UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2013
or
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 333-188565
OverNear, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | | 27-3101494 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1460 4th Street, Suite 304
Santa Monica, California 90401
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (310) 744-6060
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ¨ Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. x Yes ¨ No
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 requirement for the past 90 days. x Yes o 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 (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes x No
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No
At June 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, there was no aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as a public market for the registrant’s common stock did not exist at that time, and the common stock is not currently listed, traded, or quoted on any national or regional stock exchange, market, or quotation system.
As of March 31, 2014, there were 69,884,257 shares of common stock outstanding.
TABLE OF CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This annual report on Form 10-K contains forward-looking statements. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for working capital. Forward-looking statements that included assumptions and describe our future plans, strategies, and expectations are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may include known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this annual report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this annual report generally. This annual report may contain market data related to our business that may have been included in articles published by independent industry sources. Although we believe these sources are reliable, we have not independently verified this market data. This market data includes projections that are based on a number of assumptions. If any one or more of these assumptions turns out to be incorrect, actual results may differ materially from the projections based on these assumptions. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this annual report will in fact occur.
Each forward-looking statement should be read in context with, and with an understanding of, the various other disclosures concerning our company and our business made elsewhere in this annual report as well as other public reports that may be filed with the United States Securities and Exchange Commission. You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. We are not obligated to update or revise any forward-looking statement contained in this annual report to reflect new events or circumstances.
When used in this annual report, the terms the “Company,” “OverNear,” “we,” “us,” “our,” and similar terms refer to OverNear, Inc., a Nevada corporation.
General
We are a development stage company that is currently developing and plans to market a location-based social networking and mobile advertising platform. We were formed as Awesome Living, Inc. in Nevada in July 2010 as a wholly owned subsidiary of uKarma Corporation, a Nevada corporation (“uKarma”). uKarma developed and marketed proprietary branded personal health and wellness products, including a proprietary branded fitness DVD series (Xflowsion). On August 9, 2010, the assets of uKarma’s operating health and wellness business, including its Xflowsion DVD series, and its liabilities were transferred into Awesome Living, Inc., pursuant to a Contribution Agreement. Therefore, our historical financial results are those of uKarma’s health and wellness business. uKarma subsequently changed its name to Innolog Holdings Corporation (“Innolog”), and issued 10,700,000 shares of Awesome Living, Inc. common stock to our management. This, along with other subsequent issuances of our common stock, reduced Innolog’s percentage ownership of our common stock to 15.11% as of March 31, 2014.
The Contribution Agreement anticipated a pro-rata spin-off of the Awesome Living, Inc. common stock owned by uKarma to uKarma’s shareholders of record as of August 12, 2010. We intend to complete to the spin-off as soon as practicable.
On June 20, 2011, we changed our name from Awesome Living, Inc. to OverNear, Inc. to better reflect our business of developing a location-based social networking and mobile advertising platform.
Business Overview
General
We intend to further develop a location-based, social networking and mobile advertising platform offering a fully integrated and streamlined solution for people to discover, share, plan and attend events and activities with their friends in the real world. It’s not another directory, reviews app or daily deals service; it’s about discovering, sharing and facilitating incredible experiences with those that matter to you. Employing its patent-pending Geo-temporal Remote Presence Technology, OverNear extends its smart discovery and notification services into the physical world. All OverNear events and activities incorporate a virtual perimeter centered at the location of the venue. When OverNear users follow an event category or a friend hosting the event, and come into the geo-fence of that event, they will receive a push notification. This unique feature enables real-time delivery of proximity-based push notifications, which aids in the discovery of events one otherwise, might have missed.
OverNear is expected to empower users to achieve greater social interaction and in-person engagement. Rather than focus on what your friends may be opining on, OverNear wants to take the social content and make it actionable. Instead of searching for things to do and connecting with friends, OverNear acts as your virtual personal assistant, automatically surfacing the best activities and events in the areas where you hang out. OverNear is expected to help people enrich their offline lives by allowing them to discover new events and activities, expand their social circles and make better use of their leisure time.
Business Strategy
As people begin to rely on services and apps to help them navigate the world around them, local discovery is going to get a lot more crucial to search marketers who want their business to be found online. Our strategy is to first rapidly build a user base by launching our free mobile utility, which allows users promote their events to the right target audience. We expect to leverage our mobile app to offer businesses advertising solutions that are designed to be more engaging and relevant for users in order to help them better achieve their advertising goals. Our combination of location relevance, social context, and engagement is expected to give advertisers enhanced opportunities to generate brand awareness and affiliation, while also creating new ways to generate near-term demand for their products from consumers likely to have purchase intent.
We plan to execute our business model and monetize our mobile app by offering businesses an opportunity to advertise to our users. Our initial strategy is to established relationships with influencers and Internet celebrities that will be helpful in promoting and bringing awareness to the company. We expect to generate revenues through participation in the point of sale transactions, as well as certain other advertising initiatives. We plan to extend the use of our mobile app to include payment-processing integration for point-of-sale transactions in partnership with ticket agents and venue operators, whereby we will earn a commission for purchase transactions effected through our app. There is, however, no guarantee that we will be able to successfully execute the strategies discussed herein.
Marketplace and Competition
Our addressable market opportunity includes portions of many existing advertising markets, including the traditional offline branded advertising and mobile advertising markets. We believe that advertising on mobile devices is a significant market opportunity that is still emerging and evolving. Our goal is to offer most advertisers with an effective way to leverage and create more contextually-relevant ads. Our mobile application will compete in the multi-billion dollar mobile location-based services market. We may compete with other location-based mobile applications, including Foursquare, Google, Apple, and several new start-ups, many of which are significantly larger than us and have more capital to invest in their mobile advertising businesses. They, or other competing companies, may establish or strengthen cooperative relationships with their mobile operator partners, brand advertisers, app developers, or other parties, thereby limiting our ability to promote our services and generate revenue. These companies could compete with us to the extent they expand into mobile advertising. Any of these developments would make it more difficult for us to sell our services. We have no competitive presence in the mobile location based services market at this time.
Intellectual Property
Our ability to protect our intellectual property, including the development of the software application, will be an important factor in the success of our business. We currently have a provisional patent application pending with the United States Patent and Trademark Office, and one non-provisional patent application soon to be filed. We expect to apply for additional patents to protect our intellectual property. We also continue to review whether pursuing patent protection in other countries is appropriate. We are in the process of registering a U.S. trademark registration for OverNear. We will also continue to review whether pursuing trademark protection in other countries is appropriate. In addition to the foregoing, we have established business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidentiality agreements and assignment-of-inventions agreements with employees, independent contractors, consultants and companies with which we conduct business, or will conduct business in the future.
Industry Regulations
The regulatory framework for privacy issues worldwide is evolving, and various government and consumer agencies and public advocacy groups have called for new regulation and changes in industry practices, including some directed at the mobile industry in particular. It is possible that new laws and regulations will be adopted in the U.S. and internationally, or existing laws and regulations may be interpreted in new ways, that would affect our intended business, particularly with regard to location-based services, collection or use of data to target ads and communication with consumers via mobile devices. The U.S. government, including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation of the collection of consumer information, including regulation aimed at restricting some targeted advertising practices. The Federal Trade Commission has also proposed revisions to the Children's Online Privacy Protection Act, or COPPA, that could, if adopted, create greater compliance burdens on us. COPPA imposes a number of obligations, such as obtaining parental permission, on website operators to the extent they collect certain information from children who are under 13 years of age. The proposed changes would broaden the applicability of COPPA, including the types of information that would be subject to these regulations, and could apply to information that we or our clients intend to collect through mobile devices or apps that is not currently subject to COPPA.
Social Networking
In January 2013, OverNear introduced a unique mobile app for Apple iOS devices (i.e., iPhones and iPads) and Web service that leverages location-based services to help connect OverNear users to their contacts and online social network. OverNear’s social networking platform allows registered users who have installed the mobile app to connect in person with their online connections by simultaneously providing a push notification to all parties when they are in close proximity of each other. Push notifications are a technique used by apps to alert smartphone users to content updates, messages, and other events within an app that users may want to be aware of. Once the OverNear mobile app is installed on the consumer’s smartphone, the user will be presented with an opportunity to identify a list of friends and business contacts to be included in his or her OverNear contact list. OverNear will utilize appropriate application programming interfaces for mobile devices to allow users to bypass account creation and login with their existing accounts. For example, linking an existing social-networking account to OverNear will also enable access to the user’s friends list. From the imported lists, the user will have the ability to select (de-select) friends and contacts to include in his or her OverNear contact list. Each user who downloads and installs the mobile app will independently establish his or her respective OverNear contact list.
As planned, our system will monitor each user’s OverNear contact list, and once an overlap occurs between any names, the respective persons will be simultaneously notified and required to accept their inclusion into the other OverNear contact list(s) thereby authorizing the system to notify them when they come into close proximity of each other (based on predefined preferences). When this happens, all parties within a given OverNear contact list will be presented with an opportunity to connect with each other via text message, when added. When this choice is made, a list of the persons in the OverNear contact list is presented, and each person is able to select one or more of the other persons from the list to contact with an instant message.
Mobile Advertising
OverNear expects to be a location-based mobile advertising platform that will help brands and retailers reach OverNear users with mobile advertisements, such as promotional offers, discount coupons, and vouchers direct to their smartphones.
OverNear intends to deploy push notification campaigns to users based on where they are at any given moment, or on any number of other criteria, such as time of day, day of the week, proximity to a retailer’s location, among many other personalized preferences. The key features of the application are planned to include:
| | ● | Highly targeted advertising campaigns; |
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| | ● | No SMS or MMS approval from the mobile carrier; |
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| | ● | Campaigns are self-administered by retailer or brand; |
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| | ● | Real-time analytics – virtual built-in ‘Marketing Consultant; and |
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| | ● | Simple interface and easy-to-use – intuitive user interface. |
We believe that our technology, tools, and services will help brands and retailers maximize their advertising revenue and gain insight about their users. To advertisers, we expect to offer sophisticated targeting capabilities, and the opportunity to deliver interactive and engaging ad experiences to consumers on their mobile connected devices. Our goal is to have our proprietary technology and data platform determine in real-time which ad to deliver, as well as to whom and when, thereby optimizing the effectiveness of advertising campaigns regardless of device type or operating system. We expect our platform to be initially compatible with Apple iOS and we are planning to release versions compatible with the Android and Windows mobile operating systems.
As smartphones, tablets, and other mobile connected devices become increasingly powerful and affordable, and mobile Internet access becomes more widespread and faster, users are consuming more content on their mobile devices. Apps in particular are becoming a popular way for consumers to engage with and consume personalized digital content on their mobile connected devices. With growth in this mobile app-based economy, mobile advertising creates new opportunities for advertisers to reach and engage audiences of potential consumers. Mobile devices are inherently personal in nature, facilitate anytime-anywhere access to their users, allow for engaging app-enabled experiences, and offer location-targeting capabilities. We believe that the combination of these features creates a powerful opportunity for delivering highly targeted, interactive advertising through mobile connected devices. However, a number of factors, including device and operating system diversity, as well as technological challenges, make it difficult and complex to deliver mobile advertising effectively.
We expect to help brands and retailers utilize mobile advertising without the complexities. By using our service, advertisers will be able to gain access to our tools and services to craft advertising and promotional campaigns with interactive rich media ads and video ads from our platform. As planned, our app will be able to analyze user data to build sophisticated profiles and audience groups that, in combination with the real-time decision-making, optimization, and targeting capabilities of our technology platform, will enable us to deliver highly targeted advertising campaigns for our advertiser clients. We anticipate that advertisers will pay us to deliver their ads to mobile connected device users. As we deliver more and more ads, we expect to be able to collect anonymous data about users, audiences, and the effectiveness of particular ad campaigns, which in turn will enhance our targeting capabilities and will allow us to deliver better performance for advertisers and better opportunities to increase their revenue streams. Our use of data for interest-based targeting, including location data, is based on consumer consent, and we offer consumers the ability to opt out of such targeting.
Benefits of Mobile Advertising
The combination of the inherently personal nature of mobile devices, their enhanced functionality, and the proliferation of app-enabled experiences creates a powerful opportunity for highly targeted and effective advertising. We believe mobile advertising enjoys a number of benefits over traditional advertising and PC-based online digital advertising, including:
| | ● | anytime, anywhere access to users; |
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| | ● | personalization of the advertising experience; |
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| | ● | location-based targeting; |
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| | ● | more complete user engagement; and |
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| | ● | enhanced audience targeting based on location, behavioral and demographic data. |
Growth Strategy
We seek to become the strategic independent platform partner of choice for advertisers wanting to capitalize on the large and growing mobile advertising opportunity. The key elements of our strategy are to:
| | ● | innovate through continued investments in technology and data; |
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| | ● | deepen our relationship with our users; |
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| | ● | acquire new users and advertisers; |
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| | ● | increase our share of advertising budgets from advertisers; |
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| | ● | increase our global market penetration; |
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| | ● | pursue strategic acquisitions; and |
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| | ● | provide further insight into the mobile app economy. |
Principal Products and Services
Location-based services allow Users to connect with others based on their current locations. In many cases, people use their smartphones (iPhone, Android, Windows) to “check in” to businesses like restaurants, bars, and stores they visit. Many of these services also have a gaming component, allowing members to compete against one another or to collect rewards (like online badges) for their activities. The rapid evolution of mobile phones, both on a hardware and a software level, combined with a surge in application storefront releases, deployments of higher-capacity network infrastructure, and recent developments in positioning technologies is expected to drive revenues.
We believe that location and granular geo-targeting are actually strong predictors of consumer intent because by knowing when and where someone will be will likely provide information about what that person may be interested in. For example, if it is lunch time and one has opted in to get offers from restaurants, a great promotion available nearby becomes easy to act on. We believe that it is becoming clear to retailers that location-based marketing is an important key to driving foot traffic among consumers who are in the mindset to make a purchase. Furthermore, we believe that the performance of these programs is demonstrating that mobile phones and location can increase average order value, frequency, and loyalty.
We believe that the more technologies exist like our mobile application that marketers can leverage to pinpoint location and target advertising and messaging, the more relevant they can make their campaigns and the better the response will be from their target consumers. We also believe that consumers are generally much more receptive to ads that are relevant to them personally. We believe that location enhances the outbound and inbound media opportunities, allowing brands and retailers to tie their messaging to a specific location and dictate the context of the message.
OverNear Mobile App
Push Notifications. OverNear plans to leverage the native high-accuracy network-based hybrid location engine in the Apple iOS and the Android operating systems that allows location to be extracted from the handset on a periodic and continuous basis. OverNear expects to deploy push notification campaigns to users based on where they are at any given moment, or if they meet any number of other criteria. As planned, the consumer will “opt in” by downloading the OverNear mobile application to his or her phone and agreeing to receive notifications, but beyond that the consumers’ privacy is protected because the alerts do not require the disclosure of either a phone number or an email address. Push notifications appear as an alert in the message tray of the customer’s phone screen and can be acted on via messaging even if the OverNear app is not in use. Unlike other popular apps, there is no check-in required to activate either the user’s location or his or her interest in retrieving an offer or discount. Push notifications are used in our currently available mobile app.
Persistent Location – No Check-Ins Required. We believe that a persistent location platform, not check-ins, will release the potential of location-based services. For example, someone is walking in the vicinity of a coffee shop and a message appears on his or her phone: "Come on in to the coffee shop (you're a few blocks away and here is a map to get there) and receive 50% off a cappuccino." With the check-in, the coffee shop will only have the ability to message a consumer based on when he or she tells the service his or her exact location. But what is the likelihood that, as the consumer is walking, he or she will check-in to a social media site? For the coffee shop or any other business to predictably message a potential customer when he or she is nearby, they are going to require access to the customer’s location on a persistent and continuous basis. Persistent location features are used in our currently available mobile app.
Location-Based Marketing. Compared to the “daily deal” providers, OverNear is expected to be more effective in reaching potential customers by pushing location-based offers that are triggered by the User’s precise location rather than by the city specified by the user as his or her next closest deal-base. We believe that brands will be able to target consumers with offers based on their own marketing rules and campaign timing without having to share the revenue and customer information with a second party. Real-time reporting and analytics should enable the brand or retailer to use adaptive business rules to reach highly targeted consumers. Rather than a mobile megaphone, OverNear will provide a targeted, brand-specific marketing tool. Assuming the user is aware that he or she will be activating such access to his or her mobile “inbox,” it will provide a kind of “tell me when…” system for consumers who are either cost-conscious or brand-loyal and who want to be alerted to special offers. For example, users might be alerted only at certain times of the day based on whether or not they have responded to an earlier campaign or even based on their proximity to retail locations, restaurants, and events. In that context, the easier and more flexible the marketer’s dashboard, the better the chances of success and the less this will look to the user like mobile spam.
OverNear is expected to provide a replacement for daily deal emails that clutter Users’ inboxes and never get read. Because this targeting works through an app’s connection with the Internet, rather than via SMS or MMS, the platform can deliver rich media without the per-message costs, character or size limitations, and extensive approval process associated with SMS, MMS, and email-based marketing. And there are no carrier-related GPS costs because smart notification technology uses the phone’s internal locator beacon to persistently know consumer location.
Adaptive Learning Algorithm. This is a proprietary algorithm, which will monitor and refine the system’s filtering process to produce highly targeted promotions based on each individual’s tastes and preferences. Every promotional offer that will be sent by the merchant will include the quick press buttons “More like this” and “Less like this.” Based on the responses of the shopper for each of the offers, the system will automatically tailor the User’s personal preferences to match his or her indicated interest levels by type of retailer, promotional offer, day of the week, time of day, etc.
Social Media Integration. For merchants with an existing social networking profile page or fan page, our plan is that our technology will allow them to easily publish their offers or email messages and related links to their social networking site news feed and wall directly from within the OverNear application. When the link is shared, OverNear will automatically post the offer or email message to a message archive center and then track offer redemptions and traffic activity. The currently available version of our mobile app integrates with Facebook.
Professional Social Networking Integration. With professional social networking integration, our app will allow merchants to easily publish their offers to their professional social networking news feed directly from within the OverNear application. When sharing related message content, our applications will automatically post the merchants’ messages to their message archive and track visitor activity or coupon redemptions.
OverNear Web App
Event Creation Wizard. This will be a comprehensive, easy-to-use interface that enables subscribers to create and edit events. Through intuitive controls, subscribers can readily change colors, fonts, borders, and backgrounds and insert images and logos to help ensure that their messages or offerings appear polished and professional. The wizard operates on a “what-you-see-is-what-you-get” basis whereby a subscriber can change content quickly and view the offer or message prior to launching.
Professionally Developed Templates. These will be pre-designed offer and message forms that are designed to help subscribers quickly create attractive and professional campaigns. These templates will provide ideas about the kinds of offers, messages, and emails subscribers can send, promotions, and announcements, and will demonstrate, through the use of color and format, the creativity and professionalism of a potential campaign. An advanced editing functionality will enable subscribers to easily modify the templates. We also plan to provide templates designed to appeal to specific products and services. For example, we will include a coupon template for a 25% discount or a ‘buy-one-get-one-free’ offer to promote a restaurant while another retail messaging template can be used to promote a new line of men’s apparel.
Security and Privacy. We expect to protect our subscribers’ data at the highest level possible. We do not intend to use our subscribers’ confidential information, including their customer/contact lists, except in the delivery of our product, nor will we share, sell, or rent this information. In addition, we will require that our business subscribers adopt a privacy policy to assist them in complying with government regulations and marketing best practices.
Tracking and Reporting. We plan that the tracking and reporting feature will monitor and analyze merchant promotions and shopper redemptions and tailor recommendations for a promotion based on previous campaigns and concurrent campaigns of other nearby retailers (on an anonymous basis) who have the same business but are located in different geographic regions or experience comparable social and demographic dynamics. This feature will use the Company’s patent-pending adaptive learning algorithm to monitor and refine criteria for optimized promotional offers or discount coupons based on redemption rates and other socio-economic statistics gathered over time and from neighboring businesses.
We plan to monetize our customer relationships by offering premium levels of our advertising and analysis-driven marketing service to brands and retailers by charging subscription fees. As a subscriber, the business customer will have access to contact list and offer management tools which are expected to enable the subscriber to target or segment contacts and consumers for all or specific campaigns and monitor delivery and redemption of promotions and coupons. Unsubscribe requests are automatically processed to help ensure ongoing compliance with government regulations and marketing best practices.
Industry
Background
The convergence of several key trends is driving the growth of the mobile app economy and fundamentally changing the way that users consume content on their mobile connected devices. We believe these trends will continue to create a significant opportunity for mobile advertising. These trends include:
| | ● | Adoption of faster and more functional mobile connected devices. Driven by intuitive user interfaces, increased functionality, faster processing speeds, better graphics processors, and advanced display technologies with touch capabilities, it has become possible to deliver innovative, interactive, and engaging consumer media experiences on a wide variety of mobile connected devices. |
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| | ● | Widespread access to faster wireless networks facilitates consumer consumption of content. With the growth of mobile connected devices, consumers increasingly expect to have a high-quality online experience everywhere. Expansion of worldwide 3G network penetration, the rise of next-generation networks, such as 4G, and the prevalence of Wi-Fi access are facilitating the consumption of content on mobile connected devices. The combination of increased network access and faster network technologies is enabling the development of rich media content, presenting new opportunities in the mobile ecosystem. |
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| | ● | Mobile usage has disrupted how content is consumed. Consumers are increasingly using their mobile devices instead of personal computers or other traditional media to access content. Mobile devices have become an increasingly important part of daily life, with users relying on mobile connectivity to read newspapers, magazines, and blogs, watch movies, play games, check sports scores, shop, monitor weather forecasts, conduct banking transactions, find maps and directions, and listen to online radio stations. |
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| | ● | Growth of the mobile app economy. Developers have created apps as an easy, intuitive, and interactive way to instantly deliver content on mobile devices. Emerging technologies, such as improvements in computer programming languages for structuring and presenting Web-based content, have allowed app developers to harness the increasing processing power and functionality of mobile devices and faster networks to deliver more engaging media to users. |
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| | ● | Advertising industry is being disrupted by mobile advertising. Traditional advertising media, such as billboards, newspapers, magazines, radio, and television, often suffer from a number of inherent limitations, including limited ability to target specific audiences, limited ability to measure audience reach and, in some cases, limited geographic range. As consumers spend more time online with personal computers, or PCs, digital advertising has proven to be more effective because it allows for user interaction, provides better measurement, and achieves expanded audience reach. However, even PC-based digital advertising suffers from a number of significant limitations with respect to personalization, accessibility, and location-based targeting, all of which can be provided through mobile advertising. |
Complexities of Mobile Advertising
Despite the growing market opportunity for mobile advertising, companies in our industry must address several complexities and challenges in order to effectively deliver mobile advertising solutions, including:
| | ● | fragmentation of the mobile ecosystem caused by a wide diversity of device types, numerous operating systems, and varied delivery and user engagement mechanisms; |
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| | ● | limitations in using traditional identification techniques typically used in PC-based Web advertising, such as "cookies"; |
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| | ● | difficulty in predicting user behavior, including when and where a user will be consuming content on a mobile device; |
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| | ● | varying connection quality that a mobile device may have at any given time; and |
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| | ● | difficulties measuring performance of ads and user interactions with them on mobile connected devices. |
Needs of Mobile Advertisers
Advertisers, to achieve their business objectives in the mobile app context, require scale, reach, and the ability to target and engage specific audiences. Advertisers need solutions that help optimize their investment by delivering effective campaigns across multiple devices and operating systems, maximizing the number of potential consumers the campaigns reach, and then measuring the effectiveness of those campaigns.
Employees
We have three employees, all of whom are full-time.
Recent Developments
In the first quarter of 2014, the Company issued 2,000,000 units of Series B Preferred Stock to our two sole officers and directors, Fred E. Tannous and Bill Glaser. Each holder of outstanding shares of Series B Preferred Stock shall be entitled to one hundred (100) votes for each share of Series B Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting to stockholders of the Company. Each share is convertible into five shares of Common stock at a conversion price equal to $0.25 per share and has a cashless conversion feature.
Emerging Growth Company
The Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections 14A(a) and (b) of the Securities Exchange Act of 1934 to hold a nonbinding advisory vote of shareholders on executive compensation and any golden parachute payments not previously approved.
The Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an “emerging growth company” for up to five years following our initial public offering, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30.
To the extent that we continue to qualify as a “smaller reporting company”, as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three years.
No disclosure is required by smaller reporting companies.
We currently have one office located at 1460 4th St., Santa Monica, California 90401. On April 16, 2013 we entered into a two-year office lease with SM Promenade LLC for this office, the term of which began on May 15, 2013. The monthly fee is $4,386 per month for the first year and $4,517 for the second year. We also leased an office in an executive suite located at 609 Deep Valley Drive, Suite 200, Rolling Hills, California. We also leased an office from Regus Management Group, LLC at a monthly rent of $2,200 pursuant to a lease that expired on October 31, 2013 (provided the Company’s last payment under this lease was due September 1, 2013 and the Company was provided use of the space during the month of October 2013 at no cost, after which time the Company ceased using such rental space). We previously leased an office at 9595 Wilshire Blvd, Suite 900 in Beverly Hills, CA on a month-to month basis for $1,557 per month, which lease expired on June 30, 2013.
We are currently not involved in any litigation that we believe could have a materially 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 company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Not applicable to the Company.
Market Information
There is currently no market for our common stock or preferred stock.
Holders
As of March 31, 2014, there were 104 shareholders of record who hold an aggregate of 69,884,257 shares of common stock issued and outstanding.
Dividend Policy
We do not expect to pay any dividends on our common stock in the foreseeable future. Payment of future cash dividends will be at the discretion of our Board of Directors in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and contractual restrictions with respect to the payment of dividends.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth, as of December 31, 2013, certain information related to our compensation plans under which shares of our common stock are authorized for issuance.
| Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options Warrants and Rights | | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in COLUMN A) | |
| Equity compensation plans approved by security holders | | | 15,000,000 | (1) | | $ | 0.025 | | | | --- | |
| | | | | | | | | | | | | |
| Equity compensation plans not approved by security holders | | | 0 | | | $ | 0 | | | | 0 | |
| | | | | | | | | | | | | |
| Total | | | 15,000,000 | | | $ | 0.025 | | | | --- | |
| (1) | Represents outstanding, vested and unvested shares of restricted stock options granted pursuant to our Amended and Restated 2010 Stock Option, Deferred Stock and Restricted Stock Plan. |
Our Board of Directors adopted the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide for the issuance of non-qualified and/or incentive stock options to employees, officers, directors and consultants and other service providers. The Plan was subsequently amended on various dates. Generally, all options granted expire five to ten years from the date of grant. Options generally vest over ten years. Effective July 1, 2012, the total number of shares of common stock reserved for issuance was reduced to 15,000,000 shares, subject to annual increases of up to an amount equal to 15% of the outstanding fully-diluted shares of common stock of the Company and any such increase cannot be made until the fully-diluted shares of common stock outstanding exceeds 100,000,000 shares.
On November 29, 2012, the Company entered into a consulting agreement and in consideration of the consulting services, the Company agreed to grant the consultant a non-qualified option to purchase 2,100,000 shares of the Company’s common stock at the exercise price of $0.10 per share. The option shall become exercisable at the rate of 300,000 shares upon execution of the agreement and 150,000 shares every three months, commencing on the date of the agreement. These options were granted outside of our 2010 Stock Option Plan.
Recent Sales of Unregistered Securities
Common Stock
During the year ended December 31, 2013, stockholders’ equity consisted of the following transactions: (1) the issuance to investors in a private placement, in consideration of $1,944,125, of an aggregate 7,776,500 shares of the Company’s common stock in conjunction with the sale of units consisting of common stock and warrants which had a value of $0.25 per unit, (2) the issuance of warrants to purchase 7,776,500 shares of the Company’s common stock in connection with the private placement, the fair value of which was determined to be $322,317, (3) the issuance of an aggregate 1,933,886 shares of the Company’s common stock with a value of $407,143 for consulting services, (4) the issuance of 898,200 shares of the Company’s common stock with a value of $186,736 in payment of settlement of accounts payable, (5) 806,250 vested warrants with a value of $68,142 for consulting services, (6) the issuance of an aggregate 638,463 shares of the Company’s common stock with a value of $133,908 for software development, and (7) 412,880 vested warrants with a value of $36,379 for software development.
Preferred Stock
The Company also issued 26.75 units of its Series A Preferred Stock at $30,000 per unit. Each unit consists of (1) 120,000 shares of Series A Preferred Stock, and (2) warrants to purchase 120,000 shares of Company’s common stock at an exercise price of $0.50 with immediate vesting and 5 years to exercise. Total consideration from issuance of units amounted to $802,500. The Company issued warrants to purchase 3,210,000 shares of the Company’s common stock in conjunction with the sale of units and the fair value of the warrants was determined to be $135,141.
The sales of securities identified above were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof and the rules promulgated thereunder. The investors represented to us that they were accredited investors and were acquiring the shares for investment purposes and not for distribution, that they could bear the risks of the investment and could hold the securities for an indefinite period of time. The investors received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration. The sales of the foregoing securities were made without any form of general solicitation or advertising and all of the foregoing securities are deemed restricted securities for purposes of the Securities Act.
We are not required to provide the information required by this Item because we are a smaller reporting company.
The following discussion should be read in conjunction with our financial statements for the fiscal years ended December 31, 2013 and 2012 and the related notes included therein.
Overview and Recent Developments
We are a development stage company located in Santa Monica, California. Following our transition to a new line of business resulting from the transactions described below, we are currently developing and marketing a location-based social networking and mobile advertising platform that helps connect people to people and businesses to consumers. We were formed in July 2010 as a wholly-owned subsidiary of uKarma. uKarma developed and marketed proprietary branded personal health and wellness products, including a proprietary branded fitness DVD series (Xflowsion). On June 20, 2011, we changed our name to OverNear, Inc. and added the mobile platform portion of our business.
On August 9, 2010, uKarma’s operating health and wellness business’ assets, including its Xflowsion DVD series, and liabilities were transferred into the Company pursuant to a Contribution Agreement in anticipation of being spun-off to uKarma’s shareholders of record as of August 12, 2010 on a pro-rata basis. uKarma subsequently changed its name to Innolog Holdings Corporation.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.
The following accounting policies, which are also described in Note 2 to our financial statements, are critical to aid the reader in fully understanding and evaluating this discussion and analysis:
Development Stage Enterprise: The Company is a development stage company as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915, “Development Stage Entities”. The Company is devoting substantially all of its present efforts to design and develop a location-based social networking and mobile advertising platform and its planned principal operations have not yet commenced. The Company has not generated any significant revenues from operations and has no assurance of any future revenues. All losses accumulated since July 22, 2010, have been considered as part of the Company’s development stage activities.
Revenue Recognition: The Company generally recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. There was no revenue during each of the years ended December 31, 2013 and 2012.
Software Development Costs: Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customers and revenues are generated. Amortization is computed as the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product. As of December 31, 2013 and 2012, the Company had capitalized software development costs of $710,200 and $499,089, respectively, for the development of a location-based social networking mobile application.
During the years ended December 31, 2013, and 2012, and for the period from inception (July 22, 2010) to December 31, 2013, the Company incurred research and development costs of $337,241, $0, and $337,241, respectively.
Impairment of long-lived assets: The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. Due to the uncertainty regarding the Company’s ability to monetize the fitness DVD series inherited from its former parent uKarma, management determined that the related remaining production costs, prepaid royalties, and inventory were impaired and recorded an impairment loss of $110,992 for the period from inception (July 22, 2010) to December 31, 2013. There were no impairment losses during the years ended December 31, 2013 and 2012.
Patents and trademark: Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patents have not yet been awarded.
Income Taxes: Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At December 31, 2013 and 2012, the Company has established a full reserve against all deferred tax assets.
A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
Net Loss Per Share: The Company applies FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive.
Stock Based Compensation: The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. Generally, all options granted expire ten years from the date of grant. Compensation expense in the amount of $296,100, $260,225, and $871,325 related to stock option grants were recognized for each of the years ended December 31, 2013 and 2012, and for the period from inception (July 22, 2010) to December 31, 2013, respectively.
The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees.” FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).
Emerging Growth Company
We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards.
Results of Operations
Comparison of Fiscal Years ended December 31, 2013 and December 31, 2012
Sales. We had no sales during the fiscal years 2013 and 2012. We did not sell our Xflowsion DVDs while developing our mobile app software and business strategy.
Gross Profit. We had no gross profit during each of the fiscal years ended December 31, 2013 and 2012, as we had no sales.
Selling, General and Administrative (SGA). During the year ended December 31, 2013, our SGA expenses were $2,184,216, while total SGA expenses during the year ended December 31, 2012 were $1,773,099 representing an increase of over 23%. The increase is mostly attributed to accounting, consulting, legal fees and other general expenses.
Research and development - During the year ended December 31, 2013, our research and development expenses were $337,241 due to research and development activities related to software development. There were no research and development activities expensed during corresponding period in 2012.
Net Loss. We had a net loss of $2,519,263 during the fiscal year ended December 31, 2013 compared to a net loss of $1,764,894 in the fiscal year 2012. The net loss was higher due to increased operating expenses during 2013.
LIQUIDITY
Cash Flows
Comparison of December 31, 2013 and December 31, 2012
Net cash used in operating activities was $1,883,910 for the year ended December 31, 2013 while net cash used in operating activities was $1,199,211 for the year ended December 31, 2012. The increase in cash used in operating activities is due primarily to fees related to software development and other services provided by consultants and an increase in net loss.
Net cash used in investing activities was $190,342 for the year ended December 31, 2013 while net cash used in investing activities was $422,525 for the year ended December 31, 2012. The decrease in cash used in investing activities is primarily due to additional cost incurred for software development in 2012.
Net cash provided by financing activities was $2,096,625 for the year ended December 31, 2013 while net cash provided by financing activities was $1,589,900 for the year ended December 31, 2012. The increase in cash flow from financing activities is due to proceeds from the issuance of our securities in private placement offerings.
CAPITAL RESOURCES
As of December 31, 2013, we had positive working capital of $29,411. To satisfy current working capital needs, we raised $1,944,125 through private placements of our securities during 2013. There is no guarantee that we will be able to meet current working capital needs if we do not receive additional infusions of cash through loans, stock sales, revenues, or other sources. We expect to incur substantial losses over the next two years.
As of December 31, 2013, we had cash of $172,532. We have obtained additional capital through an equity financing and intend to obtain additional capital through debt or equity financings. Subsequent to the year-end, and as part of the current private placement offering of our equity securities, so far we have raised an additional $1,226,000.
On February 14, 2014, the Securities and Exchange Commission declared our registration statement on Form S-1 effective.
We plan to engage outside contractors and consultants who are willing to be paid in stock rather than cash or a combination of stock and cash. Expenses incurred that cannot be paid in stock, such as auditor's fees, will be paid in cash. There are no assurances that we will be able to meet our capital requirements or that our capital requirements will not increase. If we are unable to raise necessary capital to meet our capital requirements, we may not be able to successfully develop and market our location-based social networking and mobile advertising service.
Our financial statements were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, we expect operating costs to continue to exceed funds generated from operations. As a result, we expect to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital.
Our management is actively seeking financing to continue the development of our location-based mobile platform and once the platform is developed, to launch it. Our ability to continue as a going concern is dependent on our ability to meet our financing arrangements and the success of our future operations. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. The report from our independent registered public accounting firm states that there is substantial doubt about our ability to continue as a going concern.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates provided below. We cannot provide certainty regarding the timing and amounts of payments.
The following table summarizes our contractual obligations as of December 31, 2013.
| | | Payments Due by Period | |
| | | Total | | | Less than 1 year | | | 1-3 Years | | | 3-5 Years | | | 5 years + | |
| Contractual Obligations: | | | | | | | | | | | | | | | |
| Legal Settlement Payable | | $ | 68,750 | | | $ | 68,750 | | | $ | ― | | | | ― | | | | ― | |
| Employment Agreements | | $ | 1,099,000 | | | $ | 495,000 | | | $ | 604,000 | | | $ | ― | | | | ― | |
| Office Lease | | $ | 74,000 | | | $ | 53,000 | | | | 21,000 | | | | ― | | | | ― | |
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Not applicable.
Our financial statements for the fiscal years ended December 31, 2013 and 2012, and for the period from inception (July 22, 2010) to December 31, 2013, begin on the following page, starting with page F-1.
OverNear, Inc.
Index to Financial Statements
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The Board of Directors and Stockholders
OverNear, Inc.
We have audited the accompanying balance sheets of OverNear, Inc. (the “Company”) as of December 31, 2013 and 2012 and the related statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2013, and for the period from inception (July 22, 2010) to December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2013, and for the period from inception (July 22, 2010) to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3 to the financial statements, the Company has incurred substantial losses from operations and the Company may not have sufficient working capital or outside financing available to meet its planned operating activities over the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Gumbiner Savett Inc.
Santa Monica, California
March 31, 2014
|
| (A DEVELOPMENT STAGE COMPANY) |
| BALANCE SHEETS |
| | | December 31, | | | December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| ASSETS | |
| Current Assets: | | | | | | |
| Cash | | $ | 172,532 | | | $ | 150,159 | |
| Other current assets | | | 206,177 | | | | 14,387 | |
| Total Current Assets | | | 378,709 | | | | 164,546 | |
| | | | | | | | | |
| Furniture and equipment, net | | | 22,564 | | | | 20,238 | |
| | | | | | | | | |
| Software development costs | | | 710,200 | | | | 499,089 | |
| | | | | | | | | |
| Other assets | | | 109,152 | | | | 53,510 | |
| | | | | | | | | |
| Total Assets | | $ | 1,220,625 | | | $ | 737,383 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current Liabilities: | | | | | | | | |
| Accounts payable | | $ | 173,963 | | | $ | 342,154 | |
| Accrued expenses | | | 106,585 | | | | 79,672 | |
| Current portion of legal settlement payable | | | 68,750 | | | | 75,000 | |
| Total Current Liabilities | | | 349,298 | | | | 496,826 | |
| | | | | | | | | |
| Legal settlement payable, net of current portion | | | - | | | | 75,000 | |
| | | | | | | | | |
| Total Liabilities | | | 349,298 | | | | 571,826 | |
| | | | | | | | | |
| Stockholders' Equity | | | | | | | | |
| Common stock, $0.001 par value; 150,000,000 shares authorized; 64,980,257 and 53,733,208 | | | | | | | | |
| shares issued and outstanding at December 31, 2013 and 2012, respectively | | | 64,980 | | | | 53,733 | |
Preferred stock, $0.001 par value; 50,000,000 shares authorized, 3,210,000 Series A convertible preferred shares issued and outstanding at December 31, 2013 and 2012, respectively | | | 3,210 | | | | 3,210 | |
| Paid-in capital | | | 7,227,834 | | | | 4,166,548 | |
| Stock subscriptions receivable | | | - | | | | (152,500 | ) |
| Accumulated deficit in the development stage | | | (6,424,697 | ) | | | (3,905,434 | ) |
| Total Stockholders' Equity | | | 871,327 | | | | 165,557 | |
| | | | | | | | | |
| Total Liabilities and Stockholders’ Equity | | $ | 1,220,625 | | | $ | 737,383 | |
The accompanying notes are an integral part of these financial statements.
|
| (A DEVELOPMENT STAGE COMPANY) |
| STATEMENTS OF OPERATIONS |
| | | Year ended December 31, | | | Period from Inception (July 22, 2010) to December 31, | |
| | | 2013 | | | 2012 | | | 2013 | |
| | | | | | | | | | |
| Sales | | $ | - | | | $ | - | | | $ | 89 | |
| | | | | | | | | | | | | |
| Cost of Sales | | | - | | | | - | | | | 17 | |
| Gross Profit | | | - | | | | - | | | | 72 | |
| | | | | | | | | | | | | |
| Selling, General and Administrative Expenses | | | 2,184,216 | | | | 1,773,099 | | | | 6,184,108 | |
| Research and Development | | | 337,241 | | | | - | | | | 337,241 | |
| Impairment of production costs, prepaid royalties and inventory | | | - | | | | - | | | | 110,992 | |
| | | | | | | | | | | | | |
| Operating Loss | | | (2,521,457 | ) | | | (1,773,099 | ) | | | (6,632,269 | ) |
| | | | | | | | | | | | | |
| Other Income (Expense): | | | | | | | | | | | | |
| Gain on Settlement and write-off of Accounts Payable | | | 4,735 | | | | - | | | | 4,735 | |
| Interest Expense | | | (1,741 | ) | | | (1,842 | ) | | | (16,505 | ) |
| Gain on Forgiveness of Debt | | | - | | | | 10,847 | | | | 248,742 | |
| Other | | | - | | | | - | | | | (27,000 | ) |
| Other Income (Expense), Net | | | 2,994 | | | | 9,005 | | | | 209,927 | |
| | | | | | | | | | | | | |
| Loss before Income Taxes | | | (2,518,463 | ) | | | (1,764,094 | ) | | | (6,422,297 | ) |
| | | | | | | | | | | | | |
| Provision for Income Taxes | | | 800 | | | | 800 | | | | 2,400 | |
| | | | | | | | | | | | | |
| Net Loss | | $ | (2,519,263 | ) | | $ | (1,764,894 | ) | | $ | (6,424,697 | ) |
| | | | | | | | | | | | | |
| Loss Per Share-Basic and Diluted | | $ | (0.04 | ) | | $ | (0.03 | ) | | $ | (0.14 | ) |
| | | | | | | | | | | | | |
| Weighted average shares used in computing earnings per share | | | 58,906,234 | | | | 51,660,735 | | | | 44,799,911 | |
The accompanying notes are an integral part of these financial statements.
(A DEVELOPMENT STAGE COMPANY)
| STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) For the Period from Inception (July 22, 2010) to December 31, 2013 |
| | | Preferred Stock | | | Common Stock | | | Paid-in | | | Stock Subscriptions | | | Accumulated Deficit in the Development | | | Total Stockholders’ Equity | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Receivable | | | Stage | | | (Deficit) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Excess of liabilities assumed over assets transferred from uKarma | | | - | | | $ | - | | | | - | | | $ | - | | | $ | (169,194 | ) | | $ | - | | | $ | - | | | $ | (169,194 | ) |
| Issuance of common stock to uKarma | | | - | | | | - | | | | 10,558,896 | | | | 10,559 | | | | | | | | - | | | | - | | | | 10,559 | |
| Additional capital contributed | | | - | | | | - | | | | - | | | | - | | | | 27,000 | | | | - | | | | - | | | | 27,000 | |
| Private placement of common stock | | | - | | | | - | | | | 10,100,000 | | | | 10,100 | | | | 784,375 | | | | - | | | | - | | | | 794,475 | |
| Fair value of warrants issued in connection with private placement | | | - | | | | - | | | | - | | | | - | | | | 176,525 | | | | - | | | | - | | | | 176,525 | |
| Fair value of warrants issued for software development | | | - | | | | - | | | | -- | | | | - | | | | 24,923 | | | | - | | | | - | | | | 24,923 | |
| Issuance of common stock in lieu of officer compensation | | | - | | | | - | | | | 4,000,000 | | | | 4,000 | | | | 96,000 | | | | - | | | | - | | | | 100,000 | |
| Issuance of common stock for professional services | | | - | | | | - | | | | 13,138,747 | | | | 13,139 | | | | 362,705 | | | | - | | | | - | | | | 375,844 | |
| Issuance of common stock in lieu of settlement of accounts payable | | | - | | | | - | | | | 1,405,332 | | | | 1,405 | | | | 51,997 | | | | - | | | | - | | | | 53,402 | |
| Issuance of common stock in lieu of officers deferred compensation | | | - | | | | - | | | | 7,416,987 | | | | 7,417 | | | | 178,008 | | | | - | | | | - | | | | 185,425 | |
| Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 315,000 | | | | - | | | | - | | | | 315,000 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | | | | | - | | | | (2,140,540 | ) | | | (2,140,540 | ) |
| Balance at December 31, 2011 | | | - | | | | - | | | | 46,619,962 | | | | 46,620 | | | | 1,847,339 | | | | - | | | | (2,140,540 | ) | | | (246,581 | ) |
| Private placement of common stock | | | - | | | | - | | | | 5,588,000 | | | | 5,588 | | | | 855,514 | | | | - | | | | - | | | | 861,102 | |
| Fair value of warrants issued in connection with private placement of common stock | | | - | | | | - | | | | - | | | | - | | | | 160,898 | | | | - | | | | - | | | | 160,898 | |
| Private placement of Series A convertible preferred stock | | | 3,210,000 | | | | 3,210 | | | | - | | | | - | | | | 654,625 | | | | - | | | | - | | | | 657,835 | |
| Fair value of warrants issued in connection with Series A convertible preferred stock | | | - | | | | - | | | | - | | | | - | | | | 135,141 | | | | - | | | | - | | | | 135,141 | |
| Fair value of warrant issued to placement agent in connection with Series A convertible preferred stock | | | - | | | | - | | | | - | | | | - | | | | 9,524 | | | | - | | | | - | | | | 9,524 | |
| Subscription receivable for issuance of Series A convertible preferred stock | | | - | | | | - | | | | - | | | | - | | | | | | | | (152,500 | ) | | | - | | | | (152,500 | ) |
| Offering cost – Series A convertible preferred stock | | | - | | | | - | | | | - | | | | - | | | | (82,100 | ) | | | - | | | | - | | | | (82,100 | ) |
| Issuance of common stock for consulting services | | | - | | | | - | | | | 1,485,246 | | | | 1,485 | | | | 313,325 | | | | - | | | | - | | | | 314,810 | |
| Fair value of warrants issued for consulting services | | | - | | | | - | | | | - | | | | - | | | | 5,825 | | | | - | | | | - | | | | 5,825 | |
| Fair value of warrants issued for software development | | | - | | | | - | | | | - | | | | - | | | | 2,272 | | | | - | | | | - | | | | 2,272 | |
| Issuance of common stock in payment of settlement of accounts payable | | | - | | | | - | | | | 40,000 | | | | 40 | | | | 3,960 | | | | - | | | | - | | | | 4,000 | |
| Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 260,225 | | | | - | | | | - | | | | 260,225 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | | | | | - | | | | (1,764,894 | ) | | | (1,764,894 | ) |
| Balance at December 31, 2012 | | | 3,210,000 | | | | 3,210 | | | | 53,733,208 | | | | 53,733 | | | | 4,166,548 | | | | (152,500 | ) | | | (3,905,434 | ) | | | 165,557 | |
| Private placement of common stock | | | - | | | | - | | | | 7,776,500 | | | | 7,777 | | | | 1,614,031 | | | | - | | | | - | | | | 1,621,808 | |
| Fair value of warrants issued in connection with private placement of common stock | | | - | | | | - | | | | - | | | | - | | | | 322,317 | | | | - | | | | - | | | | 322,317 | |
| Proceeds from subscriptions receivable Series A convertible preferred stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | 152,500 | | | | - | | | | 152,500 | |
| Issuance of common stock for consulting services | | | - | | | | - | | | | 1,933,886 | | | | 1,934 | | | | 405,209 | | | | - | | | | - | | | | 407,143 | |
| Fair value of warrants issued in connection with consulting services | | | - | | | | - | | | | - | | | | - | | | | 68,142 | | | | - | | | | - | | | | 68,142 | |
| Fair value of warrants issued in connection with software development | | | - | | | | - | | | | - | | | | - | | | | 36,379 | | | | - | | | | - | | | | 36,379 | |
| Issuance of common stock in connection with software development | | | - | | | | - | | | | 638,463 | | | | 638 | | | | 133,270 | | | | - | | | | - | | | | 133,908 | |
| Issuance of common stock in payment of settlement of accounts payable and retainer fee | | | - | | | | - | | | | 898,200 | | | | 898 | | | | 185,838 | | | | - | | | | - | | | | 186,736 | |
| Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 296,100 | | | | - | | | | - | | | | 296,100 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,519,263 | ) | | | (2,519,263 | ) |
| Balance at December 31, 2013 | | | 3,210,000 | | | $ | 3,210 | | | | 64,980,257 | | | $ | 64,980 | | | $ | 7,227,834 | | | $ | - | | | $ | (6,424,697 | ) | | $ | 871,327 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
(A DEVELOPMENT STAGE COMPANY)
| | | Year ended December 31, | | | Period from Inception (July 22, 2010) to December 31, | |
| | | 2013 | | | 2012 | | | 2013 | |
| Cash Flow from Operating Activities: | | | | | | | | | |
| Net loss | | $ | (2,519,263 | ) | | $ | (1,764,894 | ) | | $ | (6,424,697 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| Depreciation | | | 8,440 | | | | 6,274 | | | | 20,681 | |
| Amortization of production costs | | | - | | | | - | | | | 172,268 | |
| Gain on settlement of accounts payable | | | (4,735 | ) | | | - | | | | (4,735 | ) |
| Issuance of stock warrants for consulting services | | | 48,641 | | | | 5,825 | | | | 54,465 | |
| Issuance of common stock for consulting services | | | 302,347 | | | | 314,810 | | | | 816,127 | |
| Issuance of stock warrants for software development services | | | 33,241 | | | | - | | | | 33,241 | |
| Issuance of common stock for software development services | | | 74,433 | | | | - | | | | 74,433 | |
| Stock based compensation | | | 296,100 | | | | 260,225 | | | | 871,325 | |
| Impairment of production costs, prepaid royalties and inventory | | | - | | | | - | | | | 110,992 | |
| Issuance of common stock in lieu of officer compensation | | | - | | | | - | | | | 100,000 | |
| Gain on forgiveness of debt | | | - | | | | (10,847 | ) | | | (248,742 | ) |
| (Increase) Decrease in operating assets: | | | | | | | | | | | | |
| Prepaid expenses | | | (67,494 | ) | | | 37,587 | | | | (7,679 | ) |
| Other assets | | | (24,564 | ) | | | (2,107 | ) | | | (28,321 | ) |
| Increase (Decrease) in operating liabilities: | | | | | | | | | | | | |
| Legal settlement payable | | | (81,250 | ) | | | (75,000 | ) | | | 68,750 | |
| Accrued expenses | | | 26,913 | | | | (58,687 | ) | | | 393,718 | |
| Accounts payable | | | 23,281 | | | | 87,603 | | | | 213,649 | |
| Net Cash used in Operating Activities | | | (1,883,910 | ) | | | (1,199,211 | ) | | | (3,784,525 | ) |
| | | | | | | | | | | | | |
| Cash Flow from Investing Activities: | | | | | | | | | | | | |
| Patent and trademark costs | | | (31,078 | ) | | | (44,257 | ) | | | (76,635 | ) |
| Purchase of equipment | | | (10,766 | ) | | | (14,519 | ) | | | (28,115 | ) |
| Software development in progress | | | (148,498 | ) | | | (363,749 | ) | | | (620,392 | ) |
| Cash acquired from uKarma | | | - | | | | - | | | | 6,476 | |
| Net Cash Used in Investing Activities | | | (190,342 | ) | | | (422,525 | ) | | | (718,666 | ) |
| | | | | | | | | | | | | |
| Cash Flow from Financing Activities: | | | | | | | | | | | | |
| Repayments of notes and other debt | | | - | | | | - | | | | (8,802 | ) |
| Additional capital contributed | | | - | | | | - | | | | 27,000 | |
| Proceeds from private placement of common stock | | | 1,944,125 | | | | 1,022,000 | | | | 3,937,125 | |
| Proceeds from private placement of Series A convertible preferred stock | | | 152,500 | | | | 567,900 | | | | 720,400 | |
| Net Cash Provided by Financing Activities | | | 2,096,625 | | | | 1,589,900 | | | | 4,675,723 | |
| | | | | | | | | | | | | |
| Net (Decrease) Increase in Cash | | | 22,373 | | | | (31,836 | ) | | | 172,532 | |
| | | | | | | | | | | | | |
| Cash Balance at Beginning of Period | | | 150,159 | | | | 181,995 | | | | - | |
| Cash Balance at End of Period | | $ | 172,532 | | | $ | 150,159 | | | $ | 172,532 | |
| Supplemental Disclosures: | | | | | | | | | | | | |
| Interest Paid | | $ | 1,742 | | | $ | 1,842 | | | $ | 17,387 | |
| Taxes Paid | | $ | 2,400 | | | $ | 1,600 | | | $ | 4,800 | |
The accompanying notes are an integral part of these financial statements
Non cash activities during the year ended December 31, 2013 are as follows:
| · | The Company issued 1,933,886 shares of its common stock valued at $407,143 for consulting services. Of this amount $104,796 relates to consulting services to be performed from January 2014 through August 2015. |
| · | The Company issued warrants valued at $68,142 for consulting services. Of this amount $19,501 relates to consulting services to be performed from January 2014 through August 2015. |
| · | The Company issued 898,200 shares of its common stock valued at $186,736 in payment of settlement of accounts payable and retainer fee. |
| · | The Company issued 282,583 shares of its common stock valued at $59,475 in connection with software development. |
| | |
| · | The Company issued warrants valued at $3,138 in connection with software development. |
Non cash activities for the year ended December 31, 2012 are as follows:
| · | The Company issued 40,000 shares of its common stock valued at $4,000 in payment of settlement of accounts payable. |
| · | The Company issued warrants to purchase 125,000 shares of its common stock valued at $2,272 in connection with software development. |
Non cash activities from inception (July 22, 2010) to December 31, 2013 exclusive of the above, are as follows:
On August 9, 2010, OverNear, Inc. acquired all of the assets and assumed the liabilities of uKarma Corporation, the predecessor entity. The acquired assets and liabilities, and purchase consideration paid were as follows:
Assets and liabilities acquired:
| Cash | | $ | 6,476 | |
| Prepayment and other assets | | | 92,320 | |
| Inventory | | | 18,108 | |
| Property and equipment, net | | | 15,131 | |
| Production costs, net | | | 207,854 | |
| Accounts payable and accrued expenses | | | (489,963 | ) |
| Notes payable | | | (8,561 | ) |
| | | $ | (158,635 | ) |
Purchase consideration:
| Common stock issued by OverNear, Inc. | | $ | 10,559 | |
| Excess of liabilities over assets acquired charged to paid-in capital | | | (169,194 | ) |
| | | $ | (158,635 | ) |
| · | The Company issued 5,500,000 shares of its common stock to its CEO in lieu of accrued compensation in the amount of $137,500. |
| · | The Company issued 1,405,332 shares of its common stock valued at $53,402 in payment of settlement of accounts payable. |
| · | The Company issued 7,416,987 shares to its officers valued at $185,425 in payment of settlement of deferred compensation. |
| · | The Company issued 276,000 warrants valued at $24,923 in connection with software development. |
| · | The Company issued 1,050,000 shares of its common stock valued at $52,500 as prepayment for consulting services. |
The accompanying notes are an integral part of these financial statements.
(A DEVELOPMENT STAGE COMPANY)
| NOTES TO FINANCIAL STATEMENTS |
NOTE 1 – NATURE OF OPERATIONS
OverNear, Inc. (“the Company”) was incorporated on July 22, 2010 in the State of Nevada as Awesome Living, Inc. On June 20, 2011, the name of the corporation was changed to OverNear, Inc.
The Company’s headquarters are located in Santa Monica, California. The Company is in the process of developing a location-based social networking and mobile advertising platform, a beta version of which was released for use by the general public in January 2013.
On August 9, 2010, the Company entered into a Contribution Agreement (“the Agreement”) with uKarma Corporation (“uKarma”) to acquire all of the assets and assume liabilities of uKarma. Pursuant to the terms of the Agreement, the Company issued 10,558,896 shares of its common stock at par value to uKarma as consideration for the acquired assets and assumed certain liabilities. Upon transfer of the assets and liabilities, the Company continued uKarma’s operations.
The Company’s predecessor business developed and marketed a proprietary branded fitness DVD series that targets individuals who seek to enrich their physical, spiritual, and mental wellness. Through infomercials and other marketing initiatives, the predecessor launched its products. The Company plans to monetize the fitness DVD series assets by either selling or licensing the intellectual property and associated products. However, the Company is not certain about achieving success in this line of business and has written off all assets related to such.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Enterprise. The Company is a development stage company as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915, “Development Stage Entities”. The Company is devoting substantially all of its present efforts to design and develop a location-based social networking and mobile advertising platform and its planned principal operations have not yet commenced. The Company has not generated any significant revenues from operations and has no assurance of any future revenues. All losses accumulated since July 22, 2010, have been considered as part of the Company’s development stage activities.
Use of Estimates: The preparation of the accompanying financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results could differ from these estimates.
Revenue Recognition: The Company generally recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. There was no revenue during each of the years ended December 31, 2013 and 2012.
Furniture and Equipment: Furniture and equipment are stated at cost. Depreciation is computed on the straight-line method based on the estimated useful lives of the assets, generally 5 to 7 years. Maintenance and repairs are charged to expense as incurred; major renewals and betterments that extend the useful lives of property and equipment are capitalized. When property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Software Development Costs: Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customers and revenues are generated. Amortization is computed as the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product. As of December 31, 2013 and 2012, the Company had capitalized software development costs of $710,200 and $499,089, respectively, for the development of a location-based social networking mobile application. During the years ended December 31, 2013 and 2012, and for the period from inception (July 22, 2010) to December 31, 2013, the Company incurred research and development costs of $337,241, $0, and $337,241, respectively.
Impairment of long-lived assets: The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. Due to the uncertainty regarding the Company’s ability to monetize the fitness DVD series inherited from its former parent uKarma, management determined that the related remaining production costs, prepaid royalties, and inventory were impaired and recorded an impairment loss of $110,992 for the period from inception (July 22, 2010) to December 31, 2013. There were no impairment losses during the years ended December 31, 2013 and 2012.
Patents and trademark: Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patents have not yet been awarded.
Fair value of financial instruments: All financial instruments are carried at amounts that approximate estimated fair value.
Income Taxes: The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Taxes” (“FASB ASC 740”). Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At December 31, 2013 and 2012, the Company has established a full reserve against all deferred tax assets.
FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
Net Loss Per Share: The Company applies FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share are computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock Based Compensation: The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. Generally, all options granted expire ten years from the date of grant. Compensation expense in the amount of $296,100, $260,225 and $871,325, related to stock option grants were recognized for each of the years ended December 31, 2013 and 2012, and for the period from inception (July 22, 2010) to December 31, 2013, respectively.
The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees.” FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).
Concentration of Credit Risk: The Company maintains its cash with a major financial institution located in the United States of America. Balances are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company maintains balances in excess of the federally insured limits.
New Accounting Pronouncements: Management does not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on the financial statements.
NOTE 3 – GOING CONCERN
The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital.
Management of the Company is actively seeking financing to continue the development of its location-based mobile platform and market its product and service. The ability of the Company to continue as a going concern is dependent on its ability to meet its financing arrangements and the success of its future operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The report from the Company’s independent registered public accounting firm states that there is substantial doubt about the Company’s ability to continue as a going concern.
NOTE 4 – OTHER CURRENT ASSETS
Other current assets consisted of the following:
| | | December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Consulting and professional fees | | $ | 124,296 | | | $ | 14,387 | |
| Prepaid offering costs | | | 77,676 | | | | - | |
| Other | | | 4,205 | | | | - | |
| Total other current assets | | $ | 206,177 | | | $ | 14,387 | |
NOTE 5 – FURNITURE AND EQUIPMENT
Furniture and Equipment consisted of the following:
| | | December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Furniture and Equipment | | $ | 43,245 | | | $ | 32,479 | |
| Accumulated Depreciation | | | (20,681 | ) | | | (12,241 | ) |
| Furniture and Equipment, net | | $ | 22,564 | | | $ | 20,238 | |
NOTE 6 – ACCRUED EXPENSES
Accrued expenses consisted of the following:
| | | December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Accrued Salaries and Related Expenses | | $ | 25,710 | | | $ | 47,519 | |
| Accrued Income Tax | | | - | | | | 1,600 | |
| Accrued Professional Fees | | | 33,875 | | | | 30,553 | |
| Other | | | 47,000 | | | | -- | |
| Total Accrued Liabilities | | $ | 106,585 | | | $ | 79,672 | |
NOTE 7 – SETTLEMENT PAYABLE
In November 2011, the Company settled a legal dispute for the total amount of $275,000, of which $50,000 was paid on December 15, 2011 with the remainder payable in monthly installments of $6,250 through December 7, 2014. At December 31, 2013, the settlement payable which was due currently, amounted to $68,750.
NOTE 8 – PROVISION FOR INCOME TAXES
Income taxes (benefit) consisted of the following:
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| Current: | | | | | | |
| Federal | | $ | - | | | $ | - | |
| State | | | 800 | | | | 800 | |
| Deferred: | | | | | | | | |
| Federal | | | (706,000 | ) | | | (477,000 | ) |
| State | | | (201,000 | ) | | | (136,000 | ) |
| | | | | | | | | |
| | | | (907,000 | ) | | | (613,000 | ) |
| Valuation allowance | | | 907,000 | | | | 613,000 | |
| | | | | | | | | |
| | | | - | | | | - | |
| | | $ | 800 | | | $ | 800 | |
Income taxes are disproportionate to income due to net operating loss carryforwards, which are fully reserved. As of the balance sheet date, the Company has federal and state net operating loss carryforwards of approximately $5.9 million each, which will begin to expire in 2031 and 2033, respectively. The tax benefit of such net operating losses is recorded as an asset to the extent management assesses the utilization of such net operating losses to be more likely than not. Based upon the Company’s short term historical operating performance, the Company has established a valuation allowance for any income tax benefit recorded for its net operating loss carryforwards.
The following is a summary of the significant components of the Company’s net deferred income tax assets and liabilities as of December 31, 2013 and 2012:
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| Current deferred income tax assets: | | | | | | |
| Accrued officers’ salaries | | $ | - | | | $ | 8,000 | |
| Other | | | 3,000 | | | | 11,000 | |
| Less valuation allowance | | | (3,000 | ) | | | (19,000 | ) |
| | | | | | | | | |
| Net current deferred tax assets | | $ | - | | | $ | - | |
| | | | | | | | | |
| Non-current deferred income tax assets and liabilities: | | | | | | | | |
| Net operating loss carryforwards | | $ | 2,370,000 | | | $ | 1,398,000 | |
| Stock based compensation | | | 54,000 | | | | 20,000 | |
| Other | | | 9,000 | | | | 7,000 | |
| Accumulated depreciation of furniture and equipment | | | (286,000 | ) | | | (201,000 | ) |
| Less valuation allowance | | | (2,147,000 | ) | | | (1,224,000 | ) |
| | | | | | | | | |
| Net non-current deferred tax assets | | $ | - | | | $ | - | |
| | | | | | | | | |
NOTE 8 – PROVISION FOR INCOME TAXES (continued)
The Company has applied the provision of FASB ASC 740, “Income Tax” which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not of being sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. At December 31, 2013 and 2012, the Company had no unrecognized tax benefits.
The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of December 31, 2013 and 2012, the Company has no accrued interest and penalties related to uncertain tax positions.
The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and California state jurisdiction. The Company is no longer subject to U.S. Federal, state and local income tax examinations by tax authorities for years before 2010. The Company currently is not under examination by any tax authority.
The reconciliation between the statutory income tax rate and the effective tax rate is as follows:
| Statutory federal income tax rate | | | (34.0 | )% |
| States taxes | | | (5.8 | ) |
| Stock based compensation | | | 3.3 | |
| Other | | | 0.5 | |
| Valuation reserve for income taxes | | | 36.0 | |
| | | | - | % |
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
During the year ended December 31, 2013, stockholders’ equity consisted of the following transactions: (1) the issuance to investors in a private placement, in consideration of $1,944,125, of an aggregate 7,776,500 shares of the Company’s common stock in conjunction with the sale of units consisting of common stock and warrants which had a value of $0.25 per unit, (2) the issuance of warrants to purchase 7,776,500 shares of the Company’s common stock in connection with the private placement, the fair value of which was determined to be $322,317, (3) the issuance of an aggregate 1,933,886 shares of the Company’s common stock with a value of $407,143 for consulting services, (4) the issuance of 898,200 shares of the Company’s common stock with a value of $186,736 in payment of settlement of accounts payable, (5) the 806,250 vested warrants with a value of $68,142 for consulting services, (6) the issuance of an aggregate 638,463 shares of the Company’s common stock with a value of $133,908 for software development, and (7) 412,880 vested warrants with a value of $36,379 for software development.
During the year ended December 31, 2012, stockholders’ equity consisted of the following transactions: (1) the issuance to an investor in a private placement, in consideration of $250,000, of an aggregate 2,500,000 shares of the Company’s common stock in conjunction with the sale of units consisting of common stock and warrants which had a value of $0.10 per unit, (2) the issuance to investors in a private placement, in consideration of $772,000, of an aggregate 3,088,000 shares of the Company’s common stock in conjunction with the sale of units consisting of common stock and warrants which had a value of $0.25 per unit, (3) the issuance of warrants to purchase 5,588,000 shares of the Company’s common stock in connection with the private placement, the fair value of which was determined to be $160,898, (4) the issuance of an aggregate 1,485,246 shares of the Company’s common stock with a value of $314,810 for consulting services, (5) the issuance of 40,000 shares of the Company’s common stock with a value of $4,000 in payment of settlement of accounts payable, (6) the issuance of 700,000 warrants with a value of $5,825 for consulting services for the year ended December 31, 2012, (7) the issuance of 125,000 warrants with a value of $2,272 for software development during the year ended December 31, 2012.
The fair value of warrants issued in connection with services rendered by various professionals was determined based upon the evaluation of fair value made by the Company’s management, which considered the values associated with securities offering during the period.
Preferred Stock
The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001 per share. The preferred stock may be issued in one or more series and the first series consisted of 18,000,000 shares and is designated as series A convertible preferred stock (“Series A Preferred Stock”). There were no other designated series of preferred stock as of December 31, 2013 and 2012.
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
The holders of Series A Preferred Stock are entitled to receive, if, when and as declared by the Board, dividends at an annual rate of 8% of the original purchase price of Series A Preferred Stock. No dividends were declared for the years ended December 31, 2013 and 2012.
In the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive the amount of $0.50 per share.
Each share of Series A Preferred Stock is convertible at the option of the holder at any time after the date of issuance into equal number of shares of common stock.
Each share of Series A Preferred Stock issued and outstanding is entitled to the number of votes equal to the number of shares of common stock into which such share of Series A Preferred Stock could be converted.
During the year ended December 31, 2012, the Company issued 26.75 units of Series A Preferred Stock at $30,000 per unit. Each unit consists of (1) 120,000 shares of Series A Preferred Stock, and (2) warrants to purchase 120,000 shares of Company’s common stock at an exercise price of $0.50 with immediate vesting and 5 years to exercise. Total consideration from issuance of units amounted to $802,500, of which $152,500 was received in January 2013. The Company issued warrants to purchase 3,210,000 shares of the Company’s common stock in conjunction with the sale of units and the fair value of the warrants was determined to be $135,141.
In connection with the sale of units, the Company issued warrants to its placement agent to purchase 156,000 shares of Company’s common stock. The fair value of warrants was determined to be $9,524.
In connection with the sale of units, the Company incurred offering cost of $82,100.
In connection with the Company’s December 31, 2012 sale of $802,500 in units consisting of an aggregate of 3,210,000 shares of the Company’s Series A Preferred Stock and warrants to purchase an aggregate of 3,210,000 shares of the Company’s common stock, the Company was required to file a registration statement registering the shares of common stock. Such Series A Preferred Stock were convertible into 3,210,000 shares of common stock. Such registration statement was required to be filed within 60 days of the final closing date (the “Filing Date”) and to be declared effective by 150 days from the Filing Date. The Company did not meet the required Filing Date and the required effectiveness date has already passed. Pursuant to the registration rights agreement, if the registration statement was not filed on a timely basis or was not declared effective by the SEC for any reason on a timely basis, the Company was required to pay each investor monthly liquidated damages equal to 1.0% of the investment amount subscribed for by such investor (capped at 12%) until the registration statement is filed or declared effective, as the case may be. The Company’s registration statement was declared effective by the SEC on February 14, 2014. At December 31, 2013, the Company accrued $47,000 of estimated liquidated damages that it will owe to the holders of the outstanding Series A Preferred Stock.
Preferred Stock Conversion to Common Stock
In August and October 2013, the Company obtained the consent of approximately 69% of its preferred shareholders to adopt, approve and ratify the Amended and Restated Certificate of Designations of the Company’s Series A Convertible Preferred Stock. The amendment, which was filed with the state of Nevada on October 4, 2013, provides that the Company shall have the right to convert the Series A Convertible Preferred Stock into shares of the Company’s common stock in its sole discretion at any time, at which time, such Series A Convertible Preferred Stock shall automatically and without any required action by any holder, be converted into 103% of fully paid, non-assessable shares of common stock. As of the date when these financial statements were available to be issued, no preferred shares had been converted to common stock.
NOTE 10 – NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share:
| | | December 31, | | | For the Period from Inception (July 22, 2010) to December 31, | |
| | | 2013 | | | 2012 | | | 2013 | |
| Numerator: | | | | | | | | | | | | |
| Net Loss | | $ | (2,519,263 | ) | | $ | (1,764,894 | ) | | $ | (6,424,697 | ) |
| Denominator: | | | | | | | | | | | | |
| Weighted Average of Common Shares | | | 58,906,234 | | | | 51,660,735 | | | | 44,799,911 | |
| | | | | | | | | | | | | |
| Basic and Diluted Net Loss per Share | | $ | (0.04 | ) | | $ | (0.03 | ) | | $ | (0.14 | ) |
There were no dilutive securities as of December 31, 2013 and 2012.
There were 45,966,500, 36,705,000 and 45,966,500 warrants and stock options that were excluded from the calculation of diluted net loss per share for the years ended December 31, 2013 and 2012, and for the period from inception (July 22, 2010) to December 31, 2013, respectively, because they were anti-dilutive.
NOTE 11 – 2010 STOCK OPTION PLAN
During 2010, the Board of Directors approved and adopted the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide for the issuance of non-qualified and/or incentive stock options to employees, officers, directors and consultants and other service providers. The Plan was subsequently amended on various dates. Generally, all options granted expire five to ten years from the date of grant. It is the policy of the Company to issue new shares for stock options exercised, rather than issue treasury shares. Options generally vest over ten years. Effective July 1, 2012, the total number of shares of common stock reserved for issuance was reduced to 15,000,000 shares, subject to annual increases of up to an amount equal to 15% of the outstanding fully-diluted shares of common stock of the Company and any such increase cannot be made until the fully-diluted shares of common stock outstanding exceeds 100,000,000 shares.
On November 29, 2012, the Company entered into a consulting agreement and in consideration of the consulting services, the Company agreed to grant the consultant a non-qualified option to purchase 2,100,000 shares of the Company’s common stock at the exercise price of $0.10 per share. The option shall become exercisable at the rate of 300,000 shares upon execution of the agreement and 150,000 shares every three months, commencing on the date of the agreement. The options were valued at $301,350 using the Black-Scholes option pricing model. Amount of $86,100, $50,225 and $136,325, respectively, relating to these options was expensed during the years ended December 31, 2013, 2012, and for the period from inception (July 22, 2010) to December 31, 2013.
The Company did not grant any stock options during the year ended December 31, 2013.
The assumptions used in the Black-Scholes model are as follows:
| | | For the year ended December 31, 2012 | |
| Risk-free interest rate | | | 0.42 | % |
| Expected dividend yield | | | 0 | % |
| Expected lives | | 3.5 years | |
| Expected volatility | | | 70 | % |
A summary of the Company’s stock options activity and related information is as follows:
| | | For the year ended 2013 | | | For the year ended 2012 | |
| | | Number of | | | Average | | | Number of | | | Average | |
| | | Shares | | | Price | | | Shares | | | Price | |
| Outstanding at the beginning of year | | | 17,100,000 | | | $ | 0.034 | | | | 15,000,000 | | | $ | 0.025 | |
| Granted | | | - | | | | - | | | | 2,100,000 | | | | 0.1 | |
| Exercised/Expired/Cancelled | | | - | | | | - | | | | - | | | | - | |
| Outstanding at the end of year | | | 17,100,000 | | | $ | 0.034 | | | | 17,100,000 | | | $ | 0.034 | |
| | | | | | | | | | | | | | | | | |
| Exercisable at the end of year | | | 11,400,000 | | | $ | 0.031 | | | | 7,800,000 | | | $ | 0.028 | |
NOTE 11 – 2010 STOCK OPTION PLAN (Continued)
The following table sets forth additional information about stock options outstanding at December 31, 2013:
| | | | | | Weighted | | | | | | | |
| | | | | | Average | | | Weighted | | | | |
| Range of | | | | | Remaining | | | Average | | | | |
| Exercise | | Options | | | Contractual | | | Exercise | | | Options | |
| Prices | | Outstanding | | | Life | | | Price | | | Exercisable | |
| $ 0.025 - 0.1 | | | 17,100,000 | | | | 6.33 | | | $ | 0.034 | | | | 11,400,000 | |
As of December 31, 2013, there was $480,025 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.55 years.
The estimated aggregate pretax intrinsic value (the difference between the Company’s estimated stock price on the last day of the period ended December 31, 2013 and the exercise price, multiplied by the number of in-the-money options) is approximately $2,032,000. This amount changes based on the fair market value of the Company’s common stock.
NOTE 12 – STOCK WARRANTS
During the year ended December 31, 2013, the Company issued stock purchase warrants to investors in private placements for the right to purchase 7,776,500 shares of the Company’s common stock at $0.50 per share. The warrants vest immediately and have a term of five years from the date the warrants were issued. The warrants were valued at $322,317 using the Black-Scholes option pricing model.
On March 11, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 350,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests as follows: (a) 50,000 shares on July 31, 2013, (b) 50,000 shares on October 31, 2013, and (c) 25,000 shares at the end of every three months starting on January 31, 2014. The warrants were valued at $26,880 using the Black-Scholes option pricing model.
On April 1, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 800,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests as follows: (a) 100,000 shares on July 31, 2013, (b) 100,000 shares on October 31, 2013, and (c) 60,000 shares at the end of every three months starting on January 31, 2014. The warrants were valued at $75,040 using the Black-Scholes option pricing model.
On April 1, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 125,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests 12,500 shares at the end of every three months with the first tranche vesting on January 31, 2014. The warrants were valued at $11,725 using the Black-Scholes option pricing model.
On July 1, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 60,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests as follows: (a) 10,000 shares on December 31, 2013, and (b) 5,000 shares at the end of every three months starting on April 1, 2014. The warrants were valued at $5,640 using the Black-Scholes option pricing model.
On August 28, 2013, the Company entered into a Consulting Agreement pursuant to which a warrant to purchase 300,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests immediately. The warrants were valued at $23,400 using the Black-Scholes option pricing model.
NOTE 12 – 2010 STOCK WARRANTS (continued)
On August 13, 2013, the Company entered into a Consulting Agreement pursuant to which a warrant to purchase 25,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests 6,250 shares at the end of every three months starting December 1, 2013. The warrants were valued at $2,160 using the Black-Scholes option pricing model.
During the year ended December 31, 2012, the Company issued stock purchase warrants to investors in private placements for the right to purchase 2,500,000, 3,210,000 and 3,088,000 shares of the Company’s common stock at $0.25, $0.50 and $0.75 per share, respectively. The warrants vest immediately and have a term of five years from the date the warrants were issued. The warrants were valued at $46,000, $135,141 and $114,898, respectively using the Black-Scholes option pricing model.
On March 20, 2012, the Company entered into a consulting agreement pursuant to which a warrant to purchase 200,000 shares of the Company’s common stock at $0.25 per share were issued. The warrant has a cashless exercise feature and vest as follows: (a) 25,000 shares after six months after the date of the agreement, (b) 100,000 shares after twelve months after the date of the agreement, and (c) 75,000 shares eighteen months after the date of the agreement. The warrants were valued at $18,840 using the Black-Scholes option pricing model.
On November 1, 2012, the Company entered into a consulting agreement pursuant to which a warrant to purchase 500,000 shares of the Company’s common stock at $0.25 per share were issued. The warrant has a cashless exercise feature and vests as follows: (a) 50,000 shares three months after the date of the agreement, (b) 50,000 shares six months after the date of the agreement, (c) 100,000 shares nine months after the date of the agreement, and (d) 300,000 shares twelve months after the date of the agreement. The warrants were valued at $44,200 using the Black-Scholes option pricing model.
On August 6, 2012, the Company entered into a placement agency agreement and agreed to grant warrants to the placement agent at each closing of the offering. During the year ended December 31, 2012, the Company granted stock purchase warrants to the placement agency for the right to purchase 156,000 shares of the Company’s common stock at exercise prices ranging from $0.25 to $0.50. The warrants vest immediately and have a term of five years from the date the warrants were issued. The warrants were valued at $9,524 using the Black-Scholes option pricing model.
On October 15, 2012, the Company entered into a software development agreement pursuant to which a warrant to purchase 125,000 shares of Company’s common stock at $0.30 issued. The warrant has a cashless exercise feature and vests as follows: (a) 70,000 shares six months after the date of the agreement, and (b) 55,000 shares twelve months after the date of the agreement. The warrants were valued at $9,738 using the Black-Scholes option pricing model.
The assumptions used in the Black-Scholes option pricing model are as follows:
| | | For the year ended | | | For the year ended | |
| | | December 31, 2013 | | | December 31, 2012 | |
| Risk-free interest rate | | | 0.29 - 0.84 | % | | | 0.27 - 0.73 | % |
| Expected dividend yield | | | 0 | % | | | 0 | % |
| Expected lives | | 2.5 - 3.5 years | | | | 2.5 – 3.35 years | |
| Expected volatility | | | 70 | % | | | 70 | % |
Warrants to purchase 28,866,500 shares of the Company’s common stock with exercise prices ranging from $0.01 to $0.75 were outstanding as of December 31, 2013.
A summary of the Company’s warrant activity and related information is as follows:
| | | For the year ended 2013 | | | For the year ended 2012 | |
| | | Number of | | | Average | | | Number of | | | Average | |
| | | Shares | | | Price | | | Shares | | | Price | |
| Outstanding at the beginning of year | | | 19,605,000 | | | $ | 0.36 | | | | 9,826,000 | | | $ | 0.24 | |
| Granted | | | 9,436,500 | | | $ | 0.46 | | | | 9,779,000 | | | $ | 0.48 | |
| Forfeited/Expired | | | (175,000 | ) | | $ | 0.25 | | | | - | | | | | |
| Outstanding at the end year | | | 28,866,500 | | | $ | 0.39 | | | | 19,605,000 | | | $ | 0.36 | |
NOTE 13 – EMPLOYMENT AGREEMENTS
On August 3, 2010, the Company entered into a 5-year (“Term”) agreement with Bill Glaser for his services as Chief Executive Officer. The agreement was amended on March 15, 2011 to change his title from Chief Executive Officer to President and extended the term to March 15, 2016. Per the amendment to the agreement dated August 8, 2011, Mr. Glaser is compensated with an annual salary of $180,000, which was increased to $190,000 in 2013. Mr. Glaser’s annual salary will increase to $250,000 in the event that either (i) OverNear raises an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) OverNear recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) OverNear raises an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) OverNear recognizes $10,000,000 in cumulative gross revenues. Mr. Glaser will receive a bonus of 5% of OverNear’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). On August 19, 2013, the agreement was amended to eliminate this provision in the agreement. His agreement also provides for options to purchase 5,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) at an exercise price of $0.025 per share, of which 2,500,000 shares became exercisable on January 1, 2013 and the remainder of which will become exercisable on the following schedule: 500,000 shares at the beginning of each subsequent six (6) month period. The options expire 10 years after grant.
In the event of a change of control of OverNear prior to the one (1) month anniversary of Mr. Glaser’s termination, Mr. Glaser will be due the greater of (i) the remainder of his annual salary during the Term or (ii) $250,000. All unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to OverNear on a per share basis less the exercise price of the stock option, the value of which is multiplied to the number of options held by Mr. Glaser. In the event of Mr. Glaser’s termination without cause by OverNear, Mr. Glaser will be paid the lesser of (i) the remainder of his annual salary during the Term or (ii) one (1) year’s salary, and all stock options held by Mr. Glaser under the Plan will immediately vest in full and remain outstanding and exercisable until ten (10) years from the grant date.
On September 13, 2010, the Company entered into a 5-year (“Term”) agreement with Fred E. Tannous for his services as Chief Financial Officer. The agreement was amended on March 15, 2011 to add the additional title of Chief Executive Officer and extended the term to March 15, 2016. Per the amendment to the agreement dated August 8, 2011, Mr. Tannous is compensated with an annual salary of $180,000, which was increased to $190,000 in 2013. Mr. Tannous’ annual salary will increase to $250,000 in the event that either (i) OverNear raises an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) OverNear recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) OverNear raises an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) OverNear recognizes $10,000,000 in cumulative gross revenues.
NOTE 13 – EMPLOYMENT AGREEMENTS (continued)
Mr. Fred Tannous was issued shares of OverNear’s common stock valued at $50,000, as a signing bonus; and Mr. Fred Tannous will also receive a bonus of 5% of OverNear’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). On August 19, 2013, the agreement was amended to eliminate this provision in the agreement. His agreement also provides for options to purchase 10,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) at an exercise price of $0.025 per share, of which 5,000,000 shares became exercisable on January 1, 2013 and the remainder of which will become exercisable on the following schedule: 1,000,000 shares at the beginning of each subsequent six (6) month period. The options expire 10 years after grant. For accepting the CEO position, Mr. Tannous received 4,000,000 restricted shares of common stock in March 2011, the fair value of the shares was determined to be $100,000.
In the event of a change of control of OverNear prior to the one (1) month anniversary of Mr. Tannous’ termination, Mr. Tannous will be due the greater of (i) the remainder of his annual salary during the Term or (ii) $250,000. All unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to OverNear on a per share basis less the exercise price of the stock option, the value of which is multiplied to the number of options held by Mr. Tannous.
In the event of Mr. Tannous’ termination without cause by OverNear, Mr. Tannous will be paid the lesser of (i) the remainder of his annual salary during the Term or (ii) one (1) year’s salary, and all stock options held by Mr. Tannous under the Plan will immediately vest in full and remain outstanding and exercisable until ten (10) years from the grant date.
The following table summarizes the Company's minimum obligations in the event of no early termination under employment agreements as of December 31:
| 2014 | | $ | 495,000 | |
| 2015 | | | 500,000 | |
| 2016 | | | 104,000 | |
| | | $ | 1,099,000 | |
NOTE 14 – LEASE COMMITMENTS
The Company leases its office facility in Santa Monica, California pursuant to a lease agreement expiring May 2015. Under the terms of the lease agreement the Company is also required to pay additional amount for operating expenses.
The following table summarizes the Company's future minimum commitment under lease agreement as of December 31, 2013:
| For the year ended December 31, | | Amount | |
| 2014 | | $ | 53,000 | |
| 2015 | | | 21,000 | |
| Total | | $ | 74,000 | |
NOTE 15 – VENDOR SETTLEMENTS AND GAIN ON FORGIVENESS OF DEBT
The Company has entered into arrangements with various professional service providers for amounts less than the liability recorded in accounts payable. The Company’s management also forgave their deferred compensation in 2011. As a result of these transactions, the Company recorded gain on settlement and forgiveness of debt of $4,735, $10,847, and $248,742 for the years ended December 31, 2013 and 2012, and the period from inception (July 22, 2010) to December 31, 2013, respectively.
NOTE 16 – SUBSEQUENT EVENTS
During the first quarter of 2014, the Company executed the following common stock transactions:
| ● | the issuance of an aggregate 4,904,000 shares to investors in a private placement. Total consideration from issuance of common stock and stock warrants to purchase 4,904,000 share of common stock at an exercise price of $0.50 per share amounted to $1,226,000. The warrants vest immediately and are exercisable in five years. |
| ● | As of January 2014, the Company raised an aggregate of $5 million in equity financings. As such, annual salary of the two officers of the Company was increased to $250,000 pursuant to their respective employment agreements (see Note 13). |
| ● | On February 14, 2014, the Securities and Exchange Commission issued a notice of effectiveness of the S-1 filed by the Company to sell 10,000,000 shares of common stock at a public offering price of $0.50 per share. |
| ● | On March 26, 2014, the Company filed a Certificate of Designation for Series B Preferred Shares and issued 1,000,000 shares each to Fred E. Tannous and Bill Glaser. Each holder of outstanding shares of Series B Preferred Stock shall be entitled to one hundred (100) votes for each share of Series B Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting to stockholders of the Company. Each share is convertible into 5 shares of Common stock at a conversion price equal to $0.25 per share and has a cashless conversion feature. |
There are no reportable disagreements with our independent auditors, Gumbiner Savett Inc.
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our CEO and CFO concluded that, as of December 31, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level to ensure that the information required to be disclosed by the Company in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, due to the material weaknesses described below.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our management identified the following material weaknesses in our disclosure controls and procedures:
| 1. | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. |
| 2. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. To the extent possible, however, separate individuals should initiate transactions, have custody of assets, and record transactions. |
| 3. | We do not have adequate review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically feasible. Management evaluated the impact of the significant number of adjustments as a result of our review and concluded that the resulting control deficiency represented a material weakness. |
To address these material weaknesses, management performed additional analyses and other procedures during the year ended December 31, 2013 to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected in a timely manner. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
Our management assessed the effectiveness of our internal control over financial reporting based on criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that evaluation, our management concluded that as of December 31, 2013, our internal control over financial reporting was not effective due to the material weaknesses described above under “Disclosure Controls and Procedures.”
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) or Rule15d-15(d) promulgated under the Exchange Act that occurred during the fourth quarter of the year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In the first quarter of 2014, the Company issued 2,000,000 units of Series B Preferred Stock to our two sole officers and directors, Fred E. Tannous and Bill Glaser. Each holder of outstanding shares of Series B Preferred Stock shall be entitled to one hundred (100) votes for each share of Series B Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting to stockholders of the Company. Each share is convertible into five shares of Common stock at a conversion price equal to $0.25 per share and has a cashless conversion feature.
PART III
Our Management
Set forth below is a summary of our executive officers’ and directors’ business experience for the past 5 years. The experience and background of each of the directors, as summarized below, were significant factors in their previously being nominated as directors of the Company.
| Name | | Age | | Position | | Since |
| Fred E. Tannous | | 47 | | Co-Chairman of the Board, Chief Executive Officer, Chief Financial Officer | | September 13, 2010 |
| Bill Glaser | | 47 | | Co-Chairman of the Board, President | | July 22, 2010 |
Fred E. Tannous. Mr. Tannous is responsible for overseeing all aspects of our vision, strategy and financial operations, including financings and new business development. Mr. Tannous has over 20 years of experience in finance, management, and new business development. Since 2006, he has been active as founder, investor, and visionary behind several start-ups. Prior to his positions with the Company, Mr. Tannous was a director of uKarma from June 2006 until August 2010. From December 2000 through April 2006, Mr. Tannous was Chief Executive Officer of Health Sciences Group, Inc., where, as co-founder and CEO, he was involved in all aspects of its operations, starting with a self-underwritten public offering to guiding the overall strategy and marketing programs, launching new products, and effecting several key acquisitions and business development initiatives, which quickly increased shareholder value, reaching a market capitalization of approximately $100 million. Prior to that, Mr. Tannous spent more than 14 years at Hughes Electronics where he worked in various capacities ranging from engineering to marketing to new business development. While at DIRECTV, a subsidiary of Hughes, Mr. Tannous served as Sr. Manager of Investments & Acquisitions where he oversaw the company’s equity portfolio valued at $1 billion. He participated in valuing, structuring, and executing strategic investments and business enhancement opportunities. During his tenure, he was involved in effecting more than $500 million in transactions for the company and its operating units. Mr. Tannous has been instrumental in helping with the development of our social networking and advertising services. This, along with his past experience in developing and launching businesses and as an executive officer of public companies led us to the conclusion that he should serve as a director of our company.
Mr. Tannous earned an MBA in finance and accounting from the University of Chicago, Graduate School of Business; completed coursework in international business at SDA Bocconi in Milan, Italy; and holds a Masters and Bachelors degree in Electrical Engineering from the University of Southern California.
Bill Glaser. Mr. Glaser works closely with our CEO to oversee our vision, strategy, and financial operations, including financing and new business development. Prior to his positions with the Company, Mr. Glaser was Chief Executive officer of Namaste Financial from October 2005 to January 2011. Mr. Glaser was also the Chairman of the Board and Chief Executive Officer of uKarma from June 2006 until August 2010. From December 2000 to July 2005, he served as President of Health Sciences Group, Inc., a manufacturer, marketer, and distributor of pharmaceuticals and nutrition based products. He was also a director of Health Sciences from December 2000 to May 2007, during which time the company was publicly traded. He worked closely with the CEO of Health Sciences to provide oversight in all aspects of operations ranging from crafting and executing Health Sciences’ overall growth strategy to structuring debt and equity financings and seeking and evaluating qualified acquisition candidates. Prior to that, Mr. Glaser was founder and Chief Executive Officer of a corporate consulting firm that provided strategy, finance, and marketing services for both public and private companies. Prior to that, Mr. Glaser was a registered principal of a regional stock brokerage firm where he gained diverse experience in finance, management, marketing, sales, and public company relations. Previously, he was a registered representative at Drexel Burnham Lambert and Smith Barney. Mr. Glaser holds a Bachelor’s degree in finance and economics from the Ithaca College - School of Business. Like Mr. Tannous, Mr. Glaser has been instrumental in helping with the development of our social networking and advertisings services. This, along with his past experience as an executive officer of public companies led us to the conclusion that he should serve as a director of our company.
Material Changes to the Procedures by which Security Holders may Recommend Nominees to the Board
There have been no material changes to the procedures by which our security holders may recommend nominees to the Board of Directors.
Code of Ethics
We have adopted a formal code of ethics statement for senior officers and directors (the “Code of Ethics”) that is designed to deter wrongdoing and to promote ethical conduct and full, fair, accurate, timely and understandable reports that the Company files or submits to the Securities and Exchange Commission and others. A form of the Code of Ethics has been filed as an exhibit to the Company’s Form 10-K filed with the Securities and Exchange Commission on December 15, 2011 and is incorporated herein by reference. Requests for copies of the Code of Ethics should be sent in writing to OverNear, Inc. Attn: Human Resources, 1460 4th Street, Suite 304, Santa Monica, California 90401.
Family Relationships
There are no family relationships among our directors and executive officers.
Involvement in Certain Legal Proceedings
During the past ten years, no present director or executive officer of the Company has been the subject matter of any of the following legal proceedings that are required to be disclosed pursuant to Item 401(f) of Regulation S-K including: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) any criminal convictions; (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (d) any finding by a court, the SEC or the CFTC to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud; or (e) any sanction or order of any self-regulatory organization or registered entity or equivalent exchange, association or entity. Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer.
Insider Participation in Meetings of Directors
All matters to be acted upon where potential conflicts exist between our executive officers and the Company (for example, the terms of employment agreements, option grants, bonus awards, etc.) are discussed and approved by the directors, none of whom are independent.
Audit Committee; Audit Committee Financial Expert
Our Board of Directors does not have an audit committee. The Board has determined that Fred Tannous is an “audit committee financial expert” within the meaning of Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC. Mr. Tannous is not independent, as independence for audit committee members is defined in any listing standard.
The following summary compensation table indicates the cash and non-cash compensation earned during the fiscal years ended December 31, 2013 , 2012, 2011 and 2010 by our Chief Executive Officer (principal executive officer) our Chief Financial Officer (principal financial officer), and our President, the only executive officers of the Company who served these positions during 2013, 2012, 2011 and 2010.
| Name and Position | | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($)(1) | | | Non- Equity Incentive Plan Compensation ($) | | | Non- qualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | |
| Fred Tannous, | | 2013 | | $ | 190,000 | | | | — | | | | — | | | $ | 100,000 | | | | — | | | | — | | | $ | | (9) | | $ | | |
CEO and CFO, Co-Chairman of the Board | | 2012 | | $ | 180,000 | | | | — | | | | — | | | $ | 100,000 | | | | — | | | | — | | | $ | 14,400 | (8) | | $ | 294,400 | |
| | 2011 | | $ | 180,000 | (7) | | $ | 100,000 | (6) | | | — | | | $ | 100,000 | | | | — | | | | — | | | $ | 9,000 | | | $ | 389,000 | |
| | | 2010 | | $ | 55,385 | | | $ | 50,000 | (2) | | $ | 80,000 | (2) | | $ | 50,000 | | | | — | | | | — | | | $ | 2,625 | (3) | | $ | 238,010 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bill Glaser, | | 2013 | | $ | 190,000 | | | | — | | | | — | | | $ | 110,000 | | | | — | | | | — | | | $ | | (9) | | $ | | |
President, Co-Chairman of the Board | | 2012 | | $ | 180,000 | | | | — | | | | — | | | $ | 110,000 | | | | — | | | | — | | | $ | 14,400 | (8) | | $ | 304,400 | |
| | 2011 | | $ | 180,000 | (5) | | | — | | | | — | | | $ | 110,000 | | | | — | | | | — | | | $ | 9,000 | | | $ | 299,000 | |
| | | 2010 | | $ | 236,399 | (4) | | | — | | | | — | | | $ | 150,054 | | | | — | | | | — | | | $ | 9,000 | (3) | | $ | 395,453 | |
| (1) | The amounts shown in this column indicate the grant date fair value of option awards granted in the subject year computed in accordance with FASB ASC Topic 718 (formerly FAS 123R). The assumptions made in the valuation of these options can be found in Note 2 to our financial statements included herein. |
| (2) | This compensation was paid in the form of 5,200,000 shares of our common stock. |
| (3) | This compensation consists of a car allowance of $750 per month pursuant to the officer’s employment agreement. |
| (4) | This amount was booked as deferred compensation of which $127,117 was forgiven in 2011 by the officer. |
| (5) | Of this amount, $60,769 was forgiven by the officer. |
| (6) | This compensation was paid in the form of 4,000,000 shares of our common stock. |
| (7) | Of this amount, $29,843 was forgiven by the officer. |
| (8) | This compensation consists of a one-time adjustment to compensation in the amount of $5,400 based on a COLA/CPI provision and a car allowance of $750 per month, both pursuant to the officer’s employment agreement. |
| (9) | Includes auto allowance expenses in the amount of $750 for a period of twelve months plus reimbursement for health insurance expenses in the amount of $700 for a period of seven months, and accrued vacation paid in the amount of $24,808. |
Grants of Plan-Based Awards
There were no plan-based awards granted during the 2013 year to any named executive officer.
Employment Agreements
Fred E. Tannous
On September 13, 2010, we entered into an agreement with Fred E. Tannous for his services as Chief Financial Officer. On March 15, 2011, we amended this agreement in connection with his appointment as Chief Executive Officer in addition to his role as our CFO. This amendment changed the end of his employment term to March 15, 2016. On August 8, 2011, we amended the provisions regarding any increases in Mr. Tannous’ annual salary.
Mr. Tannous is compensated with an annual salary of $180,000. Mr. Tannous’ annual salary will increase to $250,000 in the event that either (i) we raise an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) we recognize $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) we raise an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) we recognize $10,000,000 in cumulative gross revenues.
The signing bonus Mr. Tannous received in 2010 consisted of shares of our common stock valued at $50,000. Mr. Tannous’ employment agreement also entitled him to receive a bonus of 5% of our adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). On August 19, 2013, the agreement was amended to eliminate this provision in the agreement. The agreement also calls for 10-year options to purchase 10,000,000 shares of common stock under our 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) at an exercise price of $0.025 per share, of which 1,000,000 shares became exercisable and the remainder of which will become exercisable at the rate of 1,000,000 shares at the end of each subsequent six month period.
As an inducement for accepting the CEO position, Mr. Tannous received 4,000,000 restricted shares of common stock in March 2011.
In the event of a change of control of the Company prior to the one month anniversary of Mr. Tannous’ termination, Mr. Tannous will be due the greater of (i) the remainder of his annual salary during the term of the agreement and (ii) $250,000, all unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to the Company on a per share basis less the exercise price of the stock option, the value of which is multiplied by the number of options held by Mr. Tannous.
In the event of Mr. Tannous’ termination without cause by the Company, Mr. Tannous will be paid the lesser of (i) the remainder of his annual salary during the term of the agreement and (ii) one year’s salary, and all stock options held by Mr. Tannous under the Plan will immediately vest in full and remain outstanding and exercisable until ten years from the grant date.
Bill Glaser
On August 3, 2010, we entered into an employment agreement with Bill Glaser for his services as Chief Executive Officer. On March 15, 2011, we amended his agreement in connection with his appointment as President following the appointment of Mr. Tannous as our Chief Executive Officer. This amendment changed the end of his employment term to March 15, 2016.
On August 8, 2011, we amended the provisions regarding any increases in Mr. Glaser’s annual salary. Mr. Glaser is compensated with an annual salary of $180,000. His annual salary will increase to $250,000 in the event that either (i) we raise an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) we recognize $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) we raise an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) we recognize $10,000,000 in cumulative gross revenues.
Mr. Glaser was entitled to receive a bonus of 5% of our adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). On August 19, 2013, the agreement was amended to eliminate this provision in the agreement. The agreement also calls for 10-year options to purchase 5,000,000 shares of common stock under the Plan at an exercise price of $0.025 per share, of which 500,000 shares became exercisable on December 31, 2010 with the remainder to become exercisable at the rate of 500,000 shares at the end of each subsequent six month period.
In the event of a change of control of the Company prior to the one month anniversary of Mr. Glaser’s termination, Mr. Glaser will be due the greater of (i) the remainder of his annual salary during the term of the agreement and (ii) $250,000, all unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to the Company on a per share basis less the exercise price of the stock option, the value of which is multiplied by the number of options held by Mr. Glaser.
In the event of Mr. Glaser’s termination without cause by the Company, Mr. Glaser will be paid the lesser of (i) the remainder of his annual salary during the term of the agreement and (ii) one year’s salary, and all stock options held by Mr. Glaser under the Plan will immediately vest in full and remain outstanding and exercisable until ten years from the grant date.
Outstanding Equity Awards as of December 31, 2013
| | | OPTION AWARDS | | STOCK AWARDS | |
| Name | | Number of securities underlying unexercised options (#) Exercisable | | | Number of securities underlying unexercised options (#) Unexercisable | | | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | | | Option exercise price ($) | | Option expiration date | | Number of shares or units of stock that have not vested (#) | | Market value of shares or units of stock that have not vested ($) | | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) | | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested (#) | |
| Fred E. Tannous | | | 7,000,000 | | | | 3,000,000 | | | | 3,000,000 | | | $ | 0.025 | | | 9/12/2020 | | | ─ | | | ─ | | | ─ | | | ─ | |
| Bill Glaser | | | 3,500,000 | | | | 1,500,000 | | | | 1,500,000 | | | $ | 0.025 | | | 8/3/2020 | | | ─ | | | ─ | | | ─ | | | ─ | |
Director Compensation
Our directors do not receive compensation for their services as directors.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our Board of Directors and the Board of Directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.
Securities Authorized for Issuance under Equity Compensation Plans
Please see the section titled “Securities Authorized for Issuance under Equity Compensation Plans” under Item 5 above.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of our common stock that are currently held by our directors and executive officers and each person who owns beneficially more than 5% of our outstanding common stock based on 69,884,257 shares of common stock outstanding on March 26, 2014.
Beneficial ownership is determined in accordance with the rules of the SEC, which deem a person to beneficially own any shares the person has or shares voting or dispositive power over and any additional shares obtainable within 60 days through the exercise of options, warrants, or other purchase rights. Shares of common stock subject to options, warrants, or other rights to purchase that are currently exercisable or are exercisable within 60 days (including shares subject to restrictions that lapse within 60 days) are deemed outstanding for purposes of computing the percentage ownership of the person holding such shares, options, warrants or other rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise indicated, each person possesses sole voting and investment power with respect to the shares identified as beneficially owned.
| | | Number of Shares | | | Percent of Class: | | | Amount and Nature of Beneficial Ownership of | | | Percent of | |
| Name of Shareholder | | Pre-Spin-Off | | | Post-Spin-Off | | | Post-Spin-Off | | | Preferred Stock | | | Preferred Stock | |
| Directors and Named Executive Officers: | | | | | | | | | | | | | | | |
| Fred E. Tannous | | | 19,513,973 | (3) | | | 19,856,823 | (1) | | | 24.70 | % | | | 1,000,000 | | | | 19 | % |
| Bill Glaser | | | 13,103,014 | (4) | | | 18,144,910 | (2) | | | 22.57 | % | | | 1,000,000 | | | | 19 | % |
| Directors and executive officers as a group (2 persons) | | | 32,616,987 | | | | 38,001,733 | | | | 47.27 | % | | | 2,000,000 | | | | 38 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Shareholders | | | -- | | | | -- | | | | -- | | | | 3,210,000 | | | | 62 | % |
| | | | | | | | | | | | | | | | | | | | | |
| 5% Shareholders | | | | | | | | | | | | | | | | | | | | |
| Innolog Holdings, Inc. | | | 10,558,896 | | | | -- | | | | -- | % | | | -- | | | | -- | % |
| (1) | Includes 342,850 shares beneficially-owned which will be transferred to Mr. Tannous upon effectiveness of the spinoff registration statement. |
| (2) | Includes 5,041,896 shares beneficially-owned which will be transferred to Mr. Glaser upon effectiveness of the spinoff registration statement. |
| (3) | Includes 7,000,000 shares which can be acquired upon exercise of vested options within 60 days. |
| (4) | Includes 3,500,000 shares which can be acquired upon exercise of vested options within 60 days. |
Related Party Transactions
None.
Director Independence
Our Board of Directors has determined that it currently has no members who qualify as “independent” as the term is defined by Nasdaq’s Marketplace Rule 5605(a)(2).
Gumbiner Savett Inc. served as our independent registered public accounting firm for our fiscal years ended December 31, 2013 and 2012. The following table shows the fees that were billed for audit and other services provided by this firm during the 2013 and 2012 fiscal years:
| | | Fiscal Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| Audit Fees (1) | | $ | 88,300 | | | $ | 62,000 | |
| Audit-Related Fees (2) | | | --- | | | | --- | |
| Tax Fees (3) | | | 3,000 | | | | 6,000 | |
| All Other Fees (4) | | | --- | | | | --- | |
| Total | | $ | 91,300 | | | $ | 68,000 | |
| (1) | Audit Fees – This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by independent auditors in connection with statutory and regulatory filings or the engagement for fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements. |
| | |
| (2) | Audit-Related Fees – This category consists of assurance and related services by our independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit Fees." The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC. |
| | |
| (3) | Tax Fees – This category consists of professional services rendered by our independent auditors for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice |
| | |
| (4) | All Other Fees – This category consists of fees for other miscellaneous items. |
Pre-Approval Policies and Procedures of the Audit Committee
As we do not have an Audit Committee, the entire Board of Directors approves the engagement of our independent auditors and is also required to pre-approve all audit and non-audit expenses. In the fiscal year ended December 31, 2013 and 2012, all of our Audit-Related Fees, Tax Fees, and All Other Fees, respectively, were pre-approved by the Board.
Financial Statements; Schedules
Our financial statements for the fiscal years ended December 31, 2013 and 2012 begin on page F-1 of this annual report. We are not required to file any financial statement schedules. Exhibit Table
| Exh. No. | | Exhibit Description |
| | | |
| 2.1 | | Contribution Agreement between uKarma and Awesome Living (1) |
| | | |
| 3.1 | | Articles of Incorporation (3) |
| | | |
| 3.2 | | Bylaws of Awesome Living (1) |
| | | |
| 3.3 | | Articles of Merger between GCC Merger Sub Corporation and Innolog Group Corporation (8) |
| | | |
| 4.1 | | Certificate of Designation of Preference, Rights and Limitations of Series A Preferred Stock (5) |
| | | |
| 4.2 | | Form of Warrant issued in Series A Preferred Stock Offering (5) |
| | | |
| 4.3 | | Form of Warrant to Purchase Common Stock issued to Placement Agent in Series A Preferred Stock Offering (5) |
| | | |
| 4.4 | | Form of Warrant to Purchase Preferred Stock issued to Placement Agent in Series A Preferred Stock Offering (5) |
| | | |
| 4.5 | | Amended and Restated Certificate of Designation of Preference, Rights and Limitations of Series A Convertible Stock (7) |
| | | |
| 4.6 | | Form of 2013 Warrant (10) |
| | | |
| 4.7 | | Form of PA Common Stock Warrant (10) |
| | | |
| 4.8 | | Certificate of Designation of Preference, Rights and Limitations of Series B Preferred Stock* |
| | | |
| 10.1 | | Employment Agreement between Bill Glaser and Awesome Living, dated August 3, 2010 (1)+ |
| | | |
| 10.2 | | Employment Agreement between Fred E. Tannous and Awesome Living, dated September 13, 2010 (1)+ |
| | | |
| 10.3 | | Consulting Agreement between Fred E. Tannous and Awesome Living, dated August 16, 2010 (1)+ |
| | | |
| 10.4 | | Amended and Restated Merger Agreement between Galen Capital Corporation, Innolog Holdings Corporation, uKarma Corporation, and CGG Merger Sub Corporation, dated August 11, 2010 (2) |
| | | |
| 10.5 | | Amendment to Employment Agreement with Fred E. Tannous, dated March 15, 2011 (3)+ |
| | | |
| 10.6 | | Amendment to Employment Agreement with Bill Glaser, dated March 15, 2011 (3)+ |
| | | |
| 10.7 | | Master Service Agreement between Square One Solutions, Inc. and OverNear, Inc., dated July 15, 2011 (3) |
| | | |
| 10.8 | | Advisory Board Agreement between OverNear, Inc. and Chad Hahn, dated July 15, 2011 (3) |
| | | |
| 10.9 | | Amendment #2 to Employment Agreement with Fred E. Tannous, dated August 8, 2011 (4)+ |
| | | |
| 10.10 | | Amendment #2 to Employment Agreement with Bill Glaser, dated August 8, 2011 (4)+ |
| | | |
| 10.11 | | Form of Subscription Agreement in connection with Series A Preferred Stock and Warrant Offering (5) |
| | | |
| 10.12 | | Amendment #3 to Employment Agreement with Bill Glaser, dated August 19, 2013 (8) |
| | | |
| 10.13 | | Amendment #3 to Employment Agreement with Fred E. Tannous, dated August 19, 2013 (8) |
| | | |
| 10.14 | | Consulting Agreement between the Company and the Consultant, dated April 15, 2013 (9) |
| | | |
| 10.15 | | Advisory Board Agreement between the Company and the Advisor, dated April 11, 2013 (9) |
| | | |
| 10.16 | | Form of Subscription Agreement (9) |
| | | |
| 14.1 | | Code of Business Conduct and Ethics (6) |
| | | |
| 31.1 | | Section 302 Certification by the Registrant’s Principal Executive Officer * |
| | | |
| 31.2 | | Section 302 Certification by the Registrant’s Principal Financial Officer * |
| | | |
| 32.1 | | Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer * |
| Exh. No. | | Exhibit Description |
| | | |
| 101.INS** | | XBRL Instance Document |
| | | |
| 101.SCH** | | XBRL Taxonomy Extension Schema |
| | | |
| 101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF** | | XBRL Taxonomy Extension Definition Linkbase |
| | | |
| 101.LAB** | | XBRL Taxonomy Extension Label Linkbase |
| | | |
| 101.PRE** | | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this report shall be deemed “furnished” and not “filed.”
+Denotes a contract with management.
| (1) | Filed on September 15, 2010 as an exhibit to our Registration Statement on Form 10, and incorporated herein by reference. |
| (2) | Filed on November 9, 2010 as an exhibit to Amendment No. 1 to our Registration Statement on Form 10, and incorporated herein by reference. |
| (3) | Filed on August 5, 2011 as an exhibit to our Quarterly Report on Form 10-Q, and incorporated herein by reference. |
| (4) | Filed on December 15, 2011 as an exhibit to our Annual Report on Form 10-K, and incorporated herein by reference. |
| (5) | Filed on December 5, 2012 as an exhibit to our Current Report on Form 8-K, and incorporated herein by reference. |
| (6) | Filed on December 15, 2011 as an exhibit to our Annual Report on Form 10-K, and incorporated herein by reference. |
| (7) | Filed on November 4, 2013 as an exhibit to our Current Report on Form 8-K, and incorporated herein by reference. |
| (8) | Filed on August 27, 2013 as an exhibit to our Registration Statement on Form S-1, and incorporated herein by reference. |
| (9) | Filed on May 20, 2013 as an exhibit to our Quarterly Report on Form 10-Q, and incorporated herein by reference. |
| (10) | Filed on May 13, 2013 as an exhibit to our Registration Statement on Form S-1, and incorporated herein by reference. |
Pursuant to the requirements of Section 13 or 15(d) 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.
| | OVERNEAR, INC. |
| | |
| Date: March 31, 2014 | /s/ Fred E. Tannous |
| | Fred E. Tannous, Chief Executive Officer and Chief Financial Officer |
In accordance with the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| NAME | | TITLE | | DATE |
| | | | | |
| /s/ Fred E. Tannous | | Chief Executive Officer, Chief Financial Officer, | | March 31, 2014 |
| Fred E. Tannous | | Principal Accounting Officer and Co-Chairman of the Board | | |
| | | | | |
| /s/ Bill Glaser | | President and Co-Chairman of the Board | | March 31, 2014 |
| Bill Glaser | | | | |
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