See accompanying notes to unaudited consolidated financial statements.
PMX COMMUNITIES INC AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
NOTE 1 CONDENSED FINANCIAL STATEMENTS
The accompanying interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of and for the period ended September 30, 2012, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Companys December 31, 2011 audited financial statements. The results of operations for the periods ended September 30 2012 are not necessarily indicative of the operating results for the full years.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended December 31, 2011.
NOTE 3 EQUITY FINANCING
In April of 2012, the Company sold one unit to one shareholder for $8,000. A unit consists of 100,000 shares of common stock, 100,000 A warrants ($0.20 strike price, 1-year term after closing of offering) and 100,000 B warrants ($0.25 strike price, 2-year term after closing of offering).
In May of 2012, the Company sold another unit for $8,000 to one shareholder.
There was no equity financing during the 3 months ended September 30, 2012.
NOTE 4 DEBT FINANCING
In June of 2012, the Company borrowed an additional $19,000 from two existing note holders. Repayment terms are unspecified.
In the third quarter of 2012, the Company borrowed $10,000 from an officer, $15,500 from one shareholder and $95,000 from a third party. None of these loans have any specified repayment terms and they were booked in the period as short-term loans.
In the third quarter of 2012, two notes totaling $17,500 in principal were repaid to one noteholder.
NOTE 5 SUBSEQUENT EVENTS
The Company has evaluated events and transactions subsequent to September 30, 2012 that would require reporting. The following was noted:
In October and November 2012, one shareholder made loans to the Company of $10,000 and $50,000. One other investor made a loan of $10,000. Repayment terms are unspecified for all of these loans.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Trends and Uncertainties
The registrant is in the process of developing the corporate infrastructure, technology and relationships for the operation of the exclusive unmanned PMX Gold Dispensing Terminals and complementary online gold bullion product sales division.
The registrant has acquired full ownership of intellectual property including two U.S. Provisional Patent Applications and the third and final International Patent Application Number PCT/US2012/020486 (Unattended Precious Metal Distribution System, Methods and Apparatus), and is awaiting completion of a proprietary machine to recommence automated gold bullion sales.
Our business operations are currently focused on the demand for essentially one commodity, gold. Specifically, we are addressing the markets of physical gold ownership by retail investors, as well as developing and offering an ancillary set of financial services that would complement the purchase and sale of gold and other precious metals by retail investors. Any decrease in demand for gold or gold investments could materially adversely affect our revenues, profitability and general business prospects.
Proposed expansion plans economic success depends upon extensive capital infusion, technology and infrastructure development and market acceptance. Management believes that the current business model of conducting remote retail sales of physical gold products (whether online or via telephone) is extremely limited and one-dimensional. For the most part prices are non-standardized, quality is often not certified, delivery of purchased goods is delayed by days or weeks and there is no sense of client account affiliation between the customer and the entity that either buys gold from or sells gold to the client or customer.
Our expansion plans are based on developing and offering proprietary gold bullion products and services to retail customers and investors. We intend to capitalize on the potential emergence of gold as a parallel currency and offer our clients instant, on-site delivery of their purchases through our network of PMX Gold Dispensing Terminals and complementary on-line sales operations currently under development
The success of our business model lies in accessing the required capital to develop this gold dispensing terminal network, developing the technology and infrastructure controls and framework necessary to operate the network and cultivating a client base that is receptive to our products and services. There is no guarantee that the capital will be available to the registrant on acceptable terms which would allow for the economic success of the model, that the technology and infrastructure can be successfully developed or that the marketplace will accept our products and services.
The supply and price of gold bullion is subject to volatility and is influenced by numerous factors that are beyond our control; there is no guarantee as to effectiveness of our hedging practices to preserve profits or prevent losses. We intend to use gold futures and options contracts for the purpose of hedging the effects of changing gold prices on our inventory.
Although the use of hedging may enable us to mitigate the effect of changing prices, no strategy is entirely effective to eliminate the pricing risks and we may remain exposed to losses when prices move significantly in a short period of time, and we generally remain exposed to supply risk in the event of non-performance by the counter-parties to any futures contracts. Our hedging strategy and the hedges that we enter into may not adequately offset the risks of gold volatility and our hedges may result in losses. Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. In this case, our cost of sales may increase, resulting in a decrease in profitability.
Since we rely heavily on common carriers to ship our gold, any disruption in their services or increase in shipping costs could adversely affect our relationship with our customers, which could result in reduced revenues, increased operating expenses, a loss of customers or reduced profitability. Any significant increase in shipping costs could lower our profit margins or force us to raise prices, which could cause our revenue and profits to suffer.
We depend on our relationships with gold brokers and wholesalers for the supply of our primary product, high quality, certified Credit Suisse and Pamp Suisse gold products. If any of our relationships with these sources deteriorate, we may be unable to procure a sufficient quantity of these high-quality gold at prices acceptable to us or at all. In such case, we may not be able to fulfill the demand of our existing customers, supply new customers or expand other channels of distribution
We face foreign exchange rate exposure as we intend to allow for our products to be bought and sold in multiple currencies. To the extent that we are unable to unsuccessfully hedge any exposure that we face in these transactions we could suffer financial losses.
Results of Operations
Three months ended September 30, 2012 and 2011
For the three months ended September 30, 2012, the registrant reported revenues of $0. The cost of sales was $0, resulting in a gross profit of $0. We had depreciation costs of $4,270. We also had $39,758 in selling, general and administrative expenses and research and development costs of $54,128. We had other income of $1,745 and interest expense of $(5,058). As a result, we had a net loss of $(101,469) for the three months ended September 30, 2012. Additionally, we had promissory notes outstanding that were
indexed to our common stock resulting in a beneficial conversion of that stock of $153,983. As a result, we had a net loss attributable to conversion of $(255,452) for the three months ended September 30, 2012.
Comparatively, for the three months ended September 30, 2011, the registrant reported revenues of $0. The cost of sales was $0, resulting in a gross profit of $0. We had depreciation costs of $94. We also had $1,159,462 in selling, general and administrative expenses. We had interest expense of $(8,500). As a result, we had a net loss of $(1,168,056) for the three months ended September 30, 2011. Additionally, we had promissory notes outstanding that were indexed to our common stock resulting in a beneficial conversion of that stock of $(126,527). As a result, we had a net loss attributable to conversion of $(1,294,583) for the three months ended September 30, 2011.
For the nine months ended September 30, 2012, the registrant reported revenues of $0. The cost of sales was $0, resulting in a gross profit of $0. We had depreciation costs of $12,810. We also had $264,258 in selling, general and administrative expenses and $5,000 in research and development expenses. We had other income of $1,745 and interest expense of $(16,550). As a result, we had a net loss of $(296,873) for the nine months ended September 30, 2012. Additionally, we had promissory notes outstanding that were indexed to our common stock resulting in a beneficial conversion of that stock of $168,308. As a result, we had a net loss attributable to conversion of $(465,181) for the nine months ended September 30, 2012.
Comparatively, for the nine months ended September 30, 2011, the registrant reported revenues of $157,200. The cost of sales was $162,140, resulting in a gross profit of $(4,940). We had depreciation costs of $282. We also had $1,429,101 in selling, general and administrative expenses. We had interest expense of $(25,264). As a result, we had a net loss of $(1,459,587) for the nine months ended September 30, 2011. Additionally, we had promissory notes outstanding that were indexed to our common stock resulting in a beneficial conversion of that stock of $168,972. As a result, we had a net loss attributable to conversion of $(1,628,559) for the nine months ended September 30, 2011.
Both the significant decrease in revenues and the associated decrease in selling, general and administrative expenses from September 30, 2011 to the same period in 2012 was due largely to the conclusion of test marketing operations on March 23, 2011 by the registrant. During this period in 2012, the registrant concentrated on the development of its sales and marketing plan by acquiring full ownership of two U.S. Provisional Patent Applications and an International Patent Application and is awaiting completion of proprietary Gold Dispensing Terminals to re-commence automated gold bullion sales.
Liquidity and Capital Resources
For the nine months ended September 30, 2012, the registrant had cash and cash equivalents of $12,823. We had inventory of $3,185, prepaid expenses of $2,360 and
security deposits of $5,439. For the nine months ended September 30, 2012, we had total current assets of $24,306.
For the nine months ended September 30, 2012, we spent $519 to purchase fixed assets. As a result, we had net cash used by investing activities of $519 for the period. For the nine months ended September 30, 2011, we had construction in progress of $51,493 resulting in net cash used by investing activities of $51,493.
For the nine months ended September 30, 2012, we received proceeds from notes payable of $79,966 and proceeds from short-term loans of $95,000. We received proceeds from related parties short-term loans of $25,500 and made payments on related party short-term loans of $2,500. We made a payment to stockholder of $2,500 and received proceeds from stock issuance of $26,000. There was an increase in accrued interest of $16,552 and repaid notes payable of $18,091. As a result, we had net cash provided by financing activities of $219,927 for the nine months ended September 30, 2012.
Comparatively, for the nine months ended September 30, 2011, we received proceeds from notes payable of $244,500. We received proceeds from stock issuance of $100,000 and had an increase in accrued interest of $25,264. We repaid notes payable of $77,500. As a result, we had net cash provided by financing activities of $292,264 for the nine months ended September 30, 2011.
Our internal and external sources of liquidity have included proceeds raised from subscription agreements and private placements and advances from related parties. We are currently not aware of any trends that are reasonably likely to have a material impact on our liquidity. We are attempting to increase the sales to raise much needed cash for the fulfillment of the registrants business plan. It is our intent to secure a market share in the retail gold and related financial services market, which we feel will require additional capital over the long term to undertake sales and marketing initiatives, further our research and development, and to manage timing differences in cash flows from the time our PMX Gold Dispensing Terminals are developed and put into use and positive cash flow product is generated.
Our capital strategy is to increase our near and mid term cash balance through financing transactions, including the issuance of debt and/or equity securities. Once our PMX Gold ATM terminal prototypes have been developed and put into the field we intend to work with our accountants and SEC counsel and develop a Pro-Forma financial model based on their results and pursue traditional Wall Street financing.
To date, the registrant has incurred significant losses. The registrants viability is dependent upon its ability to obtain future financing and the success of its future operations. These factors raise substantial doubt as to the registrants ability to continue as a going concern.
Off-Balance Sheet Arrangements
The registrant had no material off-balance sheet arrangements as of September 30, 2012.
Critical Accounting Policies and Estimates
Managements discussion and analysis of its financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses and the valuation of our assets and contingencies. We believe our estimates and assumptions to be reasonable under the circumstances. However, actual results could differ from those estimates under different assumptions or conditions. Our financial statements are based on the assumption that we will continue as a going concern. If we are unable to continue as a going concern we would experience additional losses from the write-down of assets.
The registrant uses the fair value recognition provision of ASC 718, Compensation-Stock Compensation, which requires the registrant to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments. The registrant uses the Black-Scholes option pricing model to calculate the fair value of any equity instruments on the grant date.
The registrant also uses the provisions of ASC 505-50, Equity Based Payments to Non-Employees, to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50.
New Accounting Pronouncements
The registrant has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the registrant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
During the period ended September 30, 2012, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2012. Based on this evaluation, our chief executive officer and principal financial officers have concluded such controls and procedures to be effective as of September 30, 2012 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Part II. Other Information
Item 1. Legal Proceeding
The registrant is not a party to, and its property is not the subject of, any material pending legal proceedings.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales Of Equity Securities and Use of Proceeds
On May 24, 2012, the registrant issued 1,000,000 shares of stock to a consultant for marketing services. The stock had a market value of $60,000 at the date of issuance and this was charged to the registrants operations in the 2nd quarter. The common share issuances were made pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933 to sophisticated investors.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
The following documents are filed as a part of this report:
Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PMX COMMUNITIES, INC.
/s/ Lindsey Perry
Chief Executive Officer
Chief Financial Officer
Dated: November 16, 2012