UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 2012
Commission File Number 000-32923
CLICKER INC.
(Exact name of registrant as specified in its charter)
| Nevada | 26-4835457 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1111 Kane Concourse, Suite 304 Bay Harbor Islands, Florida | 33154 (786) 309-5190 |
| (Address of principal executive office) | (Zip Code) (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:
| Title of each class |
| Common Stock, $0.001 par value |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yeso Nox
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. Yesx Noo
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 (§ 229.405 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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company 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).Yeso Nox
The aggregate market value of the voting common equity held by non-affiliates as of February 29, 2012, based on the closing sales price of the Common Stock as quoted on the Over-the-Counter Bulletin Board was $216,662. For purposes of this computation, all officers, directors, and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.
As of December 13, 2012, there were 488,000 shares of registrant’s common stock outstanding.
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This Annual Report on Form 10-K is of Clicker Inc. (“Clicker”), which is also referred to as “we”, us” or the "Company".
This Annual Report on Form 10-K (including the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our Management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading "Risks Related to Our Business" below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission ("SEC"). You can read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
OVERVIEW
We are a web publisher brand builder focused on developing stand-alone brands that incorporate social networking and reward properties that leverage content, commerce and advertising for the next generation global internet users. We will, when appropriate, acquire properties outright that fit our business model.
The developments of these internet websites have four main stages of development:
Stage One : | The idea and concept stage of a potentially good idea. At this stage a budget and timeline for the property is developed. The size of the market and our plan for integration or exit is established. Additionally the business model is introduced at this level. |
Stage Two : | The development of the property is laid out. Site layout and design is established. Logic and user flow and finally site architecture and design are established. |
Stage Three : | The site is launched and the operational model is implemented in beta form. We begin to scale some web traffic and begin to test the model. The site is officially launched in the beta stage and can be in a few different versions. |
Stage Four : | Full operation stage and the property should now have gone though a couple stages of beta with the model being established, and ready to leave the “beta” stage, to go on to be scaled accordingly. |
OUR WEB PROPERTIES
Sippinit.com
Sippinit.com is an online pop, entertainment and gossip property that will incorporate social networking with entertainment. We have launched this property under www.celebritymagazineonline.com. The social media capabilities of this property have not been developed and are not expected to be developed any time soon.
Sportsgulp.net
Sportsgulp.net is a social networking website and gossip channel for sports enthusiasts. The website was launched in 2011. Plans call for the property to pull conventional sports feeds while allowing users a more interactive social networking component whereby the sports community could be more interactive with each other by incorporating social networking tools. The social media capabilities of this property have not been developed and are not expected to be developed any time soon.
Wallst.net and Mywallst.net
We have re-launched wallst.net as a news consumption property, and advertising platform. This aggregates financial news and information from the web.
Dahoodbuzz.com
Dahoodbuzz.com, is a news consumption property, and advertising platform. This aggregates hip hop and urban news from the web.
U-Furnish.com
This is a Furniture e-commerce site that we acquired May 31, 2012. U-Furnish.com has been in business providing affordable, modern urban style furniture since 2010. We will be selling the product on line, and rely on a third party drop shipper and manufacturer to fulfill orders to avoid any of the associated expenses that come with production and warehousing product. Management plans to further build revenue by continuing the ongoing pay per click marketing campaign and expansion of the available product lines. The initial marketing campaign included seven marketing channels. Plans call for an increase in the number of marketing channels to further improve on the click to sale ratio. Management is evaluating the addition of a new line of furniture as well as expanding to home accessories. During the fiscal year ended August 31, 2012, u-furnish generated revenue of $2,528.
Competition
Generally, competitive factors within the internet and web development market include the range and depth of financial tools and dimensions of email offerings, the quality of web site content, and the reliability of reference information provided. We are aware of several companies which are much larger and have greater name recognition, that provide some level of presence and awareness in similar delivery formats.
Employees
As of December 1, 2012, we employed one full-time employee, our Interim Chief Executive Officer.
WE HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE, WHICH MAY NEGATIVELY IMPACT OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.
We incurred net losses of $1,813,318 and $4,079,483 for the years ended August 31, 2012 and 2011, respectively. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our revenue. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us. These losses are largely associated with the operation of our financial related properties.
OUR INDEPENDENT AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING.
In their report dated December 27, 2012, our independent auditors stated that our financial statements for the year ended August 31, 2012 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
WE HAVE A LIMITED OPERATING HISTORY AND IF WE ARE NOT SUCCESSFUL IN CONTINUING TO GROW OUR BUSINESS, THEN WE MAY HAVE TO SCALE BACK OR EVEN CEASE OUR ONGOING BUSINESS OPERATIONS.
Our company has a limited operating history. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We have received a limited amount of revenues from operations and have limited assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
WE OPERATE WITHIN A HIGHLY COMPETITIVE AND COMPLEX MARKET THAT IS DIRECTLY OR INDIRECTLY AFFECTED BY MARKET RISKS AND REGULATIONS, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Website development and branding is an extremely competitive and fragmented industry. The industry can be significantly affected by many factors, including changes in local, regional, and national economic conditions, changes in consumer preferences, brand name recognition, marketing and the development of new and competing internet web publishers and media companies. We expect that existing businesses that compete with us and have greater financial resources than us will be able to undertake more extensive marketing campaigns and more aggressive advertising sales policies than us, thereby generating more attention to their companies and websites. These competitive pressures could have a material adverse effect on our business, prospects, financial condition, and results of operations.
OUR DEPENDENCE ON THE CONTINUED GROWTH IN THE USE OF THE WEB, PARTICULARLY IN OUR INDUSTRIES, COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our business depends on consumers continuing to increase their use of the web for obtaining news and financial information, social networking, classified ads, reward type offers as well as for conducting commercial transactions. The rapid growth and use of the Internet is a relatively recent phenomenon. As a result this acceptance and use may not continue to develop at historical rates. Web usage may be inhibited for a number of reasons, such as - Inadequate network infrastructure; security concerns; inconsistent quality of service; and availability of cost-effective, high-speed service.
If web usage grows, the Internet infrastructure may not be able to support the demands placed on it by this growth or its performance and reliability may decline. In addition, web sites have experienced interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure. If these outages or delays frequently occur in the future, web usage, as well as usage of our web site, could grow more slowly or decline, which could adversely affect our results of operations.
IF WE ARE UNABLE TO ESTALISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB SITES TO ATTRACT USERS, ADVERTISERS AND CONTENT, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
We depend on establishing and maintaining distribution relationships with high-traffic web sites for a significant portion of our traffic. There is intense competition for placements on these sites, and we may not be able to enter into such relationships on commercially reasonable terms or at all. Even if we enter into distribution relationships with these web sites, they themselves may not attract significant numbers of users. Therefore, our web site may not receive additional users from these relationships. Moreover, we may have to pay significant fees to establish these relationships.
Occasionally we enter into agreements with advertisers, content providers or other high traffic web sites that require us to exclusively feature these parties in certain sections of our web site. Existing and future exclusivity arrangements may prevent us from entering into other content agreements, advertising or sponsorship arrangements, or other strategic relationships. Many companies we may pursue for a strategic relationship also offer competing services. As a result, these competitors may be reluctant to enter into strategic relationships with us. Our business could be adversely affected if we do not establish and maintain additional strategic relationships on commercially reasonable terms or if any of our strategic relationships do not result in increased use of our web site.
DIFFICULTY ACCOMMODATING INCREASES IN THE NUMBER OF USERS OF OUR SERVICES AND INTERNET SERVICE PROBLEMS OUTSIDE OF OUR CONTROL ULTIMATELY COULD RESULT IN THE REDUCTION OF USERS OF OUR WEB PROPERTIES.
Our Web sites have in the past, and may in the future experience slower response times or other problems for a variety of reasons. Our web sites could experience disruptions or interruptions in service due to the failure or delay in the transmission or receipt of information. In addition, our users depend on Internet service providers, online service providers and other web site operators for access to our Web sites. Each of them has experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. These types of occurrences could cause users to perceive our Web sites as not functioning properly, and therefore cause them to use other methods to obtain their business and financial news and other information.
IF WE DO NOT DEVELOP NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB PROPERTIES, WE MAY NOT BE ABLE TO ATTRACT AND RETAIN A SUFFICIENT NUMBER OF USERS.
We believe that our Web site will be more attractive to advertisers if we develop a larger audience comprised of demographically favorable users. Accordingly, we intend to introduce additional or enhanced services in the future in order to retain its current users and attract new users. If we introduce a service that is not favorably received, the current users may not continue using our service as frequently. New users could also choose a competitive service over ours.
We may also experience difficulties that could delay or prevent us from introducing new services. Furthermore, these services may contain errors that are discovered after the services are introduced. We may need to significantly modify the design of these services on its Web site to correct these errors. Our business could be adversely affected if it experiences difficulties in introducing new services or if users do not accept these new services.
THERE IS INTENSE COMPETITION FOR OUR WEB-BASED BUSINESSES AND FINANCIAL CONTENT AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
Many web sites compete for consumers' and advertisers' attention and spending, particularly in the business and financial information and news area. We expect this competition to continue to increase. We compete for advertisers, users, and content providers and e commerce customers with many types of companies, including:
| · | Publishers and distributors of traditional media (television, radio and print), such as The Wall Street Journal, CNN and CNBC; |
| · | General purpose consumer online services such as Craigslist, Kijiji (an Ebay company); Classifieds and Backpage; |
| · | Online services or web sites targeted to business, finance and investing needs, such as Monster and Yahoo’s Hot jobs; and |
| · | Affiliate and Multi-level Marketing and other companies, such as Herbalife and Amway, Infoseek, Lycos, and Yahoo! |
Increased competition could result in price reductions, reduced margins, or loss of market share, any of which would adversely affect our business.
THE DIMINUTION OR LOSS, MISAAPROPRIATION OR LEGAL CLAIMS ON THE BRAND NAME "WALLST.NET" “FORWANT”, “CASHCLICKER”, “ITSMYLOCAL”, “U-FURNISH” AND OUR OTHER DEVELOPING PROPERTIES WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS.
We currently rely on contractual rights, copyrights, trademarks, and trade secrets to protect our intellectual property rights. We do not hold any patents. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop comparable or superior technologies or obtain unauthorized access to our proprietary technologies.
We hold the Internet domain names “www.forwant.com”, “www.cashclicker.com”, “www.itsmylocal.com”, “www.sippinit.com”, www.sportsgulp.net”, www.wallst.net and “u-furnish.com”. Under current domain name registration practices, no one else can obtain an identical domain name, but someone might obtain a similar name, or the identical name with a different suffix, such as ".org,” or with a country designation. The regulation of domain names in the United States and in foreign countries is subject to change, and we could be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our domain names.
WE COULD FACE LIABILITY FOR THE INFORMATION DISPLAYED ON OUR WEB PROPERTIES, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We may be subjected to claims for defamation, negligence, and copyright or trademark infringement or based on other theories relating to the information we publish on our web site. These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We could also be subjected to claims based upon the content that is accessible from its Web site through links to other web sites. Defending such claims could be costly and could distract management from concentrating on other aspects of our business, which could adversely affect our financial condition and results of operations.
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE DEBENTURES THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of August 31, 2012, we had 488,000 shares of common stock issued and outstanding and convertible debentures outstanding that may be converted into an estimated 17,254,000 shares of common stock at current market prices. In addition, the number of shares of common stock issuable upon conversion of the outstanding convertible debentures will increase if the market price of our stock declines. Almost all of the shares issuable upon conversion of the outstanding convertible debentures may be sold without restriction pursuant to Rule 144. The sale of these shares may adversely affect the market price of our common stock. We currently have insufficient common shares available to enable the conversion of our convertible debt or the exercise of our outstanding stock options.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE DEBENTURES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK, WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The convertible debentures are convertible into shares of our common stock at a discount ranging between 50% and 65% from the trading price of the common stock prior to the conversion. The significant downward pressure on the price of the common stock as the investors convert and sells material amounts of common stock could encourage short sales by investors. This could place further downward pressure on the price of the common stock. The investors could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. In addition, not only the sale of shares issued upon conversion or exercise of the secured convertible notes, but also the mere perception that these sales could occur, may adversely affect the market price of the common stock.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE DEBENTURES MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the convertible debentures may result in substantial dilution to the interests of other stockholders since the investors may ultimately convert and sell the full amount issuable on conversion. Although the investors may not convert their convertible debentures if such conversion or exercise would cause them to own more than 4.99% of our outstanding common stock, this restriction does not prevent the investors from converting and/or exercising some of their holdings and then converting the rest of their holdings. In this way, the investors could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock.
WE ARE CURRENTLY IN DEFAULT UNDER A SIGNIFICANT AMOUNT OF OUR OUTSTANDING CONVERTIBLE DEBENTURES.
A number of our convertible debentures remain outstanding subsequent to their maturity dates. The aggregate principal face amount of convertible debentures in default is approximately $746,000 as of August 31, 2012. We are currently working with the debt holders on making arrangements to honor our obligations under the debentures, however, there can be no assurance that any such arrangements will ever materialize or be permissible or sufficient to cover any or all of the obligations under the debentures.
Risks Relating to Our Common Stock:
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
| |
| | · | that a broker or dealer approve a person's account for transactions in penny stocks; and |
| | · | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
| |
| | · | obtain financial information and investment experience objectives of the person; and |
| | · | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
| | · | sets forth the basis on which the broker or dealer made the suitability determination; and |
| | · | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A SHAREHOLDER’S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
None.
Corporate Offices
Our corporate offices consist of approximately 250 sq. feet of office space in Bay Harbor Islands, Florida. We have a month to month lease basis at a monthly rental of approximately $550. We believe that our existing facilities are suitable and adequate to meet our current business requirements.
Intellectual Property, Proprietary Rights and Domain Names
We own the domain names “www.forwant.com”, “www.cashclicker.com”, “www.itsmylocal.com”, “www.sippinit.com”, www.sportsgulp.net”, “www.wallst.net”, www.u-furnish.com and “www.financialfilings.com”. We believe our ownership of these domain names gives us adequate protection over them and we intend to keep them in our possession.
Other intellectual property is protected through a combination of trademark law, trade secret protection, and confidentiality agreements with our employees, customers, independent contractors, agents, and vendors. We pursue the registration of our domain names, trademarks, and service market in the United States. Effective trademark, service mark, copyright, and trade secret protection may not be available in every country in which we provide services and products are made available online. We create some of our own content and obtain the balance of our content from third parties. It is possible that it could become subject to infringement actions based upon the content obtained by third parties. In addition, others may use this content and we may be subject to claims from our licensors. We currently have no patents or patents pending and do not anticipate that patents will become a significant part of our intellectual property in the future. We have entered into confidentiality agreements with our employees and independent consultants and have instituted procedures to control access to and distribution of our technology, documentation and other proprietary information and the proprietary information of others from who we licenses content. The steps we take to protect our proprietary rights may not be adequate and third parties may infringe or misappropriate the trademarks, service marks, and similar proprietary rights. In addition, other parties may assert claims of infringement of intellectual property or alter proprietary rights against us. The legal status of intellectual property on the Internet is currently subject to various uncertainties as legal precedents have not been set and are still to be determined in many areas of Internet law.
Except as disclosed below, there are no legal proceedings to which we are a party or to which any of our property is subject, and to the best of our knowledge, no such actions against us is contemplated or threatened.
PR Newswire Association, Inc. vs. Financial Filings Corporation, Digital Wall Street, Inc. and WallStreet Direct, Inc., Superior Court of New Jersey, Hudson County, Civil Division #5, Docket No. L-878-09. On February 12, 2009, PR Newswire filed litigation against us and our subsidiaries to pay $74,194.60 for services provided by PR Newswire. A judgment was entered against us in the amount of $74,194.60 and said amount remains unpaid.
Adon Networks, Inc. vs. Wall Street Direct, Inc., Superior Court of Arizona in and for the County of Maricopa County Civil Action #CV2009-00035. On February 4, 2009, Adon Networks filed an action to collect $41,966 in amounts due for services provided to Wall Street Direct. A judgment was entered against us in the amount of $41,966 and said amount remains unpaid.
Renaissance Hotel Management Company, LLC vs. Financial Media Group, Inc., Cook County Court, Illinois, First Municipal District, Case No. 08M110495. On January 22, 2008, litigation claiming $20,250 from us was commenced under the above-entitled action. On September 10, 2008, a judgment was entered against us in the amount of $14,371.87 and said amount remains unpaid.
CBS Outdoors, Inc. vs. Financial Media Group, Inc., New York City Civil Court Index No. CV-003947-08/NY. On March 27, 2008, a Stipulation of Settlement was entered between CBS Outdoors and us for a sum of $16,800. A default judgment in the amount of $17,794.85 was entered against us on October 16, 2008.
Dow Jones & Company, Inc. DBA Dow Jones Marketwatch as successor in interest to Marketwatch, Inc. vs. Financial Media Group, Inc. Et. Al., Superior Court of California, County of Orange, Case No. 30-2208 00112726. On September 30, 2008, Dow Jones filed a complaint for a breach of contract against us for failing to pay $42,000 in licensing fees for using Marketwatch’s financial information and analytical tools relating to securities pursuant to the terms as required by the License and Service Agreement. On March 4, 2009, a judgment for $48,162.40 was awarded in favor of Dow Jones, and said amount remains unpaid. We plan to contest the judgment if a settlement is not reached as services were supplied to a subsidiary. On November 15, 2010, the Company agreed to settle judgment and paying $2,000 per month until the amount is paid in full. The Company is not current in these payments.
Elite Financial Communications Group, LLC vs. Financial Media Group, Inc., Superior Court of California, County of Orange, Case No. 30-20090012358. On May 22, 2009, Elite Financial Communications Group, LLC filed a complaint for a breach of contract against us for failing to pay for Investor Relations Services. On October 1, 2009, a judgment for $61,293 was awarded in favor of Elite Financial Communications, and the amount remains unpaid. The balance has been included in current liability on the accompanying consolidated financial statements.
TPF Partners vs. Financial Media Group, Inc., Superior Court of California, County of Orange, Case No. 30-2010-00363315. On April 15, 2010, TPF filed a complaint for a unlawful retainer against us for unpaid rent, late charges and other amounts in the sum of $28,061.56, as of March 12, 2010. On June 25, 2010, a default judgment was awarded in favor of TPF Partners, which judgment was not paid. On May 22, 2012, an amended complaint was filed for damages of $79,134.89. On August 14, 2012, TPF Partners made a motion for an entry of default judgment against us in the amount of $88,682.72.
Not applicable.
Our common stock is traded on the Pink Sheets under the symbol CLKZ. Prior to January 20, 2011, our common stock traded on the Over-the-Counter Bulletin Board under the symbol CLKZ. The following table sets forth, for the period indicated, the range of high and low trading prices reported by the Pink Sheets or Over-the-Counter Bulletin Board, as applicable. Such quotations represent prices between dealers and may not include markups, markdowns, or commissions and may not necessarily represent actual transactions.
| Period | | High | | | Low | |
Fiscal Year Ended August 31, 2012: | | | | | | |
| First Quarter | | $ | 1.3514 | | | $ | 0.15 | |
| Second Quarter | | | 0.60 | | | | 0.18 | |
| Third Quarter | | | 0.60 | | | | 0.16 | |
| Fourth Quarter | | | 0.45 | | | | 0.20 | |
Fiscal Year Ended August 31, 2011: | | | | | | | | |
| First Quarter | | $ | 174.30 | | | $ | 42.00 | |
| Second Quarter | | | 510.00 | | | | 1.80 | |
| Third Quarter | | | 10.50 | | | | 1.50 | |
| Fourth Quarter | | | 2.10 | | | | 0.30 | |
Holders
On December 13, 2012 the closing price for our common stock on the Over-the-Counter Bulletin Board was $0.05 per share. On December 13, 2012, there were 751 shareholders of record of our common stock.
Dividends
We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board deems relevant.
Recent Sales of Unregistered Securities
Not required under Regulation S-K for “smaller reporting companies.”
This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our services, fluctuations in pricing for materials, and competition.
Overview
We are a web publisher brand builder focused on developing stand-alone brands that incorporate social networking and reward properties that leverage content, commerce and advertising for the next generation global internet users. We will, when appropriate, acquire properties outright that fit our business model.
Plan of Operations
Management has created a focus on revenue producing website acquisition and build out in the e-commerce space. We believe this category represents meaningful potential. Management continues to look at other e-commerce opportunities as well as it plans to further build out its presence in the e-commerce space. Management continues to evaluate the strategic disposition, and or monetization of existing properties in its portfolio of website properties. We are considering the best ways to maximize the value of our intellectual assets (which include our website properties) and revive revenue, including a number of options ranging from the sale of certain intellectual assets to investing further capital to build out our potentially productive intellectual assets.
Results of Operations
Our consolidated results of operations for the years ended August 31, 2012 and 2011 include our wholly-owned subsidiaries WallStreet, Financial Filings Corp., My WallStreet, Inc., and The Wealth Expo Inc. Our subsidiaries were inactive during the year ended August 31, 2012.
Revenues
Revenues for the year ended August 31, 2012 were $2,665 compared to $41,570 for the year ended August 31, 2011. Revenues decreased by $38,905 (94%) during the year ended August 31, 2012 since we have been unable, to date, to attract new clients for our business of web development and brand builder or generate material revenue to date from any new initiatives.
Operating Expenses, Other Expense and Other Income
Selling, general, and administrative expenses for the year ended August 31, 2012 were $347,158 compared to $1,738,806 for the year ended August 31, 2011, a decrease of $1,391,648 (80%). The decrease for 2012 period resulted primarily from decreases in compensation of approximately $1,014,000, consulting fees of approximately $114,000, professional fees of approximately $47,000, rent expense of approximately $25,000 and travel and entertainment of approximately $27,000. The decreases reflect cost cutting measures implemented and the reassessment of the strategic direction of the company.
Depreciation expense for the year ended August 31, 2012 was $1,867 compared to $7,297 for the year ended August 31, 2011. The decrease resulted from assets becoming fully depreciated during the 2011 period, partially offset by depreciation on the automobile acquired during the year ended August 31, 2012.
Impairment of marketable securities for the year ended August 31, 2011 was $98,442 with no comparable expense for the year ended August 31, 2012. During the year ended August 31, 2011 we fully impaired our marketable securities based on the inability to dispose of these types of securities.
Interest expense for the year ended August 31, 2012 was $1,331,748 compared to $1,364,741 for the year ended August 31, 2011. The decrease in interest expense for the year ended August 31, 2012 resulted primarily from a decrease in discounts attributable to the conversion features of convertible notes issued during the year ended August 31, 2012.
We recorded expense of $150,885 related to the change in value of derivative liabilities for the year ended August 31, 2012 as compared to $1,197,519 for the year ended August 31, 2011. The variance in derivative liability expense resulted from our issuance of convertible notes and the changes in the market price of our stock, conversion feature discounts and the fluctuations in market volatility.
We recorded gain of $20,475 on debt redemptions for the year ended August 31, 2012 compared to a loss of $212,791 for the year ended August 31, 2011. The gain or loss on debt redemption resulted from the issuance of common shares in exchange for services or to pay off debt, based on the fair value of the shares issued as compared to the carrying value of the related debt. The closing price on the date of issuance is used to compute the actual fair market value of our common stock in determining the amount of the gain or loss.
During the year ended August 31, 2011, we entered into several settlement agreements with prior officers and directors, whereby we were released from $503,257 of prior employment-related obligations. In connection with this release, we recorded $503,257 as other income, included in total other income of $503,343. There was no other income for the year ended August 31, 2012.
Net Loss
We reported a net loss of $1,813,318 for the year ended August 31, 2012 compared to a net loss of $4,079,483 for the year ended August 31, 2011. We recorded a decrease in net loss for the year ended August 31, 2012 of $2,266,165 compared to 2011 due to the factors described above.
Liquidity and Capital Resources
Cash and cash equivalents were $32,734 at August 31, 2012 compared to $303 at August 31, 2011. As shown in the accompanying consolidated financial statements, we recorded a net loss of $1,813,318 for the year ended August 31, 2012 compared to a loss of $4,079,483 for the year ended August 31, 2011. Our current liabilities exceeded our current assets by $6,967,741 at August 31, 2012 and net cash used in operating activities for the year ended August 31, 2012 was $283,892. These factors and our ability to meet our debt obligations from current operations, and the need to raise additional capital to accomplish our objectives raise substantial doubt about our ability to continue as a going concern.
We expect significant capital expenditures during the next 12 months, contingent upon raising capital. These anticipated expenditures are for website development, assets additions, administrative overheads and working capital requirements. We do not have sufficient funds to conduct our operations for more than three months and we estimate that we will need an infusion of capital of approximately $500,000 to fund our anticipated operations for the next 12 months, depending on revenues from operations. We have no contracts or commitments for additional funds and there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.
Whereas we have been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of our planned service development and marketing efforts, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:
| - | curtail operations significantly; |
| - | sell significant assets; |
| - | seek arrangements with strategic partners or other parties that may require the company to relinquish significant rights to products, technologies or markets; or |
| - | explore other strategic alternatives including a merger or sale of our company. |
To finance our operations, we have issued a number of convertible debentures. Our outstanding convertible debentures are as follows:
February 2010 Debt Conversion
On February 1, 2010, we entered into an exchange agreement with Greystone Capital Partners, Inc. (“Greystone”), pursuant to which Greystone exchanged a $491,400 promissory note for a $491,400 convertible debenture (the “Greystone Debenture”). The Greystone Debenture does not accrue interest and matured on February 1, 2011. Greystone has the right to convert all or a portion of the principal into shares of our common stock at a conversion price equal to forty percent (40%) of the average of the closing bid price of our common stock during the five (5) trading days immediately preceding the conversion date as quoted by Bloomberg, LP. As of December 13, 2012, $58,469 of principal face value of the Greystone Debenture remains outstanding.
Greystone Private Placement
On July 2, 2010, we entered into two Securities Purchase Agreements with Greystone providing for the sale to Greystone of (i) a convertible debenture in the principal amount of $50,000 (the “First Debenture”) and (ii) a convertible debenture in the principal amount of $20,000 (the “Second Debenture”, and together with the First Debenture, the “Greystone Debentures”). The Debentures matured on the first anniversary of the date of issuance and bear interest at the annual rate of 10%.
Greystone may convert, at any time, the outstanding principal and accrued interest on the First Debenture into shares of Common Stock at a conversion price per share equal to the lesser of (i) forty percent (40%) of the lowest closing price of the Common Stock during the 10 trading days immediately preceding the Conversion Date as quoted by Bloomberg, LP or (ii) forty percent (40%) of the closing price of the Common Stock on July 2, 2010.
Greystone may convert, at any time, the outstanding principal and accrued interest on the Second Debenture into Common Stock at a conversion price per share equal to the lesser of (i) thirty-five percent (35%) of the lowest closing price of the Common Stock during the 10 trading days immediately preceding the Conversion Date as quoted by Bloomberg, LP or (ii) thirty-five percent (35%) of the closing price of the Common Stock on July 2, 2010. As of December 13, 2012, the entire principal face value of the Greystone Debentures remains outstanding.
Lotus Financing
On July 14, 2010, the Company entered into a Securities Purchase Agreement with Lotus Funding Group, LLC, an accredited investor (“Lotus”), providing for the sale by the Company to Lotus of a 10% convertible debenture in the principal amount of $55,000 (the “Lotus Debenture”). The Lotus Debenture matured on the first anniversary of the date of issuance and bears interest at the annual rate of 10%.
Lotus may convert, at any time, the outstanding principal and accrued interest on the Lotus Debenture into shares of the Company’s Common Stock at a conversion price per share equal to the lesser of (i) forty percent (40%) of the lowest closing price of the Common Stock during the 10 trading days immediately preceding the conversion date as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties or (ii) $0.408.
Lotus has agreed to restrict its ability to convert the Lotus Debenture and receive shares of the Company’s Common Stock such that the number of shares of common stock held by Lotus in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s Common Stock. As of December 13, 2012, $23,100 of principal face value of the Lotus Debenture remains outstanding.
July 2010 IIG Financing I
On July 26, 2010, we entered into a securities purchase agreement, as amended on January 5, 2011, with IIG Management LLC, an accredited investor (“IIG”), providing for the sale by us to IIG of a 10% convertible debenture in the principal amount of $205,000 (the “IIG Debenture I”).
The IIG Debenture I matured on the first anniversary of the date of issuance and bears interest at the annual rate of 10%. IIG may convert, at any time, the outstanding principal and accrued interest on the IIG Debenture I into shares of our common stock at a conversion price per share equal to the lesser of (i) thirty-five percent (35%) of the lowest closing price of the Common Stock during the 10 trading days immediately preceding the Conversion Date as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties or (ii) $0.3465. As of December 13, 2012, the entire principal face value of the IIG Debenture I remains outstanding.
Assurance Financing
On December 10, 2010, we entered into a securities purchase agreement with Assurance Funding Solutions, LLC, an accredited investor (“Assurance”), providing for the sale by us to Assurance of a 10% convertible debenture in the principal amount of $55,000 (the “Assurance Debenture”).
The Assurance Debenture matured on the first anniversary of the date of issuance and bears interest at the annual rate of 10%. Assurance may convert, at any time, the outstanding principal and accrued interest on the Assurance Debenture into shares of our common stock at a conversion price per share equal to the lesser of (i) thirty five percent (35%) of the average of the closing bid price of our common stock during the five (5) trading days immediately preceding the conversion date as quoted by Bloomberg, LP or (ii) $0.0336. Subsequently, the Assurance Debenture was sold to Flyback, LLC. As of December 13, 2012, $41,108 of principal face value of the Assurance Debenture remains outstanding.
IIG Financing II
On January 5, 2011, we entered into a securities purchase agreement with IIG providing for the sale by us to IIG of a 10% convertible debenture in the principal amount of $55,000 (the “Second IIG Debenture”).
The Second IIG Debenture matured on the first anniversary of the date of issuance and bears interest at the annual rate of 10%. IIG may convert, at any time, the outstanding principal and accrued interest on the Second IIG Debenture into shares of our common stock at a conversion price per share equal to the lesser of (i) thirty-five percent (35%) of the lowest closing price of our common stock during the 10 trading days immediately preceding the conversion date as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties or (ii) $0.0175. As of December 13, 2012, the entire principal face value of the Second IIG Debenture remains outstanding.
Asher Financing II
On January 28, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”), providing for the sale by the Company to Asher of an 8% convertible debenture in the principal amount of $32,500 (the “Asher II Debenture”). The Asher II Debenture was amended on February 9, 2011 to allow us to prepay the Asher II Debenture within the first 180 days after issuance. The Asher II Debenture matured on November 2, 2011 and bears interest at the annual rate of 8%.
Asher may convert, at any time, the outstanding principal and accrued interest on the Asher II Debenture into shares of Common Stock at a conversion price per share equal to fifty percent (50%) of the average of the three (3) lowest closing bid prices of the Common Stock during the 10 trading days immediately preceding the conversion date.
Asher agreed to restrict its ability to convert the Asher II Debenture and receive shares of the Company’s Common Stock such that the number of shares of Common Stock held by Asher in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s Common Stock.
Subsequently, the Asher II Debenture was sold to IIG. As of December 13, 2012, the entire principal face value of the Asher II Debenture remains outstanding.
Greystone Financing
On February 17, 2011, the Company entered into a Securities Purchase Agreement with Greystone providing for the sale by the Company to the Investor of a 10% convertible debenture in the principal amount of $30,500 (the “Second Greystone Debenture”).
The Second Greystone Debenture matured on the first anniversary of the date of issuance and bears interest at the annual rate of 10%.
Greystone may convert, at any time, the outstanding principal and accrued interest on the Second Greystone Debenture into shares of Common Stock at a conversion price per share equal to the lesser of (i) thirty-five percent (35%) of the lowest closing price of the Common Stock during the 10 trading days immediately preceding the Conversion Date as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties or (ii) $0.00875. As of December 13, 2012, the entire principal face value of the Second Greystone Debenture remains outstanding.
IIG Financing III
On March 7, 2011, the Company entered into a Securities Purchase Agreement with IIG providing for the sale by the Company to IIG of a 10% convertible debenture in the principal amount of $130,000 (the “Third IIG Debenture”). The Third IIG Debenture matured on the first anniversary of the date of issuance and bears interest at the annual rate of 10%.
IIG may convert, at any time, the outstanding principal and accrued interest on the Third IIG Debenture into shares of the Company’s Common Stock at a conversion price per share equal to the lesser of (i) thirty-five percent (35%) of the lowest closing price of the Common Stock during the 10 trading days immediately preceding the conversion date as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties or (ii) $0.00525.
IIG has agreed to restrict its ability to convert the Third IIG Debenture and receive shares of the Company’s Common Stock such that the number of shares of common stock held by IIG in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s Common Stock. As of December 13, 2012, the entire principal face value of the Third IIG Debenture remains outstanding.
Flyback Financing
On September 21, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Flyback, LLC, an accredited investor (“Flyback”), providing for the sale by the Company to the Investor of a 10% convertible debenture in the principal amount of $300,000 (the “Flyback Debenture”). The Flyback Debenture matures on March 20, 2013 (the “Flyback Maturity Date”) and bears interest at the annual rate of 10%. The Company is not required to make any payments until the Flyback Maturity Date although the Company has the ability to repay the Flyback Debenture at any time without penalty upon five days prior written notice to Flyback.
Flyback may convert, at any time, the outstanding principal and accrued interest on the Flyback Debenture into shares of the Company’s Common Stock at a conversion price per share equal to fifty percent (50%) of the average of the closing prices of the Common Stock during the five trading days immediately preceding the date of conversion as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties. Flyback has agreed to restrict its ability to convert the Flyback Debenture and receive shares of Common Stock such that the number of shares of Common Stock held by Flyback in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s Common Stock. As of December 13, 2012, the entire principal face value of the Flyback Debenture remains outstanding.
Millennium Financing
On August 28, 2012, the Company entered into a Securities Purchase Agreement with Millennium Investment Realty, an accredited investor (“Millennium”), providing for the sale by the Company to Millennium of a 10% convertible debenture in the principal amount of $50,000 (the “Millennium Debenture”). The Millennium Debenture matures on February 28, 2014 (the “Millennium Maturity Date”) and bears interest at the annual rate of 10%. The Company is not required to make any payments until the Millennium Maturity Date although the Company has the ability to repay the Millennium Debenture at any time without penalty upon five days prior written notice to Millennium.
Millennium may convert, at any time, the outstanding principal and accrued interest on the Millennium Debenture into shares of the Company’s Common Stock at a conversion price per share equal to fifty percent (50%) of the average of the closing prices of the Common Stock during the ten trading days immediately preceding the date of conversion as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties. Millennium has agreed to restrict its ability to convert the Millennium Debenture and receive shares of Common Stock such that the number of shares of Common Stock held by Millennium in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s Common Stock. As of December 13, 2012, the entire principal face value of the Millennium Debenture remains outstanding.
Milstein Financing
On October 26, 2012, the Company entered into a Securities Purchase Agreement with Monroe Milstein, an accredited investor (“Milstein”), providing for the sale by the Company to Milstein of a 10% convertible debenture in the principal amount of $200,000 (the “Millennium Debenture”). The Millennium Debenture matures on October 26, 2014 (the “Milstein Maturity Date”) and bears interest at the annual rate of 10%. The Company is not required to make any payments until the Milstein Maturity Date although the Company has the ability to repay the Milstein Debenture at any time without penalty upon five days prior written notice to Milstein.
Milstein may convert, at any time, the outstanding principal and accrued interest on the Milstein Debenture into shares of the Company’s Common Stock at a conversion price per share equal to fifty percent (50%) of the lowest closing price of the Common Stock during the ten trading days immediately preceding the date of conversion as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties. Milstein has agreed to restrict its ability to convert the Milstein Debenture and receive shares of Common Stock such that the number of shares of Common Stock held by Milstein in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of the Company’s Common Stock. As of December 13, 2012, the entire principal face value of the Milstein Debenture remains outstanding.
Operating Activities
Net cash used in operating activities for the year ended August 31, 2012 was $283,892 which resulted primarily from a net loss of $1,813,318, which was offset by non-cash items for amortization of debt discount and finance cost of $1,149,258, change in fair value of derivative liability of convertible notes of $150,885 and depreciation of $1,867, such non-cash expenses partially offset by non-cash gain on conversion of debt of $20,475. We also had a net increase in accounts payable and accrued expenses of $258,226, primarily as a result of an increase in accrued interest of $177,154.
Net cash used in operating activities for the year ended August 31, 2011 was $518,172 which resulted primarily from a net loss of $4,079,483, which was offset by non-cash items for issuance of stock and options for services of $770,172, impairment of marketable securities of $98,442, amortization of debt discount of $1,204,178, change in fair value of derivative liability of convertible notes of $1,197,519 and loss on conversion of debt of $212,791, such non-cash expenses partially offset by non-cash other income of $503,257. We also had an increase in accounts payable, accrued expenses and other liabilities of $514,632.
Investing Activities
Net cash used in investing activities for the year ended August 31, 2012 was $8,402 for the purchase of an automobile. There was no cash used by investing activities in 2011.
Financing Activities
Net cash provided by financing activities was $324,725 for the year ended August 31, 2012. We received $350,000 in proceeds from the sale of convertible notes and repaid $25,275 of notes.
Net cash provided by financing activities was $473,775 for the year ended August 31, 2011, of which $95,500 was from the exercise of stock options and $378,275 from the sale of notes and convertible notes.
As a result of the above activities, we had a net increase in cash of $32,431 during the year ended August 31, 2012 compared to a decrease of $44,397 during the year ended August 31, 2011. Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from investors.
Application of Critical Accounting Policies
Revenue Recognition
Revenue is recorded on the basis of services provide to our clients, and is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of us exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Our primary source of revenue was generated from building and developing stand-alone brands that incorporate social networking, and providing internet based media and advertising services. The services included web designs, integrated social media network, text and display advertising, press releases, e-mail marketing, and promotion across our network of web sites. Revenues from Internet based media and advertising services were recognized and recorded when the performance of such services completed.
Stock-Based Compensation
The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.
Derivatives
Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
Recent Accounting Pronouncements
On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05 (“ASU 2011-12”). ASU 2011-12 amends certain pending paragraphs from ASU 2011-05. This amendment allows companies to defer the effective date of the change in presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The effective date for all other amendments put forth in ASU No. 2011-05 are unaffected by this update. This update is effective for fiscal years and interim periods within those years beginning after December 15, 2011. The Company adopted this guidance effective May 1, 2012, and its implementation did not have a material impact on our consolidated financial statements.
In December 2011, the FASB issued guidance on offsetting (netting) assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance is effective for annual periods beginning after January 1, 2013.
In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.
In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance is effective for annual periods beginning after December 15, 2011. In December 2011, the FASB issued a deferral of certain portion of this guidance.
In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance is effective for annual periods beginning after December 15, 2011.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Off Balance Sheet Arrangements
None.
Not required under Regulation S-K for “smaller reporting companies.”
Financial statements are filed and included elsewhere herein as a part of this Annual Report on Form 10-K.
None.
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of August 31, 2012, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting.
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(c) 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 in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of August 31, 2012.
This annual report does not include an attestation report by Kabani & Company, Inc., our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
None.
The names of our directors and executive officers and their ages, titles, and biographies are set forth below:
| NAME | | AGE | | POSITIONS HELD |
| Willis Arndt, Jr. | | 46 | | Interim Chief Executive Officer |
| Dov Konetz | | 30 | | Director |
Directors are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their successors are elected. Officers are elected annually and serve at the discretion of the Board of Directors. There is no family relationship between any of our executive officers or directors.
Willis Arndt, Jr., Interim Chief Executive Officer
Mr. Adndt has been our interim chief executive officer since November 2012. Since 2002, Mr. Arndt has been the Managing Partner of Arndt Strategies, Ltd., an advisory firm that works with entrepreneurs to develop, initiate, and execute business ideas focused on leveraging the internet and with established companies to improve management implementation, operations, operational efficiency, operating margins and to increase revenues and clients. Mr. Arndt currently sits on the board of directors of FLIMP Rich Video Media, Couples of Equality and Miami Beach Pride. Between 2006 and October 2011, Mr. Arndt served as Executive Vice President of Business Development & Strategy for MerchantAdvantage, LLC, a Miami, Florida and Dallas, Texas based eCommerce data mapping and marketing technology company, which he also cofound. Between 2000 and 2002, Mr. Arndt served as the President and Trustee of Tribe Enterprises, Ltd and Tribe USA, the U.S. subsidiaries of an Australia-based new media company. Between 1997 and 2000, Mr. Arndt served as Executive Producer of Journey Management & Productions, a film and television production company. Previously, Mr. Arndt served as an investment banker with Morgan Stanley & Co. Incorporated. A dedicated philanthropist Mr. Arndt has raised over $10M for dedicated nonprofits and other non-business related organizations since 2002. Mr. Arndt holds a BA in Political History from Yale University and an MBA from Harvard University.
Dov Konetz, Director
Mr. Konetz has been a director since October 2012. Mr. Konetz has worked for Peoples Insurance Claim Center since 2003, handling appraisals and mediation negotiations related to insurance claims. Mr. Konetz holds a Florida Department of Insurance Adjusting License, which he has held since 2003. Mr. Konetz currently serves or has served on the Board of Directors of various non-profit organizations, including Miami Beach Police Athletic League (2008 – present), Miami Beach Police Relations Committee (City Board) (2010 – 2012), Mt. Sinai Hospital (2008), Hebrew Homes (2009 – present), Mirador Master Association (2007 – present) and Kiwanis Club Miami Beach (2009 – 2010). In addition, Mr. Konetz served as the Vice President of the Miami Beach Police Athletic League between 2010 and 2011.
Board Meetings
To the best of management’s knowledge, during the year ended August 31, 2012, the Board of Directors held no board meetings to conduct business. The Board approved certain actions by unanimous written consent.
Board Committees and Independence
We are not required to have any independent members of the Board of Directors. The board of directors has determined that (i) Mr. Lapidus has a relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is not an “independent director” as defined in the Marketplace Rules of The NASDAQ Stock Market. As we do not have any board committees, the board as a whole carries out the functions of audit, nominating and compensation committees, and such “independent director” determination has been made pursuant to the committee independence standards.
Code of Ethics
We have adopted a Code of Ethics that are designed to deter wrongdoing and to promote honest and ethical conduct, full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications. The Code of Ethics promotes compliance with applicable governmental laws, rules and regulations.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more than 10% of our common stock to file with the SEC reports regarding their ownership and changes in ownership of our securities. Except as disclosed below, we believe that, during fiscal 2012, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements.
| | · | A late Form 3 was filed by Gregory Pippo on January 31, 2012 relating to his appointment as an officer on January 18, 2012. |
The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer, the two highest paid executive officers and up to two other highest paid individuals whose total annual salary and bonus exceeded $100,000 for fiscal years 2012 and 2011.
| Name and Principal Position | | Year | | Salary ($) | | Stock Awards ($) | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | |
| | | | | | | | | | | | | | | | | | |
| Lloyd Lapidus | | 2012 | | | 37,160 | | | - | | | | | - | | | | - | | | | 37,160 | |
| Chairman, Chief Executive Officer and Director (1) | | 2011 | | | 80,000 | | | - | | | | | 45,000 | (2) | | | - | | | | 125,000 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Albert Aimers | | 2011 | | | 124,829 | | | - | | | | | - | | | | 100,000 | (4) | | | 224,829 | |
| Former Chief Executive Officer (3) | | | | | | | | | | | | | | | | | | | | | | |
(1) Mr. Lapidus has served as Chairman, Chief Executive Officer and Director between March 7, 2011 and October 9, 2012.
(2) Represents grant date fair value of 3,000,000 options granted to Mr. Lapidus computed in accordance with Accounting Standards Codification Topic 718-10 (formerly FAS No. 123R).
(3) Mr. Aimers served as Chief Executive Officer until March 7, 2011.
(4) Represents a severance payment made to Mr. Aimers.
Employment Agreements with Executive Officers
On November 26, 2012, we entered into an employment agreement (the “Agreement”) with Mr. Arndt to serve as interim Chief Executive Officer. The Agreement runs on a month to month basis, and can be terminated by the Company or Mr. Arndt upon 30 days prior written notice. The base salary under the Agreement is a monthly gross salary of $3,000. Mr. Arndt is entitled to participate in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of August 31, 2012.
| Name | | Number of Securities underlying Unexercised Options (#) Exercisable | | | Number of Securities underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($/Sh) | | Option Expiration Date |
| | | | | | | | | | | |
| Lloyd Lapidus | ` | | 10,000 | | | | - | | | $ | 6.00 | | March 7, 2016 |
Director Compensation
None.
The following table sets forth certain information regarding beneficial ownership of our common stock as of December 13, 2012.
| - | by each person who is known by us to beneficially own more than 5% of our common stock; |
| - | by each of our officers and directors; and |
| - | by all of our officers and directors as a group. |
| Name And Address Of Beneficial Owner (1) | | Number of Shares Owned (2) | | | Percentage of Class (3) | |
| Willis Arndt, Jr. | | | 0 | | | | 0 | % |
| Dov Konetz | | | 0 | | | | 0 | % |
| All Officers and Directors as a Group (2 persons) | | | 0 | | | | 0 | % |
| | | | | | | | | |
| Thalia Woods Management Inc. | | | | | | | | |
| 560 Peoples Plaza, #325F | | | | | | | | |
| Austin, Texas 78711 | | | 89,230 | (4 | ) | | 18.28 | % |
| (1) | The address for our officer and director is 1111 Kane Concourse, Suite 304, Bay Harbor Islands, Florida 33154. |
| (2) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of December 13, 2012 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. |
| (3) | Percentage based on 488,000 shares of common stock outstanding. |
| (4) | As reported pursuant to a shareholder list from the Company’s transfer agent on December 13, 2012. |
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about the shares of our common stock that may be issued upon the exercise of options granted to employees under the 2007 Equity Plan and the 2009 Non-Qualified Stock Option Plan, which were approved by the Board of Directors, and the 2010 Equity Incentive Plan approved by the Board of Directors and shareholders.
Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | (b) Weighted-average exercise price of outstanding options, warrants and rights | | | (c) Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) (1) | |
| Equity compensation plan approved by security holders (1) | | | 54 | | | $ | 24.00 | | | | 25 | |
| | | | | | | | | | | | | |
| Equity compensation plan approved by security holders (2) | | | - | | | $ | - | | | | 23 | |
| | | | | | | | | | | | | |
| Equity compensation plan approved by security holders (3) | | | 4,245 | | | $ | 120.00 | | | | 6,900 | |
| | | | | | | | | | | | | |
| Total | | | 4,299 | | | $ | 120.00 | | | | 6,948 | |
| (1) | We established an equity compensation plan pursuant to which options to acquire a maximum of 78 shares of our common stock were reserved for grant (the “2007 Equity Plan”). As of August 31, 2012, included above in the 2007 Equity Plan are 54 shares issuable upon exercise of options granted to employees and directors. |
| (2) | We established a nonqualified stock option plan pursuant to which options to acquire a maximum of 23 shares of our common stock were reserved for grant (the “2009 Non-Qualified Plan”). As of August 31, 2012, no options under the 2009 Non-Qualified Plan were issued or outstanding. |
| (3) | We established 2010 Incentive Stock Plan pursuant to which options to acquire a maximum of 13,334 shares of our common stock were reserved for grant (the “2010 Incentive Stock Plan”). As of August 31, 2012, 1,334 shares were issued to consultants for $225,000 worth of services and 5,100 options were granted to consultants. |
Other than as disclosed below, during the last two fiscal years, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5% of the outstanding common or preferred stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.
On April 12, 2010, we issued 88,889 shares of our common stock to Junior Capital Inc., of which Albert Aimers, our Chief Executive Officer, is the majority shareholder and sole officer and director, for the retirement of $800,000 in accrued debt and compensation we owed to Mr. Aimers.
On March 7, 2011, the Company entered into a separation agreement (“Separation Agreement”) with Mr. Albert Aimers (“Aimers”), pursuant to which Aimers’ employment as Chief Executive Officer ended on March 7, 2011. Aimers agreed to stay with the Company as interim Chief Financial Officer until the earlier of April 19, 2011, the date the Company files its 10-Q for the quarter ended February 28, 2011 or the date the Company terminates Aimers’ services. For his services as interim Chief Financial Officer, the Company agreed to pay Aimers a sum of $18,750.
Pursuant to the Separation Agreement, the Company paid Aimers $100,000 upon execution. In addition, the Company entered into a web hosting services agreement (the “Hosting Agreement”) with Junior Capital, Inc., (“Junior Capital”) a company controlled by Aimers. The Hosting Agreement provided that the Company would pay Junior Capital a monthly fee of $10,000, of which $8,000 could be deferred for up to six months, in exchange for web hosting services related to the Company’s websites. The Hosting Agreement was for six months, and could be terminated by the Company upon 30 days prior written notice. Effective March 27, 2011, the parties agreed to terminate the Hosting Agreement.
In connection with the Separation Agreement, Aimers agreed to return all shares of Class A Preferred Stock owned by Aimers or Junior Capital to the Company for cancellation. In addition, Aimers agreed to return 8,924 shares of Common Stock owned by Aimers and/or Junior Capital to the Company for cancellation. The remaining 76,980 shares of Common Stock owned by Aimers and/or Junior Capital are subject to a one-year lock-up agreement and a share forfeiture agreement (“Forfeiture Agreement”). Pursuant to the Forfeiture Agreement, Aimers and Junior Capital agreed to forfeit the remaining shares of common stock owned by them if the Company achieves an aggregate of $100,000 in gross revenues from operations within 12 months of the date of the Forfeiture Agreement.
On April 27, 2011, the Company and Aimers entered into Amendment to the Separation Agreement (the “Amendment”), pursuant to which the cancellation and forfeiture of the shares owned by Aimers and Junior Capital was terminated, and the Company consented to such shares being sold to a third party.
Furthermore, pursuant to the Separation Agreement, the Company was released from certain outstanding liabilities to employees and/or directors of the Company.
Audit Fees
The aggregate fees billed by our independent registered public accounting firm, for professional services rendered for the audit of our annual financial statements during the years ended August 31, 2012 and 2011, and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q during the fiscal years, were $54,000 and $47,500, respectively.
Audit-Related Fees
Our independent registered public accounting firm did not bill us during the years ended August 31, 2012 and 2011 for audit related services.
Tax Fees
Our independent registered public accounting firm did not bill us for tax related work during the fiscal years ended August 31, 2012 and 2011.
All Other Fees
Our independent registered public accounting firm did not bill us during fiscal years ended August 31, 2012 or 2011 for other services.
The Board of Directors has considered whether the provision of non-audit services is compatible with maintaining the principal accountant's independence.
| 3.01 | Certificate of Incorporation, filed as an exhibit to the Registration Statement on Form 10SB-12G, filed with the Securities Exchange Commission on June 25, 2001 and incorporated herein by reference. |
| 3.02 | Certificate of Amendment, filed with the Nevada Secretary of State on May 21, 2004, filed as an exhibit to the annual report on Form 10-K, filed with the Securities Exchange Commission on December 12, 2008 and incorporated herein by reference. |
| 3.03 | Certificate of Amendment, filed with the Nevada Secretary of State on November 30, 2004, filed as an exhibit to the annual report on Form 10-K, filed with the Securities Exchange Commission on December 12, 2008 and incorporated herein by reference. |
| 3.04 | Certificate of Amendment, filed with the Nevada Secretary of State on September 9, 2005, filed as an exhibit to the annual report on Form 10-K, filed with the Securities Exchange Commission on December 12, 2008 and incorporated herein by reference. |
| 3.05 | Certificate of Designation of Series B Preferred Stock, filed with the Nevada Secretary of State on January 9, 2012, filed as an exhibit to the quarterly report on Form 10-Q, filed with the Securities Exchange Commission on January 17, 2012 and incorporated herein by reference. |
| 3.06 | Certificate of Amendment, filed with the Nevada Secretary of State on February 22, 2012, filed as an exhibit to the current report on Form 8-K, filed with the Securities Exchange Commission on February 27, 2012 and incorporated herein by reference. |
| 3.07 | Bylaws, filed as an exhibit to the Registration Statement on Form 10SB-12G, filed with the Securities Exchange Commission on June 25, 2001 and incorporated herein by reference. |
| 3.08 | Plan and Agreement of Reorganization, filed as an exhibit to the Current Report on Form 8-K, filed with the Securities Exchange Commission on September 23, 2005 and incorporated herein by reference. |
| 3.00 | Amendments to Plan and Agreement of Reorganization, filed as an exhibit to the Current Report on Form 8-K, filed with the Securities Exchange Commission on January 12, 2006 and incorporated herein by reference. |
| 10.01 | Employment Agreement, dated as of December 14, 2009, by and between CLICKER Inc. and Albert Aimers, filed as an exhibit to the annual report on Form 10-K, filed with the Securities and Exchange Commission on December 21, 2009 and incorporated herein by reference. |
| 10.02 | 2007 Nonqualified Stock Option Plan, filed as an exhibit to the Registration Statement on Form S-8, filed with the Securities Exchange Commission on January 19, 2007 and incorporated herein by reference. |
| 10.03 | 2007 Equity Incentive Plan, filed as an exhibit to the Annual Report on Form 10-KSB, filed with the Securities Exchange Commission on December 7, 2007 and incorporated herein by reference. |
| 10.04 | 2009 Nonqualified Stock Option Plan, filed as an exhibit to the annual report on Form 10-K, filed with the Securities Exchange Commission on December 12, 2008 and incorporated herein by reference. |
| 10.05 | Exchange Agreement, dated as of August 11, 2009, by and between CLICKER Inc. and Lotus Funding Group, LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2009 and incorporated herein by reference. |
| 10.06 | Form of Convertible Debenture, issued August 11, 2009, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2009 and incorporated herein by reference. |
| 10.07 | Securities Purchase Agreement, dated as of November 18, 2009, by and between CLICKER Inc. and SBCH Charitable Foundation, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on November 20, 2009 and incorporated herein by reference. |
| 10.08 | Form of Convertible Debenture, issued November 18, 2009, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on November 20, 2009 and incorporated herein by reference. |
| 10.09 | Exchange Agreement, dated as of December 16, 2009, by and between CLICKER Inc. and Thalia Woods Management, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on December 22, 2009 and incorporated herein by reference. |
| 10.10 | Form of Convertible Debenture, issued December 16, 2009, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on December 22, 2009 and incorporated herein by reference. |
| 10.11 | Exchange Agreement, dated as of February 1, 2010, by and between CLICKER Inc. and Greystone Capital Partners, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on February 5, 2010 and incorporated herein by reference. |
| 10.12 | Form of Convertible Debenture, issued February 1, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on February 5, 2010 and incorporated herein by reference. |
| 10.13 | Exchange Agreement, dated as of April 23, 2010, by and between CLICKER Inc. and Cortell Communications, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 16, 2010 and incorporated herein by reference. |
| 10.14 | Form of $72,100 Convertible Debenture, issued April 23, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 16, 2010 and incorporated herein by reference. |
| 10.15 | Amendment Agreement, dated as of April 27, 2010, by and between CLICKER Inc. and Cortell Communications, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 16, 2010 and incorporated herein by reference. |
| 10.16 | Securities Purchase Agreement, dated as of July 2, 2010, by and between CLICKER Inc. and Greystone Capital Partners, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 16, 2010 and incorporated herein by reference. |
| 10.17 | Form of $50,000 Convertible Debenture, issued July 2, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 16, 2010 and incorporated herein by reference. |
| 10.18 | Securities Purchase Agreement, dated as of July 2, 2010, by and between CLICKER Inc. and Greystone Capital Partners, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 16, 2010 and incorporated herein by reference. |
| 10.19 | Form of $20,000 Convertible Debenture, issued July 2, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 16, 2010 and incorporated herein by reference. |
| 10.20 | Securities Purchase Agreement, dated as of July 26, 2010, by and between CLICKER Inc. and IIG Management LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 28, 2010 and incorporated herein by reference. |
| 10.21 | Form of Convertible Debenture, issued July 26, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on July 28, 2010 and incorporated herein by reference. |
| 10.22 | Securities Purchase Agreement, dated as of December 10, 2010, by and between CLICKER Inc. and Assurance Funding Solutions, LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on December 10, 2010 and incorporated herein by reference. |
| 10.23 | Form of Convertible Debenture, issued December 10, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on December 10, 2010 and incorporated herein by reference. |
| 10.24 | Securities Purchase Agreement, dated as of January 5, 2011, by and between CLICKER Inc. and IIG Management LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on January 10, 2011 and incorporated herein by reference. |
| 10.25 | Form of Convertible Debenture, issued January 5, 2011, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on January 10, 2011 and incorporated herein by reference. |
| 10.26 | Amendment No. 1, dated as of January 5, 2011, by and between CLICKER Inc. and IIG Management LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on January 10, 2011 and incorporated herein by reference. |
| 10.27 | Securities Purchase Agreement, by and between Clicker Inc. and Asher Enterprises, Inc., dated as of February 7, 2011, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on February 11, 2011 and incorporated herein by reference. |
| 10.28 | Form of Convertible Promissory Note, issued to Asher Enterprises, Inc., issued February 7, 2011, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on February 11, 2011 and incorporated herein by reference. |
| 10.29 | Amendment No. 1 to Convertible Promissory Note, by and between Clicker Inc. and Asher Enterprises, Inc. , dated as of February 9, 2011, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on February 11, 2011 and incorporated herein by reference. |
| 10.30 | Securities Purchase Agreement, dated as of February 17, 2011, by and between CLICKER Inc. and Greystone Capital Partners, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on February 24, 2011 and incorporated herein by reference. |
| 10.31 | Form of Convertible Debenture, issued February 17, 2011, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on February 24, 2011 and incorporated herein by reference. |
| 10.32 | Securities Purchase Agreement, dated as of December 10, 2009, by and between CLICKER Inc. and Asher Enterprises, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.33 | Form of Convertible Debenture, issued December 10, 2009, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.34 | Securities Purchase Agreement, dated as of June 29, 2010, by and between CLICKER Inc. and Asher Enterprises, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.35 | Form of Convertible Debenture, issued June 29, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.36 | Securities Purchase Agreement, dated as of July 14, 2010, by and between CLICKER Inc. and Lotus Funding Group, LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.37 | Form of Convertible Debenture, issued July 14, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.38 | Securities Purchase Agreement, dated as of August 18, 2010, by and between CLICKER Inc. and Asher Enterprises, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.39 | Form of Convertible Debenture, issued August 18, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.40 | Securities Purchase Agreement, dated as of November 1, 2010, by and between CLICKER Inc. and Asher Enterprises, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.41 | Form of Convertible Debenture, issued November 1, 2010, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.42 | Securities Purchase Agreement, dated as of March 7, 2011, by and between CLICKER Inc. and IIG Management LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.43 | Form of Convertible Debenture, issued March 7, 2011, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.44 | Separation Agreement, dated as of March 7, 2011, by and between CLICKER Inc. and Albert Aimers, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.45 | Share Forfeiture Agreement, dated as of March 7, 2011, by and among CLICKER Inc., Albert Aimers and Junior Capital, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.46 | Share Forfeiture Escrow Agreement, dated as of March 7, 2011, by and among CLICKER Inc., Albert Aimers, Junior Capital, Inc. and Sichenzia Ross Friedman Ference LLP, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.47 | Lock-Up Agreement, dated as of March 7, 2011, by Albert Aimers, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.48 | Lock-Up Agreement, dated as of March 7, 2011, by Junior Capital, Inc., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.49 | Employment Agreement, dated as of March 7, 2011, by and between CLICKER Inc. and Lloyd Lapidus, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference. |
| 10.50 | Securities Purchase Agreement, dated as of September 21, 2011, by and between CLICKER Inc. and Flyback, LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on September 26, 2011 and incorporated herein by reference. |
| 10.51 | Form of Convertible Debenture, issued September 21, 2011, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on September 26, 2011 and incorporated herein by reference. |
| 10.52 | Form of Onmibus Waiver and Modification Agreement, entered into by and among Clicker Inc., Greystone Capital Partners, Inc., Lotus Funding Group, LLC, IIG Management LLC, Assurance Funding Solutions LLC and Flyback, LLC, effective as of January 9, 2012, filed as an exhibit to the quarterly report on Form 10-Q, filed with the Securities and Exchange Commission on January 17, 2012 and incorporated herein by reference. |
| 10.53 | Employment Agreement, dated as of January 18, 2012, by and between CLICKER Inc. and Greg Pippo, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on January 23, 2012 and incorporated herein by reference. |
| 10.54 | Securities Purchase Agreement, dated as of August 28, 2012, by and between CLICKER Inc. and Millennium Investment Realty, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on August 29, 2012 and incorporated herein by reference. |
| 10.55 | Form of Convertible Debenture, dated August 28, 2012, issued to Millennium Investment Realty, LLC, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on August 29, 2012 and incorporated herein by reference. |
| 10.56 | Securities Purchase Agreement, dated as of October 26, 2012, by and between CLICKER Inc. and Monroe Milstein, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on November 15, 2012 and incorporated herein by reference. |
| 10.57 | Form of Convertible Debenture, dated October 26, 2012, issued to Monroe Milstein, filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on November 15, 2012 and incorporated herein by reference. |
| 10.57 | Employment Agreement, dated as of November 26, 2012, by and between Clicker Inc. and Willis “Chip” Arndt, Jr., filed as an exhibit to the current report on Form 8-K, filed with the Securities and Exchange Commission on November 27, 2012 and incorporated herein by reference. |
| 14.01 | Code of Ethics, filed as an exhibit to the annual report on Form 10-K, filed with the Securities and Exchange Commission on December 21, 2009 and incorporated herein by reference. |
| 21.01 | List of Subsidiaries of the Registrant, filed as an exhibit to the annual report on Form 10-K, filed with the Securities Exchange Commission on December 12, 2008 and incorporated herein by reference. |
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| 101 SCH | XBRL Taxonomy Extension Schema Document* |
| 101 CAL | XBRL Taxonomy Calculation Linkbase Document* |
| 101 LAB | XBRL Taxonomy Labels Linkbase Document* |
| 101 PRE | XBRL Taxonomy Presentation Linkbase Document* |
| 101 DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
| 101 SCH | XBRL Taxonomy Extension Schema Document* |
| | * | Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | CLICKER INC. | |
| | | | |
| By: | /s/ WILLIS ARNDT, JR. | |
| | | Willis Arndt, Jr. | |
| | | Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |
| | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | | Position | | Date |
| | | | | |
/s/ DOV KONETZ
Dov Konetz | | Director | | December 27, 2012 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Clicker Inc.
We have audited the accompanying consolidated balance sheets of Clicker Inc. and Subsidiaries as of August 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years ended August 31, 2012 and 2011. These 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 Clicker Inc. and Subsidiaries as of August 31, 2012 and 2011 and the results of its operations, changes in stockholders’ deficit and cash flows for the years ended August 31, 2012 and 2011 in conformity with accounting principles generally accepted in the United States of America.
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $ 29,215,791 as of August 31, 2012 and has incurred a net loss of $ 1,813,318 for the year ended August 31, 2012. These factors as discussed in the Note 3 to the financial statements raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in the Note 3 to the consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ KABANI & COMPANY, INC. | |
| | |
| CERTIFIED PUBLIC ACCOUNTANTS | |
| Los Angeles, California | |
| December 27, 2012 | |
CLICKER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 2012 AND 2011
| | | | | | | |
| | | AUGUST 31, 2012 | | | AUGUST 31, 2011 | |
| Assets | | | | | | |
| Current Assets | | | | | | |
| Cash & cash equivalents | | $ | 32,734 | | | $ | 303 | |
| Accounts receivable, net | | | - | | | | 230 | |
| Total current assets | | | 32,734 | | | | 533 | |
| | | | | | | | | |
| Property and equipment, net of accumulated depreciation of $1,867 and $0, | | | | | | | | |
| respectively | | | 6,535 | | | | - | |
| Other assets | | | 10,565 | | | | - | |
| | | | | | | | | |
| Total assets | | $ | 49,834 | | | $ | 533 | |
| | | | | | | | | |
| Liabilities and Stockholders' Deficit | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 1,495,662 | | | $ | 1,367,479 | |
| Accrued expenses | | | 1,105,900 | | | | 981,195 | |
| Derivative liability | | | 3,416,488 | | | | 2,183,694 | |
| Due to related parties | | | 22,683 | | | | 22,683 | |
| Note payable | | | 30,366 | | | | 55,641 | |
| Convertible note payble, net | | | 929,376 | | | | 596,370 | |
| Total current liabilities | | | 7,000,475 | | | | 5,207,062 | |
| | | | | | | | | |
| Redeemable preferred stock, Series B; par value $.001 per share; 100 shares | | | | | | | | |
| authorized, 100 and no shares issued and outstanding, respectively | | | 10,000 | | | | - | |
| | | | | | | | | |
| Stockholders' Deficit | | | | | | | | |
| Preferred stock, undesignated, par value $.001 per share; 4,999,900 shares authorized, | | | | | |
| no shares issued and outstanding | | | | | | | | |
| Common stock, $0.001 par value, 500,000,000 shares authorized, | | | | | | | | |
| 488,000 and 381,251 shares issued and outstanding at | | | | | | | | |
| August 31, 2012 and 2011, respectively | | | 488 | | | | 381 | |
| Paid in capital | | | 22,239,262 | | | | 22,180,163 | |
| Shares to be issued | | | 15,400 | | | | 15,400 | |
| Accumulated deficit | | | (29,215,791 | ) | | | (27,402,473 | ) |
| Total stockholders' deficit | | | (6,960,641 | ) | | | (5,206,529 | ) |
| | | | | | | | | |
| Total liabilities and stockholders' deficit | | $ | 49,834 | | | $ | 533 | |
| | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
CLICKER INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 2012 AND 2011
| | | | | | | |
| | | YEARS ENDED AUGUST 31, | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| Net revenues | | $ | 2,665 | | | $ | 41,570 | |
| | | | | | | | | |
| Operating expenses | | | | | | | | |
| Selling, general & administrative | | | 347,158 | | | | 1,738,806 | |
| Depreciation | | | 1,867 | | | | 7,297 | |
| Impairment expense - marketable securities | | | - | | | | 98,442 | |
| Total operating expenses | | | 349,025 | | | | 1,844,545 | |
| | | | | | | | | |
| Loss from operations | | | (346,360 | ) | | | (1,802,975 | ) |
| | | | | | | | | |
| Non-operating income (expense): | | | | | | | | |
| Interest expense | | | (1,331,748 | ) | | | (1,364,741 | ) |
| Change in derivative liability | | | (150,885 | ) | | | (1,197,519 | ) |
| Gain (loss) on debt redemption | | | 20,475 | | | | (212,791 | ) |
| Other income | | | - | | | | 503,343 | |
| Total non-operating income (expense) | | | (1,462,158 | ) | | | (2,271,708 | ) |
| | | | | | | | | |
| Loss before income taxes | | | (1,808,518 | ) | | | (4,074,683 | ) |
| | | | | | | | | |
| Provision for income tax | | | 4,800 | | | | 4,800 | |
| | | | | | | | | |
| Net loss | | | (1,813,318 | ) | | | (4,079,483 | ) |
| | | | | | | | | |
| Other comprehensive loss: | | | | | | | | |
| Unrealized loss on marketable securities | | | - | | | | (37,194 | ) |
| Comprehensive loss | | $ | (1,813,318 | ) | | $ | (4,116,677 | ) |
| | | | | | | | | |
| Basic net loss per share | | $ | (3.87 | ) | | $ | (16.07 | ) |
| | | | | | | | | |
| Diluted loss per share | | $ | (3.87 | ) | | $ | (16.07 | ) |
| | | | | | | | | |
| Basic and diluted weighted average shares of common stock outstanding* | | | 468,309 | | | | 253,884 | |
| | | | | | | | | |
| * Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of dilutive securities is anti-dilutive. | |
| | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
CLICKER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 2012 AND 2011
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Additional | | | Prepaid | | | Shares to | | | Unrealized | | | Accumulated | | | Stockholders' | |
| | | Shares | | | Par Value | | | Paid in Capital | | | Consulting | | | Be Issued | | | Gain (Loss) | | | Deficit | | | Deficit | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, Aug 31, 2010 | | | 198,993 | | | | 199 | | | $ | 20,260,236 | | | $ | (7,292 | ) | | $ | - | | | $ | 37,194 | | | $ | (23,322,990 | ) | | $ | (3,032,653 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of prepaid consulting | | | - | | | | - | | | | - | | | | 7,292 | | | | - | | | | - | | | | - | | | | 7,292 | |
| Exercise of options | | | 704 | | | | 1 | | | | 80,099 | | | | - | | | | 15,400 | | | | - | | | | - | | | | 95,500 | |
| Conversion of Note Payable | | | 155,327 | | | | 155 | | | | 891,012 | | | | - | | | | - | | | | - | | | | - | | | | 891,167 | |
| Shares issued for accrued fees | | | 11,067 | | | | 11 | | | | 154,114 | | | | - | | | | - | | | | - | | | | - | | | | 154,125 | |
| Shares issued for services | | | 15,160 | | | | 15 | | | | 31,822 | | | | | | | | | | | | | | | | | | | | 31,837 | |
| Options issued for services | | | - | | | | - | | | | 762,880 | | | | - | | | | - | | | | - | | | | - | | | | 762,880 | |
| Unrealized gain on marketable securities | | | - | | | | - | | | | - | | | | - | | | | - | | | | (37,194 | ) | | | - | | | | (37,194 | ) |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,079,483 | ) | | | (4,079,483 | ) |
| Balance, August 31, 2011 | | | 381,251 | | | | 381 | | | | 22,180,163 | | | | - | | | | 15,400 | | | | - | | | | (27,402,473 | ) | | | (5,206,529 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustment for reverse split | | | 2,686 | | | | 3 | | | | (3 | ) | | | - | | | | - | | | | - | | | | - | | | | - | |
| Conversion of Notes Payable | | | 104,063 | | | | 104 | | | | 59,102 | | | | - | | | | - | | | | - | | | | - | | | | 59,206 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,813,318 | ) | | | (1,813,318 | ) |
| Balance, August 31, 2012 | | | 488,000 | | | | 488 | | | $ | 22,239,262 | | | $ | - | | | $ | 15,400 | | | $ | - | | | $ | (29,215,791 | ) | | $ | (6,960,641 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
CLICKERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2012 AND 2011
| | | 2012 | | | 2011 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss | | $ | (1,813,318 | ) | | $ | (4,079,483 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | |
used in operating activities: | | | | | | | | |
| Bad debts | | | - | | | | 13,851 | |
| Depreciation and amortization | | | 1,867 | | | | 7,297 | |
| Impairment of marketable securities | | | - | | | | 98,442 | |
| Change in derivative liability | | | 150,885 | | | | 1,197,519 | |
| (Gain) Loss on debt redemption | | | (20,475 | ) | | | 212,791 | |
| Issuance of options and warrants for services | | | - | | | | 762,880 | |
| Shares issued for services | | | - | | | | 7,292 | |
| Finance cost | | | 10,000 | | | | - | |
| Amortization of debt discount | | | 1,139,258 | | | | 1,204,178 | |
| Other income | | | - | | | | (503,257 | ) |
| (Increase) Decrease in current assets: | | | | | | | | |
| Receivables | | | 230 | | | | (10,502 | ) |
| Loan and other assets | | | (10,565 | ) | | | 56,188 | |
| Increase (Decrease) in current liabilities: | | | | | | | | |
| Accounts payable | | | 128,185 | | | | 83,903 | |
| Accrued expenses and other liabilities | | | 130,041 | | | | 430,729 | |
| Net cash used in operating activities | | | (283,892 | ) | | | (518,172 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Acquisition of fixed assets | | | (8,402 | ) | | | - | |
| Net cash used in investing activities | | | (8,402 | ) | | | - | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Cash payments of notes | | | (25,275 | ) | | | - | |
| Cash proceeds from notes | | | - | | | | 25,275 | |
| Cash proceeds from convertible note | | | 350,000 | | | | 353,000 | |
| Cash received from sale of common stock | | | - | | | | 95,500 | |
| Net cash provided by financing activities | | | 324,725 | | | | 473,775 | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS | | | 32,431 | | | | (44,397 | ) |
| | | | | | | | | |
| CASH & CASH EQUIVALENTS, BEGINNING BALANCE | | | 303 | | | | 44,700 | |
| | | | | | | | | |
| CASH & CASH EQUIVALENTS, ENDING BALANCE | | $ | 32,734 | | | $ | 303 | |
| | | | | | | | | |
| Non-cash financing activities: | | | | | | | | |
| | | | | | | | | |
| Face value of notes and interest converted to common stock | | $ | 16,737 | | | $ | 409,275 | |
| Fair value of common stock issued upon conversion of notes | | $ | 59,206 | | | $ | 891,167 | |
| Derivative liability of convertible notes at date of issue | | $ | 444,455 | | | $ | 1,116,379 | |
| Derivative liability charged off upon conversion of notes | | $ | 60,379 | | | $ | 494,531 | |
| Unamortized discount charged off upon conversion of notes | | $ | 1,573 | | | $ | 141,635 | |
| Preferred stock issued as payment of finance cost | | | 10,000 | | | | - | |
| Issuance of shares for accrued fees and services | | $ | - | | | $ | 185,962 | |
| | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2012 AND 2011
NOTE 1 NATURE OF BUSINESS AND BASIS OF PRESENTATION
Clicker Inc. (the “Company,” "We," or "Clicker"), a corporation incorporated in the State of Nevada, is a web publisher brand builder focused on developing stand-alone brands that incorporate social networking and reward properties that leverage content, commerce and advertising for the next generation of global internet users.
On May 12, 2009 the Company, formerly, Financial Media Group, Inc. (“FMG”) acquired all of the outstanding capital stock of Clicker, Inc. in exchange for the issuance of 730 shares of common stock to the Clicker Shareholders. Such shares are restricted in accordance with Rule 144 of the 1933 Securities Act. As a result of the acquisition, Clicker became our wholly-owned subsidiary. As of the date of the merger, Financial Media Group, Inc. changed its name to Clicker, Inc.
The exchange of shares with Clicker was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of Clicker obtained control of the consolidated entity. Accordingly, the merger of the two companies was recorded as a recapitalization of Clicker, with Clicker, Inc. being treated as the continuing entity. The historical financial statements presented are those of Clicker.
On January 9, 2012, the Board of Directors of the Company approved a resolution, subject to shareholder approval, to amend its Articles of Incorporation, as amended, to (1) effect a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $.001 per share (the "Common Stock") at the ratio of 300-for-1 (the “Reverse Stock Split”), and (2) increase the number of authorized shares of Common Stock of the Company from 300,000,000 shares to 500,000,000 shares (the “Authorized Capital Change” and collectively with the Reverse Stock Split, the “Corporate Actions”). On January 10, 2012, a majority of the voting capital stock of the Company took action in lieu of a special meeting of Stockholders and approved the Corporate Actions. Unless otherwise stated, all share and per share amounts in these consolidated financial statements have been retroactively restated to reflect the effects of the reverse stock split.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries WallStreet Direct, Inc., Digital Wall Street, Inc., Financial Filings, Corp., My WallStreet, Inc. and Wealth Expo Inc. All significant inter-company accounts and transactions have been eliminated.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include accounts payable and derivative liability. Actual results could differ from our estimates.
Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. The Company had no cash equivalents at August 31, 2012 and 2011.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Financial Instruments
The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and notes payable. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is primarily attributed to the short maturities of these instruments.
Fair Value Measurements
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
| · | Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. |
| · | Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 derivative liabilities are comprised of derivatives for conversion features on our convertible notes payable. In certain cases, market-based observable inputs are not available and we use management judgment to develop assumptions to determine fair value for these derivatives. |
Our current financial liabilities have fair values that approximate their carrying values.
The table below summarizes the fair values of the Company’s financial liabilities as of August 31, 2012:
| | | Fair Value at | | | Fair Value Measurement Using | |
| | | August 31, 2012 | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | | |
| Conversion feature derivative liability | | $ | 3,416,488 | | | $ | — | | | $ | — | | | $ | 3,416,488 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 3,416,488 | | | $ | — | | | $ | — | | | $ | 3,416,488 | |
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (conversion feature derivative liability) for the years ended August 31, 2012 and 2011.
| | | 2012 | | | 2011 | |
| Balance at beginning of year | | $ | 2,183,694 | | | $ | 364,327 | |
| Additions to derivative instruments | | | 1,142,288 | | | | 1,116,379 | |
| Change in fair value of conversion feature liabilities | | | 150,885 | | | | 1,197,519 | |
| Conversion of debentures | | | (60,379 | ) | | | (494,531 | ) |
| Balance at end of period | | $ | 3,416,488 | | | $ | 2,183,694 | |
These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful life of the assets from three to five years. Expenditures for maintenance and repairs are charged to expense as incurred. Currently our only equipment consists of an automobile, which is being depreciated over three years.
Revenue Recognition
Revenue is recorded on the basis of services provide to our clients, and is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Our primary source of revenue was generated from building and developing stand-alone brands that incorporate social networking, and providing internet based media and advertising services. The services included web designs, integrated social media network, text and display advertising, press releases, e-mail marketing, and promotion across our network of web sites. Revenues from Internet based media and advertising services were recognized and recorded when the performance of such services completed.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk are cash, accounts receivable and marketable securities. The Company places its cash with financial institutions deemed by management to be of high credit quality. The amount on deposit in any one institution that exceeds federally insured limits is subject to credit risk. All of the Company’s investment in marketable securities are considered “available-for-sale” and are carried at their fair value, with unrealized gains and losses (net of income taxes) that are temporary in nature recorded in accumulated other comprehensive income (loss) in the accompanying balance sheets. The fair values of the Company’s investments in marketable securities are determined based on market quotations. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
Stock-Based Compensation
The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.
Impairment of Long-lived Assets
The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
Advertising and Marketing Costs
The Company expenses costs of advertising and marketing as incurred. Advertising and marketing expense for the years ended August 31, 2012 and 2011 amounted to $1,569 and $22,092, respectively.
Income Taxes
We utilize ASC 740 “Income Taxes” which requires the 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 year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
The Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established by the guidance. As a result of this review, the Company concluded that at this time there are no uncertain tax positions that would result in tax liability to the Company.
Basic and Diluted Net Loss Per Share
Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of dilutive securities is anti-dilutive. There were 17,268,830 common share equivalents at August 31, 2012 and 6,466,868 at August 31, 2011. These potential shares of common stock have been excluded from the computation of diluted net loss per share for the years ended August 31, 2012 and 2011, respectively as their effect is anti-dilutive.
Comprehensive Income (Loss)
Comprehensive income or loss is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners. Total other comprehensive loss for the year ended August 31, 2011 was comprised of unrealized losses on marketable securities of $37,194 and there was no such income for the year ended August 31, 2012.
Contingencies
Certain conditions may exist as of the date the 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 occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential 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 and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Recent Accounting Pronouncements
On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05 (“ASU 2011-12”). ASU 2011-12 amends certain pending paragraphs from ASU 2011-05. This amendment allows companies to defer the effective date of the change in presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The effective date for all other amendments put forth in ASU No. 2011-05 are unaffected by this update. This update is effective for fiscal years and interim periods within those years beginning after December 15, 2011. The Company adopted this guidance effective May 1, 2012, and its implementation did not have a material impact on our consolidated financial statements.
In December 2011, the FASB issued guidance on offsetting (netting) assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance is effective for annual periods beginning after January 1, 2013.
In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.
In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance is effective for annual periods beginning after December 15, 2011. In December 2011, the FASB issued a deferral of certain portion of this guidance.
In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance is effective for annual periods beginning after December 15, 2011.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.
NOTE 3 GOING CONCERN
The accompanying 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. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. The Company has an accumulated deficit of $29,215,791 as of August 31, 2012 and has incurred a net loss of $1,813,318 for the year ended August 31, 2012. In addition, The Company’s current liabilities exceed its current assets by $6,967,741 at August 31, 2012. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon the continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and success in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. Management devoted considerable effort during the period ended August 31, 2012 towards (i) acquiring and developing revenue producing website property (ii) obtaining additional equity financing, (iii) evaluation of its marketing methods and (iv) further streamlining and reducing costs.
Management is considering the best ways to maximize the value of the Company’s intellectual assets (which include our website properties) and revive revenue, including a number of options ranging from the sale of certain intellectual assets to investing further capital to build out and take the Company’s potentially productive intellectual assets to market. Management is also contemplating further business development efforts that would result in new website properties that would be incremental to what the Company already has in its existing portfolio. Management has expended a good deal of effort in managing corporate liabilities and interacting with note holders, many of whose notes have gone into default. Management is also continuing its efforts to raise additional capital for ongoing operations and business development. To that end, the Company raised $200,000 in October 2012 through the sale of a convertible debenture and management is currently determining the optimal ways to deploy that capital to maximize its value to the business.
NOTE 4 MARKETABLE SECURITIES
On occasion, the Company received securities of unrelated client companies as payment in full for services rendered. The number of shares the Company received for services was based on upon contracted amounts, and the number of shares was determined based on the bid price at the time of signing the agreement. The securities received from clients are classified as available-for-sale and, as such, are carried at fair value based on quoted market prices.
During the years ended August 31, 2012 and 2011, the Company recorded impairment of $0 and $98,442, respectively, based on the inability to dispose of these type of securities. As of August 31, 2011, the Company had not been able to locate the related certificates. Based upon consideration of these circumstances, the Company believes that the probability of recoverability of any related asset may be remote.
The Company did not sell any marketable securities during the years ended August 31, 2012 or 2011.
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| | | August 31, 2012 | | | August, 31, 2011 | |
| Office and computer equipment | | $ | 8,402 | | | $ | 191,653 | |
| Less accumulated depreciation: | | | (1,867 | ) | | | (191,653 | ) |
| | | $ | 6,535 | | | $ | - | |
Depreciation expense for the years ended August 31, 2012 and 2011 was $1,867 and $7,297, respectively.
NOTE 6 OTHER ASSETS
Other assets consist of a domain name, a website, logo and other intangible assets. The assets have an indefinite life and have recently been put into use. The Company will be assessing the estimated economic life during the year ending August 31, 2013. Total other assets at August 31, 2012 and 2011 were $10,565 and $0, respectively.
NOTE 7 ACCRUED EXPENSES
Accrued expenses consisted of the following:
| | | August 31, 2012 | | | August 31, 2011 | |
| Accrued consulting fees | | $ | 49,331 | | | $ | 49,331 | |
| Accrued interest | | | 344,846 | | | | 167,692 | |
| Accrued salaries and payroll taxes | | | 575,037 | | | | 572,818 | |
| Professional fees and others | | | 136,686 | | | | 191,354 | |
| | | $ | 1,105,900 | | | $ | 981,195 | |
NOTE 8 DUE TO RELATED PARTIES
Due to related parties consisted of the following:
| | | August 31, 2012 | | | August 31, 2011 | |
| Accrued officer’s compensation | | $ | 14,583 | | | $ | 14,583 | |
| Accrued interest on a loan paid off | | | 8,100 | | | | 8,100 | |
| | | $ | 22,683 | | | $ | 22,683 | |
The due balances were interest free, due on demand, and unsecured as of August 31, 2012 and 2011, respectively.
NOTE 9 NOTE PAYABLE
On March 5, 2010, the Company executed an unsecured promissory note of $170,000 to a third party. The note was interest free and due on September 5, 2010. During the year ended August 31, 2011, the Company paid $39,634 in cash to the note holder and also issued 833 shares of common stock with a fair value of $107,500. In connection with this partial settlement, the Company recorded a loss on partial debt settlement of $7,500. The remaining balance of $30,366 is interest free and due on demand. As of August 31, 2012, the Company did not pay any cash or issue shares to settle the remaining balance.
During the year ended August 31, 2011 the Company entered into three promissory notes in the aggregate amount of $25,275. The notes bear no interest and were repaid during the year ended August 31, 2012.
NOTE 10 CONVERTIBLE NOTE PAYABLE
The Company has issued multiple secured convertible notes (the “Secured Convertible Notes” or the “Notes”) to related and unrelated parties (the “Holders”). The Secured Convertible Notes have various maturity dates ranging from 9 to 18 months and have annual interest rates ranging from of 0% to 10% per annum. The Holders have the right from and after the Date of Issuance, and until any time until the Secured Convertible Notes are fully paid, to convert any outstanding and unpaid principal portion of the Secured Convertible Notes, and accrued interest, into fully paid and non-assessable shares of Common Stock with an ownership limit of 4.99%. The Secured Convertible Notes have a variable conversion price and full reset feature. The percentage of market conversion rates range from 35% to 50% of the average closing trading or bid price of the Company’s common stock on consecutive trading days immediately preceding the date of conversion, which in the terms of the note agreements range from 5 days to 10 days. The Holders were not issued warrants with the Secured Convertible Notes. In the event of default for the Notes, the amount of principal and interest not paid when due bear interest at the rate of 18% per annum and the notes become immediately due and payable. Should that occur, the Company is liable to pay 105% of the then outstanding principal and interest.
The Company has recorded the embedded conversion features in the Secured Convertible Notes as derivative liabilities due to the full reset provisions and the variable conversion rates.
On September 21, 2011, the Company entered into a Securities Purchase Agreement with Flyback, LLC, an accredited investor (“Flyback”), providing for the sale by the Company to Flyback of a 10% convertible debenture in the principal amount of $300,000 (the “Flyback Debenture”). The Flyback Debenture matures on March 20, 2013 (the “Flyback Maturity Date”) and bears interest at the annual rate of 10%. The Company is not required to make any payments until the Flyback Maturity Date although the Company has the ability to repay the Flyback Debenture at any time without penalty upon five days prior written notice to Flyback.
The conversion feature of the Flyback Debenture contains a variable conversion rate. As a result, we have classified the conversion feature as a derivative liability in the consolidated financial statements. At issue, we have recorded a conversion feature liability of $344,889. The value of the conversion feature liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.1075%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 550%; and (4) an expected life of 1.5 years. The Company has allocated $300,000 to debt discount, to be amortized over the life of the debt, with the balance of $44,889 being charged to expense at issue.
On August 28, 2012, the Company entered into a Securities Purchase Agreement with Millennium Investment Realty, an accredited investor (“Millennium”), providing for the sale by the Company to Millennium of a 10% convertible debenture in the principal amount of $50,000 (the “Millennium Debenture”). The Millennium Debenture matures on February 28, 2014 (the “Millennium Maturity Date”) and bears interest at the annual rate of 10%. The Company is not required to make any payments until the Millennium Maturity Date although the Company has the ability to repay the Millennium Debenture at any time without penalty upon five days prior written notice to Millennium.
The conversion feature of the Millennium Debenture contains a variable conversion rate. As a result, we have classified the conversion feature as a derivative liability in the consolidated financial statements. At issue, we have recorded a conversion feature liability of $99,566. The value of the conversion feature liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.2225%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 447%; and (4) an expected life of 1.5 years. The Company has allocated $50,000 to debt discount, to be amortized over the life of the debt, with the balance of $49,566 being charged to expense at issue.
During the year ended August 31, 2012 we recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest accrued during the year. These additions aggregated $697,833, which has been charged to interest expense.
During the year ended August 31, 2012 an aggregate of $15,538 of principal and $1,200 of interest was converted into 104,063 shares of common stock.
The Company has valued the derivative liability for secured convertible notes using the Black – Sholes model as of August 31, 2012 and effective as of March 1, 2011. Prior to March 1, 2011 the Company used a probability weighted discounted cash flow model.
As of August 31, 2012 and 2011, the fair value of the conversion features subject to derivative accounting was $3,416,488, and $2,183,694, respectively. The value of the conversion features as of August 31, 2012 was determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rates of 0.1964%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 476%; and (4) an expected life of the conversion features of 1.03 years.
NOTE 11 EQUITY TRANSACTIONS
On January 9, 2012, the Board of Directors of the Company approved a resolution, subject to shareholder approval, to amend its Articles of Incorporation, as amended, to (1) effect a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $.001 per share (the "Common Stock") at the ratio of 300-for-1 (the “Reverse Stock Split”), and (2) increase the number of authorized shares of Common Stock of the Company from 300,000,000 shares to 500,000,000 shares (the “Authorized Capital Change” and collectively with the Reverse Stock Split, the “Corporate Actions”). On January 10, 2012, a majority of the voting capital stock of the Company took action in lieu of a special meeting of Stockholders and approved the Corporate Actions.
Preferred Stock
On January 9, 2012, the Company adopted a Certificate of Determination of the Powers, Designations, Preferences and Rights, establishing a Series of Preferred Stock of the Company, consisting of 100 shares designed as Series B Preferred Stock (the “Series B Preferred Stock”). Each share of Series B Preferred Stock has a liquidation preference of $0.01 and does not accrue any dividends. Each share of Series B Preferred Stock may be redeemed by the Company at a price of $100.00 per share at any time after six months from the date of issuance, so long as the Company’s Articles of Incorporation have been amended to increase the authorized number of shares of common stock. Each share of Series B Preferred Stock shall be automatically redeemed by the Company at a price of $100.00 per share on the first anniversary of the date of issuance. Each share of Series B Preferred Stock shall entitle the holder thereof to cast such number of votes equal to 0.45% of the total number of votes entitled to be cast at a meeting of shareholders. As a result, the 100 shares of Series B Preferred Stock are entitled to cast 45% of the number of votes entitled to be cast at a meeting of shareholders.
On January 9, 2012, the Company entered into a waiver and modification agreement with Greystone, Lotus, IIG, Assurance and Flyback (collectively, the “Waiving Parties”), pursuant to which the Waiving Parties agreed to waive any defaults or breaches currently existing by the Company for failure to have enough shares of authorized but unissued common stock available for issuance upon conversion of convertible debentures held by the Waiving Parties and to waive any such defaults or breaches in the future so long as such Waiving Party held shares of Series B Preferred Stock. In exchange for the Waiving Parties entering into the waiver agreement, the Company agreed to issue the Waiving Parties an aggregate of 100 shares of Series B Preferred Stock.
The Company has recorded a charge of $10,000 in the consolidated financial statements, related to the preferred stock issued as payment for the waiver agreement. Since the preferred stock is redeemable on the first anniversary of the issuance, the Company has recorded the value of the preferred stock outside of permanent equity.
During the year ended August 31, 2012, an aggregate of $15,538 of principal and $1,200 of interest was converted into 104,063 shares of common stock.
For the year ended August 31, 2011 the Company issued 155,327 shares of common stock upon conversion of $606,203 note payable and convertible notes payable.
For the year ended August 31, 2011, the Company issued 26,227 shares of common stock, valued at $185,962, to professionals and consultants in exchange for their services.
During the year ended August 31, 2011, the Company received a total of $95,500 from consultants upon exercise of existing stock options. The Company issued 704 shares against $80,100 received and recorded the remainder of $15,400 as shares to be issued in the accompanying financial statements.
Outstanding Warrants:
The company had no warrants outstanding at August 31, 2012 or 2011.
Outstanding Stock Options:
2007 Non-Qualified Stock Option Plan (“2007 Non-Qualified Plan”):
On January 5, 2007, the Company adopted the 2007 Non-Qualified Plan and reserved 33 shares of common stock for grant to employees, non-employee directors, consultants and advisors. The 2007 Non-Qualified Plan terminates ten (10) years from the date of adoption or sooner, at the discretion of the board of directors. As of August 31, 2012, there are no stock options granted under the 2007 Non-Qualified Plan.
2008 Non-Qualified Stock Option Plan (“2008 Non-Qualified Plan”):
On July 2, 2008, the Company adopted the 2008 Non-Qualified Plan and the Board of Directors approved the reservation of 22 shares of the Company’s authorized but unissued common stock for issuance under the plan. As of August 31, 2012, no options have been granted under the 2008 Non-Qualified Plan.
2007 Equity Incentive Plan (“2007 Equity Plan”):
On February 6, 2007, the Company adopted the 2007 Equity Plan, which was approved by the shareholders on April 11, 2007. The Company has reserved 78 shares of common stock for grant under this plan, The 2007 Equity Plan terminates ten (10) years from the date of adoption or sooner, at the discretion of the board of directors. As of August 31, 2012, 53 options have been granted under the 2007 Equity Incentive Plan.
2010 Incentive Stock Plan
On June 18, 2010, the Company adopted the 2010 Incentive Stock Plan which was approved by the shareholders and reserved 13,333 common shares of the Company’s authorized common stock to grant to employees, directors, officers and consultants for services. The stock granted under the 2010 Incentive Stock Plan shall be the Common Shares of the Company’s common stock, par value $0.001 per share. During the year ended August 31, 2011 the Company issued 704 common shares to consultants for options exercised.
On September 2, 2010, the Company granted 2,600 common stock options to employees. The options have an exercise price of $135.00 per share. The options vested upon grant and lapse if unexercised after five years. The options had a grant date fair value of $351,000, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 2.13%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of the Company’s common stock of 625%; and (4) an expected life of the options of 5 years. During the year ended August 31, 2011 we have recorded an expense of $351,000 related to the fair value of the options that vested.
On October 4, 2010, the Company granted 2,500 common stock options to employees. The options have an exercise price of $102.00 per share. The options vested upon grant and lapse if unexercised after five years. The options had a grant date fair value of $337,500, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 2.13%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of the Company’s common stock of 657%; and (4) an expected life of the options of 5 years. During the year ended August 31, 2011 we have recorded an expense of $337,500 related to the fair value of the options that vested.
On March 7, 2011, the Company granted 10,000 common stock options to our chief executive officer. The options are not covered by any established plan as of August 31, 2012 or 2011. The options have an exercise price of $6.00 per share. The options vested upon grant and lapse if unexercised after five years. The options had a grant date fair value of $45,000, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 1.25%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of the Company’s common stock of 648%; and (4) an expected life of the options of 3 years. During the year ended August 31, 2011 we have recorded an expense of $45,000 related to the fair value of the options that vested.
Options Outstanding
Transactions involving our stock options are summarized as follows:
| | | August 31, 2012 | | | August 31, 2011 | |
| | | Number | | | Weighted Average Exercise Price | | | Number | | | Weighted Average Exercise Price | |
| Outstanding at beginning of the period | | | 14,298 | | | $ | 40.00 | | | | 53 | | | $ | 24.00 | |
| Granted during the period | | | — | | | | — | | | | 15,100 | | | | 45.00 | |
| Exercised during the period | | | — | | | | — | | | | (855 | ) | | | 111.00 | |
| Terminated during the period | | | — | | | | — | | | | — | | | | — | |
| Outstanding at end of the period | | | 14,298 | | | $ | 40.00 | | | | 14,298 | | | $ | 40.00 | |
| Exercisable at end of the period | | | 14,298 | | | $ | 40.00 | | | | 14,298 | | | $ | 40.00 | |
At August 31, 2012 employee options outstanding totaled 10,000 with a weighted average exercise price of $6.00. These options had no intrinsic value at August 31, 2012 and a weighted average remaining contractual term of 3.5 years.
The weighted average remaining life of all options is 3.38 years.
The number and weighted average exercise prices of our options outstanding as of August 31, 2012 are as follows:
| Range of Exercise Prices | | | Remaining Number Outstanding | | | Weighted Average Contractual Life (Years) | | | Weighted Average Exercise Price | |
| $ | 4.50 - $6.00 | | | | 10,040 | | | | 3.5 | | | $ | 6.00 | |
| $ | 90.00 | | | | 13 | | | | 5.3 | | | $ | 90.00 | |
| $ | 102.00 | | | | 1,895 | | | | 3.0 | | | $ | 102.00 | |
| $ | 135.00 | | | | 2,350 | | | | 3.1 | | | $ | 135.00 | |
NOTE 12 OTHER INCOME
During the year ended August 31, 2011, the Company entered into several settlement agreements with prior officers and directors, whereby the Company was released from $503,343 of prior employment-related obligations. In connection with this release, the Company recorded $503,343 as Other Income. There were no items of Other Income for the year ended August 31, 2012
NOTE 13 COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company occupies its premises under operating leases on a monthly basis. Rent expense under the operating leases for the years ended August 31, 2012 and 2011 was $4,360 and $30,593, respectively. The Company has no future lease obligations.
Contingencies
From time to time, the Company may be involved in various claims, lawsuits, and disputes with third parties, actions involving allegations of discrimination or breach of contract actions incidental to the normal operations of the business. Company is not currently involved in any litigation which it believes could have a material adverse effect on its financial position or results of operations.
Separation Agreement
On March 7, 2011, the Company entered into a separation agreement (“Separation Agreement”) with Mr. Albert Aimers (“Aimers”), pursuant to which Aimers’ employment as Chief Executive Officer ended on March 7, 2011. Aimers agreed to stay with the Company as interim Chief Financial Officer until the earlier of April 19, 2011, the date the Company filed its 10-Q for the quarter ended February 28, 2011 or the date the Company terminates Aimers’ services. For his services as interim Chief Financial Officer, the Company agreed to pay Aimers a sum of $18,750. Pursuant to the Separation Agreement, as amended, the Company paid Aimers $100,000 upon execution. Aimers tendered his resignation as Chief Financial Officer on April 15, 2011. As a result, the Company believes that no further payments to Aimers are due pursuant to the Separation Agreement.
NOTE 14 INCOME TAXES
The Company utilizes ASC 740 “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Income tax for the years ended August 31, 2012 and 2011 is summarized as follows:
| | | August 31, | |
| | | 2012 | | | 2011 | |
| Current: | | | | | | |
| Federal | | $ | - | | | $ | - | |
| State | | | 4,800 | | | | 4,800 | |
| Deferred taxes | | | 212,577 | | | | 418,319 | |
| Change in deferred tax assets | | | (212,577 | ) | | | (418,319 | ) |
| Income tax expense (benefit) | | $ | 4,800 | | | $ | 4,800 | |
| | | | | | | | | |
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Consolidated Statements of Operations:
| | | August 31, | |
| | | 2012 | | | 2011 | |
| Tax expense (credit) at statutory rate-federal | | | (34 | %) | | | (34 | %) |
| State tax expense net of federal tax | | | (6 | %) | | | (6 | %) |
| Valuation allowance | | | 40 | % | | | 40 | % |
| Income tax expense (benefit) | | $ | - | | | $ | - | |
| | | | | | | | | |
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at August 31, 2012 and 2011 are as follows:
| | | August 31, | |
| | | 2012 | | | 2011 | |
| Deferred tax assets: | | | | | | |
| Net operating loss carry forward | | $ | 4,896,003 | | | $ | 4,683,426 | |
| Total gross deferred tax assets | | | 4,896,003 | | | | 4,683,426 | |
| Less valuation allowance | | | (4,896,003 | ) | | | (4,683,426 | ) |
| Net deferred tax assets | | $ | - | | | $ | - | |
At August 31, 2012, the Company had net operating loss carry forwards for U.S. federal income tax purposes of approximately $12,600,000, available to offset future taxable income expiring on various dates through 2032. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its realization. The valuation allowance increased by $212,577 and $418,319 during the years ended August 31, 2012 and 2011, respectively.
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and the tax bases of assets and liabilities at the applicable tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company is delinquent in the payment of employment taxes. As of August 31, 2012 amounts due to the Internal Revenue Service (IRS), the Employment Development Department of the State of California (EDD) and the State of New York aggregated approximately $65,000. The amounts are included in the Company’s balance of accrued expenses. The Company is currently working with its tax attorney to develop plans for the orderly payment of delinquent balances. The Company has accrued potential tax interest and penalties of $6,000 during the year ended August 31, 2012.
The Company’s Digital Wallstreet Inc. subsidiary is delinquent in the payment of federal employment taxes. As of August 31, 2012 amounts due to the IRS and the EDD aggregated approximately $437,000. The amounts are included in the Company’s balance of accrued expenses. The Company is currently working with its tax attorney to develop plans for the orderly payment of delinquent balances. The Company has accrued potential tax interest and penalties of $28,000 during the year ended August 31, 2012.
NOTE 15 SUBSEQUENT EVENTS
On October 26, 2012, the Company entered into a Securities Purchase Agreement with Monroe Milstein, an accredited investor (the “Investor”), providing for the sale by the Company to the Investor of a 10% convertible debenture in the principal amount of $200,000 (the “Debenture”). The Debenture matures on October 26, 2014 (the “Maturity Date”) and bears interest at the annual rate of 10%. The Company is not required to make any payments until the Maturity Date although the Company has the ability to repay the Debenture at any time without penalty upon five days prior written notice to the Investor.
The Investor may convert, at any time, the outstanding principal and accrued interest on the Debenture into shares of the Company’s common stock (“Common Stock”) at a conversion price per share equal to fifty percent (50%) of the lowest closing price of the Common Stock during the 10 trading days immediately preceding the date of conversion as quoted by Bloomberg, LP or such other quotation service as mutually agreed to by the parties. The Investor has contractually agreed to restrict its ability to convert the Debenture such that the number of shares of the Company common stock held by each of the Investor and its affiliates after such conversion does not exceed 4.99% of the Company’s then issued and outstanding shares of Common Stock.
F-17
