UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file number: 000-49933
Pollex, Inc.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 95-4886472 (I.R.S. Employer Identification No.) |
| | |
3000 Scott Boulevard, Suite 204 Santa Clara, CA (Address of principal executive offices) | 95054 (Zip Code) |
Registrant’s telephone number, including area code (408) 970-8050
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). □ Yes □ No.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
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). Yes o No x
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of March 31, 2009, there were 5,121,689 shares of common stock, par value $0.001, issued and outstanding ..
POLLEX, INC.
TABLE OF CONTENTS
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| ITEM 1 | Financial Statements | 3 |
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| ITEM 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations. | 8 |
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| ITEM 3 | Quantitative and Qualitative Disclosures About Market Risk | 12 |
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| ITEM 4 | Controls and Procedures | 12 |
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| ITEM 4T | Controls and Procedures | 13 |
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| PART II – OTHER INFORMATION | |
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| ITEM 1 | Legal Proceedings | 14 |
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| ITEM 1A | Risk Factors | 14 |
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| ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
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| ITEM 3 | Defaults Upon Senior Securities | 14 |
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| ITEM 4 | Submission of Matters to a Vote of Security Holders | 14 |
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| ITEM 5 | Other Information | 14 |
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| ITEM 6 | Exhibits | 14 |
PART I – FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
ITEM 1 Financial Statements
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| | | | | | | |
| CONSOLIDATED BALANCE SHEETS | |
| | | | | | | |
| | | | | | | |
| | | March 31, | | | December 31 | |
| | | 2009 | | | 2008 | |
| | | (Unaudited) | | | | |
| ASSETS | |
| | | | | | | |
| CURRENT ASSETS | | | | | | |
| Cash | | | 1,095 | | | | 8,659 | |
| Total current assets | | | 1,095 | | | | 8,659 | |
| | | | | | | | | |
| Property and equipment, net of accumulated | | | | | | | | |
| depreciation of $17,310 and $15,233 | | | 9,518 | | | | 11,595 | |
| | | | | | | | | |
| Other assets | | | | | | | | |
| License Agreements, net of accumulated | | | | | | | | |
| amortization of $2,696,585 and $2,542,178 | | | 4,691,189 | | | | 4,845,596 | |
| Goodwill | | | 52,912 | | | | 52,912 | |
| Other receivable | | | 6,500 | | | | - | |
| Deposits | | | 3,090 | | | | 3,090 | |
| | | | | | | | | |
| Total other assets | | | 4,753,691 | | | | 4,901,598 | |
| | | | | | | | | |
| Total Assets | | | 4,764,304 | | | | 4,921,852 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accrued expenses and accounts payable | | | 584,415 | | | | 524,951 | |
| Due to affiliate | | | 194,056 | | | | 194,056 | |
| Loans payable | | | 334,400 | | | | 296,400 | |
| | | | | | | | | |
| Total Current Liabilities | | | 1,112,871 | | | | 1,015,407 | |
| | | | | | | | | |
| Stockholders' Equity | | | | | | | | |
| Common stock, authorized 300,000,000 shares; | | | | | | | | |
| par value $0.001; 5,120,417 issued and outstanding | | | | | | | | |
| at March 31, 2009 and December 31,2008, respectively | | | 5,120 | | | | 5,120 | |
| Additional paid-in-capital | | | 97,270,694 | | | | 91,024,861 | |
| Accumulated deficit | | | (93,624,381 | ) | | | (87,123,536 | ) |
| | | | | | | | | |
| Total Stockholders’ Equity | | | 3,651,433 | | | | 3,906,445 | |
| | | | | | | | | |
| Total Liabilities and Stockholders’ Equity | | | 4,764,304 | | | | 4,921,852 | |
| | | | | | | | | |
| | |
See accompanying notes to consolidated financial statements.
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| CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | |
| | | | | | | |
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| | | | | | | |
| | | For the three months ended | |
| | | March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| REVENUES | | $ | 60,000 | | | $ | - | |
| | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | |
| Cost of goods sold | | | 54,000 | | | | - | |
| Selling, general and administrative | | | 6,350,361 | | | | 6,456,569 | |
| Depreciation | | | 2,077 | | | | 2,077 | |
| Amortization | | | 154,407 | | | | 435,408 | |
| | | | | | | | | |
| Total Costs and Expenses | | | 6,560,845 | | | | 6,894,054 | |
| | | | | | | | | |
| NET LOSS | | $ | (6,500,845 | ) | | $ | (6,894,054 | ) |
| | | | | | | | | |
| NET LOSS PER COMMON | | | | | | | | |
| SHARE (Basic and Diluted) | | $ | (1.27 | ) | | $ | (1.35 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE SHARES | | | | | | | | |
| OUTSTANDING | | | 5,120,417 | | | | 5,120,417 | |
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| | |
See accompanying notes to consolidated financial statements.
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| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |
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| | | | | | | |
| | | For the three months ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net loss | | $ | (6,500,845 | ) | | $ | (6,894,054 | ) |
| Adjustments to reconcile net loss to net cash | | | | | | | | |
| (used in) provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 156,484 | | | | 437,485 | |
| Stock based compensation | | | 6,245,833 | | | | 6,250,000 | |
| (Increase) decrease in prepaid expenses | | | - | | | | (5,214 | ) |
| (Increase) decrease in other receivable | | | (6,500 | ) | | | - | |
| (Increase) decrease in deposits | | | - | | | | (400,018 | ) |
| Increase (decrease) in accrued expenses | | | 59,464 | | | | 109,701 | |
| Increase (decrease) in other payable | | | - | | | | - | |
| Increase (decrease) in due to affiliate | | | - | | | | 88,995 | |
| | | | | | | | | |
| Net cash used in operating activities | | | (45,564 | ) | | | (413,105 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Loan proceeds | | | 53,000 | | | | 422,000 | |
| Repayment of loan | | | (15,000 | ) | | | - | |
| Bank overdraft | | | - | | | | (1,695 | ) |
| | | | | | | | | |
| Net cash provided by financing activities | | | 38,000 | | | | 420,305 | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH | | | (7,564 | ) | | | 7,200 | |
| | | | | | | | | |
| CASH AT BEGINNING OF PERIOD | | | 8,659 | | | | - | |
| | | | | | | | | |
| CASH AT END OF PERIOD | | $ | 1,095 | | | $ | 7,200 | |
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| | |
See accompanying notes to consolidated financial statements.
POLLEX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2009
NOTE A – BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the consolidated financial statements not misleading have been included. Results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in the Pollex, Inc. annual report on Form 10-K for the year ended December 31, 2008.
NOTE B – GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company incurred net losses of $6,500,845 and $6,894,054 for the three months ended March 31, 2009 and has an accumulated deficit of $93,624,381 as of March 31, 2009. Management’s plans include raising capital through the equity markets to fund future operations and generating revenue through its license agreements. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
Pollex, Inc., formerly Joytoto USA, Inc., formerly BioStem, Inc. (the “Company,” “we,” and “us”) was incorporated on November 2, 2001, in the State of Nevada, as Web Views Corporation. In June 2003, we acquired 100% of the issued and outstanding shares of Cascade Mountain Mining Corp., pursuant to an exchange agreement. As a result of the acquisition and the change in focus of our business, on June 17, 2003, we changed our name from Web Views Corporation to Cascade Mountain Mining Company, Inc.
On January 7, 2005, we changed our name from Cascade Mountain Mining Company, Inc. to National Parking Systems, Inc., in anticipation of an exchange agreement entered into on January 13, 2005, whereby we acquired 100% of the issued and outstanding shares of ABS Holding Company, Inc., a Nevada corporation and BH Holding Company, Inc., a Nevada corporation.
On November 18, 2005, we changed our name from National Parking Systems, Inc. to BioStem, Inc. in contemplation of the closing of an Agreement and Plan of Merger we had entered into with Cryobanks International, Inc., a stem cell company. Due to the failure of Cryobanks to satisfy certain conditions of the closing of such Agreement, we terminated the Agreement in September 2007, and sought a new acquisition.
On October 12, 2007, we entered into a Stock Exchange Agreement with Joytoto Co., Ltd., a Korean company (“Joytoto Korea”) , and Joyon Entertainment Co., Ltd, a Korean company(“Joyon Korea”), to purchase 100% of the issued and outstanding capital stock of Joyon Entertainment, Inc., a Delaware corporation (“JEI”), in exchange for 3,833,333 shares of our common stock (after giving effect to a one-for-forty reverse split of our common stock) as well as the divestment of our two subsidiaries, BH Holding Company, Inc. and ABS Holding Company, Inc. Effective on October 31, 2007, our name was changed to Joytoto USA, Inc. and our common stock commenced trading under the new symbol “JYTO”.
We are a majority owned subsidiary of Joytoto Korea. We have one wholly-owned subsidiary, JEI, and two sub-subsidiaries, Joytoto Technologies, Inc., a Nevada corporation (“JTI”) and Joytoto America, Inc., a California corporation (“JAI”), both of which are wholly-owned subsidiaries of JEI.
On October 31, 2007, we divested our two subsidiaries and acquired JEI., and its two wholly-owned subsidiaries, JAI and JTI The discussion below concerns the business operations of our new subsidiaries, which are engaged in the business of providing online gaming services and MP3 and other technical products.
Our business is conducted through our two sub-subsidiaries, JTI and JAI. Both were acquired by JEI, in the second quarter of 2007. Both entities were formed in the third quarter of 2006. We generated revenue of $60,000 in the first quarter of 2009 through JTI. Even though we had revenue from the first quarter of 2009, we have operated at a loss for 2009. All of our revenue goals are based on our MP3 products business, but we are planning to open an online game portal at the beginning of next year. The online game business operated by JAI will be a cash cow business model for us.
On February 20, 2008, we entered into an Agreement to Manufacture, Supply and Market with Hyundai RFmon Corp. (“Hyundai”), a United States distributor of electronic products. Pursuant to this agreement, upon receipt of an initial purchase order from Hyundai of a minimum of $10 million, the Company will manufacture, market and supply to Hyundai various electronic and digital products, including, but not limited to, ATM machines, DVD download dispensers and smart teller machines. This agreement will remain in effect until December 31, 2012.
Through our sub-subsidiary, JTI, we are a virtual, original equipment manufacturer (“OEM”) of consumer electronics for retailers located throughout the world. Effective on June 11, 2007, JTI entered into an Exclusive Distributorship Agreement with Joytoto Korea, whereby JTI was appointed as the exclusive worldwide distributor of Joytoto Korea’s MP3 products and other consumer electronic devices. Joytoto Korea will complete all purchase orders existing or pending as of the date of the Exclusive Distributorship Agreement. Joytoto Korea has transferred all of its MP3 products business as described in the Exclusive Distributorship Agreement to fulfill all new purchase orders for such products. We have entered into direct contractual relationships with Joytoto Korea’s primary customers.
On April 18, 2007, JAI entered into a Master License Agreement with Joytoto Korea, and Joyon Korea (collectively, the “Licensors”), whereby JAI acquired an exclusive license to operate an online game service, using four online games developed by the Licensors, in the United States, for a period of ten years . In addition, JAI has the option to enter into an exclusive license to provide an additional twenty online games through its online game service.
On October 21, 2008, we filed a Certificate of Amendment to our Articles of Incorporation to effect a reverse split on a one for thirty basis and to change our name to Pollex, Inc., thus resulting in our symbol change to “PLLX”, effective October 24, 2008. Share and per share information in this filing give effect to this reverse split.
Three months ended March 31, 2009 compared to three months ended March 31, 2008
Revenues, Expenses and Loss from Operations
Our revenues, selling, general and administrative expenses, depreciation, amortization, total costs and expenses, and net loss for the three months ended March 31, 20098 and for the three months ended March 31, 2009 are as follows:
| | | Three Months Ended March 31, 2009 | | | Three Months Ended March 31, 2008 | |
| | | | | | | |
| Revenue | | $ | 60,000 | | | $ | - | |
| Selling, general and administrative | | | 6,350,361 | | | | 6,456,569 | |
| Depreciation | | | 2,077 | | | | 2,077 | |
| Amortization | | | 154,407 | | | | 435,408 | |
| Total costs and expenses | | | 6,560,845 | | | | 6,894,054 | |
| | | | | | | | | |
| Net Loss | | $ | 6,500,845 | | | $ | 6,894,054 | |
For the three months ended March 31, 2009, we had revenues of $60,000 compared to $0 for the three months ended March 31, 2008. The increase of $60,000 was primarily due to sales in MP3 electronic components. For the three months ended March 31, 2009, our selling, general and administrative expenses of $6,350,361 consisted of primarily of $6,245,833 in stock based compensation due to the shares granted to our executive officers under their employment agreements, $3,915 of payroll expenses, $15,233 of professional fees, and $8,325 of rent expense. For the three months ended March 31, 2008 our selling, general and administrative expenses of $6,456,569 consisted primarily of $6,245,833 in stock based compensation due to the shares granted to our executive officers under their employment agreements, $31,086 of payroll expenses, $148,649 of professional fees, and $4,608 of rent expense. Depreciation is of computers and other office furniture and equipment. Amortization is derived from the value assigned to the securities and other consideration issued for our license and distribution agreements, based on their estimated useful life.
Net Loss
Our Net Loss for the three months ended March 31, 2009 was $6,500,845 compared to $6,894,054 for the three months ended March 31, 2008. The decrease of $393,209 or 5.7% was primarily due to the decrease in amortization expense due to the impairment of the license agreements in the third quarter of 2008.
Liquidity and Capital Resources
Introduction
Our primary assets are the two online game license agreements and the Exclusive Distributorship Agreement. As of March 31, 2009, we have not begun to generate revenue from these agreements, and as a result we have very few current assets. Our cash requirements have been relatively small up to this point, but as a result of the acquisition of JEI and the fact that we are now a public, reporting company, we anticipate that our cash needs will increase dramatically. We anticipate satisfying these cash needs through the sale of our common stock until we not only begin to generate revenue, but until we can generate enough revenue to sustain our operations.
| | | As of March 31, 2009 | | | As of December 31, 2008 | | | Change | |
| Cash | | | 1,095 | | | $ | 8,659 | | | $ | (7,564 | ) |
| Total current assets | | | 1,095 | | | | 8,659 | | | | (7,564 | ) |
| Property and equipment, net of accumulated depreciation of $17,310 and $15,233 | | | 9,518 | | | | 11,595 | | | | (2,077 | ) |
| License Agreements, net of accumulated amortization of $2,696,585 and $2,542,178 | | | 4,691,189 | | | | 4,845,596 | | | | (154,407 | ) |
| Goodwill | | | 52,912 | | | | 52,912 | | | | | |
| Other receivable | | | 6,500 | | | | | | | | 6,500 | |
| Deposits | | | 3,090 | | | | 3,090 | | | | | |
| Total assets | | | 4,764,304 | | | | 4,921,852 | | | | (157,548 | ) |
| Accrued expenses and accounts payable | | | 584,415 | | | | 524,951 | | | | 59,464 | |
| Due to affiliate | | | 194,056 | | | | 194,056 | | | | | |
| Loans payable | | | 334,400 | | | | 296,400 | | | | 38,000 | |
| Total Current Liabilities | | | 1,112,871 | | | | 1,015,407 | | | | 97,464 | |
Cash Requirements
As stated above, we anticipate that our cash requirements will increase substantially as a result of the fact that we are now a public, reporting company and as we begin to increase operations to generate revenue from our license and distributorship agreements.
Sources and Uses of Cash
Operations
For the three months ended March 31, 2009, we had a net loss from operations of $6,500,845 compared to $6,894,054 for the three months ended March 31, 2008. This was offset by depreciation and amortization of $156,484, stock based compensation of $6,245,833, an increase in other receivables and an increase in accrued expenses of $59,464, for total cash used in our operating activities of $45,564.
Investments
We had no cash provided by investments for the three months ended March 31, 2009.
Financing
Our cash flows from financing activities totaled $38,000, from $53,000 in loan proceeds offset by ($15,000) from repayment of our loan.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with its Board of Directors, we have identified the following accounting policies that we believe are key to an understanding of our financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
Valuation of License Agreements
We account for goodwill and license agreements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and other Intangible Assets.” Under SFAS 142, goodwill and intangibles with indefinite lives are not amortized; rather they are tested for impairment at least annually. Intangible assets and license agreements, other than goodwill, with definite lives will be amortized over their useful lives ranging from 3 to 10 years. We periodically evaluate the reasonableness of the useful lives of these intangible assets. The license agreements were valued on our balance sheet as follows:
A. Upon execution of the Master License Agreement we issued Joyon Korea thirty million (30,000,000) common shares as consideration. Prior to the acquisition of the Master License Agreement we had an independent business valuation performed whereby our enterprise value was calculated to be $0.1799 per share. Accordingly, the shares issued for the license were valued at $0.1799 per share.
B. Prior to the acquisition of the Exclusive Distributorship Agreement we had an independent business valuation performed whereby our enterprise value was calculated to be $0.3562 per share. Accordingly, the shares issued for the license agreement were valued at $0.3562 per share.
C. License agreements are comprised of the following:
| | | March 31, 2009 | | Estimated Useful Life |
| | | | | |
| Pang Pang License | | $ | 279,373 | | 3 years |
| North American Master License | | | 2,419,444 | | 10 years |
| Exclusive Distributorship | | | 4,688,957 | | 10 years |
| | | | | | |
| Less: accumulated amortization | | | (2,696,585) | | |
| | | | | | |
| | | $ | 4,691,189 | | |
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company we are not required to provide the information required by this Item.
ITEM 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2009, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us 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. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2009, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following three material weaknesses which have caused management to conclude that, as of March 31, 2009, our disclosure controls and procedures were not effective at the reasonable assurance level:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
3. We had a significant number of audit adjustments last fiscal year. Audit adjustments are the result of a failure of the internal controls to prevent or detect misstatements of accounting information. The failure could be due to inadequate design of the internal controls or to a misapplication or override of controls. Management evaluated the impact of our significant number of audit adjustments last year and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Remediation of Material Weaknesses
To remediate the material weaknesses in our disclosure controls and procedures identified above, we have continued to refine our internal procedures to begin to implement segregation of duties and to reduce the number of audit adjustments.
Changes in Internal Control over Financial Reporting
Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 4T Controls and Procedures
We are not required to furnish the information required by this item until we report on our fiscal year ending December 31, 2009.
PART II – OTHER INFORMATION
ITEM 1 Legal Proceedings
Consumer Protection Corporation v. Neo-Tech News, a fictitiously named Defendant whose true legal identity is not known by Plaintiff, Joytoto USA, Inc., Joyon Entertainment, Inc., ABC Defendants 1-50, United States District Court for the District of Arizona, Case No. 08-1953-PHX-JAT
Plaintiff commenced this action on or about September 24, 2008, by the filing of a Complaint. Plaintiff asserts claims arising from an alleged unsolicited facsimile concerning the Company. Plaintiff alleges that the Company paid Neo-Tech News to broadcast the facsimile to Plaintiff as well as other members of the proposed class. Based upon these allegations, Plaintiff asserts claims for violations of the Telephone Consumer Protection Act, declaratory judgment, civil conspiracy, and aiding and abetting. Plaintiff seeks class certification, injunctive relief, damages in accordance with the Telephone Consumer Protection Act, costs, attorneys’ fees, and costs.
On December 8, 2008, the Company filed a motion to dismiss the Complaint. On January 5, 2009, Plaintiff filed its response in opposition to the motion to dismiss. On January 14, 2009, the Company filed its reply to the response. The court has yet to rule on the motion to dismiss. The Company denies the material allegations in the Complaint and intends to vigorously defend this action.
There are no material changes to the risk factors in our most recent Annual Report on Form 10-K.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered, or any other, sales of equity securities by us during the three month period ended March 31, 2009 .
ITEM 3 Defaults Upon Senior Securities
There have been no events that are required to be reported under this Item.
ITEM 4 Submission of Matters to a Vote of Security Holders
There have been no events that are required to be reported under this Item.
ITEM 5 Other Information
ITEM 6 Exhibits
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
| | | |
| 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
| | | |
| 32.1 | | Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.2 | | Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | Joytoto USA, Inc. |
| | |
| Dated: May 20, 2009 | /s/ Seong Yong Cho |
| | By: Seong Yong Cho |
| | Its: President |
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