UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




Form 10-Q





[X]  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended July 31, 2012[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________





000-52452Commission File NumberDUSSAULT APPAREL INC.(Exact name of registrant as specified in its charter)Nevada
98-0513727(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)1308 Factory Place, Suite 311, Los Angeles, CA
90013(Address of principal executive offices)
(Zip Code)(323) 843-2186(Registrant’s  telephone number, including area code)(Former name, former address and former fiscal year, if changed since last report)





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





Yes [X]  No [  ]





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).





Yes [ X ]  No [  ]





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See 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 company
[X](Do not check if a smaller reporting company)








Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).





Yes [  ] No [ X ]





APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS DURING THE PRECEDING FIVE YEARS:





Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.





Yes [  ]  No [  ]





APPLICABLE ONLY TO CORPORATE ISSUERS





267,458,407  shares of common stock issued and outstanding as of September 11,  2012.(Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.)





2


DUSSAULT APPAREL INC.


TABLE OF CONTENTS





PagePART I – Financial InformationItem 1.
Financial Statements
4Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
5Item 3.
Quantitative and Qualitative Disclosures About Market Risk
7Item 4.
Controls and Procedures
7PART II – Other InformationItem 1.
Legal Proceedings
10Item 1A.
Risk Factors
10Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
10Item 3.
Defaults Upon Senior Securities
10Item 4.
Mine Safety Disclosures
10Item 5.
Other Information
10Item 6.
Exhibits
11Signatures
12








3


ITEM 1.  FINANCIAL STATEMENTS





The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  All such adjustments are of a normal recurring nature.  Operating results for the nine month period ended July 31, 2012, are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2012.  For further information refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2012.











PageUnaudited Financial StatementsBalance Sheets
F-1Statements of Operations
F-2Statements of Cash Flows
F-3Notes to Financial Statements
F-4 to F-9





4


DUSSAULT APPAREL INC.


Balance Sheets





July 31,

2012

(Unaudited)


October 31,

2011

(Audited)ASSETSCurrent assetsCash

$
13,761


$
8,449Accounts receivable


1,209



16,089Other receivable


4,016



4,016Sales tax  receivable


3,258



5,711Total current assets


22,244



34,265Property and Equipment, net


-



2,489Trademark


4,786



4,786Damage deposits


1,933



1,933Total assets

$
28,963


$
43,473LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilitiesAccounts payable and accrued liabilities


70,118



77,555Convertible promissory note, net


43,900



-Total current liabilities


114,018



77,555Other LiabilitiesLoan payable – related party


12,453



12,603Loan payable


38,000



38,000Total Liabilities


164,471



128,158Stockholders’ EquityCommon stock  -  $0.001 par value, authorized 1,050,000, 000 shares; 238,460,900 and 180,954,893 shares issued and outstanding as at July 31, 2012 and October 31, 2011, respectively


238,460



180,954Additional paid in capital


12,217,235



12,163,327Accumulated deficit during the development stage


(10,656,773
)


(10,656,773
)Deficit


(1,947,405
)


(1,785,168
)Accumulated other comprehensive income (loss)


12,975



12,975Total Stockholders' Equity


(135,508
)


(84,685
)Total Liabilities and Stockholders' Equity

$
28,963


$
43,473








The accompanying notes are an integral part of these financial statements


F-1


DUSSAULT APPAREL INC.


Statements of Operations and Comprehensive Loss


(Unaudited)





Three months ended July 31,


Nine months ended July 31,2012


2011


2012


2011Revenue

$
3,313


$
8,244


$
25,442


$
38,446Cost of Sales


-



2,007



-



28,981Gross Profit


3,313



6,237



25,442



9,465General and Administrative ExpensesProfessional Fees


9,518



20,084



34,773



46,691Consulting


697



1,554



3,775



61,334Advertising


-



-



-



2,734Depreciation


827



1,033



2,489



3,788Other Administrative Expenses


11,013



24,645



51,190



97,898Total Expenses


22,055



47,316



92,227



212,445Operating Income (Loss)


(18,742
)


(41,079
)


(66,785
)


(202,980
)Other Income (expense)Trademark impairment charge


-



-



(7,468
)


-Loss on conversion of debt


(34,656
)


-



(34,656
)


-Interest expense


(16,193
)


(8,152
)


(53,328
)


(79,009
)Net Income (Loss)

$
(69,591
)

$
(49,231
)

$
(162,237
)

$
(281,989
)Loss Per Common Share, basic

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)Weighted Average Number of Common Shares


206,947,626



141,264,502



190,659,868



125,793,895Comprehensive lossLoss

$
(69,591
)

$
(49,231
)

$
(162,237
)

$
(281,989
)Foreign currency translation adjustment


-



(8,653
)


-



(19,965
)Comprehensive income (loss)

$
(69,591
)

$
(57,884
)

$
(162,237
)

$
(301,954
)








The accompanying notes are an integral part of these financial statements


F-2




DUSSAULT APPAREL INC.
 Statements of Cash Flows
 (Unaudited)




For the nine months ended July 31,2012


2011Cash flows from operating activities:Net (loss)

$
(162,237
)

$
(281,989
)Adjustments to reconcile net loss to net cash used by operating activities:Consulting services issued by shares


-



61,030Depreciation


2,489



3,349Accrued interest


4,313



79,009Amortization of discount on convertible promissory note


49,015



-Stock issued to settle loans payable, including interest expense


34,656Impairment on trademark


7,468



-Occupancy fee against loan receivable


-



37,229Change in operating assets and liabilities:Accounts receivable


14,880



101Account payable


(10,575
)


64,249Inventory


-



1,297GST receivable


2,453



(8,930
)Net cash flows used by operating activities


(57,538
)


(44,216
)Cash From Investing Activities:Purchase of trade mark


-



(9,380
)Net cash  (used by) investing activities


-



(9,380
)Cash flows from financing activities:Proceeds from related party loan


-



15,293Repayment of related party loan


-



(3,345
)Loan payable


63,000



44,580Net cash flows from financing activities


63,000



56,528Effect of exchange rates on cash


(150
)


(20,405
)Net increase (decrease) in cash


5,312



(17,473
)Cash and equivalents, beginning of period


8,449



30,833Cash, end of period

$
13,761



13,360Supplemental cash flow disclosures:Cash paid for interest

$
-



-Cash paid for income taxes

$
-



-Non cash transactions:Purchase trademark by issuance of common stock

$
7,468


$
-Convert loan payable to common stock


19,100



50,000$
26,568


$
50,000







The accompanying notes are an integral part of these financial statements


F-3


DUSSAULT APPAREL INC.


NOTES TO THE FINANCIAL STATEMENTS


FOR THE NINE MONTHS ENDED JULY 31, 2012


(Unaudited – prepared by Management)





Note 1 – Basis of Presentation and Nature of Operations





These unaudited financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its operations for the periods presented in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.





Organization





The financial statements presented are those of Dussault Apparel Inc. (the Company). The Company was incorporated under the laws of the State of Nevada on August 1, 2006 as Release Your Lease Inc. Business operations had not commenced when in May, 2007, control of the company changed hands. Jason Dussault bought 1,500,000 common shares of the majority shareholder and assumed the offices of President, CEO, CFO, Secretary and Treasurer, and a Director.





On June 11, 2007 Release Your Lease Inc. effected a reverse forward merger with Dussault Apparel, Inc., a Nevada shell company. The name was changed to Dussault Apparel Inc. The Company changed its orientation toward the retail fashion clothing business. The Company opened a retail clothing and accessory store on Melrose Avenue in Los Angeles in November, 2007. Designs were produced in the Vancouver, Canada office, manufactured in China and warehoused in Los Angeles. The Company closed this store in November, 2008 in the wake of declining sales and deteriorating economic conditions.





Current Business of the Company





The Company moved operations to Vancouver in 2009. In the spring of 2011 its design and head office moved to Los Angeles California where it now primarily designs apparel for its licensing partner, the Company continues to wholesale in very limited collections its luxury apparel to retail outlets and to individuals in Canada. Our Apparel is designed in Los Angeles and samples manufactured by our licensing partner in North America. The Company has transitioned from being a manufacturer–wholesaler toward licensing its trademark to other wholesalers in the primarily in the Canadian market, while promoting its marque. The Company also entered into an agreement to purchase the trademark of a cosmetics line. Currently no sales, production or sampling of the cosmetic line has occurred or is planned.





Note 2 – Summary of Significant Accounting Policies





Use of Estimates





The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s financial position and results of operations.




F-4


DUSSAULT APPAREL INC.


NOTES TO THE FINANCIAL STATEMENTS


FOR THE NINE MONTHS ENDED JULY 31, 2012


(Unaudited – prepared by Management)





Note 2 – Summary of Significant Accounting Policies (continued)





Foreign Currency Translation





The functional currency of the Company is the Canadian Dollar. The Company uses the United States dollar as its reporting currency. All transactions initiated in Canadian Dollars are translated to U.S. Dollars in accordance with ASC 830-10-20 “Foreign Currency Translation” as follows:





·
Revenue and expense items at the average rate of exchange in effect on the transaction date;





·
Non-monetary assets and liabilities at historical exchange rates, unless such items are carried at market, in which case they are translated at the exchange rate in effect on the balance sheet date; and





·
Monetary assets and liabilities at the exchange rate at the balance sheet date.





Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ equity (deficit) as a component of comprehensive income (loss). Therefore, translation adjustments are not included in determining net income but reported as other comprehensive income.





For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.





Fair value of financial instruments





The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157), “Fair Value Measurements and Disclosures" for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:





·
Level 1: Quoted prices in active markets for identical assets or liabilities.





·
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets 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.





·
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.





The carrying amounts of the Company’s financial instruments as of July 31, 2012, reflect





·
Cash: Level One measurement based on bank reporting.





·
Loans Receivable, Loans Payable: Level 2 based on promissory notes and terms.





F-5


DUSSAULT APPAREL INC.


NOTES TO THE FINANCIAL STATEMENTS


FOR THE NINE MONTHS ENDED JULY 31, 2012


(Unaudited – prepared by Management)





Note 2 – Summary of Significant Accounting Policies (continued)





Loss Per Share





Net loss per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the periods presented. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. The Company has potentially dilutive securities in convertible loans payable; however the conversion would be anti-dilutive and is not considered in the calculation.




Royalty Income




The Company receives royalty income from licensing third parties to use its intellectual property.  Presently this is the Company’s sole revenue stream.  Previously, royalty income was shown within other income. Royalty income was not material to revenue in periods prior to the current fiscal year and was considered incidental. However, as a result of a change in our business model for this fiscal year and future periods, we expect royalty income to increase and to become the sole source of the Company’s recorded revenue. For this reason, the Company considers that the revised income statement presentation, which reflects royalty income as revenue, will provide more reliable and relevant information than the presentation adopted previously. The 2011 income statements for the three and nine month period ended July 31, 2011 have been adjusted to reflect the new presentation. During the three and nine month periods, ended July 31, 2011 there was no income related to royalties included in revenue. During the current period presentation, all income presented has been derived from royalties or commissions on sales under license agreements.





Recent Accounting Pronouncements





ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment is applicable to fiscal years beginning after December 15, 2011. Early application is permitted. The Company does not expect this ASU has a material impact on its financial position or carrying value of its intangible assets at this time.





The Company does not expect the adoption of any other recent accounting pronouncements will have a material impact on its financial statements.





Going Concern





The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company as at July 31, 2012 had not established an ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern.





As shown in the accompanying financial statements, the Company continues to incur losses. Its ability to continue as a going concern is dependent on the successful stimulation of wholesale sales or in other areas in order to fund operating losses and become profitable. If the Company is unable to make it profitable, the Company could be forced to cease development of operations. Management cannot provide any assurances that the Company will be successful in its retail operation. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.





F-6


DUSSAULT APPAREL INC.


NOTES TO THE FINANCIAL STATEMENTS


FOR THE NINE MONTHS ENDED JULY 31, 2012


(Unaudited – prepared by Management)





Note 3 - Trademarks





On April 9, 2010 the Company entered into an asset acquisition agreement (the “Agreement”) with Open Sundaes Ventures Ltd. (“Open Sundaes”) for the acquisition of certain assets relating to the business of the production and development of beauty and bath products including inventory, intellectual property and business knowhow. In consideration for the acquisition of these assets, the Company paid $43,860 and agreed to issue an aggregate of 9,000,002 shares of its common stock to the shareholders of Open Sundaes and certain creditors. The Agreement was approved by the shareholders of Open Sundaes at a special meeting held on April 22, 2010. As of October 31, 2011, the Company had issued a total of 6,424,697 shares pursuant to the Agreement, 1,424,697 shares to the shareholders of Open Sundaes and 5,000,000 shares to a creditor of Open Sundaes in settlement of certain debt related to Open Sundaes that was agreed to be paid between the parties. The Company recorded the fair value of Trade Mark based on the fair value of shares issued and cash payments, which amount totaled $197,000. On October 31, 2011, in accordance with corporate policies, the Company assessed the Trademark for impairment and determined the book value was no longer recoverable. As a result we have recorded a loss on impairment relating to the Trademark of $192,214, leaving a value of $4,786 on the balance sheets of the Company as at October 31, 2011. On January 17, 2012, the Company issued the remaining 2,575,305 shares pursuant to the Agreement, fully satisfyng the terms of the acquisition. As at the date of these financial statements, the Company has issued a total of 9,000,002 shares; 4,000,002 shares to the shareholders of Open Sundaes and 5,000,000 shares to a creditor of Open Sundaes.





The Company capitalized the fair value of the 2,575,305 shares issued on January 17, 2012 in the amount of $7,468. On July 31, 2012, in accordance with corporate policies, the Company assessed the Trademark value for impairment and determined to fully impair the $7,468, leaving a total of $4,786 on the balance sheet as at July 31, 2012.





Note 4 - Inventory





The Company receives royalty income from licensing third parties to use its intellectual property.   The Company ceased carrying inventory during the fiscal year ended October 31, 2011 and does not intend to carry inventory in future periods.




Note 5 - Notes Payable





On April 1, 2010 the Company issued a promissory note to Perati Finance Corporation for $38,000. The note matures in five years and accrues interest at 3%. The loan is convertible to common stock at a conversion price of 58% of the market price. The balance on this note as at July 31, 2012 is $38,000 plus accrued interest totaling $4,950, which is reflected in accounts payable and accrued liabilities.





Note 6 – Convertible Promissory Note, Net





On November 10, 2011 Asher Enterprises Inc. funded a promissory note executed by the Company on October 25, 2011 in the total amount of $63,000. The note matures July 27, 2012 and accrues interest at 8% or alternately 22% in the event of default. The loan is convertible to common stock at a conversion price of 58% of the market price.





The beneficial conversion feature resulting from the discounted conversion price on agreement date compared to market price on date of grant was valued at $51,571. This value was recorded as a discount on debt and offset to additional paid in capital.





Pursuant to the terms of the convertible note, Asher Enterprises, Inc. issued the following conversion notices during the period covered by this report:





·   May 11, 2012 - $5,500 was converted by the issuance of 8,461,538 common shares at a deemed price of $0.00065





·   May 24, 2012 - $3,000 was converted by the issuance of 8,108,108 common shares at a deemed price of $0.00037




F-7


DUSSAULT APPAREL INC.


NOTES TO THE FINANCIAL STATEMENTS


FOR THE NINE MONTHS ENDED JULY 31, 2012


(Unaudited – prepared by Management)





Note 6 – Convertible Promissory Note, Net (continued)





·   June 19, 2012 - $2,800 was converted by the issuance of 9,441,801 common shares at a deemed price of $0.00029





·   July 2, 2012 - $2,200 was converted by the issuance of 9,565,217 common shares at a deemed price of $0.00023





·   July 10, 2012 - $2,250 was converted by the issuance of 9,782,609 common shares at a deemed price of $0.00023





·   July 27, 2012 - $3,350 was converted by the issuance of 9,571,429 common shares at a deemed price of $0.00035





Amortization of the discount over the nine month period ended July 31, 2012 totaled $49,015, which amount has been recorded as interest expense. Unamortized amount of $2,556 has been recorded as additional paid in capital due to the amount of  $19,100 which was converted to shares before the maturity date.





July 31, 2012


November 10, 2011Convertible Promissory Note – face value

$
63,000


$
63,000Less: beneficial conversion feature


--



51,571Converted to shares


19,100



-$
43,900


$
11,429





As of July 31, 2012, accrued interest on the note totaled $2,288.





Note 7 – Common Stock





On January 17, 2012, the Company issued the remaining 2,575,305 shares pursuant to the agreement with Open Sundaes. This issuance completed the consideration to be provided under the agreement with Open Sundaes (Note 3 – Trademarks, above).





On May 11, 2012,  $5,500 of the original balance of a Convertible Promissory note entered into on October 25, 2011 was  retired by the issuance of 8,461,538 common shares at a deemed price of $0.00065.





On May 24, 2012,  $3,000 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 8,108,108 common shares at a deemed price of $0.00037.





On June 19, 2012,  $2,800 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,441,801 common shares at a deemed price of $0.00029.





On July 2, 2012,  $2,200 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,565,217 common shares at a deemed price of $0.00023.





On July 10, 2012,  $2,250 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,782,609 common shares at a deemed price of $0.00023.





On July 27, 2012,  $3,350 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,571,429 common shares at a deemed price of $0.00035.





As at July 31, 2012 there were a total of 238,460,900 shares issued and outstanding.





F-8


DUSSAULT APPAREL INC.


NOTES TO THE FINANCIAL STATEMENTS


FOR THE NINE MONTHS ENDED JULY 31, 2012


(Unaudited – prepared by Management)





Note 8 – Related Party Transactions





As of October 31, 2011, the President of the Company, Jason Dussault advanced funds in the amount of $12,603 (CAD$12,500) to the Company for working capital. During the nine month period ended July 31, 2012, the Company did not make any cash payments to Jason Dussault, leaving $12,453 (CAD$12,500) on the balance sheet as loan payable – related parties. The amounts are unsecured, non-interest bearing and due on demand.





On June 1, 2012 the Company entered into a month to month consulting agreement with Rodhan Management and Consulting Services (“Rodhan”) for the provision of administrative, consulting and website maintenance services.  The agreement provides for services to be charged based on work performed during each month at an hourly rate. Mr. Robert Mintak, the Company's Chief Financial Officer and Chief Operating Officer, also provides consulting services to Rodhan and acts as their Chief Financial Officer. During the period ended July 31, 2012, Rodhan Management invoiced totaling amount of $ 12,078 (CAD$12,320) for the services rendered. The Company made cash paymenst in the amount of $9,847 (CAD$10,080), leaving $2,231 (CAD$2,240) on the balance sheet as accounts payable.





Note 8 – Subsequent Events





On August 1, 2012,  $4,500 of the original balance of the Convertible Promissory note referenced above in Note 6 was retired by the issuance of 9,375,000 common shares at a deemed price of $0.00048.  The remaining principal balance was $39,400 following the conversion.





On August 10, 2012,  $5,100 of the remaining balance of the Convertible Promissory note referenced above in Note 6 was retired by the issuance of 9,807,692 common shares at a deemed price of $0.00052.  The remaining principal balance was $34,300 following the conversion.





On August 23, 2012,  $5,300 of the remaining balance of the Convertible Promissory note referenced above in Note 6 was retired by the issuance of 9,814,815 common shares at a deemed price of $0.00054.  The remaining principal balance was $29,000 following the conversion.


On July 11, 2012, Ms. Natalie Bannister was appointed as a Director of the Company.





The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional events to disclose.





F-9


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





This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.





Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.





Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.





Given these uncertainties, readers of this Quarterly Report on Form 10-Q and investors are cautioned not to place undue reliance on such forward-looking statements.  The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.




All dollar amounts stated herein are in US dollars unless otherwise indicated.





The management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").  The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the year ended October 31, 2011, together with notes thereto.





As used in this quarterly report, the terms "we", "us", "our", and the "Company" mean Dussault Apparel Inc.





Background





We were incorporated on October 1, 2006 in the State Nevada under the name Release Your Lease Inc. Our initial business plan was to create a web-based service for buyers and sellers of leased automobiles. A decision was made by new management, to change the corporate direction of the Company and to pursue opportunities in the retail fashion industry and effective June 11, 2007; we completed a merger with our wholly subsidiary Dussault Apparel Inc. We currently operate in the retail fashion industry.





Liquidity & Capital Resources





As of July 31, 2012, our cash balance was $13,761, which is an increase from our cash balance of $8,449 as of October 31, 2011. We have a decrease in accounts receivable to $1,209 as at July 31, 2012 as compared to $16,089 in October 31, 2011, other receivables of $4,016 as at July 31, 2012 remain unchanged from October 31, 2011, and a tax receivable of $3,258 as at July 31, 2012, which is decreased from $5,711 as at October 31, 2011. During the nine month period ended July 31, 2012 we entered into a convertible promissory note in the amount of $63,000 for operating expenses related to the ongoing management of the Company.


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Presently, our revenues are not sufficient to meet our operating and capital expenses. Our capital requirements are difficult to plan in light of our current strategy to limit our operations and our products. However based on our expenditures from prior years we have estimated that we will require $400,000 over the next twelve months to pay down our existing liabilities and to continue to grow our operations. Since our inception, we have been dependent on investment capital as an important source of liquidity. Our operations presently are generating negative cash flow, and we do not expect positive cash flow from operations in the near term. We need to secure additional working capital in the short-term in order to sustain our operations and execute our business plan. We have incurred operating losses since inception, and this is likely to continue into the fiscal year ending October 31, 2012. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis should it be required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.





Our ability to meet our financial commitments is primarily dependent upon the continued issuance of equity to new stockholders, the ability to borrow funds, and ultimately upon our ability to achieve and maintain profitable operations. There are no assurances that we will be able to obtain required funds for our continued operations or that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.





There is substantial doubt about our ability to continue as a going concern, as the continuation of our business is dependent upon obtaining further short and long-term financing and achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholder. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.





Results of Operations





The discussion and financial statements contained herein are for the three and nine months periods ended July 31, 2012 and July 31, 2011. The following discussion regarding our financial statements should be read in conjunction with our financial statements for our fiscal year ended October 31, 2011 as filed with the Securities and Exchange Commission on February 14, 2012.





We have suffered recurring losses from operations. The continuation of our Company is dependent upon us attaining and maintaining profitable operations and raising additional capital as needed. In this regard, we have successfully raised additional capital through equity offerings and loan transactions in the past and presently believe we will be able to do so in the future, though we can offer no assurance of this outcome as no specific arrangements are in place.





Comparison of the Three Months Ended July 31, 2012 and 2011





During the three months period ended July 31, 2012 and 2011 respectively, we earned gross revenues of $3,313 as compared to $8,244, with gross profit of $3,313 for the three months ended July 31, 2012 as compared to gross profit of $6,237 for the comparable period ended July 31, 2011.





For the three months ended July 31, 2012, our general and administrative expenses decreased substantially to $22,055, from $47,316 for July 31, 2011. This decrease was mainly due to a substantial reduction in professional fees from $20,084 for the three months ended July 31, 2011 to $9,518 for the three months ended July 31, 2012, as well as a substantial decrease in consulting fees from $1,554, for the three months ended July 31, 2011 as compared to $697 for the three months ended July 31, 2012, as our overall operational activity was substantially decreased.  Other administrative expenses decreased to $11,013 for the three months ended July 31, 2012 as compared to $24,645 for the three months ended July 31, 2011.





Interest expenses for the three months ended July 31, 2012 increased to $16,193 from $8,152 for the three months ended July 31, 2011.  In addition, we recorded loss on conversion expenses of $34,656 in the current period, as compared to Nil in the same period ended July 31, 2011 as a result of certain loans which were settled by the issuance of shares of common stock at a discount to market price on the date of issue.





During the three months ended July 31, 2012 the Company recorded a net loss of $69,591 as compared to a net loss of $49,231 for the three months ended July 31, 2011.





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Comparison of the Nine months Ended July 31, 2012 and 2011





During the nine month periods ended July 31, 2012 and 2011 respectively, we earned gross revenues of $25,442 as compared to $38,446, with gross profit of $25,442 as at July 31, 2012 as compared to gross profit of $9,465 as at July 31, 2011.   The increase in gross profit is related to a change in the Company’s revenue model where by at the close of the fiscal year ended October 31, 2011, the Company determined to cease all direct sales of products and move to a license based revenue model whereby the Company licenses its brands and receives royalty income from the sale of licensed products, with no other direct sales costs.  As a result as of this change, as at July 31, 2012 there were no costs of sales, as compared to the period ended July 31, 2011 where costs of sales on products sold totaled $28,981.





For the nine months ended July 31, 2012, our general and administrative expenses decreased substantially to $92,227, from $212,445 for July 31, 2011. This decrease was mainly due to a substantial reduction in consulting fees from $61,334 for the nine months ended July 31, 2011 to $3,775 for the nine months ended July 31, 2012, as well as a substantial decrease in other administrative expenses from $97,898, for the nine months ended July 31, 2011 as compared to $51,190 for the nine months ended July 31, 2012, as our overall operational activity was substantially decreased. As a result, our costs for advertising declined from $2,734 for the nine months ended July 31, 2011 to $Nil for the nine months ended July 31, 2012.  Professional fees remained relatively constant and $34,773 for the nine months ended July 31, 2012 as compared to $46,691 for the nine months ended July 31, 2011 due to the costs related to maintaining our reporting status.





Other income and expenses reflect a trademark impairment charge of ($7,468) in the nine month period ended July 31, 2012 with no comparative entry in the same period ended July 31, 2011, as the Company evaluated its capitalized trademark costs for recoverability and determined the recoverability of the asset to be impaired. In addition, we recorded loss on conversion expenses of $34,656 in the current period, as compared to Nil in the same period ended July 31, 2011 as a result of certain loans which were settled by the issuance of shares of common stock at a discount to market price on the date of issue.





During the nine months ended July 31, 2012 the Company recorded a net loss of $162,237 as compared to a net loss of $281,989 for the nine months ended July 31, 2011.





Critical Accounting Policies and Estimates





The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements.





Off- Balance Sheet Arrangements





The Company presently does not have any off-balance sheet arrangements





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





A smaller reporting company is not required to provide the information required by this Item.





ITEM 4.   CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





Our management, under supervision and with the participation of the Mr. Jason Dussault, Principal Executive Officer and Mr. Robert Mintak, Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e).  Based upon this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of April 30, 2012, because of the material weakness in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective.





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





Management’s Report on Internal Control over Financial Reporting





Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f).  Our internal control over financial reporting is designed 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.





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





Management assessed the effectiveness of our internal control over financial reporting as of January 31, 2012.  In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.   Based on its assessment, management concluded that, as of April 30, 2012, our internal control over financial reporting was not effective and that material weaknesses in ICFR existed as more fully described below.





As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.  In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of April 30, 2012:





1)
Lack of an independent audit committee or audit committee financial expert, and no independent directors.  We do not have any members of the Board who are independent directors and we do not have an audit committee.  These factors may be counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management;


2)
Inadequate staffing and supervision within our bookkeeping operations.  We have a consulting firm involved in bookkeeping functions.  The fact that the accounting staffs providing bookkeeping functions are all from the same firm of consultants prevents us from segregating duties within our internal control system.  The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews. This may result in a failure to detect errors in spreadsheets, calculations or assumptions used to compile the financial statements and related disclosures as filed with the SEC;


3)
Outsourcing of our accounting operations.  Because there are no employees in our administration, we have outsourced all of our accounting functions to an independent firm.  The employees of this firm are managed by supervisors within the firm and are not answerable to the Company’s management.  This is a material weakness because it could result in a disjunction between the accounting policies adopted by our Board of Directors and the accounting practices applied by the independent firm;


4)
Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.





8


Changes in Internal Control over Financial Reporting





As of July 31, 2012, management assessed the effectiveness of our internal control over financial reporting.  Based on that evaluation, it was concluded that during the quarter ended and to date, the internal controls and procedures were not effective due to deficiencies that existed in the design or operation of our internal controls over financial reporting.  However, management believes these weaknesses did not have an effect on our financial results.  During the course of their evaluation, management did not discover any fraud involving management or any other personnel who play a significant role in our disclosure controls and procedures or internal controls over financial reporting.





Due to a lack of financial and personnel resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses.  We will not be able to do so until, if ever, we acquire sufficient financing and staff to do so.  We will implement further controls as circumstances, cash flow, and working capital permits.  Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the period ended July 31, 2012, fairly present our financial position, results of operations, and cash flows for the periods covered, as identified, in all material respects.





Management believes that the material weaknesses set forth above were the result of the scale of our operations and intrinsic to our small size.  Management also believes that these weaknesses did not have an effect on our financial results.





We are committed to improving our financial organization.   As part of this commitment, we will, as soon as funds are available to the Company (1) appoint outside directors to our board of directors sufficient to form an audit committee and who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; (2) create a position to segregate duties consistent with control objectives and to increase our personnel resources.  We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary, and as funds allow.





This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.





During the quarter ended July 31, 2012, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





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PART II – OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS





None





ITEM 1A.  RISK FACTORS





A smaller reporting company is not required to provide the information required by this Item.





ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





On May 11, 2012,  $5,500 of the original balance of a Convertible Promissory note entered into on October 25, 2011 was  retired by the issuance of 8,461,538 common shares at a deemed price of $0.00065.





On May 24, 2012,  $3,000 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 8,108,108 common shares at a deemed price of $0.00037.





On June 19, 2012,  $2,800 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 8,108,109,441 common shares at a deemed price of $0.00029.





On July 2, 2012,  $2,200 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,565,217 common shares at a deemed price of $0.00023.





On July 10, 2012,  $2,250 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,782,609 common shares at a deemed price of $0.00023.





On July 27, 2012,  $3,350 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,571,429 common shares at a deemed price of $0.00035.





On August 1, 2012,  $4,500 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,375,000 common shares at a deemed price of $0.00048.





On August 10, 2012,  $5,100 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,807,692 common shares at a deemed price of $0.00052.





On August 23, 2012,  $5,300 of the remaining balance of a Convertible Promissory note entered into on October 25, 2011 was retired by the issuance of 9,814,815 common shares at a deemed price of $0.00054.




The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended, for the issuance of shares to Asher Enterprises, Inc. pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transaction does not involve a public offering, the purchasers are “accredited investors” and/or qualified institutional buyers, the purchasers have access to information about the Company and its purchase, the purchasers will take the securities for investment and not resale.





ITEM 3.  DEFAULTS UPON SENIOR SECURITIES





None.





ITEM 4.  MINE SAFETY DISCLOSURES





Not Applicable





ITEM 5.  OTHER INFORMATION





On July 11, 2012, Ms. Natalie Bannister was appointed as a Director of Dussault Apparel Inc.




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ITEM 6.  EXHIBITS





NO.
IDENTIFICATION OF EXHIBIT3.1
Articles of Incorporation
Incorporated by reference from our Registration Statement on Form SB-2 filed on January 11, 2007.3.2
Bylaws
Incorporated by reference from our Registration Statement on Form SB-2 filed on January 11, 2007.3.3
Articles of Merger
Incorporated by reference from our Form 8-K filed on June 16, 2007.3.4
Certificate of Change
Incorporated by reference from our Form 8-K filed on June 16, 200710.1
Employment Agreement dated June 22, 2007, between our company and Terry Fitzgerald
Incorporated by reference from our Form 8-K filed on June 25, 200710.2
Letter of Intent dated June 25, 2007, between our company and Dussault Jeans Inc.
Incorporated by reference from our Form 8-K filed on July 2, 200710.3
Letter of Intent dated November 5, 2007 between our company and Dussault Jeans Inc.
Incorporated by reference from our Form 8-K filed on November 5, 2007.10.4
Consulting Agreement dated July 19, 2007, between our company and Jason Sundar
Incorporated by reference from our Annual Report on Form 10-KSB filed on February 13, 2008.10.5
Consulting Agreement dated July 19, 2007, between our company and Robert Mintak
Incorporated by reference from our Annual Report on Form 10-KSB filed on February 13, 200810.6
Bridge Loan Agreement dated January 19, 2007, between our company and Dussault Jeans Inc
Incorporated by reference from our Form 8-K filed on August 1, 200710.7
Bridge Loan Agreement dated April 16, 2008, between our company and Dayton Boot Co. Ent. Ltd.
Incorporated by reference from our Form 8-K filed on April 23, 200810.8
Distribution Agreement dated November 10, 2009, between our company and EHM Holdings.
Incorporated by reference from our Quarterly Report on Form 10-Q filed on March 22, 201010.9
Merchandising License Agreement dated October 31, 2009, between our company and USPA Accessories, LLC.
Incorporated by reference from our Quarterly Report on Form 10-Q filed on March 22, 201031.1
Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith31.2
Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith








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SIGNATURES





Pursuant to the requirements 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.








DUSSAULT APPAREL INC.Date:
September 19, 2012
By:
/s/ Jason DussaultName:
Jason DussaultTitle:
Chief Executive Officer and President (Principal Executive Officer)By:
/s/ Robert MintakName:
Robert MintakTitle:
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)





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