| UNITED STATES | |
| SECURITIES AND EXCHANGE COMMISSION | |
| Washington, D.C. 20549 | |
| FORM 10-Q/A | |
| (Amendment No. 1) | |
| [x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2014 | |
| OR | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 | |
Commission file number 333-169280
Imerjn Inc.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
9550 South Eastern Ave. Suite 253-A86
Las Vegas, Nevada 89123
(Address of principal executive offices, including zip code.)
800-416-5934
(Registrant’s telephone number, including area code)
N/A
(former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 last 90 days.
YES [x] NO [ ]
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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [x] NO [ ]
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 the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [x] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [x]
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: December 15, 2014, the registrant had 800,195 common shares issued and outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q of Xumanii International Holdings Corp. (the “Company”) for the quarter ended October 31, 2014 (the “Original Filing”), that was originally filed with the U.S. Securities and Exchange Commission on December 15, 2014. The Amendment is being filed to submit Exhibit 101 and updated financial statements and notes on accounts.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), new certifications by the Company’s principal executive officer and principal financial officers are filed as exhibits hereto.
Furthermore, the Amendment does not reflect events occurring after the filing of the Original Filing. Accordingly, the Amendment should be read in conjunction with the Original Filing, as well as the Company’s other filings made with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act subsequent to the filing of the Original Filing.
| 1 |
PART I - FINANCIAL INFORMATION
PART II - OTHER INFORMATION
| Item 1 | Legal Proceedings | 6 |
| Item 1A. | Risk Factors | 6 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 6 |
| Item 3. | Defaults Upon Senior Securities | 6 |
| Item 4. | Mine Safety Disclosures | 6 |
| Item 5. | Other Information | 6 |
| Item 6. | Exhibits | 7 |
| Signatures | 8 | |
| Exhibit Index | ||
| 2 |
PART I – FINANCIAL INFORMATION
Imerjn, Inc.
(formerly Xumanii International Holdings Corp.)
| 3 |
| Imerjn, Inc. |
| (formerly Xumanii International Holdings Corp.) |
| Consolidated Balance Sheets |
| (Unaudited) |
| October 31, 2014 | July 31, 2014 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 189,897 | $ | 135,906 | ||||
| Accounts receivable | 1,177 | 2,593 | ||||||
| Inventories | 33,828 | 28,484 | ||||||
| Notes receivable – related party | 218,501 | 258,501 | ||||||
| Other current assets | 4,776 | 4,776 | ||||||
| Total current assets | 448,179 | 430,260 | ||||||
| Fixed assets, net of accumulated depreciation of $0 and $0, respectively | 5,700 | 5,700 | ||||||
| Goodwill | 2,160,494 | 2,160,494 | ||||||
| Intangible assets, net of accumulated amortization | 774,132 | 815,386 | ||||||
| Total assets | $ | 3,388,505 | $ | 3,411,840 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 499,107 | $ | 516,389 | ||||
| Deferred revenues | 14,526 | 15,010 | ||||||
| Notes payable | 739,522 | 797,242 | ||||||
| Convertible notes payable, net of discounts of $668,749 and $769,941, respectively | 1,142,547 | 1,065,375 | ||||||
| Derivative liabilities | 1,894,891 | 5,656,736 | ||||||
| Total current liabilities | 4,290,593 | 8,050,752 | ||||||
| Commitment and contingencies | ||||||||
| Stockholders' deficit | ||||||||
| Series A redeemable convertible preferred stock; $0.00001 par value; 100,000,000 shares authorized; 5,000,000 shares issued and outstanding | 50 | 50 | ||||||
| Series B convertible preferred stock, $0.00001 par value; 100,000,000 shares authorized; 10,000,000 and 0 shares issued and outstanding, respectively | 100 | — | ||||||
| Common stock, $0.00001 par value; 10,000,000,000 and 450,000,000 shares authorized; 636,228 and 222,873 shares issued and outstanding, respectively | 6 | 2 | ||||||
| Additional paid-in capital | 12,031,849 | 8,951,649 | ||||||
| Accumulated deficit | (12,934,093 | ) | (13,590,613 | ) | ||||
| Total stockholders’ deficit | (902,088 | ) | (4,638,912 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 3,388,505 | $ | 3,411,840 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-1 |
| Imerjn, Inc. |
| (formerly Xumanii International Holdings Corp.) |
| Consolidated Statements of Operations |
| (Unaudited) |
| For the three Months | For the three Months | |||||||
| Ended October 31, | Ended October 31, | |||||||
| 2014 | 2013 | |||||||
| Revenues | $ | 278,323 | $ | — | ||||
| Cost of revenues | 140,537 | — | ||||||
| Gross profit (loss) | 137,786 | — | ||||||
| Operating expenses: | ||||||||
| General and administrative | 1,897,567 | 80,428 | ||||||
| Depreciation, depletion and amortization | 41,254 | 2,526 | ||||||
| Loss on extinguishment of debt | 22,816 | — | ||||||
| Loss on disposal of assets | — | 52,781 | ||||||
| Total operating expenses | 1,961,637 | 135,735 | ||||||
| Operating losses | (1,823,851 | ) | (135,735 | ) | ||||
| Other income (expense): | ||||||||
| Gain on change in fair value of derivatives | 3,647,523 | — | ||||||
| Interest expense | (1,167,152 | ) | (29,573 | ) | ||||
| Total other income (expense) | 2,480,371 | (29,573 | ) | |||||
| Net income (loss) | $ | 656,520 | $ | (165,308 | ) | |||
| Weighted average number of common shares outstanding - basic | 458,238 | 27,161 | ||||||
| Weighted average number of common shares outstanding - diluted | 911,682 | 27,161 | ||||||
| Net income (loss) per common share - basic | $ | 1.43 | $ | (6.10 | ) | |||
| Net income (loss) per common share - diluted | $ | 0.77 | $ | (6.10 | ) | |||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-2 |
| Imerjn, Inc. |
| (formerly Xumanii International Holdings Corp.) |
| Consolidated Statements of Cash Flows |
| (Unaudited) |
| For the three Months | For the three Months | |||||||
| Ended October 31, | Ended October 31, | |||||||
| 2014 | 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | 656,520 | $ | (165,308 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 41,254 | 2,526 | ||||||
| Stock based compensation | 1,500,000 | 12,486 | ||||||
| Amortization of debt discount | 559,663 | 26,791 | ||||||
| Fair value of derivative liabilities in excess of face value of convertible notes payable | 537,706 | — | ||||||
| Gain on change in fair value of financial derivatives | (3,647,523 | ) | — | |||||
| Gain on extinguishment of debt | 22,816 | — | ||||||
| Imputed interest | — | 21,400 | ||||||
| Loss on disposal of fixed assets | — | 52,781 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 1,416 | — | ||||||
| Inventories | (5,344 | ) | — | |||||
| Accounts payable and accrued liabilities | (17,283 | ) | 64,106 | |||||
| Deferred revenues | (484 | ) | — | |||||
| Net cash used in operating activities of operations | (351,259 | ) | (24,495 | ) | ||||
| CASH FLOW INVESTING ACTIVITIES | ||||||||
| Cash received for notes receivable – related party | 40,000 | — | ||||||
| Net cash provided by investing activities | 40,000 | — | ||||||
| CASH FLOW FINANCING ACTIVITIES | ||||||||
| Proceeds from loans payable | — | 74,301 | ||||||
| Repayment on loans payable | (2,000 | ) | — | |||||
| Proceeds from convertible notes payable, net | 367,250 | — | ||||||
| Advances from related parties | — | 78,355 | ||||||
| Repayment of related party advances | — | (48,250 | ) | |||||
| Net cash provided by financing activities | 365,250 | 104,406 | ||||||
| NET CHANGE IN CASH | 53,991 | (2,760 | ) | |||||
| CASH AT BEGINNING OF PERIOD | 135,906 | 8,725 | ||||||
| CASH AT END OF PERIOD | $ | 189,897 | $ | 5,965 | ||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | — | $ | — | ||||
| Income tax paid | $ | — | $ | — | ||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of convertible notes payable and embedded derivative liabilities to common stock | $ | 1,557,484 | $ | — | ||||
| Debt discount from embedded derivative conversion feature | $ | 422,970 | $ | — | ||||
| Conversion of loans payable to convertible notes payable | $ | 55,720 | $ | — | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
(formerly Xumanii International Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Imerjn. Inc. (the “Company” or “Imerjn”) (formerly Xumanii International Holdings Corp.) was incorporated in Nevada on May 6, 2010.
The Company was a platform that broadcasted live events in HD with a new technology that combines hardware and a software platform to broadcast from multiple cameras, wirelessly an event with an extremely low production cost until September 30, 2013. In October 2013, the business plan for Imerjn was changed to enter into the branded tablet market, cloud storage market and app market and pursue acquisitions that may be synergistic to the company’s focus in various technologies.
The Company completed an acquisition of Rocky Mountain Tracking Inc. (“RMT”), an established provider of GPS tracking solutions in North America on July 21, 2014. RMT was incorporated in Colorado in 2004 and has been a leading provider of GPS tracking solutions. It offers several GPS trackers and GPS tracking systems that are ideal for personal or business use. RMT’s software is proprietary and enables users to track the movement of virtually anything using tracking devices. The Company’s new website is www.imerjn.com.
The Company's board of directors approved a 1:10,000 reverse split of the Company's common stock which was approved by the Financial Industry Regulatory Authority on November 19, 2014. All share and per share amounts in the consolidated financial statements and footnotes have been retroactively restated for the impact of the reverse split. Also in November 2014, the Company's name changed to Imerjn Inc. and the Company has applied for a new symbol, IMJN, which is expected to be approved and effective on December 17, 2014.
Principles of Consolidation
The consolidated financial statements include the Company’s accounts and those of the Company’s wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Basis of Presentation
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Imerjn’s Annual Report filed with the SEC on Form 10-K for the year ended July 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements for the three months ended October 31, 2014, which substantially duplicate the disclosures contained in the audited consolidated financial statements for the year ended July 31, 2014 as reported in the Form 10-K have been omitted.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant estimates relate to the fair value estimates of the Company’s derivative liabilities.
| F-4 |
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Basic and Diluted Earnings (Loss) Per Common Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the three months ended October 31, 2014, the Company included the dilutive effect of 453,444 shares of common stock issuable upon conversion of convertible notes payable. During the three months ended October 31, 2013, there were no potentially dilutive securities outstanding.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Trade accounts receivable is recorded net of an allowance for expected losses. The allowance is estimated from historical performance and projections of trends. Management closely monitors outstanding balances and writes off, as of year-end, all balances that are not expected to be collected by the time the financial statements are issued. No allowance was required as of July 31, 2014 and 2013.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined by the average cost method for all inventories. Inventories consist primarily of components and finished products held for sale. Rapid technological change and new product introductions and enhancements could result in excess or obsolete inventory. To minimize this risk, Imerjn evaluates inventory levels and expected usage on a periodic basis and records adjustments as required.
Property and Equipment
Property and Equipment are stated at cost. Depreciation is computed over the estimated useful lives of the related assets using the straight-line method for financial reporting purposes.
Expenditures for normal repairs and maintenance are charged to expense as incurred. Significant renewals and improvements are capitalized. The cost and related accumulated depreciation of assets retired or otherwise disposed of are eliminated from the accounts, and any resulting gain or loss is recognized in the year of disposal.
Intangible assets
Intangible assets with definite lives are recorded at cost and amortized using the straight-line method over their estimated useful lives.
Impairment of Long-Lived Assets
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.
| F-5 |
Financial Derivatives
All derivatives are recorded at fair value on the balance sheet. Fair values for securities traded in the open market and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
Fair Value Measurement
The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The Company uses Level 3 to value its derivative instruments.
The following tables set forth assets and liabilities measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as of October 31, 2014 and July 31, 2014. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Derivative liabilities: | ||||||||||||||||
| At October 31, 2014 | $ | — | $ | — | $ | 1,894,891 | $ | 1,894,891 | ||||||||
| At July 31, 2014 | $ | — | $ | — | $ | 5,656,736 | $ | 5,656,736 | ||||||||
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company computes a deferred tax asset for net operating losses carried forward. The potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
| F-6 |
Revenue Recognition
The Company recognizes revenues on sale of goods when (1) there is persuasive evidence of an arrangement with the customer, (2) product risk and title has passed which generally coincides with the shipment of the products to the customer, (3) amount due from the customer is fixed or determinable, and (4) collectability is reasonably assured. Customer discounts and allowances are netted against revenues.
Subscription revenue is generated from the GPS tracking services provided. Customers are to be billed monthly, quarterly and annually. Subscription revenue is recognized ratably over the term of the subscription period. The Company records deferred revenues for the services to be performed subsequent to the yearend.
Cost of Subscription
Cost of subscription revenue is primarily comprised of the costs associated with the GPS tracking services that provided by the third parties.
Shipping and Handling
The Company bills the customers for, and recognizes as revenue, any charges for shipping and handling costs. The related costs are recognized as cost of sales.
Stock-based Compensation
The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last quoted market price of the Company’s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual for feature rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.
Recently Issued Accounting Pronouncements
The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.
Subsequent Events
The Company has evaluated all transactions from October 31, 2014 through the financial statement issuance date for subsequent event disclosure consideration.
NOTE 2 – GOING CONCERN
These financial statements have been prepared on a going concern basis, which implies Imerjn will continue to meet its obligations and continue its operations for the next twelve months. As of October 31, 2014, the Company has an accumulated deficit of $12,934,093, limited liquidity and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs for the next twelve month period. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The continuation of Imerjn as a going concern is dependent upon financial support from its stockholders, the ability of Imerjn to obtain necessary equity financing to continue operations, and the attainment of profitable operations.
| F-7 |
Realization value may be substantially different from carrying values as shown and these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should Imerjn be unable to continue as a going concern.
NOTE 3 – INTANGIBLE ASSETS
| October 31, 2014 | July 31, 2014 | |||||||
| Customer list | $ | 273,393 | $ | 273,393 | ||||
| Software licenses | 60,000 | 60,000 | ||||||
| Websites | 152,848 | 152,848 | ||||||
| Patents | 350,842 | 350,842 | ||||||
| Total intangible assets | 837,083 | 837,083 | ||||||
| Accumulated amortization of intangible assets | (62,951 | ) | (21,697 | ) | ||||
| Total intangible assets | $ | 774,132 | $ | 815,386 | ||||
The Company amortizes its intangibles over their useful lives which range from 3-15 years. Amortization expense for the three months ended October 31, 2014 and 2013 were $41,254 and $0, respectively.
NOTE 4 – NOTES PAYABLE
As of October 31, 2014, the Company had the following loans payable outstanding:
Convertible notes:
On October 10, 2013, the Company entered into a convertible promissory note with a third party for $37,500, with an initial discount of $2,500.The note bears interest at 8% and a maturity date of July 12, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest at 22%. The lender has the right after a period of 180 days to convert the balance outstanding into the Company's common stock at a rate equal to 51% of the average of the three trading prices during the 10 trading days prior to the conversion date.
On March 17, 2014, the Company entered into a convertible promissory note with a third party for $53,500.The note bears interest at 8% and a maturity date of December 19, 2014. The lender has the right after a period of 270 days to convert the balance outstanding into the Company's common stock at a rate equal to 45% of the lowest trading prices during the 30 trading days prior to the conversion date.
On October 21, 2013, the Company entered into a convertible notewith a third partyfor $25,000. This note bears an interest rate of 12% per annum and is due April 21, 2014.The lender has the right at any time prior to the maturity date to convert the principal and interest outstanding into the Company's common stock at a rate equal to 50% of the average of three lowest closing prices during the ten trading days prior to the conversion date.
On March 24, 2014, the Company entered into a convertible promissory note with a third party for $100,000.The note bears interest at 12% and a maturity date of September 24, 2014. The lender has the right after a period of 180 days to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the average of the three trading prices during the 20 trading days prior to the conversion date
On October 23, 2013, the Company entered into a promissory note with a third partyfor $500,000, with an initial discount of $50,000. During the three months ended October 31, 2013, the Company received the first advance of $50,000. During the three months ended April 30, 2014 the Company received an additional $125,000. The note has a maturity date of two years from effective date of each payment and bears and interest rate of 12%. The note can be converted into the Company’s common stock at lessor of $0.03 or 60% of the lowest trade price in the 25 trading days previous to the conversion.
| F-8 |
On December 23, 2013, the Company entered into a note purchase agreementwith a third partyto purchase a Convertible Promissory Note for $113,500, with an initial discount of $13,500. This note bears an interest rate of 8% per annum and is due December 27, 2014.The lender has the right at any time on or after 90 days from the issuance date to convert the balance outstanding into the Company's common stock at a rate equal to 55% of the lowest sale price of the common stock for the 20 trading immediately prior to the voluntary conversion date. During the quarter ended April 30, 2014, the Company issued $25,000 of common stock.
On December 13, 2013, the Company entered into a convertible notewith a third partyfor $35,000, with an initial discount of $5,000. This note bears an interest rate of 10% per annum and is due June 1, 2014.The lender has the right after a period of 180 days to convert the balance outstanding into the Company's common stock at a rate equal to 60% of the lowest closing prices during the twenty trading days prior to the conversion date.
On March 21, 2014, the Company entered into a convertible promissory note with a third party for $55,000, with and an initial discount of $5,000.The note bears interest at 10% and a maturity date of October 1, 2014. The lender has the right after a period of 180 days to convert the balance outstanding into the Company's common stock at a rate equal to 60% of the lowest trading prices during the 20 trading days prior to the conversion date.
On December 3, 2013, the Company entered into a senior convertible notewith a third partyfor $450,000, with an initial discount of $150,000. The note has a maturity date of June 3, 2014 and bears and interest rate of 12%.The lender has the right at any time to convert the balance outstanding into the Company's common stock at a conversion price of $0.00616 (subject to adjustment).
On December 12, 2013, the Company entered into a convertible notewith a third partyfor $100,000, with an initial discount of $10,000. This note bears an interest rate of 10% per annum and is due December 12, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 60% of the lowest trading prices during the 15 trading days prior to the holder elected conversion date.
On December 12, 2013, the Company entered into a convertible promissory notewith a third partyfor $450,000, with an initial discount of $10,000. $250,000 of the note was advanced prior to January 31, 2014. During the quarter ended April 30, 2014 the additional $200,000 was advanced. This note bears an interest rate of 10% per annum and is due December 12, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 60% of the lowest trading prices during the 15 trading days prior to the holder elected conversion date.
On October 31, 2013, the Company entered into a convertible notewith a third partyfor $50,000, with an initial discount of $5,500. This note bears an interest rate of 8% per annum and is due October 31, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 60% of the lowest closing prices during the 20 trading days prior to the conversion date.
On December 27, 2013, the Company entered into a convertible notewith a third partyfor $50,000, with an initial discount of $5,500. This note bears an interest rate of 12% per annum and is due September 30, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the 20 trading days prior to the conversion date.
On December 27, 2013, the Company also entered into a convertible notewith a third partyfor $50,000, with an initial discount of $5,500. This note bears an interest rate of 12% per annum and is due September 30, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the 20 trading days prior to the conversion date.
On March 20, 2014, the Company entered into a convertible promissory note with a third party for $84,000.The note bears interest at 8% and a maturity date of March 20, 2015. The lender has the right after a period of 360 days to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest trading prices during the 20 trading days prior to the conversion date.
| F-9 |
On November 18, 2013, the Company entered into a convertible debenturewith a third partyfor $250,000. This note bears an interest rate of 10% per annum and is due May 18, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the twenty trading days prior to the conversion date.
On November 18, 2013, the Company entered into a convertible debenture with a third partyfor $150,000. This note bears an interest rate of 10% per annum and is due May 18, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the twenty trading days prior to the conversion date.
On November 18, 2013, the Company entered into a convertible debenture with a third partyfor $150,000. This note bears an interest rate of 10% per annum and is due May 18, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the twenty trading days prior to the conversion date.
On November 18, 2013, the Company entered into a convertible debenture with a third partyfor $225,000. This note bears an interest rate of 10% per annum and is due May 18, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the twenty trading days prior to the conversion date.
On December 27, 2013, the Company entered into a convertible notewith a third partyfor $50,000. This note bears an interest rate of 12% per annum and is due September 30, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the 20 trading days prior to the conversion date.
On December 27, 2013, the Company also entered into a convertible notewith a third partyfor $50,000. This note bears an interest rate of 12% per annum and is due September 30, 2014.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the 20 trading days prior to the conversion date.
On March 20, 2014, the Company entered into a convertible promissory note with a third party for $94,500.The note bears interest at 8% and a maturity date of March 20, 2015. The lender has the right after a period of 360 days to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest trading prices during the 20 trading days prior to the conversion date.
On March 24, 2014, the Company entered into a convertible notewith a third partyfor $80,000. This note bears an interest rate of 12% per annum and is due April 24, 2015.The lender has the right at any time prior to the maturity date to convert the principal and interest outstanding into the Company's common stock at a rate equal to 50% of the average of three lowest closing prices during the ten trading days prior to the conversion date.
On April 30, 2014, the Company entered into a convertible promissory note with a third party for $37,500.The note bears interest at 8% and a maturity date of January 30, 2015. The lender has the right after a period of 360 days to convert the balance outstanding into the Company's common stock at a rate equal to 55% of the average lowest 2 day trading prices during the 15 trading days prior to the conversion date.
On May 18, 2014, the Company entered into a convertible debenture with a third partyfor $150,000. This note bears an interest rate of 10% per annum and is due May 18, 2015.The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest closing prices during the twenty trading days prior to the conversion date.
On July 28, 2014, the Company entered into a convertible promissory note with a third party for $50,000. The note bears interest at 8% and a maturity date of December 31, 2014. The lender has the right to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the 20 trading days prior to the conversion date.
| F-10 |
On August 1, 2014, the Company received an additional $50,000 from a third-party lender through a convertible promissory note. This advance bears interest at 12%, is unsecured, and has various terms of repayment.The note has a maturity date of two years from effective date of each payment and bears and interest rate of 12%. The note can be converted into the Company’s common stock at lessor of $0.03 or 60% of the lowest trade price in the 25 trading days previous to the conversion.
On August 8, 2014, the Company entered into a convertible promissory note with a third party for $400,000. The note bears interest at 10% per annum and with a maturity date of February 8, 2015. The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest one day closing prices during the 20 trading days prior to the conversion date. Only $150,000 of the note had been received as of October 31, 2014. The Company is currently default on this loan.
On August 29, 2014, the Company entered into a convertible promissory note with a third party for $65,000. The note bears interest at 10% per annum and with a maturity date of March 31, 2015. The Company received $58,750 and recorded a debt discount for issuance costs of $6,250. The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 30% of the lowest one day closing prices during the 30 trading days prior to the conversion date. The Company is currently default on this loan.
On September 5, 2014, the Company entered into a convertible promissory note with a third party for $100,000. The note bears interest at 12% per annum and with a maturity date of April 5, 2015. The Company received $90,500 and recorded a debt discount for issuance costs of $9,500. The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 30% of the lowest one day closing prices during the 30 trading days prior to the conversion date. The Company is currently default on this loan.
On September 18, 2014, the Company entered into a convertible promissory note with a third party for $20,000. The note bears interest at 12% per annum and with a maturity date of May 7, 2015. The lender has the right to convert the balance outstanding into the Company's common stock at a rate equal to 55% of the lowest one day closing prices during the 5 trading days prior to the conversion date.
The Company evaluated the conversion features on the above convertible notes and determined that they created an embedded financial derivative due to there being no explicit limit to the number of shares to be issued upon conversion. During the year ended July 31, 2014, the Company recorded the initial fair value of $1,878,951 on the financial derivatives as discount to the convertible notes. During the three months ended October 31, 2014, the Company recorded the initial fair value of $422,970 on convertible promissory notes issued during the period.
For the three months ended October 31, 2014, the Company recorded $559,663 of interest expense under straight-line method to amortize the discounts (both original discount and derivative discount) on the convertible notes. The remaining unamortized discount as of October 31, 2014 was $658,392.
Note payable:
The Company has a note payable to Atoll Finance. Interest on the note is 5% per annum. The Company (through its other lenders) repaid $1,144,172 and the balance was reduced from $1,712,242 to $568,070 including accrued interest during the year ended July 31, 2014. The note is unsecured and is currently past due.
A lender has an option to purchase $312,242 of the remaining balance. Another lender purchased $55,720 of the note payable. As of October 31, 2014, the outstanding balance on the note payable was $489,522. The Company recorded $6,480 of imputed interest on the payable due to Atoll Finance for the three months ended October 31, 2014.
Certain notes are in default because the Company cannot currently trade on an exchange which most creditors have access to.
| F-11 |
NOTE 5 – DERIVATIVE LIABILITY
The Company evaluated the terms of the convertible notes and concluded that since the conversion prices were not fixed and the number of shares of the Company’s common stock that are issuable upon the conversion of the convertible notes are indeterminable until such time as the note holder elects to convert to common stock, the embedded conversion features created a derivative liability.
The Company measured the derivative liability using the input attributes at each issuance date and recorded an initial derivative liability of $11,078,298 and $992,990 for the year ended July 31, 2014 and for the three months ended October 31, 2014, respectively. On October 31, 2014, the Company re-measured the derivative liability using the input attributes below and determined the derivative liability value to be $1,894,891. Gain on derivative liabilities of $3,647,523 and $0 was recorded for the three months ended October 31, 2014 and 2013, respectively, and included in the statements of operations in order to adjust the derivative liability to the re-measured value.
| Issuance date | October 31, 2014 | |||||||
| Stock price | $1.00 - $17.00 | $ | 1.00 | |||||
| Exercise price | $1.10 - $3.60 | $0.004 - $0.018 | ||||||
| Shares issuable upon conversion | 180,274 shares | 3,257,200 shares | ||||||
| Expected dividend yield | 0.00 | % | 0.00 | % | ||||
| Expected life (years) | 0.5 - 2 years | 0.2 - 2 years | ||||||
| Risk-free interest rate | 0.30% - 0.47% | 0.30% - 0.47% | ||||||
| Expected volatility | 223% - 242% | 234% - 322% | ||||||
Change in fair value of financial derivatives during the three months ended October 31, 2014 and 2013 is as follows:
| October 31, | October 31, | |||||||
| 2014 | 2013 | |||||||
| Beginning balance | $ | 5,656,736 | $ | — | ||||
| New derivatives | 960,676 | — | ||||||
| Transfer from liability classification to equity classification | (1,074,998 | ) | — | |||||
| Change in fair value | (3,647,523 | ) | — | |||||
| Ending balance | $ | 1,894,891 | $ | — | ||||
NOTE 6 – RELATED PARTY TRANSACTIONS
The Company advanced $541,451 to ACLH, LLC, an entity associated with the Company’s CEO, during the year ended July 31, 2014. $322,950 was repaid by ACLH, LLC to the Company during the year ended July 31, 2014. The remaining balance of $218,501 plus accrued interest is expected to be converted into stock of another public company, an asset owned by ACLH.
During the three months ended October 31, 2014, the Company issued 10,000,000 shares of Series B convertible preferred stock to Intersino, Inc., a related party to the CEO, for services provided in regards to attracting new users to the Company’s Amonshare website.
NOTE 7 – EQUITY TRANSACTIONS
Following are the Company’s equity transactions during the three months ended October 31, 2014:
| - | On October 25, 2014, the Company issued 10,000,000 shares of Series B convertible preferred stock to Intersino, Inc. The preferred shares were valued at $1,500,000 based on the agreed terms with Intersino, Inc., in payment of $50 per new user. The preferred shares are convertible into common stock of the Company at a rate of 0.267 shares of common stock for each share of preferred stock. |
| F-12 |
| - | 413,355 shares of common stock were issued for the conversion of third-party convertible notes payable in the amount of $1,580,304. The conversions consisted of the settlement of $482,490 in principal balance on convertible notes and $1,074,998 in embedded derivative conversion feature liability. A loss of $22,816 was recorded as the difference in fair value of the stock issued and the liabilities settled. |
NOTE 8 – SUBSEQUENT EVENTS
Subsequent to October 31, 2014, the Company issued 163,965 shares common stock in settlement of convertible notes payable principal balance of $6,430.
| F-13 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Statement on Forward-Looking Information.”
Our auditors have raised substantial doubt as to our ability to continue as an on-going business for the next 12 months.
To meet our need for cash, we have raised funds from third party loans. We cannot guarantee that since we have adopted and implemented a new business plan and have begun operations that we will stay in business after twelve months. We may quickly use up our current cash and will need to find alternative sources, such as a second public offering, or a private placement of securities in order for us to maintain our operations. At the present time, we have not made any arrangements to raise additional cash, other than from the loans that have been received and similar ones we are contemplating. If we need additional cash and cannot raise it, we may either have to suspend operations until we do raise the cash, or cease operations entirely. If we need more money, we will have to revert to obtaining additional funds as described above.
Plan of Operation
Our business plan which Imerjn has commenced is to enter the branded tablet market, app market and pursue acquisitions that may be synergistic to the company’s focus in various technologies.
Currently, do not have any future arrangements or commitments in place other than those listed above to complete any private placement financings and there is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.
We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, or expand our operations. Equity financing could result in additional dilution to our existing stockholders. We anticipate that we will need to meet our ongoing cash requirements through the generation of revenue or equity and/or debt financing.
We intend to meet our cash requirements for the short term by generating revenue and, if possible, through a combination of debt financing and equity financing by way of private placements. We currently do not have any arrangements or commitments in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us.
If we are not able to raise all monies needed to fully implement our business plan for the next year as anticipated, we will scale our business development in line with available capital. Our primary priority in that scenario would be to retain our reporting status with the SEC which means that we would first ensure that we have sufficient capital to cover our legal and accounting expenses. Once these costs are accounted for, in accordance with how much financing we are able to secure, we will focus on market awareness, and servicing costs as well as marketing and advertising to social media marketing websites. We will likely not expend funds on the remainder of our planned activities unless we have the required capital.
| 4 |
If we are able to raise the required funds we will fully implement our business plan. If we are not able to raise all required funds, we will prioritize our corporate activities.
Results of Operations
Three Months Ended October 31, 2014 Compared to Three Months Ended October 31, 2013
Revenue
We had $278,323 of revenues for the three-month period ended October 31, 2014 and $0 for the three-month period ended October 31, 2013.
Operating expenses
For the three months ended October 31, 2014 and 2013, we incurred operating expenses of $1,961,637 and $135,735, respectively. The operating expenses increased primarily due to stock issuance costs of $1,500,000 for services provided in regards to attracting new users to the Company’s Amonshare website.
Other income (expense)
For the three months ended October 31, 2014 and 2013, we had other income of $2,480,371 and incurred other expense of $29,573, respectively. We recognized a gain on the change in the fair value of our derivatives of $3,647,523 for the three months ended October 31, 2014. In 2013, we only had interest accrued for one outstanding loan.
Net income (loss)
For the three months ended October 31, 2014 and 2013, we had a net income of $656,520 and net loss of $165,308, respectively. The increase was primarily due to the gain recognized on the change in the fair value of our derivatives.
Liquidity and Capital Resources
As of October 31, 2014, our total assets were $3,388,505, comprised primarily of $189,897 in cash, $218,501 in related party notes receivable and other non-current assets. Our total liabilities were $4,290,593, including convertible note payables of $1,142,547 and derivative liabilities of $1,894,891.
We intend to meet our cash requirements for the short term by generating revenue and through a combination of debt financing and equity financing by way of private placements. We currently do not have any arrangements or commitments in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us. If we are not able to raise the amount needed to fully implement our business plan as anticipated, we will scale our business development in line with available capital.
Our primary priority will be to retain our reporting status with the SEC which means that we will first ensure that we have sufficient capital to cover our legal and accounting expenses.
Once these costs are accounted for, in accordance with how much financing we are able to secure, we will focus on market awareness, testing and servicing costs as well as marketing and advertising to social media marketing websites. We will likely not expend funds on the remainder of our planned activities unless we have the required capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and as defined by Rule 229.10(f)(1) of Regulation S-K, and are not required to provide the information under this item.
| 5 |
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our Disclosure Controls were not effective as of the end of the period covered by this report due to the lack of adequate segregation of duties and the absence of an audit committee.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that affected, or were reasonably likely to affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Currently we are not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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.
| 6 |
The following documents are included herein:
| Incorporated by reference | |||||
| Exhibit | Document Description | Form | Date | Number | Filed herewith |
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | |||
| 31.2 | Certification of Chief Financial Officer pursuant to rule 13a-14 | X | |||
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | |||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 | X | |||
| 7 |
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing of this Form 10-Q/A and has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, NV on this 17th day of December 2014.
| Xumanii International Holdings Corp. | |||
| BY: | /s/ Adam Radly | ||
| Adam Radly | |||
President, Director
| |||
| /s/ Bob Bates | |||
| Bob Bates | |||
| CFO | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities.
| Signature | Title | Date | ||
| /s/Adam Radly | President, Director | December 17, 2014 | ||
| Adam Radly | ||||
| /s/ Bob Bates | CFO | |||
| Bob Bates |
| 8 |
