The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and with instructions to Form-10Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information required by GAAP for a complete set of financial statements. In the opinion of management, all adjustments, (including normal recurring accruals) considered necessary for a fair presentation have been included in the financial statements. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2016 or any other period. In addition, the balance sheet data at June 30, 2015 was derived from the audited financial statements but does not include all disclosures required by GAAP. This Form 10-Q should be read in conjunction with the Audited Financial Statements for the year ended June 30, 2015 included in the Company's annual report on Form 10-K which was filed on November 17, 2014.
The unaudited condensed consolidated financial statements include the accounts of 30DC, Inc., (f/k/a Infinity Capital Group, Inc.) and its subsidiary 30DC, Inc., Delaware, ("30DC DE").
The Company offers customers the option to purchase its digital products for a single payment or for a higher price consisting of a down payment and additional payments over a period of time which can be as long as one year. Pursuant to ASC 605 the Company has determined that revenue is realizable and the earnings process is complete and the four criteria for revenue recognition stated in SAB Topic 13 are met at the time of the initial purchase. Accordingly, the Company deems the sale to have occurred at the time of initial purchase and records the full amount paid and/or due from a customer as revenue. Typically customers are offered a period to review the product and request a refund and if a refund is requested the company reverses the revenue which was recorded at the time of the sale. The Company records a liability for future refunds and reduces revenue by that amount. If a customer defaults on an additional payment, the customer loses access to the digital product. Based upon its past experience with extended payment plans, the Company has estimated the number of future defaulted payments and has reduced revenue and accounts receivable by that amount.
For an additional charge, the Company offers customers ancillary services which are not required to be purchased with a product. These services include additional technical support and/or specific product services. The Company recognizes revenue when the service is completed; receipts for services which have not been completed are included in deferred revenue.
The Company computes net income or loss per share in accordance with ASC 260 "Earnings per Share." Under ASC 260, basic net income or loss per share is computed by dividing net loss per share available to common stockholders by the weighted average number of shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, includes the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the "treasury stock" and/or "if converted" methods as applicable. In computing diluted earnings per share for the three month period ended September 30, 2014, the Company has included as outstanding 2,000,000 options which are exercisable and have an exercise price below the average market price for the Company's shares during the period. For the three month period ended September 30, 2015, potentially dilutive securities would be anti-dilutive and have not been included in computing diluted earnings per share.
The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of September 30, 2015, the Company had a working capital deficit of approximately $2,233,000 and had accumulated losses of approximately $5,054,000 since its inception. The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing or to earn profits from its business operations to meet its obligations and pay its liabilities arising from normal business operations when they come due. In the past few years, the Company switched its focus to developing its own products. In May 2012, the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold directly to customers and through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs.
No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
For the past few years, the Company offered MagCast through a once per year large-scale promotion for which the majority of sales were through marketing affiliates which are unrelated parties who earn commissions by referring customers to the Company and a majority of the Company's annual sales were during the promotion. The Company held a smaller promotion through marketing affiliates in July 2014 than in prior years. In July 2015, the Company held a smaller promotion without marketing affiliates for one-year MagCast licenses which can be renewed at the end of the one-year term. Revenue from the one-year licenses is being recognized ratably over the one year term. The Company does not expect to have a large-scale MagCast promotion during this fiscal year.
On July 30, 2015, the Company divested a portfolio of Internet marketing assets ("IM Sale"), including Market Pro Max, in two separate transaction with Marillion Partnership and Netbloo Media, Ltd. in exchange for return of a total of 16,743,681 shares of the Company's common stock to the Company. 10,000,000 shares were redeemed from Marillion Partnership which owns more than 10% of the Company's outstanding shares and was a contractor to the Company including the services of Edward Dale as Chief Executive Officer of the Company. 6,743,681 shares were redeemed from Netbloo Media. Ltd. which owns more than 10% of the Company's outstanding shares and is a contractor to the Company. After these transactions, both Marillion and Netbloo remain shareholders and each owns in excess of 10% of the Company's outstanding common stock. Included with the IM sale were fixed assets with a net book value of approximately $6,000 and intangible assets including goodwill with net book value of approximately $290,000. The shares tendered as consideration for the transaction were valued at approximately $84,000, based upon the last trading price, resulting in a loss of approximately $213,000. Operating results for the assets divested have been reclassified as discontinued operations (see note 4).
Simultaneous with the IM Sale, Marillion Partnership's contractor agreement with the Company was terminated, this had included Edward Dale serving as Chief Executive Officer of the Company. Henry Pinskier, Chair of 30DC, Inc.'s Board of Directors was elected by the board as interim Chief Executive Officer of the Company. Mr. Dale remains a director of the Company.
Simultaneous with the IM Sale, Netbloo Media, Ltd.'s existing contractor agreement with the Company was superseded by a new contractor agreement with an effective date of May 15, 2015. The new contractor agreement reduces annual compensation from $300,000 to $150,000 per year and reduces the services Netbloo will provide to the Company's which is now focused on the MagCast Publishing Platform.
The Company has included two businesses in discontinued operations; the portfolio of Internet Marketing Assets business which was divested July 30, 2015 (see note 3) and the business of Infinity which was discontinued after the share exchange with 30DC DE on September 10, 2010. Prior to the share exchange, Infinity withdrew its election to operate as a Business Development Company ("BDC") under the Investment Company Act of 1940 ("1940 Act"). Infinity historically operated as a non-diversified, closed-end management investment company and prepared its financial statements as required by the 1940 Act. 30DC is no longer actively operating the BDC and the assets, liabilities and results of operations of Infinity's former business are shown as discontinued operations in the Company's financial statements subsequent to the share exchange with 30DC. Investment companies report assets at fair value and the Company has continued to report investment assets in discontinued operations on this basis.
Included in liabilities of discontinued operations at September 30, 2015 and June 30, 2015 are $50,550 and $51,050 respectively in notes payable plus related accrued interest of which are all in default for lack of repayment by their due date.
For the three months ended September 30, 2015 and September 30, 2014 the Company incurred interest expense on notes payable of $1,257 and $1,478 respectively which is included in the Statement of Operations under income (loss) from discontinued operations.
At September 30, 2015 the fair value of marketable securities held for sale was $60,792 which included cumulative net unrealized losses of $5,618. At June 30, 2015 the fair value of marketable securities held for sale was $80,771 which included cumulative net unrealized gains of $14,361.
At September 30, 2015, due to related parties totaled $1,243,867. This primarily consisted of $31,000 due to GHL Group, Ltd., whose President, Gregory H. Laborde is a Director, under their consulting services agreement, $231,500 accrued for directors' fees for services of non-executive directors, $159,300 due to Netbloo Media, Ltd. under its contractor agreement, $40,700 due to Marillion Partnership under its contractor agreement and $781,500 due to Theodore A. Greenberg, CFO and director, for compensation.
On July 30, 2015, the Company divested a portfolio of Internet marketing assets ("IM Sale"), including Market Pro Max, in two separate transaction with Marillion Partnership and Netbloo Media, Ltd. in exchange for return of a total of 16,743,681 shares of the Company's common stock to the Company, see note 3 for further details on the divestiture.
During the three months ended September 30, 2015, the Company did not issue any common stock.
During the three months ended September 30, 2015, the Company divested a portfolio of Internet marketing assets ("IM Sale"), including Market Pro Max, in two separate transactions with Marillion Partnership and Netbloo Media, Ltd. in exchange for return of a total of 16,743,681 shares of the Company's common stock to the Company, see note 3 for further details on the divestiture.
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Life (years) | |
Outstanding warrants at 06/30/15 | | | 3,401,522 | | | $ 0.50 | | | 0.30 | |
Granted | | | - | | | - | | | - | |
Exercised | | | - | | | - | | | - | |
Forfeited/expired | | | 2,554,205 | | | 0.50 | | | - | |
Outstanding warrants at 9/30/15 | | | 847,317 | | | 0.50 | | | 0.27 | |
| | | | | | | | | | |
| | | | | | | | | | | |
Exercisable on 9/30/15 | | | 847,317 | | | 0.50 | | | 0.27 | |
The aggregate intrinsic value of warrants outstanding and exercisable was $0 at September 30, 2015. Total intrinsic value of warrants exercised was $0 for the three months ended September 30, 2015 as no warrants were exercised during this period.
NOTE 7. STOCK BASED COMPENSATION PLANS
The Company follows FASB Accounting Standards Codification No. 718 - Compensation - Stock Compensation for share based payments to employees. The Company follows FASB Accounting Standards Codification No. 505 for share based payments to Non-Employees.
The Company recognized expense in the amount of $-0- and $8,854 for the three months ended September 30, 2015 and September 30, 2014 respectively for options granted in prior periods the cost of which is being recorded on a straight-line basis over the vesting period. There was no impact on the Company's cash flow.
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30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(Unaudited)
Further information relating to stock options is as follows:
| | | | | | Weighted | | |
| | | | Weighted | | Average | | |
| | Number | | Average | | Remaining | | |
| | of | | Exercise | | Contract | | |
| | Shares | | Price | | Life (years) | | |
Outstanding options at 06/30/15 | | | 3,600,000 | | | $ 0.18 | | | 6.61 | |
Granted | | | - | | | - | | | - | |
Exercised | | | - | | | - | | | - | |
Forfeited/expired | | | - | | | - | | | - | |
Outstanding options at 9/30/15 | | | 3,600,000 | | | 0.18 | | | 6.36 | |
| | | | | | | | | | |
| | | | | | | | | | | |
Exercisable on 9/30/15 | | | 3,600,000 | | | 0.18 | | | 6.36 | |
| | | | | | | | | | | | | | | |
The options have a contractual term of ten years. The aggregate intrinsic value of options outstanding and exercisable was $0 at September 30, 2015. Total intrinsic value of options exercised was $0 for the three months ended September 30, 2015 as no options were exercised during this period.
At September 30, 2015, shares available for future stock option grants to employees and directors under the 2012 Stock Option Plan were 4,500,000.
NOTE 8. SUPPLEMENTAL SCHEDULE OF OPERATING EXPENSES
| | Three Months Ended September 30, 2015 | | Three Months Ended September 30, 2014 |
| | | | |
| | | | |
Related Party Contractor Fees (1) | | $46,500 | | $90,000 |
Officer's Salary | | 33,000 | | 37,427 |
Directors' Fees | | 27,500 | | 31,927 |
Independent Contractors | | 46,820 | | 83,096 |
Commission Expense | | 2,348 | | 144,273 |
Professional Fees | | 27,076 | | 57,204 |
Credit Card Processing Fees | | 5,462 | | 23,252 |
Telephone and Data Lines | | 1,447 | | 5,310 |
Other Operating Costs | | 28,008 | | 33,156 |
| | | | |
Total Operating Expenses | | $218,161 | | $505,645 |
| | | | |
(1) For the three months ended September 30, 2014, related party contractors included Marillion an affiliate of the Company that managed marketing and development for the Company and provided the services of Edward Dale as Chief Executive Officer of the Company, GHL Group, Ltd., whose President, Gregory H. Laborde is a Director and Netbloo which was the joint developer of the MagCast Publishing Platform. For the three months ended September 30, 2015, related party contractors include GHL Group and Netbloo.
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30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(Unaudited)
NOTE 9. SUBSEQUENT EVENTS
On November 24, 2015, the Company entered into an agreement with a business development consultant for which part of the consideration was 250,000 shares of the Company's common stock. For the 250,000 shares, the Company recorded $1,500 as independent contractor expense based upon the closing price of the Company's shares on the day the shares were issued.
On December 22, 2015, the Company entered into an agreement with Henry Pinskier, the Company's Interim Chief Executive Officer for consideration of 2,000,000 shares of the Company's common stock. The agreement has zero cash consideration and covers the time Mr. Pinskier began serving as Interim Chief Executive Officer through the end of the Company's current fiscal year, June 30, 2016. For the 2,000,000 shares the Company recorded $12,000 as related party contractor expense based upon the closing price of the Company's shares on the day the shares were issued. Mr. Pinskier is also chairman of the Company's board of directors.
On December 22, 2015, the Company entered into a one-year agreement with Theodore A. Greenberg, the Company's Chief Financial Officer for which part of the consideration was 500,000 shares of the Company's common stock. Cash consideration under the agreement is $5,000 per month and may be adjusted after six months based upon the Company's performance and financial position. Cash consideration under Mr. Greenberg's existing agreement was $11,000 per month. For the 500,000 shares, the Company recorded $3,000 as officer's salary expense based upon the closing price of the Company's shares on the day the shares were issued. Mr. Greenberg is also a member of the Company's board of directors.
On December 22, 2015, the Company entered into a one-year agreement with 21st Century Digital Media, Inc., whose President, Gregory H. Laborde, is a Director of 30DC, for business development services for which part of the consideration was 300,000 shares of the Company's common stock. Cash consideration under the agreement is $3,000 per month and the agreement includes incentive compensation of up to 1,700,000 shares of the Company's stock which can be earned by achieving certain milestones during the term of the agreement. For the 300,000 shares the Company recorded $1,800 as related party contractor expense based upon the closing price of the Company's shares on the day the shares were issued.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS. FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE. THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS.
OVERVIEW
30DC is a digital media solution provider. The company's principal product, the MagCast Mobile Publishing Platform, is used for the creation of mobile magazine apps and facilitates the monetization of digital content through advanced marketing functions. The MagCast platform is compatible with the dominant mobile architectures for mobile devices such as smart phones and tablet computers, Apple's iOS and Google's Android. 30DC delivers the MagCast platform to licensees as a software-as-a-service. The Company's assets consist primarily of property and equipment, goodwill and internally developed intangible property such as domain names, websites, customer lists and copyrights.
In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo Media, Ltd. ("Netbloo") for the joint development of the MagCast Mobile Publishing Platform ("MagCast"). MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on the Apple and Google app distribution platforms and includes executive training modules to develop and market a digital magazine. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which resulted in commission of 50% of gross revenue for those sales to the affiliate responsible for the sale. In October 2012, the Company reached an agreement to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of e-commerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock.
Effective February 28, 2014, the Company divested assets and liabilities related to Immediate Edge that had previously been acquired from Raine Ventures, LLC ("Raine") in exchange for the 10,560,000 common shares of the Company which Raine had held. Please see Note 3 for further details on the divestiture.
On July 30, 2015, the 30DC, Inc. ("the Company") board of directors approved two agreements, one with Marillion Partnership ("Marillion") and one with Netbloo Media, Ltd. ("Netbloo") each of which acquired certain Internet Marketing business assets ("IM Assets") from the Company in exchange for a portion of the 30DC common stock that each held. The Marillion transaction included The Challenge, rights to the company's coaching and mentoring business and affiliate marketing rights. Consideration for the Marillion transaction was 10 million (10,000,000) common shares in 30DC. The Netbloo transaction included Market Pro Max and a portfolio of e-commerce training courses. Consideration for the Netbloo transaction was 6,743,681 common shares in 30DC. The net book value of the assets
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being divested, which consisted primarily of intangible assets and goodwill, exceeded the fair market value of the shares redeemed on the date the transactions were approved by $212,563 which the Company recorded as a loss from divestiture. As a result of the transactions the Company's issued and outstanding shares have been reduced from 76,853,464 to 60,109,783. Prior to the transactions Marillion held 23.67% and Netbloo held 17.55% of the Company's issued and outstanding common stock. After the transactions, Marillion holds 13.62% and Netbloo holds 11.22% of the Company's issued and outstanding common stock.
Simultaneous with the transactions, the services agreement with Marillion, through which Edward Dale served as the Company's chief executive officer was terminated. The services agreement with Netbloo was revised to reflect a reduction in annual compensation from $300,000 to $150,000 and the services to be provided were refocused to be exclusively related to Company's digital publishing technology.
Following an extensive review of our technology, market opportunities for our product portfolio and our service capabilities we made the strategic decision to focus on our mobile publishing solutions. Historically, 30DC offered a mix of digital media training and publishing solutions for individuals, professionals and businesses using the Internet and mobile media in operating their businesses and in particular in marketing digital creations. In July 2015, we divested a portfolio of non-core assets related to Internet marketing and training, including certain e-commerce tools. We have now focused our resources and product development effort on enhancing our mobile publishing technologies, extending our product line of mobile publishing solutions and expanded our service capabilities for existing and new customers.
The Company has no plans at this time for purchases or sales of fixed assets which would occur in the next twelve months.
The Company has no expectation or anticipation of significant changes in number of employees in the next twelve months.
RESULTS OF OPERATIONS
For The Three Month Period Ended September 30, 2015 Compared To The Three Month Period Ended September 30, 2014.
During the three months ended September 30, 2015, 30DC, Inc. recognized revenues of $67,905 from continuing operations compared to $603,244 during the three months ended September 30, 2014. Revenues from continuing operations were from the following sources during the three months ended September 30, 2015 compared to September 30, 2014.
| | Three Months Ended September 30, 2015 | Three Months Ended September 30, 2014 | Increase or (Decrease) |
Revenue | | | | |
Subscription Revenue | | $ 8,484 | $ 18,056 | $ (9,572) |
Products and Services | | 59,421 | 585,188 | (525,767) |
Total Revenues | | $ 67,905 | $ 603,244 | $ (535,339) |
| | | | |
The $9,572 decrease in subscription revenue was due to a decrease in monthly subscribers for the Company's online forum subscription product.
The $525,767 decrease in products and services revenue resulted from the Company running a much smaller promotion for the MagCast Publishing platform in July 2015 than in July 2014. The July 2014 promotion was for a lifetime MagCast license which resulted in immediate recognition of revenue. The July 2015 promotion
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was for an annual license which results in revenue being recognized ratably over the one-year license term. The amount included in deferred revenue at September 30, 2015 from the July 2015 promotion was approximately $78,000. The Company does not expect to have a large-scale MagCast promotion during this fiscal year.
During the three months ended September 30, 2015, the Company incurred $218,161 in operational expenses for continuing operations compared to $505,645 during the three months ended September 30, 2014. Operational expenses during the three months September March 30, 2015 and 2014, include the following categories:
| Three Months Ended | Three Months Ended | Increase or |
| September 30, 2015 | September 30, 2014 | Decrease |
| Accounting Fees | $ 26,000 | $ 51,250 | $ (25,250) |
| Credit Card Processing Fees | 5,462 | 23,252 | (17,790) |
| Commissions | 2,348 | 144,273 | (141,925) |
| Independent Contractors | 46,820 | 83,096 | (36,276) |
| Depreciation and Amortization | 14,900 | 14,079 | 821 |
| Directors' Fees | 27,500 | 31,927 | (4,427) |
| Internet Expenses | 4,996 | 6,429 | (1,433) |
| Legal Fees | 1,076 | 5,954 | (4,878) |
| Officer's Salaries | 33,000 | 37,427 | (4,427) |
| Related Party Contractors | 46,500 | 90,000 | (43,500) |
| Telephone and Data Lines | 1,447 | 5,310 | (3,863) |
| Other Operating Expenses | 8,112 | 12,648 | (4,536) |
| | | |
| Total Operating Expenses | $ 218,161 | $ 505,645 | $ (287,484) |
| | | |
The decrease of $25,250 in accounting fees was primarily due to a $20,000 decrease in audit fees during the three months ended September 30, 2015 due to a delay in completion of the Company's June 30, 2015 audited financial statements and a nonrepeating one-time charge during the three months ended September 30, 2014 for startup costs for an e-commerce accounting firm to automate a number of our accounting processes and to provide outsourced bookkeeping services.
The decrease of $17,790 in credit card processing fees resulted from the $535,339 decrease in revenue.
The decrease of $141,925 in commissions resulted from the Company the smaller MagCast promotion in July 2015 than July 2014 and the July 2015 promotion not being marketed through marketing affiliate relationships which resulted in commission expense during the July 2014 promotion.
The decrease of $36,276 in independent contractors is primarily due to $18,000 earned by Clinton Carey, former Chief Operating Officer of the Company who was contracted as a consulting during the three months ended September 30, 2014 and at starting July 1, 2015 represents the Company on a commission only basis and $15,392 paid to two long-term consultants to the Company who completed their service with the Company during the three months ended September 30, 2014.
The decrease of $43,500 in Related Party Contractors was due to termination of the Marillion Partnershjp contractor agreement, through which Edward Dale had been serving as the Company's CEO, for which $37,500 was charged to continuing operations for the three month period ended September 30, 2014 and $6,000 was due to a decrease in the consulting amount due to GHL Group whose President, Greg Laborde is a director of the Company.
During the three months ended September 30, 2015, the Company recognized a net loss from continuing operations of $150,256 compared to net income from continuing operations of $97,599 during the three months ended September 30, 2014. The increased net loss from continuing operations of $247,855 was due to the decrease in revenue of $535,339 offset by the decrease in operating expenses of $287,484.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $58,382 at September 30, 2015 and the Company had a working capital deficit of $2,233,054. To fund working capital for the next 12 months, the Company expects to raise capital and to improve the results of operations from increasing revenue as well as a reduction in operating costs. The Company expects increased revenue from further sales of MagCast Publishing Platform and by marketing to customers outside its historical customer base with the goal of recurring revenue through annual licenses. The Company also expects increased revenue by introducing new products some of which will be extensions of existing product lines. Additionally, the Company intends to increase funds available by raising capital, though at this time the Company has not commenced any offerings and cannot guarantee that they will be successful in its capital raising efforts. If the results of operations and capital raised, if any, are not sufficient to fund the Company's expenses as they come due, the Company will defer amounts due to related parties and to the extent possible utilize shares of the Company to satisfy its liabilities.
Included in liabilities of discontinued operations at September 30, 2015 is $50,550 in notes payable plus related accrued interest that are in default for lack of repayment by their due date.
During the three month period ended September 30, 2015, operating activities used $8,289. During the three month period ended September 30, 2014, operating activities provided the Company with $80,909. The decrease of $89,198 in funds provided by operating activities was a combination of a number of increases and decreases including the decrease in net income from continuing operations of approximately $248,000 and an approximately $70,000 decrease from change accrued expenses and refunds primarily due to the $40,000 accrual of audit fees and approximately $23,000 due to accrual of commissions and credit card processing fees for sales during the July 2014 MagCast promotion included in accounts receivable. This was offset by a net decrease of approximately $43,000 in the reduction in restricted cash held in reserve by the Company's credit card processor, net increase of approximately $122,000 from the change in accounts receivable due to higher accounts receivable at September 30, 2014 resulting from sales under payment plans during the MagCast sales promotion in July 2014, an increase in change deferred revenue of approximately $23,000 due to sale of annual licenses during the July 2015 MagCast promotion resulting in revenue being recognized ratably over the one year license period offset by lower change in deferred revenue from DFY MagCast service sales, approximately $49,000 increase in change of the amount due to related parties due to larger deferral of amounts due to the Company's director, CFO for services and Netbloo under their contractor agreement due to the Company's limited liquidity.
GOING CONCERN
The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of September 30, 2015, the Company has a working capital deficit of approximately $2,233,000 and has accumulated losses of approximately $5,054,000 since its inception. The Company's ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing or to earn profits from its business operations to meet its obligations and pay its liabilities arising from normal business operations when they come due. In the past few years, the Company switched its focus to developing its own products. In May 2012, the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold directly to customers and through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs.
No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to take additional measures to
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conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4. CONTROLS AND PROCEDURES
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b) for the quarter ended September 30, 2015, our Chief Executive Officer and Chief Financial Officer, carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, they have concluded that our disclosure controls and procedures are not effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of the deficiency in our internal control over financial reporting discussed below.
Management's Quarterly Report on Internal Control over Financial Reporting.
With the participation of our Chief Executive Officer and Chief Accounting Officer, we have evaluated the effectiveness of our "internal control over financial reporting" (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the " Exchange Act ")), as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our "internal control over financial reporting" is not effective due to the material weaknesses noted below, in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(1) Segregation of Duties: We do not currently have a sufficient complement of technical accounting and external reporting personal commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not effectively segregate certain accounting duties due to the small size of its accounting staff, and maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals by the Company's personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement of accounting staff.
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(2) Financial Reporting Systems: We did not maintain a fully integrated financial consolidation and reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements for external reporting purposes.
Remediation of Material Weakness
As our current financial condition allows, we are in the process of analyzing and developing our processes for the establishment of formal policies and procedures with necessary segregation of duties, which will establish mitigating controls to compensate for the risk due to lack of segregation of duties. In July 2014, the Company contracted an e-commerce accounting firm to automate a number of our accounting processes and to provide outsourced bookkeeping services that provide for segregation of some of the duties which previously had not been.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. However, our current risk factors are set forth in our Annual Report on Form 10-K for the year ended June 30, 2015, which risk factors are incorporated herein by this reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period July 1, 2015 through September 30, 2015 the Company did not issue any equity securities.
On July 30, 2015 the Company redeemed 10,000,000 shares from the Marillion Partnership and 6,743,681 from Netbloo Media, Ltd. as part of the divestiture of a portfolio of Internet marketing assets. The Company recognized a loss of $212,563 from the divestiture.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Included in liabilities of discontinued operations at September 30, 2015 is $50,550 in notes payable plus related accrued interest that are in default for lack of repayment by their due date.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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ITEM 6. EXHIBITS
The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT NO. | | DESCRIPTION |
| | |
31.1 | | Section 302 Certification - CEO |
31.2 | | Section 302 Certification - CFO |
32.1 | | Section 906 Certification - CEO |
32.2 | | Section 906 Certification - CFO |
101.INS | | XBRL Instance Document (1) |
101.SCH | | XBRL Taxonomy Extension Schema Document (1) |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (1) |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document (1) |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (1) |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document (1) |
| | |
(1)Pursuant to Rule 406T of Regulation S-T, 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. |
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
30DC, Inc. Registrant |
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Dated: January 8, 2016 | | By:/s/ Henry Pinskier |
| | Henry Pinskier Principal Executive Officer Chief Executive Officer President |
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| | | |
| | |
| | |
Dated: January 8, 2016 | | By:/s/ Theodore A. Greenberg |
| | Theodore A. Greenberg, Principal Accounting Officer Chief Financial Officer |
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