UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter EndedSeptember 30, 2014.
o Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)
For the transition period from______________to_____________.
Commission file number:333-126514
eCareer Holdings, Inc.
(Name of Registrant in Its Charter)
| Nevada | 20-2641871 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
2300 Glades Road, Suite 302E
Boca Raton, Florida 33434
(Address of Principal Executive Offices)
(877) 880-4400
(Issuer’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). Yesx Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero Accelerated filero
Non-accelerated filero Smaller reporting companyx
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
As of November 14, 2014, there were 21,365,625 shares of the registrant’s common stock outstanding and 25,013 shares of Series A Preferred that are convertible to 12,506,500 shares of common stock that have voting rights.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 3 |
ECAREER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(unaudited)
| 2014 | 2013 | |||||||
| Revenue, net | $ | 1,090 | $ | 11,011 | ||||
| Operating expenses | ||||||||
| Advertising and marketing | 7,544 | 219,979 | ||||||
| Salaries and benefits | 144,176 | 348,283 | ||||||
| Professional and consulting fees | 99,858 | 277,632 | ||||||
| Shareholder relations | 118,695 | 43,753 | ||||||
| General and administrative | 117,536 | 171,892 | ||||||
| Total operating expenses | 487,809 | 1,061,539 | ||||||
| Loss from operations | (486,719 | ) | (1,050,528 | ) | ||||
| Other income (expense) | ||||||||
| Gain on change in fair value of derivative liabilities | 20,231 | — | ||||||
| Interest expense | (88,509 | ) | — | |||||
| Total other expense | (68,278 | ) | — | |||||
| Net loss | (554,997 | ) | (1,050,528 | ) | ||||
| Less: Net loss attributable to non-controlling interest | 5,051 | 110,909 | ||||||
| Net loss attributable to eCareer Holdings, Inc. | $ | (549,946 | ) | $ | (939,619 | ) | ||
| Net loss per share - basic and fully diluted | $ | (0.03 | ) | $ | (1.02 | ) | ||
| Weighted average number of common shares outstanding - basic and fully diluted | 16,882,252 | 917,746 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 4 |
ECAREER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(unaudited)
| 2014 | 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (554,997 | ) | $ | (1,050,528 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 16,639 | 16,012 | ||||||
| Amortization of intangible assets | 9,266 | 8,295 | ||||||
| Amortization of note discounts | 41,307 | — | ||||||
| Common stock issued for services | 2,137 | 13,266 | ||||||
| Change in fair value of derivative liabilities | (20,231 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | — | 43,845 | ||||||
| Accounts payable and accrued liabilities | 133,871 | 139,325 | ||||||
| Net cash used in operating activities | (372,008 | ) | (829,785 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of intangible assets | (2,450 | ) | (11,210 | ) | ||||
| Purchases of property and equipment | — | (3,144 | ) | |||||
| Net cash used in investing activities | (2,450 | ) | (14,354 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from shareholder notes payable | — | 100,000 | ||||||
| Repayment of convertible notes payable | (58,133 | ) | — | |||||
| Proceeds from exercise of warrants | — | 60,000 | ||||||
| Proceeds from sale of common stock and warrants | 444,300 | — | ||||||
| Proceeds from sale of subsidiary common stock and exercise of warrants | — | 633,100 | ||||||
| Payment of direct offering costs | (10,134 | ) | (129,132 | ) | ||||
| Net cash provided by financing activities | 376,033 | 663,968 | ||||||
| Net increase (decrease) in cash and cash equivalents | 1,575 | (180,171 | ) | |||||
| Cash and cash equivalents - beginning of period | 8,303 | 214,483 | ||||||
| Cash and cash equivalents - end of period | $ | 9,878 | $ | 34,312 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Payment of taxes | $ | — | $ | — | ||||
| Payment of interest | $ | 22,583 | $ | — | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued for services | $ | 2,137 | $ | 13,266 | ||||
| Amortization of loan discounts | $ | 41,307 | $ | — | ||||
| Change in fair value of derivative liabilities | $ | (20,231 | ) | $ | — | |||
| Exchange of subsidiary stock for ECHI common stock | $ | — | $ | 2,048 | ||||
| Issuance of series B preferred stock as a dividend | $ | — | $ | 2,991,461 | ||||
| Conversion of series B preferred stock for common stock | $ | 900 | $ | 2,889 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 5 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Note 1 – Organization and Nature of Operations
eCareer Holdings Inc. (“the Company,” “we,” “us,” “our,” and/or “ECHI”) was incorporated under the laws of the State of Nevada on March 24, 2005 as Barossa Coffee Company, Inc. The Company changed its name from Barossa Coffee Company, Inc. to eCareer Holdings, Inc. upon the reverse acquisition on April 11, 2013, and is headquartered in Boca Raton, Florida.
The Company’s fiscal year end is June 30.
The Company is a provider of niche industry websites designed to brand client companies to active and passive candidates within each niche. Site features include: industry news, social media groups, niche-specific content, and industry specific job postings. Access to the sites is free to users, and revenue is intended to be generated through advertising, resume searches, and job board functions. The Company’s first site, openreq.com, was publicly launched January 1, 2013.
| 6 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Note 2 – Going Concern
As reflected in the accompanying unaudited consolidated financial statements, since inception the Company has incurred a net loss of approximately $13.2 million. As of September 30, 2014, the Company has a working capital deficit of approximately $1.3 million.
The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of equity securities and outside funding sources. In addition, the Company has generated insignificant revenue since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue operations is dependent on the success of Management’s plans, which include the raising of capital through the issuance of equity and/or debt securities, until such time that funds provided by operations are sufficient to fund working capital requirements.
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. Our current negative cash flow is approximately $124,000 per month. The Company believes its current available cash along with anticipated revenue may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited 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.
Note 3 – Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is our opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2014 as filed with the SEC, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the years ended June 30, 2014 and 2013. The financial information as of June 30, 2014 is derived from the audited financial statements presented in our Annual Report on Form 10-K for the year ended June 30, 2014. The interim results for the three months ended September 30, 2014 are not necessarily indicative of the results to be expected for the year ending June 30, 2015 or for any future interim periods.
New Accounting Pronouncements
Except as set forth below, management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying unaudited consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The update removes all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. The update is effective for the annual reporting periods beginning after December 15, 2014, including interim periods within that reporting period. The Company has elected to adopt the provisions of this ASU early, accordingly all of the past disclosures and presentations on development stage accounting have been eliminated.
Principles of Consolidation
The financial statements are presented on a consolidated basis for ECHI and ECI, and the resulting non-controlling interest in ECI. All intra-company transactions have been eliminated on consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact, among others, the following: valuation and potential impairment associated with intangible assets and estimates pertaining to the valuation allowance for deferred tax assets due to continuing, and expected future operating losses.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates, and those differences could be material.
| 7 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Risks and Uncertainties
The Company’s operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.
Concentration of Credit Risk
The Company currently maintains cash balances at one FDIC-insured banking institution. Deposits held in noninterest-bearing transaction accounts are insured up to a maximum of $250,000 at all FDIC-insured institutions.
Cash and Cash Equivalents
The Company maintains cash balances at a single financial institution. The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. Cash equivalents consisted of money market funds totaling $9,878 and $8,303 at September 30, 2014 and June 30, 2014, respectively.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:
| Asset | Life/Years | |
| Equipment | 5- 7 | |
| Furniture andfixtures | 5 | |
| Computer software | 5 | |
| Leasehold improvements | Lesser of15yearsorthetermofthelease |
Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges taken during the three months ended September 30, 2014 and 2013.
Intangible Assets
The Company’s intangible assets consist of website development costs and domain names.
The Company accounts for website development costs in accordance withAccounting for Website Development Costs, wherein website development costs are segregated into three activities:
| 1) | Initial stage (planning), whereby the related costs are expensed. |
| 2) | Development (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use.Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures. |
| 3) | Post-implementation (after site is up and running: security, training, admin), whereby the related costs are expensed as incurred. Upgrades are usually expensed unless they add additional functionality. |
Amortization is provided utilizing the straight-line method over the three year estimated useful lives of these assets.
Domain names are not being amortized as they are determined to have indefinite lives.
Intangible assets are reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairment charges taken during the three months ended September 30, 2014 and 2013.
Derivative Instruments
The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. As of September 30, 2014 the derivative liabilities were $5,780.
| 8 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Revenue Recognition —The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of service has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of customer discounts ratably over the service period. Payments received in advance of services being rendered are recorded as deferred revenue and recognized over the service period. The Company generates revenue from the following sources:
Talent acquisition package revenuesare derived from the sale, to recruiters and employers, of a combination of talent packages and access to a searchable database of candidates on the Openreq.com website. Certain of the Company’s arrangements include multiple deliverables, which consist of the ability to post jobs and access to a searchable database of candidates. The Company determines the units of accounting for multiple element arrangements in accordance with the Multiple-Deliverable Revenue Arrangements subtopic of the FASB ASC. Specifically, the Company will consider a delivered item as a separate unit of accounting if it has value to the customer on a standalone basis. The Company’s arrangements do not include a general right of return. Services to customers buying a package of available talent packages and access to the database are delivered over the same period and revenue is recognized ratably over the length of the underlying contract, typically from one to twelve months. The separation of the package into two deliverables results in no change in revenue recognition since delivery of the two services occurs over the same time period.
Advertising revenueis recognized over the period in which the advertisements are displayed on the websites or at the time the newsletter campaign is sent to its registered members.
Advertising and Marketing Expense
The Company’s policy is to expense advertising and marketing costs as incurred. Advertising and marketing expenses were as follows:
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2014 | 2013 | |||||||
| Advertising | $ | 0 | $ | 22,223 | ||||
| Marketing | 7,544 | 197,746 | ||||||
| $ | 7,544 | $ | 219,979 | |||||
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.
Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.
Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the statements of operations. There were no unrecognized tax benefits for the three months ended September 30, 2014and 2013.
| 9 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Share Based Payment Arrangements
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. As shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum or monthly price observations have been utilized, as the use of daily price observations could be artificially inflated because of a larger spread between the bid and asked quotes and lack of consistent trading in the market.
Net Loss Per Share
Basic earnings per share (“EPS”) is computed by dividing the net loss attributable to the Company that is available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of warrants) and convertible debt or convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.
The company had the following potential common stock equivalents:
| September 30, 2014 | June 30, 2014 | |||||||
| Common stock warrants - ECI | 10,000 | 10,000 | ||||||
| Common stock warrants - ECHI | 7,704,692 | 5,061,976 | ||||||
| Unvested stock grants - ECHI | 74,933 | 87,499 | ||||||
| Total common stock equivalents | 7,789,625 | 5,159,475 | ||||||
Fair Market Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
Level 2 – Inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
| 10 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
The Company’s financial instruments consist primarily of accounts payable, accrued liabilities, loans payable, and convertible debt. The carrying amounts of the Company’s financial instruments generally approximated their fair values as of September 30, 2014and June 30, 2014, respectively due to the short-term nature of these instruments and the Company’s borrowing rate of interest.
Reclassifications
Certain items have been reclassified to conform to the current period’s presentation.
Note 4 – Property and Equipment
Property and equipment consist of the following:
| September 30, 2014 | June 30, 2014 | |||||||
| Equipment | $ | 111,647 | $ | 111,647 | ||||
| Furniture & Fixtures | 72,118 | 72,118 | ||||||
| Leasehold Improvements | 82,710 | 82,710 | ||||||
| Computer Software | 63,701 | 63,701 | ||||||
| 330,176 | 330,176 | |||||||
| Less: Accumulated Depreciation | (123,410 | ) | (106,771 | ) | ||||
| $ | 206,766 | $ | 223,405 | |||||
Depreciation expense for the three months ended September 30, 2014 and 2013 was $16,639 and $16,012, respectively.
Note 5 – Intangible Assets
Intangible assets consist of the following:
| September 30, 2014 | June 30, 2014 | |||||||
| Domain names | $ | 298,389 | $ | 298,389 | ||||
| Websitedevelopmentcosts | 186,117 | 183,667 | ||||||
| 484,506 | 482,056 | |||||||
| Less: Accumulated amortization | (60,812 | ) | (51,546 | ) | ||||
| $ | 423,694 | $ | 430,510 | |||||
Amortization expense for website development costs for the three months ended September 30, 2014 and 2013 was $9,266 and $8,295, respectively.
Certain of the intangible assets were placed in service during the current period. Others will be placed in service in future years.
| 11 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
The estimated future amortization expense of in-service website development costs for the years ending June 30 are as follows:
| Amount | ||||
| 2015 (9 months) | $ | 33,627 | ||
| 2016 | 37,576 | |||
| 2017 | 25,129 | |||
| 2018 | 16,388 | |||
| 2019 | 8,193 | |||
| Total | $ | 120,913 | ||
Note 6 –Notes Payable and Derivative Liabilities
Third party promissory notes
As of September 30, 2014, the Company had entered into 4 notes from third parties for a total amount of $280,000. The notes bear interest at a rate of 10%. Principal is to be paid upon maturity, which range from December 2014 to December 2015. At September 30, 2014 accrued interest amounted to $40,049. Certain of the notes are collateralized by the Company’s common stock and, upon default, would subject the Company to issuing common shares equivalent to $499,000, resulting in dilution of ownership of current stockholders. Two of the outstanding notes originally due in August 2014 for a total of $80,000 have been extended to December 2015.
Interest expense on the third parties notes for the three months ended September 30, 2014 and 2013 were $11,868 and $0, respectively.
Convertible promissory notes
On December 17, 2013 and January 28, 2014 the Company entered into securities purchase agreements (the “Purchase Agreement”) with an investor and issued convertible promissory notes in the amount of $83,500 and $42,500, respectively (the “Notes”). The Notes bear interest at 8% per annum and mature on December 19, 2014 and October 30, 2014, respectively. The Notes may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the issuance of the note. The Conversion Price of both Notes shall be equal to 58% multiplied by the Variable Conversion Rate that is equal to the average of the three (3) lowest closing bid prices of the Common Stock during the ten (10) trading day period prior to the date of conversion. The Notes also contain prepayment options whereby the Company may make payments to the holder based on the length of time the Notes have been outstanding, upon three (3) trading days’ prior written notice to the holder. During the first 60 days, the Company may make a payment to the holder equal to 130% of the then outstanding unpaid principal and interest, from days 61 until 120 days, the Company may make a payment to the holder equal to 135% of the then outstanding unpaid principal and interest, from days 121 until 180, days the Company may make a payment to the holder equal to 140% of the then outstanding unpaid principal and interest, after 180 days, the Company has no right of prepay. In the event of default before the maturity dates, the payment is immediately due, in the amount of 150% of the outstanding unpaid principal, along with interest and any penalties.
Interest expense on the convertible notes for three months ended September 30, 2014 was $29,701, including $3,101 of discount amortization, and $25,705 of prepayment fees. As of September 30, 2014 the $83,500 Note had been repaid and the balance owed on the $42,500 promissory note was $35,200. The Company is currently in negotiations with the investor to extend the maturity date on the balance of the $42,500 Note, and no additional penalties are anticipated.
Derivative analysis
The Notes are convertible into common stock of the Company at variable conversion rates that provides a fixed return to the note-holder. Under the terms of the notes, the Company could be required to issue additional shares in the event of a default. Due to these provisions, the conversion feature is subject to derivative liability treatment under Section 815-40-15 of the FASB Accounting Standard Codification (“Section 815-40-15”) (formerly FASB Emerging Issues Task Force (“EITF”) 07-5). The Notes have been measured at fair value using the Black-Scholes model at each reporting period with gains and losses from the change in fair value of derivative liabilities recognized in the consolidated statement of operations. The conversion feature was recorded as a discount to the notes due to the beneficial conversion feature upon origination.
The embedded derivatives of the remaining Notes were re-measured at September 30, 2014 yielding an aggregate gain on change in fair value of the derivatives of $20,231. The fair value of the derivative liability of the remaining note at September 30, 2014 was $5,780
The Company is required to reserve shares of common stock, free of preemptive rights, at 5 times the number of shares actually issuable upon full conversion of the Note at the conversion price then in effect. The number of common shares issued upon conversion may not result in beneficial ownership by Asher in excess of 9.99% of the outstanding common shares of the Company, unless waived by Asher with 61 days notice to the Company.
Notes payable – shareholders
The Company has a loan payable to a shareholder totaling $152,565 as of September 30, 2014. This loan is unsecured and non-interest bearing.
| 12 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
In March 2014, the Company entered into a promissory note for $125,000 with a shareholder. The note bears a 10% interest rate and is due on December 31, 2014. At September 30, 2014 accrued interest amounted to $8,325. The note is collateralized with $137,500 worth of the Company’s common stock that, upon default, would result in dilution of ownership of current stockholders.
The note also required the Company to issue 400,000 shares of common stock to the note holder. Using Black-Scholes, the share issuance was valued at $228,000 and recorded as a discount against the note for $125,000 and an immediate additional interest expense of $103,000. The interest expense on the note for the three months ended September 30, 2014 was $42,369, including $38,206 of discount amortization.
Note 7 – Stockholders Equity
Preferred Stock – ECHI
ECHI has 1,000,000 shares of Preferred Stock authorized, $0.001 par value per share. 25,013 shares were designated as series A and were issued to Mr. Azzata. The ECHI Preferred Shares were valued at $71,600 ($0.72/share) for the fair value of services rendered.
Each of the Preferred Shares entitles Mr. Azzata to 500 votes on any matter brought to a vote of the holders of the Company’s common stock, giving him 12,506,500 votes, not including additional votes he has through his ownership of shares of the Company’s common stock.
Series A Preferred Stock has the following provisions:
| · | Voting rights entitling the holder to 500 votes per share, |
| · | Non-convertible, |
| · | No rights to dividends, |
| · | No liquidation value, |
| · | Non-participating |
| · | Non-cumulative, |
| · | No put option; and |
| · | Non-redeemable. |
| 13 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Series B Convertible Preferred Stock
On July 26, 2013, the Company distributed a stock dividend to its common stockholders, whereby one restricted share of Series B Convertible Preferred Stock was issued for every one share of common stock held by ECHI stockholders, a total of 434,554 Series B Convertible Preferred shares. Each share of Series B Convertible Preferred Stock is convertible by the shareholder into 50 shares of common stock, will participate in any dividends declared by the Company for common stock on an as-if-converted-to-common stock basis, and may only vote on matters with respect to the Series B Convertible Preferred Stock on a non- cumulative basis, and subject to applicable restrictions. The fair value of these shares was determined to be $6.92 per share, resulting in a dividend amounting to $2,995,088. As of September 30, 2014, 192,604 Series B Preferred Shares were converted into 9,533,300 shares of Common Stock.
| 14 |
eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
From July 1, 2014 through September 30, 2014 the Company issued the following common stock:
| Transaction Type | Quantity | Valuation | ||||||
| Issued for cash | 2,642,716 | $ | 444,300 | |||||
| Conversion of Series B Preferred stock | 917,900 | 0 | ||||||
| Services – third parties | 12,566 | 2,137 | ||||||
| 3,573,182 | $ | 446,437 | ||||||
The Company paid direct offering costs for the three months ended September 30, 2014 of $10,134, associated with capital raising activities.
Note 8 – Warrants
The following is a summary of the Company’s and its subsidiary’s warrant activity:
| ECHI | ECI | |||||||
| Beginning Balance, July 1, 2014 | 5,061,976 | 10,000 | ||||||
| Purchases | 2,642,716 | 0 | ||||||
| Conversions | 0 | 0 | ||||||
| Exercised | 0 | 0 | ||||||
| Ending Balance, September 30, 2014 | 7,704,692 | 10,000 | ||||||
Note 9 - Commitment and Contingencies
The Company has an operating lease expiring in October 2019.
At September 30, 2014, the future rental commitments are approximately as follows:
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eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Year ending June 30,
| Amount | ||||
| 2015 (9 months) | $ | 39,000 | ||
| 2016 | 53,000 | |||
| 2017 | 55,000 | |||
| 2018 | 56,000 | |||
| 2019 | 58,000 | |||
| Thereafter | 19, 000 | |||
| Total | $ | 280,000 | ||
Rent expense for three months ended September 30, 2014 and 2013 was $22,172 and $7,873, respectively. The increase in expense is the result of the Company amending its lease for additional office space.
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eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Note 10 – Related Party Transaction
Effective April 1, 2011, the Chief Executive Officer appointed two new Directors. On May 31, 2011, each of the directors resigned. These individuals are referenced to as “former related parties”.
During the three months ended September 30, 2014 and 2013 the Company paid fees to former related parties as well as unrelated third parties associated with capital raising activities and related consulting fees, as follows:
| Three Months Ended September 30, | ||||||||
| Direct Offering Cost | 2014 | 2013 | ||||||
| Amounts Paid in Cash: | ||||||||
| Finder fees – former related parties | $ | 0 | $ | 88,673 | ||||
During the three months ended September 30, 2014 and 2013, the Company paid consulting fees to former and current related parties under agreements with the following provisions:
| · | One year term, |
| · | Flat fee retainer, |
| · | Additional fees based on expanded services, |
| · | Services include shareholder relations and business strategy |
The consulting fees paid to related party and former related parties during the periods are as follows:
| Consulting Fees | Three Months Ended September 30 | |||||||
| 2014 | 2013 | |||||||
| Former Related Parties | $ | 0 | $ | 72,825 | ||||
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eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Consulting fees are reflected in the statements of operations as a component of shareholder relations.
A director was paid management-consulting fees of $24,500 and $0 for the three months ended September 30, 2014 and 2013, respectively.
Effective January 7, 2013, ECI entered into an employment agreement with the CEO. The agreement has a term of three years and provides compensation that includes an annual salary of $225,000, health insurance at no cost and a monthly car allowance. The agreement also contains a non-compete covenant. In addition to the CEO’s annual salary, the Company also has the right to pay him a discretionary monthly bonus.
The Company has a loan payable to the CEO amounting to $152,565 (Note 6).
Effective January 7, 2013, ECI entered into an employment agreement with the President and Chief Financial Officer. The agreement had a term of two years and provided compensation that includes an annual salary of $200,000, health insurance at no cost and a monthly car allowance. The agreement also contains a non-compete covenant. In addition to the President’s annual salary, the Company also has the right to pay him a discretionary monthly bonus. Effective May 23, 2014, the President resigned from ECHI but continues as an active member on the Board of Directors.
The Exchange Agreement provides that each of the CEO and CFO/President of ECI become the CEO and President of ECHI.
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eCareer Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
Note 11 – Subsequent Events
(A) Common Stock
Subsequent to September 30, 2014, the Company issued the following shares of common stock:
| Quantity | ||||||||
| Transaction Type | Stock | Valuation | ||||||
| Services – third parties (2) common stock | 8,377 | $ | 1,424 | |||||
| Sale of Common Stock and Warrants (1) | 1,890,000 | 189,000 | ||||||
| Exercise of Warrants | 540,000 | 68,500 | ||||||
| 2,438,377 | $ | 258,924 | ||||||
| (1) | The Company issued units containing common stock and warrants for $1.00. The warrants have a $1.00 exercise price and expire on December 31, 2015. The Company has reserved shares to cover the possible exercise of the warrants. There are no embedded features in the warrants that would require treatment as a derivative liability. |
| (2) | Valuation is based upon the average cash price paid by third parties for common stock during the 30-day period preceding the service performance, since the Company was not yet traded publicly; this represented the best evidence of fair value. |
(B)Option to Rescind ECI Stock Subscriptions
The Board of Directors is offering the remaining stockholders of ECI to exchange their shares of ECI for shares of ECHI on a one-for-one basis or rescind their subscription agreement. As of November 14, 2014, the maximum amount of shares of ECI that may be rescinded is approximately 355,000, which could require the Company to pay approximately $206,000. Management believes that the probability of the shareholders rescinding their subscriptions is remote.
(C)Convertible Notes Payable and Derivative Liabilities
Through November 14, 2014 the Company paid $15,000 as a principal and prepayment fee to Asher on the $42,500 note. As of November 14, the total balance owed on the note is $20,200.
(D)Shares Returned and Cancelled
In November 2014, a shareholder returned, without consideration, 212,670 common shares issued in prior years. The Company has cancelled these shares.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS |
Cautionary Note about Forward-Looking Statements
Forward-Looking Statements
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward- looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. You can identify these statements as those that may predict, forecast, indicate or imply future results, performance or advancements and by forward-looking words such as“believe,” “anticipate,” “expect,” “estimate,” “predict,” “intend,” “plan,” “project,” “will,” “will be,” “will continue,” “will result,” “could,” “may,” “might”or any variations of such words or other words with similar meanings. Forward-looking statements address, among other things, our expectations, our growth strategies, future profitability, results of operations, capital expenditures or other “forward-looking” information regarding our actions, plans or strategies. We are including this cautionary statement in this report to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf, of us.
Important factors that may cause actual results to differ from projections include, for example:
- the success or failure of management’s efforts to implement the Registrant’s plan of operation;
- the ability of the Registrant to fund its operating expenses;
- the ability of the Registrant to compete with other companies that have a similar plan of operation;
- the effect of changing economic conditions impacting our plan of operation;
- the ability of the Registrant to meet the other risks as may be described in future filings with the SEC.
In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. We do not assume any obligation and do not intend to update any forward-looking statements except as may be required by securities laws.
General
The following analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements, including footnotes, and other information presented elsewhere in this report.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition.
Overview
We were incorporated in March 2005, as Barossa Coffee Company, under the laws of the State of Nevada. Our business objective was to operate a retail, specialty coffee outlet. We were not successful and spun off this business. After this transaction, we had no business activity or operations until our acquisition of eCareer, Inc. (“ECI”),
For financial statement reporting purposes, the acquisition of ECI has been treated as a reverse acquisition with ECI deemed the accounting acquirer and BCCI deemed the accounting acquiree. The reverse acquisition is deemed a capital transaction and the assets and liabilities of ECI are carried forward to the Company at their carrying value before the acquisition. The equity of the Company is the historical equity of ECI retroactively restated to reflect the number of shares issued by ECI using the capital structure of BCCI. Upon the closing of the Exchange Agreement, ECI became the operating company and BCCI abandoned all of its previous business plans, with the business of ECI now being the Company’s sole business. Accordingly, these financial statements present the operations only of ECI from inception through the date of the exchange (April 11, 2013) and on a consolidated basis for ECHI and ECI after the exchange, and the resulting non-controlling interest in ECI. All intra-company transactions have been eliminated on consolidation.
We are a website designer, developer and marketer of niche career sites. Our sites are designed to brand client companies to active and passive candidates within each identified niche. Site features include: industry news, social media groups, niche-specific content, webinars, events, training programs and consolidated industry statistics. Access to the site is free to users and revenue is generated through advertising, resume searches and a job board function. Our first site, Openreq.com, was publicly launched on January 1, 2013.
Critical Accounting Policies
We use estimates throughout our consolidated financial statements. We consider an accounting estimate to be critical if: (1) the estimate requires us to make assumptions about the matters that are highly uncertain at the time the estimate is made or (2) changes in the estimate are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors. In addition there are other items within our financial statements that require estimation but are not deemed critical as defined above. Change in estimates could have an impact on our operations and financial position.
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The accounting policies and estimates we consider most critical are presented below.
Revenue Recognition- The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of service has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of customer discounts ratably over the service period. Payments received in advance of services being rendered are recorded as deferred revenue and recognized over the service period. The Company generates revenue from the following sources:
Talent acquisition package revenuesare derived from the sale, to recruiters and employers, a combination of talent packages and access to a searchable database of candidates on the Openreq.com website. Certain of the Company’s arrangements include multiple deliverables, which consist of the ability to post jobs and access to a searchable database of candidates. The Company determines the units of accounting for multiple element arrangements in accordance with the Multiple-Deliverable Revenue Arrangements subtopic of the FASB ASC. Specifically, the Company will consider a delivered item as a separate unit of accounting if it has value to the customer on a standalone basis. The Company’s arrangements do not include a general right of return. Services to customers buying a package of available talent packages and access to the database are delivered over the same period and revenue is recognized ratably over the length of the underlying contract, typically from one to 12 months. The separation of the package into two deliverables results in no change in revenue recognition since delivery of the two services occurs over the same time period.
Advertising revenueis recognized over the period in which the advertisements are displayed on the websites or at the time the newsletter campaign is sent to its registered members.
Use of Estimates -The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Such estimates and assumptions impact, among others, the following: valuation and potential impairment associated with intangible assets and estimates pertaining to the valuation allowance for deferred tax assets due to continuing, and expected future operating losses.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates, and those differences could be material.
Intangible Assets -The Company’s intangible assets consist of website development costs and domain names.
The Company accounts for website development costs in accordance withAccounting for Website Development Costs, wherein website development costs are segregated into three activities:
| 1) | Initial stage (planning), whereby the related costs are expensed. |
| 2) | Development (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures. |
| 3) | Post-implementation (after site is up and running: security, training, admin), whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality. |
Amortization is provided utilizing the straight-line method over the three year estimated useful lives of these assets.
Domain names are not being amortized as they are determined to have indefinite lives.
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Intangible assets are reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairment charges taken during the three months ended September 30, 2014 and 2013.
Results of Operations – Three months ended September 30, 2014 compared to September 30, 2013
Revenue for the three months ended September 30, 2014, was $1,090 compared to $11,011 for the three months ended September 30, 2013. We have strategically delayed sales efforts and initiated sales personnel layoffs in order to focus on the completion of the re-launched Openreq site and enhancements. We believe these modifications will enable us to improve sales results later this fiscal year, without impeding future relationships with existing customers.
Operating expenses for the three months ended September 30, 2014, were approximately $488,000 compared to approximately $1.1 million in operating expenses for the three month ended September 30, 2013. Operating expenses for the three months ended September 30, 2014, consist of approximately $100,000 of professional and consulting fees, approximately $144,000 of payroll expenses, approximately $8,000 of advertising and marketing, approximately $118,000 of general and administrative expenses, and approximately $119,000 of shareholder relations expense. This compares to operating expenses for the three months ended September 30, 2013, of $1.1 million, consisting of approximately $278,000 of professional and consulting fees, approximately $348,000 of payroll expenses, approximately $220,000 of advertising and marketing expenses, $172,000 of general and administrative expenses, and $44,000 of shareholder relations expense. Due to reduced capital infusion, operating cost reductions were tactically achieved by reducing marketing costs and personnel associated with the promotion of Openreq.com, while allocating available capital to the completion of the revamped website.
Net operating loss for the three months ended September 30, 2014, was approximately $487,000 or approximately $0.03 per share (basic and diluted) as compared to approximately $1.1 million, or approximately $1.02 per share (basic and diluted), for the three months ended September 30, 2013. This decrease in net loss of approximately $564,000 was primarily due to the changes in operating expenses.
Liquidity and Capital
At September 30, 2014, we had cash of $9,878 as compared to $8,303 at June 30, 2014. Our working capital deficit at September 30, 2014, was approximately $1.3 million compared to $1.2 million at June 30, 2014 an increase of approximately $100,000. The increase is primarily attributable to the operating net loss of approximately $488,000 and repayment of loans of approximately $58,000 partially offset cash raised through the sale of our common stock and common stock warrants for approximately $434,000, net of offering costs of $10,000,
For the three months ended September 30, 2014, cash used in operating activities was approximately $372,000 as compared to approximately $830,000 for the three months ended September 30, 2013. Our primary uses of cash from operating activities for the three months September 30, 2014, was a net loss of approximately $555,000.
Net cash used in investing activities for the three months ended September 30, 2014, was approximately $2,000, from the purchase of intangible assets. This compares with net cash used in investing activities of approximately $14,000 for the three months ended September 30, 2013, predominantly from the purchase of property and equipment and intangible assets.
Net cash provided by financing activities for the three months ended September 30, 2014, was approximately $376,000, which included approximately $444,000 from the sale of Company stock and warrants, net of offering costs of approximately $10,000, and repayment of notes of approximately $58,000. Interest expense on the convertible notes for three months ended September 30, 2014 was $29,701, including $3,101 of discount amortization, and $25,705 of prepayment fees. As of September 30, 2014 the $83,500 Note had been repaid and the balance owed on the $42,500 promissory note was $35,200. The Company is currently in negotiations with the investor to extend the maturity date on the balance of the $42,500 Note, and no additional penalties are anticipated. For the three months ended September 30, 2013, the net cash provided by financing activities was approximately $664,000, which included approximately $60,000 from the exercise of warrants, approximately $633,000 from the sale of subsidiary common stock and exercise of warrants, and $100,000 from a loan payable offset by offering costs of approximately $129,000.
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Current and Future Financing Needs
We have a stockholder’s deficit of approximately $678,000 at September 30, 2014, and have incurred an accumulated deficit of approximately $13.2 million since inception. Since September 30, 2014, we have raised additional capital through November 14, 2014, of approximately $258,000 through the sale of common stock and common stock purchase warrants.
We have incurred negative cash flow from operations since inception and have primarily financed our operations through the sale of common stock. At September 30, 2014, we had debt of $1.3 million and a working capital deficit of approximately $1.3 million. There is substantial doubt as to our ability to continue as a going concern as stated in Note 2 of the September 30, 2014 Notes to Condensed Consolidated Financial Statements. During the three months ended September 30, 2014, we raised approximately $434,000 (net of offering costs of approximately $10,000) from the issuance of our common stock and warrants.
We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our advertising and marketing campaign, and fees in connection with regulatory compliance and corporate governance. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. Our cash outflow from operations averaged $124,000 a month for the three months ended September 30, 2014. We will continue to monitor our expenses and take actions as may be required to manage our cash outflow from operations. We do not have sufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. If our anticipated sales for the next few months do not meet our expectations, our existing resources will not be sufficient to meet our cash flow requirements. Furthermore, if our expenses exceed our anticipations, we will need additional funds to implement our business plan. We will not be able to fully establish our business if we do not have adequate working capital so we will need to raise additional funds, whether through a stock offering or otherwise.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Not Applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Joseph Azzata is our principal executive officer and principal financial officer and is responsible for establishing and maintaining our disclosure controls and procedures. Mr. Azzata (based upon his ir evaluation of these controls and procedures as of the end of the period covered by this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including our principal executive and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
Mr. Azzata, our principal executive officer and principal financial officer has also indicated that, upon evaluation, there were no changes in our internal control over financial reporting or other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
| ITEM 1. | LEGAL PROCEEDINGS |
None.
| ITEM 1A. | RISK FACTORS |
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the period ended June 30, 2014, filed September 29, 2014.
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| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
During the quarter ended September 30, 2014 we issued 2,642,716 shares of our common stock and warrants for proceeds of $444,300, at $0.10 to $0.60 per unit..
During the quarter ended September 30, 2014, 18,358 shares of our Series B Preferred Shares were converted into 917,900 shares of common stock.
During the quarter ended September 30, 2014 the Company issued 12,566 shares of our common stock for services rendered. The shares were valued at $0.17 per share for $2,137.
All funds raised pursuant to the sale of our securities were used for working capital purposes. At all times relevant:
- the sale was made to a sophisticated or accredited investor;
- we gave the purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information, which we possessed or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of information furnished;
-at a reasonable time prior to the sale of securities, we advised the purchaser of the limitations on resale of the securities; and
- neither we nor any person acting on our behalf sold the securities by any form of general solicitation or general advertising In issuing the foregoing securities, we relied on the exemptive provisions of Regulation D Rule 506 or Section 4(2) of the Securities Act.
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| ITEM 3. | DEFAULT UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| 25 |
| ITEM 6. | EXHIBITS |
| Exhibit No. | Description | |
| 2.1 | Agreement and Plan of Reorganization dated August 30, 2012 (Incorporated by reference from Form 8-K filed with the SEC on September 6, 2012) | |
| 3.1 | Articles of Incorporation (Incorporated by reference from Form SB-2/A filed with the SEC on July 27, 2005) | |
| 3.2 | Amendment to Articles of Incorporation (Incorporated by reference from Form 8-K filed with the SEC on April 16, 2013) | |
| 3.3 | Amendment to Articles of Incorporation (to effect reverse stock split) (Incorporated by reference from Form 8-K filed with the SEC on June 5, 2013) | |
| 3.4 | By-Laws (Incorporated by reference from Form SB-2/A filed with the SEC on July 27, 2005) | |
| 31.1 | Certification of principal executive officer (principal financial officer) required by Rule 13a 14(1) or Rule 15d 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of principal executive officer (principal financial officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63. | |
| 101 INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | XBRL Taxonomy Extension Definitions Linkbase | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
| 26 |
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.
| eCareer Holdings, Inc. | ||
| Date: November 14, 2014 | By: | /s/ Joseph Azzata |
| Joseph Azzata | ||
| Chief Executive Officer (Principal Executive Officer) | ||