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, 2013
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.) |
| | |
2005 De La Cruz Blvd. Suite 142 Santa Clara, CA (Address of principal executive offices) | 95050 (Zip Code) |
Registrant’s telephone number, including area code (408) 350-7340
(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). x 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 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 May 15, 2013, there were 5,121,688 shares of common stock, par value $0.001, issued and outstanding.
POLLEX, INC.
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
POLLEX, INC.
See accompanying notes to financial statements.
See accompanying notes to financial statements.
See accompanying notes to financial statements.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(UNAUDITED)
NOTE A – BASIS OF PRESENTATION
The accompanying 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 financial statements not misleading have been included. Results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012.
NOTE B – GOING CONCERN
As shown in the accompanying financial statements, the Company incurred net losses of $103,496 and $136,880 for the three months ended March 31, 2013 and 2012, respectively, and has an accumulated deficit of $139,674,442 at March 31, 2013. In order to fund future operations, the Company will need to raise capital through the equity markets 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 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.
NOTE C – LICENSE AGREEMENTS
The Company began operating the online game, The Great Merchant, in open beta testing in January 2010. During the three months ended March 31, 2013 and 2012, the Company generated revenues of $22,030 and $17,920, respectively, from this beta testing.
The Company has a total of 5 active license agreements that were acquired for use in South Korea. These agreements called for a total of $152,500 in license fees and $10,000 in nonrefundable royalty prepayments. Each license also has a royalty fee which varies for each license. Future royalties will be offset against the $10,000 prepayment. The licenses have terms of 2 to 3 years, beginning when they are launched commercially.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(UNAUDITED)
NOTE C – LICENSE AGREEMENTS (CONTINUED)
The Company engaged a Korea-based service provider to support and maintain the online game, and collect payments from customers. Under this agreement the service provider is required to pay the Company 29% of gross sales. For the three months ended March 31, 2013, the Company billed such 29%, or $11,668. The Company paid the licensor $9,336 on these games.
Amortization expense related to those licenses was $8,229 and $3,230 for the three months ended March 31, 2013 and 2012, respectively.
NOTE D – LOANS PAYABLE
The loans payable consists of borrowings from two individual noteholders. The terms of each promissory notes are one year and bears interest at an annual rate of 6% and are unsecured. The notes may be repaid at any time prior to their due date without a prepayment penalty. During the three months ended March 31, 2012, the Company received proceeds of $69,500 from these borrowings and repaid $4,434 of these borrowings. During the three months ended March 31, 2013, no amounts were borrowed or repaid.
NOTE E – RELATED PARTY TRANSACTIONS
Certain expenses have been paid on behalf of the Company by Joytoto Co., Ltd (“Joytoto Korea”), of which we are a majority owned subsidiary. The Company has recognized the expenses and corresponding payable to Joytoto Korea as due to affiliate. The advances are non-interest bearing and have no specific repayment date. During the three months ended March 31, 2013 and 2012, the Company received proceeds of $60,000 and $20,000, respectively, from these borrowings. No amounts were repaid during these periods.
On March 21, 2011, the Company, entered into a Conversion and Release Agreement (the “Agreement”) with Joytoto Korea. Pursuant to the terms of the Agreement, the Company issued 166,666 shares of its common stock, valued at $11,667 on the agreement date, to Joytoto Korea in consideration for the cancellation of $20,000 owed to Joytoto Korea by the Company. The Company recorded this $20,000 debt cancellation as a capital transaction.
The Company has entered into a Service Agreement with Gameforyou, Incorporated, a wholly-owned subsidiary of Joytoto Korea. Under this agreement, Gameforyou, Incorporated provides translation,
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2013
(UNAUDITED)
NOTE E – RELATED PARTY TRANSACTIONS (CONTINUED)
customer support, and system operations and maintenance. The Company is required to pay Gameforyou, Incorporated $10,000 in cash and $10,000 in cash or stock each month. Any issuance of stock will be at the market value or at a price determined and agreed to by both parties. For the three months ended March 31, 2013 and 2012, $60,000 and $60,000, respectively, were recognized in the Statement of Operations under this agreement. At March 31, 2013 and December 31, 2012, $687,950 and $567,950, respectively were due to Gameforyou, Incorporated.
NOTE F- EMPLOYMENT AGREEMENTS
On March 21, 2011, the Company entered into three year employment agreements with each of Seong Yong Cho, to serve as President and Chief Executive Officer, and Seong Sam Cho, to serve as Chief Financial Officer, respectively. Pursuant to the terms of the employment agreements, Mr. Seong Yong Cho would continue to serve as President and Chief Executive Officer of the Company for an annual salary of $1.00 and Mr. Seong Sam Cho will continue to serve as Chief Financial Officer of the Company for an annual salary of $1.00. These employment agreements run through March 21, 2014. On December 4, 2012, Seong Yong Cho resigned from his position as the Company’s Chief Executive Officer, President and Chairman and Seong Sam Cho was appointed as the Company’s Chief Executive Officer, President and Chairman.
NOTE G – WARRANTS
Warrant activity for the three months ended March 31, 2013 is as follows:
| | | Shares | | | Weighted Average Grant Date Fair Value | |
| Outstanding, January 1, 2013 | | | 946,667 | | | $ | 41.46 | |
| Granted | | | - | | | | - | |
| Forfeited | | | - | | | | - | |
| Expired | | | - | | | | - | |
| Exercised | | | - | | | | - | |
| Outstanding, March 31, 2013 | | | 946,667 | | | $ | 41.46 | |
The weighted average remaining contractual life and exercise price of the warrants outstanding and exercisable at March 31, 2013 was 1.59 years and $4.95, respectively. The intrinsic value of the warrants outstanding and exercisable at March 31, 2013 was $0 as the stock price exceeded the exercise price.
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include, but are not limited to, 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.
We are a majority owned subsidiary of Joytoto Co., Ltd. (“Joytoto Korea”). We are determined to focus our efforts on our Online Games business by acquiring new game licenses and making such games commercially available in South Korea and the United States.
Our operations are focused on Online Games. The Company has acquired licenses from various online game developers to use in South Korea. Our Online Games business segment has generated $33,698 for the three months ended March 31, 2013.
As of March 31, 2013, the Company has entered into license agreements for 15 games for use in South Korea. These agreements allow the Company to release and service these games in South Korea. The Company opened one of these games in South Korea under open beta testing on March 16, 2011. Open Beta testing allows users and players to test the game while not implementing the full revenue generating service of the game. One of the games was recently launched commercially in July 14, 2012. The remainder of the games are expected to be launched in consecutive succession in the third quarter of 2013.
The Company engaged a Korea-based service provider to support and maintain the online game and collect payments from customers. Under this agreement, the service provider is required to pay the Company 29% of gross sales. For the three months ended March 31, 2013, the Company billed 29%, or $11,668. The remaining revenues were generated from the Company's online game, the Great Merchant, which has been in beta testing since 2010.
Revenues, Expenses and Loss from Operations
Three months ended March 31, 2013 compared to three months ended March 31, 2012
Our revenues, selling, general and administrative expenses, depreciation, amortization, total costs and expenses, and net loss for the three months ended March 31, 2013 and for the three months ended March 31, 2012 are as follows:
| | | Three Months Ended March 31, 2013 | | | Three Months Ended March 31, 2012 | |
| | | | | | | |
| Revenue | | $ | 33,698 | | | $ | 17,920 | |
| Cost of services | | | 9,336 | | | | - | |
| Selling, general and administrative | | | 27,865 | | | | 78,840 | |
| Related party service agreement | | | 60,000 | | | | 60,000 | |
| Bad debt expense | | | 11,669 | | | | - | |
| Depreciation and amortization | | | 9,102 | | | | 4,103 | |
| Total costs and expenses | | | 117,972 | | | | 142,943 | |
| Other income - gain on license termination | | | - | | | | 5,000 | |
| Other expense - interest expense | | | (19,222) | | | | (16,857) | |
| Net Loss | | $ | 103,496 | | | $ | 136,880 | |
For the three months ended March 31, 2013, we generated $33,698 in revenue compared to $17,920 for the three months ended March 31, 2012. The increase of $15,778 or 88% was primarily due to the revenue earned from the Korean service provider to operate the Company's online games which were launched in 2012.
The costs of services represent the Company's payments to the licensor for the online games which are active. These games began operating in the third quarter of 2012.
For the three months ended March 31, 2013, our selling, general and administrative expenses of $27,865 consisted primarily of $11,250 in professional fees, $3,798 in rental expense and $7,436 in accounting fees. For the three months ended March 31, 2012, our selling, general and administrative expenses of $78,840 consisted primarily of $11,250 in professional fees, $12,353 in rental expense and $21,090 in travel expense. The decrease of $50,975 or 65% was primarily due to less rental expense and less travel expense.
The related party service agreement are for services provided by a related party for game translation, customer support, and system operations and maintenance. The Company is required to pay $10,000 in cash and $10,000 in cash or stock each month.
Depreciation is of computers and other office furniture and equipment. The amortization relates to the in service license agreements. The impairment of the license agreements relates to the cancellation of the game licenses discussed above.
For the three months ended March 31, 2013, we had $117,972 in total costs and expenses compared to $142,943 for the three months ended March 31, 2012. The decrease of $24,971 or 17% was primarily due to less rental expenses and less travel expenses.
Other Expenses
Other Expenses for the three months ended March 31, 2013 consisted of interest expense of $19,222. Other Expenses for the three months ended March 31, 2012 was $11,857 and consisted of interest expense of $16,857 offset by $5,000 for a gain recognized on the termination of a game. The increase of $7,365 or 62% was primarily due to increase the gain recognized in 2012.
Net Loss
Our Net Loss for the three months ended March 31, 2013 was $103,496 compared to $136,880 for the three months ended March 31, 2012. The decrease of $33,384 or 24% was primarily due to less selling, general and administrative costs.
Liquidity and Capital Resources
Introduction
Our primary assets are cash and the online game license agreements.
During the three months ended March 31, 2013, our online games business segment generated $33,698 in total revenues while in its open beta testing and commercial service. We have begun to generate revenue from our other license agreements.
Our cash requirements have been relatively small up to this point, but we anticipate that our cash needs will increase dramatically. We anticipate satisfying these cash needs through the sale of our common stock until we can generate enough revenue to sustain our operations.
| | | As of March 31, 2013 | | | As of December 31, 2012 | | | Change | |
| Cash | | $ | 13,225 | | | $ | 3,836 | | | $ | 9,389 | |
Accounts receivable, net of allowance for doubtful accounts of $109,511 and $97,842 | | | - | | | | - | | | | - | |
| Total current assets | | | 13,225 | | | | 3,836 | | | | 9,389 | |
| Property and equipment, net of accumulated depreciation of $9,348 and $8,475 | | | 1,131 | | | | 2,004 | | | | (873) | |
| License Agreements, net of accumulated amortization of $33,337 and $25,108 | | | 119,163 | | | | 127,392 | | | | (8,229) | |
| Prepaid Royalties | | | 10,000 | | | | 10,000 | | | | 0 | |
| Deposits | | | 1,300 | | | | 1,300 | | | | 0 | |
| Total assets | | | 144,819 | | | | 144,532 | | | | 287 | |
| Accrued expenses and accounts payable | | | 817,474 | | | | 833,691 | | | | (16,217) | |
| Due to affiliate | | | 627,950 | | | | 567,950 | | | | 60,000 | |
| Advances from affiliate | | | 194,556 | | | | 134,556 | | | | 60,000 | |
| Loans payable | | | 1,299,300 | | | | 1,299,300 | | | | 0 | |
| Total Current Liabilities | | | 2,939,280 | | | | 2,835,497 | | | | 103,783 | |
Cash Requirements
As stated above, we anticipate that our cash requirements will increase substantially as we begin to increase operations to generate revenue from our license agreements.
Sources and Uses of Cash
Operations
For the three months ended March 31, 2013 we had a net loss of $103,496 compared to $136,880 for the three months ended March 31, 2012. This was offset by depreciation and amortization of $9,102, a decrease in accrued expenses of $16,217, an increase in amounts due to affiliate under service agreement of $60,000 and a bad debt expense of $11,669 for total cash used in our operating activities of $50,611.
Investments
We had $0 invested in cash used in investment activities for the three months ended March 31, 2013.
We had $5,000 invested in cash used in investment activities for the three months ended March 31, 2012, which relates to the proceeds from termination of a license agreement of $35,000 and the acquisition of a new license agreement of $40,000.
Financing
Our cash flows from financing activities totaled $60,000 from an advance from an affiliate of $60,000 for the three months ended March 31, 2013.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 our 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
As of March 31, 2013, the Company has entered into license agreements for 15 games for use in South Korea. These agreements allow the Company to release and service these games in South Korea. The Company opened one of these games in South Korea under open beta testing on March 16, 2011. Open Beta testing allows users and players to test the game while not implementing the full revenue generating service of the game. One of the games was recently launched commercially in July 14, 2012. The remainder of the games are expected to be launched in consecutive succession in the third quarter of 2013.
For the game licenses, the Company was required to pay aggregate license fees of $210,500, ranging from $0 to $30,000 per game. For two games, the Company was required to prepay $30,000 in non-refundable deposits which can be used for future commission payments. For one game, the Company was required to make a $5,000 non-refundable deposit.
In 2011, the licensor terminated two of these agreements due to the licensor’s inability to install and localize the game for the South Korean territory. These licenses were for $20,000, of which $10,000 was paid by the Company. The Company has determined that the possibility of realizing these license agreements or recovering those funds advanced is minimal due to the locality of the licensor in China. As such, the Company has concluded that these licenses are impaired and has written them off.
Also in 2011, the Company decided to terminate two of the agreements due to problems in scheduling the launch dates. The Company did not pay any deposits to acquire licenses for these two games
During 2012, the Company entered into two additional license agreements for 2-3 years for a total of $110,000, of which $75,000 was paid. One of these games was launched commercially. Under the license agreements, the Company is required to pay the licensor 24%- 25% of gross sales.
On March 9, 2012, the Company entered into a termination agreement relating to one of its license agreements. The license agreement had a carrying value of $10,000 and related prepaid revenue of $20,000. As part of the termination, the licensor paid the Company $35,000, plus VAT. The Company recognized a gain of $5,000 on this termination.
The Company engaged a Korea-based service provider to support and maintain the online game and collect payments from customers. Under this agreement, the service provider is required to pay the Company 29% of gross sales. For the three months ended March 31, 2013, the Company billed 29%, or $11,668.
Revenue Recognition
Revenues are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.
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.
Not applicable.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer, who is also our 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, 2013 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 concluded that as of March 31, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
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.
PART II – OTHER INFORMATION
None.
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 |
None.
| ITEM 3 | Defaults Upon Senior Securities |
None.
| ITEM 4 | Mine Safety Disclosures. |
Not applicable.
None.
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Principal Financial and Accounting Officer |
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| 32.1 | | Principal Executive Officer and Principal Financial and Accounting Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 101** | | The following materials from Pollex, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Cash Flow, (iii) the Consolidated Balance Sheets, and (iv) Notes to Consolidated Financial Statements tagged as blocks of text. |
| EX-101.INS | | XBRL INSTANCE DOCUMENT |
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| EX-101.SCH | | XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT |
| | | |
| EX-101.CAL | | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
| | | |
| EX-101.DEF | | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
| | | |
| EX-101.LAB | | XBRL TAXONOMY EXTENSION LABELS LINKBASE |
| | | |
| EX-101.PRE | | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
** In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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.
| | Pollex, Inc. | |
| | | | |
| May 15, 2013 | | | |
| | By: | /s/Seong Sam Cho | |
| | | Seong Sam Cho | |
| | | Its: President, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | |
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