UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC  20549







FORM 10-K


x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended August 31, 2012o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from ______________ to _____________


Commission File Number:000-52439




BILL THE BUTCHER, INC.


(Exact name of registrant as specified in its charter)




Nevada

20-5449905(State of or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)24 Roy Street # 16

Seattle, Washington  98109(Address of principal executive offices)(206) 453-4418(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:


Common Stock, Par Value $0.001




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   ̈    No  x
  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   ̈    No  x
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No   ̈
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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).Yes ̈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. ̈
 
 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                                            ̈
Accelerated filer                                   ̈Non-accelerated filer                                              ̈
Smaller reporting companyx
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ̈Nox
 
 At February 29, 2012, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $2,300,778, based on the last sale price of the registrant’s common stock. For the purposes of the foregoing calculation only, all of the registrant’s directors, executive officers and holders of ten percent or greater of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.
 
 As of December 12, 2012, there were 41,870,404  shares of the registrant’s common stock outstanding.
 DOCUMENTS INCORPORATED BY REFERENCE
 None.


Table of Contents





Tableof Contents




PageCautionary Statement Regarding Forward-Looking Statements
1PART IItem 1.
Business
2Item 1A.
Risk Factors
6Item 1B.
Unresolved Staff Comments
11Item 2.
Properties
11Item 3.
Legal Proceedings
12Item 4.
Mine Safety Disclosure
12PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
13Item 6.
Selected Financial Data
13Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14Item 8.
Financial Statements and Supplementary Data
18Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
31Item 9A.
Controls and Procedures
31Item 9B.
Other
32PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
33Item 11.
Executive Compensation
34Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
35Item 13.
Certain Relationships and Transactions and Director Independence
35Item 14.
Principal Accounting Fees and Services
36PART IVItem 15.
Exhibits, Financial Statement Schedules
37SIGNATURESEXHIBIT INDEX








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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





In this report, the terms “Bill the Butcher,” the “Company,” “we,” “us” and “our” refer to Bill the Butcher, Inc. and its subsidiary.This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements reflect our current views with respect to future events or our financial performance, and involve certain known and unknown risks, uncertainties and other factors, including those identified below, which may cause our actual or future results, levels of activity, performance or achievements to differ materially from those expressed or implied by any forward-looking statements or from historical results. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements include information concerning our possible or assumed future results of operations. Words such as  “may,” “will,” “could,” “would,” “should,” “believe,” “expect,” “plan,” “anticipate,” “intend,” “estimate,” “predict,” “potential” or and variations of these words or similar expressions are intended to identify forward-looking statements.
 
 Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions made at the time, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We have no duty to update or revise any forward-looking statements after the date of this Annual Report on Form 10-K or to conform them to actual results, new information, future events or otherwise.
 
 The following factors, among others, could cause our future results to differ materially from historical results or those anticipated:


•

our inability to obtain additional funding and continue as a going concern;





•

our limited operating history and the significant challenges we face in executing our business plan;





•

the material deficiencies in our internal controls over financial reporting;





•

our ability to increase store revenues and further develop our brand and business model;





•

our dependence on the financial performance of stores located in one geographic area;





•

costs associated with ongoing litigation; and





•

our ability to attract and retain key officers and employees.





These and other risk factors discussed in Part I, Item 1A (“Risk Factors”) of this Form 10-K are among  the important factors of which we are currently aware that could cause actual results, performance or achievements to differ materially from those expressed in our forward-looking statements. We operate in a continually changing business environment, and new risk factors emerge from time to time. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We cannot assure you that projected results or events will be achieved or will occur, respectively.


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PART I





ITEM1.     BUSINESS




Recent Events -
 
 Our August 2012 fiscal year ended well, in that the Company tackled and overcame major financial and legal obstacles that were created from two years of litigation that had drained our resources.  We are now poised for rapid unencumbered growth and we look forward to rebuilding sales volume to former levels, open new stores and launch the e-commerce store.
 
 Our Company was fortunate to meet and hire Finance 500, a registered broker dealer based in Irvine, California in May of 2012.  Our work with Finance 500 and specifically, William Watson III, has proved extremely beneficial to our Company. Milestones accomplished since retaining them has included settlement of all litigation without significant cash outflow, receipt of approximately $430,000 in net proceeds from issuances of contingent notes payable, and restructuring of approximately $900,000 of its unsecured debt by creating a senior secured credit facility.  Notes are payable July 1 and October 1, 2013 and automatically convert to common stock at $.15 per share, once a total of $2,000,000 of subsequent equity or debt financing is secured by the company.  The debt holders share the collateral pari passu with the Senior Credit Facility debt holders and the formerly unsecured creditors.
 
 Business Overview - Seattle-based Bill the Butcher, Inc. is a purveyor of open-pastured USDA organic and USDA/WSDA natural grass-fed beef, pork, chicken and lamb that has been raised without steroids, antibiotics or hormones and has not been fed genetically-modified corn.
 
 We were incorporated under the laws of the State of Nevada on August 23, 2006, under the name Reshoot & Edit. In October 2009, J’Amy Owens acquired a majority of our then outstanding shares of common stock and became the Company’s majority shareholder, sole director and chief executive officer. Ms. Owens acquired control with plans to change the Company’s business through the acquisition of W K Inc., a business she co-founded in 2009 to develop the “Bill the Butcher” retail concept. On March 26, 2010, the Company executed a related party purchase agreement to acquire all of the equity ownership interest of W K Inc., a Washington Company selling U.S. sourced and ethically raised meat in the State of Washington under the name “Bill the Butcher.” On May 24, 2010, we changed our name to “Bill the Butcher, Inc.”  Our common stock trades under the symbol “BILB” .
 
 We specialize in retailing organic and natural grass-fed meat, including pasture raised beef, pork, chicken, lamb, and turkey, and are an innovator in the $200 billion U.S. meat marketplace. We believe we operate the nation’s first publicly-owned chain of neighborhood butcher shops. We currently operate four shops located in Woodinville and Redmond, Washington and the Laurelhurst and Magnolia neighborhoods in Seattle, Washington. Additionally, we have two stores in ready to open condition in the Wallingford neighborhood in Seattle and in and Edmonds, Washington.
 
 The Company sources product from local and regional ranchers and farmers who follow sustainable and organic practices to deliver what we believe is the high­est quality meat that is healthy for con­sumers and has a positive impact on the environment. The Company’s stores provide a unique customer experience by offering traditional butcher services in an artisanal environment, akin to a high-end wine or cheese shop. Stores stock a wide range of U.S.-sourced ethically-raised meat and other specialty gourmet grocery items like salts, spices, sauces and condiments.
 
 Bill the Butcher has generated local brand awareness and buzz by actively attending a wide range of community-oriented events.  Social media plays a big role with over 8,000 followers between both FaceBook and Twitter.  Through the use of “outside the box” marketing initiatives, total marketing spending has remained low relative to traditional retail start-ups.  We have a state-of-the-art inventory tracking and sales system, which creates a transparent and traceable "farm to customer" control over all proteins. We have successfully sold  certain products via the Internet like Heritage Turkeys and holiday roasts for in-store pick up.
 
 Bill the Butcher is led by an experienced retail executive who has successfully developed retail business models from inception to maturity.  J’Amy Owens, our sole officer and director and principal shareholder, was integral in the development, design and launch of the Bill the Butcher brand and shop concept. She is responsible for directing all aspects of strategy, growth, and operations including branding, design, capitalization, finance, real estate and marketing.  Prior to launching Bill the Butcher, Ms. Owens served as a corporate consultant through her firm, The J’Amy Owens Group, and her predecessor consulting firm were responsible for the evolution of over 400 noteworthy consumer businesses and retail models.




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Ethical Responsibility -Bill the Butcher’s mission is to:
 
 ·
Support the return of the sustainable way of raising animals on grass;
 ·
Return freshness, flavor and the health benefits to meat;
 ·
Help support the growth of small local farmers and ranchers; and in the process,
 ·
Improve the health and longevity of the land.
 
 We’re changing the world, one steak at a time.
 
 Industry Background –Over the last 50 years cattle farming has shifted from small-scale local operations to corporate “agri-business” complexes with large-scale, input intensive, mechanized, petroleum-based cattle feedlots that have led to widespread environmental degradation, dangerous increases in pesticide use and the loss of ecosystems.  More than 80% of beef is raised in a feed lot or confinement facility in highly stressful and abusive environments. This “factory farming” is also associated with extremely high uses of hormones, antibiotics and pesticides. Animals in this environ­ment eat a diet intended to quickly fatten them with low cost production as the paramount factor.  To this end, their feed may contain things such as municipal garbage, poultry manure and byproducts, genetically modified corn, and restaurant waste.  Correction of these deficiencies produces dramatic improvements in animal health, and as a result, human health, along with direct positive benefits to the environment and its long-term preservation.
 
 There is a growing awareness and resistance among consumers to such practices.  Films such as Food Inc. and Fast Food Nation and books such as The Omnivore’s Dilemma has greatly helped raise this awareness.  More and more consumers are recognizing the damage being done by the big meat industry to the environment and to their own health.  In response, consumers have started to demand a return to the era of local, organic farming that promotes healthy nutrition and the humane treatment of animals. We believe that Bill the Butcher’s humane and healthy approach has already struck a chord with consumers that wish to reduce their dietary consumption of mass-produced unhealthy foods.
 
 According to the Organic Trade Association (OTA), the $450 million U.S. organic and natural meat industry is growing at more than 10% per annum, and should reach $1 billion by 2015. This trend is due to heightened awareness of the industry’s nutritional benefits and humane breeding practices. All beef sold at Bill the Butcher is hormone and pesticide free. The grass-fed meat is lower in fat and calories and higher in taste, antioxidants, vitamins, and essential fatty acids. Each supplier goes through a vigorous vetting process to ensure compliance with the Company’s standards.
 
 Organic and natural meat is the fastest-growing segment of the $28 billion organic food business, according to the Organic Trade Association. Today, there are roughly 2,000 farmers producing grass-fed beef, up from 50 farmers a decade ago.  Grass-pastured meats are better nutritionally and have a natural, more honest and authentic flavor, which is the most delicious benefit of all.
 
 The health benefits of organic and natural meat are significant.  A study conducted by Clemson University, for example, found that grass-fed beef is lower in total fat, higher in beta-carotene and vitamin E (alpha-tocopherol), higher in the B-vitamins thiamin and ribo­flavin, higher in calcium, magnesium, and potassium, higher in total omega-3s and lower in the saturated fats linked with heart disease.
 
 An increasing number of consumers are also joining the “locavore” movement, the support of food that is raised or grown locally, that aspires to eat all food raised or grown at nearby farms and are willing to pay a premium for meat raised in a socially responsible manner. Consumers are increasingly looking at the point of origin when buying meats, preferring to consume livestock that has been locally-raised and thus has a low carbon footprint. With farms and ranches located within regional proximity to its retail shops, Bill the Butcher is creating one of the shortest food chains. By working directly with local suppliers and generating a highly visible presence at local events, Bill the Butcher could be viewed as a template for locavore-focused food retailing.
 
 Our Stores, Products and Customer Experience -Bill the Butcher sells locally and regionally sourced, ethically-raised natural meat, free range poultry, pork and lamb through a collection of regionally clustered butcher shops that provide carved-to-order meats. The Company also sells specialty items such as marinades, rubs, sauces, charcuterie, dairy prod­ucts, and all other items needed to prepare a healthy and tasty meal without the need to visit a large supermarket.
 
 Store hours are noon to 7:00 PM daily.  The individual butcher shops carve sub primals, dry age, make sausage and grinds and prepare many value added products such as smoked meats, sausage, meat loaf and marinades.  Each Bill the Butcher location features the Company’s signature products including gourmet-to-go dishes, spices, rubs and marinades in this experiential and “culturally cool” butcher shop. The butcher is glorified and featured on an elevated stage, directly behind the meat case, so that large primal cuts of meat are in full view, at the cus­tomer’s eye level, enabling customers to direct the butcher to a custom cut that suits their exact preferences. Our stores have hosted  over 160,000 unique transactions since inception and we have generated over 4.7 million dollars of revenue through our stores.




To help customers better understand where their food comes from, the Company’s state-of-the-art technology system allows it to track and identify every single piece of meat flowing from the farms to the Company’s butcher shops. This system is more specific and more transparent than those installed by the largest premium grocery chains.  Customers can also learn about our farm and ranch part­ners from printed information available in every shop.





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Bill the Butcher’s retail store base is supported by a new facility, which handles all distribution from Lynnwood, Washington. . The new distribution hub has the capability to obtain a wide range of desirable animal breeds, enabling the Company to buy specific breeds, according to sell-through and taste preferences. It is management’s belief that specific breed identification will be a significant part of the consumer strategy going forward.





Bill the Butcher shops have a warm and inviting feel, as stores are designed with barnwood fixtures, found objects and recycled materials.  By offering the finest meat in an authentic grass-roots enviro­ment made up almost entirely of recycled, reused and re­claimed materials, Bill the Butcher has modernized, reinvented and re-introduced the butcher shop. It is the butcher - helpful, opinionated, knowledgeable and passionate about food and its flavor in every store who serves as a brand evangelist, building and telling the Bill the Butcher story and creating a hands-on experience that has been lost in the mass-market. The business is a neighborhood concept, just like the coffee bar, which the Company believes will work in a multitude of regions across the country based on zones where median household incomes are at or above $75,000.





Product Supply -We work with USDA certified suppliers and those that elect to follow organic practices but choose not to become certified. Many of the other “new” butcher shops are selling what is known as “boxed beef” which comes from the industrialized meatpackers. These “new” butchers are not creating a local supply chain nor are they offering meat that is sourced locally.





The Company has made great strides in its support of small farmers and ranchers and has purchased millions from small producers.  We believe that Bill the Butcher has formed a new market, not just organized suppliers.  This new market exists “above” the farmers markets and below the grocery stores.





Bill the Butcher is committed to selling only the finest USDA organic and USDA/WSDA natural grass-fed beef, pork, chicken and lamb.  Our product has not been raised with steroids, antibiotics or hormones and has not been fed genetically-modified corn.  To ensure compliance with our rigorous “farm to customer” standards, we use a three-tier classification structure:





·
Bill the Butcher Natural:  No herbicides, pesticides, antibiotics or steroids.  No genetically modified feed.  Humanely raised and harvested animals.  Pastured and as local as possible.
 ·
Organic: No herbicides, pesticides, antibiotics or steroids.  Fed with organic grass or grain not genetically modified.
 ·
Natural: No herbicides, pesticides, antibiotics or steroids.
 
 We depend on our relationships with farmers.  We sell natural and organic meats from grass-fed animals that have been raised both locally and nearby in Wyoming, Montana and Oregon.  Our Washington meat comes from Carnation, Arlington, Marysville, Mount Vernon, Lopez Island, Anacortes, Duvall, Bow and Spanaway; from farmers and ranchers that follow strict practices that meet our exact specifications.  Based on our relationships established with our suppliers, we believe that the risk of non-delivery on existing purchase orders is remote.  The supply and price of organic meats are subject to volatility depending on supply and demand at the time of purchase.
 
 Business Strategy –Studies have shown that upper income Americans purchase roughly two-thirds of all of their meat to be consumed at home. A highly-prized cut of meat can cost upwards of $40 at a traditional steakhouse, but less than half of that price when bought at a retail outlet and prepared at home.
 
 The Company believes that there is a general dissatisfaction with supermarket meat offered today and that most consumers do not understand the subtle differences in beef quality and how significant the cow's diet is to the health of the cow and the consumer. Bill the Butcher aims to capitalize on this consumer dissatisfaction and lack of awareness by extolling the myriad flavor and health benefits of grass-fed, organic, artisanally raised and butchered meats.
 
 Just as consumers have developed a much more comprehensive language around the consumption of coffee and wine, they are also starting to refer to their meat consumption in new ways.  Beyond the buzzwords of organic and natural, consumers are increasingly aware of the types of animal breeds, preferred cuts and relative marbling and texture preferences.


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Our business and growth strategy is described in two stages.  We are currently well into stage one, which includes opening 20 stores and launching internet commerce.  The plan is to bring stores to optimal sales and profit levels and therefore improve the scalable model.  We believe the successful execution of this stage will generate positive cash flows from operations.  We now have four stores open and have two additional locations ready to open when sufficient funding becomes available. Proceeds from our financing activities are expected to be used to:
 
 ·
Provide additional working capital to increase meat inventories in our stores.
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Open Bill the Butcher shops in Edmonds  Washington and in the Wallingford neighborhood of Seattle, and open additional shops in the greater Seattle area bringing our store count to 20.
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Advertise and market the Bill the Butcher brand.  Our sales have been achieved without significant advertising or marketing expense.  We believe the potential for increasing sales is very strong with an advertising and marketing campaign to let the local community know of the Bill the Butcher shop’s presence and product offerings.
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Improve gross margins by purchasing in greater quantities and increasing inventory turns.  Management believes this can significantly increase gross margins.
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Launch fully functional e commerce site.
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Purchase equipment to prepare and sell large volumes of high margin products such as organic and natural broth as well as organic and natural beef jerky, which management believes can also increase gross margin.
 
 The second stage of our growth plan will require substantial additional financing for a regional rollout.  We anticipate a regional store expansion with 120 to 150 company-owned Bill the Butcher stores west of the Mississippi, with an initial focus during this stage in California and Texas.
 
 Growth Strategy –The first “Bill the Butcher” shop was opened in Woodinville, Washington in August 2009. The Company opened five more Seattle area stores in the Laurelhurst and Madison Valley neighborhoods of Seattle and Redmond, Washington (February, March and April), the Magnolia neighborhood of Seattle (July) and in Bellevue, Washington (September) 2010. We also have two stores under construction in another Seattle neighborhood and nearby cities.  Our butcher shops typically average 1,300 square feet, and have each been opened at an average cost of $85,000.   During the 2012, we closed our Bellevue location due to lack of an occupancy permit because the landlord would not upgrade the power supply . We also closed the Madison Valley stores because the lease was expiring and the lack of parking proved bad for sales.
 
 Our model focuses on development of a regional store base, as is now happening in the Seattle, Washington area.  We believe this model is reproducible in other markets with a similar demographic profile including: Portland, San Francisco, Los Angeles, San Diego, Las Vegas, Phoenix, Dallas, Austin, Denver and other metro regions in the American West.
 
 Traditional butcher shops haven’t been able to expand due to unfavorable economics when dealing with traditional meatpackers. But by operating a network of stores supplied by a central commissary, Bill the Butcher is able to recapture lost margins while offering small, family-run farms and ranches the opportunity to gain local distribution, even if they lack the size to work with traditional large supermarkets.
 
 We believe that our current distribution facility can supply up to 20 stores and internet commerce. We have a state-of-the-art inventory tracking and sales system in order to create the most transparent and traceable "farm to customer" control over all meat.  The commissary model is helpful to maintaining quality control, ensuring that full value is derived from each animal and frequent and timely delivery to stores. Building this network of shops in regional markets also creates significant barriers to entry, especially as deep connections are made with key local farms and ranches.
 
 Bill the Butcher’s store-based revenues are expected to be augmented by a rising e-commerce presence in the future. The Company has already built a considerable online presence, with over 6,000 Facebook fans and friends and Twitter followers and over 530,000 views of our website, www.billthebutcher.com.
 
 Competition -Our primary competitors for meat product sales and related specialty items are supermarkets and other specialty retailers.  We believe our customers choose among organic meat and specialty product retailers primarily on the basis of product quality. The organic consumer market for meats is often impacted by changes in the taste and eating habits of the public, as well as economic and political conditions affecting spending habits.  Our business faces significant competition from established suppliers, most of whom have greater financial and marketing resources than us. However, we believe our growth strategy, detailed above, will result in our business becoming increasingly competitive with these established suppliers.
 
 Patents, Trademarks, Copyrights and Domain Names -We have registered and maintained internet domains including “BilltheButcher.com” and own the trademark on the name, “Bill the Butcher” and tagline: The Only Meat to Eat.
 
 Seasonality and Quarterly Results -Our business is subject to seasonal fluctuations, including fluctuations resulting from holiday seasons.  For these reasons, results for any quarter or interim period to date periods are not necessarily indicative of the results that may be achieved for full fiscal years.
 
 Employees -We employed 16 employees as of August 31, 2012, with 11 in Company-operated retail stores.   We believe our relationship with our employees is good.  None of our employees are covered by collective bargaining agreements.


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Governmental and Environmental Regulation -Our operations are subject to extensive federal, state and local laws and regulations by authorities that oversee food safety standards and processing, packaging, storage, distribution, advertising, labeling and export of our products. Our facilities for processing meats are subject to a variety of federal, state and local laws relating to the protection of the environment, including provisions relating to the discharge of materials into the environment, and to the health and safety of our employees.  In addition, our products are subject to inspection prior to distribution, primarily by the USDA, WSDA and the U.S. Food and Drug Administration.  The Federal Meat Inspection Act requires that meat sold through retail channels be slaughtered or harvested at plants inspected by the USDA Food Safety and Inspection Service.  Claims or enforcement proceedings could be brought against us in the future.  Loss of or failure to obtain necessary USDA/WSDA permits and registrations could delay or prevent us from meeting our current product demand or introducing new products,  and could adversely affect our operating results.  In addition, as a distributor of natural and organic meats, we are subject to increasing governmental scrutiny of and public awareness regarding food safety and the sale, packaging and marketing of natural and organic products, such as the WSDA Organic Foods Program.  Compliance with these laws may impose a significant burden on our operations.  We are also routinely subject to new or modified laws, regulations and accounting standards.  We believe that we are currently in compliance with all material laws and regulations governing our business.


Available Information -We are a reporting company and file annual, quarterly and current reports and other information with the Securities and Exchange Commission. You may read and copy these reports and other information at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549.  Please call the SEC at 1-800-SEC-0330 or e-mail the SEC at publicinfo@sec.gov for more information on the operation of the public reference room. Our SEC filings are also available at the SEC’s website at http://www.sec.gov.





ITEM1A. RISK FACTORS


Risks Related to our Business and Operations
 
 We have a limited operating history and face significant challenges in executing our business plan.We have a limited operating history and face all of the challenges inherent in operating a new business, including limited capital and management resources.
 
 We need to raise additional capital to fund our business and continue as a going concern.Our ability to continue as a going concern is contingent upon our ability to raise additional capital to fund our working capital requirements and execute our operating plan.  Financing alternatives available to us could be highly dilutive to our existing shareholders and may involve significant interest and other costs.  There can be no assurance that any equity or debt financing arrangement will be available to us when needed on acceptable terms, if at all.  In addition, there can be no assurance that any financing alternative would provide us with sufficient funds to meet our capital requirements.  If we are unable to secure additional financing to fund our needs, we could be required to significantly alter our operating plan and curtail our operations.
 
 We have a history of losses and expect to incur losses in the immediate future.We incurred net losses of approximately $4.0 million and $2.9 million during the years ended August 31, 2012 and 2011, respectively, and likely will incur losses in future periods.   We expect to use significant amounts of our cash resources to fund our net losses, working capital and store expansion needs.
 
 If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.We are required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. Our management cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the inherent limitation in all control system, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
 
 Management has determined that, as of August 31, 2012, there were deficiencies in both the design and the effectiveness of our internal controls over financial reporting, including:
 
 ·
Inadequate entity-level controls,
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Deficiencies pertaining to inadequate segregation of duties consistent with control objectives,
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Insufficiently skilled Company personnel and a lack of resources within finance and accounting reporting functions,
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Insufficient oversight of financial significant processes and systems,
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Deficiencies relating to insufficient analysis, documentation and review of the selection and application of generally accepted accounting principles to significant non-routine transactions, and
 ·
Inability to demonstrate through testing that internal control over financial reporting was effective.





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When financial resources become available, we intend to take certain actions intended to remediate the material weaknesses in our internal control over financial reporting, and we anticipate that these actions will improve our internal control over financial reporting in future periods. However, because this remediation process is still in its initial stages, we can give no assurance as to when it will be completed.


We may not be successful in implementing our growth plan, which would have a material adverse impact on our business and financial results.Our business plan contemplates that we will open new Bill the Butcher stores, sustain and improve comparable store sales and margins, and expand into new geographic locations.  Our ability to successfully implement any or all of these initiatives is uncertain. Our growth plans will present operational and competitive challenges, and may strain our management, operational and financial resources. Our inability to successfully achieve or manage our growth, or to successfully implement our business strategy, could have a material adverse effect on our business, results of operations, and financial condition. Even if we successfully implement our growth strategy, we may discover that our growth strategy does not deliver the results that we currently anticipate.
 
 We are dependent on the financial performance of stores located in one geographic area.Our financial performance is dependent on stores located in the Seattle, Washington area. In recent years Washington has been adversely impacted, as has most of the United States, due to the declining economic climate. If the Seattle area continues to experience significant economic pressures, our sales and operating results could be negatively impacted.
 
 Our management team has limited support.J’Amy Owens, our sole officer and director and principal shareholder, performs multiple management functions for us and many key responsibilities of our business have been assigned to a relatively few employees.  In addition, our management team has limited experience operating a multi-store retail business.  The management team needs additional support in operations, finance, and administration, among other areas, in order for us to be successful.   If we are unable to recruit, retain, and motivate skilled managers and other employees to work together effectively to implement our strategies, manage our operations, and accomplish our business objectives, our ability to grow our business and successfully meet operational challenges could be significantly impaired.
 
 We are dependent on our sole officer and director and we may not be able to meet our strategic objectives if she is unavailable to us.J'Amy Owens, our sole officer and director and principal shareholder, is involved in a number of community and business endeavors unrelated to our business. If Ms. Owens focuses her time and attention on these other endeavors without also dedicating the necessary time and efforts to our business, or if Ms. Owens is unavailable to us due to death, disability or any other reason, it could have a significant impact on our efforts to achieve our business goals.
 
 If we are not able to differentiate ourselves and compete effectively against meat purveyors with greater resources and established customer bases, our prospects for future success will be jeopardized. Our competitors include but are not limited to local, regional, and national supermarkets, natural food stores, warehouse membership clubs, small specialty stores, and to some degree, traditional butchers. These businesses compete with us for products, customers, and in some instances store locations.  Some of our largest competitors are expanding aggressively in marketing a range of natural and organic foods, including meat.  We expect competition to intensify in the future as the market for ethically and organically raised meat products develops and matures.
 
 Most of these potential competitors have longer operating histories, larger customer bases, better brand recognition, and significantly greater financial, marketing, technical, and other resources than us.  Some of our competitors may be able to devote significant resources to marketing and promotional campaigns, adopt more aggressive pricing policies, and devote substantially more resources to business development than us.   As we open new stores or enter new geographic locations, competition may intensify, which may result in reduced operating margins, an inability to establish a local market, and diminished value in our brand.
 
 Expansion into new geographic markets presents increased risks.Our business plan contemplates expansion into new geographic areas in the United States. Our future results depend on various factors, including successful selection and expansion into these new geographic markets and market acceptance of our products and retail experience. Those markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our existing market. As a result, stores in new geographic locations may be less successful than stores in our existing market. Consumers in a new market likely will not be familiar with the Bill the Butcher brand, and we will need to build brand awareness in that market through greater investments in advertising and promotional activity than we originally planned.  Stores opened in new markets may also have lower average store revenue than stores opened in existing markets, and may have higher construction, occupancy or operating costs than stores in existing markets. Furthermore, we may have difficulty in finding reliable suppliers or distributors or ones that can provide us, either initially or over time, with adequate supplies of meat and other products that satisfy our quality standards.


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Revenue at stores opened in new markets may take longer to ramp up and reach expected revenue levels, and may never do so. As with the experience of other retail concepts that have tried to expand nationally, we may find that the Bill the Butcher concept has limited or no appeal to customers in new markets or we may experience a decline in the popularity of the Bill the Butcher experience. Newly opened stores may not succeed, future markets and stores may not be successful and, even if we are successful, our average store revenue may not increase and may even decline.


We occupy our stores under leases, and we may be unable to renew leases at the end of the lease periods or obtain new leases on acceptable terms.All of our stores are located on leased premises or locations otherwise controlled by third parties. Most of our leases are non-cancelable and typically have terms of three to five years, with renewal options for additional three to five year terms.  We could be required to continue lease payments for a store that we would otherwise wish to terminate. We also may not have the right or option to renew some of our existing leases beyond renewal terms. We face intense competition from other specialty retailers for suitable sites for new stores, and if we are unable to renew an existing lease, we would be obligated either to find a new location or close the store. If we negotiate a new lease or lease extension at an existing location, the rent may increase substantially. In either case, our existing operations and operating results could be adversely affected. We intend to lease other premises in connection with the planned expansion of our operations, and we believe leases that we enter into in the future likely will also be non-cancelable. Additionally, because we compete with other retailers for store sites, we may not be able to obtain new leases or renew existing leases on acceptable terms. These factors could adversely affect our ability to execute our growth strategy.
 
 Economic conditions that adversely affect consumer confidence and discretionary spending could substantially decrease our revenues and may adversely impact our ability to implement our business strategy.Our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income.  Current and future economic conditions affecting disposable consumer income such as employment levels, business conditions, changes in housing market conditions, the availability of credit, interest rates, tax rates, fuel and energy costs, the impact of natural disasters or acts of terrorism, and other matters could reduce consumer spending or cause consumers to shift their spending to lower-priced products and competitors.
 
 Food safety concerns and instances of food-borne illnesses could harm our customers, result in negative publicity and cause the temporary closure of some stores and, in some cases, could adversely affect the price and availability of meat and other products, any of which could harm our brand reputation, result in a decline in revenue or an increase in costs.We consider food safety a top priority and seek to ensure that our customers enjoy high-quality, safe, and wholesome products.  However, we cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, our reliance on third-party food suppliers increases the risk that food-borne illness incidents could occur outside of our control and at multiple locations. Instances of food-borne illnesses, whether real or perceived, and whether at our stores or those of our competitors, could harm customers and otherwise result in negative publicity about us or the products we serve, which could adversely affect revenue. If there is an incident involving our stores serving contaminated products, our customers may be harmed, our revenue may decrease and our brand name may be impaired. If our customers become ill from food-borne illnesses, we could be forced to temporarily close one or more stores.
 
 Food safety concerns and instances of food-borne illnesses and injuries caused by food contamination have in the past, and could in the future, adversely affect the price and availability of affected products and cause customers to shift their preferences, particularly if we choose to pass any higher costs along to consumers. As a result, our costs may increase and our revenue may decline.  A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a change in our product mix or a temporary closure of any of our stores, could materially harm our business.
 
 Negative publicity surrounding the consumption of meat generally or shifts in consumer tastes could reduce our sales and make our brand less valuable.Negative publicity resulting from poor food quality, food-related illness, and other health concerns, whether related to our stores or to the beef, pork, or poultry industries generally, could diminish the appeal of our products and reduce demand.  In addition, shifts in consumer preferences away from meat and meat products, whether because of dietary or other health concerns or otherwise, would adversely affect our sales and operations.
 
 Changes in the availability of quality natural and organic products could adversely affect our business.We purchase ethically-raised and organic meats from a limited number of third-party suppliers.  There is no assurance that locally sourced and ethically raised meat, poultry and wild game will be available to meet our future needs.  We do not have any material or long-term contracts with any of our suppliers.  If these suppliers are unable to provide us with products that meet our quality standards, or if one or more were to terminate its arrangements with us, we could be unable to adequately provision our stores or satisfy customer demand, which would harm our reputation and brand.   If we had to replace or supplement our current suppliers, qualifying alternative suppliers on acceptable terms would be costly and time-consuming.  The loss of several of our suppliers could interrupt our supply chain and affect our ability to deliver products to our customers, which would have a material adverse effect on our net sales and profitability.  In addition, our reliance on organic meat suppliers involves certain risks, including a lack of direct control over production capacity and delivery schedules, quality assurance, and production costs.  Interruptions in several suppliers operations could result in shipment delays to us, lost sales, and damage to our reputation, all of which would adversely affect our business.
  
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Moreover, if our competitors were to significantly increase their locally-sourced and ethically-raised product offerings or if new laws were to require alternative certification of certain products, the supply of these products to us could be constrained.   Any significant disruption in the supply of locally-sourced and ethically-raised meat, poultry and wild game could have a material impact on our overall sales and cost of goods sold.
 
 We rely on independent certification for a number of our food products, the loss of which would diminish our market position and harm our business.We rely on independent certification, such as certifications of our products as “organic” or “natural” to differentiate our products from mass-market, commercially-produced products.  The loss of any independent certifications could adversely affect our market position as a natural and organic food company, which could harm our business.
 
 Perishable foods product losses could materially affect our results.Because nearly all of the products we sell are perishable, we may incur significant product inventory losses in the event of extended power outages, natural disasters or other catastrophic occurrences.
 
 Increases in the price of raw materials used to produce our products could materially increase our costs and adversely affect our operating results.Prices for organic food are dependent on the market price for the raw materials used to produce them.  These raw materials are subject to price volatility caused by weather, supply conditions, power outages, government regulations, economic climate, and other unpredictable factors.  Any raw material price increase would increase our cost of sales and decrease our profitability unless we were able to pass along higher prices to our customers.  In addition, if one or more of our competitors is able to reduce its production costs by taking advantage of any reductions in raw material prices or favorable sourcing agreements, we may face pricing pressures and may be forced to reduce our prices or incur a decline in net sales, either of which could have a material and adverse effect on our business, results of operations and financial condition.
 
 A significant interruption in the operation of our central commissary would disrupt our operations.We have only one central commissary facility.  A significant interruption in the operation of our facility due to a natural disaster, such as an earthquake, power outages or other causes, would significantly impair our ability to operate our business on a day-to-day basis and would adversely affect our operating results.
 
 Our inability or failure to protect our intellectual property would have a negative impact on our brand and operating results.Our trademarks, service marks, copyrights, trade dress rights, trade secrets, domain names and other intellectual property are valuable assets that are critical to our success. The unauthorized reproduction or other misappropriation of our intellectual property could diminish the value of our brand and cause a decline in our sales.  Protection of our intellectual property and maintenance of distinct branding are particularly important as they distinguish our products from those of our competitors who may sell similar products. We may not be able to adequately protect our intellectual property.  In addition, the costs of defending our intellectual property may adversely affect our operating results.
 
 Litigation and publicity concerning food quality, health and other issues can result in liabilities, increased expenses, and distraction of management and can also cause customers to avoid our products, which could adversely affect our results of operations, business and financial condition.Food service businesses can be adversely affected by litigation and complaints from customers or government authorities resulting from food quality, allergens, illness, injury or other health concerns or operating issues stemming from one retail location or a limited number of retail locations. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from buying our products.
 
 We could be subject to complaints or lawsuits alleging that we are responsible for some illness or injury a customer suffered at or after a visit to our stores, or that we have problems with food quality or operations. Regardless of whether any claims against us are valid, or whether we are ultimately held liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage, or for which we are not covered by insurance, could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation or prospects, which in turn could adversely affect our results.
 
 Governmental regulations could impose material costs.  Our operations are subject to extensive federal, state and local laws and regulations by authorities that oversee food safety standards and processing, packaging, storage, distribution, advertising, labeling and export of our products. Our facilities for processing meats are subject to a variety of federal, state and local laws relating to the protection of the environment, including provisions relating to the discharge of materials into the environment, and to the health and safety of our employees.  In addition, our products are subject to inspection prior to distribution, primarily by the USDA, WSDA and the U.S. Food and Drug Administration.  The Federal Meat Inspection Act requires that meat sold through retail channels be slaughtered or harvested at plants inspected by the USDA Food Safety and Inspection Service.  Claims or enforcement proceedings could be brought against us in the future.  Loss of or failure to obtain necessary USDA/WSDA permits and registrations could delay or prevent us from meeting our current product demand or introducing new products,  and could adversely affect our operating results.  In addition, as a distributor of natural and organic meats, we are subject to increasing governmental scrutiny of and public awareness regarding food safety and the sale, packaging and marketing of natural and organic products, such as the WSDA Organic Foods Program.  Compliance with these laws may impose a significant burden on our operations.  We are also routinely subject to new or modified laws, regulations and accounting standards.  If we are found to be out of compliance with applicable laws and regulations in these other areas, we could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have an adverse effect on our financial results.




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If our products become contaminated, we may be subject to product liability claims and product recalls.  Our products may be subject to contamination by disease-producing organisms or pathogens, such as  Salmonella and generic E. coli.  These organisms and pathogens are found generally in the environment; therefore, there is a risk that one or more, as a result of food processing, could be present in our products.  These pathogens can also be introduced as a result of improper handling by our customers or third parties after we have sold the products.  We seek to control these risks through careful processing of our products, but we cannot entirely eliminate them.  We have no control over handling of our products once they are sold.  Nevertheless, contamination that results from improper handling by customers or third parties may be blamed on us.  Any publicity regarding contamination or resulting illness or death could adversely affect us even if we did not cause the contamination and could have a material adverse effect on our business, reputation and future prospects.  We could be required to recall our products if they are contaminated or damaged and product liability claims could be asserted against us.
 
 Outbreaks of livestock disease can adversely impact our ability to conduct our operations and demand for our products. Demand for our products can be adversely impacted by outbreaks of livestock disease, which can have a significant impact on our financial results.  Efforts are taken to control disease risks by adherence to good production practices and extensive precautionary measures designated to ensure the health of the livestock we purchase from our suppliers.  However, outbreaks of disease and other events, which may be beyond our control could significantly affect demand for our products, consumer perceptions of certain products, the availability of livestock for purchase by us and our ability to conduct our operations.  Furthermore, any outbreak of disease could result in governmental restrictions on the purchase and sale of our products to or from our suppliers, facilities or customers.  This could also result in negative publicity that may have an adverse effect on our ability to market our products successfully and on our financial results.
 
 Risks Related to our Capital Stock
 
 There is a very limited trading market for our stock.Although our Common Stock is quoted on the Over-The-Counter Bulletin Board (the “OTCBB”), there is a very limited public market for our Common Stock. There has been limited trading activity in our stock, and when it has traded, the price has fluctuated widely.  We consider our Common Stock to be “thinly traded” and any last reported sale prices may not be a true market-based valuation of the Common Stock.  Shareholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our Common Stock. We cannot offer any assurance that an active trading market for our Common Stock will develop or how liquid that market may become.
 
 Our stock price is volatile.The closing price per share of our Common Stock on the OTCBB fluctuated from a high of $0.50 per share to a low of $0.06 per share during the fiscal year ended August 31, 2012.  Subsequent to August 31 through December 11, 2012, the closing price per shares fluctuated from a high of $0.11 to a low of $0.02.  The market price of our Common Stock could be subject to significant fluctuation in response to various market factors and events. These market factors and events include variations in our sales and earnings results and failure to meet market expectations; publicity regarding us, our competitors, or the organic products industry generally; new statutes or regulations or changes in the interpretation of existing statutes or regulations affecting the organic products industry specifically; and sales of substantial amounts of Common Stock in the public market or the perception that such sales could occur and other factors.





Because we do not intend to pay any cash dividends on our Common Stock, our shareholders will not be able to receive a return on their shares unless they sell them.We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them. There is no assurance that shareholders will be able to sell shares when desired.
 
 Future issuances of common and preferred stock will be dilutive and could depress our stock value.The future issuance of capital stock may result in substantial dilution in the percentage of our Common Stock held by our then existing shareholders.  We may value any Common Stock issued in the future on an arbitrary basis.  The issuance of Common Stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our Common Stock.


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Penny stock regulations may adversely affect our share price and ability to resell our securities in the market.Penny Stock Regulations and broker-dealer practices in connection with transactions in “Penny Stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 per share. 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 that provides information about penny stocks and the risk associated with the penny stock market. The broker-dealer must also 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.  In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer must make a 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 a stock that is subject to the penny stock rules.  Our stock is a penny stock and has had a trading price of less than $5.00 per share and is not listed on any stock exchange (although it is traded on the OTCBB).  Therefore, investors may find it more difficult to purchase and/or sell their securities based on these limitations and regulations.
 
 We may issue shares of preferred stock in the future that may adversely impact your rights as holders of our Common Stock.Our articles of incorporation authorize us to issue up to 5,000,000 shares of preferred stock, including two million shares of preferred stock that would be entitled to ten votes per share, and two million shares of preferred stock that would be entitled to two votes per share.  Our board of directors will have the authority to fix and determine the relative economic rights and preferences of preferred shares, as well as the authority to issue such shares, without further shareholder approval.  As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our Common Stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the Common Stock.  To the extent that we do issue such additional shares of preferred stock, your rights as holders of Common Stock could be impaired thereby, including, without limitation, dilution of your ownership interest in us.  In addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult, which may not be in your interest as holders of Common Stock.
 
 Our principal shareholder has significant influence over matters subject to shareholder vote and may support corporate actions that conflict with other shareholders’ interests.As of August 31, 2012, Ms. J’Amy Owens, our sole full-time officer and sole director and principal shareholder, owns approximately 29% of our outstanding Common Stock, with the proxy to vote an additional 8%.  Ms. Owens’s shareholdings give her the ability to control the election of our directors and other matters brought before the shareholders for a vote. The voting power held by Ms. Owens could prevent or significantly delay another company from acquiring or merging with us, even if the acquisition or merger was in the best interests of our shareholders.
 
 There is a risk of market fraud on the OTCBB.OTCBB securities are frequent targets of fraud or market manipulation. Not only because of their generally low price, but also because the OTCBB reporting requirements for these securities are less stringent than for listed or NASDAQ traded securities, and no exchange requirements are imposed. Dealers may dominate the market and set prices that are not based on competitive forces. Individuals or groups may create fraudulent markets and control the sudden, sharp increase of price and trading volume and the equally sudden collapse of the market price for shares of our Common Stock.





ITEM1B.UNRESOLVED STAFF COMMENTS





None.





ITEM2.    PROPERTIES.





We believe that our facilities are sufficient to support our current operating needs.  As of August 31, 2012, we operated four butcher shops, and lease two shops not yet open, all in the greater Seattle, Washington area.  The size of our shops varies from just under 800 square feet to just over 2,000 square feet, with an average size of approximately 1,300 square feet.  All of our facilities are leased from third parties.  All of our leases provide for rent at fixed base amounts, some of which escalate during the lease term.  Lease terms vary from one to five years. We have options to renew most of our leases with renewal periods ranging from 3 to 7 years. We do not own any real property. We believe that our facilities are sufficient to support our current operating needs.
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ITEM3. LEGAL PROCEEDINGS


In October 2010, a former employee commenced a lawsuit in the Superior Court of the State of Washington against the Company, J’Amy Owens, its sole officer and director (together the with the Company the “BtB Parties), and certain advisors to the Company (“Other Parties”).  The complaint alleges that the Company breached its employment agreement with the plaintiff and that the former employee was wrongfully discharged in violation of public policy.  The former employee sought damages in an undefined amount, injunctive relief, and attorneys’ fees.  Additionally, the plaintiff also asserted a claim against our sole officer and director, personally, for breach of a stock purchase agreement.  On July 17, 2012, the Company, Ms. Owens and the former employee entered into a settlement agreement and general release.  As part of the settlement, the BtB Parties provided a declaration with respect to certain matters pertaining to the former employee’s lawsuit with the Other Parties, and all claims, demands, expenses, attorney fees, causes of action or suits between and among the Company, Ms. Owens and the former employee were released and fully settled.
 
 In June 2011, an action was commenced by the former owner and co-founder of  the company we acquired in 2010, in the Superior Court of the State of Washington, County of King, against the BtB Parties and the Other Parties. The plaintiff was seeking damages or the rescission of a Related Party Agreement and a Stock Purchase Agreement. In June 2012, the Court awarded the plaintiff 6,270,000 shares of our common stock, which were issued in June 2012.  On August 3, 2012, the Company, Ms. Owens and the plaintiff entered into a settlement agreement and general release pursuant to which, among other things, all claims, demands, expenses, attorney fees, causes of action or suits between and among the Company, Ms. Owens and the plaintiff were released, the plaintiff retained all shares previously issued without restrictions on the sale and transfer of said stock except as provided for by applicable Securities Laws, and except under certain circumstances, and we issued to the plaintiff a $130,000 non-interest bearing note payable due July 1, 2013.  The note payable is collateralized by a pledge of interests in all of the Company’s assets on a pari passu basis with holders of other collateralized notes payable, and payments on the note are required in the amount of 6.5% of proceeds received by the Company from securities offerings subsequent to the date of the settlement agreement, which proceeds are to be paid at finance closings.
 
 In July 2012, a lawsuit was filed against the Company and Ms. Owens by the “Other Parties” described in Note 2 – Related Parties and Settlement of Litigation claiming indemnification with respect to litigation brought by the former employee against the Other Parties, recovery of damages in an unspecified amount for alleged breach of contract, and recovery of attorney’s fees.  As disclosed in Note 9 Subsequent Events, the Company and Other Parties settled this matter and the litigation was withdrawn.
 
 We are currently not a party to any material legal proceedings.
 
 ITEM4.     MINE SAFETY DISCLOSURE
 
 Not applicable.





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PART II





ITEM5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Our common stock is traded under the symbol “BILB” on the OTC Bulletin Board.  The following table represents the range of the high and the low bid prices, as quoted on the OTC Bulletin Board, by fiscal quarter.  The following represent prices between dealers, and may not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.
 
 three months ended

low


highAugust 31, 2012

$
0.06


$
0.19May 31, 2012


0.06



0.25February 29, 2012


0.13



0.50November 30, 2011


0.20



0.43August 31, 2011


0.33



0.80May 31, 2011


0.33



0.85February 29, 2011


0.80



1.63November 30, 2010


1.35



2.16
 
 As of August 31, 2012, we had 91 stockholders of record.
 
 Dividends -We have never declared or paid cash dividends to our stockholders. We currently intend to retain all available funds and any future earnings for use in the operation of our business and we do not anticipate declaring or paying cash dividends for the foreseeable future.
 
 Securities Authorized for Issuance under Equity Compensation Plans –None.
 
 Repurchases of Equity Securities –None.
 
 Recent Sales of Unregistered Securities – In July 2012, we issued 6,270,000 shares of our common stock to an accredited investor pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.





ITEM 6.     SELECTED FINANCIAL DATA





Not applicable.





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ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS




This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our other Securities and Exchange Commission filings. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Unless the context otherwise requires, references in this report to “we,” “us,” “Bill the Butcher,” or the “Company” refer to Bill the Butcher, Inc. and its subsidiaries.
 
 The following is intended to provide information necessary to understand our consolidated financial statements and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide information with respect to significant trends and material changes in our financial position and operating results of our business during the years ended August 31, 2012 and 2011.  The following should be read in conjunction with our consolidated financial statements and accompanying notes thereto appearing in this Annual Report on Form 10-K.
 
 Overview- Founded in 2009, Bill the Butcher is a sustainable food company with a mission to support small farmers and ranchers that sell organic and natural grass-fed meat, (including pasture-raised beef, pork, chicken, lamb, and turkey) with complementary and thematic sundry food items via corporate owned neighborhood butcher shops.  We purchase meat that does not contain hormones, antibiotics, steroids or genetically modified inputs, which differentiates us from grocery stores. Our operations are in the greater Seattle, Washington area.  Our first store opened in 2009 and five additional stores opened throughout 2010 in other Seattle neighborhoods and cities in the greater Seattle area.  We have lease agreements for three additional stores.  At August 31, 2012, we operated four stores in the greater Seattle area.  We have entered into leases for three additional stores, two of which are fully constructed and awaiting opening. We have one operating segment, butcher shops selling organic and natural meat.  At the end of its lease in August, 2012, we closed our commissary that provided limited processing and distribution services for our retail butcher shops.
 
 Recent Events -Key milestones since June 1, 2012 include:
 
 Settled Barrett Lawsuit in August of 2012, without incurring any settlement costs to the company or to the CEO.
 
 Settled Von Schneidau lawsuit by issuing 6,270,000 shares of founder stock and the sum of $130,000 to be paid from a future stock or debt offering proceeds to be concluded by June 30, 2012.
 
 Settled the Montage Capital lawsuit by issuing the sum of 2,500,000 shares of the company’s common stock.
 
 The company has entered into a settlement agreement with High Capital Funding whereby they have agreed to accept a secured convertible debt instrument that matures on October 1, 2013, that automatically converts to common at a price of $.15 per share once the shares price exceeds $.45 per share for 5 days, and the
 receipt of 500,000 shares of the company’s common stock.
 
 On July 7, 2012 the company closed on a $500,000 senior credit facility provided by seven individuals.  The notes bear interest at the rate of 12% per year, mature on June 30, 2013, and automatically convert to common stock at the price of $.15 per share upon the company completing $2,000,000 of either debt or equity capitalization.
 
 The company also restructured $910,000 of its unsecured debt by creating a senior secured credit facility.  Other than the High Capital portion, all other creditor’s notes will mature on June 30, 2013 and automatically convert to common stock at $.15 per share, once a total of $2,000,000 of equity or debt financing is secured by the company.  The debt holders share the collateral pari pasu with the Senior Credit Facility debt holders.
 
 The company restructured $301,000 of debt with existing vendors under the same terms and conditions of the senior credit facility and the restructured unsecured debt holders.  The debt matures on June 30, 2013 and automatically converts to common stock at $.15 per share, once a total of $2,000,000 of subsequent equity or debt financing is secured by the company.  The debt holders share the collateral pari pasu with the Senior Credit Facility debt holders and the formerly unsecured creditors.
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 The Company consolidated our commissary operations and relocated our distribution functions to Lynnwood, Washington, effectively saving approximately $160,000 annually. This same move prompted the relocation our HQ and offices.
 
 The Company also 2 new shops in the greater Seattle neighborhoods of Wallingford and Edmonds and expect to open them in January, 2013.  We plan on opening 3 to 7 new stores in 2013 and launch internet commerce. Historical sales figures are significant and operating costs are extremely favorable to fuel profitable growth.
 
 We currently enjoy over 6,000 followers and friends between Facebook and Twitter and continue to leverage social media and have had over 500,000 hits to our web site and 170,000 unique transactions through our registers. The Company just passed the $4.7 million mark in total protein sold to date and has raised over $4 million in capital since inception.
 
 Going Concern and Capital Resources -As of August 31, 2012, we had checks issued in excess of bank deposits  of $47,000 and an accumulated deficit of $8.2 million.  Our net loss was $3.9 million for the year ended August 31, 2012 and $2.9 million for the year ended August 31, 2011, and we expect to incur losses in the near future. Our operating activities used cash of approximately $1.0 million and $1.5 million during the years ended August 31, 2012 and 2011, respectively, and our working capital deficit (excess of current liabilities over current assets) was approximately $3.5 million as of August 31, 2012. The report of our independent registered public accounting firm on our August 31, 2012 consolidated financial statements included in our Form 10-K includes a comment noting that these and other factors raise substantial doubt regarding our ability to continue as a going concern.
 
 We have prepared our consolidated financial statements on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business.  We have funded our losses primarily through sales of common stock in private placements and short-term borrowings.  We require additional capital to further develop our business, execute our business strategy and to satisfy our near-term working capital requirements.  Our operating expenses will also consume a material amount of our cash resources.  We intend to raise capital from equity and debt financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be obtained in sufficient amounts on a timely basis or on terms favorable to us necessary to meet our needs. In the event that we cannot obtain additional funds on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment.  The accompanying consolidated 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 may result from the outcome of this uncertainty.
 
 Results of Operations – Following is a summary of our operating results and other information (dollars in thousands):
  Year ended August 31,2012


2011Sales

$
1,043


$
2,207Cost of goods sold


831



1,411Gross profit


212



796Direct store expenses


933



1,364General and administrative expenses


1,693



1,976Settlement expense


766



-Loss  from operations


(3,180
)


(2,544
)Interest expense


773



390Net loss

$
(3,953
)

$
(2,934
)% of salesGross profit


20
%


36
%Direct store expenses


89
%


62
%
  
 Year ended August 31, 2012
 
 Sales for the year ended August 31, 2012 were $1.0 million as compared to $2.2 million the prior fiscal year.  We had six butcher shops open all of 2011 and five shops open since February 2012, four since July 2012.  In addition to decreases in sales as a result of having fewer butcher shops open, sales have also significantly decreased due to our stores being under stocked as a result of not having sufficient operating capital and the burden of litigation .  Now that the lawsuits are settled, we look forward to rebuilding sales volume to former levels.  It is important to note that in 2010, the Company did $1.4 million in gross sales and in 2011, nearly doubled that sales volume to $2.2 million. Management believes that growth will result due to a solid base of customers, with over 170,000 unique transactions, and an active daily social media following of over 8,000 fans and followers and an average 4.5 star rating on social media sites such as Yelp. Management believes that the product the Company offers is in high demand.
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  Cost of goods sold includes the cost of meat and nonperishable products sold and commissary costs.  Cost of goods sold was $831,000 during the year ended August 31, 2012, resulting in a gross profit of $211,000, or approximately 20% of sales.  Cost of goods sold was $1.4 million during the year ended August 31, 2011, resulting in a gross profit of $796,000, or 36% of sales.  Gross profit decreased due to decreased sales.  Cost of goods sold as a percent of sales has increased due to commissary costs included in cost of goods sold representing a larger percentage, while costs and margins on sales of perishable goods remain relatively stable. In August 2012, we relocated our commissary function to Lynnwood, Washington and expect to significantly lower the annual cost of operations by up to $160,000.
 
 Direct store expenses consist of store salaries and related employee costs, rent and other occupancy costs, supplies, depreciation, and other store-specific costs. Direct store expenses were $933,000 during the year ended August 31, 2012, or 90% of sales, compared to $1.4 million, or 62% of sales, during the prior fiscal year.   Our direct store expenses decreased due to store closures and reductions in workforce required by limited working capital, and increased as a percent of sales due to decreased sales.
 
 General and administrative expenses, which include compensation and related costs not included in direct store expenses, legal, advertising and marketing, accounting, facilities and other office related costs, were $1.7 million during the year ended August 31, 2012, as compared to $2.0 million during the prior fiscal year.  During the year ended August 31, 2012, we recorded expenses paid through issuances of our common stock to employees and consultants of approximately $60,000.  During the year ended August 31, 2011, we recorded expenses paid through issuances of our common stock to consultants of approximately $468,000.  We expect stock-based expenses and general and administrative costs, including costs associated with being a public reporting company, to continue to be significant in the future and may increase or decrease from quarter to quarter.
 
 Interest expense during the year ended August 31, 2012 was $773,000 comprised of interest on note payable borrowings and advances, including amortization of debt issue costs and debt discount of $54,000, and $343,000 of non-cash stock-based expenses for common stock issued to note holders in connection with debt forbearance.   Interest expense during the year ended August 31, 2011 was $390,000 and represents interest on note payable borrowings, including $337,000 of amortization of debt issue costs and debt discount.
 
 Our net loss and basic and diluted loss per common share for the year ended August 31, 2011 was $3.9 million and $(0.11) per share, respectively.  Our net loss and basic and diluted loss per common share for the year ended August 31, 2011 was $2.9 million and $(0.12) per share, respectively.
 Year ended August 31, 2011
 
 Sales for the year ended August 31, 2011 were $2.2 million as compared to $1.4 million comparative prior year.  We had six butcher shops open at August 31, 2011 and five open at August 31, 2010.  Increases in sales in fiscal 2011 as compared to fiscal 2010 were due to the increased number of stores open during the respective periods, especially during the first half of fiscal 2010, during which there was an average of less than 2 stores open.
 
 Cost of goods sold includes the cost of meat and nonperishable products sold and commissary costs and increased year over year due to our increase in sales attributable to our opening of additional stores and the expansion of sales in our existing stores.  Cost of goods sold was $1.4 million during the year ended August 31, 2011, resulting in a gross profit of $796,000, or approximately 36% of sales.  Cost of goods sold was $1.0 million during the year ended August 31, 2010, resulting in a gross profit of $334,000, or 24% of sales.  The increase in gross profit as percentage of sales is primarily due to our ability to offset the costs of goods sold as our sales volume increases.
 
 Direct store expenses consist of store salaries and related costs for employees, rent and other occupancy costs, supplies, depreciation, and other store-specific costs. Direct store expenses were $1.4 million during the year ended August 31, 2011, or 62% of sales, compared to $663,000, or 48% of sales, during the comparative prior year.   Our direct store expenses increased due to having more butcher shops operating during the current fiscal year.
 
 General and administrative expenses include compensation and related costs not included in direct store expenses, legal, audit and accounting, advertising and marketing expenses, and facilities and other office related costs.  General and administrative expenses were $2.0 million during the year ended August 31, 2011, compared to $857,000 during the prior fiscal year.  Investor and public relations expenses, which are included in general and administrative expenses during the year ended August 31, 2011 were $682,000, of which $468,000 was non-cash stock-based compensation expense relating to stock options granted and common stock issued and issuable to service providers, and these costs may continue to  be significant in the future.  Investor and public relations expenses during the year ended August 31, 2010 were $127,000, of which $92,000 was non-cash stock-based compensation expense relating to stock options granted and common stock issued and issuable to service providers. We expect general and administrative costs, including compensation for non-store personnel and other costs associated with being a public reporting company to continue to be significant in the future.
 
 
 16
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  Interest expense during the year ended August 31, 2011 was $390,000 and represents interest on note payable borrowings, including amortization of debt issue costs and debt discount, which approximated $337,000 during the year. Interest expense was not significant during the year ended August 31, 2010.
 
 Cash Flows -Following is a summary of cash flow information for years ended August 31 (dollars in thousands):
  Year ended August 31,2012


2011Net cash used by operating activities

$
(1,018
)

$
(1,515
)Net cash used by investing activities


-



(28
)Net cash provided by financing activities


928



1,537Net decrease  in cash


(90
)


(6
)Cash at beginning of year


90



96Cash at end of period

$
-


$
90
  Operating activities used cash of approximately $1.0 million during the year ended August 31, 2012 as compared to $1.5 million during the comparative prior year. Cash used in operating activities relates primarily to funding our net losses.  We expect operating activities to continue to use cash in the near future.
 
 Our investing activities used cash for purchases of property and equipment of $28,000 during the year ended August 31, 2011.  We had no purchases of property and equipment during the year August 31, 2012.   Uses of cash for investing activities are expected to increase as we open new as cash from financing activities becomes available.
 
 Our financing activities provided cash of approximately $928,000 during the year ended August 31, 2012, as compared to $1.5 million during the year ended August 31, 2011.   During the year ended August 31, 2012, proceeds from sales of our common stock provided $200,000, proceeds from notes payable provided $525,000, and advances on note payable borrowings provided $215,000. During the year ended August 31, 2011, sales of our common stock provided $640,000, and convertible notes payable and bridge note borrowings of $1.1 million.  We repaid $100,000 of notes payable in February 2011, and incurred approximately $94,000 of debt issue costs during the fiscal year.  Financing activities are expected to increase as we raise capital from equity financing to fund future operations and to provide additional working capital.
 Critical Accounting Policies and Estimates-The preparation of financial statements included in this Annual Report on Form 10-K requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  The more significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the valuation and recovery of inventory, recovery of long-lived assets, valuation of equity related instruments and valuation allowance for deferred income tax assets.  At this early stage of our business and operations we have not yet been involved in many transactions having significant accounting complexity or reporting alternatives.  Our accounting policies are described in the notes to consolidated financial statements included in this Annual Report on Form 10-K, and include disclosures regarding recent accounting pronouncements.  At this early stage of our business and operations we have not yet been involved in many transactions having significant accounting complexity or reporting alternatives.
 
 Off-Balance Sheet Arrangements -As of August 31, 2012, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.





17
 Table of Contents




ITEM8.  FINANCIAL STATEMENTS




Report of Independent Register Public Accounting FirmFinancial Statements and Supplementary DataConsolidated Balance Sheets at August 31, 2012 and 2011Consolidated Statements of Operations for the years ended August 31, 2012 and 2011Consolidated Statement of Stockholders’ Deficit for the years ended August 31, 2012 and 2011Consolidated Statements of Cash Flows for the years ended August 31, 2012 and 2011Notes to Consolidated Financial Statements


18
 Table of Contents




REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the Board of Directors and Shareholders
 Bill the Butcher, Inc.
 Seattle, Washington
 
 We have audited the accompanying consolidated balance sheets of Bill the Butcher, Inc. ("the Company") as of August 31, 2012 and 2011, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bill the Butcher, Inc. as of August 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
 
 The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses from operations since inception, and has a working capital deficit.  These conditions raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans regarding these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 /S/ PETERSON SULLIVAN LLP
 
 Seattle, Washington
 December 14, 2012


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 Table of Contents
 
 Billthe Butcher, Inc. and subsidiary
 Consolidated Balance Sheets
 (in thousands, except share information)
 August 31,2012


2011Current assetsCash and cash equivalents

$
-


$
90Merchandise inventories


27



70Prepaid expenses and other current assets


1



22Total current assets


28



182Property and equipment, net


140



334Deferred debt issue costs, net


56



24Deposits and other assets


56



66Total assets

$
280


$
606Current liabilitiesChecks issued in excess of bank balance

$
45


$
-Accounts payable


1,048



639Accrued liabilities and other current liabilities


396



226Accrued interest on notes payable and advances


150



42Notes payable


300



300Convertible notes payable, net of discount of $73 and $53


1,115



397Advances on notes payable


465



250Total current liabilities


3,519



1,854Other liabilities


17



37Total liabilities


3,536



1,891Commitments and contingenciesStockholders' deficitPreferred stock, $0.001 par value, 5,000,000 shares authorized;

none issued or outstandingCommon stock, $0.001 par value, 70,000,000 shares authorized;

41,570,404 and 25,206,654 shares issued and outstanding


41



25Shares issuable: no shares and 352,000 shares


-



137Common stock, 200,000 shares, receivable from founder


(100
)


(100
)Additional paid-in capital


5,034



2,931Accumulated deficit


(8,231
)


(4,278
)Total stockholders' deficit


(3,256
)


(1,285
)Total liabilities and stockholders' deficit

$
280


$
606
 
 The accompanying notes are an integral part of these consolidated financial statements.





20
 Table of Contents




Billthe Butcher, Inc. and subsidiary
 Consolidated Statements of Operations
 (in thousands, except share and per share information)




Year ended August 31,2012


2011Sales

$
1,043


$
2,207Cost of goods sold


831



1,411Gross profit


212



796Operating expensesDirect store expenses


933



1,364General and administrative expenses


1,693



1,976Settlement expense


766



-Total operating expenses


3,392



3,340Loss from operations


(3,180
)


(2,544
)Interest expense


773



390Net loss

$
(3,953
)

$
(2,934
)Net loss per share, basic and diluted

$
(0.11
)

$
(0.12
)Weighted average shares used in computing

net loss per common share, basic and diluted


34,715,883



24,169,907




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




21
 Table of Contents


Billthe Butcher, Inc. and subsidiary
 Consolidated Statement of Stockholders' Deficit
 For each of the years ended August 31, 2012 and 2011
 (in thousands, except shares)


Common stockissued

issuable


receivable


Additional


AccumulatedShares


Amount


Shares


Amount


Shares


Amount


paid-in capital


deficit


TotalBalance at August 31, 2010


23,043,104


$
23



341,875


$
269








$
1,189


$
(1,344
)

$
137Common shares issued previously issuable


335,000







(341,875
)


(269
)








269







-Common shares issued for cash


575,000



1

















464







465Common shares issued for services


389,000





















240







240Common shares issued with notes payable


300,000



1

















119







120Common shares issued for cash and shares

contributed by principal shareholder


293,750















(200,000
)

$
(100
)


175







75Warrants issued with convertible notes


























170







170Stock options issued for services


























195







195Common shares issuable for maturity date

extension of notes payable










10,000



4



















4Common shares issuable for services










92,000



33



















33Common shares issued in exchange for

note payable


270,800























111







111Common shares issuable for private placements










250,000



100



















100Net loss






























(2,934
)


(2,934
)Balance at August 31, 2011


25,206,654



25



352,000



137



(200,000
)


(100
)


2,931



(4,278
)


(1,285
)Shares issued previously issuable


342,000



-



(342,000
)


(133
)










133







-Shares no longer issuable for services










(10,000
)


(4
)


















(4
)Warrants issued for services


























96







96Warrants issued with convertible notes


























95







95Shares issued in connection with   extentions of notes payable


1,575,000



2



















341







343Shares issued for services


4,766,000



5



















603







608Shares issued in exchange for accounts payable


418,042























80







80Shares issued upon cash-less exercise of warrants


1,742,708



2



















(2
)






-Shares issued upon sale of common stock


1,250,000



1



















199







200Shares issued in connection with settlement


6,270,000



6



















558







564Net loss






























(3,953
)


(3,953
)Balance at August 31, 2012


41,570,404


$
41



-


$
-



(200,000
)

$
(100
)

$
5,034


$
(8,231
)

$
(3,256
)







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




22
 Table of Contents




Billthe Butcher, Inc. and subsidiary
 Consolidated Statements of Cash Flows
 (in thousands)


Year ended August 31,2012


2011Cash flows from operating activities:Net loss

$
(3,953
)

$
(2,934
)Adjustments to reconcile net loss to net cash

used by operating activities:Depreciation and amortization


138



135Impairment of long-lived assets


65



-Non-cash portion of settlement expense


711



-Stock-based compensation and financing expense


1,047



468Amortization of debt discount


54



337Changes in assets and liabilitiesMerchandise inventories


43



55Accounts payable


489



320Accrued liabilities


361



100Other


27



4Net cash used by operating activities


(1,018
)


(1,515
)Cash flows from investing activities:Purchases of property, plant & equipment


-



(28
)Net cash used by investing activities


-



(28
)Cash flows from financing activities:Proceeds from sale of common stock issued and issuable


200



640Proceeds from issuance of notes payable


525



850Repayment of notes payable


-



(100
)Payment of debt issue costs


(73
)


(94
)Proceeds from advances on notes payable


215



250Checks issued in excess of bank balance


45



-Other financing activities


16



(9
)Net cash provided  by financing activities


928



1,537Net decrease in cash and cash equivalents


(90
)


(6
)Cash and cash equivalents, beginning of year


90



96Cash and cash equivalents, end of year

$
-


$
90Supplemental disclosures of cash flow information:Cash paid for interest

$
8


$
10Non-cash investing and financing activities:Common stock  issued to holders of notes payable

$
343


$
120Common stock and warrants issued for services

$
704


$
-Debt discount relating to warrants issued with notes payable

$
95


$
172Exchange of accounts and note payable for common stock

$
80


$
108





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




23
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Billthe Butcher, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 August 31, 2012 and 2011 and for each of the years then ended
 
 Note 1. Description of Business and Summary of Significant Accounting Policies
 
 Organization and business – Bill the Butcher, Inc. and its wholly-owned subsidiary (“Bill the Butcher” or the “Company”), is a Seattle, Washington based retailer selling U.S. sourced and ethically and sustainably raised meats through corporate-owned neighborhood butcher shops.  At August 31, 2012, we operated four stores in the greater Seattle area and entered into leases for three additional stores, two of which are fully constructed and awaiting opening. We have one operating segment, butcher shops selling organic and natural meat.
 
 Fund raising activities and restructuring of debt– Our Chief Executive Officer together with our financial advisors at Finance 500, continue to raise capital and have also been in negotiations for restructuring payment terms for outstanding debt obligations.  During the year ended August 31, 2012, we received net proceeds of approximately $430,000 from issuances of $525,000 of convertible notes payable, $215,000 from advances on notes payable, and $200,000 from sales of our common stock.   During the year ended August 31, 2012, we issued $484,000 of our 12% Convertible Notes due July 2012 in exchange for $400,000 of our 15% notes and related accrued interest of $84,000.   Subsequent to August 31, 2012, we (i) issued $300,000 of our 12% Convertible Notes and 500,000 shares of our common stock in exchange for $300,000 of 24% notes and settlement of litigation and release of all claims, (ii) issued $62,000 of our 12% Convertible Notes in exchange for $50,000 of 15% notes and related accrued interest of $12,000, and (iii) issued $125,000 of our 12% Convertible Notes in exchange for accounts payable of such amount.
 
 Going concern - The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. Our net loss was approximately $4.0 million and $2.9 million during the years ended August 31, 2012 and 2011, respectively, and our operating activities used cash of $1.0 million and $1.5 million during the years ended August 31, 2012 and 2011.  We expect losses to continue in the near future as we grow and further develop our operations.  At August 31, 2012, we had a working capital deficit of approximately $3.6 million and a stockholders’ deficit of $3.4 million.  We have funded our operations, business development and growth through sales of common stock and short-term borrowings. We require additional funds to further develop our business, execute our business strategy and satisfy our working capital needs.  Our operating expenses will consume a material amount of our cash resources.  We intend to raise capital through debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be available on a timely basis, on terms favorable to us or obtained in sufficient amounts necessary to meet our needs. In the event that we cannot obtain additional funds on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment.  The accompanying condensed consolidated 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 may result from the outcome of this uncertainty.
 
 Use of estimates in the preparation of financial statements - Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The more significant accounting estimates inherent in the preparation of our financial statements include estimates as to the valuation and recoverability of inventories, recoverability of long-lived assets, valuation of equity related instruments, and valuation allowance for deferred income tax assets.
 
 Consolidation - The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary.  All significant inter-company balances and transactions have been eliminated.
 
 Concentrations -All of our operations are currently located in the greater Seattle, Washington area. As a result, we could be particularly susceptible to adverse trends and economic conditions in the area, including labor markets and other occurrences such as local strikes, earthquakes or other natural disasters.  In addition, inasmuch as we are a retailer of meat and related merchandise, adverse publicity and/or trends with respect to the meat industry in general could have a material effect on our operations and financial condition.
 
 Cash and cash equivalents - We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Our cash is maintained with high credit quality financial institutions. At times, such balances may be in excess of the FDIC insurance limit. At August 31, 2012, no amounts exceeded the limit. 
 Checks issued in excess of bank balance– The amount of checks issued in excess of amounts on deposit at the bank upon which the checks are drawn are presented as a current liability and included as a component of cash provided by financing activities.
  24
 Table of Contents
  Fair value measurements – In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.  Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar asset or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.  Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
 
 Fair value of financial instruments – The fair value of our financial instruments, including cash and cash equivalents, accounts payable, certain accrued liabilities and notes payable approximates the carrying amounts value due to their short maturities.
 
 Merchandise inventories –Merchandise inventories, which consists of meat and nonperishable products, is stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
 
 Property and equipment - Property and equipment is stated at cost. Additions and improvements that significantly add to the productive capacity or extend the life of an asset are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over five to seven years for equipment, furniture, and vehicles, and over three to five years for computer software and hardware. Leasehold improvements are amortized over the lesser of the estimated remaining useful life of the asset or the remaining lease term.
  Impairment of long-lived assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  In connection with store closures, certain assets were impaired during the year ended August 31, 2012, and the provision for impairment of approximately $65,000 is included in general and administrative expenses.
 
 Deferred financing costs – We record legal and other fees paid relating to offerings of equity or debt securities as deferred financing costs included in other assets.  Costs relating to debt are deferred and amortized to interest expense over the term of the related debt.  Costs relating to equity are recorded as stock issue costs as a decrease to additional paid-in capital upon sales of equity securities in the financing to which the costs relate.
 
 Debt discount – We record fees paid to lenders and the fair value of common stock or warrants  issued with debt securities as a debt discount, which is presented net of related borrowings on the consolidated balance sheets and amortized as an adjustment to interest expense over the borrowing term.
 
 Income taxes - We account for income taxes using an asset and liability method which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts expected to be realized.  We continue to provide a full valuation allowance to reduce its net deferred tax asset to zero, inasmuch as our management has not determined that realization of deferred tax assets is more likely than not. The provision for income taxes represents the tax payable for the period and change during the period in net deferred tax assets and liabilities.
 
 Revenue recognition - Revenues are recognized at the point of sale at retail locations or upon delivery of the product.  Retail store revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities.
 
 Cost of goods sold - Cost of goods sold includes the cost of meat and nonperishable products sold and commissary costs.
 
 Direct store expenses - Direct store expenses consist of store-level expenses such as personnel salaries and benefits costs, supplies, depreciation, and other store-specific costs.
 
 Investor and public relations expenses– Investor and public relations expenses consist of fees paid or payable and equity securities issued or issuable to consultants in connection with services provided or to be provided during a contractually specified period.
 
 Marketing and advertising expenses – Marketing and advertising costs ,which are expensed as incurred and included with general and administrative expenses, approximated $33,000 and $105,000 during the years ended August 31, 2012 and 2011, respectively.
  25
 Table of Contents
  Stock-based compensation -We use the Black-Scholes-Merton option pricing model as our method of valuation for stock-based awards. Stock-based compensation expense is based on the value of the portion of the award that will vest during the period. The Black-Scholes-Merton option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results. Our determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award and expected stock price volatility over the term of the award. Stock-based compensation expense is recognized on a straight-line basis over the applicable vesting period based on the fair value of such stock-based awards on the grant date.
 
 Net loss per share - Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.  Common stock equivalents are excluded as the effect would be anti-dilutive.  Shares excluded from net loss per share computations for the years ended August 31 were as follows:
  2012


2011Warrants


6,841,674



2,300,000Options


375,000



375,000Convertible notes payable


6,617,513



562,500Total


13,834,187



3,237,500
  Contingencies - Conditions may exist as of the date financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events do or do not occur. Company management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.  If the assessment of a contingency indicates that it is probable that a liability has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable, would be disclosed.
 
 Note 2.  Related Parties and Settlement of Litigation
 
 J’Amy Owens, our sole officer and director and principal shareholder, acquired a majority of the Company’s ownership in 2009, and during the fiscal year ended August 31, 2010, the Company acquired ownership of a business she co-founded to develop the “Bill the Butcher” retail concept.  Ms. Owens is involved in other business activities, and as a result may face a conflict in selecting between the Company and other business interests.  We have not established a policy for resolution of such conflicts.
 
 During the year ended August 31, 2011, we issued 293,750 shares of our common stock to investors in exchange for $75,000, and Ms. Owens agreed to transfer 200,000 of these shares from personally owned shares.  The agreement to transfer shares is accounted for as a contribution of capital of $100,000 based on the closing price of our common stock on the transaction date.  The transfer of shares to the Company has not occurred and the receivable for such shares is presented as a separate component of stockholders’ deficit.
 
 Settlement of Litigation - In October 2010, a former employee commenced a lawsuit in the Superior Court of the State of Washington against the Company, J’Amy Owens, its sole officer and director (together the with the Company the “BtB Parties), and certain advisors to the Company (“Other Parties”).  The complaint alleges that the Company breached its employment agreement with the plaintiff and that the former employee was wrongfully discharged in violation of public policy.  The former employee sought damages in an undefined amount, injunctive relief, and attorneys’ fees.  Additionally, the plaintiff also asserted a claim against our sole officer and director, personally, for breach of a stock purchase agreement.  On July 17, 2012, the Company, Ms. Owens and the former employee entered into a settlement agreement and general release.  As part of the settlement, the BtB Parties provided a declaration with respect to certain matters pertaining to the former employee’s lawsuit with the Other Parties, and all claims, demands, expenses, attorney fees, causes of action or suits between and among the Company, Ms. Owens and the former employee were released and fully settled.
 
 In June 2011, an action was commenced by the former owner and co-founder of the company we acquired in 2010, in the Superior Court of the State of Washington, County of King, against the BtB Parties and the Other Parties. The plaintiff was seeking damages or the rescission of a Related Party Agreement and a Stock Purchase Agreement. In June 2012, the Court awarded the plaintiff 6,270,000 shares of our common stock, which were issued in June 2012.  On August 3, 2012, the Company, Ms. Owens and the plaintiff entered into a settlement agreement and general release pursuant to which, among other things, all claims, demands, expenses, attorney fees, causes of action or suits between and among the Company, Ms. Owens and the plaintiff were released, the plaintiff retained all shares previously issued without restrictions on the sale and transfer of said stock except as provided for by applicable Securities Laws, and except under certain circumstances, and we issued to the plaintiff a $130,000 non-interest bearing note payable due July 1, 2013.  A discount for imputed interest of approximately $10,000 was recorded using an estimated interest rate of 12%, which is amortized to interest expense over the term until maturity.  The note payable is collateralized by a pledge of interests in all of the Company’s assets on a pari passu basis with holders of other collateralized notes payable, and payments on the note are required in the amount of 6.5% of proceeds received by the Company from securities offerings subsequent to the date of the settlement agreement, which proceeds are to be paid at finance closings.  In connection with the issuance of shares and notes payable and with related legal fees and expenses, we have recognized settlement expense of approximately $766,000 during the year ended August 31, 2012.
 
 26
 Table of Contents
 
 Note 3.   Merchandise Inventories
 
 Merchandise inventories consisted of the following at August 31 (in thousands):
 
 August 31,2012


2011Perishable food

$
20


$
36Non-perishables


7



34Total

$
27


$
70
 
 Note 4.  Property and Equipment
 
 Property and equipment consisted of the following at August 31 (in thousands):
  2012


2011Leasehold improvements

$
142


$
281Furniture and equipment


205



208Vehicle


32



32Total property and equipment


379



521Accumulated depreciation and amortization


(239
)


(187
)Property and equipment, net

$
140


$
334
 Note 5.  Notes Payable and Advances on Notes Payable
 
 Notes payable and advances consisted of the following at August 31 (in thousands):
  2012


201112% notes convertible at $0.15 per share

$
1,008


$
-15% notes convertible at $0.80 per share


50



45024% notes


300



300Non-interest bearing note


130



-Advances on notes


465



250Total of notes payable and advances


1,953



1,000Discount on convertible notes, net of amortization


(73
)


(53
)Total

$
1,880


$
947
  12% Convertible Notes Payable– During May through July 2012, we issued $500,000 of notes payable due July 1, 2013, and warrants to purchase 3,000,006 shares of our common stock at a purchase price of $0.15 per share exercisable for three years in exchange for $500,000 cash less financing fees and expenses of approximately $71,000.  The notes bear interest at 12% per annum and are convertible into shares of our common stock at the holders election at a per share price of $0.15 per share (the 12% Convertible Notes).  The 12% Convertible Notes are collateralized by a pledge of interests in all of the Company’s assets on a pari passu basis with holders of other collateralized notes payable.   The fair value of warrants issued was $208,000 determined using the Black-Scholes-Merton option pricing model with the following assumptions:  contractual term of 5 years, volatility of 75%, zero dividends and interest rate of approximately 0.4%, of which $59,000 was recorded as debt discount based on the relative fair value of the warrant.  Discount amortization of $26,000 was recognized as interest expense during the year ended August 31, 2012, and the remaining $33,000 will be recognized as interest expense during the year ending August 31, 2012.
 In June and July 2012, we entered into debt repayment agreements with holders of 15% Convertible Notes pursuant to which we issued 12% Convertible Notes in principal amounts of approximately $178,000 and $305,000 in exchange for 15% Convertible Notes having face amounts of $150,000 and $250,000 and related accrued interest of $28,000 and $55,000, respectively, and issued warrants to purchase 300,000 shares and 2,033,334 shares of our common stock at a price of $0.15 per share in exchange for warrants issued with the 12% Convertible Notes to purchase 175,000 shares and 312,500 shares of our common stock at a price of $0.80 per share.  The fair value of warrants issued was $100,000 determined using the Black-Scholes-Merton option pricing model with the following assumptions:  contractual term of 5 years, volatility of 75%, zero dividends and interest rate of approximately 0.7%, of which $18,000 was recorded as debt discount based on the relative fair value of the warrant.  Discount amortization of $3,000 was recognized as interest expense during the year ended August 31, 2012, and the remaining $15,000 will be recognized as interest expense during the year ending August 31, 2012.  No gain or loss was recognized in connection with the exchange.




27
 Table of Contents


15% Convertible Notes- During the year ended August 31, 2011, we received $450,000 cash from investors and issued convertible notes payable (together, the “15% Convertible Notes” in such amounts together with warrants to purchase 550,000 shares of our common stock at a per share price of $0.80 that expire in February 2016.  Convertible Notes were due in one year and bear interest at 15% payable at maturity.  Convertible Notes are convertible into shares of our common stock at a conversion price of $0.80 per share if (i) we are acquired or (ii) we elect to prepay all or a portion of the outstanding principal; because conversion is contingent, a beneficial conversion feature was not recognized for financial reporting purposes.  The fair value of warrants issued was $367,000 determined using the Black-Scholes-Merton option pricing model with the following assumptions:   contractual term of 5 years, volatility of 75%, zero dividends and interest rates of 2.0% to 2.3%, of which $169,000 was recorded as debt discount based on the relative fair value of warrants.  Discount amortization of $119,000 was recognized as interest expense during the year ended August 31, 2011, and $53,000 was recognized during the fiscal year ending August 31, 2012.  During the year ended August 31, 2012, we issued 500,000 shares of our common stock to holders of these notes in connection with forbearance and recognized expense of approximately $98,000, which is included in interest expense, based on closing market prices of our stock on issuance dates.  As described above, during the year ended August 31, 2012, holders of $400,000 of 15% Convertible Notes exchanged 15% Convertible Notes for 12% Convertible Notes.
 
 24% Note Payable- In May 2011, we received $300,000 cash and issued a note payable due in September 2011, bearing interest at 6.25% payable at maturity, together with 300,000 shares of our common stock.  The value of the 300,000 shares issued was $120,000 based on the borrowing date closing price of our common stock, and was recorded as a debt discount, which was amortized to interest expense during the year ended August 31, 2011.  The note bears interest at 24% beyond the extended maturity date, is due on demand and remains outstanding as of August 31, 2012.  We recognized interest expense of $68,000 and $6,000 during the year ended August 31, 2012 and 2011, respectively.  During the year ended August 31, 2012, we issued the lender 1,075,000 shares of our common stock relating to extensions and other matters pertaining to the notes and recorded expense of $245,000, based on closing market prices of our stock, which is included in interest expense.  We have continued to discuss and negotiate terms of repayment.
 
 Advances on Notes Payable– During the years ended August 31, 2012 and 2011, we received cash of $215,000 and $250,000, respectively, and agreed to issue a promissory notes payable, the terms of which were not yet finalized. Advances payable at August 31, 2012 total $465,000.  Interest has been accrued on advances at a rate of 15% per annum.
 
 Note payable exchanged for common stock-   During the year ended August 31, 2011, pursuant to terms of a stock purchase agreement we issued 270,800 shares of our common stock in consideration of the cancellation of prior year working capital borrowings of $100,000 and accrued interest of approximately $8,000.  The fair value of shares issued based on the closing market price on the agreement date exceeded the amount of note and related accrued interest by approximately $5,000, which is included in interest expense.  Our sole officer and director and principal shareholder was also a co-debtor under the notes.
 
 Note payable borrowing and repayment- During the year ended August 31, 2011, we borrowed $100,000 for working capital purposes pursuant to a 7% promissory note payable due in February 2011, and which was repaid in February 2011.
 
 The weighted average interest rate on total notes payable at August 31, 2012 was 13.9%.  The average interest rate for interest and amortization of debt discount and debt issue costs on average amounts outstanding of approximately $1.3 million was 59% for the year ended August 31, 2012.  The weighted average interest rate on total notes payable at August 31, 2011 was 11.5%.  The average interest rate for interest and amortization of debt discount on average amounts outstanding of approximately $335,000 was 77% for the year ended August 31, 2011.
 
 See Note 9  Subsequent Events for information regarding note exchanges occurring subsequent to August 31, 2012.
 
 Note 6.  Stockholders’ Equity
 
 Preferred Stock - We are authorized to issue up to 5,000,000 shares of $0.001 par value preferred stock, including two million shares of Series A preferred stock that would be entitled to ten votes per share, two million shares of Series B preferred stock that would be entitled to two votes per share, and one million shares of Series C preferred stock with no voting rights.  Our Board of Directors has the authority to fix and determine the relative economic rights and preferences of preferred shares, as well as the authority to issue such shares without further stockholder approval.  As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock.  In addition, shares of preferred stock could be issued with terms designed to delay or prevent a change in control or make removal of management more difficult.
 
 Common Stock - We are authorized to issue up to 70,000,000 shares of $0.001 par value Class A common stock.
 
 Common Stock Issued for Cash – During the year ended August 31, 2012, we received net proceeds of $200,000 from sales of 1,250,000 shares of our common stock.  During the year ended August 31, 2011, we received net proceeds of approximately $640,000 from sales of 1,118,750 shares of our common stock, which included $200,000 cash received for 250,000 shares, the fair value of which shares based on the closing price on the purchase date was $100,000 less than consideration we received.
  28
 Table of Contents
  Common Stock Issued in for Accounts Payable –During the year ended August 31, 2012, we issued 418,042 shares of our common stock in exchange for approximately $50,000 of accounts payable.  The value of shares issued based on the closing market price on the dates shares are issuable approximated $80,000, and the $30,000 excess of fair value of common stock issued over the amount of accounts payable exchanged was recorded as expense.
 
 Common Stock Issued for Services – In February 2012, we entered into a one-year agreement, with an investor and public relations firm pursuant to which, among other things, we issued the firm 1,250,000 shares of our common stock and agreed to issue the firm 250,000 shares of our common stock each three-month period.  We may terminate the agreement at the end of a three month period with no amounts payable after termination.  In February 2011, we also entered into a one-year agreement, with this investor and public relations firm pursuant to which we agreed to issue the firm 92,000 shares of our common stock each three-month period.  Shares were recorded at the closing market price on the dates shares are issuable.  During the year ended August 31, 2012 and 2011, we recorded expense of $286,000 and $173,000, respectively, and issued 1,992,000 and 184,000 shares during the fiscal years ended August 31, 2012 and 2011, respectively.
 
 During the year ended August 31, 2012, we issued 2,774,000 shares of our common stock to employees and consultants for services and recorded expense of $317,000 based on closing market prices of our common stock on the dates shares were issuable.
 
 In May 2011, we entered into a six-month agreement with an investor and public relations firm pursuant to which we issued 200,000 shares of our common stock and recorded expense of $78,000 based on the closing market price on the agreement date.
 
 Warrants and Options to Purchase Common Stock –In connection with offerings of our common stock and notes payable, we have issued warrants to purchase shares of our common stock.  We have also issued warrants and options to purchase shares of our common stock to service providers for services provided.  The following summarized warrant activity during the years ended August 31, 2012 and 2011:
  shares of


weighted averagecommon stock


exercise priceOutstanding at September 1, 2010


1,937,500


$
0.80Warrants issued for services


187,500



0.20Warrants issued with notes payable


550,000



0.80Outstanding at August 31, 2011


2,675,000



0.28Warrants issued for services


750,000



0.18Warrants issued with notes payable


6,333,342



0.15Warrants exercised


(1,750,000
)


0.001Warrants exchanged and cancelled


(1,166,668
)


0.43Outstanding at August 31, 2012


6,841,674


$
0.20
  The following summarizes additional information on our stock warrants and options outstanding at August 31, 2012:
  shares of


remaining lifeExercise price


common stock


in years$
0.15



6,016,674



4.8$
0.20



400,000



9.2$
0.80



425,000



2.96,841,674
  Warrants to Purchase Common Stock Issued for Services– In October 2011, we entered into an agreement for legal services pursuant to which we agreed to issue the service provider a warrant to purchase 400,000 shares of our common stock at a price of $0.20 per share exercisable for 10 years.  We recorded expense of $96,000, the fair value of warrants determined by utilizing the Black-Scholes-Merton option pricing model with assumptions of 113% volatility, zero dividends and interest rate of 2.2%.
 
 Options to Purchase Common Stock Issued for Services – During the year ended August 31, 2011, we granted to an affiliate of a public relations firm a five-year stock option vesting with an exercise price of $0.80 per share to purchase 187,500 shares of our common stock and 187,500 previously granted options became fully-vested.  The fair value recorded as expense of $195,000 during the year ended August 31, 2011, was computed using a Black-Scholes-Merton option pricing model with the following assumptions: contractual term of 5 years, volatility of 75%, zero dividends and interest rate of 1.6%.
 
 Terminated Stock Purchase Agreement - In May 2011, we entered into a stock purchase agreement with an investment fund that provided for, among other things, our issuance of approximately 6.1 million shares of common stock.  In July 2011, the stock purchase agreement was terminated and all shares of stock issued were returned and cancelled.
  29
 Table of Contents
  Note 7. Income Taxes
 
 The Company has recorded no provision or benefit for income taxes.  The difference between tax at the statutory rate and no tax is primarily due to the full valuation allowance.  Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes, and net operating loss carry forwards. Substantially all of our deferred tax assets relate to net operating loss carryforwards.Deferred tax assets were approximately $2.8 million and $1.5 million at August 31, 2012 and 2011, respectively, and the change in the valuation allowance was approximately $1.3 million and $1 million during the years then ended.  A valuation allowance has been recorded in the full amount of total deferred tax assets as it has not been determined that it is more likely than not that these deferred tax assets will be realized. As of August 31, 2012, the Company has net operating loss carryforwards of approximately $7.8 million, which begin to expire in 2027. Realization is dependent on generating sufficient taxable income prior to expiration. Further, as a result of ownership changes, the Company may be subject to annual limitations on the amount of net operating loss utilizable in any tax year.
 
 We have identified our federal tax return as our major tax jurisdiction, as defined.  Tax years since inception are subject to audit.  We believe our income tax filing positions and deductions will be sustained on audit and we do not anticipate any adjustments that would result in a material change to our financial position. No reserves for uncertain income tax positions have been recorded.  Our policy for recording interest and penalties associated with uncertain income tax positions is to record such items as a component of interest expense.
 
 Note 8.  Commitments and Contingencies
 
 From time to time, we may be subject to various legal proceedings and claims that may arise in the ordinary course of business. Our management currently believes that resolution of such legal matters will not have a material adverse impact on our consolidated financial position, results of operations or cash flows.
 
 Leases - The Company leases its stores and other facilities under non-cancelable operating leases, some with renewal options. Rents are fixed base amounts. Lease provisions also require additional payments for maintenance and other expenses. Rent is expensed on a straight-line basis over the term of the lease. The difference between amounts paid and expensed is recorded as deferred rent. Rent expense during the years ended August 31, 2012 and 2011 was $404,000 and $326,000, respectively.   We also lease a delivery vehicle pursuant to a capital lease, the amounts of which are not material and are included in other liabilities.  At August 31, 2012, minimum future annual lease obligations are as follows (in thousands):
 year endingAugust 31, 2013

$
122August 31, 2014


113August 31, 2015


89August 31, 2016


83August 31, 2017


35Total minimum payments

$
441
 
 Agreement with Placement Agent – In 2011, we entered into an agreement with a firm to provide placement agent services in connection with our fund-raising activities.  Pursuant to terms of the agreement, among other things, we agreed to pay the firm a fee upon financing transaction closings equal to 10% of gross proceeds for a term that expired June 30, 2011.  During the year ended August 31, 2011, fees approximated $30,000.
 
 Litigation - In July 2012, a lawsuit was filed against the Company and Ms. Owens by the “Other Parties” described in Note 2 – Related Parties and Settlement of Litigation claiming indemnification with respect to litigation brought by the former employee against the Other Parties, recovery of damages in an unspecified amount for alleged breach of contract, and recovery of attorney’s fees.  The Other Parties are holders of shares of Company common stock in excess of 5%, but less than 10% of total Company common stock outstanding.  The Company and the Other Parties reached a settlement regarding this litigation subsequent to August 31, 2012, pursuant to which, among other things, the Company issued the Other Parties 2,500,000 shares of our common stock and the Other Parties dropped their litigation and released all claims.
  Note 9.  Subsequent Events
 
 Subsequent to August 31, 2012, we (i) issued $300,000 of our 12% Convertible Notes and 500,000 shares of our common stock in exchange for $300,000 of 24% notes and settlement of litigation and release of all claims, (ii) issued $62,000 of our 12% Convertible Notes in exchange for $50,000 of 15% notes and related accrued interest of $12,000, and (iii) issued $125,000 of our 12% Convertible Notes in exchange for accounts payable of such amount.


30
 Table of Contents




ITEM9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





None.





ITEM9A.  CONTROLS AND PROCEDURES





(a)  Disclosure Controls and Procedures.  As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of senior management, including Ms. Owens, our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, our CEO/CFO concluded that our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.  A discussion of the material weaknesses in our controls and procedures is described below.





(b)  Internal Control over Financial Reporting.  There have been no changes in our internal controls over financial reporting or in other factors during the fourth fiscal quarter ended August 31, 2012, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting subsequent to the date we carried out our most recent evaluation.





(c)  Management Report on Internal Control.  Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, our CEO/CFO, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our management, with the participation of our CEO/CFO, has established and maintained policies and procedures designed to maintain the adequacy of our internal control over financial reporting, and include those policies and procedures that:





·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;


·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and


·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.





Management has used the framework set forth in the report entitledInternal Control – Integrated Framework published by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting.  As a result of the material weaknesses described below, management has concluded that our internal control over financial reporting was not effective as of August 31, 2012.





Management’s Assessment -Management has determined that, as of the August 31, 2012, evaluation date, there were deficiencies in both the design and the effectiveness of our internal control over financial reporting.  Management has assessed these deficiencies and determined that there were various material weaknesses in our internal control over financial reporting.  As a result of our assessment that material weaknesses in our internal control over financial reporting existed as of August 31, 2012, management has concluded that our internal control over financial reporting was not effective as of August 31, 2012.  This determination was the same as of August 31, 2011.  The existence of a material weakness or weaknesses is an indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period.





Management has assigned a high priority to the improvement of our internal control over financial reporting.  We have listed below the nature of the material weaknesses we have identified, the steps we are taking to remediate these material weaknesses and when we expect to have the material weaknesses remediated.





Inadequate entity-level controls.  As of August 31, 2012, we did not have effective entity level controls with respect to our overall control environment and monitoring efforts as defined in the COSO framework.  The pervasive nature of the material weaknesses in our internal control over financial reporting in itself constitutes a material weakness.  We failed to implement processes to ensure periodic monitoring of our entity level internal control activities.  As a result, management concluded that there are deficiencies in the design and execution of our entity-level controls that constitute a material weakness in our internal control over financial reporting and errors in our financial statements that have not been prevented by our entity level controls could occur.





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 Table of Contents




Deficiencies pertaining to inadequate segregation of duties consistent with control objectives.  The lack of segregation of duties among management resulted in deficiencies in our financial reporting.
  Deficiencies pertaining to insufficiently skilled Company personnel and a lack of human resources within our finance and accounting reporting functions.  The lack of appropriately skilled Company personnel could result in material misstatements to financial statements not being detected in a timely manner.
  Insufficient oversight of financially significant processes and systems, including deficiencies relating to monitoring and oversight of the work performed by our finance and accounting personnel.  Due primarily to the lack of human resources in our accounting and finance department during 2012, we noted deficiencies related to insufficient review and approval and documentation of the review and approval of the work being performed by employees within our accounting and finance department relating to journal entries, reconciliation of subsidiary ledgers, balance sheet and income statement accounts, accrual of expenses, documentation supporting financial reporting closing processes, and periodic financial reporting.  As a result, we do not have sufficient internal control over financial reporting to ensure underlying transactions are being appropriately and timely accounted for, which could lead to material misstatements in the financial statements not being detected in a timely manner.
 
 Deficiencies relating to insufficient analysis, documentation and review of the selection and application of generally accepted accounting principles, or GAAP, to significant non-routine transactions, including the preparation of financial statement disclosures relating thereto.  We did not have appropriate personnel in place at August 31, 2012, to review and document the application of GAAP to significant non-routine transactions, including the preparation of related financial statement disclosures.  As a result, we do not have sufficient internal control over financial reporting to ensure that underlying non-routine transactions are appropriately and timely accounted for in the general ledger.
  Inability to demonstrate through testing that our internal control over financial reporting was effective as of August 31, 2012.  We were unable to demonstrate through testing the effectiveness of our remediation efforts with respect to the material weaknesses described above.  Our processes with respect to quarterly and annual controls, such as our control processes relating to general ledger close procedures and periodic financial reporting, were not implemented as of the year ended August 31, 2012.
  Overview of Remediation
 
 Fiscal year ended August 31, 2011 - Each of the above noted material weaknesses were reported our August 31, 2010 Annual Report on Form 10-K.  In August 2010, the Company retained a Seattle-based financial and management firm with experience in assisting public companies with accounting and financial reporting matters.  The decision and action to outsource most accounting and controller type responsibilities was the commencement of implementation of the Company’s remediation plan.   This plan is designed to ensure that management’s evaluation of the Company’s internal control over financial reporting is thorough and complete and that timely and appropriate remediation is accomplished.  By the end of our fiscal year ended August 31, 2011, our closing processes had been in effect for a year.  On the basis of processes implemented during fiscal 2011, the following material weaknesses reported in our 2010 Annual Report on Form 10-K were considered to have been sufficiently remediated at August 31, 2011, and no longer reported as material weaknesses (i) deficiencies pertaining to insufficiently skilled Company personnel and lack of resources, (ii) insufficient oversight of financially significant processes and systems, (iii) deficiencies relating to insufficient analysis, documentation and review of GAAP and disclosures, and (iv) inability to demonstrate through testing that our internal controls over financial reporting was effective at year-end.  The steps described above, including engaging qualified accounting and finance personnel, are designed to ensure that management’s evaluation of our internal control over financial reporting is thorough and complete and that a timely and appropriate remediation plan is implemented.  The effectiveness of the steps we have taken to date and the steps we are still in the process of completing is subject to continued management review, as well the oversight of our board of directors, and we may make additional changes to our internal controls and procedures.  Although we have undertaken the foregoing initiatives, in the future we may identify further material weaknesses or significant deficiencies in our internal control over financial reporting that have not previously been identified.
 
 Fiscal year ended August 31, 2012 –Our ability to maintain and improve our control procedures was significantly adversely impacted by our not having sufficient operating capital to, among other things, pay our outsourced service providers that were instrumental in improvements in our processes during the prior fiscal year.  As a result, timely performance of established processes and procedures was suspended for most of the fiscal year.  In connection with raising new capital, renegotiation of outstanding debt and settlement of significant litigation, including those relating to co-founder and former employee since inception, in August 2012, we were able to fund reengagement of the service provider, but not in time to successfully implement processes and procedures at August 31, 2012.
 
 Fiscal year ending August 31, 2013  -We believe that with sufficient funding from recent and anticipated financings, we will again be able to remediate a number of our material weaknesses of our internal control over financial reporting during the fiscal year ending August 31, 2013.   We plan to continue funding improvements throughout the year with the goal of remediation of the material weaknesses we have identified.  Our management estimates additional costs we will incur in connection with remediation efforts will approximate $50,000 for the year ending August 31, 2013.
 
 Management’s report is not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission, and accordingly, this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.





ITEM9B. Other Information.





None





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 Table of Contents




PART III





ITEM10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.





The following table lists our sole director and executive officer, who will serve in the capacities noted until successors are duly appointed and qualified, as of August 31, 2012:


Name

Age

PositionJ’Amy Owens

51

Chairman, Chief Executive Officer, Chief Financial Officer and Secretary


Current Directors and Officers – J’Amy Owens has been our sole director and has served as President and Chief Executive Officer  since acquiring a controlling interest in the Company in October 2009.  A 1979 graduate of Punahou Preparatory Academy, she attended Loyola Marymount during 1979 and 1980.  Since 2000, she has been the Chief Executive Officer of J’Amy Owens Group, a comprehensive full service branding and management consultancy, which provides turnkey business incubation for consumer brands and retailers, with a specialization in startups and turnarounds.  During 1986 to 2000, she founded the Retail Group and grew it to a 65 person strategic retail planning company which was responsible for the development of over 400 Fortune 100 and 500 consumer business and retail models while directing $500 million in annual spending.  During 1998 to 2000, she co-founded Laptop Lane, a virtual on-site office centers within the terminals of major U.S. airports.   During 1997 to 1999, J’Amy was co- founder of Ravenna Gardens, an upscale gardening center catering to the gardens of urban dwellers.
 
 Code of Ethics - We have not adopted a Code of Ethics for the Board and any employees as we currently only have a single director and executive officer. As our business continues to expand and we appoint additional executive officers and directors we will implement a Code of Ethics. The Company does have an Insider Trading Policy as well as an employee handbook, both with stated policies and procedures.
 
 Corporate Governance -We currently have no standing audit, compensation or nominating committees or committees performing similar functions, nor do we have written audit, compensation or nominating committee charters. Our director believes it unnecessary to have such committees at this time because we have only one director and the Board of Directors can perform the functions of such committees adequately.
 
 We do not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The Board of Directors believes that, given the stage of our development, a specific nominating policy would be premature until our business operations develop to a more advanced level. We currently do not have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment. A shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our director at the address on the cover of this report.
 
 Limitation of Liability of Directors - Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director's liability under federal or applicable state securities laws.  We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if they acted in good faith and in a manner they believed to be in our best interests.




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Involvement in certain legal proceedings -During the past ten years, none of the Company’s directors and executive officers has been:




·
the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;·
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);·
subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;·
found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated;·
subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of a federal or state securities or commodities law or regulation, law or regulation respecting financial institutions or insurance companies, law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or·
subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.




Except as described in the following paragraph, no director, officer or affiliate of the Company, or any beneficial owner of 5% or more of the Company’s common stock, or any associate of such persons, is an adverse party in any material proceeding to, or has a material interest adverse to, the Company or any of its subsidiaries.





In July 2012, a lawsuit was filed against the Company and Ms. Owens by parties holding in excess of 5%, but less than 10% of the outstanding shares of Company common stock (the “Other Parties”) claiming indemnification with respect to litigation brought by the former employee against the Other Parties, recovery of damages in an unspecified amount for alleged breach of contract, and recovery of attorney’s fees.  The Company plans on defending the lawsuit vigorously.





Section 16(a) Beneficial Ownership Reporting Compliance - Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports with the SEC on their initial beneficial ownership of our common stock and any subsequent changes.  They must also provide us with copies of the reports.  Based upon a review of the copies of such forms furnished to us and written representations that no other reports were required, we believe that the following reporting person failed to file such reports on a timely basis during our most recent fiscal year:


Name and principal position
number of

late reports
Transactions

not timely

reported
Known failures

to file a

required formJ'Amy Owens, Chief Executive Officer and sole Director




ITEM11.EXECUTIVE COMPENSATION.





As a “smaller reporting company,” we have elected to follow the scaled disclosure requirements for smaller reporting companies with respect to the disclosures required by Item 402 of Regulation S-K. Under the scaled disclosure obligations, we are not required to provide a Compensation Discussion and Analysis, Compensation Committee Report and certain other tabular and narrative disclosures relating to executive compensation.


Summary Compensation Table




Name
Principal

Position
Year Ended

August 31,

Salary (a)

Bonus, awards

& all other

compensation

TotalJ'Amy Owens
Chief Executive Officer
2012

$
96,000


$
-


$
96,0002011

$
80,000


$
-


$
80,000


(a) - Includes unpaid and accrued wages of $51,868 and $24,308 at August 31, 2012 and 2011, respectively.




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Narrative Disclosure to Summary Compensation Table -We have not entered into any employment agreements with our officer. We do not have any existing arrangements providing for payments or benefits in connection with the resignation, retirement or other termination of our officer, or a change in control of the Company or a change in the officers’ responsibilities following a change in control. We have no equity incentive plan.


Outstanding Equity Awards at Fiscal Year-End -As of August 31, 2012, we have no formal equity compensation plan in effect nor have we granted any equity-based awards.
 
 Compensation of Directors -As of August 31, 2012, our sole director has not received any compensation from us for serving as our director, nor do we have any plans to compensate our sole director.





ITEM12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





The following table sets forth information as of December 14, 2012, regarding the number of shares of common stock beneficially owned by (i) each person that we know beneficially owns more than 5% of our outstanding common stock, (ii) each of our named executive officers, (iii) each of our directors and (iv) all of our named executive officers and directors as a group. The amounts and percentages of common stock beneficially owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities. Under the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise indicated, each of the shareholders named in the table below, or his or her family members, has sole voting and investment power with respect to such shares of common stock. As of December 14, 2011, there were 26,048,654 shares of our common stock issued and outstanding.
  PercentageName

Shares



of ClassJ'Amy Owens  Chairman and Chief Executive Officer


15,525,271

(a)


37
%William Von Schneidau


6,270,000




15
%Montage Capital LLC


2,456,493




6
%All Directors and Named Executive Officers as a Group (1 Person)





ITEM13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.





Certain Relationships and Related Transactions – J’Amy Owens, our sole officer and director and principal shareholder, acquired a majority of the Company’s ownership in 2009, and during the fiscal year ended August 31, 2010, the Company acquired ownership of a business she co-founded to develop the “Bill the Butcher” retail concept.  Ms. Owens is involved in other business activities, and as a result may face a conflict in selecting between the Company and other business interests.  We have not established a policy for resolution of such conflicts. 
 During the year ended August 31, 2011, we issued 293,750 shares of our common stock to investors in exchange for $75,000, and Ms. Owens agreed to transfer 200,000 of these shares from personally owned shares.  The agreement to transfer shares is accounted for as a contribution of capital of $100,000 based on the closing price of our common stock on the transaction date.  The transfer of shares to the Company has not occurred and the receivable for such shares is presented as a separate component of stockholders’ deficit.
 
 Settlement of Litigation - In October 2010, a former employee commenced a lawsuit in the Superior Court of the State of Washington against the Company, J’Amy Owens, its sole officer and director (together the with the Company the “BtB Parties), and certain advisors to the Company (“Other Parties”).  The complaint alleges that the Company breached its employment agreement with the plaintiff and that the former employee was wrongfully discharged in violation of public policy.  The former employee sought damages in an undefined amount, injunctive relief, and attorneys’ fees.  Additionally, the plaintiff also asserted a claim against our sole officer and director, personally, for breach of a stock purchase agreement.  On July 17, 2012, the Company, Ms. Owens and the former employee entered into a settlement agreement and general release.  As part of the settlement, the BtB Parties provided a declaration with respect to certain matters pertaining to the former employee’s lawsuit with the Other Parties, and all claims, demands, expenses, attorney fees, causes of action or suits between and among the Company, Ms. Owens and the former employee were released and fully settled.
 
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 In June 2011, an action was commenced by the former owner and co-founder of the company we acquired in 2010, in the Superior Court of the State of Washington, County of King, against the BtB Parties and the Other Parties. The plaintiff was seeking damages or the rescission of a Related Party Agreement and a Stock Purchase Agreement. In June 2012, the Court awarded the plaintiff 6,270,000 shares of our common stock, which were issued in June 2012.  On August 3, 2012, the Company, Ms. Owens and the plaintiff entered into a settlement agreement and general release pursuant to which, among other things, all claims, demands, expenses, attorney fees, causes of action or suits between and among the Company, Ms. Owens and the plaintiff were released, the plaintiff retained all shares previously issued without restrictions on the sale and transfer of said stock except as provided for by applicable Securities Laws, and except under certain circumstances, and we issued to the plaintiff a $130,000 non-interest bearing note payable due July 1, 2013.  A discount for imputed interest of approximately $10,000 was recorded using an estimated interest rate of 12%, which is amortized to interest expense over the term until maturity.  The note payable is collateralized by a pledge of interests in all of the Company’s assets on a pari passu basis with holders of other collateralized notes payable, and payments on the note are required in the amount of 6.5% of proceeds received by the Company from securities offerings subsequent to the date of the settlement agreement, which proceeds are to be paid at finance closings.  In connection with the issuance of shares and notes payable and with related legal fees and expenses, we have recognized settlement expense of approximately $766,000 during the year ended August 31, 2012.


Director Independence– Our current director is not deemed independent for the purposes of the listed company standards of The NASDAQ Stock Market LLC currently in effect and approved by the SEC and all applicable rules and regulations of the SEC.





ITEM14. PRINCIPAL ACCOUNTING FEES AND SERVICES.





Peterson Sullivan LLP has served as our independent registered public accounting firm to audit our books and accounts for the fiscal years ending August 31, 2012 and 2011. The aggregate fees billed for the last two fiscal years for professional services rendered by Peterson Sullivan were as follows:




2012


2011Audit fees

$
38,526


$
39,717Audit-related fees


-



-Tax fees


-



-All other fees


-



-





In the above table, “audit fees” are fees billed for services provided related to the audit of our annual financial statements, quarterly reviews of our interim financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for those fiscal periods. “Audit-related fees” are fees not included in audit fees that are billed by the independent accountant for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. “Tax fees” are fees billed by the independent accountant for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the independent accountant for products and services not included in the foregoing categories.
 
 Our Board of Directors pre-approves all services provided by our independent accountants. Our Board of Directors reviewed and approved all of the above services and fees.





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PART IV





ITEM15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





The following documents are filed as part of or are included in this Annual Report on Form 10-K:




1.
Financial statements listed in the Index to Financial Statements, filed as part of this Annual Report on Form 10-K; and2.
Exhibits listed in the Exhibit Index filed as part of this Annual Report on Form 10-K.





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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.





BILL THE BUTCHER, INC.

(Registrant)Date: December  14, 2012
By:
/s/  J’Amy OwensJ’Amy OwensPresident, Chief Executive Officer, Chief Financial Officer,Treasurer, Secretary and sole Director(Principal Executive Officer, Principal Financial Officer andPrincipal Accounting Officer)








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EXHIBITINDEX








Exhibit No.

Description2.1

Related Party Purchase Agreement between W K, Inc. and Reshoot & Edit dated March 26, 2010 (Incorporated herein by reference to Exhibit 2.1 to Current Report on 8-K filed March 29, 2010)3.1.1

Articles of Incorporation (Incorporated herein by reference to Exhibit 3.1 to  Registration Statement on Form SB-2 filed October 3, 2006)3.1.2

Articles of Amendment to the Articles of Incorporation, effective May 24, 2010 (Incorporated herein by reference to Exhibit 3.1.2. to Annual Report on Form 10-K  filed December 13, 2010 )3.2

Bylaws (Incorporated herein by reference to Exhibit 3.2 to Registration Statement on Form SB-2 filed by Reshoot & Edit on October 3, 2006)4.1

Common Stock Purchase Warrant issued to Montage Venture Group LLC, effective April 2, 2010 (Incorporated herein by reference to Exhibit 4.1 to Annual Report on Form 10-K filed December 13, 2010)4.2

Stock Option Agreement, dated August 1, 2010, with Wall Street Consultants, Inc. (Incorporated herein by reference to Exhibit 4.2 to Annual Report on Form 10-K filed December 13, 2010)4.3

Form of Registration Rights Agreement, effective April 2, 2010, between Registrant and Montage Venture Group LLC (Incorporated herein by reference to Exhibit 4.3 to Annual Report on Form 10-K filed December 13, 2010)†21.1

List of Subsidiaries†31.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by the Chief Executive Officer and Chief Financial Officer


# Management contract or compensatory plan, contract or arrangement


† Filed herewith






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