Employment Agreement with Alex McAulay dated July 30, 2012 (incorporated by reference from Exhibit 10.13 to our current report on Form 8-K, as filed with the Commission on July 31, 2012)
10.14 2012 Stock Option Plan (incorporated by reference from Exhibit 10.14 to our current report on Form 8-K, as filed with the Commission on July 31, 2012)
10.15 Form of Stock Option Agreement (incorporated by reference from Exhibit 10.15 to our current report on Form 8-K, as filed with the Commission on July 31, 2012)
10.16 Agency and Interlender Agreement dated August 10, 2012 (incorporated by reference from Exhibit 10.1 to our current report on Form 8-K, as filed with the Commission on August 22, 2012)
10.17 Security Agreement dated August 10, 2012 (incorporated by reference from Exhibit 10.2 to our current report on Form 8-K, as filed with the Commission on August 22, 2012)
10.18 Form of Subscription Agreement for Convertible Notes and Warrants (incorporated by reference from Exhibit 10.3 to our current report on Form 8-K, as filed with the Commission on August 22, 2012)
10.19 Form of Warrant Subscription Agreement (incorporated by reference from Exhibit 10.4 to our current report on Form 8-K, as filed with the Commission on August 22, 2012)
10.20 Memorandum of Understanding dated October 1, 2012 with Shark Investments, LLC (incorporated by reference from Exhibit 10.1 to our current report on Form 8-K, as filed with the Commission on October 15, 2012)
10.21 Form of Stock Option Agreement with Shark Investments, LLC dated October 9, 2012 (incorporated by reference from Exhibit 10.1 to our current report on Form 8-K, as filed with the Commission on October 15, 2012)
10.22 Consulting Agreement with George Creative Consultants Inc. dated February 1, 2012 (incorporated by reference from Exhibit 10.16 to our current report on Form 8-K/A, as filed with the Commission on November 30, 2012)
10.23 Consulting Agreement with Kosick Communications Ltd. dated February 1, 2012 (incorporated by reference from Exhibit 10.17 to our current report on Form 8-K/A, as filed with the Commission on November 2, 2012)
10.24 Form of Warrant Agreement (incorporated by reference from Exhibit 10.18 to our current report on Form 8-K/A, as filed with the Commission on November 30, 2012)


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Exhibit
Number
Description of Exhibit
(16) Letter re Change in Certifying Accountant
16.1 Letter from Madsen & Associates, CPA’s Inc. dated July 30, 2012 (incorporated by reference from Exhibit 16.1 to our current report on Form 8-K, as filed with the Commission on July 31, 2012)
(31 and 32) Certifications
31.1* Section 302 Certification under Sarbanes-Oxley Act of 2002
31.2* Section 302 Certification under Sarbanes-Oxley Act of 2002
32.1* Section 906 Certification under Sarbanes-Oxley Act of 2002
32.2* Section 906 Certification under Sarbanes-Oxley Act of 2002

* Filed herewith


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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NAKED BRAND GROUP INC.

By: /s/ Alex McAulay
      Alex McAulay 
      Chief Financial Officer, Secretary, Treasurer and Director
      (Principal Financial Officer) 
      Dated: December 17, 2012