Dear Shareholder:
We would like to personally thank you for your patience and support during our growth phase as a commercial enterprise and public company. We have reached certain key milestones and would like to share with you our recent developments and our future outlook for Total Apparel Group, Inc. (the “Company”) as we move toward becoming a more transparent and fully reporting public company.
Since the last official shareholder letter that we sent to you approximately two years ago, the Company has undergone a major transformation in its effort to become a leading licensing and brand management partner in the United States for a highly diversified portfolio of well-known international sports, entertainment and lifestyle brands. Our intent when we signed the licensing agreement with Basic Net S.p.A., Basic Properties America, Inc. and Kappa North America, Inc. in April, 2009 and the non-exclusive Distribution Agreement with Global Brands (Football) Pte. Ltd. (through our wholly owned subsidiary Active Apparel Group, Inc.) in November 2008 (the “FIFA Distribution Agreement”) was to augment our efforts in implementing our business plan.
Concurrent with these activities, we developed a comprehensive long term strategy and vision on a platform that we call the “Nine Principles of Growth”; established a proven management team; opened two offices/showrooms in New York and Los Angeles; engaged new legal and accounting representation; and began the process of becoming a fully reporting public company quoted on the Over-the-Counter Bulletin Board.
As a result of the recession, we faced a number of setbacks and obstacles beginning in late 2008, such as limited access to financial resources, severe changes in the retail market and the overall economic uncertainty of consumers. Because of these factors, we had to adjust our plans and temper initial expectations, which impacted our ability to meet certain short-term contractual obligations and sales objectives, and resulted in the decline in our stock price. We have finally managed to achieve, however, a number of the goals that we set forth in our “Nine Principles of Growth,” such as the filing of a registration statement (which includes our audited financial statements for the two years ended December 31, 2009 and 2008 and unaudited financial statements for the six month period ended June 30, 2010) with the Securities and Exchange Commission (the “SEC”), which we announced in a press release that we issue d on September 8, 2010. This will move us closer to our goal of being quoted on the Over-the-Counter Bulletin Board, a critical element of our strategy.
Below is a summary of the Company’s other developments since our last shareholder letter to you in 2008:
Kappa North America (KNA)
Kappa North America, Inc. (KNA) is the Company’s wholly owned subsidiary that maintains the U.S. and Canadian master licensing rights for men’s, women’s and children’s accessories, footwear, and apparel for the Kappa™ and Robe Di Kappa™ brands. Although we generated some fairly good sales in the four months after we acquired the rights for the brands, we faced fiscal challenges in our launch efforts for the Kappa™ and Robe Di Kappa brands™ similar to those experienced with the FIFA Collections™ brand. We are currently working through these challenges internally and with the team at Basic Net S.p.A., the parent company of the Kappa™ and Robe Di Kappa™ brands. Most of our 2009 sales were generated through our Canadian sales force and account base, which includes major accounts such as Footlocker, Forzani, Athletes World and SportChek. Due to a transition within our sales team in the Canadian market, however, our sales efforts have slowed while we reassess our strategy and restructure our approach to the Canadian market.
With respect to the U.S. market, we have delivered a minimal amount of seasonal product to key accounts such as Eurosport/Soccer.com, but are roughly six months off of our intended launch schedule and have not launched any comprehensive national retail and marketing programs. We believe that because we have not rolled out any significant sales initiatives in this market, there is a large amount of pent up demand for the product based on overall market research and direct feedback from retailers and consumers.
Over the next few months, we will continue to slowly introduce product into the marketplace and work closely with Basic Net to achieve our initial sales and marketing strategy. Based on our current timetable to complete a revised plan with Basic Net, our plans are to have a full U.S. launch for the 2011 Summer/Back to School selling season. In any event, we believe that with a strong sales and marketing strategy, sound financial structure and solid management team, the Kappa™ brand has the potential to become a highly successful performance lifestyle brand in North America. Kappa represents the best short and long term growth opportunity that we currently have under contract.
Active Apparel Group, Inc. (AAG)
In the fall of 2009, we generated modest sales and recognized minimal revenues for the FIFA Collections™ brand through our wholly owned subsidiary Active Apparel Group, Inc., which has the rights to the FIFA Distribution Agreement. We generated the majority of the revenue from the FIFA Distribution Agreement through key accounts such as Eurosport, Delivery Agent (FIFA.com) and Modecraft (Burlington), which experienced moderate success at retail. Although the initial introduction of the FIFA™ brand apparel received a favorable response, it was mitigated by the consumer interest in purchasing World Cup Event Merchandise developing at a later date then expected. As a result, our first quarter 2010 sales figures were significantly lower than anticipated.
Subsequently, we put together an aggressive World Cup sales campaign to offset the lower than expected revenues by generating orders from many of the large retailers, including Burlington Coat Factory, Sports Authority, Costco and Wal-Mart. Many of these major retailers, however, cancelled their orders due to late shipments and late deliveries. We were unable to deliver in a timely manner because, among other reasons, we were unable to pay additional fees associated with increased airfreight costs resulting from flight disruptions caused by the Icelandic Volcano and other external factors. Therefore, although the World Cup was, and remains, an important part of the FIFA Collections™ brand, it is not the focal point of the brand, but rather one that we were able to leverage to:
• Create relationships with key accounts (such as Wal-Mart, Costco and Sports Authority), maximizing our Company’s exposure;
• Establish additional long-term business opportunities (such as acquiring licenses and other acquisition targets) for our Company and our other licensed properties; and
• Develop a comprehensive plan to ensure the success of the FIFA Collections™ brand in the U.S. marketplace in 2011 and beyond as we move toward the World Cup games in Brazil in 2014.
The Future
In closing, we will continue to follow our mission of creating transparency and stability and providing a new level of responsible corporate governance that we believe will guide the Company into the future, afford us the best chance for success, and ultimately create long term value and positive returns for our shareholders. We thank you for your continued support and are excited to embark on the next stage of the Company’s growth. A Company Executive Summary follows this letter.
Warmest regards,
Janon Costley
Chief Executive Officer
Total Apparel Group, Inc.
Don Jones
Chairman
Total Apparel Group, Inc.
Total Apparel Group, Inc.
Executive Summary
Total Apparel Group, Inc. (“TAG” or the “Company”) is a publicly traded (TLAG) licensing and brand management partner for highly diversified, pre-eminent international sports, entertainment and lifestyle brands in North America. Through its sales and distribution network, TAG facilitates sales as a master licensee and distributor of branded products with an emphasis on the apparel, footwear and accessory sectors. The Company believes it is poised to expand its position in the branded apparel and footwear sector, by building a collection of market leading national and international registered trademarks through master licensing agreements, joint ventures and acquisitions therefore increasing the companies market position and thereby the overall value of the individual trademarks. As exhibited with several of its existing partnerships, the company believes in business with a purpose and has keen interest in Corpo rate Social Responsibility.
Total Apparel Group, Inc. consists of several wholly owned subsidiaries which serve various functions. TAG, as the parent company, role is to provide corporate governance, create a long term sustainable platform and provide the necessary tools that will ensure the success of each division which will ultimately create value for the shareholders.. The services and tools required will be built around the needs and concerns of each proprietary trademark, license, brand and/or acquisitions. TAG will assist the growth strategies, by providing necessary capital resources(human and financial), developing and managing the direction of each brand, providing marketing tools and offering additional support through its vast base of strategic partnerships and alliances around the globe. This structure could reduce overall liability, allowing for the organization to become leaner by eliminating costly overhead and creating the potential for m ore streams of revenue. The leaner, more flexible organization allows the company to drive business development in terms of creating additional internal licensing opportunities, as well seeking additional external revenue streams through additional licensed properties and even potential acquisition targets. The company will participate in the earnings delivered by the Network's sales cycle. TAG’s subsidiaries, as required, will attempt to engage in wholesale distribution, direct retail distribution through, branded outlets/ identity stores, e-commerce sales and marketing strategies and licensing and brand extension services.
Current Wholly Owned Subsidiary Profile
Kappa North America, Inc. – Master US/Canadian licensing rights for Kappa and Robe Di Kappa brands, men's, women’s and children’s apparel, accessories, headwear, footwear.
Active Apparel Group, Inc. – non-exclusive US distribution rights for FIFA and FIFA World Cup 2010 men’s, women’s and children apparel, accessories, footwear and headwear.
Total Retail Ventures, Inc. – established to manage any retail store operations for company owned, licensed properties.
Total Licensing, Inc. – established to manage internal and external licensing opportunities for existing brands or new properties seeking licensing or brand extension services.
Growth Plan
2011 Business and Beyond “9 Principles for Growth”
Executive Summary
1. Re-organize/Restructure
2. Deliver value to our shareholders
3. Strategy for the future
4. Build the company's brand
5. Partnership with Licensors and additional brands
6. Organizational infrastructure
7. Corporate Responsibility
8. Great place to work
9. Execution
Details
1. Re-organize and Restructure
• Complete Audit and file and Form 10 application for re-listing with the SEC
• Continue to build long term business plan to maximize brand synergies
• Communicate strategic plan to shareholders, business partners and vendors
• Continue to Enhance Quality of Management Team and Board of Directors
• Further develop existing corporate partnerships
• Add Capital Raise
2. Deliver value to our shareholders by continuing our efforts to:
• Increase revenues
• Reduce costs
• Improve Operating efficiencies
• Improve investor relations
• Work Even Harder on behalf of the shareholder
3. Building a Strategy for the future by continuing our efforts to:
• Build a tri-channel consumer product company (Wholesale, retail, e-tail)
• Become the licensee of choice for Lifestyle apparel, footwear and accessory brands looking to enter the North American market
• Develop an effective Branded Retail Store Platform/Joint Venture
• Identify Potential Acquisition Targets
4. Build the company's brand by continuing our efforts to:
• Initiate a Strategic Corporate Communications Plan
• Maximize the power of the internet, (Social Networking, Blogging, E-Commerce)
• Emphasize CSR initiatives and activities through parent and brands
• Become known as the “house of lifestyle of brands”
• Emphasize Quality Branded Products and niche categories as the platform for our development
• Become more involved in Industry Associations, Events etc…..
• Market our talented TAG TEAM
5. Enhance our partnership with existing properties and additional brands (new opportunities) by continuing our efforts to:
• Execute the terms of agreements
• Align with and participate in all marketing campaigns
• Utilize existing relationships to develop further licensing, distribution and acquisition opportunities
• Seek and sign additional complimentary properties
6. Strengthen the Company’s Organizational Infrastructure by continuing our efforts to:
• Form strategic alliances that will help to expand our capabilities
• Refocus operational efficiencies
• Add personnel and resources in key areas (Sales, Design, Sourcing)
• Customize and fully utilizing our new ERP system to create a fully integrated technology platform
7. Emphasize Corporate Social Responsibility by attempting to:
• Develop a “Green” plan
• Participate in the social and economic development of all states, cities, and towns where we do business
• Partner with charitable organizations as in an inherent part of our sales activities to further their cause
8. Create a Great Place to work by continuing our efforts to:
• Build a supportive, safe, and creative working environment for our employees
• Administer benefits that are meaningful and cost effective for our employees
• Recognize, develop, and promote our employees to their fullest potential
9. Executing Initiatives
• Create Value for shareholders
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This letter and Executive Summary include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and relate to future events, including, without limitation, our future financial performance. These statements involve known and unknown risks, uncertainties and other factors 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 these forward-looking statements. Such forward-looking statements may be identified by terminology such as “intend,” “should,” “expect,” “may,” “plan,” “anticipate,” “believe,” “estimate,” “project” or “predict,” and the negative and variations of such words and comparable terminology. You should not place undue reliance on these forward-looking statements since they involve uncertainties and other factors, which are, in some cases, beyond our control. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions. Except as required by applicable law, we assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons why actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available to us in the future.
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