RYU APPAREL INC. - FORM 10-K

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EXCEL - IDEA: XBRL DOCUMENT - RYU APPAREL INC.	Financial_Report.xls
EX-99.1 - EXHIBIT 99.1 - RYU APPAREL INC.	ex99_1.htm
EX-31.1 - EXHIBIT 31.1 - RYU APPAREL INC.	ex31_1.htm
EX-21.1 - EXHIBIT 21.1 - RYU APPAREL INC.	ex21_1.htm
EX-31.2 - EXHIBIT 31.2 - RYU APPAREL INC.	ex31_2.htm
EX-32.1 - EXHIBIT 32.1 - RYU APPAREL INC.	ex32_1.htm
EX-32.1 - EXHIBIT 32.2 - RYU APPAREL INC.	ex32_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

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

For the transition period from _______ to _______

Commission File No. 000-54885

RYU Apparel Inc.

(Exact name of registrant as specified in its charter)

British Columbia	20-0641026
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1672 West 2nd Avenue, Vancouver, BC	V6J 1H4
(Address of principal executive offices)	(Zip Code)

1-604-235-2880

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. o Yes ý No

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 past 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. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $14,915,840 as of June 30, 2014.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 71,355,107 shares of common stock as of April 21, 2015.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). Not Applicable

EXPLANTORY NOTE

Pursuant to and on the terms and subject to the conditions set out in a share exchange and arrangement agreement between Respect Your Universe, Inc., a Nevada corporation (“RYU Nevada”) and our company dated December 4, 2014, on February 20, 2015, all of the shareholders of RYU Nevada were deemed to have exchanged (the “Exchange”) their common shares of RYU Nevada (each, a “RYU Nevada Share”) for common shares of our company (each, a “RYU Canada Share”) on the basis of one RYU Canada Share for each RYU Nevada Share held. Pursuant to Rule 12g-3 promulgated under the Securities and Exchange Act of 1934, we are the successor issuer to RYU Nevada. RYU Nevada effected the Exchange as a plan of share exchange pursuant to the Nevada Revised Statutes and filed articles of exchange with the Nevada Secretary of State to effect the Exchange. We effected the Exchange as a plan of arrangement pursuant to the British Columbia Business Corporations Act and obtained an order of the Supreme Court of British Columbia (the “Court”) to approve the Exchange. The Court also declared that the Exchange was fair to the former shareholders of RYU Nevada.

Any references to share capital information prior to February 20, 2015 are to shares of RYU Nevada and any references after February 20, 2015 are to shares of RYU Canada.

Because the operations and assets of RYU Nevada represent our entire business and operations as of the closing date of the Exchange, our management’s discussion and analysis contained in this annual report is based on RYU Nevada’s operations.

On June 30, 2014, we implemented a one-for-two reverse stock split of our common stock. As a result of the reverse stock split, each two outstanding shares of pre-split common stock were automatically combined into one share of post-split common stock. Fractional shares are rounded up to reflect the reverse stock split. The financial statements for all prior periods have been retroactively adjusted to reflect this stock split for both common stock issued and options and warrants outstanding.

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Forward-looking statements may also be made in our other reports filed with or furnished to the United States Securities and Exchange Commission (the “SEC”). The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements. Examples of forward-looking statements include statements pertaining to, among other things: (1) our product line; (2) our business plan; (3) future capital expenditures; (4) the enforceability of our intellectual property rights; (5) projections of market prices and costs; (6) supply and demand for our products; and (7) our need for, and our ability to raise, capital.

The material assumptions supporting these forward-looking statements include, among other things: (1) our ability to obtain any necessary financing on acceptable terms; (2) timing and amount of capital expenditures; (3) the enforcement of our intellectual property rights; (4) our ability to launch new product lines; (5) retention of skilled personnel; (6) continuation of current tax and regulatory regimes; (7) current exchange rate and interest rates; and (8) general economic and financial market conditions.

These statements are not guarantees of future performance, and therefore you should not put undue reliance upon them. Some of the factors that may cause actual results to differ materially from those indicated in these statements are found in the section “Risk Factors” in this annual report on Form 10-K, and also include without limitation:

·	Changes in general economic or market conditions that could impact consumer demand for our products;

·	our product lines, including that we intend to launch additional product lines in the future;

·	our business plan;

·	capital expenditure programs;

·	the enforceability of our intellectual product rights;

·	projections of market prices and fluctuations of product costs;

·	sales of our products;

·	our marketing, branding and sponsorship initiatives;

·	our need for and ability to raise capital;

·	our ability to retain the services of our senior management and key employees;

·	our ability to sell excess inventory; and

·	our ability to renew leased retail facilities.

The forward-looking statements contained in this Form 10-K reflect our views and assumptions only as of the date of this Form 10-K. We undertake no obligation to update or revise any forward-looking statements after the date on which the statement is made.

As used in this Form 10-K and unless otherwise indicated, the terms “we”, “us”, “our” and “RYU” refer to RYU Apparel Inc. and our wholly owned subsidiary Respect Your Universe, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

RYU APPAREL INC.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2014

INDEX TO FORM 10-K

PART I		Page

Item 1	Business	5
Item 1A	Risk Factors	7
Item 1B	Unresolved Staff Comments	13
Item 2	Properties	13
Item 3	Legal Proceedings	13
Item 4	Mine Safety Disclosures	13


PART II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6	Selected Financial Data	16
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	22
Item 8	Financial Statements and Supplementary Data	23
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	24
Item 9A	Controls and Procedures	25
Item 9B	Other Information	26

PART III

Item 10	Directors, Executive Officers and Corporate Governance	27
Item 11	Executive Compensation	32
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38
Item 13	Certain Relationships and Related Transactions, and Director Independence	39
Item 14	Principal Accounting Fees and Services	40

PART IV

Item 15	Exhibits, Financial Statement Schedules	41

PART I

Item 1

Business

Overview

RYU is a global, athletic tech-style brand engineered for the fitness, training and performance of the multi-discipline athlete. Designed without compromise, RYU exists to facilitate human performance.

We were incorporated in the State of Nevada in November 2008 as Respect Your Universe, Inc. On December 4, 2014, we entered into an arrangement and exchange agreement (the “Agreement”) with Respect Your Universe (BC) Inc. (“RYU BC”), a newly incorporated subsidiary of the Company. RYU BC is incorporated in British Columbia. Under the Agreement, the shareholders of the Respect Your Universe, Inc. will become shareholders of RYU BC by exchanging the outstanding common shares of the Respect Your Universe, Inc. for common shares of RYU BC on a one to one basis. Upon the completion of the share exchange, the Respect Your Universe, Inc. will be affected to have changed its jurisdiction of business from Nevada to British Columbia. The Agreement was approved by the shareholders of Respect Your Universe, Inc. on January 27, 2015 and by the Supreme Court of British Columbia on February 4, 2015 and is still pending approval by the TSX Venture Exchange (“TSX-V”). Upon approval by the TSX-V, the RYU BC shares will be listed on the TSX-Venture under the name RYU Apparel Inc. and the symbol “RYU”. The Respect Your Universe, Inc.’s shares will be de-listed from the TSX-V and the OTCQB. In connection with the Agreement, we changed the name of our company to “RYU Apparel Inc.” on February 20, 2015.

Our corporate headquarters and operations are located in Vancouver, British Columbia. We have retained a senior leadership team with extensive experience in the retail and apparel industry. All products are designed, developed and tested at our corporate headquarters, and production takes place in top-grade factories in our industry.

We sell our products through three primary channels: wholesale, retail and e-commerce. Our initial product line launched in February 2012, which coincided with the roll out of our online store at ryu.com. In October 2012, we opened our first retail store located at The Shoppes at the Palazzo in Las Vegas, Nevada, and in December 2013, we opened our second retail store located at Westlake Center in downtown Seattle, Washington. We elected not to enter into a long-term lease with our Las Vegas landlord and subsequently closed that location in February 2014. We elected to terminate our lease at Westlake Center due to the store’s outdated appearance and poor sales per square foot and subsequently closed that location in December 2014.

Product Lines

Our products include performance and lifestyle apparel and accessories that are environmentally friendly and meet the demands of an active lifestyle. Our men’s and women’s apparel lines are comprised of up to 90 percent organic and recycled materials, utilizing top-grade yarn and fabric suppliers throughout the world. We currently market four commercial product lines targeted for the Spring, Summer, Fall and Winter seasons.

We released a limited Spring 2013 line in March 2013 that included approximately 18 new men’s and women’s styles. Approximately 10 additional styles were designed for the Fall 2013 season and we received these styles at our warehouse as of September 2013.

Our Spring 2014 line included approximately 20 new men’s and women’s styles as well as additional accessories and a limited number of carryover styles. Our Fall 2014 line was designed but production was cancelled due to the re-branding of our Company and change in strategic direction. We are currently designing and developing our Fall 2015 line and expect it to drop in August 2015.

Product Research and Development

We believe our research and development efforts are a key factor for success. We believe that Vancouver’s proximity to a vast pool of apparel design talent, along with its eco-conscious reputation, provides us much of the resources and skills needed to support our product development and growth. We use technical innovation in the construction of our apparel to create products that enhance an active lifestyle. Our products are manufactured with technical fabrications produced by third parties and developed in collaboration with our product development team.

Product Manufacturing

We outsource the commercial manufacturing of our product lines to factories primarily outside of Canada. During 2013 and 2014, production occurred primarily at manufacturers located in Asia. Our independent suppliers buy raw materials in bulk for the manufacturing of our apparel and accessories.

Our international sources of supply are subject to the usual risks of doing business abroad, such as possible revaluation of currencies, import duties, safeguard measures, trade restrictions, and restrictions on the transfer of funds and, in certain parts of the world, political instability and terrorism. We have not, to date, been materially affected by any such risk, but cannot predict the likelihood of such developments occurring in the future.

Product Distribution

We have deployed a multi-channel distribution strategy to deliver our products to consumers. Our wholesale channel consists of various retail customers. Our brand targets a broader market of active lifestyle apparel. Our e-commerce channel consists of the ryu.com web store, which was launched in February 2012 and provides a global consumer base access to our entire product line. Our third channel, retail, includes our first retail stores in Las Vegas, Nevada (closed February 2014), and Seattle, Washington (closed December 2014).

We have contracted with third parties to outsource our inventory receiving, warehousing and our product fulfillment needs.

Product Marketing

We create awareness and demand for our products through the following marketing strategies: digital marketing, media placements, product seeding, sports marketing and social media.

We use digital marketing strategies to bring consumers to our website at ryu.com to introduce them to our brand and present our product lines for sale through our web store. We have partnered with a public relations firm to support our brand development through distribution of news releases to local and national media, strategic media placements that will introduce our brand to target consumers and through social media support.

We have established a social media strategy for communicating directly with consumers to build awareness and interest in Respect Your Universe. Through the use of platforms including Facebook, Twitter, Instagram and Pinterest we are attempting to build a strong community following and interacting with our brand.

Competition

The market for athletic apparel is highly competitive. We compete with a significant number of apparel brands, as well as wholesalers and direct sellers of performance and lifestyle athletic apparel. Many of our competitors have significant advantages over our company in terms of brand recognition, scale, operating histories, greater number of locations, capital and other resources. The intense competition and the rapid changes in technology and consumer preferences constitute significant risk factors for our operations in the industry.

We are a company that has only recently commenced commercial operations. Accordingly, there can be no assurances that we can successfully compete in our industry. We believe that the vision of our brand, which is to inspire people with active lifestyles to respect themselves, others and the world they live in, is compelling and relevant to a small segment of consumers. We also believe that our vision, combined with a strategy of using high quality performance lifestyle apparel as a platform for delivering our brand’s message, differentiates us and will enable us to obtain a competitive position in the industry.

Patents and Trademarks

On December 10, 2008, a U.S. federal trademark registration was filed for RYU. This trademark is owned by Respect Your Universe, Inc. The U.S. Patent and Trademark Office (“USPTO”) has given the RYU trademark serial number of 77630773.

On December 10, 2008, a U.S. federal trademark registration was filed for RESPECT YOUR UNIVERSE. This trademark is owned by RYU Nevada. The USPTO has given the RESPECT YOUR UNIVERSE trademark serial number of 77630779.

We intend to continue to strategically register, both domestically and internationally, existing patents, trademarks and copyrights that are consistent with our vision for the future of our brand. Additionally, we intend to strategically register both domestically and internationally, patents, trademarks and copyrights that we develop in the future.

Employees

We currently have fifteen full time employees and no part-time employees. Our employees are responsible for performing or overseeing all operations of the Company. Specifically, our employees’ direct responsibilities include, but are not limited to, seeking the investment capital necessary to build and help sustain commercial operations, creating and executing our marketing, branding and sales strategy, driving the overall product design strategy, directing product development, operations, sales, finance and general administrative duties.

Item 1A

Risk Factors

If we do not obtain additional financing our business may fail.

As of December 31, 2014, we had cash and cash equivalents in the approximate amount of $265,394 and a net loss of $5,453,159 for the year ended December 31, 2014. As such, we will require additional financing in the very near future to sustain our business operations. The decline in the price of our shares and our poor credit history has and will impact our ability to obtain future financing. Obtaining additional financing would be subject to a number of factors, including our ability to initially attract investments prior to substantial revenue generation, and thereafter our ability to grow our brand. We can provide investors with no assurance that we will ever achieve profitable operations, and thus we face a high risk of business failure. Our ability to achieve and maintain profitability and positive cash flow is dependent upon:

·	our ability to market and sell our product to the levels anticipated;

·	our ability to generate profits from the sale of those products; and

·	our ability to create a successful brand.

We have a history of operating losses and negative cash flow that will continue into the foreseeable future. If we fail to execute our strategy to achieve and maintain profitability in the future, investors could lose confidence in the value of our common shares, which could cause our stock price to further decline and adversely affect our ability to raise additional capital. If we fail to obtain additional short-term financing, we would not have adequate liquidity to fund our operations, would not be able to continue as a going concern and could be forced to seek relief through a filing under U.S. Bankruptcy Code.

Our cash flow problems have caused us to be delinquent in payments to vendors and other creditors

Our lack of financial resources has caused us to delay payment of our obligations as they became due in the ordinary course of our business. Such delays have damaged some of our vendor and professional relationships, and have caused us to incur additional expenses in the payment of late charges and penalties. As of December 31, 2014, we had current liabilities of $1,278,122 of which a significant portion was and remains past due. If we are unable to make timely future payments to our vendors or repair the relationships with our current vendors, we may be unable to find vendors suitable to us.

Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our results of operations and our financial condition.

On December 9, 2013, we issued a promissory note to one investor in the amount of $499,934, which is secured against all of our property and is due in full on May 15, 2015. If there were an event of default under this note or any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. Our assets or cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our indebtedness under our secured debt, the holders of such debt could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments. Lastly, we could be forced into bankruptcy or liquidation. As a result, any default by us on our indebtedness could have a material adverse effect on our business and could impact our ability to make payments under the note.

Because of the unique difficulties and uncertainties inherent in the apparel business, we face a high risk of business failure.

Potential investors should be aware of the difficulties normally encountered by apparel companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the design, manufacture and sale of the products that we plan to offer, as well as the highly competitive landscape of the apparel industry. These potential problems include, but are not limited to, unanticipated problems relating to manufacturing and sales, lack of branding and marketing traction with consumers, and additional costs and expenses that may exceed current estimates.

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

Our success depends on the value and reputation of our brand. Our brand is integral to our business as well as to the implementation of our strategies for expanding our business. We have repositioned and will continue to reposition our brand from primarily targeting a mixed martial arts consumer to a broader performance and lifestyle consumer. The market’s acceptance of our repositioned brand is a key factor to our success. 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 guest 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.

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 North America and other factors such as consumer confidence in future economic conditions, fears of recession, the availability of consumer credit, level 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 remains 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 cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial conditions, operating results and cash flows.

If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to achieve 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 or novel technologies in a timely manner or our new products or technologies are not accepted by our customers, our competitors may introduce similar products in a more timely fashion, which could hurt our goal to be viewed as a leader in apparel innovation. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales, excess inventory levels, and further deterioration of operating results. 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 result in a decrease in net revenue and excess inventory levels, which 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 our ability to raise sufficient equity or debt capital in a timely manner, 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 customers.

Inventory levels in excess of customer demand or purchased in excess quantities, may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margin to suffer 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.

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 or the prices we pay for our cotton yarn and cotton-based textiles, 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. Due to our financial condition, we have delayed payments to our manufactures or agreed to revise contractual terms, which has had a negative impact on our relationships with them. If we fail to make or delay payments to our manufactures, those manufactures may refuse to work for us and we may have difficulties finding other manufactures that are willing to make our products on terms acceptable to us or which are competitive in the marketplace.

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 have no long-term contracts with our suppliers or manufacturing sources, and we compete with other companies for fabrics, raw materials, production and import quota capacity.

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. We have also received, and may in the future continue to receive, products that meet our technical specifications but that are nonetheless unacceptable to us. Under these circumstances, 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 customers, our customers could lose confidence in the technical attributes of our products and our results of operations could suffer and our business could be harmed.

We may in the future experience a significant disruption in the supply of fabrics or raw materials from current sources and 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 or manufacturer, we may be unable to locate additional supplies 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 its 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 our markets or 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 could result in lower net revenue and income from operations both in the short and long term.

Our reliance on third party providers for all warehouse and fulfillment functions reduces our ability to control the warehousing and fulfillment processes, which could harm our sales, reputation, and overall business.

We have entered into an agreement to outsource most of our warehouse and fulfillment functions to third party providers where our inventory is held at sites managed by an independent contractor who will then perform most of our warehousing, packaging and fulfillment services. We depend on independent contractor fulfillers to properly fulfill customer orders in a timely manner and to properly protect our inventories. The contractor's failure to ship products to customers in a timely manner, to meet the required quality standards, to correctly fulfill orders, to maintain appropriate levels of inventory, or to provide adequate security measures and protections against excess shrinkage could cause us to miss delivery date requirements of our customers or incur increased expense to replace or replenish lost or damaged inventory or inventory shortfall. The failure to make timely and proper deliveries may cause our customers to cancel orders, refuse to accept deliveries, impose non-compliance charges through invoice deductions or other charge-backs, demand reduced prices or reduce future orders, any of which could harm our sales, reputation and overall profitability. Our excess inventory held at these facilities may be damaged due to the length of time that they are at the facility, which may not be covered by the contractor or our insurance.

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 decrease in our net revenue.

The market for apparel 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 athletic apparel, including large, diversified apparel companies with substantial market share and established companies expanding their production and marketing of technical athletic apparel, as well as against retailers specifically focused on athletic, active, lifestyle, and other categories of apparel. We also face competition from wholesalers and direct retailers of traditional commodity athletic apparel, such as cotton T-shirts and sweatshirts. Many of our competitors are large apparel and sporting goods companies with strong worldwide brand recognition, such as Nike, Inc., Lululemon Athletica Inc., adidas AG, which includes the adidas and Reebok brands, and The Gap, Inc., which includes the Athleta brand. Because of the fragmented nature of the industry, we also compete with other apparel sellers. 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, store development, marketing, distribution and other resources than we do. In addition, our athletic and other categories of apparel are sold at a price premium to comparable apparel.

Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. 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.

In addition, because we own no patents or exclusive intellectual property rights in the technology, fabrics or processes underlying our products, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrication techniques and styling similar to our products.

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.

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 a combination of copyright, trademark, trade dress and unfair competition laws, as well as confidentiality procedures and licensing arrangements, 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.

We may not be able to successfully open profitable new store locations in a timely manner, if at all, which could harm our results of operations.

Our growth will depend on our ability to successfully open and operate new stores. Sales at these stores are derived, in part, from the volume of foot traffic in these locations. Our ability to successfully open and operate new stores depends on many factors, including, among others, our ability to:

•	Identify suitable store locations, the availability of which is outside of our control;

•	negotiate acceptable lease terms, including desired tenant improvement allowances;

•	hire, train and retain store personnel and field management;

•	immerse new store personnel and field management into our corporate culture;

•	source sufficient inventory levels; and

•	successfully integrate new stores into our existing operations and information technology systems.

Successful new store openings may also be affected by our ability to initiate our marketing efforts in advance of opening our first store in a new market. We typically rely on our marketing efforts to build awareness of our brand and demand for our products. There can be no assurance that we will be able to successfully implement our marketing efforts in a particular market in a timely manner, if at all. Additionally, we may be unsuccessful in identifying new markets where our apparel and other products and brand image will be accepted or the performance of our stores will be considered successful.

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. We have expanded our relationships with suppliers outside of China, which among other things has resulted in increased costs and shipping times for some products. 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 practices, any of which could harm our business, financial condition and results of operations.

Our employees are critical to our success, and the loss of key personnel could harm our business.

Our performance is substantially dependent on the continued services and performance of our executive officers and other key personnel. We have employment agreements in place for our Chief Executive Officer and Chief Financial Officer, but not with our Vice President of Product and Brand nor our Vice President of Sales and Marketing. No key man life insurance has been purchased on any of our executive officers. Our performance also depends on our ability to retain and motivate our officers. The loss of the services of any of our officers could have a material adverse effect on our business, prospects, financial condition and results of operations.

Competition for key personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. The failure to attract and retain the necessary technical, managerial and marketing personnel could have a material adverse effect on our business, prospects, financial condition and results of operations. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial and marketing personnel.

We are dependent on our information technology systems and third-party servicers, and systems failures, interruptions or breaches of security could have an adverse effect on our financial condition and results of operations.

Our business is dependent on the successful and uninterrupted functioning of our information technology systems setup by third-party providers, as we outsource many of our major systems. We rely on the controls of these providers in lieu of controls setup by us. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.

Risks Relating to our Common Shares

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

Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) of 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 shares.

The Financial Industry Regulatory Authority sales practice requirements may also limit our shareholders’ ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority, or “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 shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for common shares.

The exercise of outstanding options and warrants may have a dilutive effect on the price of our common shares.

To the extent that outstanding stock options and warrants are exercised, dilution to our shareholders will occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of the outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise terms provided by the outstanding options and warrants.

We do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common shares.

We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common shares will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that our company will ever have sufficient earnings to declare and pay dividends to the holders of our common shares, and in any event, a decision to declare and pay dividends is at the sole discretion of our board of directors. If we do not pay dividends, our common shares may be less valuable because a return on your investment will only occur if its stock price appreciates.

Item 1B

Unresolved Staff Comments

Not required for a smaller reporting company.

Item 2

Properties

Our corporate headquarters and principal operations are located at 1672 West 2nd Avenue, Vancouver, British Columbia V6J 1H4. We lease this facility from Naturo Group Investments Inc., a company with common directors, under an operating lease which expires in 2019, for CAD $7,187 per month.

We have a satellite office located at Suite 406 – 1231 NW Hoyt St., Portland, OR 97209. We lease this facility, which expires in 2017, for $2,267 per month. This lease was effectively terminated on March 31, 2015 as a result of our restructuring efforts at a cost of $11,814.

On April 1, 2015, we entered into a lease with The Primrose Family Trust to lease a 5,000 sq. ft. retail location at 1745 West 4th Ave, Vancouver, British Columbia for a period of 5 years. The monthly payment on the lease is CAD$9,833 per month.

We outsource the manufacturing of our products and the distribution and warehousing needs for our products to third parties and as such have no current plans to lease or own space for such needs. We believe that our current locations will be sufficient for the operation of our business over the next twelve months, and expect to find replacement facilities for our corporate headquarters or extend the existing lease.

Item 3

Legal Proceedings

We know of no material pending legal proceedings to which our company or our subsidiaries is a party or of which any of our properties, or the properties of our subsidiaries, is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or our subsidiaries or has a material interest adverse to our company or our subsidiaries.

Item 4 Mine Safety Disclosures

Not applicable.

PART II

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Common Stock trades on the TSX Venture Exchange under the symbol “RYU”. RYU Nevada shares were traded on the TSX Venture Exchange under the symbol “RYU” and on the OTCQB under the symbol “RYUN”.

The following table sets forth the quarterly high and low bid prices for the RYU Nevada common stock during the last two fiscal years, as reported by the OTCQB and TSX Venture Exchange. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

	OTCQB (U.S. Dollars)		TSX Venture Exchange (Canadian Dollars)
	Bid Prices ($)		Trade Prices ($)
Quarter Ended	High	Low	High	Low

March 31, 2013	0.56	0.30	0.34	0.31
June 30, 2013	0.41	0.20	0.30	0.30
September 30, 2013	0.29	0.18	0.21	0.21
December 31, 2013	0.20	0.06	0.085	0.085
March 31, 2014	0.17	0.16	0.085	0.085
June 30, 2014	0.21	0.18	0.15	0.145
September 30, 2014	0.28	0.25	0.30	0.265
December 31, 2014	0.17	0.17	0.22	0.17

On April 21, 2015, the closing price for our common stock on the TSX Venture Exchange was CDN $0.325 per share.

Transfer Agents

The shares of our common stock are issued in registered form. The transfer agent and registrar for our common stock is Computershare Investor Services Inc. located at 3rd Floor – 510 Burrard Street, Vancouver, British Columbia V6C 3B9.

Holders

As of April 21, 2015, we had 159 holders of our common stock.

Registration Rights

In connection with our private placements that closed on February 5, 2014, and November 8, 2013, we agreed to use commercially reasonable efforts to file a registration statement on Form S-1 to register the shares issued in those offerings within 90 days of the date of the closing. As of April 21, 2015, we have not filed the registration statement.

Dividend Policy

We have never declared or paid any cash dividends on our common shares. Holders of our common shares are entitled to receive such dividends as may be declared from time to time by our board, in its discretion, out of funds legally available for that purpose. We intend to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

Since the beginning of our fiscal year ended December 31, 2014, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.

Equity Compensation Plan Information

On June 10, 2011, we adopted the 2011 Incentive Award Plan (the “2011 Plan”) and on May 18, 2012, our board of directors approved certain revisions to the 2011 Plan, resulting in our 2012 Stock Option (the “2012 Plan”) whereby the aggregate number of securities reserved for issuance was revised to 8,487,925 shares of our common stock. On June 7, 2013, our board of directors approved certain revisions to the 2012 Plan, resulting in our 2013 Stock Option Plan (the “2013 Plan”), whereby the aggregate number of securities reserved for issuance was revised to 11,702,425. On June 9, 2014, our board of directors approved certain revisions to the 2013 Stock Option Plan, resulting in the Company’s 2014 Stock Option Plan (the “2014 Plan”) whereby the aggregate number of securities reserved for issuance set aside and made available for issuance under the Plan was revised from (i) 11,702,425 shares of the Company’s common stock at the time of granting the options (including all options granted by our Company to date) to (ii) 16,181,025 shares of the Company’s common stock.

The following table gives information about our common stock that may be issued under our existing equity compensation plan grants as of December 31, 2014.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	7,674,335	$0.77	8,506,690
Equity compensation plans not approved by security holders	Nil	Nil	Nil
Total	7,674,335	$0.77	8,506,690

Summary of 2014 Plan Terms

If the shares are listed on the TSX Venture Exchange, the following terms apply to our plan:

•	The number of common shares which may be reserved in any 12 month period for issuance to any one individual upon exercise of all stock options held by that individual may not exceed 5% of the issued and outstanding common shares of our company at the time of the grant;

•

The number of common shares which may be reserved in any 12 month period for issuance to any one consultant may not exceed 2% of the issued and outstanding common shares and the maximum number of common shares which may be reserved in any 12 month period for issuance to all persons engaged in investor relations activities may not exceed 2% of the issued and outstanding common shares of our company;

•	Options granted to any person engaged in investor relations activities will vest in stages over 12 months with no more than ¼ of the stock options vesting in any three month period;

•	Stock options granted to optionees engaged in investor relations activities on behalf of our company expire 30 days after such optionees cease to perform such investor relations activities for our company; and

•

The exercise price of any stock options granted under the 2014 Plan shall be determined by the board of directors, but may not be less than the closing price of the common shares on the TSX Venture Exchange on the last trading day immediately preceding the date of the grant of such stock options (less any discount permissible under TSX Venture Exchange rules)

The 2014 Plan will be administered by the board of directors of our company or a special committee of directors, either of which will have full and final authority with respect to the granting of all stock options thereunder. Stock options may be granted under the 2014 Plan to such directors, officers, employees or consultants of our company, as the board of directors may from time to time designate.

The term of any stock options granted under the 2014 Plan shall be determined at the time of grant but, subject to earlier termination in the event of termination or in the event of death, the term of any stock options granted under the 2014 Plan may not exceed ten years. Options granted under the 2014 Plan are not to be transferable or assignable other than by will or other testamentary instrument or pursuant to the laws of succession.

Subject to certain exceptions, in the event that an employee, or consultant ceases to act in that capacity in relation to our company, stock options granted to such employee, consultant or management company employee under the 2014 Plan will expire one year after such individual or entity ceases to act in that capacity in relation to our company, other than for cause, death, or disability. Options granted to an employee or consultant that ceases to act in that capacity in relation to our company are terminated immediately upon the employee or consultant being terminated for cause. In the event of death of an option holder, options granted under the 2014 Plan expire one year from the date of the death of the option holder.

Issuer Purchases of Equity Securities

During the fiscal year ended December 31, 2014, we did not purchase any of our equity securities.

Item 6

Selected Financial Data

Not required for a small reporting company.

Item 7

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

The following discussion of the financial condition and results of operations should be read in conjunction with the financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

Overview

We are a performance lifestyle brand that engages in the development, marketing and distribution of apparel and accessories. Our fiscal 2014 results demonstrate our continued focus on the development of our brand, products and attempted repositioning ourselves for sustainable, profitable long-term growth.

Results of Operations

Revenue

Revenues during the years ended December 31, 2014 and 2013 were $969,288 and $1,164,326, respectively. The decrease of 16.8% is primarily due to a decrease in retail store sales, which were reduced by $263,508 or 54.8%. Sales from our website or e-commerce sales increased by $21,402 or 8.1% in 2014 compared to 2013 which we believe is attributed to brand repositioning and exposure. Wholesale revenues increased by $47,068 or 11% in 2014 compared to 2013 due to increased sales with third-party e-commerce customers.

Cost of Goods Sold

Cost of goods sold during the years ended December 31, 2014 and 2013 were $1,945,356 and $1,236,983, respectively. The increase in cost of goods sold for 2014 is primarily due to the write-down of inventory.

As of December 31, 2014, we assessed the market value of a significant portion of our inventory on hand and determined that the market value was significantly less than its cost. As such, we recorded a lower of cost-or-market (“LCM”) adjustment of $908,920 in December 2014, as discussed in Note 5 to the financial statements.

Gross Loss

Gross loss during the years ended December 31, 2014 and 2013 were $976,068 and $72,657, respectively. Both of these amounts have been impacted by LCM adjustments of $908,920 and $387,947 in 2014 and 2013, respectively.

The table below presents our actual results by operating segment, as they relate to its revenue, cost of goods sold, gross (loss) profit and gross margin. The LCM write-down described above is included within Wholesale, as we anticipate to close out the related goods through our wholesale channel.

For the year ended December 31, 2014

	Segment
	Wholesale			Retail			E-commerce			Other		Total
Revenue	$	467,733		$	217,515		$	284,040			-	$	969,288
Cost of goods sold		1,581,069			185,596			178,691			-		1,945,356
Gross (loss) profit	$	(1,113,336	)	$	31,919		$	105,349			-	$	(976,068	)
Gross margin %		-238	%		15	%		37	%				-101	%

For the year ended December 31, 2013

	Segment
	Wholesale			Retail			E-commerce			Other			Total
Revenue	$	420,665		$	481,023		$	262,638					$	1,164,326
Cost of goods sold		785,231			223,103			157,003			71,646			1,236,983
Gross (loss) profit	$	(364,566	)	$	257,920		$	105,635		$	(71,646	)	$	(72,657	)
Gross margin %		-87	%		54	%		40	%					-6	%

Selling and Marketing Costs

We incurred $439,253 and $1,347,380 in selling and marketing expenses during the years ended December 31, 2014 and 2013, respectively. Expenses were incurred to generate sales and create awareness and demand for our products through sports marketing agreements, a celebrity endorsement agreement, product seeding, digital marketing and social media. The significant decrease is primarily related to the reorganization our company in 2014 where cost-cutting measures and refocused marketing expenditures were key to continue as a going concern.

Of the total selling and marketing expense discussed above, selling expense was $94,898 and $253,072, during the years ended December 31, 2014 and 2013, respectively. Of the total expense for 2014 and 2013, $14,160 and $71,577 was share-based (non-cash) expense primarily related to stock-for-services marketing arrangements.

Product Creation Costs

During the years ended December 31, 2014, we incurred product creation expenses of $68,935 compared to $523,368 incurred during the year ended December 31, 2013, $1,000 of which were paid to Exit 21, an entity controlled by a former Chief Executive Officer and our former Chief Operation Officer. Product creation expenses incurred consist of formulating product concepts, construction of prototypes related to our proposed new product lines. The significant decrease of these expenses is attributed to the reorganization of our company in 2014.

General and Administrative Costs

General and administrative expenses for the year ended December 31, 2014 were $3,591,648 compared to $3,409,455 for the year ended December 31, 2013. The overall increase in general and administrative expenses is attributed to increased professional fees of $1,114,560 in 2014 from $293,911 in 2013.

Loss on impairments on intangible assets and property and equipment

During the year ended December 31, 2014, we incurred losses on impairments of $377,255 which was attributed to the closedown of the retail store in Westlake Seattle and write off of trademark and domain name.

Net Loss

As a result of the above, our net loss for the year ended December 31, 2014 was $5,453,159 as compared to a loss of $5,365,373 for the comparable 2013 period.

Financial Condition

As of December 31, 2014, we had current assets of $429,812, current liabilities of $1,278,122 and a working capital deficiency of $848,310 compared to current assets of $1,378,984, current liabilities of $1,744,771 and working capital deficit of $365,787 at December 31, 2013.

Our cash balance as of December 31, 2014 was $265,394 compared to $252,153 at December 31, 2013. In 2014, we raised $4,083,854 in three separate rounds of equity financing.

Our financial statements have been prepared assuming that we will continue as a going concern. We have incurred recurring net losses, negative cash flows from operations, and accumulated deficit which raise substantial doubt about our Company’s ability to continue as a going concern. Management has developed plans concerning these matters which are discussed in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Operating Activities

During the year ended December 31, 2014, we used cash in the amount of $3,777,839 in operating activities. The principal adjustments to reconcile the net loss to net cash used in operating activities were depreciation and amortization of $36,765, share-based compensation from the issuance of options of $217,679, loss on impairments on intangible assets and property and equipment of $377,255, a decrease in inventory of $1,734,350, and a decrease in accounts payable and accrued expenses of $836,268.

By comparison, during the year ended December 31, 2013, we used cash in the amount of $4,098,723 in operating activities. The principal adjustments to reconcile the net loss to net cash used in operating activities were depreciation and amortization of $252,597, share-based compensation - stock of $105,937, share-based compensation - options of $331,160, loss on impairments on intangible assets and property and equipment of $10,513, an increase in inventory of $386,080, and a decrease in accounts payable and accrued expenses of $1,003,754.

Investing Activities

We used cash in the amount of $279,663 in investing activities during the year ended December 31, 2014. Investing activities during the period included $176,481 in leasehold improvements for renovations to our new corporate office in Vancouver as well as $101,888 for renovations to our Westlake store which was closed later in the year. All costs (with the exception of the costs associated with the renovations to the Westlake store, which were expensed) have been capitalized and depreciated or amortized over the expected useful lives of the assets.

By contrast, we used cash in the amount of $156,200 in investing activities during the year ended December 31, 2013. Investing activities during the period included $138,719 for property and equipment purchases primarily related to the opening of our retail store, and $17,481 for intangible assets, which included the development of patents and trademarks, website development costs and domain name. All costs have been capitalized and depreciated or amortized over the expected useful lives of the assets.

Financing Activities

We continue to rely upon equity capital to fund operations and investments. During the year ended December 31, 2014, we raised $4,083,854 in equity capital through the issuance of common stock and warrants during 2014. We paid $13,111 toward capital lease obligations.

During the year ended December 31, 2013, we borrowed $499,934 as a term note until proceeds from a future private placement became available in sufficient amounts. The note pays a coupon rate of 15% and in connection with the issuance of the note, we issued warrants to purchase up to 300,000 shares of common stock at an exercise price of $0.25 until January 1, 2015. The note, which is collateralized by primarily all assets of our company is due May 15, 2015. We paid $10,858 toward capital lease obligations, received gross proceeds from the sale of common stock and warrants of $3,713,954 (including notes payable converted to common stock of $195,000), of which $121,165 was paid in offering costs, and were advanced $130,000 as short term loans, for total net cash provided by financing activities of $4,211,865. The $130,000 short term loans were advanced to us under the provisions of a subscription agreement which ultimately closed in February 2014 as further explained in note 12.

Liquidity and Management’s Plan

We commenced operations as a development stage enterprise in 2009 and have incurred losses from inception. As shown in the accompanying financial statements, we incurred a net loss of $5,453,159 in 2014, had a working capital deficiency of $848,310 as of December 31, 2014, and had net cash used in operating activities of $3,777,839 during 2014.

As of December 31, 2014, our cash balance was $265,394, and management determined that the Company would have to raise significant additional equity and or debt capital during 2015 in order to support current operations and planned development. These factors raise substantial doubt as to our ability to continue as a going concern.

Although our operations began in 2009, we did not emerge from a development stage until the fourth quarter of 2012. Activities before 2012 included product research and development, establishing supply sources, developing markets, recruiting personnel and raising capital. In January 2012, we launched our initial men’s line with a limited number of styles of apparel and accessories. This line was made available to retailers in January 2012 and direct-to-consumers through our web store in February 2012. In July 2012, we added to our men’s line and introduced our first line of women’s apparel and accessories. In late October 2012, we opened our first retail store in Las Vegas, Nevada.

After assessing the market value of our inventory on hand at year-end, management determined that significant write-downs were appropriate in 2012 and in 2013. In light of these findings, disappointing operating results and weakened cash position, we adopted plans and began implementation in early 2013 to rebrand our Company and expand the operations with the objective of rebranding the Company to a broader customer base with a focus on e-commerce and retail channels.

Our 2014 plan was reevaluated and effectively abandoned during our restructuring efforts. With our new management team in place we have redesigned our logo and branded our mark and, accordingly, adjusted and expanded our plans for 2015 which can be summarized as follows:

1. Build superior products that differentiate us from our competitors

2. Reposition the brand to target the multidisciplinary athlete

3. Develop a clear cultural identity for our company and brand

4. Rebuild e-commerce platform to align with our cultural identity and streamline ordering for international markets

5. Adopt just-in-time inventory production strategy to avoid risk of carrying excess inventory

6. Open the doors to our flagship store located at 1745 West 4th Ave, Vancouver, BC Canada

7. Sales division for the following revenue streams: (i) RYU’s exclusive retail stores (ii) e-commerce platform (iii) wholesale business-to-business accounts and (iv) cobranding products with international brands

8. Continue to focus on equity and debt capital raising

9. Explore license agreements to accelerate growth

While we continue to believe that our wholesale channel will play a major role in our long-term growth plans, we also anticipate that we will need to shift our growth strategy in the near term and place greater emphasis on developing our brand through our retail, e-commerce channels, and business to business strategy.

While management plans to generate increasing revenues and to continue financing our company through the issuances of additional equity securities or debt instruments, there can be no assurance that sufficient revenue or financing will occur to meet our cash needs for the next 12 months. The ability to achieve our projected future operating results is based on a number of assumptions which involve significant judgment and estimates, which cannot be assured. If we are unable to achieve our projected operating results, our liquidity could be adversely impacted and we may need to seek additional sources of liquidity. Our operating results could adversely affect our ability to raise additional capital to fund our operations and there is no assurance that debt or equity financing will be available in sufficient amount, on acceptable terms, or in a timely basis. Therefore, a continuation of our recent historical operating results could result in our inability to continue as a going concern.

Critical Accounting Policies

Our significant accounting policies are summarized in Note 3 to the financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would affect our results of operations, financial position or liquidity for the periods presented in this report.

We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Inventory

Inventory is valued on a lower of cost or market basis based upon the weighted average method of inventory costing. Market value is estimated based upon assumptions made about future demand and retail market conditions. If we determine that the estimated market value of our inventory is less than the carrying value of such inventory, we record a charge to cost of goods sold to reflect the lower of cost or market.

Impairment of Long Lived Assets

Long-lived assets are amortized over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. In these cases, we estimate the future undiscounted cash flows to be derived from the asset or asset group to determine whether a potential impairment exists. If the sum of the estimated undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the estimated fair value of the asset.

We review and test our intangible assets with indefinite useful lives for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that the carrying amount of such assets may be impaired. Our intangible assets with indefinite lives consist of trademarks and domain name. In the impairment tests for trademarks and domain name, we compare the estimated fair value of each asset to its carrying amount. The fair values are generally estimated using a discounted cash flow model under the income approach. If the carrying amount of the asset exceeds its estimated fair value, we calculate impairment as the excess of carrying amount over the estimate of fair value.

If events or circumstances indicate the carrying value of intangible assets with finite lives may be impaired, we estimate the future undiscounted cash flows to be derived from the asset or asset group to determine whether a potential impairment exists. If the sum of the estimated undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the estimated fair value of the asset.

Impairment charges are classified as a component of operating expenses. The impairment tests and related fair value estimates are based on a number of factors, including assumptions and estimates for projected sales, income, cash flows, discount rates, remaining useful lives and other operating performance measures. Changes in estimates or the application of alternative assumptions could produce significantly different results. These assumptions and estimates may change in the future due to changes in economic conditions, changes in our ability to meet sales and profitability objectives or changes in our business operations or strategic direction.

Revenue Recognition

We recognize product revenue when persuasive evidence of an arrangement exists, when title passes and the risks and reward of ownership have passed to the customer, the fee is fixed or determinable, and collectability is probable.

Revenue is recorded net of discounts and an allowance for estimated returns. The allowance for estimated returns related to web sales and retail sales is currently 3% of sales based on our return policy on our direct-to-consumer sales. The allowance for estimated returns related to wholesale sales is currently 4% based on our historical wholesale customer returns. The allowance is reflected as an accrued liability on the balance sheet.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.

Assessing whether deferred tax assets are realizable requires significant judgment. We consider all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent we believe it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against our deferred tax assets, which increase income tax expense in the period when such a determination is made.

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate.

Share-Based Payments

We estimate the cost of share-based payments to employees based on the award’s fair value on the grant date and recognize the associated expense ratably over the requisite period. The estimated cost is derived using the Black-Scholes option-pricing model, which includes assumptions that are highly subjective. We may adjust these assumptions periodically to reflect changes in market conditions and historical experience. Consequently, expenses reported for share-based payments to employees in the future may differ significantly from those reported in the current period.

When estimating fair value, we have considered the following variables:

•	The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

•	We have not paid any dividends on common stock since our inception and do not anticipate paying dividends on our common stock in the foreseeable future.

•	The expected life of the award is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 107.

•	The expected volatility is based on the historical volatility of our common stock based on the daily quoted closing trading prices and comparison to peer data.

•	The forfeiture rate is based on an estimate of awards not expected to fully vest.

The straight-line attribution method is used for awards that include vesting provisions. If an award is granted, but vesting does not occur, any previously recognized expense is reversed in the period in which the termination of service occurs.

We measure the fair value of share-based payments to non-employees at the measurement date, which occurs at the earlier of the date performance commitment is reached or performance is completed. Recognition of share-based payments occurs as services are received. We treat fully-vested, non-forfeitable shares issued to non-employees in the same manner as if it had paid for the services received with cash. Unvested, forfeitable shares are accounted for as unissued until the point vesting occurs.

Regarding warrants issued in connection with stock offerings and those issued to non-employees as consideration for services, the Company’s warrant contracts are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity. All such warrant agreements contain fixed strike prices and number of shares that may be issued at the fixed strike price, and do not contain exercise contingencies that adjust the strike price or number of shares issuable upon settlement of the warrants. All such warrant agreements are exercisable at the option of the holder and settled in shares of our company. All such warrant agreements are initially measured at fair value on the grant date and accounted for as part of permanent equity.

Contractual Commitments

The following table presents our non-cancelable contractual commitments:

	2015		2016		2017		2018		2019		Thereafter
Operating leases (1)	$	202,725	$	242,527	$	247,513	$	252,333	$	244,067	$	41,000
Capital lease (1)	$	10,603	$	10,803	$	11,007	$	11,214	$	11,426	$	24,500

(1)	See operating and capital leases in Note 15 to Financial Statements.

Recent Accounting Pronouncements

On June 19, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is expected not to have a material impact on the Company’s consolidated financial position and results of operations.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled to when products and services are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2017. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 7A Quantitative and Qualitative Disclosures About Market Risk

Not required for a small reporting company.

Item 8

Financial Statements and Supplementary Data

RESPECT YOUR UNIVERSE, INC.

FINANCIAL STATEMENTS

AS OF December 31, 2014 and 2013, and for the years then ended

TABLE OF CONTENTS

	Page

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	F-1
FINANCIAL STATEMENTS:
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Stockholders’ Equity (Deficiency)	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of RYU Apparel Inc. (formerly Respect Your Universe, Inc.)

We have audited the accompanying balance sheet of RYU Apparel Inc. (the "Company") as at December 31, 2014 and the related statements of operations, stockholders' equity, and cash flows the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company for the year ended December 31, 2013, before the effects of the retroactive adjustments for the one-for-two reverse stock split discussed in Note 12 to the financial statements, were audited by other auditors whose report, dated April 15, 2014, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion the financial statements present fairly, in all material respects, the financial position the financial position of the Company as of December 31, 2014, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's recurring net losses and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have also audited the adjustments to the 2013 financial statements for the effects of the retroactive adjustments for the one-for-two reverse stock split in 2014, as discussed in Note 12 to the financial statements. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2013 financial statements of the Company other than with respect to the retrospective adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2013 consolidated financial statements taken as a whole.

“DMCL”

Dale Matheson Carr-Hilton Labonte LLP

Chartered Accountants

Vancouver, Canada

April 28, 2015

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited, before the effects of the retrospective adjustments for the one-for-two reverse stock split discussed in Note 12 to the financial statements, the balance sheet of Respect Your Universe, Inc. (the "Company") as of December 31, 2013, and the related statements of operations, stockholders’ equity, and cash flows for the year then ended (the 2013 financial statements before the effects of the retrospective adjustments for the one-for-two reverse stock split discussed in Note 12 to the financial statements are not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit.

In our opinion, such 2013 financial statements, before the effects of the retrospective adjustments for the one-for-two reverse stock split discussed in Note 12 to the financial statements, present fairly, in all material respects, the financial position of the Company as of December 31, 2013, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The 2013 financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s recurring net losses, negative cash flows from operations, and accumulated deficit raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 2 to the financial statements. The 2013 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We were not engaged to audit, review, or apply any procedures to the retrospective adjustments for the one-for-two reverse stock split discussed in Note 12 to the financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

/s/ Deloitte & Touche LLP

Portland, Oregon

April 15, 2014

F-2

RYU APPAREL INC. (FORMERLY RESPECT YOUR UNIVERSE, INC.)

BALANCE SHEETS

	December 31, 2014			December 31, 2013
ASSETS

Current assets
Cash	$	265,394		$	252,153
Accounts receivable, net		85,082			-
Due from factor, net		-			31,602
Inventory, net		62,804			845,188
Deposits		-			107,395
Prepaid expenses		16,532			59,337
Other current assets		-			83,309
Total current assets		429,812			1,378,984

Property and equipment, net		180,810			168,417

Other assets
Non-current inventory, net		-			951,966
Intangible assets, net		20,837			167,587
Other non-current assets		34,489			-
Total other assets		55,326			1,119,553

Total assets	$	665,948		$	2,666,954

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities
Accounts payable and accrued liabilities	$	767,584		$	1,603,852
Note payable		499,934			-
Loans payable - related party		-			130,000
Current portion of capital lease		10,604			10,919
Total current liabilities		1,278,122			1,744,771

Other liabilities
Note payable		-			499,934
Capital lease, net of current portion		68,950			81,746
Total other liabilities		68,950			581,680

Stockholders’ equity (deficiency)
Common stock, $0.001 par value, 250,000,000 shares authorized;
55,336,750 and 31,463,335 shares issued and outstanding, respectively		55,336			31,463
Additional paid in capital		28,002,527			23,594,868
Accumulated deficit		(28,738,987	)		(23,285,828	)
Total stockholders’ equity (deficiency)		(681,124	)		340,503

Total liabilities and stockholders' equity (deficiency)	$	665,948		$	2,666,954

See accompanying notes to financial statements

F-3

RYU APPAREL INC. (FORMERLY RESPECT YOUR UNIVERSE, INC.)

STATEMENTS OF OPERATIONS


	Year Ended
	December 31, 2014			December 31, 2013


Revenue	$	969,288		$	1,164,326

Cost of Goods Sold		1,945,356			1,236,983

Gross loss		(976,068	)		(72,657	)

Operating expenses
Selling and marketing		439,253			1,347,380
Product creation		68,935			522,368
Product creation - related party		-			1,000
General and administrative		3,591,648			3,409,455
Loss on impairments of intangible assets
and property and equipment		377,255			10,513
Total operating expenses		4,477,091			5,290,716

Loss before income tax		(5,453,159	)		(5,363,373	)
Income tax expense		-			(2,000	)

Net and comprehensive loss	$	(5,453,159	)	$	(5,365,373	)

Net loss per common share -
basic and diluted	$	(0.11	)	$	(0.19	)

Weighted average number of common
shares outstanding during the year -
basic and diluted		47,442,691			27,851,258

See accompanying notes to financial statements

F-4

RYU APPAREL INC. (FORMERLY RESPECT YOUR UNIVERSE, INC.)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

										Total
	Common Stock, $0.001 Par Value				Additional		Accumulated			Stockholders'
	Shares		Amount		Paid in Capital		Deficit			Equity (Deficiency)

Balance, January 1, 2013		24,020,439	$	24,021	$	19,542,338	$	(17,920,455	)	$	1,645,904

Issuance of common stock and warrants for cash
($0.20 - $1.00/share), net of offering costs of $121,165		7,302,271		7,302		3,585,487		-			3,592,789

Share-based compensation - stock ($0.56 - $1.04/share)		140,625		140		105,797		-			105,937

Share based compensation - options		-		-		331,160		-			331,160

Share based compensation - warrants		-		-		30,086		-			30,086

Net loss		-		-		-		(5,365,373	)		(5,365,373	)

Balance, December 31, 2013		31,463,335		31,463		23,594,868		(23,285,828	)		340,503

Issuance of common stock and warrants for cash
($0.20/share), net of offering costs of$560,830		23,223,415		23,743		4,060,110		-			4,083,853

Issuance of common stock and warrants for repayment of loan		650,000		130		129,870		-			130,000

Share based compensation - options		-		-		217,679		-			217,679

Net loss		-		-		-		(5,453,159	)		(5,453,159	)

Balance, December 31, 2014		55,336,750	$	55,336	$	28,002,527	$	(28,738,987	)	$	(681,124	)

See accompanying notes to financial statements

F-5

RYU APPAREL INC. (FORMERLY RESPECT YOUR UNIVERSE, INC.)

STATEMENTS OF CASH FLOWS

	Year Ended
	December 31, 2014			December 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,453,159	)	$	(5,365,373	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		36,765			252,597
Share-based compensation expense - stock		-			105,937
Share-based compensation expense - options		217,679			331,160
Share-based compensation expense - warrants		-			30,086
Loss on impairments of property and equipment or intangible assets		377,255			10,513
Changes in operating assets and liabilities
Due from factor, net		-			6,184
Accounts receivable, net		(53,480	)		8,674
Inventory		1,734,350			(386,080	)
Deposits		72,905			(34,147	)
Prepaid expenses		42,805			21,224
Other current assets		83,309			(76,898	)
Accounts payable and accrued liabilities		(836,268)			1,003,754
Accounts payable - related party		-			(6,354	)
Net cash used in operating activities		(3,777,839	)		(4,098,723	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(279,663	)		(138,719	)
Acquisition of intangible assets		-			(17,481	)
Net cash used in investing activities		(279,663	)		(156,200	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term note payable		-			499,934
Proceeds from loans payable, shareholder		-			195,000
Proceeds from other notes payable		-			130,000
Payments on capital lease obligation		(13,111)			(10,858	)
Proceeds from issuance of common stock and warrants		4,644,681			3,518,954
Offering costs		(560,828	)		(121,165	)
Net cash provided by financing activities		4,070,742			4,211,865

Net increase (decrease) in cash		13,241			(43,058	)
Cash - beginning of year		252,153			295,211
Cash - end of year	$	265,394		$	252,153

Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest	$	79,810		$	2,222
Taxes	$	828			1,500

Supplemental Disclosure of Non-Cash Financing Activity
Stock issued as repayment of note payable	$	130,000			195,000

See accompanying notes to financial statements

F-6

RYU APPAREL INC. (FORMERLY RESPECT YOUR UNIVERSE, INC.)

NOTES TO FINANCIAL STATEMENTS

Note 1 Organization and Nature of Operations

RYU Apparel Inc. (formerly Respect Your Universe, Inc.) (the “Company”), which was incorporated in 2008, is a vertically integrated active lifestyle apparel brand that engages in the development, marketing and distribution of apparel and accessories. The Company’s head office is based in Vancouver BC, Canada, and the Company’s products are sold through wholesale, retail and e-commerce channels.

Note 2 Liquidity and Management’s Plan

The Company has incurred losses and negative cash flow from operations from inception that has primarily been funded through financing activities. The Company will need to raise additional (Note 17) capital during the next twelve months and beyond to support current operations and planned development. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. Management intends to finance operating costs over the next twelve months with cash on hand and the private placement of common shares.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should the Company be unable to continue as a going concern.

Note 3 Summary of Significant Accounting Policies

Basis of Presentation

The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission.

The financial statements for all prior periods have been retroactively adjusted to reflect the June 30, 2014 one-for-two reverse stock split of the Company’s common stock. (Note 12)

Inventory

Inventory primarily consists of finished goods. The cost of finished goods inventory includes all costs incurred to bring inventory to its existing condition and location including product costs, inbound freight and duty.

Inventory is valued on a lower of cost-or-market (“LCM”) basis based upon the weighted average method of inventory costing. Market value is estimated based upon assumptions made about future demand and retail market conditions. If the Company determines that the estimated market value of its inventory is less than the carrying value of such inventory, it records a charge to cost of goods sold to reflect the lower of cost or market.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. The cost of repairs and maintenance is expensed as incurred. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the lesser of the length of the lease, without consideration of optional renewal periods, and the estimated useful life of the assets, to a maximum of 5 years. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from property and equipment and any gain or loss is reflected as a gain or loss from operations.

F-7

The estimated useful lives are:

Leasehold improvements	1 - 5 years
Computers and office equipment	3 years
Furniture and fixtures	7 years
Software	3 years
Tradeshow and event equipment	2 - 3 years

Impairment of Long Lived Assets

Long-lived assets are amortized over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. In these cases, the Company estimates the future undiscounted cash flows to be derived from the asset or asset group to determine whether a potential impairment exists. If the sum of the estimated undiscounted cash flows is less than the carrying value of the asset, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the estimated fair value of the asset. Impairment charges for long-lived assets included in operating expense were $377,255 and $10,513 in 2014 and 2013, respectively.

Revenue Recognition

The Company recognizes product revenue when persuasive evidence of an arrangement exists, when title passes and the risks and reward of ownership have passed to the customer, the fee is fixed or determinable, and collectability is probable.

Revenue is recorded net of discounts and an allowance for estimated returns unless the terms of the sale are final. The allowance for estimated returns related to web sales and retail sales is currently 3% of sales based on the Company’s return policy on its direct-to-consumer sales and historical returns activities. The allowance for estimated returns related to wholesale sales is currently 4% based on the Company’s historical wholesale customer returns. The allowance is reflected as an accrued liability on the balance sheet.

Cost of Goods Sold

Cost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs, inbound freight and duty costs, as well as provisions for reserves related to product shrinkage, excess or obsolete inventory, or LCM adjustments as required.

Shipping and Handling Costs

Costs associated with the Company’s third-party warehouse shipping and handling activities are included within operating expenses in the statement of operations. Shipping costs associated with sales to customers, marketing related promotions and transfers of inventory from the Company’s distribution centers to its retail location are included as a component of selling and marketing expense. Any shipping and handling costs billed to customers are recorded as revenue and the related out-bound shipping costs incurred by the Company are recorded as cost of goods sold.

Selling and Marketing Costs

Selling and marketing costs are expensed as incurred. Advertising costs include expenses associated with sales and product catalogues, sponsorships of events and other consumer publication related activities. Accounting for consulting and sponsorship agreements is based upon the specific contract provisions and are expensed as the services are provided.

Product Creation Costs

The Company expenses product creation costs as incurred. Product creation expenses consist of formulating product concepts, construction of prototypes related to the Company’s proposed new product lines, and the fitting and testing of the prototypes. Product creation expenses do not include routine, ongoing efforts to refine, enrich, or otherwise improve upon the qualities of existing products, adaptation of an existing capability to a particular requirement or customer's need as part of a continuing commercial activity, or seasonal or other periodic design changes to existing products.

F-8

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled.

Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information and based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate.

Share-Based Payments

The Company estimates the cost of share-based payments to employees based on the award’s fair value on the grant date and recognizes the associated expense ratably over the requisite period. The estimated cost is derived using the Black-Scholes option-pricing model, which includes assumptions that are highly subjective. The Company may adjust these assumptions periodically to reflect changes in market conditions and historical experience. Consequently, expenses reported for share-based payments to employees in the future may differ significantly from those reported in the current period.

When estimating fair value, the Company has considered the following variables:

·	The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

·	The Company has not paid any dividends on common stock since our inception and does not anticipate paying dividends on our common stock in the foreseeable future.

·	The expected life of the award is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 107.

·	The expected volatility is based on the historical volatility of our common stock based on the daily quoted closing trading prices and comparison to peer data.

·	The forfeiture rate is based on an estimate of awards not expected to fully vest.

The Company measures the fair value of share-based payments to non-employees at the measurement date, which occurs at the earlier of the date performance commitment is reached or performance is completed. Recognition of share-based payments occurs as services are received. The Company treats fully-vested, non-forfeitable shares issued to non-employees in the same manner as if it had paid for the services received with cash. Unvested, forfeitable shares are accounted for as unissued until the point vesting occurs.

F-9

Regarding warrants issued in connection with stock offerings and those issued to non-employees as consideration for services, the Company’s warrant contracts are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 815-40 - Derivatives and Hedging, Contracts in Entity’s Own Equity . All such warrant agreements contain fixed strike prices and number of shares that may be issued at the fixed strike price, and do not contain exercise contingencies that adjust the strike price or number of shares issuable upon settlement of the warrants. All such warrant agreements are exercisable at the option of the holder and settled in shares of the Company. All such warrant agreements are initially measured at fair value on the grant date and accounted for as part of permanent equity.

Loss per Share

Basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net loss, adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Since the Company incurred a net loss during the years ended December 31, 2014 and 2013, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. Therefore, a separate computation of diluted loss per share is not presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates. Some of the more significant estimates relate to revenue recognition, including sales returns and claims from customers, slow-moving and close-out inventories, income taxes and stock-based compensation.

Fair Value of Financial Instruments

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or non-recurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

·	Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

·	Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

F-10

The Company's financial instruments consisted primarily of cash, accounts payable and accrued liabilities, accounts payable - related party, due from factor and loans payable - related party. The carrying amounts of the Company's financial instruments generally approximated their fair values as of December 31, 2014 and 2013, respectively, due to the short-term nature of such items.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.

Note 4 Due from Factor

In January 2012, the Company entered into a factoring agreement whereby it sells its wholesale trade accounts receivable to a factor without recourse. Under the agreement, the factor assumes the risk of loss resulting from a customer’s financial inability to pay at maturity, in exchange for a fee of 1.25% on the first $5,000,000 in gross factored receivables. The fee for factored receivables in excess of $5,000,000 is 1.00%. The minimum aggregate factoring charge payable under the agreement is $50,000 per year.

As part of the agreement, the factor provided all credit and collections support for the Company. Upon collection, the factor reimburses the Company for purchased invoices on a semi-weekly basis, net of factoring fees and chargebacks.

The Company terminated the factoring agreement in January 2015.

Note 5 Inventories

Inventories, net, consist of finished goods inventory of $62,804 ($nil of which has been classified as non-current) and $1,797,154 ($951,966 of which has been classified as non-current) for the years ended December 31, 2014 and 2013, respectively.

Adjustment for Lower of Cost-or-Market

As of December 31, 2014 and 2013, the Company assessed the market value of its inventory on hand and determined that the market value of the product was less than its cost. As such, the Company recognized a LCM adjustment to inventory of $908,920 and $387,947 in December 2014 and 2013, respectively.

Note 6 Prepaid Expenses

Prepaid expenses consist of the following as of December 31, 2014 and 2013:

	2014		2013
Marketing	$	-	$	14,026
Other		16,532		45,311
Total prepaid expenses	$	16,532	$	59,337

Prepaid expenses are amortized over the related service periods, which are less than or equal to one year.

F-11

Note 7 Property and Equipment

Property and equipment consist of the following as of December 31, 2014 and 2013:

	2014			2013
Leasehold improvements	$	176,481		$	6,773
Construction in progress		-			103,461
Computers and office equipment		-			41,809
Furniture and fixtures		-			19,689
Software		41,004			41,004
Tradeshow and event equipment		-			7,229
		217,485			219,965
Accumulated depreciation		(36,675	)		(51,548	)
Property and equipment, net	$	180,810		$	168,417

Depreciation expense for the years ended December 31, 2014 and 2013 was $29,907 and $145,856, respectively.

During the year ended December 31, 2014, the Company closed its Seattle retail store. As a result, an impairment loss of $237,362 was recorded.

During the year ended December 31, 2013, the Company was notified by the landlord of the Las Vegas retail store of their intent to prematurely terminate the Company’s lease, and as a result, recorded an impairment loss of $5,723 for the estimated carrying value attributed with this accelerated closure of the location.

Note 8 Intangible Assets

Intangible assets consist of the following as of December 31, 2014 and 2013:

	2014		2013
Patent and trademarks	$	20,837	$	44,052
Domain name		-		123,535
Intangible assets, net	$	20,837	$	167,587

Patents and Trademarks

The Company capitalizes legal fees and filing costs associated with the development of its patents and trademarks. Patents and trademarks are amortized over an estimated useful life of 5 years using the straight-line method, however, patents and trademarks with indefinite useful lives are not amortized. Amortization expense for the years ended December 31, 2014 and 2013 was $6,858 and $76,656, respectively.

Domain Name

In February 2012, the Company capitalized the costs associated with the acquisition of its domain name, ryu.com. The estimated useful life of the website domain is indefinite and, accordingly, related capitalized costs are not amortized. See Note 11, Capital Lease.

F-12

Provision for Impairment

The Company reviews and tests its intangible assets with indefinite useful lives for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that the carrying amount of such assets may be impaired. The Company’s intangible assets with indefinite lives consist of trademarks, and domain name. In the impairment tests for trademarks and domain name, the Company compares the estimated fair value of each asset to its carrying amount. The fair values of trademarks and domain name are generally estimated using a discounted cash flow method under the income approach. If the carrying amount of a trademark or domain name exceeds its estimated fair value, the Company calculates impairment as the excess of carrying amount over the estimate of fair value.

Impairment charges are classified as a component of operating expense. The impairment tests and related fair value estimates are based on a number of factors, including assumptions and estimates for projected sales, income, cash flows, discount rates, remaining useful lives and other operating performance measures. Changes in estimates or the application of alternative assumptions could produce significantly different results. These assumptions and estimates may change in the future due to changes in economic conditions, changes in the Company’s ability to meet sales and profitability objectives or changes in the Company’s business operations or strategic direction.

As of December 31, 2014, the Company determined that the trademarks and domain name were impaired and recorded an impairment charge of $16,358 and $123,535, respectively.

As of December 31, 2013 the Company determined that the carrying value of a trademark exceeded its fair value and recorded a $4,790 impairment charge.

Note 9 Credit Facilities and Notes Payable

In December 2013 the Company entered into a term note (“Note”) in the principal amount of $499,934. The Note has a maturity date of May 15, 2015 and bears interest of 15% per annum, which is payable quarterly, and is secured by all of the assets of the Company. In connection with the issuance of the Note, the Company issued warrants to purchase up to 150,000 shares of common stock at an exercise price of $0.50 until January 1, 2015.

Note 10 Loans Payable - Related Party

During 2013 the Company was advanced funds totaling $130,000 in anticipation of participating in a private placement financing. Under the terms of the private placement subscription agreement, the Company is entitled to utilize the proceeds as an interest free loan until the subscription is accepted and the certificates delivered. The advances were repaid through the issuance of common stock and warrants as part of the February 2014 equity raised as further described in Note 12.

Note 11 Capital Lease

On February 1, 2012, the Company entered into a capital lease agreement to lease the domain name ryu.com for 10 years. At the end of the lease term, title to the domain name will automatically transfer to the Company. See Note 8, Intangible Assets - Domain Name.

Note 12 Stockholders’ Equity

Reverse Stock Split

On June 30, 2014, the Company implemented a one-for-two reverse stock split of its common stock. As a result of the reverse stock split, each two outstanding shares of pre-split common stock were automatically combined into one share of post-split common stock. Fractional shares are rounded up to reflect the reverse stock split. All option and share information in the accompanying financial statements for all prior periods have been retroactively adjusted to reflect this stock split.

F-13

Stock Issued for Cash

Year ended December 31, 2014

In February 2014, the Company issued 6,673,415 units as part of a private placement offering for proceeds of $1,167,0676 ($0.20/share), net of direct offering costs of $167,616. Each unit consists of one share of common stock and one warrant. The Company repaid a total of $130,000 of related party advances through the issuance of the units – see Note 10. Details of the warrants issued are shown in the table below:

Date	Quantity Granted	Vesting Schedule	Exercise Price	Expiration
February 2014	6,673,415	Fully vested upon issuance	$0.50	3 Years

In May 2014, the Company issued 15,800,000 units as part of a private placement offering for proceeds of $2,796,462 ($0.20/share), net of direct offering costs of $363,538. Each unit consists of one share of common stock and on warrant. Details of the warrants issued are shown in the table below:

Date	Quantity Granted	Vesting Schedule	Exercise Price	Expiration
May 2014	15,800,000	Fully vested upon issuance	$0.50	3 Years

In June 2014, as a continuation of the May 2014 offering, the Company issued 1,400,000 units as part of a private placement offering for proceeds of $250,326 ($0.20/share), net of direct offering costs of $29,674. Each unit consists of one share of common stock and on warrant. Details of the warrants issued are shown in the table below:

Date	Quantity Granted	Vesting Schedule	Exercise Price	Expiration
June 2014	1,400,000	Fully vested upon issuance	$0.50	3 Years

Year ended December 31, 2013

In January 2013, the Company issued 1,000,000 shares of common stock as part of a private placement offering for $936,360 ($1.00/share), net of direct offering costs of $63,640. The offering included a finder’s fee of 5% cash and 5% warrants on total gross proceeds. Details of the warrants issued are shown in the table below:

Date	Quantity Granted	Vesting Schedule	Exercise Price	Expiration
January 2013	50,000	Fully vested upon issuance	$1.00	2 Years

In March 2013, as a continuation of the January 2013 offering, the Company issued 450,000 shares of common stock for gross proceeds of $441,495 ($1.00/share), net of direct offering costs of $8,505. The offering included a finder’s fee of 5% cash and 5% warrants on $50,000 of the gross proceeds. Details of the warrants issued are shown in the table below:

Date	Quantity Granted	Vesting Schedule	Exercise Price	Expiration
March 2013	1,250	Fully vested upon issuance	$1.00	2 Years

In June 2013, the Company issued a total of 3,645,000 shares of common stock as part of a private placement offering for $1,775,783 ($0.50/share), net of direct offering costs of $46,717. Only the holders of these warrants have the right to exercise the warrants at the specified fixed strike price. In conjunction with this offering, one warrant for each share issued was granted. Details of the warrants issued are shown in the table below:

Date	Quantity Granted	Vesting Schedule	Exercise Price	Expiration
June 2013	3,645,000	Fully vested upon issuance	$0.50	2 Years

F-14

In November 2013, the Company issued a total of 2,207,271 shares of common stock as part of a private placement offering for $439,151 ($0.20/share), net of direct offering costs of $2,303. In conjunction with this offering, one warrant for each share issued was granted. Only the holders of these warrants have the right to exercise the warrants at the specified fixed strike price. Details of the warrants issued are shown in the table below:

Date	Quantity Granted	Vesting Schedule	Exercise Price	Expiration
November 2013	2,207,271	Fully vested upon issuance	$0.20	3 Years

Stock Issued for Services

For the year ended December 31, 2014, there was no stock issued for services. During the year ended December 31, 2013, the Company recognized an expense of $105,937 related to stock issued for services.

Stock Options

On June 9, 2014, the Board of Directors approved certain revisions to the 2013 Stock Option Plan, resulting in the Company’s 2014 Stock Option Plan (the “2014 Plan”) whereby the aggregate number of securities reserved for issuance set aside and made available for issuance under the Plan was revised from (i) 11,702,425 shares of the Company’s common stock at the time of granting the options (including all options granted by our Company to date) to (ii) 16,181,025 shares of the Company’s common stock.

During the year ended December 31, 2014, the Company granted 6,350,000 stock options to employees and consultants. The options are exercisable at $0.30 for 10 years. 250,000 options vested in 2014, 980,000 options vest in 2015, 750,000 options vest in 2016 and 4,270,000 options vest on the date that the Company reports positive net cash from operating activities and net income. The fair value of options granted was $317,680. The Company recognized stock-based compensation expense related to the vesting of options of $217,679.

During the year ended December 31, 2013, the Company granted 2,280,000 stock options to employees and consultants. The options are exercisable at between $0.28 and $1.04 and expire between 5 to 10 years from the date of grant. 783,750 options vested in 2013, 606,250 options vested in 2014 and 690,000 options vest in 2015 and thereafter. The fair value of options granted was $1,220,311. The Company recognized stock-based compensation expense related to the vesting of options of $331,160.

The Black-Scholes assumptions used for the years ended December 31, 2014 and 2013 are as follows:

	2014		2013
Expected dividends		0%		0%
Expected volatility		111%		100%
Risk free interest rate		2.04% - 2.23%		0.98% - 2.03%
Expected term of option	6 years		4 – 10 years
Expected forfeitures		35%		10 - 35%

F-15

The following is a summary of the Company’s stock option activity:

Year Ended December 31, 2014

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Balance - December 31, 2013		3,300,710		$	1.55	7.52 Years
Granted		6,350,000			0.30
Forfeited/Cancelled		(1,976,375	)		0.57
Outstanding – December 31, 2014		7,674,335		$	0.77	6.36 Years
Exercisable – December 31, 2014		2,674,335		$	1.57	6.22 Years

Year Ended December 31, 2013

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Balance – December 31, 2012		2,305,585		$	2.44	8.34 years
Granted		2,280,000			0.74
Forfeited/Cancelled		(1,284,875	)		1.10
Outstanding - December 31, 2013		3,300,710		$	1.78	8.48 years
Exercisable - December 31, 2013		2,580,710		$	1.64	7.43 years

Warrants

The following is a summary of the Company’s warrant activity:

Year ended December 31, 2014

	Warrants	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding - December 31, 2014	6,858,084	$	1.08	2.45 years
Granted	23,873,415		0.50	-
Expired	(547,063)		3.60	-
Outstanding - December 31, 2014	30,184,436	$	0.50	2.18 years

F-16

Year ended December 31, 2013

	Warrants	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding - December 31, 2012	3,462,138	$	3.14	0.90 years
Granted	6,103,521		1.02	-
Forfeited/Cancelled	(2,707,575)		3.60	-
Outstanding - December 31, 2013	6,858,084	$	1.08	2.45 years

During the years ended December 31, 2014 and 2013, the Company’s expense related to stock warrants issued for services was $nil and $30,086, respectively. The fair value of the warrants was estimated using the Black-Scholes option pricing model under the following assumptions:

	2013
Exercise price	$	1.20
Expected dividends		0%
Expected volatility		100%
Risk free interest rate		0.89%
Expected term of option	2 – 10 years
Expected forfeitures		0%

Note 13 Income Taxes

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:

	Year ended December 31,
	2014			2013
Net loss before taxes	$	(5,453,159	)	$	(5,363,373	)
Statutory tax rate		34%			34%
Expected income tax (benefit) at federal statutory rate	$	(1,854,074	)	$	(1,823,397	)
Change in valuation allowance		2,194,351			2,100,530
Deferred Tax True-up		-			(59,300	)
State and Local Taxes		-			(265,962	)
Other Permanent Items		(340,277	)		50,129
Reported income tax (benefit) expense	$	-		$	2,000
Effective tax rate		(0.00%	)		(0.04%	)

The components of the provision for income taxes (benefit) consisted of the following:

	Year ended December 31,
	2014		2013
Current
Federal	$	-	$	-
State and local		-		2,000
Income tax expense	$	-	$	2,000

F-17

Significant components of the Company’s deferred taxes consisted of the following:

	Year ended December 31,
	2014			2013
Deferred Tax Assets
Inventory Reserves	$	467,298		$	101,548
Stock Based Compensation		1,536,393			1,448,799
NOL Carryforward		8,218,834			6,629,634
Other		231,362			96,852
Subtotal		10,453,887			8,276,833
Less: valuation allowance		(10,453,887	)		(8,259,535	)
Total Net Deferred Tax Assets		17,298			17,298

Deferred Liabilities
Other		(17,298	)		(17,298	)
Total Net Deferred Tax Liabilities		(17,298	)		(17,298	)

Net Deferred Tax Asset	$	-		$	-

The Company recognized deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. The Company has established a valuation allowance to reflect the likelihood of realization of deferred tax assets.

In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be utilized before their expiration. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Based on consideration of these items, the Company has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2014 and 2013 respectively.

The Company files income tax returns in United States federal jurisdiction, the states of Oregon and California and certain local jurisdictions. Our U.S. federal income tax returns for 2009 through 2014 are open to review by the U.S. Internal Revenue Service. State income tax returns for 2009 through 2014 are open to review, depending on the respective statute of limitation in each state.

The Company has federal net operating loss carryforwards as of December 31, 2014 as follows:

Expiring year:	Amount
2030	$	1,136,775
2031		2,229,861
2032		8,592,348
2033		4,839,495
2034		3,949,477
Total	$	20,747,956

F-18

Note 14 Related Party Transactions

During 2014, the Company issued and repaid a $30,000 unsecured promissory note to an entity owned by a related party, including $2,000 of interest expense.

The Company reimbursed $18,792 to a company of which the President of the Company is an executive and major shareholder for expenses incurred in connection with the February 2014 and May 2014 private placement offerings. These expenses were classified as offering costs.

The Board of Directors approved the reimbursement of $74,349 of expenses incurred by the President of the Company. These expenses were incurred prior to employment of the President on May 23, 2014 for purposes of raising capital during 2014 and were expensed and paid during 2014.

The Company had sales to an entity affiliated with the President of the Company and owned by one of the Directors of the Company of $2,731 during the year ended December 31, 2014. As of December 31, 2014, approximately $2,697 is due to this affiliated entity. The amount is non-interest bearing, is due on demand and is unsecured.

The Company had sales to an entity owned by the President of the Company during the year ended December 31, 2014 of $40,877. As of December 31, 2014, $nil is due to this affiliated entity.

During the year ended December 31, 2014, the Company incurred consulting fees of $15,000 and management fees of $28,778 to its former Chief Executive Officer. The Company also paid rent of $10,800 on his behalf.

During the year ended December 31, 2014, the Company incurred consulting fees of $8,160 and marketing fees of $8,943 to its former Chief Financial Officer (“CFO”).

During the year ended December 31, 2014, the Company incurred marketing fees of $2,100 to a Company related to the President.

On August 1, 2014, the Company entered into a consulting agreement with the President’s spouse for consulting fees of $4,500 per month. During the year ended December 31, 2014, the Company incurred consulting fees of $22,500 under the agreement.

On September 2, 2014, the Company entered into an executive employment agreement with its CFO. Under the agreement, the CFO is entitled to a base salary of $108,000 per year and was granted 300,000 options to purchase common stock of the Company at an exercise price of $0.30 per share. 30,000 options will vest on the first anniversary of the grant, 50,000 options will vest on the second anniversary and 220,000 options will vest on the date that the Company reports positive net cash from operating activities and net income. During the year ended December 31, 2014, the Company incurred a salary expense of $36,109 to the CFO and recorded stock based compensation of $2,943 in relation to the stock options.

On September 15, 2014, the Company entered into an executive employment agreement with its President. Under the agreement, the President is entitled to a base salary of $170,000 per year, is eligible for a bonus of up to 25% of base salary and was grated 1,650,000 options to purchase common stock of the Company at an exercise price of $0.30 per share. The options will vest on the date that the Company reports positive net cash from operating activities and net income. During the year ended December 31, 2014, the Company incurred a salary expense of $50,731 to the President and recorded stock based compensation of $nil in relation to the stock options.

F-19

On November 1, 2014, the Company entered into a sublease agreement with a company affiliated with the President. Under the agreement, the Company is required to make the following lease payments:

Lease Year	Annual Lease
1	$86,240
2	$88,200
3	$90,160
4	$94,080
5	$98,000

During the year ended December 31, 2014, the Company recorded rent expense of $21,000 to the related party.

During 2013, sales to related parties totaled approximately $16,000 and the Company purchased equipment totaling $1,000 from an organization affiliated with the former Chief Operating Officer.

Note 15 Commitments

Lease Obligations

The Company has obligations under operating leases for its corporate office facility and for its retail stores. The leases expire at various dates through 2022. Rent expense classified in General and Administrative expense associated with the Company’s operating leases was $165,735 and $207,651 for the years ended December 31, 2014 and 2013, respectively.

The Company also entered into a capital lease agreement to lease the domain name ryu.com through 2022, as discussed in Note 11. The future minimum lease payments required under the operating and capital leases as of December 31, 2014 are as follows:

	Operating Leases			Capital Lease			Total Lease Obligations
2015	$	202,725		$	10,603		$	213,328
2016		242,527			10,803			253,330
2017		247,513			11,007			258,520
2018		252,333			11,214			263,547
2019		244,067			11,426			255,493
Thereafter		41,000			24,500			65,500
Total minimum lease payments		1,230,165			79,553			1,3309,718
Less: current maturities		(202,725	)		(10,603	)		(213,328	)
Long-term lease obligations	$	1,027,440		$	68,950		$	1,096,390

Note 16 Contingencies

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results and cash flows.

F-20

Note 17 Subsequent Events

On December 4, 2014, the Company entered into an arrangement and exchange agreement (the “Agreement”) with Respect Your Universe (BC) Inc. (“RYU BC”), a newly incorporated British Columbia subsidiary of the Company. Under the Agreement, the shareholders of the Company will become shareholders of RYU BC by exchanging the outstanding common shares of the Company for common shares of RYU BC on a one to one basis. Upon the completion of the Agreement, the Company will be affected to have changed its jurisdiction of business from Nevada to British Columbia. The Agreement was approved by the shareholders of the Company on January 27, 2015 and by the Supreme Court of British Columbia on February 4, 2015 and is still pending approval by the TSX Venture Exchange (“TSX-V”). Upon approval by the TSX-V, the RYU BC shares will be listed on the TSX-Venture under the name RYU Apparel Inc., the symbol “RYU”. The Company’s shares will be de-listed from the TSX-V and the OTCQB.

On March 1, 2015, the Company employed a creative director. Under the employment agreement, the Company will pay the creative director a base salary of $150,000 per year. Either party may terminate the agreement upon one month’s notice.

On March 6, 2015, the Company received a CAD$160,000 loan from a shareholder of the Company. The loan is due on demand, does not bear any interest and is unsecured.

On March 16, 2015, the Company granted 2,200,000 options to the President of the Company. The options are exercisable at $0.30 for a period of 10 years and vest on the date the Company reports positive net cash from operating activities and net income.

On March 16, 2015, the Company granted 100,000 options to a consultant. The options are exercisable at $0.30 for a period of 10 years and vest immediately.

On March 31, 2015, the Company terminated one of its lease agreements before the term had expired. For early termination, the Company must pay the landlord a termination fee for $11,824.

On April 1, 2015, the Company entered into a lease agreement for a retail location. The term of the lease is from April 1, 2015 to March 31, 2020. Under the agreement, the Company is required to make the following annual payments:

Lease Term	Annual Rate
April 1, 2015 – March 31, 2017	$118,000
April 1, 2017 – March 31, 2019	$121,600
April 1, 2019 – March 31, 2020	$128,000

On April 16, 2015, the Company completed a private placement of 16,063,319 shares at CAD$0.30 per share for gross proceeds of CAD$4,818,996. As at the date of these financial statements, $CAD$4,738,996 of the proceeds have been received. Finders’ fees of $218,100 were paid in connection with the private placement.

F-21

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

(a) Resignation of Independent Accountant.

On May 30, 2014, our board of directors dismissed Deloitte & Touche LLP as its independent registered public accounting firm. On May 30, 2014, our board of directors engaged Marcum LLP as our independent registered public accounting firm.

Deloitte & Touche LLP’s report on our company’s financial statements for the fiscal years ended December 31, 2013 and December 31, 2012, before the effects of the retrospective adjustments for the one-for-two reverse stock split discussed in Note 12 to the financial statements, did not contain an adverse opinion or disclaimer of opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles, except that such report on our company’s financial statements contained an explanatory paragraph regarding the substantial doubt about the company’s ability to continue as a going concern.

During our company’s fiscal years ended December 31, 2013 and December 31, 2012 and in the subsequent interim period through the date of dismissal, there were no disagreements, resolved or not, with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or audit scope and procedures, which disagreement, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make reference to the subject matter of the disagreement in connection with its report.

During our company’s fiscal years ended December 31, 2013 and December 31, 2012 and in the subsequent interim period through the date of dismissal, other than material weaknesses in the company’s internal control over financial reporting, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K. As disclosed in Item 9A of the Company’s Annual Report on Form 10-K for the fiscal years ended December 31, 2013 and December 31, 2012, our company’s management and board of directors identified certain matters that constituted material weaknesses in the company’s internal controls over financial reporting, and such weaknesses were advised by Deloitte & Touche LLP.

We provided Deloitte & Touche LLP with a copy of a Current Report on Form 8-K prior to its filing with the SEC, and requested that it furnish us with a letter addressed to the SEC stating whether it agrees with the statements made in the Current Report on Form 8-K, and if not, stating the respects with which it does not agree. A copy of such letter, dated June 2, 2014, was filed as Exhibit 16.1 to the Current Report on Form 8-K.

On September 30, 2014, our board of directors dismissed Marcum LLP as its independent registered public accounting firm. On September 30, 2014, our board of directors engaged Dale Matheson Carr-Hilton LaBonte LLP (“DMCL LLP”) as our independent registered public accounting firm.

Marcum LLP did not issue a report on any of our company’s financial statements. During our company’s fiscal years ended December 31, 2013 and December 31, 2012 and in the subsequent interim period through the date of dismissal, there were no disagreements, resolved or not, with Marcum LLP on any matter of accounting principles or practices, financial statement disclosure, or audit scope and procedures, which disagreement, if not resolved to the satisfaction of Marcum LLP, would have caused Marcum LLP to make reference to the subject matter of the disagreement in connection with a report on our financial statements.

During our company’s fiscal years ended December 31, 2013 and December 31, 2012 and in the subsequent interim period through the date of dismissal, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.

We provided Marcum LLP with a copy of a Current Report on Form 8-K prior to its filing with the SEC, and requested that it furnish us with a letter addressed to the SEC stating whether it agrees with the statements made in the Current Report on Form 8-K, and if not, stating the respects with which it does not agree. A copy of such letter, dated October 2, 2014, was filed as Exhibit 16.1 to the Current Report on Form 8-K.

(b) Engagement of Independent registered public accounting firm.

During our company’s fiscal years ended December 31, 2013 and December 31, 2012 and in the subsequent interim period through the date of appointment of Marcum LLP on May 30, 2014, we have not consulted with Marcum LLP regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, nor has Marcum LLP provided to our company a written report or oral advice that Marcum LLP concluded was an important factor considered by our company in reaching a decision as to the accounting, auditing or financial reporting issue. In addition, during such periods, our company has not consulted with Marcum LLP regarding any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).

During our company’s fiscal years ended December 31, 2013 and December 31, 2012 and in the subsequent interim period through the date of appointment of DMCL LLP on September 30, 2014, we have not consulted with DMCL LLP regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, nor has DMCL LLP provided to our company a written report or oral advice that DMCL LLP concluded was an important factor considered by our company in reaching a decision as to the accounting, auditing or financial reporting issue. In addition, during such periods, our company has not consulted with DMCL LLP regarding any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).

Item 9A

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the 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. Disclosure controls and procedures include, without limitation, controls and procedures designed 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 our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Rules 13a-15(b) and 15d-15(b) under the Exchange Act, requires us to carry out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014, being the date of our most recently completed fiscal year end. This evaluation was implemented under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer.

Based on this evaluation, management concluded that, as of December 31, 2014, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our officers have assessed the effectiveness of our internal controls over financial reporting as of December 31, 2014. In making this assessment, management used the criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon its assessment, management concluded that, as of December 31, 2014, our internal control over financial reporting was ineffective. Our management concluded that our disclosure controls and procedures had the following material weaknesses which we believe are a result of a lack of sufficient personnel in our accounting department due to our limited resources.

·	Inability to maintain adequate segregation of duties within our financial operations.

·	Design and implementation of key internal controls over financial reporting is not yet complete.

To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including but not limited to the following:

Increasing the size, expertise and training of the finance and accounting staff by contracting with consultants or hiring additional employees to include adequate resources for ensuring GAAP compliance in the area of accounting for certain non−routine transactions and ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended December 31, 2014, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B

Other Information

None.

PART III

Item 10

Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

All directors of our company hold office until the next annual meeting of our stockholders or until their successors have been elected and qualified, or until their death, resignation or removal. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.

Our directors and executive officers, their ages, positions held, and duration of such, are as follows:

Name	Position Held with Our Company	Age	Date First Elected or Appointed
Marcello Leone	President, Chief Executive Officer and Director	48	December 4, 2014(1)
Bill Marcus	Director	55	December 4, 2014(2)
Martino Ciambrelli	Director	52	December 4, 2014(3)
Michelle Sibley	Director	44	December 4, 2014(4)
Maria Leone	Director	68	December 4, 2014(5)
Peter Ying Pan	Director	55	December 4, 2014(6)
Jameel Vaghela	Chief Financial Officer and Secretary	32	December 4, 2014(7)

(1)	Mr. Leone was first appointed as an officer of RYU Nevada on May 23, 2014 and a director of RYU Nevada on May 26, 2014.

(2)	Mr. Marcus was appointed as a director of RYU Nevada on December 19, 2012.

(3)	Mr. Ciambrelli was appointed as a director of RYU Nevada on March 11, 2014.

(4)	Ms. Sibley was appointed as a director of RYU Nevada on March 11, 2014.

(5)	Ms. Leone was appointed as a director of RYU Nevada on May 26, 2014.

(6)	Mr. Pan was appointed as a director of RYU Nevada on May 26, 2014.

(7)	Mr. Vaghela was appointed as an officer of RYU Nevada on September 2, 2014

Business Experience

The following is a brief account of the education and business experience of directors and executive officers during at least the past five years, indicating their principal occupation during the period, and the name and principal business of the organization by which they were employed:

Marcello Leone, Chief Executive Officer, President and a director of our company since December 4, 2014, the President of our subsidiary since May 23, 2014, director of our subsidiary since May 26, 2014 and the Chief Executive Officer of our subsidiary since August 1, 2014, is highly regarded as a visionary in the fashion industry. Mr. Leone’s entrepreneurial spirit is led by his strategic vision, strong leadership and organization, and supported by his ability to raise capital. Mr. Leone is passionate about consumer brands and global distribution and reach. Mr. Leone has been involved with RYU since mid-2011, as an investor. Over the past three years, Mr. Leone founded Naturo Group Investments Inc. Naturo is the owner of Trace Blackwater, a private water beverage company with distribution in over 2,000 locations and growing rapidly. Through 2009, Mr. Leone was instrumental for over 16 years operating one of Canada’s largest and most successful independent specialty stores known as LEONE. LEONE, located in Vancouver, British Columbia, represents over 30,000 square feet of luxury brands. LEONE’S contemporary division known as L2 represents contemporary designers. Mr. Leone was responsible for the development of new product lines, guiding the buying team, and daily operational duties for LEONE and L2. Led by Mr. Leone and its management team, LEONE has been recognized as one of North America’s leading retailers as quoted in Vogue Italy. Mr. Leone is active in charity work, having raised over $1 million for various charities.

We believe Mr. Leone is qualified to serve on our board of directors because of his education and business experiences, including his experience in the retail sector.

Bill Marcus, Director of our company since December 4, 2014 and of our subsidiary since December 19, 2012. Mr. Marcus has been Senior Managing Director of Hedgeharbor, Inc., and President of its affiliate Evolution Trading Partner, LLC. Prior to this, Mr. Marcus was Executive Vice-President, Head of Sales North America for Newedge Group since 2001. At Newedge, Mr. Marcus led sales, business development and coordination between the global offices, as well as, between several of its parent banking groups. Mr. Marcus directly managed top global relationships with financial institutions, including: asset managers, hedge funds, CTAs, investors, professional trading groups, corporations, governments and family offices.

Mr. Marcus achieved a dual B.S. from Syracuse University School of Management in 1982 and attended Harvard Business School in 1984. He actively serves on the Board of Asset Alliance and the Gene Siskel Film Center, School of the Art Institute in Chicago.

We believe Mr. Marcus is qualified to serve on our board of directors because of his education and business experiences, including his experience in the financial services sector.

Martino Ciambrelli, Director of our company since December 4, 2014 and of our subsidiary since March 11, 2014. Mr. Ciambrelli has over 25 years’ experience in sales development and management of consumer brands with a focus on the food and beverage industry. Since March 2013, he has been President of Naturo Group Investments Inc., a nutritional beverage and food company. From July 2011 to February 2013, he was Director of Business Development, Pacific at AirSprint Inc., a company that specializes in private aviation solutions. From March 2001 to July 2011, he was Regional Manager, Western Canada at Johnvince Foods, which owns the right to the “Mr. Peanut” brand in Canada.

We believe Mr. Ciambrelli is qualified to serve on our board of directors because of his education and business experience, including his experience in the retail sector.

Michelle Sibley, Director of our company since December 4, 2014 and of our subsidiary since March 11, 2014. Ms. Sibley is the Chief Financial Officer at Sachs Capital Group LP. Over the past ten years, her responsibilities at Sachs Capital Group LP have covered all financial aspects of the business, including financial modeling of investment opportunities, cash management, accounting oversight, coordination of financial transactions, tax research and analysis, review of legal documents and structuring of deals terms. While at Sachs Capital Group, Ms. Sibley also served as the Chief Financial Officer for SCG Financial Acquisition Corp., a publicly traded special purpose acquisition company. Prior to joining Sachs Capital Group LP., Ms. Sibley was a senior tax manager in Deloitte & Touche’s tax practice.

We believe Ms. Sibley is qualified to serve on our board of directors because of his education and business experience, including her experience in the financial services sector.

Maria Leone, Director of our company since December 4, 2014 and of our subsidiary since May 26, 2014. She is well recognized and respected in the Vancouver business community for her social involvement and her business success. In the early 1970s, in partnership with her husband, Ms. Leone played an integral part in opening a chain of successful boutiques in Vancouver’s most prestigious shopping malls. In 1987, they consolidated all the individual boutiques to open “LEONE”, a 30,000 square foot high-end fashion retail store in downtown Vancouver at the historic Sinclair Centre. As Vice President of LEONE, she has been instrumental in the fashion, operation and growth of the well-known retailer for the past 27 years. Mrs. Leone travels extensively to Milan, Paris and New York attending fashion shows, purchasing new product lines and researching new designers. LEONE is recognized as one of North America’s premiere fashion destinations offering world class designer labels. Mrs. Leone has contributed to the betterment of her community through her work and support with non-profit organizations and charities.

We believe Ms. Leone is qualified to serve on our board of directors because of her education and business experience, including her experience in the retail services sector.

Peter Ying Pan, Director of our company since December 4, 2014 and of our subsidiary since May 26, 2014. He has 25 years’ experience in apparel and retail, dating back to 1990 when he founded Union Rich in Hong Kong. Mr. Pan founded China Rich Garments in Beijing in 2001. Spanning both companies, he had two joint venture factories in Beijing and Hangzhou. Through 2010, China Rich Garments was involved in retail in China with its A-Wear label. China Rich Garments has been well recognized for its strong, experienced and professionally trained quality control team in China, having received letters in appreciation by high-level management from J-Crew for its excellent products and its consistency of quality control. China Rich Garments is very experienced in dealing with international customers and has strong ties and connections with the manufactures in China. China Rich Garments’ clients include a number of North American fashion labels.

We believe Mr. Pan is qualified to serve on our board of directors because of this education and business experience, including her experience in the manufacturing sector.

Jameel Vaghela, Chief Financial Officer and Secretary of our company since December 4, 2014, the Secretary of our subsidiary since September 1, 2014 and the Chief Financial Officer and Treasurer of our subsidiary since September 2, 2014. Mr. Vaghela was previously Finance Manager – Aviation at G4S Secure Solutions (Canada) Ltd. from March 2012 to September 2014. He was previously Senior Associate in PwC LLP’s Corporate Advisory practice and a Staff Accountant at KPMG. Mr. Vaghela holds a Master of Professional Accounting and a Chartered Accountant designation.

Family Relationships

Other than as described below, there are no family relationships among our directors or officers.

Marcello Leone is the son of Maria Leone.

Involvement in Certain Legal Proceedings

None of our directors and executive officers has been involved in any of the following events during the past ten years:


	(a)	any petition under the federal bankruptcy laws or any state insolvency laws filed by or against, or an appointment of a receiver, fiscal agent or similar officer by a court for the business or property of such person, or any partnership in which such person was a general partner at or within two years before the time of such filing, or any corporation or business association of which such person was an executive officer at or within two years before the time of such filing;

	(b)	any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

	(c)	being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

	(d)	being the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (c)(i) above, or to be associated with persons engaged in any such activity;

	(e)	being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission to have violated a federal or state securities or commodities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been reversed, suspended, or vacated;

	(f)	being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

	(g)	being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

(h)

being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors and persons who own more than 10% of the outstanding common shares to file reports of ownership and changes in ownership concerning their common shares with the SEC and to furnish us with copies of all Section 16(a) forms they file. We are required to disclose delinquent filings of reports by such persons.

Based solely on the copies of such reports and amendments thereto received by us, or written representations that no filings were required, we believe that all Section 16(a) filing requirements applicable to our executive officers and directors and 10% stockholders were met for the year ended December 31, 2014, with the exception of the following:

Name	Number of LateReports	Number of Transactions Not Reported on a TimelyBasis	Failure to File Requested Forms
Marcello Leone	1(5)	5	Nil
Martino Ciambrelli	1(5) 2(6)	1 2	Nil
Bill Marcus	Nil	Nil	Nil
Maria Leone	1(5)	1	Nil
Michelle Sibley	Nil	Nil	Nil
Peter Pan	1(5) 3(6)	1 6	Nil
Jameel Vaghela	1(5) 1(6)	1 1	Nil
Craig Brod(1)	Nil	Nil	Nil
Jim Nowodworski(2)	Nil	Nil	Nil
Dale Wallster(3)	Nil	Nil	Nil
David Campisi(1)	Nil	Nil	Nil
Munir Ali(3)	Nil	Nil	Nil
Vollmer Manfred(4)	1(4)	1	Nil

(1) Former Chief Executive Officer and director of our company.

(2)	Former Chief Financial Officer.

(3)	Former director of our company.

(4)	Former Chief Operating Officer.

(5)	Failure to file Form 3 – Initial Statement of Beneficial Ownership of Securities.

(6)	Failure to file Form 4 – Statement of Changes in Beneficial Ownership.

Code of Ethics

We have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.

Committees of Board of Directors

We currently have an audit committee consisting of Martino Ciambrelli, Bill Marcus and Michelle Sibley. We do not presently have a separately constituted compensation committee, nominating committee, or any other committees of our board of directors. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our board of directors.

We do not have any defined policy or procedure requirements for our stockholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or stockholders, and makes recommendations for election or appointment.

A stockholder who wishes to communicate with our board of directors may do so by directing a written request to the address appearing on the first page of this annual report.

Corporate Governance

General

Our board believes that good corporate governance improves corporate performance and benefits all shareholders. Canadian National Policy 58-201 Corporate Governance Guidelines provides non-prescriptive guidelines on corporate governance practices for reporting issuers such as our company. In addition, Canadian National Instrument 58-101 Disclosure of Corporate Governance Practices prescribes certain disclosure of our company’s corporate governance practices. This disclosure is presented below.

Director Independence

We are listed on the TSX Venture Exchange which imposes director independence requirements. Under NASDAQ rule 5605(a)(2), and the TSX Venture Exchange Corporate Finance Policy, a director is not independent if he or she is also an executive officer or employee of the corporation. As such, Marcello Leone is not independent. Under the TSX Venture Exchange Corporate Finance Policy, a director is not independent if they received more than $75,000 in direct compensation, other than compensation relating to their role as a director. We have determined that Maria Leone, Peter Ying Pan, Bill Marcus, Martino Ciambrelli and Michelle Sibley are independent directors.

Directorships

None of our directors are or have been directors of other reporting issuers or equivalent.

Orientation and Continuing Education

New board members receive an orientation package which includes reports on operations and results, and any public disclosure filings by us, as may be applicable. We do not take any steps to provide continuing education for directors.

Ethical Business Conduct

We have found that the fiduciary duties placed on individual directors by our governing corporate legislation and the common law and the restrictions placed by applicable corporate legislation on an individual director’s participation in decisions of our board in which the director has an interest have been sufficient to ensure that the board operates in the best interests of our company.

Nomination of Directors

We consider our size each year when we consider the number of directors to recommend to the shareholders for election at the annual meeting of shareholders, taking into account the number required to carry out our board’s duties effectively and to maintain a diversity of view and experience.

We do not have a nominating committee, and these functions are currently performed by our board as a whole.

Compensation

Our board is responsible for determining compensation for the directors of our company to ensure it reflects the responsibilities and risks of being a director of a public company.

Other Board Committees

We have no committees other than our Audit Committee.

Assessments

We have no formal policy to monitor the effectiveness of the directors, our board and our committees.

Audit Committee Disclosure

Under Canadian National Instrument 52-110 – Audit Committees (“NI 52-110”) reporting issuers are required to provide disclosure with respect to its Audit Committee.

Audit Committee and Audit Committee Financial Expert

Our board has an Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act. It consists of Martino Ciambrelli, Bill Marcus and Michelle Sibley, and oversees and reports to the board of directors on various auditing and accounting-related matters, including the maintenance of the integrity of our financial statements, reporting process and internal controls; the selection, evaluation, compensation and retention of our independent registered public accounting firm; the performance of internal audit; legal and regulatory compliance, including our disclosure controls and procedures; and oversight over our risk management policies and procedures.

Mr. Marcus serves as chairman of this committee and has been determined by our board to be an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.

Audit Committee Oversight

At no time since the commencement of our most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by our board.

Reliance on Certain Exemptions

At no time since the commencement of our most recently completed financial year has our company relied on the exemption in Section 2.4 of NI 52-110 (De Minimis Non-audit Services), or an exemption from NI 52-110, in whole or in part, granted under Part 8 of NI 52-110.

Pre-Approval Policies and Procedures

The Audit Committee is authorized by our board of directors to review the performance of our external auditors and approve in advance provision of services other than auditing and to consider the independence of the external auditors, including a review of the range of services provided in the context of all consulting services bought by our company.

Item 11

Executive Compensation

Summary Compensation

The particulars of compensation paid to the following persons:

	(a)	all individuals serving as our principal executive officer during the year ended December 31, 2014;

	(b)	each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended December 31, 2014; and

	(c)	up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at December 31, 2014,

who we will collectively refer to as the named executive officers, for all services rendered in all capacities to our company and subsidiaries for the years ended December 31, 2014 and December 31, 2013 are set out in the following summary compensation table:

Summary Compensation Table
Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards(1) ($)	Non-Equity Incentive Plan Compensa- tion ($)	Nonqualified Deferred Compensa-tion Earnings ($)	All Other Compensa- tion ($)	Total ($)
Marcello Leone(2) President, CEO, Secretary and Director	2014 2013	56,693 N/A	Nil N/A	Nil N/A	29,255 N/A	Nil N/A	Nil N/A	Nil N/A	85,948 N/A
Jameel Vaghela(3) CFO	2014 2013	31,828 N/A	Nil N/A	Nil N/A	12,164 N/A	Nil N/A	Nil N/A	239 N/A	44,231 N/A
Manfred Vollmer(4) Former Chief Operating Officer	2014 2013	19,892 N/A	Nil N/A	Nil N/A	Nil N/A	Nil N/A	Nil N/A	Nil N/A	19,892 N/A
Craig Brod Ph.D. Former CEO(5)	2014 2013	104,611 105,051	Nil Nil	Nil Nil	Nil 150,014	Nil Nil	Nil Nil	51,000 12,250(9)	155,611 267,315
Jim Nowodworski Former CFO(6)	2014 2013	159,919 63,326	Nil Nil	Nil Nil	Nil 64,761	Nil Nil	Nil Nil	15,000 3,395(10)	174,919 131,482
Erick Siffert Former COO(7)	2014 2013	13,634 180,000	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil 6,374(11)	13,634 186,374
David Campisi Former CEO(8)	2014 2013	N/A 127,975	N/A Nil	N/A Nil	N/A 311,403	N/A Nil	N/A Nil	N/A 4,066(10)	N/A 443,444

(1)

These amounts represent the fair value of these options at the date of grant. The fair value of all of the options was determined using the Black-Scholes option pricing model, using a 6 to 10 year expected life of the option, a volatility factor of 111%, a risk-free rate of 2.23% and no assumed dividend rate for the grants in 2014. These amounts represent the fair value of these options at the date of grant. The fair value of all of the options was determined using the Black-Scholes option pricing model, using a 3.59 to 5.27 year expected life of the option, a volatility factor of 100%, a risk-free rate of 1.05% to 1.41% and no assumed dividend rate for the grants in 2013.

(2)	Mr. Leone was appointed the CEO, President and a director of our company on December 4, 2014, the President of our subsidiary on May 23, 2014, and CEO of our subsidiary on August 1, 2014.

(3)	Mr. Vaghela was appointed as CFO and Secretary of our company on December 4, 2014, the Secretary of our subsidiary on September 1, 2014 and the CFO and Treasurer of our subsidiary on September 2, 2014.

(4)	Mr. Vollmer was the Chief Operating Officer of our subsidiary from August 18, 2014 until October 23, 2014.

(5)	Mr. Brod was the CEO of our subsidiary from April 30, 2013 until August 1, 2014.

(6)	Mr. Nowodworski was the CFO of our subsidiary from June 21, 2013 until September 1, 2014.

(7)	Mr. Siffert was our Chief Operating Officer from June 7, 2011 to January 9, 2014.

(8)	Mr. Campisi was our CEO from August 8, 2012 to April 30, 2013.

(9)	Housing allowance and furniture rental provided under the terms of Mr. Brod’s employment agreement and medical benefits paid by our subsidiary.

(10)	Medical benefits paid by our subsidiary.

(11)	Consists of $1,000 equipment sale from Exit 21, a company owned by the former employee.

Compensation Discussion and Analysis

On July 18, 2013, we signed an employment agreement with Craig Brod, Ph.D., our former chief executive officer, effective as of May 1, 2013. We agreed to pay the sum of $168,000 per year and a lump sum of $36,000 to Dr. Brod, which lump sum was payable on or before January 6, 2014. We also agreed to grant options to purchase up to 900,000 shares of our common stock at an exercise price of $0.35 per share. The options vest as follows: 250,000 immediately; 350,000 on January 31, 2014; and 300,000 on August 31, 2014. We also granted the executive a reasonable housing allowance up to a maximum of $1,800 a month and standard benefits. The employment agreement shall terminate on December 31, 2013 and shall be automatically extended by one year unless either party gives ninety (90) days’ prior written notice. The employment agreement was extended until December 31, 2014. The agreement was terminated upon Mr. Brod’s resignation on August 1, 2014. Pursuant to the agreement we paid Dr. Brod $39,000 in severance.

Our former chief financial officer does not have any written employment agreement other than the agreed upon terms outlined in his initial offer letter. Under the initial offer letter to Jim Nowodworski, our former chief financial officer, we agreed to provide him with a base salary of $150,000 on an annual basis and deferred compensation of $30,000 payable annually on January 31 (for 2013, the amount was prorated to $15,000 and payable on January 31, 2014). In addition, we granted him options to purchase 450,000 shares of our common stock at an exercise price of $0.21 with an expiration date of September 5, 2023. Mr. Nowodworski is also eligible for a short term bonus plan beginning with the 2014 year with a target payout of 30% bonus and expected to be paid in early 2015 and we also granted him the standard benefits. The employment agreement with Mr. Nowodworski was terminated on September 1, 2014. Mr. Nowodworski was retained in a consultant capacity until December 31, 2014.

On September 23, 2014, effective September 15, 2014, we entered into an executive employment agreement with Marcello Leone, our CEO, whereby we agreed to pay Mr. Leone a base salary of $170,000 per year and the eligibility to participate in our bonus and other incentive compensation plans and programs for our senior employees. Mr. Leone shall have the opportunity to earn an annual target bonus to be determined by and measured against financial criteria to be determined by our board of directors (or a committee thereof), of up to 25% of the base salary upon our company’s achievement of financial and operating metrics to be annually determined by our board of directors (or a committee thereof), and upon recommendation of our board of directors at its sole discretion. The incentive bonus payment shall be made within thirty (30) days after our company’s independent accounting firm has concluded the close of the fiscal year. In addition, we agreed to grant options to purchase up to 1,650,000 shares of our common stock at an exercise price of $0.30 per share. The options will vest on the date that our company reports positive net cash from operating activities and net income, as shown on either our interim or annual financial statements as filed with the SEC. Mr. Leone is also eligible for up to 2,250,000 additional stock options, which will be granted within the next 18 months in accordance with applicable laws and stock exchange rules. The employment agreement shall terminate on September 15, 2017 and shall be automatically renewed upon the mutual agreement of Mr. Leone and our company by agreeing to such extension in writing by no later than September 1, 2017.

On August 22, 2014, effective September 2, 2014, we entered into an employment agreement Jameel Vaghela, our CFO, whereby we agreed to pay Mr. Vaghela an annual salary of $108,000 and the eligibility to participate in our bonus and other incentive compensation plans and programs for our senior employees. In addition, we agreed to grant options to purchase up to 300,000 shares of our common stock at an exercise price equal to a 25% discount to the Market Price (as defined by the TSX Venture Exchange). The options vest as follows: (i) 30,000 options will vest at the end of the first year of the term of the employment agreement, (ii) 50,000 options will vest at the end of the second year of the term of the employment agreement, and (iii) 220,000 options will vest on the date our company reports positive net cash from operating activities and net income, as shown on either our interim or annual financial statements as filed with the SEC. The term of the employment agreement is for an indefinite term, unless terminated by either party in accordance with the employment agreement. The employment agreement may be terminated by Mr. Vaghela by providing at least four weeks prior written notice to our company.

On August 20, 2014, we entered into an employment agreement with Manfred Vollmer, our former Chief Operating Officer, whereby we agreed to pay Mr. Vollmer an annual salary of $150,000 and the eligibility to participate in our bonus and other incentive compensation plans and programs for our senior employees. In addition, we agreed to grant options to purchase up to 1,100,000 shares of our common stock at an exercise price equal to a 25% discount to the Market Price (as defined by the TSX Venture Exchange). The options vest as follows: (i) 100,000 options will vest at the end of the first year of the term of the employment agreement, (ii) 150,000 options will vest at the end of the second year of the term of the employment agreement, and (iii) 850,000 options will vest on the date our company reports positive net cash from operating activities and net income, as shown on either our interim or annual financial statements as filed with the SEC. The employment agreement with Mr. Vollmer was terminated on October 23, 2014 upon his resignation as the Chief Operating Officer.

Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.

Resignation, Retirement, Other Termination, or Change in Control Arrangements

We have no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to our directors or executive officers at, following, or in connection with the resignation, retirement or other termination of our directors or executive officers, or a change in control of our company or a change in our directors’ or executive officers’ responsibilities following a change in control.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of December 31, 2014:

Name	Option awards					Stock awards
Name	Number of securities underlying unexercised options exercisable (#)	Number of securities underlying unexercised options unexercisable (#)	Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)	Option exercise price ($)	Option expiration date	Number of shares or units of stock that have not vested (#)	Market value of shares of units of stock that have not vested ($)	Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)	Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
Marcello Leone	Nil	1,600,000	Nil	0.30	August 18, 2024	Nil	Nil	Nil	Nil
Jameel Vaghela	Nil	300,000	Nil	0.30	August 18, 2024	Nil	Nil	Nil	Nil
Manfred Vollmer	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Craig Brod Ph.D.	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Jim Nowodworski	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Erick Siffert	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil

Compensation of Directors

The table below shows the compensation of our directors who were not our named executive officers for the fiscal year ended December 31, 2014:

Name	Fees earned or paid in cash ($)	Stock awards ($)	Option awards(1) ($)	Non-equity incentive plan compensation ($)	Nonqualified deferred compensation earnings ($)	All other compensation ($)	Total ($)
Bill Marcus(2) Director	Nil	Nil	65,990	Nil	Nil	Nil	65,990
Martino Ciambrelli(3) Director	Nil	Nil	26,396	Nil	Nil	Nil	26,396

Michelle Sibley(4) Director	Nil	Nil	65,990	Nil	Nil	Nil	65,990
Maria Leone(5) Director	Nil	Nil	19,797	Nil	Nil	Nil	19,797
Peter Pan(6) Director	Nil	Nil	39,594	Nil	Nil	Nil	39,594
Dale Wallster(7) Former Director	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Munir Ali(8) Former Director	Nil	Nil	Nil	Nil	Nil	Nil	Nil

(1)

(2)	Bill Marcus was appointed as a director of our company on December 4, 2014 and of our subsidiary on December 19, 2012.

(3)	Martino Ciambrelli was appointed as a director of our company on December 4, 2014 and of our subsidiary on March 11, 2014.

(4)	Michelle Sibley was appointed as a director of our company on December 4, 2014 and of our subsidiary on March 11, 2014.

(5)	Maria Leone was appointed as a director of our company on December 4, 2014 and of our subsidiary on May 26, 2014.

(6)	Peter Pan was appointed as a director of our company on December 4, 2014 and of our subsidiary on May 26, 2014.

(7)	Dale Wallster resigned as a director of our subsidiary on May 23, 2014.

(8)	Munir Ali resigned as a director of our subsidiary on January 6, 2014.

We have no formal plan for compensating our directors for their services in their capacity as directors. Our directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on their behalf other than services ordinarily required of a director.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the outstanding equity awards held by the directors, other than named executive officers, of our company as of December 31, 2014.

	Option Awards						Stock Awards
		Number of securities underlying unexercised options exercisable (#)	Number of securities underlying unexercised options unexercisable (#)	Equity incentive plan awards: number of securities underlying unexercised unearned options (#)	Option exercise price ($)	Option expiration date		Number of shares or units of stock that have not vested (#)	Market value of shares or units of stock that have not vested ($)	Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)	Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)
Bill Marcus		50,000(1) 50,000(1) 50,000(1) 50,000(1) 50,000(1) Nil 12,500	Nil Nil Nil Nil Nil 50,000 37,500	Nil Nil Nil Nil Nil Nil Nil	1.20 1.20 1.20 1.20 1.20 0.40 0.30	1/25/17 4/26/17 7/26/17 10/26/17 1/30/18 3/10/23 8/18/24	Nil		N/A	Nil	N/A
Martino Ciambrelli		100,000	100,000	Nil	0.30	8/18/24	Nil		N/A	Nil	N/A
Michelle Sibley		12,500	37,500	Nil	0.30	8/18/24	Nil		N/A	Nil	N/A
Maria Leone		50,000	150,000	Nil	0.30	8/18/24	Nil		N/A	Nil	N/A
Peter Pan		75,000	225,000	Nil	0.30	8/18/25	Nil		N/A	Nil	N/A

(1)	Represents warrants issued to Only One Degree, LLC, of which Mr. Marcus was 50% owner as of December 31, 2014. The warrants were issued for consulting services prior to Mr. Marcus joining our board of directors.

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of April 21, 2015, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors, director nominees, named executive officers (as defined in the “Executive Compensation” section) and current executive officers and by our current directors and executive officers as a group. We have determined the number and percentage of shares beneficially owned by such person in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”). This information does not necessarily indicate beneficial ownership for any other purpose.

Title of Class			Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)		Percent of Class(1)
Common Stock			Marcello Leone 1672 West 2nd Avenue Vancouver, BC V6J 1H4	5,261,940(2)	Direct/Indirect	7.37%
Common Stock			Bill Marcus 1672 West 2nd Avenue Vancouver, BC V6J 1H4	1,477,200(3)	Direct/Indirect	2.07%
Common Stock			Michelle Sibley 1672 West 2nd Avenue Vancouver, BC V6J 1H4	45,000(4)	Direct/Indirect	0.06%
Common Stock			Martino Ciambrelli 1672 West 2nd Avenue Vancouver, BC V6J 1H4	130,000(5)	Direct	0.18%
Common Stock			Maria Leone 1672 West 2nd Avenue Vancouver, BC V6J 1H4	866,666(6)	Direct	1.21%
Common Stock			Peter Ying Pan 1672 West 2nd Avenue Vancouver, BC V6J 1H4	735,250(7)	Direct	1.03%
Common Stock			Jameel Vaghela 1672 West 2nd Avenue Vancouver, BC V6J 1H4	10,000	Direct	0.01%
Common Stock			Dirctors and Current Executive Officers as a group (7 persons)	8,526,056		11.95%

	(1)	Percentage of ownership is based on 71,355,107 shares of common stock issued and outstanding as of April 21, 2015. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such common stock, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to stock options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such stock option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.

	(2)	Consists of 3,162,627 shares of common stock held directly, 234,343 shares of common stock held indirectly by minor children, 1,720,114 warrants held directly exercisable within 60 days and 144,856 warrants held indirectly by minor children exercisable within 60 days.

	(3)	Includes options to purchase 50,000 shares of common stock, warrants to purchase 500,000 shares of common stock directly and warrants to purchase 500,000 shares of common stock issued to Only One Degree, LLC, all exercisable within 60 days. These warrants represent Mr. Marcus’ 50% ownership interest in Only One Degree, LLC.

	(4)	Consists of 20,000 shares of common stock held through her membership interest in SCG Financial holdings LLC and options to purchase 100,000 shares of common stock exercisable within 60 days.

	(5)	Includes options to purchase 100,000 shares of common stock exercisable within 60 days.

	(6)	Includes options to purchase 75,000 shares of common stock exercisable within 60 days.

	(7)	Includes options to purchase 150,000 shares of common stock exercisable within 60 days.

	(8)	Includes options to purchase 475,000 shares of common stock and warrants to purchase 2,864,970 shares of common stock exercisable within 60 days.

Changes in Control

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.

Item 13

Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

Other than as disclosed below, there has been no transaction, since January 1, 2014, or currently proposed transaction, in which our company was or is to be a participant and the amount involved exceeds $5,000, being the lesser of $120,000 or one percent of our total assets at December 31, 2014, and in which any of the following persons had or will have a direct or indirect material interest:

(a)	Any director or executive officer of our company;

(b)	Any person who beneficially owns, directly or indirectly, more than 5% of any class of our voting securities;

(c)

Any person who acquired control of our company when it was a shell company or any person that is part of a group, consisting of two or more persons that agreed to act together for the purpose of acquiring, holding, voting or disposing of our common stock, that acquired control of our company when it was a shell company; and

(d)	Any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons.

During 2014, our company issued and repaid a $30,000 unsecured promissory note to an entity owned by a related party, including $2,000 of interest expense.

Our company reimbursed a company of which the President of our company is an executive and major shareholder for expenses incurred in connection with the February 2014 and May 2014 private placement offerings. These expenses totaled $18,792 and were classified as offering costs.

Our board of directors approved the reimbursement of $74,349 of expenses incurred by the President of our company. These expenses were incurred prior to employment of the President on May 23, 2014 for purposes of raising capital during 2014 and were expensed and paid during 2014.

Our company had sales to an entity affiliated with the President of our company and owned by one of the directors of our company. 2014 sales to this entity totaled $25,315 and resulted in a gross margin loss of $2,731. Credits totaling $3,241 were issued to this entity for products used for equity fundraising purposes during the year. As of December 31, 2014, approximately $2,697 is due to this affiliated entity.

Our company had sales to an entity owned by the President of our company. 2014 sales to this entity totaled $40,877 and resulted in a gross margin loss of $13,470. Credits totaling $24,636 were issued to this entity. As of December 31, 2014, none is due to this affiliated entity.

Our company utilized the consulting services of the spouse of the President of our company in the capacity of Director of Sales – Latin America. 2014 consulting fees totaled $19,395.

Compensation for Executive Officers and Directors

For information regarding compensation for our executive officers and directors, see “Executive Compensation”.

Item 14 Principal Accounting Fees and Services

The following table sets forth the fees billed to our company for professional services rendered by Dale Matheson Carr-Hilton LaBonte LLP, our independent registered public accounting firm for the year ended December 31, 2014 and Deloitte & Touche LLP, our former independent registered public accounting firm, for the year ended December 31, 2013:

	2014(1)		2013(2)
	USD		USD
Audit Fees		95,000		115,000
Audit-Related Fees		-		-
Tax-Fees		5,000		12,960
Other Fees		-		490
Total Fees		100,000		128,450

(1) Rendered by Dale Matheson Carr-Hilton LaBonte LLP.

(2) Rendered by Deloitte & Touche LLP.

Pre-Approval Policies and Procedures

Our entire board of directors, which acts as our audit committee, pre-approves all services provided by our independent registered public accounting firm. All of the above services and fees were reviewed and approved by our board of directors before the respective services were rendered.

Our board of directors has considered the nature and amount of fees billed by Dale Matheson Carr-Hilton LaBonte LLP and Deloitte & Touche LLP and believe that the provision of services for activities unrelated to the audit is compatible with maintaining its respective independence.

PART IV

Item 15

Exhibits, Financial Statement Schedules

Number	Exhibit
2.1	Share Exchange and Arrangement Agreement with the Plan of Arrangement and Plan of Share Exchange Agreement dated December 4, 2014(15)
2.2	Order of the British Columbia Supreme Court(15)
3.1	Articles of Incorporation for Respect Your Universe, Inc.(1)
3.2	Bylaws for Respect Your Universe, Inc.(1)
3.3	Certificate of Change for Respect Your Universe, Inc.(11)
3.5	Articles(15)
3.6	Notice of Articles(15)
3.7	Articles of Exchange for Respect Your Universe, Inc.(15)
10.1	Employment Agreement with Craig Brod(2)
10.2	Form of Subscription Agreement(3)
10.3	Form of Warrant(3)
10.4	Lease between Westlake Center Associates Limited Partnership and Respect Your Universe, Inc. dated December 10, 2013(6)
10.5	Employment Offer Letter to Jim Nowodworski(7)
10.6	Form of Subscription Agreement(8)
10.7	Form of Warrant(8)
10.8	Form of Subscription Agreement(10)
10.9	Form of Warrant(10)
10.10	Employment Agreement dated August 22, 2014 with Jameel Vaghela(12)
10.11	Employment Agreement dated August 22, 2014 with Manfred Vollmer(12)
10.12	Employment Agreement dated August 22, 2014 with Marcello Leone(13)
14	Code of Ethics(4)
16.1	Letter from Deloitte & Touche LLP regarding change in independent registered public accounting firm(9)
16.2	Letter from Marcum LLP regarding change in independent registered public accounting firm(14)
21*	Subsidiaries
31.1*	Rule 13a-14(a) Certification of Principal Executive Officer
31.2*	Rule 13a-14(a) Certification of Principal Financial Officer
32.1*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal Executive Officer
32.2*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal Financial Officer
99.1*	Stock Option Plan
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

*filed herewith

(1)	Incorporated by reference to the exhibits to the registrant’s registration statement on Form S-1, filed April 20, 2010.

(2)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on July 24, 2013.

(3)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on February 6, 2014.

(4)	Incorporated by reference to the exhibits to the registrant’s annual report on Form 10-K, filed on March 9, 2012.

(5)	Incorporated by reference to the exhibits to the registrant’s annual report on Form 10-K, filed on April 14, 2011.

(6)	Incorporated by reference to the exhibits to the registrant’s annual report on Form 10-K, filed on April 15, 2014.

(7)	Incorporated by reference to the exhibits to the registrant’s annual report on Form 10-K/A, filed on April 29, 2014.

(8)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on May 30, 2014.

(9)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on June 2, 2014.

(10)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on June 16, 2014.

(11)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on July 8, 2014.

(12)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on August 25, 2014.

(13)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on September 30, 2014.

(14)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on October 3, 2014.

(15)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, filed on February 23, 2015.

SIGNATURES

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

	RYU Apparel Inc.

Date: April 30, 2015	/s/ Marcello Leone
	Marcello Leone Chief Executive Officer (Principal Executive Officer)



Date: April 30, 2015	/s/ Jameel Vaghela
	Jameel Vaghela Chief Financial Officer (Principal Financial and Accounting Officer)

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

Signature	Title	Date

/s/ Marcello Leone	Director and Chief Executive Officer (Principal Executive Officer)	April 30, 2015
Marcello Leone


/s/ Jameel Vaghela	Chief Financial Officer (Principal Financial and Accounting Officer)	April 30, 2015
Jameel Vaghela


/s/ Bill Marcus	Director	April 30, 2015
Bill Marcus


/s/ Martino Ciambrelli	Director	April 30, 2015
Martino Ciambrelli


/s/ Michelle Sibley	Director	April 30, 2015
Michelle Sibley


/s/ Peter Pan	Director	April 30, 2015
Peter Pan

/s/ Maria Leone	Director	April 30, 2015
Maria Leone

Attached files

RYU APPAREL INC. Reports

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