UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended March 31, 2014.

 

o Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)

For the transition period from_____________to_____________.

 

Commission file number: 333-126514

 

eCareer Holdings, Inc.

(Name of Registrant in Its Charter)

 

Nevada		20-2641871
(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer Identification No.)
Organization)

 

2300 Glades Road, Suite 302E
	Boca Raton, Florida 33434
(Address of Principal Executive Offices)
	(877) 880-4400
(Issuer’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x          No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x           No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated 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 Exchange Act). Yes o            No x

 

As of May 7, 2014, there were 13,019,377 shares of the registrant’s common stock outstanding (the only class of voting common stock).

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of March 31, 2014 (Unaudited) and June 30, 2013		3
	Unaudited Condensed Consolidated Statements of Operations for the Nine and Three Months Ended March 31, 2014 and 2013,and from October 13, 2009 (Inception) To March 31, 2014		4
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity from October 13, 2009 (Inception) to March 31, 2014		5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2014 and 2013, and from October 13, 2009 (Inception) to March 31, 2014		6
	Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operations		20
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		23
Item 4.	Controls and Procedures		23
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		23
Item 1A.	Risk Factors		23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 3.	Default Upon Senior Securities		24
Item 4.	Mine Safety Disclosure		24
Item 5.	Other Information		24
Item 6.	Exhibits		25
	Signatures		26

ITEM 1.

FINANCIAL STATEMENTS

 

ECAREER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		March 31, 2014				June 30, 2013
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	9,599			$	214,483
Prepaid expenses and other current assets			24,245				189,289
Total current assets			33,844				403,772
Property and equipment, net			237,128				271,321
Other assets
Intangible assets			439,776				440,749
Total assets		$	710,748			$	1,115,842
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities		$	584,235			$	421,688
Loan Payable - shareholder			156,782				—
Loans payable			541,000				—
Total current liabilities			1,282,017				421,688
Commitments and contingencies
Stockholders’ equity
Series A Preferred stock, $0.001 par value, 1,000,000 shares authorized, 25,013 shares issued and outstanding			25				25
Series B Preferred stock, $0.001 par value, 1,000,000 shares authorized, 323,036 and 0 shares issued and outstanding, respectively			322				—
Common stock, $0.001 par value, 50,000,000 shares authorized, 11,183,852 and 364,006 shares issued and 11,183,484 and 363,117 shares outstanding, respectively			11,183				362
Additional paid-in capital			11,058,620				6,505,602
Deficit accumulated during the development stage			(11,626,797	)			(5,854,847	)
Subscription receivable			(15,001	)			—
Non-controlling interest			379				43,012
Total stockholders’ equity (deficit)			(571,269	)			694,154
Total liabilities and stockholders’ equity		$	710,748			$	1,115,842

 

The accompanying notes are an integral part of these condensed consolidated financial statements

ECAREER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED MARCH 31, 2014 AND 2013 AND FROM OCTOBER 13, 2009 (INCEPTION) TO MARCH 31, 2014

(unaudited)

 

																		October 13, 2009
																		(Inception) to
		Three Months Ended March 31,								Nine Months Ended March 31,								March 31,
		2014				2013				2014				2013				2014
Revenue		$	22,849			$	2,132			$	53,531			$	2,132			$	62,623
Operating expenses
Advertising and marketing			59,494				168,329				491,098				303,704				1,146,369
Salaries and benefits			422,580				282,109				1,062,031				694,226				2,703,445
Professional and consulting fees			116,515				494,821				680,726				1,117,722				3,563,514
General and administrative			206,154				156,311				533,130				352,014				1,267,033
General and administrative expenses - related parties			—				—				—				—				142,900
Total operating expenses			804,743				1,101,570				2,766,985				2,467,666				8,823,261
Loss from operations			(781,894	)			(1,099,438	)			(2,713,454	)			(2,465,534	)			(8,760,638	)
Interest Income (Expense), Net			(62,968	)			—				(77,221	)			—				(61,245	)
Loss on sale of available-for-sale marketable securities			—				—				—				—				(23,702	)
Net loss			(844,862	)			(1,099,438	)			(2,790,675	)			(2,465,534	)			(8,845,585	)
Less: Net loss attributable to non-controlling interest			12,044				—				42,633				—				242,697
Net loss attributable to eCareer Holdings, Inc.		$	(832,818	)		$	(1,099,438	)		$	(2,748,042	)		$	(2,465,534	)		$	(8,602,888	)
Net loss per share - basic and fully diluted		$	(0.08	)		$	(3.11	)		$	(0.35	)		$	(7.77	)		$	(5.24	)
Weighted average number of common shares outstanding during the period - basic and fully diluted			10,374,962				353,011				7,881,251				317,438				1,640,215

 

The accompanying notes are an integral part of these condensed consolidated financial statements

ECAREER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FROM OCTOBER 13, 2009 (INCEPTION) TO MARCH 31, 2014

(unaudited)

 

																														Deficit
																														Accumulated
		Preferred Stock A								Preferred Stock B								Common Stock								Additional				During the								Non-
																										Paid-in				Development				Subscriptions				controlling
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Stage				Receivable				Interest				Total
Issuance of common stock for services - founders shares ($0.048/share - post reverse split)			—			$	—				—			$	—				89,112			$	89			$	4,186			$	—			$	—			$				$	4,275
Net loss - October 13, 2009 (Inception) to June 30, 2010			—				—				—				—				—				—				—				(4,407	)			—								(4,407	)
Balance - June 30, 2010			—				—				—				—				89,112				89				4,186				(4,407	)			—								(132	)
Issuance of common stock for cash and subscriptions receivable ($24 - $48/share - post reverse split)			—				—				—				—				3,431				3				102,098				—				(2,500	)							99,601
Direct offering costs																											(26,803	)															(26,803	)
Net loss - 2011			—				—				—				—				—				—				—				(227,087	)			—								(227,087	)
Balance - June 30, 2011			—				—				—				—				92,543				92				79,481				(231,494	)			(2,500	)							(154,421	)
Receipt of cash for subscriptions receivable																																			2,500								2,500
Issuance of common stock for cash and subscriptions receivable ($12 - $48/share - post reverse split)			—				—												180,383				180				3,817,525				—				(354,000	)							3,463,705
Direct offering costs																											(502,119	)															(502,119	)
Issuance of series A preferred stock for services ($0.716/share) - related party			100,000				100																				71,500																71,600
Issuance of common stock for services ($14 - $36/share - post reverse split)																			7,765				8				248,640				—				—								248,648
Issuance of common stock for direct offering costs ($31/share - post reverse split)																			3,127				3				(3	)															—
Net loss - 2012			—				—				—				—				—				—				—				(1,960,194	)			—								(1,960,194	)
Balance - June 30, 2012			100,000			$	100				—				—				283,818				283			$	3,715,024				(2,191,688	)			(354,000	)						$	1,169,719
Issuance of common stock for cash and subscriptions receivable ($24 - $48/share - post reverse split)																			40,601				41				1,286,509								(50,300	)							1,236,250
Issuance of common stock and warrants for cash and subscriptions receivable ($48/unit - post reverse split)																			55,757				56				2,079,821								(666,000	)							1,413,877
Receipt of cash for subscriptions receivable																																			892,800								892,800
Direct offering costs																											(435,041	)															(435,041	)
Issuance of common stock for services ($14 - $36/share - post reverse split)																			1,107				1				37,020																37,021
Net loss - July 1, 2012 to April 11, 2013																															(2,736,880	)											(2,736,880	)
Segregation of non-controlling interest in subsidiary on reverse capitalization																			(57,878	)			(58	)			(243,018	)											243,076				—
Issuance of common stock in reverse recapitalization																			39,451				39				(459,531	)							177,500								(281,992	)
Exchange of subsidiary preferred stock for ECHI preferred stock			(74,987	)			(75	)																			75																—
Direct offering costs																											(83,776	)															(83,776	)
Issuance of subsidiary common stock for cash and subscriptions receivable ($24 - $48/share - post reverse split)																											8,000																8,000
Issuance of subsidiary common stock and warrants for cash and subscriptions receivable ($48/unit - post reverse split)																											449,500																449,500
Receipt of cash for subsidiary’s subscriptions receivable																											145,500																145,500
Issuance of common stock for services ($16 - $36/share - post reverse split)																			261				—				1,665																1,665
Issuance of subsidiary common stock for services ($25 to $35/share - post reverse split)																											3,854																3,854
Net loss - April 12, 2013 to June 30, 2013																															(926,279	)							(200,064	)			(1,126,343	)
Balance - June 30, 2013			25,013				25				—				—				363,117				362				6,505,602				(5,854,847	)			—				43,012				694,154
Issuance of subsidiary common stock and warrants for cash and subscriptions receivable ($ 0,50 - $1.00/unit)																											278,351																278,351
Issuance of Subsidiary common stock on exercise of warrants																											353,750																353,750
Issuance of common stock upon exercise of warrants																			510,585				511				440,489																441,000
Direct offering costs																											(211,143	)															(211,143	)
Issuance of common stock for services ($0.138/share)																			55,521				56				7,628																7,684
Issuance of common stock in exchange for subsidiary common stock																			3,125,103				3,125				(3,125	)															—
Issuance of convertible series B preferred stock as a dividend											434,554				434												3,006,681				(3,007,115	)											—
Issuance of common stock and warrants for cash and subscriptions receivable ($0.60 - $1.00/unit)																			1,031,917				1,032				614,219								(15,001	)							600,250
Issuance of common stock dividend																			121,341				121				16,672				(16,793	)											—
Issuance of common stock upon conversion of series B preferred stock											(111,518	)			(112	)			5,575,900				5,576				(5,464	)															—
Issuance of common stock for interest expense ($0.138/share)																			400,000				400				54,960																55,360
Net loss - July 1, 2013 to March 31, 2014																															(2,748,042	)							(42,633	)			(2,790,675	)
			25,013				25				323,036				322				11,183,484				11,183				11,058,620				(11,626,797	)			(15,001	)			379				(571,269	)

 

The accompanying notes are an integral part of these condensed consolidated financial statements

ECAREER HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED MARCH 31, 2014 AND 2013 AND FROM OCTOBER 13, 2009 (INCEPTION) TO MARCH 31, 2014

(unaudited)

 

		Nine Months Ended March 31,								October 13, 2009 (Inception) to March 31,
		2014				2013				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,790,675	)		$	(2,465,534	)		$	(8,845,585	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			48,988				35,207				102,364
Amortization			26,827				1,250				42,280
Stock issued for services - common stock			7,684				37,020				303,146
Stock issued for services - preferred stock - related party			—				—				71,600
Stock issued for interest - common stock			55,360								55,360
Loss on sale of available-for-sale marketable securities			—				—				23,702
Deposit on future acquisition			—				(97,039	)			—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			165,044				48,584				( 24,245	)
Accounts payable and accrued liabilities			162,547				(153,469	)			584,235
Net cash used in operating activities			(2,324,225	)			(2,593,981	)			( 7,687,143	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available-for-sale securities			—				—				48,080
Advances on loan receivable			—				(30,427	)			—
Purchases of intangible assets			(25,854	)			(281,687	)			(482,056	)
Purchases of property and equipment			(14,795	)			(250,520	)			(339,492	)
Net cash used in investing activities			(40,649	)			(562,634	)			(773,468	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholder loan payable			169,282				—				329,716
Repayment of shareholder loan payable			(12,500	)			—				( 244,716	)
Proceeds for exercise of warrants			441,000				—				441,000
Proceeds from loan payable			761,000				—				761,000
Repayment of loan payable			(220,000	)			—				(220,000	)
Proceeds from sale of common stock			600,250				3,109,164				8,311,983
Cash consideration for reverse recapitalization			—				—				(281,992	)
Proceeds from sale of subsidiary common stock and warrants			632,101				—				632,101
Payment of offering costs			(211,143	)			(234,777	)			(1,258,882	)
Net cash provided by financing activities			2,159,990				2,874,387				8,470,210
Net (decrease) increase in cash and cash equivalents			(204,884	)			(282,228	)			9,599
Cash and cash equivalents - beginning of year/period			214,483				1,083,571				—
Cash and cash equivalents - end of period		$	9,599			$	801,343			$	9,599
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of taxes		$	—			$	—			$	—
Payment of interest		$	—			$	—			$	—
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Exchange of subsidiary preferred stock for ECHI preferred stock		$	—			$	—			$	75
Subscription receivable		$	—			$	364,000			$	—
Stock issued for services - preferred stock - related party		$	—			$	—			$	71,600
Creation of non-controlling interest in reverse capitalization		$	—			$	—			$	243,076
Stock issued for services - common stock		$	7,684			$	—			$	303,146
Stock issued for interest - common stock		$	55,360			$	—			$	55,360
Exchange of subsidiary stock for ECHI common stock		$	3,125			$	—			$	3,125
Issuance of common stock dividend		$	16,793			$	—			$	16,793
Issuance of series B preferred stock as a dividend		$	3,007,115			$	—			$	3,007,115
Conversion of series B preferred stock for common stock		$	5,464			$	—			$	5,464
Shares issued for direct offering costs		$	—			$	—			$	—
Shareholder advance of marketable securities		$	—			$	—			$	71,782

 

The accompanying notes are an integral part of these condensed consolidated financial statements

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Note 1 – Organization and Nature of Operations

 

eCareer Holdings Inc. (“the Company,” “we,” “us,” “our,” and/or “ECHI”) was incorporated under the laws of the State of Nevada on March 24, 2005, as Barossa Coffee Company, Inc. The Company changed its name from Barossa Coffee Company, Inc. to eCareer Holdings, Inc., in connection with the acquisition of eCareer, Inc. on April 11, 2013. The Company is headquartered in Boca Raton, Florida.

 

The Company’s fiscal year end is June 30.

 

Acquisition of Barossa Coffee Company, Inc. as a Reverse Recapitalization

 

As initially reported in our current report on Form 8-K filed on August 30, 2012, on that date, Barossa Coffee Company, Inc., a shell company and Nevada corporation (“BCCI”), entered into an Agreement and Plan of Reorganization (the “Exchange Agreement”) with certain principal stockholders of BCCI (collectively, the “Principal BCCI Stockholders”), eCareer, Inc., a Florida corporation (“ECI”), and the consenting owners of 84.73% of the outstanding shares of common stock of ECI.

 

The agreement provided for BCCI to acquire all of the issued and outstanding shares of common stock of ECI in exchange for a total of 4,260,690 shares of common stock of BCCI. After the parties agreed to extend the date of closing, the transactions contemplated by the Exchange Agreement closed on April 11, 2013, whereupon BCCI acquired 15,570,077 shares of ECI, representing 84.73% of ECI’s issued and outstanding common stock, in exchange for 3,894,668 restricted shares of newly issued common stock of BCCI—an exchange ratio of 0.250138 newly issued shares of BCCI common stock for every one share of ECI common stock. The 3,894,668 restricted shares of BCCI common stock issued to former ECI stockholders at closing represents 89.2% of the issued and outstanding common stock of BCCI.

 

Pursuant to the Exchange Agreement, as extended, ECI paid a total of $245,000 cash to BCCI in seven scheduled payments, including a final payment of $165,000 which was made at closing. Contemporaneously, BCCI used $215,000 of the $245,000 to redeem and cancel 4,260,690 shares of its pre-exchange common stock from the Principal BCCI Stockholders. BCCI used the remaining $30,000 to pay certain consultants for services rendered. In connection with the parties’ agreement to extend the closing date of the Exchange Agreement, ECI also paid total extension penalties to BCCI as of closing of $37,539.

 

As a result of the transactions effected by the Exchange Agreement, for financial statement reporting purposes, the exchange has been treated as a reverse acquisition with ECI deemed the accounting acquirer and BCCI deemed the accounting acquiree. The reverse acquisition is deemed a capital transaction and the assets and liabilities of ECI are carried forward to the Company at their carrying value before the acquisition. The equity of the Company is the historical equity of ECI retroactively restated to reflect the number of shares issued by ECI using the capital structure of BCCI. Upon the closing of the Exchange Agreement, ECI became the operating company and BCCI abandoned all of its previous business operations and plans, with the business of ECI now being the Company’s sole business. Accordingly, these financial statements present the operations only of ECI from inception through the date of the exchange (April 11, 2013) and on a consolidated basis for ECHI and ECI after the exchange, and the resulting non-controlling interest in ECI. All intra-company transactions have been eliminated on consolidation.

 

The Company is a provider of niche career websites designed to brand client companies to active and passive candidates within each niche. Site features include: industry news, social media groups, niche-specific content, webinars, events, training programs and industry statistics. Access to the sites is free to users, and revenues are generated through advertising, resume searches, and job board functions. The Company’s first site, Openreq™, was launched January 1, 2013.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Reverse Stock Split

 

On June 3, 2013, the Company filed a Certificate of Change with the Nevada Secretary of State, to affect a one-for-twelve (1:12) reverse split of its issued and outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split was effective in the market on June 25, 2013. Every 12 shares of common stock outstanding were combined, converted and changed into one share of common stock. All share and per share amounts in these financial statements have been restated to give effect to the reverse stock split.

 

Note 2 – Going Concern

 

As reflected in the accompanying financial statements, since inception the Company has incurred a net loss of approximately $8.8 million and net cash used in operations of approximately $7.7 million. As of March 31, 2014, the Company has a working capital deficit of approximately $1.2 million.

 

The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of equity securities. In addition, the Company is in the development stage and has generated insignificant revenue since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue operations is dependent on the success of Management’s plans, which include the raising of capital through either the issuance of equity or debt securities, until such time that funds provided by operations are sufficient to fund working capital requirements.

 

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. Our current negative cash flow from operations is approximately $175,000 per month. The Company believes its current available cash along with anticipated revenue may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 3 – Summary of Significant Accounting Policies

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is our opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2013 as filed with the SEC, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the years ended June 30, 2013 and 2012. The financial information as of June 30, 2013 is derived from the audited financial statements presented in our Annual Report on Form 10-K for the year ended June 30, 2013. The interim results for the nine months ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending June 30, 2014 or for any future interim periods.

 

Expense Classifications

 

The income statement has been expanded to reflect categories of expense that the Company deems to be important to the understanding of operations.

 

Development Stage

 

The Company’s consolidated financial statements are presented as those of a development stage company. Activities during the development stage primarily include implementing the business plan and obtaining additional equity related financing.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact, among others, the following: valuation and potential impairment associated with intangible assets and estimates pertaining to the valuation allowance for deferred tax assets due to continuing, and expected future operating losses.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates, and those differences could be material.

 

Risks and Uncertainties

 

The Company’s operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.

 

Cash and Cash Equivalents

 

The Company maintains cash balances at a single financial institution. The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. Cash equivalents consisted of money market funds totaling $9,599 and $214,483 at March 31, 2014 and June 30, 2013, respectively.

 

Property and Equipment

 

Property and equipment is stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Depreciation is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:

 

Asset	Life / Years
Equipment	5 - 7
Furniture and fixtures	5
Computer software	5
Leasehold improvements	Lesser of 15 years or the term of the lease

 

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges taken during the nine months ended March 31, 2014 and March 31, 2013, and since inception.

 

Intangible Assets

 

The Company’s intangible assets consist of website development costs and domain names.

 

The Company accounts for website development costs in accordance with Accounting for Website Development Costs, wherein website development costs are segregated into three activities:

 

1)

Initial stage (planning), whereby the related costs are expensed.

 

2)

Development (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures.

 

3)

Post-implementation (after site is up and running: security, training, admin), whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality.

 

Amortization is provided utilizing the straight-line method over the three year estimated useful lives of these assets.

 

Domain names are not being amortized as they are determined to have indefinite lives.

 

Intangible assets are reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairment charges taken during the nine months ended March 31, 2014 and March 31, 2013, and since inception.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Revenue Recognition — The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of service has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of customer discounts ratably over the service period. Payments received in advance of services being rendered are recorded as deferred revenue and recognized over the service period. The Company generates revenue from the following sources:

 

Talent acquisition package revenues are derived from the sale, to recruiters and employers, of a combination of talent packages and access to a searchable database of candidates on the Openreq.com website. Certain of the Company’s arrangements include multiple deliverables, which consist of the ability to post jobs and access to a searchable database of candidates. The Company determines the units of accounting for multiple element arrangements in accordance with the Multiple-Deliverable Revenue Arrangements subtopic of the FASB ASC. Specifically, the Company will consider a delivered item as a separate unit of accounting if it has value to the customer on a standalone basis. Moving forward, the Company’s arrangements will not include a general right of return. Services to customers buying a package of available talent packages and access to the database are delivered over the same period and revenue is recognized ratably over the length of the underlying contract, typically from one to twelve months. The separation of the package into two deliverables results in no change in revenue recognition since delivery of the two services occurs over the same time period.

 

Advertising revenue is recognized over the period in which the advertisements are displayed on the websites or at the time the newsletter campaign is sent to its registered members.

 

Advertising and Marketing Expense

 

The Company’s policy is to expense advertising and marketing costs as incurred. Advertising and marketing expenses are as follows: 

 

		Nine Months Ended March 31								Three Months Ended March 31								October 13, 2009 (Inception) to
		2014				2013				2014				2013				March 31, 2014
Advertising		$	59,234			$	25,959			$	3,505			$	17,997			$	116,879
Marketing			431,864				277,745				55,989				150,332				1,029,490
		$	491,098			$	303,704			$	59,494			$	168,329			$	1,146,369

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.

 

Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.

 

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the statements of operations. There were no unrecognized tax benefits for the nine months period ended March 31, 2014 and 2013, and from October 13, 2009 (Inception) to March 31, 2014.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Share Based Payment Arrangements

 

Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. As shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum or monthly price observations have been utilized, as the use of daily price observations could be artificially inflated because of a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

Net Loss Per Share

 

Basic earnings per share (“EPS”) is computed by dividing the net loss attributable to the Company that is available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of warrants) and convertible debt or convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.

 

The Company had the following potential common stock equivalents (Note 11):

 

		March 31, 2014				June 30, 2013
Common stock warrants - ECI			10,000				2,480,500
Common stock warrants - ECHI			3,777,145				790,377
Unvested stock grants - ECI			0				478
Unvested stock grants - ECHI			130				890
Total common stock equivalents			3,787,275				3,272,245

Fair Market Value of Financial Instruments

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

The Company’s financial instruments consist primarily of prepaid expenses, accounts payable, accrued liabilities, and loans payable. The carrying amounts of the Company’s financial instruments generally approximated their fair values as of March 31, 2014 and June 30, 2013, respectively due to the short-term nature of these instruments and the Company’s borrowing rate of interest.

 

Recent Accounting Pronouncements

 

There are no new accounting pronouncements that have had a material impact on the Company’s financial statements.

 

Note 4 – Prepaid Expenses and Other Current Assets

 

Prepaid expenses consist of professional fees and subscription fees. Prepaid expenses are being amortized over the expected period of benefit. Other current assets consist of employee advances.

 

Note 5 – Property and Equipment

 

Property and equipment consist of the following:

 

		March 31, 2014				June 30, 2013
Equipment		$	172,348			$	169,204
Furniture & Fixtures			72,118				72,118
Leasehold Improvements			79,793				68,142
Computer Software			3,000				3,000
Less: Accumulated Depreciation			(90,131	)			(41,143	)
		$	237,128			$	271,321

 

Depreciation expense for the periods were as follows:

 

		Nine Months Ended								Three Months Ended								October 13, 2009
		March 31								March 31								(Inception) to
		2014				2013				2014				2013				March 31, 2014
Depreciation expense		$	48,988			$	35,207			$	16,509			$	12,253			$	102,364

 

Note 6 – Intangible Assets

 

Intangible assets consist of the following:

 

		March 31, 2014				June 30, 2013
Domain names		$	298,389			$	298,389
Website development costs			183,667				157,813
Less: Accumulated amortization			(42,280	)			(15,453	)
		$	439,776			$	440,749

 

Amortization expense for the periods was as follows:

 

		Nine Months Ended March 31								Three Months Ended March 31								October 13, 2009 (Inception) to
		2014				2013				2014				2013				March 31, 2014
Amortization expense		$	26,827			$	1,250			$	9,266			$	1,250			$	42,280

 

Certain of the website development costs totaling approximately $135,000 at March 31, 2014, were placed in service commencing in the fiscal year ended June 30, 2013 through December 31, 2013. Others will be placed in service in future years.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

The estimated future amortization expense of in service website development costs for the years ending June 30 are as follows:

 

		Amount
2014 (3 months)		$	10,000
2015			37,000
2016			46,000
Total		$	93,000

 

Note 7 –Notes Payable and Derivative Liabilities

 

The Company has received $415,000 from third parties under promissory notes. The notes bear interest at 10% of the principal amounts ($41,500 per year) with payment of the interest on a quarterly basis over the term of the respective note. Principal is to be paid upon maturity, which range from August to November of 2014. At March 31, 2014 accrued interest amounted to $21,522.

 

Effective December 17, 2013 the Company borrowed from Asher Enterprises, Inc. $83,500, less $3,500 for legal related costs. The note bears interest at 8% per annum from the issuance date (22% per annum default interest rate) and matures December 19, 2014. Commencing 180 days after issuance Asher has the right to convert the note in whole or in part into a variable amount of shares of common stock of the Company at 58% of the average of the lowest 3 closing bids during the 10 trading days prior to the conversion date.

 

The Note may be prepaid in whole together with accrued interest during the 180-day period commencing December 17, 2013. In the event that the Company exercises its option to prepay the Note, the Company will be obligated to pay Asher an amount equal to between 110% and 130% of the aggregate of the principal balance and accrued interest. The multiple is dependent upon the date of repayment.

 

Effective January 28, 2014, the Company borrowed from Asher Enterprises, Inc. $42,500, less $2,500 for legal related costs. The note bears interest at 8% per annum from the issuance date (22% per annum default interest rate) and matures October 30, 2014. Commencing 180 days after issuance Asher has the right to convert the note in whole or in part into a variable amount of shares of common stock of the Company at 58% of the average of the lowest 3 closing bids during the 10 trading days prior to the conversion date.

 

The Note may be prepaid in whole together with accrued interest during the 180-day period commencing January 28, 2014. In the event that the Company exercises its option to prepay the Note, the Company will be obligated to pay Asher an amount equal to between 110% and 130% of the aggregate of the principal balance and accrued interest. The multiple is dependent upon the date of repayment.

 

The Company is required to reserve shares of common stock, free of preemptive rights, at 5 times the number of shares actually issuable upon full conversion of the Note at the conversion price then in effect. The number of common shares issued upon conversion may not result in beneficial ownership by Asher in excess of 9.99% of the outstanding common shares of the Company, unless waived by Asher with 61 days notice to the Company.

 

Note 8 – Stockholders Equity

 

Preferred Stock – ECI

 

As of June 30, 2012, ECI had 1,000,000 shares of Preferred Stock authorized, $0.001 par value per share. In May 2012, 100,000 shares were designated as Series A and were issued to the CEO. The ECI Series A Preferred Stock was valued at $71,600 ($0.72/share) for the fair value of services rendered.

 

Each of the Preferred Shares entitled the CEO to 500 votes on any matter brought to a vote of the holders of the Company’s common stock, giving him voting control of ECI.

 

Series A Preferred Stock – Related Party

 

On May 1, 2013, ECHI issued 25,013 shares of a newly designated series of stock, Series A Preferred Shares, (the “New Series A Preferred Shares”) based upon an exchange ratio of 0.250138 newly issued shares of ECHI Series A Preferred Stock for every one share of ECI Series A Preferred Stock, to the CEO in exchange for the 100,000 ECI Series A Preferred Shares owned by the CEO.

 

Each of the New Preferred Shares entitles the CEO to 500 votes on any matter brought to a vote of the holders of the Company’s common stock, giving him 12,506,500 votes, not including additional votes he has through his ownership of shares of the Company’s common stock. Accordingly, the CEO has voting control of the Company.

 

Series A Preferred Stock has the following provisions:

 

●

Voting rights entitling the holder to 500 votes per share, which give the CEO voting control of the Company,

 

●

Non-convertible,

 

●

No rights to dividends,

 

●

No liquidation value,

 

●

Non-participating

 

●

Non-cumulative,

 

●

No put option; and

 

●

Non-redeemable.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Series B Convertible Preferred Stock

 

On July 26, 2013, the Company distributed a stock dividend to its common stockholders, whereby one restricted share of Series B Convertible Preferred Stock was issued for every one share of common stock held by ECHI stockholders, a total of 434,554 Series B Convertible Preferred shares. Each share of Series B Convertible Preferred Stock is convertible by the shareholder into 50 shares of common stock, will participate in any dividends declared by the Company for common stock on an as-if-converted-to-common stock basis, and may only vote on matters with respect to the Series B Convertible Preferred Stock on a non- cumulative basis, and subject to applicable restrictions. The fair value of these shares was determined to be $6.92 per share resulting in a dividend amounting to $3,007,115. As of March 31, 2014, 111,518 Series B Preferred Shares were converted into 5,575,900 shares of Common Stock (Note 11).

 

Common Stock  

 

ECI issued the following shares of common stock from October 13, 2009 (Inception) through June 30, 2010:  

 

Transaction Type		Quantity				Valuation
Services – related parties (1)			89,112			$	4,275

 

ECI issued the following shares of common stock for the year ended June 30, 2011:    

 

Transaction Type		Quantity				Valuation
Cash – third parties			3,431			$	102,101

 

ECI issued the following shares of common stock for the year ended June 30, 2012:                     

 

Transaction Type		Quantity				Valuation
Cash – related party			68,788			$	950,000
Cash – third parties			111,595				2,867,705
Direct offering costs – third parties (2)			3,127				96,000
Services – related party (2)			1,668				60,000
Services – third parties (1)			5,836				182,199
Services – third parties (1)			261				6,449
			191,275			$	4,162,353

 

(1)

Valuation was based upon the average cash price paid by third parties ranging from $.30 to $.75 of pre-reverse split prices, for common stock of ECI during the 30 day period preceding the service performance, as ECI was not yet traded publicly this represented the best evidence of fair value.

 

(2)

In 2012, $96,000 of these costs was paid in shares of common stock, resulting in a net adjustment to equity of $0. These shares were valued at $.64 of pre-reverse split prices.

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

The following is a summary of the Company’s and ECI’s restricted stock grants that are subject to vesting and forfeiture. Recognition and valuation of share-based payments occurs as services are received and are earned proportionately over a two-year term. Unvested, forfeitable shares are accounted for as unissued until vesting occurs (Note 11).

 

		Quantity				Vesting Schedule as of June 30,
Date of Grant		Granted				2012				2013				2014				2015
Feb. 2012			521				87				261				173				0
Mar. 2012			782				129				516				137				0
May 2012			27,079				2,083				24,996				0				0
Sept. 2012			521				0				195				264				62
			28,903				2,299				25,968				574				62

 

ECI issued the following shares of common stock for the period July 1, 2012 to April 11, 2013:                    

 

Transaction Type		Quantity Stock				Quantity Warrants				Valuation
Cash – third parties (1)			96,358				55,757			$	3,366,427
Services – third parties (2)			1,107				—				37,021
			97,465				55,757			$	3,403,448

 

(1)

Commencing in December 2012, ECI issued shares and warrants as a unit under a private placement memorandum. Each unit was offered at a price of $1.00 per Unit. Each Unit consisted of one share of common share and one common stock purchase warrant, entitling the holder to purchase one share of common stock at $1.00 per share. The purchase price was recorded at par for the common stock and additional paid-in capital was allocated between the prorated fair value of the common stock and the warrant. The warrants are exercisable through December 31, 2015. Effective October 1, 2013 ECI concluded its private placement memorandum and all outstanding warrants of consented shareholders were converted into ECHI warrants. The exercise price of the warrants remains at a $1.00 per share.

 

(2)

Valuation was based upon the average cash price paid by third parties for common stock during the 30-day period preceding the service performance, since the Company was not yet traded publicly; this represented the best evidence of fair value.

 

From April 12, 2013, through June 30, 2013, ECI issued common stock for cash in the amount of $457,500, and $3,854 for services rendered by third parties.

 

On April 11, 2013 the Company issued 324,556 shares of its common stock to the majority of the shareholders of ECI in connection with the reverse capitalization and cancelled and retired 4,260,690 pre-split shares owned by certain Barossa shareholders. The non-consenting shareholders of ECI that did not convert their shares to ECHI shares became non-controlling interests of ECI and their 57,878 shares were removed from the Company’s outstanding stock. This resulted in an increase of 39,451 post split shares of ECHI.

 

From July 1, 2013 through March 31, 2014, ECI issued common stock for cash in the amount of $ 632,101 .

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

ECI is currently a majority owned subsidiary of the Company. In September 2013, the Company’s Board of Directors approved an offering to the remaining stockholders of ECI to exchange their shares of ECI for shares of ECHI on a one-for-one basis. All ECI shareholders were also given the option to rescind their stock subscriptions for a refund of the full amount of all monies paid under their subscription. The offers to exchange or rescind expired December 15, 2013, as extended. Through March 31, 2014, 3,125,103 shares of ECI have been exchanged for the same amount of shares of ECHI. (Note 11).

 

From April 12, 2013 through June 30, 2013, the Company issued 261 common shares for services vested with a value of $1,665.

 

From July 1, 2013 through March 31, 2014 the Company issued the following common stock:

  

Transaction Type		Quantity				Valuation
Exercise of warrants			510,585			$	441,000
Exchange for ECI common stock			3,125,103				0
Issued for cash and subscription receivable			1,031,917				615,251
Issuance of common stock dividend			121,341				0
Conversion of Series B Preferred stock			5,575,900				0
Interest Expense			400,000				55,360
Services – third parties			55,521				7,684
			10,820,367			$	1,119,295

 

In November 2013, the Board of Directors determined that all outstanding warrants held by ECI shareholders that consent to conversion into ECHI stock and warrants would convert into warrants of ECHI, retroactive to October 1, 2013.

 

In November 2013, the Company issued a common stock dividend to the ECI shareholders in an amount equivalent to the number of shares of ECHI that these shareholders would have received had they been shareholders of ECHI on April 11, 2013 (the “Record Date”).

 

ECI and the Company paid direct offering costs since inception in the aggregate of $1,258,882, associated with capital raising activities.

 

Note 9 – Commitment and Contingencies

 

The Company executed an operating lease for office space in September 2012 expiring in January 2016. In August 2013, this lease was amended to add additional space to accommodate the Company’s growth, and expires in September 2018.

 

At March 31, 2014 the future rental commitments are approximately as follows:

 

Year ending June 30,

 

		Amount
2014 (3 months)		$	12,500
2015			51,000
2016			53,000
2017			55,000
2018			56,000
Thereafter			77, 000
Total		$	304,500

 

Rental expenses for the periods were as follows:

 

		Nine Months Ended March 31								Three Months Ended March 31								October 13, 2009 (Inception) to
		2014				2013				2014				2013				March 31, 2014
Rent expense		$	55,745			$	16,079			$	21,169			$	10,366			$	87,849

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Note 10 – Related Party Transaction

 

The Company’s Chief Executive Officer has loaned the Company a total of $169,282 of which $12,500 has been repaid. The loan is interest free and there is no maturity date.

 

During the nine and three months period ended March 31, 2014 and 2013, and from October 13, 2009 (Inception) to March 31, 2014, the Company paid fees to related and former related parties associated with capital raising activities and related consulting fees, as follows:

 

		Nine Months Ended March 31								Three Months Ended March 31								October 13, 2009 (Inception) to
Direct Offering Cost		2014				2013				2014				2013				March 31, 2014
Finder Fees - Related Parties		$	—			$	—			$	—			$	—			$	22,295
Finder Fees - Former Related Parties			131,056				102,531				—				—				796,991

 

During the nine and three months ended March 31, 2014 and 2013, and from October 13, 2009 (Inception) to March 31, 2014, the Company paid consulting fees to former and current related parties under agreements with the following provisions:

 

●

One year term,

 

●

Flat fee retainer,

 

●

Additional fees based on expanded services,

 

●

Services include shareholder relations and business strategy

 

The consulting fees paid to related party and former related parties during the periods are as follows:

 

Consulting Fees		Nine Months Ended March 31								Three Months Ended March 31								October 13, 2009 (Inception) to
		2014				2013				2014				2013				March 31, 2014
Related Parties		$	0			$	0			$	0			$	0			$	62, 900
Former Related Parties			146,621				173,336				0				0				1,455,402

eCareer Holdings, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
March 31, 2014
(unaudited)

 

Note 11 – Subsequent Events

 

(A) Common Stock

 

Subsequent to March 31, 2014, the Company issued the following shares of common stock:

 

Transaction Type		Quantity Stock				Valuation
Services – third parties (2) common stock			4,210			$	583
Conversion of Series B Preferred stock			1,240,350				0
Sale of Common Stock and Warrants (1)			591,332				435,000
			1,835,892			$	435,583

 

(1)

ECHI issued units, containing common stock and warrants, at prices ranging from $.60 to $1 per unit. The warrants have a $1.00 exercise price and expire on December 31, 2015. Each of the warrants in the units that were included in the exchange were converted to ECHI warrants. The Company has reserved shares to cover the possible exercise of the warrants. There are no embedded features in the warrants that would require treatment as a derivative liability.

 

(2)

Valuation is based upon an unrelated third party report.

 

Effective April 1, 2014, the Company entered into an agreement with an individual to provide advisory services to the Company’s Board of Directors.  The agreement provides for the immediate issuance of 100,000 restricted shares of the Company’s common stock that will vest ratably over 2 years.  Accordingly, these shares will be shown as issued but not outstanding until earned.

 

(B) Option to Rescind ECI Stock Subscriptions

 

The Board of Directors is offering the remaining stockholders of ECI to exchange their shares of ECI for shares of ECHI on a one-for-one basis or rescind their subscription agreement. As of May 11, 2014, the maximum amount of shares of ECI that may be rescinded is approximately 355,000, which could require the Company to pay approximately $206,000. Management believes that the probability of the shareholders rescinding their subscriptions is remote.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS

 

Cautionary Note about Forward-Looking Statements

 

Forward-Looking Statements

 

We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward- looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. You can identify these statements as those that may predict, forecast, indicate or imply future results, performance or advancements and by forward-looking words such as “believe,” “anticipate,” “expect,” “estimate,” “predict,” “intend,” “plan,” “project,” “will,” “will be,” “will continue,” “will result,” “could,” “may,” “might” or any variations of such words or other words with similar meanings. Forward-looking statements address, among other things, our expectations, our growth strategies, future profitability, results of operations, capital expenditures or other “forward-looking” information regarding our actions, plans or strategies. We are including this cautionary statement in this report to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf, of us.

 

Important factors that may cause actual results to differ from projections include, for example:

 

-

the success or failure of management’s efforts to implement the Registrant’s plan of operation;

 

-

the ability of the Registrant to fund its operating expenses;

 

-

the ability of the Registrant to compete with other companies that have a similar plan of operation;

 

-

the effect of changing economic conditions impacting our plan of operation;

 

-

the ability of the Registrant to meet the other risks as may be described in future filings with the SEC.

 

In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. We do not assume any obligation and do not intend to update any forward-looking statements except as may be required by securities laws.

 

General

 

The following analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements, including footnotes, and other information presented elsewhere in this report.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition.

 

Overview

 

We were incorporated in March 2005, as Barossa Coffee Company, under the laws of the State of Nevada. We were originally formed to open and operate, through a wholly-owned subsidiary, Alchemy Coffee Company, Inc. (“Alchemy”), a retail, specialty coffee outlet. We opened a retail coffee outlet in February 2006, specializing in the sale of high quality foods and beverages. Due to continuing cash needs, however, we spun off Alchemy in October 2006. In the spin off transaction, we transferred ownership of Alchemy to one of our stockholders in exchange for all his shares of our common stock. After this transaction, we had no business activity or operations, other than investigating potential acquisitions. Upon the acquisition of eCareer, Inc. (“ECI”), the business of ECI became our sole business. We are a developmental stage company with limited operations to date.

 

As a result of the transactions effected by the Exchange Agreement, as noted in Item 1, for financial statement reporting purposes, the exchange has been treated as a reverse acquisition with ECI deemed the accounting acquirer and BCCI deemed the accounting acquire. The reverse acquisition is deemed a capital transaction and the assets and liabilities of ECI are carried forward to the Company at their carrying value before the acquisition. The equity of the Company is the historical equity of ECI retroactively restated to reflect the number of shares issued by ECI using the capital structure of BCCI. Upon the closing of the Exchange Agreement, ECI became the operating company and BCCI abandoned all of its previous business plans, with the business of ECI now being the Company’s sole business. Accordingly, these financial statements present the operations only of ECI from inception through the date of the exchange (April 11, 2013) and on a consolidated basis for ECHI and ECI after the exchange, and the resulting non-controlling interest in ECI. All intra-company transactions have been eliminated on consolidation.

 

We are a website designer, developer and marketer of niche career sites. Our sites are designed to brand client companies to active and passive candidates within each identified niche. Site features include: industry news, social media groups, niche-specific content, webinars, events, training programs and consolidated industry statistics. Access to the site is free to users and revenue is generated through advertising, resume searches and a job board function. Our first site, Openreq ™, was publically launched on January 1, 2013.

 

Critical Accounting Policies

 

We use estimates throughout our consolidated financial statements. We consider an accounting estimate to be critical if: (1) the estimate requires us to make assumptions about the matters that are highly uncertain at the time the estimate is made or (2) changes in the estimate are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors. In addition there are other items within our financial statements that require estimation but are not deemed critical as defined above. Change in estimates could have an impact on our operations and financial position.

The accounting policies and estimates we consider most critical are presented below.

 

Development Stage - The Company’s financial statements are presented as those of a development stage company. Activities during the development stage primarily include implementing the business plan and obtaining additional equity related financing.

 

Revenue Recognition - The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of service has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of customer discounts ratably over the service period. Payments received in advance of services being rendered are recorded as deferred revenue and recognized over the service period. The Company generates revenue from the following sources:

 

Talent acquisition package revenues are derived from the sale, to recruiters and employers, a combination of talent packages and access to a searchable database of candidates on the Openreq.com website. Certain of the Company’s arrangements include multiple deliverables, which consist of the ability to post jobs and access to a searchable database of candidates. The Company determines the units of accounting for multiple element arrangements in accordance with the Multiple-Deliverable Revenue Arrangements subtopic of the FASB ASC. Specifically, the Company will consider a delivered item as a separate unit of accounting if it has value to the customer on a standalone basis. The Company’s arrangements do not include a general right of return. Services to customers buying a package of available talent packages and access to the database are delivered over the same period and revenue is recognized ratably over the length of the underlying contract, typically from one to 12 months. The separation of the package into two deliverables results in no change in revenue recognition since delivery of the two services occurs over the same time period.

 

Advertising revenue is recognized over the period in which the advertisements are displayed on the websites or at the time the newsletter campaign is sent to its registered members.

 

Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

 

Such estimates and assumptions impact, among others, the following: valuation and potential impairment associated with intangible assets and estimates pertaining to the valuation allowance for deferred tax assets due to continuing, and expected future operating losses.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates, and those differences could be material.

 

Intangible Assets - The Company’s intangible assets consist of website development costs and domain names.

 

The Company accounts for website development costs in accordance with Accounting for Website Development Costs, wherein website development costs are segregated into three activities:

 

1)

Initial stage (planning), whereby the related costs are expensed.

 

2)

Development (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures.

 

3)

Post-implementation (after site is up and running: security, training, admin), whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality.

 

Amortization is provided utilizing the straight-line method over the three year estimated useful lives of these assets.

Domain names are not being amortized as they are determined to have indefinite lives.

 

Intangible assets are reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairment charges taken during the nine months ended March 31, 2014 and 2013, and since inception.

 

Results of Operations – Nine months ended March 31, 2014 compared to March 31, 2013

 

Revenue for the nine months ended March 31, 2014, was $53,531 compared to $2,132 for the nine months ended March 31, 2013.

 

Net loss for the nine months ended March 31, 2014, was approximately $2.7 million or approximately $0.35 per share (basic and diluted) as compared to approximately $2.5 million, or approximately $7.77 per share (basic and diluted), for the nine months ended March 31, 2013. This increase in net loss of approximately $200,000 was primarily due to the changes in operating expenses.

 

Operating expenses for the nine months ended March 31, 2014, were approximately $2.8 million compared to approximately $2.5 million in operating expenses for the nine months ended March 31, 2013. Operating expenses for the nine months ended March 31, 2014, consist of approximately $681,000 of professional and consulting fees, approximately $1,062,000 of payroll expenses, approximately $491,000 of advertising and marketing, and approximately $533,000 of general and administrative expenses. This compares to operating expenses for the nine months ended March 31, 2013, of $2.5 million, which consist of approximately $1,118,000 of professional and consulting fees, approximately $694,000 of payroll expenses, approximately $304,000 of advertising and marketing expenses, and $352,000 of general and administrative expenses. The majority of these increases can be attributed to the start up costs associated with launching our first niche site openreq.com and raising capital.

 

Results of Operations – Three months ended March 31, 2014 compared to March 31, 2013

 

Revenue for the three months ended March 31, 2014, was $22,849 compared to $2,132 for the three months ended March 31, 2013.

 

Net loss for the three months ended March 31, 2014, was approximately $833,000 or approximately $0.08 per share (basic and diluted) as compared to approximately $1,099,000, or approximately $3.11 per share (basic and diluted), for the three months ended March 31, 2013. This decrease in net loss of approximately $266,000 was primarily due to the changes in operating expenses

 

Operating expenses for the three months ended March 31, 2014, were approximately $805,000 compared to approximately $1,102,000 in operating expenses for the three month ended March 31, 2013. Operating expenses for the three months ended March 31, 2014, consist of approximately $117,000 of professional and consulting fees, approximately $423,000 of payroll expenses, approximately $60,000 of advertising and marketing, and approximately $206,000 of general and administrative expenses. This compares to operating expenses for the three months ended March 31, 2013, of $1,102,000, consisting of approximately $495,000 of professional and consulting fees, approximately $282,000 of payroll expenses, approximately $168,000 of advertising and marketing expenses, and $156,000 of general and administrative expenses. The majority of these changes can be attributed to start up costs associated with launching our first niche site openreq.com and raising capital.

 

Liquidity and Capital

 

At March 31, 2014, we had cash of $9,599 as compared to $214,483 at June 30, 2013. Our working capital deficit at March 31, 2014, was approximately $1.2 million compared to $17,916 at June 30, 2013 an increase of approximately $1.2 million. The increase is primarily attributable to the operating net loss of approximately $2.7 million, and an increase in cash raised through exercise of common stock warrants of approximately $441,000, sale of subsidiary common stock and common stock warrants for approximately $632,000, sale of our common stock and common stock warrants for approximately $400,000, net of offering costs of $211,000, and net proceeds from loans of approximately $698,000.

 

For the nine months ended March 31, 2014, cash used in operating activities was approximately $2.3 million as compared to approximately $2.6 million for the nine months ended March 31, 2013. Our primary uses of cash from operating activities for the nine months ended March 31, 2014 and 2013, were losses from operations of approximately $2.8 million and $2.5 million, respectively.

 

Net cash used in investing activities for the nine months ended March 31, 2014, was approximately $40,000, predominantly from the purchase of property and equipment and intangible assets. This compares with net cash used in investing activities of approximately $563,000 for the nine months ended March 31, 2013, predominantly from the purchase of property and equipment and intangible assets.

 

Net cash provided by financing activities for the nine months ended March 31, 2014, was approximately $2.1 million, which included approximately $441,000 from the exercise of common stock warrants, approximately $632,000 from the sale of subsidiary common stock and warrants, sale of Company stock and warrants for approximately $400,000, net of offering costs of $211,000 and net proceeds from loans of approximately $698,000. For the nine months ended March 31, 2013, the net cash provided by financing activities was approximately $2.9 million, which included approximately $3.1 million from the issuance of common stock offset by offering costs of $235,000.

Current and Future Financing Needs

 

We have a stockholder’s deficit of approximately $571,000 at March 31, 2014, and have incurred a net loss of approximately $8.8 million since inception. Since March 31, 2014, we have raised additional capital through May 7, 2014, of approximately $435,000 through the sale of common stock and common stock purchase warrants.

 

We have incurred negative cash flow from operations since inception and have primarily financed our operations through the sale of common stock. At March 31, 2014, we had debt of $1.3 million and a working capital deficit of approximately $1.2 million. There is substantial doubt as to our ability to continue as a going concern as stated in Note 2 of the March 31, 2014 Notes to Condensed Consolidated Financial Statements. During the nine months ended March 31, 2014, we raised approximately $1.5 million (net of expenses of approximately $211,000) from the issuance of our and our subsidiary’s common stock and exercise of warrants. The capital was raised by both ECI and ECHI during the 3 months ended September 30, 2013 and only by ECHI from October through March. Since then we have raised an additional approximately $435,000 from the sale of common stock and common stock purchase warrants.

 

We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our advertising and marketing campaign, and fees in connection with regulatory compliance and corporate governance. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. Our cash outflow from operations averaged $267,000 a month for the nine months ended March 31, 2014.  During April and May 2014, we reduced our compensation and other expenses to effectuate a reduction in our operating cash outflow to an estimated $175,00 per month.  We will continue to monitor our expenses and take actions as may be required to manage our cash outflow from operations. We do not have sufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. If our anticipated sales for the next few months do not meet our expectations, our existing resources will not be sufficient to meet our cash flow requirements. Furthermore, if our expenses exceed our anticipations, we will need additional funds to implement our business plan. We will not be able to fully establish our business if we do not have adequate working capital so we will need to raise additional funds, whether through a stock offering or otherwise.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Our principal executive officer and principal financial officer are responsible for establishing and maintaining our disclosure controls and procedures. Such officers have concluded (based upon their evaluation of these controls and procedures as of the end of the period covered by this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including our principal executive and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer have also indicated that, upon evaluation, there were no changes in our internal control over financial reporting or other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.

RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the period ended June 30, 2013 filed October 4, 2013.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In April 2013 the Company issued 3,894,668 pre-split shares of its common stock in exchange for 15,570,077 shares of eCareer, Inc. Subsequent thereto, the Company has issued an additional 3,125,103 shares of its common stock in exchange for 3,125,103 shares of eCareer, Inc.

 

During the quarter ended September 30, 2013 we issued 1,252 shares of our common stock from the exercise of 1,252 warrants and received proceeds of $60,000.

 

During the quarter ended September 30, 2013 the Company issued 55,261 shares of our common stock for services rendered. The shares were valued at $0.1384 per share for $7,648.

 

On July 26, 2013 the Company issued 432,292 shares of our Series B Preferred Shares of which 58,957 were converted into 2,947,850 shares of common stock.

 

In July 2013 ECI issued 233,500 units, consisting of one share of common stock and one warrant, at $0.75 to $1.00 per unit, for $180,500, the warrants are exercisable at $1.00 per share.

 

In July 2013 ECI issued 2,000 shares of common stock at $1.00 per share for $2,000.

 

In August 2013 ECI issued 32,100 units, consisting of one share of common stock and one warrant, at $1.00 per unit, for $32,100, the warrants are exercisable at $1.00 per share.

 

In September 2013 ECI issued 64,750 units, consisting of one share of common stock and one warrant, at $1.00 per unit, for $64,750, the warrants are exercisable at $1.00 per share.

 

In August 2013 ECI issued 249,666 shares of common stock upon the exercise of warrants for $226,750.

 

In September 2013 ECI issued 127,000 shares of common stock upon the exercise of warrants for $127,000.

 

On August 9, 2013, the Company issued a promissory note in the amount of $100,000, which was repaid in December 2013.

 

During the quarter ended December 31, 2013 we issued 459,333 shares of our common stock from the exercise of warrants and received proceeds of $260,500.

 

During the quarter ended December 31, 2013 the Company issued 130 shares of our common stock for services rendered. The shares were valued at $0.1384 per share for $18.

 

During the quarter ended December 31, 2013, 49,629 shares of our Series B Preferred Shares were converted into 2,481,450 shares of common stock.

 

In October 2013, the Company issued 10,000 units, consisting of one share of common stock and one warrant at $1.00 per unit, for $10,000. The warrants are exercisable at $1.00 per share.

 

In December 2013, the Company issued 250 units, consisting of one share of common stock and one warrant at $1.00 per unit, for $26,250. The warrants are exercisable at $1.00 per share.

 

In December 2013, the Company issued 200,000 shares of common stock for $100,000.

 

In October 2013, the Company issued 16,000 shares of common stock for $16,000 upon the exercise of warrants.

 

In November 2013, the Company issued 183,333 shares of common stock for $137,500 upon the exercise of warrants.

 

In December 2013, the Company issued 260,000 shares of common stock for $197,500 upon the exercise of warrants.

 

Effective December 31, 2013, the Company issued a common stock dividend of 121,412 shares.

 

In November 2013, the Company issued 4 Promissory Notes in the aggregate amount of $300,000,

 

of which $120,000 was repaid during the quarter ended March 31, 2014.

 

In December 2013, the Company issued a convertible note totaling $83,500.

 

In January 2014, the Company issued a convertible note totaling $42,500.

 

During the quarter ended March 31, 2014 we issued 50,000 shares of our common stock from the exercise of warrants and received proceeds of $30,000.

 

During the quarter ended March 2014, the Company issued 795,667 units, consisting of one share of common stock and one warrant at prices ranging from $0.60 to $1.00 per unit, for $479,001. The warrants are exercisable at $1.00 per share.

 

During the quarter ended March 31, 2014 the Company issued 130 shares of our common stock for services rendered. The shares were valued at $0.1384 per share for $18.

 

During the quarter ended March 31, 2014, 2,932 shares of our Series B Preferred Shares were converted into 146,600 shares of common stock.

  

In March 2014, the Company issued 400,000 shares of common stock in lieu of interest of $55,360.

 

On January 3, 2014, the Company issued a promissory note in the amount of $100,000.

 

On January 27, 2014 the Company issued a promissory note in the amount of $10,000.

 

On March 13, 2014, the Company issued a promissory note in the amount of $125,000.

 

All funds raised pursuant to the sale of our securities were used for working capital purposes. At all times relevant:

 

- the sale was made to a sophisticated or accredited investor;

 

- we gave the purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which we possessed or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of information furnished;

 

- at a reasonable time prior to the sale of securities, we advised the purchaser of the limitations on resale of the securities; and

 

- neither we nor any person acting on our behalf sold the securities by any form of general solicitation or general advertising

 

In issuing the foregoing securities, we relied on the exemptive provisions of Section 4(2) of the Securities Act.

 

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5.

OTHER INFORMATION

 

None.

ITEM 6.

EXHIBITS

 

Exhibit No.		Description
2.1		Agreement and Plan of Reorganization dated August 30, 2012 (Incorporated by reference from Form 8-K filed with the SEC on September 6, 2012)
3.1		Articles of Incorporation (Incorporated by reference from Form SB-2/A filed with the SEC on July 27, 2005)
3.2		Amendment to Articles of Incorporation (Incorporated by reference from Form 8-K filed with the SEC on April 16, 2013)
3.3		Amendment to Articles of Incorporation (to effect reverse stock split) (Incorporated by reference from Form 8-K filed with the SEC on June 5, 2013)
3.4		By-Laws (Incorporated by reference from Form SB-2/A filed with the SEC on July 27, 2005)
31.1		Certification of principal executive officer required by Rule 13a – 14(1) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of principal financial officer required by Rule 13a – 14(1) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
32.2		Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definitions Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	eCareer Holdings, Inc.
Date: May 15, 2014	By:	/s/ Joseph Azzata
	Joseph Azzata
	Chief Executive Officer