Attached files

file filename
EX-31.1 - 30DC, INC.ex311.txt
EX-32.1 - 30DC, INC.ex321.txt
EX-32.2 - 30DC, INC.ex322.txt
EX-31.2 - 30DC, INC.ex312.txt
EXCEL - IDEA: XBRL DOCUMENT - 30DC, INC.Financial_Report.xls


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    FORM 10-K


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the fiscal year ended June 30, 2014
                                  Or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from _________ to _____________


                        Commission file number: 000-30999

                                   30DC, INC.
       ------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Maryland                                        16-1675285
----------------------------------                    ------------------------
 State or other jurisdiction of                           I.R.S. Employer
  incorporation or organization                         Identification No.

              80 Broad Street, 5th Floor, New York, New York 10004
      ---------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

               Registrant's telephone number, including area code:
                                 (212) 962-4400

           Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange
  Title of each class registered                      on which registered
----------------------------------                  ------------------------
         Not Applicable                                 Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

                              COMMON STOCK, $0.001
                              --------------------
                                (Title of class)




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. |_| 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 |_| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| 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 [___] Accelerated filer [___] ------------------------------ -------- --------------------------- ----------- Non-accelerated filer [___] Smaller reporting company [_X_] (Do not check if a smaller reporting company) ------------------------------ -------- --------------------------- ----------- Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $3,401,518 as of December 31, 2013. There were 76,853,464 shares outstanding of the registrant's Common Stock as of October 10, 2014.
TABLE OF CONTENTS PART I ITEM 1 Business 4 ITEM 1 A. Risk Factors 10 ITEM 1 B. Unresolved Staff Comments 16 ITEM 2 Properties 16 ITEM 3 Legal Proceedings 17 ITEM 4 Mine Safety Disclosures 17 PART II ITEM 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 ITEM 6 Selected Financial Data 19 ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 19 ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 26 ITEM 8 Financial Statements and Supplementary Data 26 ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27 ITEM 9 A. Controls and Procedures 27 ITEM 9 B Other Information 28 PART III ITEM 10 Directors, Executive Officers, and Corporate Governance 29 ITEM 11 Executive Compensation 32 ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39 ITEM 13 Certain Relationships and Related Transactions, and Director Independence 40 ITEM 14 Principal Accounting Fees and Services 41 PART IV ITEM 15 Exhibits, Financial Statement Schedules 42 SIGNATURES 43 -3-
NOTE ABOUT FORWARD-LOOKING STATEMENTS THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS, SUCH AS STATEMENTS RELATING TO OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, PLANS, OBJECTIVES, FUTURE PERFORMANCE AND BUSINESS OPERATIONS. THESE STATEMENTS RELATE TO EXPECTATIONS CONCERNING MATTERS THAT ARE NOT HISTORICAL FACTS. THESE FORWARD-LOOKING STATEMENTS REFLECT OUR CURRENT VIEWS AND EXPECTATIONS BASED LARGELY UPON THE INFORMATION CURRENTLY AVAILABLE TO US AND ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES. ALTHOUGH WE BELIEVE OUR EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS, THEY ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. BY MAKING THESE FORWARD-LOOKING STATEMENTS, WE DO NOT UNDERTAKE TO UPDATE THEM IN ANY MANNER EXCEPT AS MAY BE REQUIRED BY OUR DISCLOSURE OBLIGATIONS IN FILINGS WE MAKE WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FEDERAL SECURITIES LAWS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM OUR FORWARD-LOOKING STATEMENTS. PART I ITEM 1. BUSINESS ---------------- GENERAL THE FOLLOWING IS A SUMMARY OF SOME OF THE INFORMATION CONTAINED IN THIS DOCUMENT. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS DOCUMENT TO "WE," "US," "OUR," "30DC," OR THE "COMPANY" ARE TO 30DC, INC. UNLESS OTHERWISE INDICATED ALL AMOUNTS ARE UNITED STATES DOLLARS. 30DC, INC. F/K/A INFINITY CAPITAL GROUP, INC. On September 10, 2010, Infinity Capital Group, Inc., a Maryland Corporation, ("Infinity") entered into a Plan and Agreement of Reorganization (the "Agreement") with 30DC, Inc., a Delaware corporation, ("30DC DE") and the Shareholders of 30DC DE ("30DC DE Shareholders.") In exchange for 100% of the issued and outstanding shares of 30DC DE, Infinity issued 60,984,000 shares of its restricted common stock. The 30DC DE Shareholders received 13.2 shares of common stock of Infinity for every one share of 30DC DE. Infinity, as a result of the transaction, became the owning entity of 100% of the outstanding shares of common stock of 30DC DE. For purposes of accounting, 30DC DE was considered the accounting acquirer. The business of 30DC DE became the primary business of Infinity. Infinity was renamed 30DC, Inc. (Maryland) ("30DC" and together with its subsidiary "the Company."). 30DC DE was incorporated on October 17, 2008 in the state of Delaware, as a holding company, for the purpose of building, acquiring and managing international web-based sales and marketing companies. On July 15, 2009, 30DC DE completed the acquisitions of the business and assets of 30 Day Challenge ("30 Day") and Immediate Edge ("Immediate"). In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo Media, Ltd. ("Netbloo") for the MagCast Publishing Platform ("MagCast") which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on the digital distribution platforms Apple Newsstand and Google Play and includes executive training modules to develop and market a digital magazine. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which result in commission of 50% of gross revenue for those sales to the affiliate responsible for the sale. In October 2012 the Company reached an agreement to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that -4-
allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Effective February 28, 2014, the Company divested assets and liabilities that made up to Raine Ventures, LLC ("Raine") in exchange for the 10,560,000 common shares of the Company which Raine had held. Please see Note 3 for further details on the divestiture. 30DC offers internet marketing services and related training that help Internet companies in marketing and operating their businesses. 30DC's core business platforms are MagCast and Market Pro Max. Other revenue streams include sales of instructional courses and from commissions on third party products sold via introduction to the 30DC customer base of active online participants and subscribers which are referred to as affiliate marketing commissions. The Company has its principal office located at 80 Broad Street, 5th Floor, New York, New York 10004, and its telephone number is (212) 962-4400. The Company maintains a website at WWW.30DCINC.COM, such website is not incorporated into this document. BUSINESS MODEL The Company's long-term strategy is to increase the number of products it sells and services it offers while expanding the audience to which it markets those products and services. Historically, 30DC's approach has been to build its community of members through the Challenge, a free online internet marketing program which has been taken by nearly 200,000 people and continues to be available today. The course content in the Challenge is geared for anyone with an interest in internet marketing; participants might be interested in starting a brand new business, in extending an existing business to the online platform or to make improvements to an existing online business. Challenge participants become part of 30DC's base of customers to whom products and services are marketed. Offerings include: o MagCast and the Digital Publishing Blueprint training program o Market Pro Max and the Ultimate Product System training program o Subscription products priced around $50 per month, o Individual courses covering a range of topics such as driving traffic using Facebook 30DC also generates revenue by promoting third party internet marketing products and services to its base of customers during and after the Challenge. To expand the market for its products 30DC began a more comprehensive program of selling through affiliate marketing relationships during the year ended June 30, 2012. Approximately one-third of revenues were generated through affiliate sales during the year ended June 30, 2012. During the year ended June 30, 2013 the Company did not offer a full launch sale for the MagCast and affiliate sales were approximately one-fifth of revenue. During the year ended June 30, 2014 affiliate sales were approximately 40% of revenue. Affiliates promote 30DC's products to their own customer base and receive a commission from 30DC as a percentage of gross revenue which varies by product and subscription from 30% to 50%. To expand the number of products the Company sells and services it offers while limiting its upfront investment, 30DC developed collaborative arrangement product development relationships. In a typical collaborative arrangement, the cost and human resources devoted to product development will be borne by the collaborative arrangement partner and 30DC will provide marketing, sales, customer training and support. For example, with MagCast Publishing Platform the idea was jointly developed and Netbloo oversaw product development with input from 30DC. Revenue generated from a collaborative arrangement is split 50-50 after allowed costs such as affiliate commissions and processing fees. In -5-
addition to marketing and the other responsibilities noted above, 30DC manages the financial aspect of sales; managing merchant processor relationships, collecting funds and issuing refunds. The Company records all sales proceeds as gross revenue with payment to the collaborative arrangement partner reflected as a cost in operating expenses. As noted above, in October 2012 30DC reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and at that point in time, MagCast ceased to be a collaborative arrangement. During the fiscal year ended June 30, 2014, the company expanded its own development capabilities and now generates most of the products offered for sale by utilizing internal resources. HISTORY & PRODUCT OFFERINGS The Company started in 2005 by offering a free internet marketing educational program that was originally known as the 30 Day Challenge and has evolved into the Company's current Challenge program. The Challenge program is an interactive education program which includes 30 days of instruction and incorporates weekly breaks for participants to put into practice the concepts they learn from the course. Participants are given the framework and guidance to design and develop an Internet business with modules on a range of topics including researching markets (including competition and opportunity), identifying and sustaining niche markets, utilizing social media to build your business and many other subjects pertinent to Internet marketing. There are no prerequisites to taking the course and participants come from around the globe. The Challenge has predominately grown through its own viral marketing campaign whereby members of its existing community spread word of the 30 Day Challenge through email and social media, including Twitter, Facebook, FriendFeed and blogs focused on internet marketing. The growth in participants has resulted in a targeted community to which the 30 Day markets products and services such as MagCast, Market Pro Max, an Internet marketing forum which is sold on a subscription basis, individual content specific courses as well as third party products. As a third party affiliate, 30 Day Challenge earns commissions ranging between 20% and 75% on sales of internet marketing products and services. MagCast resulted from the collaboration of 30DC and Netbloo and fits the model of joint venture product development with limited cost and risk to the Company. MagCast is also an example of a product which is relevant to the Company's historical internet marketing customer base but is also of interest to a much broader audience and thereby increases the potential number of customers. Since the Challenge originated, 30DC has marketed third party products for a number of other producers of information products for the internet marketing industry and for service providers to internet-based businesses such as hosting companies. 30DC has developed a working relationship with a number of these companies that they are now serving as affiliates for 30DC by marketing 30DC's products to their own customer bases. In May 2012, the Company signed a joint venture agreement ("JV Agreement") with Netbloo for MagCast which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on Apple Corporation's online marketplace Apple Newsstand. In October 2012, the Company reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. MagCast has a dedicated development team which does a combination of software maintenance and development of new product features. Initially Apps created using MagCast were only available to our customer's readers in Apple iPad devices. MagCast Version 4 released in June 2013 included a version designed to be read on iPhones which increased the potential audience for our customers from 150 million to 650 million. MagCast version 6 released in July 2014 enables customers to publish on Google Play where their digital magazine is available to users of Android Devices. -6-
The Company provides extensive training with its products and believes its history as an ecommerce education company separates it from competitors. Digital Publishing Blueprint is a complete training program that includes MagCast and provides instruction in developing and marketing a digital publication. Ultimate Product System is complete training program which includes Market Pro Max and provides instruction on operating a digital business. TECHNOLOGY AND INTELLECTUAL PROPERTY 30 Day employs proprietary technologies to support the viral growth of the community and membership numbers and to support sales of proprietary and third party products. The platform includes a significant amount of self-designed and developed content and software/code solutions for both internal and subscriber use. The free Challenge program has been taped and the video content had been distributed to a hosted platform (YouTube) to widen the awareness of the Company and to increase the potential for search engine optimization (leading to better search engine rankings) and ultimately increased website traffic. The intellectual property of 30 Day includes the Challenge community database, containing nearly 100,000 contacts with interests in internet marketing and e-commerce topics, the content library developed over the past nine years and multiple web sites including the principal web site of the Challenge which is www.Challenge.co. MagCast is a cloud-based service to create an application ("App") to publish a digital magazine and includes executive training modules. Digital Publishing Blueprint is a training program to publish and market a digital publication. The software code, domain names and websites to operate MagCast, Digital Publishing Blueprint and the executive training modules are all proprietary to 30DC. The Company has trademarks for the names MagCast and MagCast App. Market Pro Max is an online marketing platform to create digital products and build a variety of eCommerce marketing websites. Ultimate Product System is a training program to for Market Pro Max and operating a digital product business. The software code, domain names and websites to operate Market Pro Max and the Ultimate Product System are all proprietary to 30DC. GROWTH OPPORTUNITIES MagCast was launched in May 2012 and targeted our potential customers who want to market to the growing base of Apple i-Pad users. MagCast Version 4 released in June 2013 included a version designed to be read on iPhones which increased the potential audience for our potential customers to reach from 150 million to 650 million potential customers. MagCast version 6 released in July 2014 enables customers to publish on Google Play where their digital magazine is available to users of Android Devices. MagCast was initially been sold to the Company's historical and existing customer base. The Company believes there is strong future growth to additional customers in the internet marketing industry as well as to customers in new market segments. The Company has begun targeting corporate customers (businesses and nonprofits) offline and believes MagCast offers enhanced capabilities and a cost-effective alternative to existing print publications. Market Pro Max was acquired as part of the Netbloo asset acquisition in October 2012. During the year ended June 30, 2014, the Company launched the Ultimate Product System training program which includes Market Pro Max. Taken together, Market Pro Max and Ultimate Product System grew more than 500% in revenue during the year ended June 30, 2014 compared to the year ended June 30, 2013. The Company believes the increase in Market Pro Max users indicates a level of market acceptance and has now begun marketing Market Pro Max and ultimate Product System through advertising to reach a broader audience to continue sales growth. -7-
THE MARKET The worldwide demand for online information and products has grown with the increasing availability of high speed internet, mobile communications and general increase of computing across the globe. New online businesses are starting every day and these entrepreneurs are potential customers for the Company's offerings. With the May 2012 launch of the MagCast Publishing Platform, the Company began selling products which are applicable not only to its historical customer base in the internet marketing industry but to a much wider audience of potential customers. Anyone looking to market to the growing number of Apple iPad and iPhone users is a potential customer for MagCast. Total unit sales of iPads and iPhones now exceed 750 million. With the release of MagCast version 6 in July 2014 the Company can now target customer who want to market to Android users and those who require both Apple and Android versions of their digital publication such as member organizations. To penetrate this market, the Company initially launched MagCast by selling through affiliate arrangements with other marketing companies that have introduced MagCast to their customer bases through custom webinars and bonus products specifically tailored to the target audience. The majority of MagCast customers are self-publishers who have never previously published a magazine. MagCast provides substantial training modules and offers additional services to help new publishers succeed. The training and services help a customer to publish their magazine and with marketing to attract subscribers. Other ways for the Company to expand its marketing include paying for traffic generation to its web sites or for leads to promote its products through targeted e-mails. The Company has begun test marketing online advertising which has become more sophisticated and enables segmenting of target customers who are more likely to be interested in the Company's products. The initial online advertising testing has been focused on Market Pro Max and the related training program Ultimate Product System. COMPETITION The Company's two major product offerings are MagCast which is sold on its own and with the Digital Publishing blueprint training program and Market Pro Max which is sold on its own and with the Ultimate Product System training program. Until recently, MagCast has primarily been targeted to Internet marketers, who wanted to not just publish content, but also build lists and sell products. Though 30DC will continue to pursue this market, the company sees larger opportunities in expanding MagCast's reach to broader markets, including small content publishers who are mainly interested in content, corporations (primarily small to medium size) who want to publish communications such as annual reports, brochures and catalogues, and corporate resellers through its MagCast Certified Professionals (MCP) program. The competition includes companies with focuses on print to digital (for example Adobe Publishing Suite), corporate communications (for example mag+), education (usually a secondary market), niche publications (for example Page Suite), content creation to mobile (for example Joomag), blogging (for example Glipho) and a new contender that enables companies to create and share a mobile business library (Publ.com). Coming from the Internet marketer space, one of MagCast's strengths is its ecommerce capabilities; though there are many competitors with ecommerce capabilities, a number of these are not as robust. Beyond the MCP program, MagCast continues to be aimed primarily toward those who know little about publishing or creating digital content, do not know code, HTML or design programs, yet want to produce original content. MagCast recently made Native the default method to produce original content right within the MagCast platform, and this is already seen by industry watchers as a big step forward. -8-
Market Pro Max is a user friendly platform anyone can use to quickly develop professional looking web sites and sell courses, products and information. It provides users with marketing templates for squeeze pages, value pages and more, and also enables them to build forums, blogs and members-only areas where their customers can download and view paid courses and products. Users may also integrate Market Pro Max elements with their current web site, as well as building a complete web site with the product. Market Pro Max is primarily being sold as part of the Ultimate Product System course, which includes substantial training videos. Ultimate Product System comes with a license for one Market Pro Max web site and customers can purchase additional sites to market additional products. Competitors include, Kajabi, which was first on the market. Kajabi is also known for their training, though they bring outside experts and call it "Kajabi University." Rainmaker is a new product from Copyblogger that is being marketed as much like Market Pro Max and Kajabi. OptimizePress is a more limited competitor. It's a WordPress theme that sells for a one-time fee and is significantly less expensive than Market Pro Max, Kajabi or Rainmaker. It is not nearly as feature rich as Market Pro Max. For example, it cannot form a password protected member's only area and also does not have the number of options available for squeeze pages as Kajabi or Market Pro Max. MagCast and Market Pro Max are synergistic. A marketer could produce a MagCast publication in order to gain readership and credibility and to develop niche sales leads. Using Market Pro Max, the marketer could then direct a focused campaign to those leads and point them to easily created landing pages offering related online courses, affiliate offers, various products and even an online community of like-minded enthusiasts. So for those who can benefit from both ecommerce and publishing, there is a good reason to choose Market Pro Max over other competitors. INTELLECTUAL PROPERTY The Company's assets consist primarily of property and equipment, goodwill and internally developed intangible property such as domain names, websites, customer lists, copyrights and trademarks. We do not hold any patents or patent applications. The Company holds the following Trademark Applications: -------------- ----------------------- ---------------- ----------------------- TRADEMARK APPLICATION FILED NUMBER TRADEMARK STATUS -------------- ----------------------- ---------------- ----------------------- United States 85-647,512 MAGCAST APP Registered Application -------------- ----------------------- ---------------- ----------------------- United States 85-724,908 MAGCAST Pending Registration -------------- ----------------------- ---------------- ----------------------- EMPLOYEES As of June 30, 2014, we had approximately 11 employees and contractors. Our employees and contractors are located both in the United States and in our offshore offices. -9-
ITEM 1A. RISK FACTORS --------------------- RISKS RELATING TO OUR BUSINESS AND STRUCTURE RISKS RELATED TO OUR BUSINESS AND INDUSTRY THE COMPANY HAS A LIMITED OPERATIONAL HISTORY. We have a limited history upon which an evaluation of our prospects and future performance can be made. Our proposed operations are subject to all business risks associated with new enterprises. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the expansion of a business operation in an emerging industry, and the continued development of advertising, promotions, and a corresponding customer base. There is a possibility that we could sustain losses in the future, and there are no assurances that we will ever operate profitably. GOING CONCERN The consolidated financial statements included herein have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of June 30, 2014, the Company has a working capital deficit of approximately $1,551,000 and has accumulated losses of approximately $3,085,000 since its inception. Its ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due. In the past few years, the Company switched its focus to developing its own products. In May 2012, the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. In April of 2014, the Company began offering the Ultimate Product System which incorporates 30DC's digital marketing platform Market Pro Max. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. To fund working capital for the next twelve months, the Company expects operations to continue to improve through increased sales of MagCast and Market Pro Max and their related training courses, to settle additional liabilities using the Company's stock and to raise additional capital. -10-
THE COMPANY MAY NEED ADDITIONAL FINANCING FOR WHICH 30DC HAS NO COMMITMENTS, AND THIS MAY JEOPARDIZE EXECUTION OF THE COMPANY'S BUSINESS PLAN. 30DC has limited funds, and such funds may not be adequate to carry out the business plan. The Company's ultimate success depends upon its ability to raise additional capital. The Company has not investigated the availability, source, or terms that might govern the acquisition of additional capital and will not do so until it determines a need for additional financing. If the Company needs additional capital, it has no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to the Company. If not available, 30DC's operations will be limited to those that can be financed with its modest capital. WE WILL INCUR EXPENSES IN CONNECTION WITH OUR SEC FILING REQUIREMENTS AND WE MAY NOT BE ABLE TO MEET SUCH COSTS, WHICH COULD JEOPARDIZE OUR FILING STATUS WITH THE SEC. As a public reporting company we are required to meet the filing requirements of the SEC. We estimate accounting and legal expenses on an annualized basis to be approximately $150,000, which includes both the annual audit and the review of the quarterly reports by our auditors. These costs can increase significantly if the Company is subject to comment from the SEC on its filings and/or we are required to file supplemental filings for transactions and activities. During the last two years, we have been unable to meet our filing requirements on a timely basis. If we continue to be unable to meet our filing requirements or are not compliant in meeting the filing requirements of the SEC, we could lose our status as a 1934 Act Company, which could compromise our ability to raise funds. WE ARE HIGHLY DEPENDENT ON THE SERVICES OF KEY PERSONNEL. Our success depends and will depend on the efforts and abilities of Edward Dale, our President, Chief Executive Officer and a Director, and Netbloo Media, Ltd., a contractor that co-developed MagCast. The loss of either of them would have a material adverse effect on us. Our success also depends upon our ability to attract and retain qualified personnel required to fully implement our business plan. There can be no assurance that we will be successful in these efforts. 30DC'S OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST WHICH MAY NOT BE RESOLVED FAVORABLY TO THE COMPANY. Certain conflicts of interest may exist between 30DC and its officers and directors. The Company's Officers and Directors have other business interests to which they devote their attention and may be expected to continue to do so although management time should be devoted to 30DC business. As a result, conflicts of interest may arise that can be resolved only through exercise of such judgment as is consistent with fiduciary duties to 30DC. See "Directors and Executive Officers". WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY. We must continually implement and improve our products and/or services, operations, operating procedures and quality controls on a timely basis, as well as expand, train, motivate and manage our work force in order to accommodate anticipated growth and compete effectively in our market segment. Successful implementation of our strategy also requires that we establish and manage a competent, dedicated work force and employ additional key employees in corporate management, product design, client service and sales. We can give no assurance that our personnel, systems, procedures and controls will be adequate to support our existing and future operations. If we fail to implement and improve these operations, there could be a material, adverse effect on our business, operating results and financial condition. -11-
IF WE DO NOT CONTINUALLY UPDATE OUR PRODUCTS, THEY MAY BECOME OBSOLETE AND WE MAY NOT BE ABLE TO COMPETE WITH OTHER COMPANIES. The Internet and online commerce industries are characterized by rapid technological change, changing market conditions and customer demands, and the emergence of new industry standards and practices that could render our existing Web site and proprietary technology obsolete. Our future success will substantially depend on our ability to enhance our existing services, develop new services and proprietary technology and respond to technological advances in a timely and cost-effective manner. The development of other proprietary technology entails significant technical and business risk. There can be no assurance that we will be successful in developing and using new technologies or adapt our proprietary technology and systems to meet emerging industry standards and customer requirements. If we are unable, for technical, legal, financial, or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, or if our new products and electronic commerce services do not achieve market acceptance, our business, prospects, results of operations and financial condition would be materially adversely affected. We cannot assure you that we will be able to keep pace with technological advances or that our products will not become obsolete. We cannot assure you that competitors will not develop related or similar products and bring them to market before we do, or do so more successfully, or that they will not develop technologies and products more effective than any that we have or are developing. If that happens, our business, prospects, results of operations and financial condition will be materially adversely affected. WE RELY ON PROPRIETARY RIGHTS. We regard substantial elements of our web sites and underlying technology as proprietary. Despite our precautionary measures, third parties may copy or otherwise obtain and use our proprietary information without authorization, or develop similar technology independently. Any legal action that we might bring or other steps we might take to protect this property could be unsuccessful, expensive and distract management from day-to-day operations. Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and evolving, and we can give no assurance regarding the future viability or value of any of these proprietary rights. SYSTEMS FAILURES COULD HARM OUR BUSINESS. Temporary or permanent outages of our computers or software equipment could have an adverse effect on our business. Although we have not experienced any catastrophic outages to date, we currently do not have fully redundant systems for our web sites and other services at an alternate site. Therefore, our systems are vulnerable to damage from break-ins, unauthorized access, vandalism, fire, earthquakes, power loss, telecommunications failures and similar events. Experienced computer programmers seeking to intrude or cause harm, or hackers, may attempt to penetrate our network security from time to time. Although we have not experienced any catastrophic security breaches to date, if a hacker were to penetrate our network security, they could misappropriate proprietary information, cause interruptions in our services, dilute the value of our offerings to customers and damage customer relationships. We might be required to expend significant capital and resources to protect against, or to alleviate, problems caused by hackers. We also may not have a timely remedy against a hacker who is able to penetrate our network security. In addition to purposeful security breaches, the inadvertent transmission of computer viruses could expose us to system damage, operational disruption, loss of data, litigation and other risks of loss or harm. -12-
WE DEPEND ON CONTINUED PERFORMANCE OF AND IMPROVEMENTS TO OUR COMPUTER NETWORK. Any failure of our computer systems that causes interruption or slower response time of our web sites or services could result in a smaller number of users of our web sites. If sustained or repeated, these performance issues could reduce the attractiveness of our web sites to consumers and our subscription products and services. Increases in the volume of our web site traffic could also strain the capacity of our existing computer systems, which could lead to slower response times or system failures. We may not be able to project accurately the rate, timing or cost of any increases in our business, or to expand and upgrade our systems and infrastructure to accommodate any increases in a timely manner. INTERNET COMMERCE SECURITY THREATS COULD POSE A RISK TO OUR ONLINE SALES AND OVERALL FINANCIAL PERFORMANCE. A significant barrier to online commerce is the secure transmission of confidential information over public networks. We and our partners rely on encryption and authentication technology to provide the security and authentication necessary to effect secure transmission of confidential information. There can be no assurance that advances in computer capabilities; new discoveries in the field of cryptography or other developments will not result in a compromise or breach of the algorithms used by us and our partners to protect consumer's transaction data. If any such compromise of security were to occur, it could have a materially adverse effect on our business, prospects, financial condition and results of operations. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and the privacy of users may also hinder the growth of online services generally, especially as a means of conducting commercial transactions. To the extent that our activities, our partners or third-party contractors involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. There can be no assurance that our security measures will not prevent security breaches or that failure to prevent such security breaches will not have a materially adverse effect on our business, prospects, financial condition and results of operations. RISK OF CAPACITY CONSTRAINTS; RELIANCE ON INTERNALLY DEVELOPED SYSTEMS; SYSTEM DEVELOPMENT RISKS. A key element of our strategy is to generate a high volume of traffic on, and use of, our services across our network infrastructure and systems. Accordingly, the satisfactory performance, reliability and availability of our software systems, transaction-processing systems and network infrastructure are critical to our reputation and our ability to attract and retain customers, as well as maintain adequate customer service levels. Our revenues depend on the number of visitors who sign up for our services. Any systems interruptions that result in the unavailability of our software systems or network infrastructure would reduce the volume of sign ups and the attractiveness of our service offerings. We may experience periodic systems interruptions from time to time. Any substantial increase in the volume of traffic on our software systems or network infrastructure will require us to expand and upgrade further our technology, transaction-processing systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our Web site or timely expand and upgrade our systems and infrastructure to accommodate such increases. We will use a combination of industry supplied software and internally developed software and systems for our search engine, distribution network, and substantially all aspects of transaction processing, including order management, cash and credit card processing, and accounting and financial systems. Any substantial disruptions or delays in any of our systems would have a materially adverse effect on our business, prospects, financial condition and results of operations. -13-
THERE ARE RISKS ASSOCIATED WITH OUR DOMAIN NAMES. We currently hold various Web domain names relating to our brand. The acquisition and maintenance of domain names is generally regulated by governmental agencies and their designees. The regulation of domain names in the United States and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, there can be no assurance that we will be able to acquire or maintain relevant domain names in all of the countries in which it conducts business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We, therefore, may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our proprietary rights. Any such inability could have a materially adverse effect on our business, prospects, financial condition and results of operations. STORAGE OF PERSONAL INFORMATION ABOUT OUR CUSTOMERS COULD POSE A SECURITY THREAT. Our policy is not to willfully disclose any individually identifiable information about any user to a third party without the user's consent. This policy is accessible to users of our services when they initially register. Despite this policy, however, if third persons were able to penetrate our network security or otherwise misappropriate our users' personal information or credit card information, we could be subject to liability. These could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims. They could also include claims for other misuses of personal information, such as for unauthorized marketing purposes. These claims could result in litigation. In addition, the Federal Trade Commission and other states have been investigating certain Internet companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the use of personal information are introduced or if they chose to investigate our privacy practices. WE FACE POSSIBLE LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITES. We may be subjected to claims for defamation, negligence, copyright or trademark infringement or based on other theories relating to the information we publish on our Web site and across our distribution network. These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We could also be subjected to claims based upon the content that is accessible from our Web sites and distribution network through links to other Web sites. WE HAVE AGREED TO INDEMNIFY OUR OFFICERS AND DIRECTORS AGAINST LAWSUITS. Our operating subsidiary is a Delaware corporation. Delaware law permits the indemnification of officers and directors against expenses incurred in successfully defending against a claim. Delaware law also authorizes Delaware corporations to indemnify their officers and directors against expenses and liabilities incurred because of their being or having been an officer or director. Our organizational documents provide for this indemnification to the fullest extent permitted by law. We currently do not maintain any insurance coverage. In the event that we are found liable for damage or other losses, we would incur substantial and protracted losses in paying any such claims or judgments. We have not maintained liability insurance in the past, but intend to acquire such coverage immediately upon resources becoming available. There is no guarantee that we can secure such coverage or that any insurance coverage would protect us from any damages or loss claims filed against it. -14-
IF WE ENGAGE IN ANY ACQUISITION, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER REALIZE THE ANTICIPATED BENEFITS OF THE ACQUISITION. We intend to acquire businesses, technologies, services or products or license technologies that we believe are a strategic fit with our business, though none have been identified at the time of this filing, other than the Netbloo transaction. We have limited experience in identifying acquisition targets, and successfully completing and integrating any acquired businesses, technologies, services or products into our current infrastructure. The process of integrating any acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may divert significant management attention from our ongoing business operations. As a result, we will incur a variety of costs in connection with an acquisition and may never realize our anticipated benefits. WE MAY ENGAGE IN TRANSACTIONS THAT PRESENT CONFLICTS OF INTEREST. The Company and officers and directors may enter into agreements with the Company from time to time which may not be equivalent to similar transactions entered into with an independent third party. A conflict of interest arises whenever a person has an interest on both sides of a transaction. While we believe that it will take prudent steps to ensure that all transactions between the Company and any officer or director is fair, reasonable, and no more than the amount it would otherwise pay to a third party in an "arms-length" transaction, there can be no assurance that any transaction will meet these requirements in every instance. THE COMPANY MAY IN THE FUTURE ISSUE MORE SHARES WHICH COULD CAUSE A LOSS OF CONTROL BY ITS PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS. 30DC may issue further shares as consideration for the cash or assets or services out of its authorized but unissued common stock that would, upon issuance, represent a majority of the voting power and equity of the Company. The result of such an issuance would be those new stockholders and management would control the Company, and persons unknown could replace the Company's management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of 30DC by its current shareholders, which could present significant risks to investors. THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES. The Company is a "penny stock" company. Our securities currently trade over the counter ("OTC") on the OTC Pink market operated by OTC Market Group, Inc and are subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of shareholders to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions. In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute "penny stocks" within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities -15-
in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions. Shareholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. THE COMPANY WILL PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE. The Company has not paid dividends on our common stock and does not anticipate paying such dividends in the foreseeable future. OUR INVESTORS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES FOR VARIOUS CONSIDERATIONS IN THE FUTURE. There may be substantial dilution to our shareholders a result of future decisions of the Board to issue shares without shareholder approval for cash, services, or acquisitions. ITEM 1B. UNRESOLVED STAFF COMMENTS ---------------------------------- Not Applicable. ITEM 2. PROPERTIES ------------------ FACILITIES The current corporate address is 80 Broad Street, 5th Floor, New York, New York 10004. The telephone number is 212-962-4400. The Company entered into a new lease effective March 2011 for twelve months which was renewed in March 2014 for twelve months. The lease is non-cancellable with a minimum monthly payment of $99 and provision for additional charges for use of facilities and services utilized on an as-needed basis. Rent expense incurred under the lease in the years ended June 30, 2014 and 2013 was approximately $1,521 and $1,188, respectively. REAL PROPERTY None. MINERAL PROPERTIES None. -16-
ITEM 3. LEGAL PROCEEDINGS ------------------------- 30DC anticipates that it (including any future subsidiaries) will from time to time become subject to claims and legal proceedings arising in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings and 30DC cannot assure that their ultimate disposition will not have a materially adverse effect on the Company's business, financial condition, cash flows or results of operations. The Company is not a party to any pending legal proceedings, nor is the Company aware of any civil proceeding or government authority contemplating any legal proceeding as of the date of this filing. ITEM 4. MINE AND SAFETY DISCLOSURES ----------------------------------- Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES -------------------------------------------------------------------------------- The Company's common stock is presently traded over the counter ("OTC") on the OTC Pink market operated by OTC Market Group, Inc. Our trading symbol is "TDCH." The following table sets forth the range of high and low closing prices for the common stock of each full quarterly period during the years ended June 30, 2014 and 2013. The quotations were obtained from information published by the FINRA and reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. MARKET INFORMATION FISCAL YEAR ENDED JUNE 30, 2014: HIGH LOW ----------- ------------- Quarter Ended September 30, 2013 $0.23 $0.05 Quarter Ended December 31, 2013 $0.32 $0.08 Quarter ended March 31, 2014 $0.15 $0.08 Quarter ended June 30, 2014 $0.14 $0.08 HIGH LOW FISCAL YEAR ENDED JUNE 30, 2013: ------------ ------------- Quarter Ended September 30, 2012 $0.10 $0.05 Quarter Ended December 31, 2012 $0.15 $0.06 Quarter Ended March 31, 2013 $0.15 $0.05 Quarter Ended June 30, 2013 $0.09 $0.01 HOLDERS As of June 30, 2014, the Company had approximately 133 holders of record of the Common Stock. Since a portion of the Company's common stock may be held in "street" or nominee name, the Company is unable to determine the exact number of beneficial holders. DIVIDEND POLICY The Company currently anticipates that it will retain all of its earnings to finance the operation and expansion of its business, and therefore does not intend to pay dividends on its Common Stock in the foreseeable future. Since its inception, the Company has never declared or paid any cash dividends on its Common Stock. Any determination to pay dividends in the future is at the -17-
discretion of the Company's Board of Directors and will depend upon the Company's financial condition, results of operations, capital requirements, limitations contained in loan agreements and such other factors as the Board of Directors deems relevant. RECENT SALES OF UNREGISTERED SECURITIES We made unregistered sales and issuances of our securities during the years ended June 30, 2014 and 2013 as follows. During the year ended June 30, 2014, the Company issued common stock and stock options as follows: TITLE OF NO. OF CLASS OF DATE OF PURCHASE SECURITIES SHARES CONSIDERATION PURCHASER ----------------- ------------- --------- ------------- ---------- September 9, 2013 Common Stock 300,000 $48,000 Vendor August 24, 2013 Common Stock 26,525 $6,101 Creditor November 4, 2013 Common Stock 100,000 $22,000 Creditor During the year ended June 30, 2013, the Company issued common stock and stock options as follows: TITLE OF NO. OF CLASS OF DATE OF PURCHASE SECURITIES SHARES CONSIDERATION PURCHASER ----------------- ------------- --------- ------------- ---------- July 15, 2012 Common Stock 500,000 $45,000 Director* October 11, 2012 Stock Options 1,500,000 $-0- Director October 11, 2012 Stock Options 1,500,000 $-0- Officer/ Director October 24, 2012 Common Stock 13,487,363 $1,078,989 Affiliate November 20, 2012 Common Stock 15,385 $2,000 Vendor June 26, 2013 Common Stock 55,770 $14,500 Vendor *Issued to GHL, Ltd. whose President, Gregory Laborde, is a director of the Company. ISSUER PURCHASES OF EQUITY SECURITIES 30DC, Inc. did not repurchase any shares of its common stock during the years ended June 30, 2014 and 2013 During the year ended June 30, 2014, the Company divested the Immediate Edge business for which the consideration was 10,560,000 of the Company's commons shares returned to the Company by Raine Ventures, LLC such shares have been canceled. -18-
TITLE OF NO. OF CLASS OF DATE OF PURCHASE SECURITIES SHARES CONSIDERATION PURCHASER ----------------- ------------- ------------ ------------- ---------- February 28, 2014 Common Stock 10,560,000 $207,335 (1) Affiliate ----------------- (1) Book value of the Immediate Edge business ITEM 6. SELECTED FINANCIAL DATA ------------------------------- Not applicable. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" ON PAGE 10 AND ELSEWHERE IN THIS REPORT. OVERVIEW 30DC offers internet marketing services and related training that help Internet companies in marketing and operating their businesses. 30DC's core business platforms are the MagCast Publishing Platform ("MagCast") and Market Pro Max. Other revenue streams include sales of instructional courses and from commissions on third party products sold via introduction to the 30DC customer base of active online participants and subscribers which are referred to as affiliate marketing commissions. The Company's assets consist primarily of property and equipment, goodwill and internally developed intangible property such as domain names, websites, customer lists and copyrights. In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo Media, Ltd. ("Netbloo") for the MagCast which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on the digital distribution platforms Apple Newsstand and Google Play and includes executive training modules to develop and market a digital magazine. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which result in commission of 50% of gross revenue for those sales to the affiliate responsible for the sale. In October 2012 the Company reached an agreement to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Effective February 28, 2014, the Company divested assets and liabilities that made up the Immediate Edge, which had been the Company's primary subscription program, to Raine Ventures, LLC ("Raine") in exchange for the 10,560,000 common shares of the Company which Raine had held. The Company expects future growth to come from new products which are developed internally or through joint venture arrangements. There can be no assurance new products will be developed and if developed there can be no assurance that new products will produce significant revenue. -19-
During the year ended June 30, 2014, the Company released new versions of existing products, developed new products and continued to identify potential others. In July 2014, the Company released MagCast version 6 which among other new features allows customers to publish their digital magazines on Google Play which enables them to reach users of Android devices in addition to users of Apple iPads and iPhones. In April 2014, the Company began offering access to an Internet marketing forum on a subscription basis and is looking to build additional recurring revenue streams. The Company has no plans at this time for purchases or sales of fixed assets which would occur in the next twelve months. The Company has no expectation or anticipation of significant changes in number of employees in the next twelve months. LIQUIDITY AND CAPITAL RESOURCES The Company had a cash balance of $186,414 at June 30, 2014 and the Company had a working capital deficit of $1,550,503. For the year ended June 30, 2014, the Company generated sufficient cash from operations to fund current year operating and administrative expenses. The Company made some debt service payments and settled a number of outstanding payables by issuing common shares of the Company. However, the Company had not generated consistent profits and has significant outstanding liabilities. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs. The Company expects increased revenue from further sales of MagCast Publishing Platform through its Digital Publishing Blueprint training course and by marketing to customers outside its historical customer base with the goal of recurring revenue through annual licenses. The Company also expects increased revenue from further sales of Market Pro Max through its Ultimate Product System training course and introduction of new products some of which will be extensions of existing product lines. Additionally, the Company intends to increase funds available by raising capital, though at this time the Company has not commenced any offerings and cannot guarantee that they will be successful in its capital raising efforts. If the results of operations and capital raised, if any, are not sufficient to fund the company's expenses as they come due, the Company will defer amounts due to related parties and to the extent possible utilize shares of the Company to satisfy its liabilities. Included in liabilities of discontinued operations at June 30, 2014 is $61,050 notes payable plus related accrued interest that are in default for lack of repayment by their due date. During the year ended June 30, 2014, operating activities provided the Company with $110,067. During the year ended June 30, 2013, the Company used $988,778 in operating activities. The increase of $1,098,045 in funds provided from operating activities was due to a number of factors. For the year ended June 30, 2014 the Company had net income of $58,918 compared to a loss of $407,642 during the year ended June 30, 2013. During the year ended June 30, 2014, the Company had an increase in accrued expenses and refunds of $257,813 while during the year ended June 30, 2013 the Company had a decrease in accrued expenses and refunds of $820,102 which was due to a large balance in accrued affiliate commissions at the beginning of that year. During the year ended June 30, 2014 deferred revenue increased by 103,441 due to the introduction of a new Done For You service which is sold as an additional service for MagCast customers while during the year ended June 30, 2013 deferred revenue decreased by $218,239 which was primarily due to the discontinuation of the Company's historic mentoring program. Offsetting factors include $93,513 in forgiveness of debt income during the year ended June 30, 2014 which is non-cash income and pay down of $179,493 in accounts payable during the year ended June 30, 2014 compared to $42,580 during the year ended June 30, 2013. -20-
During the years ended June 30, 2014 and June 30, 2013 no funds were provided by or used for financing activities. During the year ended June 30, 2014 the Company used $112,020 for discontinued operations which included payments to creditors of approximately $59,000 compared to the year ended June 30, 2013 when discontinued operations provided $86,408 which was primarily due to sale of $105,000 in marketable securities which had been held by Infinity prior to the 30DC share transaction. GOING CONCERN The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of June 30, 2014 the Company had a working capital deficit of approximately $1,550,500 and had accumulated losses of approximately $3,084,500. The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing or to earn profits from its business operations to meet its obligations and pay its liabilities arising from normal business operations when they come due. In the past few years, the Company switched its focus to developing its own products. In May 2012, the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold directly to customers and through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. In April of 2014, the Company began offering the Ultimate Product System which incorporates 30DC's digital marketing platform Market Pro Max. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2014 COMPARED TO THE YEAR ENDED JUNE 30, 2013 During the year ended June 30, 2014, the Company recognized revenues of $2,795,633 from its operations compared to $1,467,817 during the year ended June 30, 2013. Revenues of the Company were from the following sources during the year ended June 30, 2014 compared to June 30, 2013. Year Ended Year Ended Increase or June 30, 2014 June 30, 2013 (Decrease) ----------------- ----------------- ------------------ Revenue Commissions $ 79,594 $ 251,106 $ (171,152) Subscription Revenue 25,794 16,121 9,673 Products and Services 2,689,885 940,506 1,749,379 Seminars and Mentoring - 260,084 (260,084) ----------------- ----------------- ------------------ Total Revenues $ 2,795,633 $ 1,467,817 $ 1,327,816 ----------------- ----------------- ------------------ -21-
The Company has made a strategic decision to be more product and less services focused. While profitable, the Company's historic mentoring program was labor intensive and the Company did not believe this could be scaled much further. Commission revenue is opportunistic based upon product promotions by third parties the Company has a relationship with. During the year ended June 30, 2013, approximately 70% of affiliate commissions were earned from one third party whose products were sold to the Company's customers which produced commissions at a much lower level during the year ended June 30, 2014 which was responsible for majority of the decrease of $171,152 in commission income. The $1,749,379 increase in products and services revenue was primarily due to the timing of the re-launch promotion of the MagCast Publishing Platform in August 2013 which had sales exceeding $1.5 million. The prior MagCast launch was in June 2012 just before the start of the year ended June 30, 2013 and there was no launch in that year. The $260,084 decrease in seminars and mentoring income resulted primarily from the phase out of the Company's historic mentoring program at the end of December 2012. The Company discontinued its historical mentoring program as of December 31, 2012 to redirect Company resources toward products and services sales growth which management believes has more potential for long-term growth than mentoring which is labor intensive and does have the ability to leverage and scale. During the year ended June 30, 2014, the Company incurred $2,843,828 in operational expenses compared to $2,036,404 during the year ended June 30, 2013. Operational expenses during the years ended June 30, 2014 and 2013, include the following categories: Year Ended Year Ended Increase or June 30, 2014 June 30, 2013 Decrease ------------- ------------- ------------- Accounting Fees $ 107,612 $ 129,785 $ (22,173) Credit Card Processing Fees 128,339 33,497 94,842 Commissions 754,866 208,858 546,008 Independent Contractors 480,307 313,756 166,551 Depreciation and Amortization 80,745 67,280 13,465 Directors Fees 143,618 76,814 66,804 Internet Expenses 39,991 31,595 8,396 Legal Fees 46,346 53,832 (7,486) Officer's Salaries 233,619 276,814 (43,195) Related Party Contractors 654,653 684,909 (30,256) Telephone and Data Lines 37,109 57,276 (20,167) Travel & Entertainment 56,603 32,214 24,389 Other Operating Expenses 80,020 69,774 10,246 ------------- ------------- ------------- Total Operating Expenses $ 2,843,828 $ 2,036,404 $ 807,424 ============= ============= ============= The decrease of $22,173 in accounting fees was due to an increase in fees due to multiple filings during the year ended June 30, 2013 which included a late filing. The $94,842 increase in credit card processing fees is due to the $1,749,379 increase in products and services revenue. Credit card processing fees vary based upon the card used by a customer and are higher for sales to customers outside the United States. The $546,008 increase in commissions is due to the $1,749,379 increase in products and services revenue. Commissions are paid to affiliates for sales referrals which led directly to a sale. -22-
The increase of $166,551 in independent contractors is primarily due to the approximately $43,000 increased cost for contractors for maintenance and support of the MagCast Publishing Platform, approximately $13,000 cost for an affiliate manager who was contracted to help with the affiliate program related to the MagCast promotional relaunch, approximately $29,000 for a contractor who helped during the annual offering of the free Challenge program and additional development projects, $72,000 for Clinton Carey, former Chief Operating Officer of the Company who is helping shape sales strategy to extend marketing of MagCast outside the Company's traditional customer base, approximately $6,000 for investor relations costs and $10,000 for an analysis by a strategic marketing consultant offset by approximately $6,000 for a contractor who helped during the free Challenge program during the year ended June 30, 2013 who was not contracted during the year ended June 30, 2014. The increase of $13,465 in depreciation and amortization is due to a $22,000 increase in amortization of intangible assets from the asset acquisition in October 2012 offset by a decrease in depreciation of approximately $9,000 due to the end of depreciable life for some of the Company's fixed assets. The increase of $66,804 in directors' fees is due to $110,000 in director fees which resulted from the Company's board September 2013 approval of directors' fees for non-executive directors in the total amount of $110,000 per year, offset by a decrease from $76,814 to $33,618 in the amount of expense related to stock options previously issued to Henry Pinskier, a director and chairman of the Company which is being amortized on a straight-line basis over the vesting period. The decrease of $43,195 in officer's salaries results from a decrease of $76,814 to $33,619 in the amount of expense related to stock options previously issued to Theodore A. Greenberg, chief financial officer and a director of the Company which is being amortized on a straight-line basis over the vesting period. Related Party Contractor Fees consist of payments to Marillion Partnership under the contract for services which includes managing marketing and development for the Company and providing the services of Edward Dale as 30DC's Chief Executive Officer, the consulting contract with GHL Group, Ltd. whose President, Gregory H. Laborde is a Director of the Company and a services contract with Netbloo Media, Ltd. which was the joint developer of the MagCast Publishing Platform. The $30,256 net decrease results primarily from a $40,000 one-time bonus awarded to the Marillion Partnership upon completion of the asset acquisition which included the remaining 50% of the MagCast Publishing Platform during in the year ended June 30, 2013, approximately $44,000 less paid the Marillion Partnership which resulted from a change in the AU/USD exchange rate and approximately $21,000 decrease in the amount paid to GHL, Group, Ltd. which was due to $45,000 in stock issued to GHL during the year ended June 30, 2013 offset by additional cash payments to GHL of approximately $24,000 and $75,000 additional paid Netbloo which started in October 2012. The $20,167 decrease in telephone and date lines expense is primarily due to a decrease in the contracted amount with Telstra AU. Travel and Entertainment increased by $24,389 due to a company-wide group meeting and travel to an investor conference, both in November 2013 offset by a number of trips by Edward Dale during the year ended June 30, 2013 to present and sell MagCast at conferences sponsored by affiliates. During the year ended June 30, 2014, the Company recognized net income from continuing operations of $45,318 compared to a net loss of $555,126 during the year ended June 30, 2013. The increase of $600,444 was primarily the result of the $1,327,816 increase in revenues offset by the $807,424 increase in operational expenses during the period shown above. -23-
CRITICAL ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS GOODWILL AND INTANGIBLE ASSETS The Company accounts for goodwill and intangible assets in accordance with ASC 350 "Intangibles-Goodwill and Other" ("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. The Company completed an evaluation of goodwill at June 30, 2014 and determined that there was no impairment. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in the Company's share exchange with Infinity which occurred on September 10, 2010 and the excess of the purchase price over the fair value of net assets acquired in the Company's purchase of Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max on October 24, 2012. Goodwill associated with the Immediate Edge business was one of the assets divested on February 28, 2014. Since the Company is one reporting unit for goodwill purposes, ASC 350-20-40, which requires a calculation of the relative fair values of the disposed business and retained business, was followed to determine the amount of goodwill allocated to the Immediate Edge. ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates. REVENUE RECOGNITION The Company generally applies revenue recognition principles in accordance with ASC 605, "Revenue Recognition". Accordingly, revenue is generally recognized when persuasive evidence of an agreement exists, services have been rendered or product delivery has occurred, the selling price to the customer is fixed or determinable and collectability is reasonably assured. The Company generates revenues in four categories, (i) commissions, (ii) seminars and mentoring (iii) subscriptions and (iv) products and services. Commissions are all affiliate marketing commissions generated when a customer is referred to a third-party via the Internet and the customer makes a purchase, which is paid for at the time of purchase. Revenue from commissions is recognized when the customer purchase is made from the third-party. Seminars and mentoring are educational in nature. Seminars are live events held in different cities throughout the world where customers will pay a fee to attend what is typically a three-day event. Seminar fees are paid in advance and classified as deferred revenue until the seminar is held. Mentoring services are offered over a period of time, typically a one-year period. Fees for mentoring are paid in advance and mentoring revenue is recognized ratably over the period of service. The Company chose to discontinue its historical mentoring program with the final mentoring students completing the program in December 2012. Subscription revenue is primarily from monthly online subscriptions for information on Internet marketing. All subscriptions are paid in advance and subscription revenue is -24-
recognized ratably over the term of the subscription. Products and services revenues are from sales of online educational courses and productivity tools which customers use in their Internet marketing businesses. Revenue from products and services is recognized in accordance with the specific guidance for recognizing software revenue, where applicable, the Company recognizes revenue from perpetual software licenses at the inception of the license term, assuming all revenue recognition criteria have been met. Term-based software license revenue is recognized on a subscription basis over the term of the license entitlement. The Company recognizes revenue for software hosting or software-as-a-service (SaaS) arrangements as the service is delivered, generally on a straight-line basis, over the contractual period of performance. In software hosting arrangements where software licenses are sold, the associated software revenue is recognized according to whether perpetual licenses or term licenses are sold, subject to the above guidance. In SaaS arrangements where software licenses are not sold, the entire arrangement is recognized on a subscription basis over the term of the arrangement. Deferred revenue consists of the unearned portion of subscription payments, seminar fees and mentoring revenue as of the financial statement date. Pursuant to ASC 808-10, the JV Agreement with Netbloo was classified as a collaborative arrangement. The Company was deemed to be the principal participant and recorded all transactions under the JV Agreement on a gross basis. The JV Agreement ended when 30DC acquired the remaining 50% in October 2012 and there was no longer a collaborative arrangement. DISCONTINUED OPERATIONS The Company accounts for discontinued operations in accordance with the provisions of ASC 205-20-45-1. The Company has included two businesses in discontinued operations; the Immediate Edge business which was divested effective February 28, 2014 (see note 3) and the business of Infinity which was discontinued after the share exchange with 30DC DE on September 10, 2010. EQUITY-BASED PAYMENTS The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 505-50, "Equity-Based Payments to Non-Employees", which requires that such equity instruments are recorded at their fair value on the measurement date, with the measurement of such compensation being subject to periodic adjustment as the underlying equity instruments vest. The Company account for equity instruments issued to employees in accordance with ASC 718 "Stock Compensation". Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. FOREIGN CURRENCY TRANSLATION AND REMEASUREMENT The functional currency of the Company's 30 Day Challenge division switched to the United States dollar from the Australian dollar on July 1, 2012. All other Company operations have and continue to use the United States dollar as their functional currency. For all accounting periods prior to July 1, 2012, the Company followed ASC 830 "Foreign Currency Matters", under which functional currency assets and liabilities are translated into the reporting currency, US Dollars, using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other comprehensive income. Functional statements of operations amounts expressed in functional currencies are translated using average exchange rates for the respective periods. Re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the Statement of Operations. The historical foreign currency translation loss remains on the Balance Sheet at $(102,858) which was the balance at June 30, 2012. -25-
FORGIVENESS OF DEBT The company has settled some debts for cash and/or payment in stock for less than the full amount due to the creditor. The Company records the difference between the amount that was owed and the amount which was paid as other income. During the year ended June 30, 2014, the Company settled three amounts owed to vendors from prior years for a total amount of $93,513 less than the full amount owed. During the year ended June 30, 2013, the Company settled two amounts owed to vendors from prior years for a total amount of $13,461 less than the full amount owed. During the year ended June 30, 2014, discontinued operations includes $796 for the amount a note payable was settled for less than the amount due, inclusive of accrued interest. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ------------------------------------------------------------------- Our Company's business activities contain elements of risk. Neither our investments nor an investment in us is intended to constitute a balanced investment program. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA --------------------------------------------------- The audited financial statements of 30DC, Inc. for the years ended June 30, 2014 and 2013 appear as pages F-1 through F-24. -26-
30DC, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2014 AND 2013 F-1
INDEX Page F-3 Report of Independent Registered Public Accounting Firm Page F-4 Consolidated Balance Sheets Page F-5 Consolidated Statements of Operations Page F-6 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) Page F-7 Consolidated Statements of Cash Flows Page F-8 Notes to Consolidated Financial Statements F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors 30DC, Inc. New York, New York We have audited the accompanying consolidated balance sheets of 30DC, Inc. and its subsidiaries (collectively the "Company") as of June 30, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders' equity (deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 30DC, Inc. and its subsidiaries as of June 30, 2014 and 2013 and the results of their consolidated operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has accumulated losses from operations since inception and has a working capital deficit as of June 30, 2014. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ MaloneBailey, LLP www.malone-bailey.com Houston, Texas October 10, 2014 F-3
30DC, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June June 30, 2014 30, 2013 ---------------- ------------------- Assets Current Assets Cash and Cash Equivalents $ 102,684 $ 116,372 Restricted Cash 83,730 47,984 Accrued Commissions Receivable 12,706 32,035 Accounts Receivable 38,313 26,114 Prepaid Expenses 24,291 - Assets of Discontinued Operations 116,313 76,384 ---------------- ------------------- Total Current Assets 378,037 298,889 Property and Equipment, Net 19,066 23,045 Intangible Assets, Net 220,000 286,000 Goodwill 2,027,564 2,027,564 Assets of Discontinued Operations - 225,285 ---------------- ------------------- Total Assets $ 2,644,667 $ 2,860,783 ================ =================== Liabilities and Stockholders' Equity Current Liabilities Accounts Payable $ 190,228 $ 511,234 Accrued Expenses and Refunds 625,565 367,752 Deferred Revenue 90,716 6,195 Due to Related Parties 805,483 924,057 Liabilities of Discontinued Operations 216,548 330,339 ---------------- ------------------- Total Current Liabilities 1,928,540 2,139,577 ---------------- ------------------- Total Liabilities 1,928,540 2,139,577 ---------------- ------------------- Stockholders' Equity Preferred Stock, Par Value $0.001, 10,000,000 Authorized, -0- Issued - - Common Stock, Par Value $0.001, 100,000,000 authorized, 76,853,464 and 86,986,939 issued and outstanding respectively 76,853 86,987 Paid in Capital 3,826,606 3,880,469 Accumulated Deficit (3,084,474) (3,143,392) Accumulated Other Comprehensive Loss (102,858) (102,858) ---------------- ------------------- Total Stockholders' Equity 716,127 721,206 ---------------- ------------------- Total Liabilities and Stockholders' Equity $ 2,644,667 $ 2,860,783 ================ =================== The accompanying notes are an integral part of the consolidated financial statements. F-4
30DC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS YEARS ENDED JUNE 30, 2014 2013 --------------- ----------------- Revenue Commissions $ $ 79,954 $ 251,106 Subscription Revenue 25,794 16,121 Products and Services 2,689,885 940,506 Seminars and Mentoring - 260,084 --------------- ----------------- Total Revenue 2,795,633 1,467,817 Operating Expenses 2,843,828 2,036,404 --------------- ----------------- Operating Loss (48,195) (568,587) Other Income (Expense) Forgiveness of Debt 93,513 13,461 --------------- ----------------- Total Other Income (Expense) 93,513 13,461 --------------- ----------------- Income (Loss) From Continuing Operations 45,318 (555,126) Income (Loss) From Discontinued Operations 13,600 147,484 --------------- ----------------- Net Income (Loss) $ 58,918 $ (407,642) =============== ================= Weighted Average Common Shares Outstanding Basic 83,758,982 82,657,326 Diluted 84,616,125 82,657,326 Income (Loss) Per Common Share (Basic and Diluted) Continuing Operations $ 0.00 $ $ (0.01) Discontinued Operations 0.00 0.00 Net Income (Loss) Per Common Share $ 0.00 $ (0.00) The accompanying notes are an integral part of the consolidated financial statements. F-5
30DC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) ACCUMULATED TOTAL OTHER STOCKHOLDERS' COMMON STOCK ADDITIONAL COMPREHENSIVE ACCUMULATED EQUITY SHARES PAR VALUE PAID IN CAPITAL INCOME (LOSS) DEFICIT (DEFICIENCY) ---------- --------- --------------- -------------- ----------- ------------ Balance - June 30, 2012 72,928,421 $ 72,928 $ 2,600,410 $ (102,858) $(2,735,750) $(165,270) Net Loss - - - - (407,642) (407,642) Netbloo Asset Acquisition 13,487,363 13,487 1,065,502 1,078,989 Issuance of Common Stock to Non-Employees 515,385 516 46,484 - - 47,000 Issuance of Stock Options to Employees 153,629 - - 153,629 Issuance of Common Stock to Settle Liabilities 55,770 56 14,444 - - 14,500 ---------- --------- --------------- -------------- ----------- ------------ Balance - June 30, 2013 86,986,939 $ 86,987 $ 3,880,469 $ (102,858) $(3,143,392)$ 721,206 ========== ========= =============== ============== =========== ============ Net Income - - - - 58,918 58,918 Immediate Edge Divestiture (10,560,000) (10,560) (196,775) (207,335) Issuance of Stock Options to Employees 67,237 - - 67,237 Issuance of Common Stock to Settle Liabilities 426,525 426 75,675 - - 76,101 ---------- --------- --------------- -------------- ----------- ------------ Balance - June 30, 2014 76,853,464 $ 76,853 $ 3,826,606 $ (102,858) $(3,084,474)$ 716,127 ========== ========= =============== ============== =========== ============ The accompanying notes are an integral part of the consolidated financial statements. F-6
30DC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30, June 30, 2014 2013 -------------- ----------------- Cash Flows from Operating Activities: Net Income (Loss) $ 58,918 $ (407,642) Gain From Discontinued Operations (13,600) (147,484) Adjustments to Reconcile Income (Loss) from Continuing Operations to Net Cash Provided By (Used In) Operating Activities Depreciation and Amortization 80,745 67,280 Equity Based Payments To Non-Employees - 47,000 Equity Based Payments To Employees 67,237 153,629 Gain on Debt Forgiveness (93,513) (13,461) Changes in Operating Assets and Liabilities Restricted Cash (35,746) (47,984) Accrued Commissions Receivable 19,329 (16,230) Accounts Receivable (12,199) 129,990 Prepaid Expenses (24,291) - Accounts Payable (179,493) (42,580) Accrued Expenses and Refunds 257,813 (120,510) Accrued Commissions Payable - (699,592) Deferred Revenue 103,441 (218,239) Due to Related Parties (118,574) 327,045 -------------- ----------------- Net Cash Provided by (Used in) Operating Activities 110,067 (988,778) -------------- ----------------- Cash Flows from Investing Activities Purchases of Property and Equipment (10,766) (12,225) -------------- ----------------- Net Cash Used in Investing Activitities (10,766) (12,225) -------------- ----------------- Cash Flows from Discontinued Operations Cash Flows From Operating Activities (112,020) 86,408 -------------- ----------------- Net Cash Provided by (Used in) Discontinued Operations (112,020) 86,408 -------------- ----------------- Decrease in Cash and Cash Equivalents (12,719) (914,595) Cash Transferred In Divestiture (969) Cash and Cash Equivalents - Beginning of Period 116,372 1,030,967 -------------- ----------------- Cash and Cash Equivalents - End of Period $ 102,684 $ 116,372 ============== ================= Supplemental Disclosures of Non Cash Financing Activity Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ 36,924 $ 3,666 Income taxes 2,936 1,236 Common Stock Issued to Settle Liabilities $ 104,690 $ 14,500 Common Stock Redeemed For Divestiture $ 207,335 $ - Common Stock Issued for Asset Acquisition Customer Lists $ - $ 75,000 Software - 255,000 Goodwill - 748,989 The accompanying notes are an integral part of the consolidated financial statements. F-7
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY -------------------------------------------------------------------- 30DC, Inc., Delaware, ("30DC DE") was incorporated on October 17, 2008 in the state of Delaware, as a holding company, for the purpose of building, acquiring and managing international web-based sales and marketing companies. On July 15, 2009, 30DC DE completed the acquisitions of the business and assets of 30 Day Challenge ("30 Day") and Immediate Edge ("Immediate"). On September 10, 2010, shareholders of 30DC DE exchanged 100% of their 30DC DE shares for 60,984,000 shares of Infinity Capital Group, Inc. ("Infinity"), a publicly traded company which trades over the counter ("OTC") on the OTC Pink market operated by OTC Market Group, Inc. 30DC DE became a wholly owned subsidiary of Infinity Capital Group, Inc. which subsequently changed its name to 30DC, Inc. ("30DC" and together with its subsidiary "the Company"). 30DC DE was the accounting acquirer in the transaction and its historical financial statements became the historical financial statements of 30DC. In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo Media, Ltd. ("Netbloo") for the MagCast Publishing Platform ("MagCast") which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on the digital distribution platforms Apple Newsstand and Google Play and includes executive training modules to develop and market a digital magazine. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which result in commission of 50% of gross revenue for those sales to the affiliate responsible for the sale. In October 2012 the Company reached an agreement to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Please see Note 4 for further details on the acquisition. Effective February 28, 2014, the Company divested assets and liabilities that made up the Immediate Edge to Raine Ventures, LLC ("Raine") in exchange for the 10,560,000 common shares of the Company which Raine had held. Please see Note 3 for further details on the divestiture. 30DC offers internet marketing services and related training that help Internet companies in marketing and operating their businesses. 30DC's core business platforms are MagCast and Market Pro Max. Other revenue streams include sales of instructional courses and from commissions on third party products sold via introduction to the 30DC customer base of active online participants and subscribers which are referred to as affiliate marketing commissions. The Company's assets consist primarily of property and equipment, goodwill and internally developed intangible property such as domain names, websites, customer lists and copyrights. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and include the accounts of 30DC, Inc., (f/k/a Infinity Capital Group, Inc.) and its subsidiary 30DC DE. The Company has determined that the acquisition date for the Netbloo asset acquisition (see Note 4) was October 24, 2012. All operating activity starting October 1, 2012 is included in these financial statements, the Company believes the operating activity for the period October 1 through October 23, 2012 does not have a material impact on these financial statements. F-8
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 GOING CONCERN The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of June 30, 2014 and 2013, the Company has a working capital deficit of approximately $1,550,500 and $1,841,000, respectively, and has accumulated losses of approximately $3,084,500 and $3,143,400, respectively, since its inception. The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing or to earn profits from its business operations to meet its obligations and pay its liabilities arising from normal business operations when they come due. In the past few years, the Company switched its focus to developing its own products. In May 2012, the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold directly to customers and through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. In April of 2014, the Company began offering the Ultimate Product System which incorporates 30DC's digital marketing platform Market Pro Max. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------- CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk related to cash and cash equivalents. The vendor which processes the Company's credit card sales requires that 10% of sales be maintained in a reserve account on a rolling six month basis. The $83,730 and $47,984 held in the reserve account at June 30, 2014 and June 30, 2013 respectively has been classified as restricted cash. ACCOUNTS RECEIVABLE Accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount becomes questionable. For products which customers will lose functionality if they miss a payment, the estimated amount F-9
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 for which collectability is in question has been adjusted to accounts receivable and revenue. The allowance for doubtful accounts was based on a review of all outstanding amounts. We analyze the aging of receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer creditworthiness or weakening in economics trends could have a significant impact on the collectability of receivables and the allowance. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances will be made. Allowances are applied to accounts receivable where events or changes in circumstance indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgment and estimates as mentioned above. Where the expectation on or the actual recoverability of commissions and other receivables is different from the original estimate, such difference will impact the carrying value of commissions and other receivables and doubtful debts expenses in the periods in which such estimate is changed or the receivable are collected. PROPERTY AND EQUIPMENT Equipment is recorded at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to operations as incurred. Asset and related accumulated depreciation amounts are relieved from the accounts for retirements or dispositions. Depreciation on equipment is computed using the straight-line method. Estimated useful lives of three to ten years are used for equipment, while leasehold improvements are amortized, using the straight line method, over the shorter of either their economic useful lives or the term of the leases. GOODWILL AND INTANGIBLE ASSETS The Company accounts for goodwill and intangible assets in accordance with ASC 350 "Intangibles-Goodwill and Other" ("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. The Company completed an evaluation of goodwill at June 30, 2014 and determined that there was no impairment. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in the Company's share exchange with Infinity which occurred on September 10, 2010 and the excess of the purchase price over the fair value of net assets acquired in the Company's purchase of Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max on October 24, 2012. Goodwill associated with the Immediate Edge business was one of the assets divested February 28, 2014. Since the Company is one reporting unit for goodwill purposes, ASC 350-20-40, which requires a calculation of the relative fair values of the disposed business and retained business, was followed to determine the amount of goodwill allocated to the Immediate Edge. ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual F-10
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates. LONG LIVED ASSETS In accordance with ASC 360 "Property Plant and Equipment," the Company reviews the carrying value of intangibles subject to amortization and long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated Other Comprehensive Loss consists of cumulative adjustments of foreign currency translation which is further discussed in the foreign currency translation and measurement below. DISCONTINUED OPERATIONS The Company accounts for discontinued operations in accordance with ASC 205-20-45-1. The Company has included two businesses in discontinued operations; the Immediate Edge business which was divested effective February 28, 2014 (see note 3) and the business of Infinity which was discontinued after the share exchange with 30DC DE on September 10, 2010. REVENUE RECOGNITION The Company generally applies revenue recognition principles in accordance with ASC 605, "Revenue Recognition". Accordingly, revenue is generally recognized when persuasive evidence of an agreement exists, services have been rendered or product delivery has occurred, the selling price to the customer is fixed or determinable and collectability is reasonably assured. The Company generates revenues in four categories, (i) commissions, (ii) seminars and mentoring (iii) subscriptions and (iv) products and services. Commissions are all affiliate marketing commissions generated when a customer is referred to a third-party via the Internet and the customer makes a purchase, which is paid for at the time of purchase. Revenue from commissions is recognized when the customer purchase is made from the third-party. Seminars and mentoring are educational in nature. Seminars are live events held in different cities throughout the world where customers will pay a fee to attend what is typically a three-day event. Seminar fees are paid in advance and classified as deferred revenue until the seminar is held. Mentoring services are offered over a period of time, typically a one-year period. Fees for mentoring are paid in advance and mentoring revenue is recognized ratably over the period of service. The Company chose to discontinue its historical mentoring program with the final mentoring students completing the program in December 2012. Subscription revenue is primarily from monthly online subscriptions for information on Internet marketing. All subscriptions are paid in advance and subscription revenue is recognized ratably over the term of the subscription. Products and services revenues are from sales of online educational courses and productivity tools which customers use in their Internet marketing businesses. Revenue from products and services is recognized in accordance with the specific guidance for recognizing software revenue, where applicable, the Company recognizes revenue from perpetual software licenses at the inception of the license term, assuming all revenue recognition criteria have been met. Term-based software license revenue is recognized on a subscription basis over the term of the license F-11
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 entitlement. The Company recognizes revenue for software hosting or software-as-a-service (SaaS) arrangements as the service is delivered, generally on a straight-line basis, over the contractual period of performance. In software hosting arrangements where software licenses are sold, the associated software revenue is recognized according to whether perpetual licenses or term licenses are sold, subject to the above guidance. In SaaS arrangements where software licenses are not sold, the entire arrangement is recognized on a subscription basis over the term of the arrangement. Deferred revenue consists of the unearned portion of subscription payments, seminar fees and mentoring revenue as of the financial statement date. Pursuant to ASC 808-10, the JV Agreement with Netbloo was classified as a collaborative arrangement. The Company was deemed to be the principal participant and recorded all transactions under the JV Agreement on a gross basis. The JV Agreement ended when 30DC acquired the remaining 50% in October 2012 and there was no longer a collaborative arrangement. EQUITY-BASED PAYMENTS The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 505-50, "Equity-Based Payments to Non-Employees", which requires that such equity instruments are recorded at their fair value on the measurement date, with the measurement of such compensation being subject to periodic adjustment as the underlying equity instruments vest. The Company account for equity instruments issued to employees in accordance with ASC 718 "Stock Compensation". Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. FOREIGN CURRENCY TRANSLATION AND REMEASUREMENT The functional currency of the Company's 30 Day Challenge division switched to the United States dollar from the Australian dollar on July 1, 2012. All other Company operations have and continue to use the United States dollar as their functional currency. For all accounting periods prior to July 1, 2012, the Company followed ASC 830 "Foreign Currency Matters", under which functional currency assets and liabilities are translated into the reporting currency, US Dollars, using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other comprehensive income. Functional statements of operations amounts expressed in functional currencies are translated using average exchange rates for the respective periods. Re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the Statement of Operations. The historical foreign currency translation loss remains on the Balance Sheet at $(102,858) which was the balance at June 30, 2012. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and use assumptions that affect certain reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates in these financial statements are the bad debt allowance charged against accounts receivable, estimated useful lives used to calculate depreciation of property and equipment and the estimate of the Company's future taxable income used to calculate the Company's deferred tax valuation allowance. The Company evaluates all of its estimates on an on-going basis. F-12
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 FORGIVENESS OF DEBT The company has settled some debts for cash and/or payment in stock for less than the full amount due to the creditor. The Company records the difference between the amount that was owed and the amount which was paid as other income. During the year ended June 30, 2014, the Company settled three amounts owed to vendors from prior years for a total amount of $93,513 less than the full amount owed. During the year ended June 30, 2013, the Company settled two amounts owed to vendors from prior years for a total amount of $13,461 less than the full amount owed. During the year ended June 30, 2014, discontinued operations includes $796 for the amount a note payable was settled for less than the amount due, inclusive of accrued interest. NET INCOME OR LOSS PER SHARE The Company computes net loss per share in accordance with ASC 260 "Earnings per Share." Under ASC 260, basic net loss per share is computed by dividing net loss per share available to common stockholders by the weighted average number of shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the "treasury stock" and/or "if converted" methods as applicable. In computing diluted earnings per share for the year ended June 30, 2014, the Company has included as outstanding 2,000,000 options which are exercisable and have an exercise price below the market price for the Company's shares. For the year ended June 30, 2013, inclusion of additional shares would be anti-dilutive and no adjustment to outstanding shares has been made to compute diluted earnings per share. RELATED PARTIES A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party. RECENT ACCOUNTING PRONOUNCEMENTS Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements. NOTE 3. DIVESTITURE ------------------- Effective February 28, 2014, the Company divested assets and liabilities that made up its Immediate Edge subscription business ("Edge") to Raine Ventures, LLC ("Raine") in exchange for the 10,560,000 common shares of the Company which Raine had held. Included with the Edge business was cash of approximately $1,000 and intangible assets including goodwill of approximately $225,000. To determine the amount goodwill for the Edge, the Company followed ASC 350-20-40-3 which states that goodwill allocated to a business to be disposed of is to be allocated based on the relative goodwill of the business to be disposed of and the portion of the reporting unit that will be retained. The Company prepared a discounted cash flow analysis for the Edge and for the business retained by 30DC F-13
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 to determine the $225,000 in goodwill allocated to the Edge. Raine assumed liability for deferred revenue of approximately $19,000. The Company recorded zero gain or loss on the divestiture. Operating results for the Edge have been reclassified as discontinued operations for each period presented in these financial statements (see note 6). Raine had been party to a contractor agreement with the Company which had expired in 2012 and was extended on a month to month basis and was terminated concurrent with the divestiture. NOTE 4. ACQUISITION AND PRO FORMA FINANCIAL INFORMATION ------------------------------------------------------- In October 2012 the Company reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. The contractor agreement was effective October 1, 2012 and final documents were signed on December 31, 2012. The Company has determined that control of the acquired assets changed hands on October 24, 2012, in accordance with ASC 805-10-25-6 the 13,487,363 shares were valued using the $0.08 per share closing price on that date for total purchase price consideration of $1,078,989. In accordance with purchase acquisition accounting, the company initially allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values as of the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The company has finalized its purchase price allocation. Tangible Assets $ - Customer Lists 75,000 Software 255,000 Goodwill 748,989 ------------- Total purchase price $ 1,078,989 The following unaudited consolidated pro forma information gives effect to the Netbloo acquisition as if this transaction had occurred at the beginning of each period presented. The following unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the results that would have been attained had the acquisition of this business been completed at the beginning of each period presented, nor are they indicative of results that may occur in any future periods. Year Ended June 30, 2013 (Unaudited) ----------------- Revenues $ 1,483,575 Operating Expenses 2,105,956 Other Income 13,461 ----------------- Loss from Continuing Operations (609,920) Income from Discontinued Operations 147,484 ----------------- Net Loss $ (461,436) ================= Basic and Diluted Loss Per Share $ (0.01) Weighted Average Shares Outstanding - Basic & Diluted 86,934,233 F-14
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 5. COLLABORATIVE ARRANGEMENT --------------------------------- Pursuant to ASC 808-10, prior to the Company's purchase of Netbloo's 50% interest in the MagCast JV Agreement (discussed in Note 4) the joint operating activity was considered a collaborative arrangement. In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo for the MagCast Publishing Platform ("MagCast") which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on Apple Corporation's online marketplace Apple Newsstand and includes executive training modules as well as a three-month trial subscription to the Company's Immediate Edge subscription product and other bonus products. Under the terms of the JV Agreement the Company was responsible for marketing, sales and administration and Netbloo was responsible for product development. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which result in commission of 50% of gross revenue for those sales to the affiliate responsible for the sale. Pursuant to ASC 808-10 the joint operating activity with Netbloo was considered a collaborative arrangement. The Company was deemed the principal participant and recorded all transactions under the JV Agreement on a gross basis with the 50% amount net of affiliate commissions and other allowable costs due Netbloo recorded as commission expense. The following revenue and expense amounts from transactions under the JV Agreement are included in the Statement of Operations for the Year ended June 30, 2013; Year Ended June 30, 2013 ----------------- Sales of MagCast Publishing Platform $ 76,457 Affiliate Commission Expense 4,291 Transaction Fees 5,956 Independent Contractors 5,449 Internet Expenses 2,895 Netbloo Commissions 28,933 ----------------- Net Profit $ 28,933 ================= The Company has acquired Netbloo's 50% share of the MagCast JV (see Note 4), accordingly there is no longer a collaborative arrangement to report on subsequent to September 30, 2012. NOTE 6. DISCONTINUED OPERATIONS ------------------------------- The Company has included two businesses in discontinued operations; the Immediate Edge business which was divested effective February 28, 2014 (see note 3) and the business of Infinity which was discontinued after the share exchange with 30DC DE on September 10, 2010. Prior to the share exchange, Infinity withdrew its election to operate as a Business Development Company ("BDC") under the Investment Company Act of 1940 ("1940 Act"). Infinity historically operated as a non-diversified, closed-end management investment company and prepared its financial statements as required by the 1940 Act. 30DC is no longer actively operating the BDC and the assets, liabilities and results of operations of Infinity's former business are shown as discontinued operations in the Company's financial statements subsequent to the share exchange with 30DC. Investment companies report assets at fair value and the Company has continued to report investment assets in discontinued operations on this basis. F-15
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 Results of Discontinued Operations for the YEAR ENDED JUNE 30, 2014 YEAR ENDED JUNE 30, 2013 ------------------------------------------ ----------------------------------------- IMMEDIATE EDGE INFINITY TOTAL IMMEDIATE EDGE INFINITY TOTAL -------------- --------- ---------- -------------- --------- ---------- Revenues $ $ 266,495 $ - $ 266,495 $ 505,255 $ - $ 505,255 Operating expenses 287,017 10,528 297,545 425,204 13,900 439,104 Income (Loss) from operations (20,522) (10,528) (31,050) 80,051 (13,900) 66,151 Forgiveness of debt - 796 796 - - - Realized gain on marketable securities - - - - 35,645 35,645 Unrealized gain on marketable securities - 43,854 43,854 - 45,688 45,688 ------------------------------------------ ----------------------------------------- Net Income (Loss) $ (20,522) $ 34,122 $ 13,600 $ 80,051 $ 67,433 $ 147,484 ========================================== ========================================= Assets and Liabilities of Discontinued Operations as of June 30, 2014 June 30, 2013 ------------------------------------------ ------------------------------------------- IMMEDIATE EDGE INFINITY TOTAL IMMEDIATE EDGE INFINITY TOTAL ---------------- ---------- ----------- ---------------- ---------- ----------- Assets Cash $ - $ - $ - $ 278 $ - $ 278 Prepaid expenses - - - 3,648 - 3,648 Marketable securities - 116,313 116,313 - 72,458 72,458 ---------------- ---------- ----------- ---------------- ---------- ----------- Total Current Assets - 116,313 116,313 3,926 72,458 76,384 Goodwill - - - 225,285 - 225,285 ---------------- ---------- ----------- ---------------- ---------- ----------- Total Assets of Discontinued Operations $ - $ 116,313 $ 116,313 $ 229,211 $ 72,458 $ 301,669 ================ ========== =========== ================ ========== =========== LIABILITIES Accounts payable $ - $ 72,201 $ 72,201 $ 3,060 $ 80,028 $ 83,088 Accrued expenses - 62,297 62,297 6,467 67,375 73,842 Deferred revenue - - - 17,454 - 17,454 Notes payable - 61,050 61,050 - 102,020 102,020 Due to related parties - 21,000 21,000 - 53,935 53,935 ---------------- ---------- ----------- ---------------- ---------- ----------- Total Liabilities of Discontinued Operations $ - $ 216,548 $ 216,548 $ 26,981 $ 303,358 $ 330,339 ================ ========== =========== ================ ========== =========== Notes Payable Included in liabilities of discontinued operations at June 30, 2014 and June 30, 2013 are $61,050 and $102,051 respectively (including $-0- and $31 in due to related parties respectively) in notes payable plus related accrued interest of which are all in default for lack of repayment by their due date. For the year ended June 30, 2014 and June 30, 2013 the Company incurred interest expense on notes payable of $9,344 and $12,251 respectively which is included in the Statement of Operations under income (loss) from discontinued operations. Marketable Securities At June 30, 2014 the fair value of marketable securities held for sale was $116,313 which included cumulative net unrealized gains of $49,873. At June 30, 2013 the fair value of marketable securities held for sale was $72,458 which included cumulative net unrealized gains of $6,048. F-16
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 7. RELATED PARTY TRANSACTIONS ----------------------------------- The Company entered into a three-year Contract for Services Agreement commencing July 2009 ("Commencement Date") with the Marillion Partnership ("Marillion") for services which includes managing marketing and development for the Company and provides the services of Mr. Edward Dale as the Company's Chief Executive Officer. The Marillion contract expired June 30, 2012 and has continued on a month to month basis under the same terms. Cash remuneration under the Marillion agreement is $317,825 Australian Dollars ("AUD"). If in any year starting from the Commencement Date, revenues of 30DC, Inc. doubles then a bonus equal to 50% of cash remuneration will be due in shares of 30DC, Inc. as additional compensation. The bonus was not earned in the fiscal years ended June 30, 2014 and June 30, 2013. During the term of the agreements Marillion is prohibited from engaging in any other business activity that competes with 30DC, Inc. without written consent of the 30DC, Inc. Board of Directors. Marillion was awarded a $40,000 bonus upon completion of the asset acquisition of the 50% of the MagCast JV which had been owned by Netbloo and Market Pro Max. The Company pays Marillion $2,500 AUD ($2,296 USD) per month to cover office related expenses which is included in operating expenses. Effective July 15, 2012, the Company entered into a Consulting Services Agreement with GHL Group, Ltd., whose President, Gregory H. Laborde is a Director for services including but not limited to evaluation of financial forecasts, assisting in the development of business and financial plans and assisting in the identification of potential acquisitions and financial sources. The contract has expired but has continued under the same service terms at a monthly amount of $5,000. Effective October 1, 2012, the Company entered into a three year contractor agreement with Netbloo Media, Ltd., joint developer of the MagCast Publishing Platform, with annual compensation of $300,000 which is payable in monthly installments of $25,000 and which may be terminated after two years subject to a six-month termination payment. On October 11, 2012, Henry Pinskier, a Director of the Company received an option to purchase 1,500,000 of the Company's common shares details of which are in Note 12. During the years ended June 30, 2014 and June 30, 2013, the Company recorded $33,619 and $76,814 respectively in expense for the option which is reflected as Directors' Fees in the supplemental schedule of operating expenses (see Note 13). On October 11, 2012, Theodore A. Greenberg, Chief Financial Officer and a Director of the Company received an option to purchase 1,500,000 of the Company's common shares details of which are in Note 12. During the years ended June 30, 2014 and June 30, 2013, the Company recorded $33,619 and $76,814 respectively in expense for the option which is included in Officer's Salary in the supplemental schedule of operating expenses (see Note 13). At June 30, 2013, due to related parties totaled $924,057. This mainly includes $265,220 due to Jesselton (previously a related party), which consists of $157,220 for contractor fees and $108,000 for fees related to the share exchange between 30DC DE and Infinity, $14,617 due to Marillion Partnership under its contractor agreement, $115,915 due to Netbloo, Ltd. which consists of $25,000 due under its contractor agreement and $90,915 remaining to be paid for Netbloo's earnings from the collaborative arrangement (see note 5) and $521,000 due to Theodore A. Greenberg for compensation. At June 30, 2014, due to related parties totaled $805,483. This consisted of $6,843 due to Netbloo for earnings from the collaborative arrangement prior to 30DC acquiring Netbloo's 50% interest in the MagCast JV (note 4), $25,000 due to F-17
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 Netbloo under their contractor agreement, $94,000 accrued for directors' fees for services of non-executive directors, $5,640 due to GHL under their contractor agreement and $674,000 due to Theodore A. Greenberg, CFO and director, for compensation. NOTE 8. PROPERTY AND EQUIPMENT ------------------------------- PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING: June 30, 2014 June 30, 2013 --------------- --------------- Computer and Audio Visual Equipment $ 459,341 $ 449,884 Office equipment and Improvements 70,167 68,859 --------------- --------------- 529,508 518,743 Less accumulated depreciation and amortization (510,442) (495,698) --------------- --------------- $ 19,066 $ 23,045 =============== =============== Depreciation expense was $14,745 for the year ended June 30, 2014 and $23,280 for the year ended June 30, 2013. NOTE 9. INTANGIBLE ASSETS -------------------------- INTANGIBLE ASSETS CONSISTS OF THE FOLLOWING: June 30, 2014 June 30, 2013 -------------------- ------------------- Customer Lists $ 75,000 $ 75,000 Software 255,000 255,000 -------------------- ------------------- 330,000 330,000 Less accumulated amortization (110,000) (44,000) -------------------- ------------------- $ 220,000 $ 286,000 ==================== =================== Customer lists and software were acquired as part of the MagCast and Market Pro Max asset acquisitions in October 2012 and are being amortized over their estimated useful lives of five years. Amortization expense was $66,000 and $44,000 for the years ended June 30, 2014 and June 30, 2013 respectively. NOTE 10. INCOME TAXES --------------------- The Company's income tax provision (benefit) consists of the following: Year Ended Year Ended June 30, 2014 June 30, 2013 ----------------- ---------------- Federal Current $ - $ - Deferred 30,450 (110,800) State and Local Current $ - $ - Deferred 1,950 (6,600) Change in valuation allowance (32,400) 117,400 ----------------- ---------------- Income tax provision (benefit) $ - $ - ================= ================ F-18
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 Deferred taxes are provided for the tax effects of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Significant temporary differences at June 30, 2014 and June 30, 2013 are as follows: Year Ended Year Ended June 30, 2014 June 30, 2013 ----------------- --------------- Deferred tax asset Net operating loss carryforward - Federal $ 314,600 $ 434,300 Net operating loss carryforward - State 2,400 9,600 Intangible Asset Amortization 24,900 9,400 Fixed asset depreciation 4,100 12,400 Accrued expenses 309,700 222,400 ----------------- --------------- Total deferred tax asset 655,700 688,100 Less valuation allowance (655,700) (688,100) ----------------- --------------- Total net deferred tax asset $ - $ - ================= =============== The following is a reconciliation of the U.S. tax statutory income tax rate to the effective tax rate from continuing operations: Year Ended Year Ended June 30, 2014 June 30, 2013 ----------------- --------------- U.S. statutory rate 34.0% (34.0%) State and local taxes net of federal benefit 1.3 (1.3) Change in valuation allowance (71.5) 24.7 Stock option expense 52.4 11.4 Other permanent differences (16.2) (0.8) ----------------- --------------- Effective income tax rate (0.0%) (0.0%) ================= =============== The Company applies the provisions of ASC 740, which prescribes the recognition and measurement criteria related to tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Management has concluded that it is more likely than not that the Company will not be able to realize all of its tax benefits and therefore a valuation allowance of approximately $655,700 has been established. For the years ended June 30, 2014 and June 30, 2013, the change in valuation allowance was a decrease of $32,400 and an increase of $117,400 respectively. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state and local and F-19
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 foreign jurisdictions. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company's policy for recording interest and penalties associated with uncertain tax positions is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest as of or years ended June 30, 2014 and 2013. As a corporation formed in the United States, the Company is subject to the United States corporation income tax on worldwide net income. Since majority ownership of the Company's shares are held by Australian residents, the Company is deemed to be an Australian resident corporation and is subject to Australian corporate income tax on worldwide net income. Corporate income taxes paid to Australia will generally be available as a credit against United States corporation income tax. The 30DC DE did not have nexus to any individual state in the United States prior to the share exchange with Infinity on September 10, 2010 and accordingly no deferred tax asset was recognized for state taxes prior to that date. Australia does not have any state corporation income tax. Future changes in Company operations might impact the geographic mix which could affect the Company's overall effective tax rate. As of June 30, 2014 and June 30, 2013, the Company had approximately $925,300 and $1,277,400 of U.S. federal net operating loss carryovers, respectively which expire starting in 2030. The U.S. net operating loss carryovers may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% change in ownership in the future as determined under the regulations. In addition to the net operating losses since the 30DC share transaction on September 10, 2010, Infinity had net operation losses that predate the share transaction. At the time of the share transaction, Infinity had approximately $936,300 in U.S. federal net operating loss carryovers and $170,500 U.S. capital loss carryovers which expire beginning in 2023 and are not included in the net operating loss carryover above. The business of Infinity is included in discontinued operations, pursuant to limitations under Internal Revenue Code Section 382 these carryovers cannot be utilized to offset future taxable income from continuing operations. The Company had realized gains of $35,645 from discontinued operations during the year ended June 30, 2013 which was offset by Infinity's carryovers. NOTE 11. STOCKHOLDERS' EQUITY ----------------------------- COMMON STOCK During the year ended June 30, 2014, the Company issued common stock as follows: 300,000 shares of common stock to Michael A. Littman as payment for $78,000 included in accounts payable. The fair value of these shares was $48,000 and the Company recorded $30,000 of forgiveness of debt for this transaction which is included as other income in the Statement of Operations. Mr. Littman is an attorney who has provided services to the Company and who provided services to Infinity prior to the share exchange. The Company also recorded $57,253 of forgiveness of debt for reduced cash payment of $95,453 ($96,500 AUD) over a 10 month period to settle an outstanding liability of $152,706 to an Australian law firm which originated prior to 30DC's transaction with Infinity in 2010 and was previously included in accounts payable. The Company also recorded $6,260 of forgiveness of debt for reduced cash payment to settle final payment due the Company's prior independent auditing firm. The prior auditing firm also performed services to enable issuing F-20
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 an opinion for the June 30, 2012 comparative year included with the Company's June 30, 2013 Form 10K for which, as part of the settlement of the amount due, no fees were charged. 26,525 shares of common stock to a creditor as full payment for a note payable and accrued interest totaling $6,896. The fair value of these shares was $6,100 and the Company recorded $796 of forgiveness of debt for this transaction which is included in the Discontinued Operations section of the Statement of Operations. 100,000 shares of common stock to a creditor as full payment for a note payable and accrued interest totaling $19,794. The fair value of these shares was $22,000 and the Company recorded $2,206 in additional interest expense for this transaction which is included in the Discontinued Operations section of the Statement of Operations. During the year ended June 30, 2014, the Company redeemed common stock as follows: Effective February 28, 2014, the Company divested assets and liabilities that made up its Immediate Edge subscription business ("Edge") to Raine Ventures, LLC ("Raine") in exchange for the 10,560,000 common shares of the Company which Raine had held and which the Company has retired. The Company reported no gain or loss on the divestiture, accordingly the redeemed shares were valued at the $207,335 net book value of the divested assets and liabilities. During the year ended June 30, 2013, the Company issued common stock as follows: 500,000 shares of common stock with a fair value of $45,000 to GHL Group, Ltd. for consulting services, 15,385 shares of common stock to a consultant as partial payment for services of $2,000, 13,487,363 shares of common stock with a fair value of $1,078,989 to Netbloo Media, Ltd. as consideration for purchase of 50% of the MagCast JV and Market Pro Max (see Note 4), 55,770 shares of common stock to Michael A. Littman as payment for $14,500 included in accounts payable. Mr. Littman is an attorney who has provided services to the Company and who provided services to Infinity prior to the share exchange. WARRANTS AND OPTIONS At June 30, 2012, the Company had 600,000 fully vested options outstanding as follows: 404,000 options exercisable at 80 cents per share expiring August 7, 2018, 156,000 of these options are held by Pierce McNally a director of the Company, 196,000 options exercisable at 50 cents per share expiring January 5, 2019, 36,500 of these options are held by Pierce McNally a director of the Company, The balance of these options were held by a former employee and former directors of Infinity. 161,163 warrants (net of forfeitures) are due to Imperial Consulting Network under an agreement signed in June 2010 at an exercise price of $0.0001 per share. Such warrants are yet to be issued. Pursuant to a private placement memorandum ("PPM") issued in August 2010 the Company offered units consisting of one share of common stock, one warrant at 37 cents per share exercisable until March 15, 2011 ("37-Cent Warrant") and one warrant at 50 cents per share exercisable five years from the date of issuance ("50-Cent Warrant") for a price of 26 cents per unit. A first closing was held F-21
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 on September 22, 2010 under which 2,554,205 37-Cent Warrants were issued along with 2,554,205 50-Cent Warrants expiring September 22, 2015. From November 2010 through March 2011, an additional 847,317 37-Cent Warrants were issued and 847,317 50-Cent Warrants were issued. All of the 37-Cent Warrants expired March 15, 2011 unexercised. Further information relating to warrants is as follows: WEIGHTED WEIGHTED AVERAGE NUMBER AVERAGE REMAINING OF EXERCISE CONTRACT SHARES PRICE LIFE (YEARS) ------------------------------------------- Outstanding warrants at 6/30/12 3,401,522 $0.50 3.30 Granted - - - Exercised - - - Forfeited/expired - - - Outstanding warrants at 06/30/13 3,401,522 $ 0.50 2.30 Granted - - - Exercised - - - Forfeited/expired - - - Outstanding warrants at 6/30/14 3,401,522 0.50 1.30 Exercisable on 6/30/13 3,401,522 0.50 2.30 Exercisable on 6/30/14 3,401,522 0.50 1.30 On October 11, 2012, the Company's board of directors approved the Company's 2012 stock option plan (see Note 12) and grants of 3,000,000 options to purchase the Company's common stock with an exercise price of $0.08 per share expiring on October 10, 2022. 1,500,000 of these options were granted to Theodore A. Greenberg, the Company's Chief Financial Officer and a Director of the Company and 1,500,000 of these options were granted to Henry Pinskier who joined the Company as a Director in October 2012 and became Chairman in January 2013. NOTE 12 - STOCK BASED COMPENSATION PLANS ---------------------------------------- The Company follows FASB Accounting Standards Codification No. 718 - Compensation - Stock Compensation for share based payments to employees. The Company follows FASB Accounting Standards Codification No. 505 for share based payments to Non-Employees. The Company recognized expense in the amount of $67,237 and $153,629 respectively for the years ended June 30 30, 2014 and June 30, 2013. 3,000,000 options were granted on October 11, 2012 of which 1,000,000 vested January 1, 2013, 1,000,000 vested January 1, 2014 and 1,000,000 vest on January 1, 2015. The cost of options vesting January 1, 2013 was recorded in the year ended June 30, 2013 and the cost of options vesting in 2014 and 2015 are being recorded on a straight-line basis over the vesting period. There was no impact on the Company's cash flow. The Company's stock incentive plan is the 30DC, Inc. 2012 Stock Option and Award Plan (the "Plan"). The Plan provides for the grant of non-qualified stock options to selected employees and directors. The Plan is administered by the Board and authorizes the grant of options 7,500,000. The Board determines which eligible individuals are to receive options or other awards under the Plan, the F-22
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 terms and conditions of those awards, the applicable vesting schedule, the option price and term for any granted options, and all other terms and conditions governing the option grants and other awards made under the Plans. The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model using the assumptions noted as follows: expected volatility was based on historical trading in the company's stock from the September 10, 2010 date of the Infinity/30DC transaction through the October 11, 2012 date the options were issued. The expected term of options granted was determined using the simplified method under SAB 107 and represents one-half the exercise period. The risk-free rate is calculated using the U.S. Treasury yield curve, and is based on the expected term of the option. The Company has estimated there will be no forfeitures. During the year ended June 30, 2013, Henry Pinskier, Chairman of the Company was issued an option exercisable for 1,500,000 shares of the Company's common stock and Theodore A. Greenberg, the Company's Chief Financial Officer and a Director, was issued an option exercisable for 1,500,000 shares of the Company's common stock. The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the year ended June 30, 2013: Risk-free interest rate 0.67-0.88 % Expected option life 5.1-6.1 years Expected volatility 526.82-576.16 % Expected dividend yield 0.0 % Further information relating to stock options is as follows: WEIGHTED WEIGHTED AVERAGE NUMBER AVERAGE REMAINING OF EXERCISE CONTRACT SHARES PRICE LIFE (YEARS) -------------------------------------------- Outstanding options at 06/30/12 600,000 $0.70 6.24 Granted 3,000,000 $0.08 9.28 Exercised - - - Forfeited/expired - - - Outstanding options at 06/30/13 3,600,000 $ 0.18 8.61 Granted - - - Exercised - - - Forfeited/expired - - - Outstanding options at 6/30/14 3,600,000 0.18 7.61 Exercisable on 6/30/13 1,600,000 0.31 7.77 Exercisable on 6/30/14 2,600,000 0. 22 7.35 The options have a contractual term of ten years. The aggregate intrinsic value of shares outstanding and exercisable was $100,000 at June 30, 2014. Total intrinsic value of options exercised was $0 for the year ended June 30, 2014 as no options were exercised during this period. At June 30, 2014, shares available for future stock option grants to employees and directors under the 2012 Stock Option Plan were 4,500,000. F-23
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 13. SUPPLEMENTAL SCHEDULE OF OPERATING EXPENSES ---------------------------------------------------- Year Ended Year Ended June 30, 2014 June 30, 2013 ------------------- ------------------- Related Party Contractor Fees (1) $ 654,653 $ 684,909 Officer's Salary 233,619 276,814 Directors' Fees 143,618 76,814 Independent Contractors 480,307 313,756 Commissions 754,866 208,858 Professional Fees 153,958 183,617 Credit Card Processing Fees 128,339 33,497 Telephone and Data Lines 37,109 57,276 Other Operating Costs 257,359 200,863 ------------------- ------------------- Total Operating Expenses $ 2,843,828 $ 2,036,404 =================== =================== -------------------------------- (1) Related party contractors include Marillion an affiliate of the Company that manages marketing and development for the Company and provides the services of Edward Dale as Chief Executive Officer of the Company, GHL Group, Ltd., whose President, Gregory H. Laborde is a Director and Netbloo which was the joint developer of the MagCast Publishing Platform F-24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------------------------------------------------- Not applicable. ITEM 9A. CONTROLS AND PROCEDURES -------------------------------- EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our Company is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company. Management, consisting of the Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures as defined in Exchange Act Rules 13a-14(c) as of June 30, 2014 (the "Evaluation Date") concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were ineffective to ensure that material information relating to the Company would be made known to them by individuals within those entities, particularly during the period in which this annual report was being prepared and that information required to be disclosed in the Company's SEC reports has not been recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. As further detailed in the financial reporting controls section below, the Company has limited resources and staff which impacts timeliness and effective of disclosure controls. REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our "internal control over financial reporting" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report on Form 10-K (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our "internal control over financial reporting" is not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Specifically, management's evaluation was based on the following material weaknesses, which existed as of June 30, 2014: (1) Financial Reporting Systems: We did not maintain a fully integrated financial consolidation and reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements for external reporting purposes. (2) Segregation of Duties: We do not currently have a sufficient complement of technical accounting and external reporting personal commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not effectively segregate certain accounting duties due to the small size of its accounting staff, and maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals by the Company's personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement of accounting staff. -27-
We believe that our weaknesses in internal control over financial reporting and our disclosure controls relate in part to the fact that we are an emerging business with limited personnel. Management and the Board of Directors believe that the Company must allocate additional human and financial resources to address these matters. Throughout the year, the Company has been continuously improving its monitoring of current reporting systems and its personnel. The Company intends to continue to make improvements in its internal controls over financial reporting and disclosure controls until its material weaknesses are remediated. REMEDIATION OF MATERIAL WEAKNESS As our current financial condition allows, we are in the process of analyzing and developing our processes for the establishment of formal policies and procedures with necessary segregation of duties, which will establish mitigating controls to compensate for the risk due to lack of segregation of duties. In July 2014, the Company contracted an e-commerce accounting firm to automate a number of our accounting processes and to provide outsourced bookkeeping services that provide for segregation of duties which previously had not been. DISCLOSURE CONTROLS AND PROCEDURES Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors 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. Further, 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 the Company have been detected, at this time. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There was no change in the Company's internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. The Company is not an "accelerated filer" for the fiscal year ended June 30, 2014 because it is qualified as a "small business issuer". Hence, under current law, the internal controls certification and attestation requirements of Section 404 of the Sarbanes-Oxley act will not apply to the Company. This Annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report on Form 10-K. ITEM 9B. OTHER INFORMATION -------------------------- Not applicable. -28-
PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE --------------------------------------------------------------- The following table sets forth information as to persons who currently serve as 30DC, Inc., directors or executive officers, including their ages as of June 30, 2014. NAME AGE POSITION ------------------------- ------------------- ---------------------------------- Edward Dale 44 President, CEO and Director (1) Theodore A. Greenberg 54 CFO, Secretary and Director Henry Pinskier 54 Chairman of the Board (2) Gregory H. Laborde 49 Director Pierce McNally 65 Director ------------------------- 30DC's directors are elected by the Company's shareholders and hold office until their successors are duly elected and qualified under 30DC's bylaws. Unless otherwise indicated, the directors named above will serve until the next annual meeting of 30DC stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. BIOGRAPHICAL INFORMATION The following is a brief account of the business experience during at least the past five years of the directors and Officers of 30DC, indicating the principal occupation and employment during that period by each, and the name and principal business of the organizations by which they were employed. EDWARD DALE, DIRECTOR AND CHIEF EXECUTIVE OFFICER Mr. Dale, age 44, has served as a Director and President and CEO of 30DC since the transaction between Infinity and 30DC DE on September 10, 2010. Mr. Dale was a founding shareholder of 30DC DE and served as its President, Chief Executive Officer and a director from October 2008 until September 10, 2010. From 2005 to 2008, Mr. Dale developed the 30 Day Challenge business, which he ran for 4 years as part of the Marillion Partnership and was sold to 30DC DE in July 2009. HENRY PINSKIER, CHAIRMAN OF THE BOARD Mr. Pinskier, age 54, joined the Company's board of directors on October 11, 2012 and was elected Chairman of the Board on January 31, 2013. Mr. Pinskier serves as Chair and Joint Owner (1993- current) of Medi7 Pty Ltd., a General Practice medical services company with 70 Doctors and staff across multiple clinics in Melbourne Australia. Mr. Pinskier also currently serves as Chair for Spondo P/L an unlisted Public Company, which provides syndicated, secure easy to use video on demand system utilizing Pay Per View with a multi-level payment distribution process. He has previously served on the boards of 3 publicly listed companies in Australia related to Health technology in the area of Medical devices and services as well as having served as a Director of a Private US company with an Australian subsidiary delivering safety surveillance services. Mr. Pinskier has been involved in the Health Sector and IT /IM sector as well as having served as a Director in the past on a number of Victorian -29-
public sector organizations, VMIA the State Government of Victoria's Insurance Company from 2005-2011, Yarra Valley Water from 2008-2011 and The Alfred Group of Hospitals from 2000-2009. From 1985 until 2000, he practiced medicine. Across the different organizations he Chaired Strategy subcommittees, Risk and Audit Committees, Nomination Committees and been part of Finance Committees. Mr. Pinskier attended and graduated MBBS from Monash University in 1984. THEODORE A. GREENBERG, DIRECTOR AND CHIEF FINANCIAL OFFICER Mr. Greenberg, age 54, has served as a Director, Chief Financial Officer and Secretary of 30DC and Infinity since November 15, 2005. Mr. Greenberg is a senior financial executive with more than 30 years experience in private equity, consulting, industry and public accounting. He was a General Partner and co-founder of Park Avenue Equity Partners, LP, a $110 million private equity fund focused on the middle market. In his five years with Park Avenue, Mr. Greenberg, sourced, evaluated and negotiated deals and worked extensively with portfolio companies post acquisition. Prior to founding Park Avenue, he worked with Development Capital, LLC on direct equity investments and served as consulting CFO to one of Development Capital's portfolio companies. Previously, Ted directed the financial services practice at Marcum & Kliegman, LLP, a New York Metropolitan area accounting and consulting firm where he advised on merger and acquisition transactions, as well as operations and taxation. Mr. Greenberg graduated with a BS in Accounting, Cum Laude, from the State University of New York at Albany in 1980 and received an MBA in Finance & Business Policy from the University of Chicago in 1987. Mr. Greenberg earned certification as a Certified Public Accountant in New York State. GREGORY H. LABORDE, DIRECTOR Mr. Laborde, age 49, has served as a Director of 30DC since September 10, 2010. Prior to the transaction between Infinity and 30DC DE, Mr. Laborde served as President, Chief Executive Officer and Chairman of the Board of Infinity. Mr. Laborde currently serves as President and Chief Executive Officer of 21st Century Investor Relations and has over 22 years experience on Wall Street in the areas of investment banking, trading, sales and financial consulting. From 1986 to 1997, Mr. Laborde worked in corporate finance at a number of prestigious NYC based investment banks, including: Drexel Burnham Lambert, Lehman Brothers, Gruntal & Co., and Whale Securities. During his Wall Street tenure, Mr. Laborde was involved in over 20 public and private financing transactions totaling over 100 million dollars. In 1999 he founded and took public Origin Investment Group, a business development company that was involved in investing in IT related businesses. Mr. Laborde earned a Bachelor of Science degree in Engineering from Lafayette College in 1986. PIERCE MCNALLY, DIRECTOR Mr. McNally, age 65, has served as a Director of 30DC and Infinity since 2006. Mr. McNally, serves of counsel to Gray Plant Mooty, (Minneapolis, St. Cloud, MN and Washington, D.C.) practicing in the areas of business law and entrepreneurial services. He also serves as Chief Strategy Officer and General Counsel of Cielostar, Inc. a healthcare and benefits technology payments solutions company located in Minneapolis, MN. He has served as Chairman and Director of Lockermate Corporation of Minnetonka, Minnesota, a company that provides locker organizing systems and fashion accessories to the retail trade. He served as Minnesota American's Chairman of the Board, Chief Executive Officer and Secretary from October 1994 until January 2000, when Minnesota American merged with CorVu Corporation (OTC: CRVU). He served as Chairman and Director of Corporate Development of Nicollet Process Engineering, Inc. from May 1995 until April 1999, when he retired from the board. He also served on the board of directors of Digital Town (OTC:BB DGTW) and Outsell, LLC. In December, 1983, Pierce was elected to the board of directors of his family company, Midwest Communications, Inc., owner of numerous broadcast properties including WCCO-TV, WCCO-AM and WLTE in the Twin Cities. In 1989, he was subsequently also elected an officer of the company and he served in both capacities until the company -30-
merged with CBS, Inc. (NYSE:CBS) in 1992. Mr. McNally completed his undergraduate studies at Stanford University. He received his law degree from the University of Wisconsin Law School in 1978. He is a member of Order of the Coif. No appointee for a director position has been found guilty of any civil regulatory or criminal offense or is currently the subject of any civil regulatory proceeding or any criminal proceeding. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires that the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent stockholders are required by regulation to furnish to the Company copies of all Section 16(s) forms they file. The following persons failed to file forms during the past two fiscal years as required under Section 16(a) as follows: None. CONFLICTS OF INTEREST Members of the Company's management are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management anticipates it will devote only a minor amount of time to the Company's affairs. The Company's Board of Directors has adopted a policy that the Company will not seek a merger with, or acquisition of, any entity in which any officer or director serves as an officer or director or in which they or their family members own or hold a controlling ownership interest. Although the Board of Directors could elect to change this policy, the Board of Directors has no present intention to do so. There can be no assurance that management will resolve all conflicts of interest in favor of the Company. COMMITTEES OF THE BOARD OF DIRECTORS 30DC is managed under the direction of its board of directors. EXECUTIVE COMMITTEE 30DC does not have an Executive Committee at this time. AUDIT COMMITTEE 30DC does not have an Audit Committee, at this time but plans to institute an audit committee in the future. COMPENSATION COMMITTEE 30DC does not have a Compensation Committee at this time but plans to institute a Compensation Committee in the future. -31-
CONFLICTS OF INTEREST - GENERAL The Company's directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity, involved in participation with such other business entities. While each officer and director of the Company's business is engaged in business activities outside of its business, the amount of time they devote to Infinity's business will be up to approximately 40 hours per week. CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES Presently no requirement contained in the Company's Articles of Incorporation, Bylaws, or minutes which requires officers and directors of the Company's business to disclose to 30DC business opportunities which come to their attention. The Company's officers and directors do, however, have a fiduciary duty of loyalty to 30DC to disclose to it any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. The Company has no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such person. ITEM 11. EXECUTIVE COMPENSATION ------------------------------- The following table sets forth the compensation paid and accrued to officers during the fiscal years ended June 30, 2014, 2013 and 2012. The table sets forth this information for 30DC and Infinity Capital Group, Inc., including salary, bonus, and certain other compensation to the named executive officers for the past three fiscal years and includes all Officers as of June 30, 2014. SUMMARY EXECUTIVES COMPENSATION TABLE -------------------- ------ ---------- -------- -------- -------- ------------ ------------- -------------- ---------- NON-EQUITY NON-QUALIFIED INCENTIVE DEFERRED STOCK OPTION PLAN COMPENSATION ALL OTHER SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL NAME & POSITION YEAR ($) ($) ($) ($) ($) ($) ($) ($) -------------------- ------ ---------- -------- -------- -------- ------------ ------------- -------------- ---------- Edward Dale, CEO 2014 294,653 0 0 0 0 0 0 294,653 (1) 2013 338,596 40,000 0 0 0 0 0 378,596 2012 328,376 0 0 0 0 0 0 328,376 -------------------- ------ ---------- -------- -------- -------- ------------ -------------- -------------- ---------- Theodore A. 2014 200,000 0 0 33,619 233,619 Greenberg, CFO and 2013 200,000 0 0 76,814 0 0 0 276,814 Secretary (2) 2012 200,000 0 0 0 0 0 0 200,000 -------------------- ------ ---------- -------- -------- -------- ------------ -------------- -------------- ---------- Dan Raine, 2014 166,667 0 0 0 0 0 0 166,667 Former VP Business 2013 251,785 0 0 0 0 0 0 251,785 Development (3) 2012 250,000 0 0 0 0 0 0 250,000 -------------------- ------ ---------- -------- -------- -------- ------------ -------------- -------------- ---------- Clinton Carey, 2014 0 0 0 0 0 0 0 0 Former COO (4) 2013 0 0 0 0 0 0 0 0 2012 175,052 0 0 0 0 0 0 175,052 -------------------- ------ ---------- -------- -------- -------- ------------ -------------- -------------- ---------- (1) Marillion Partnership ("Marillion"), an affiliate of the Company that manages marketing and development for the Company and provides the services of Edward Dale as CEO of the Company. -32-
By contract Marillion receives annual contractor fees of $317,825 AUD Dollars which is paid periodically throughout the year. The Company converts US Dollars to AUD on the date of each payment and records the USD amount as related party contractor fees. The USD amount for the year is dependent on the fluctuation in the USD/AUD exchange rate. During the year ended June 30, 2013 the board awarded Marillion a one-time bonus of $40,000 upon completion of the asset acquisition which included the remaining 50% of the MagCast Publishing Platform. (2) Theodore A. Greenberg earned an annual salary of $200,000 for his services as an officer of the Company which was included in officers' salaries. During the years ended June 30, 2012 and June 30, 2013 this was accrued but not paid and during the year ended June 30, 2014, only $47,000 was paid . The unpaid amount for each of these years is included in due to related parties. (3) During the year ended June 30, 2012 Raine Ventures, LLC., a company affiliated with Dan Raine earned $250,000 which was included in related party contractor fees. During the year ended June 30, 2013 Raine Ventures earned $251,785. On February 28, 2014, in connection with the Immediate Edge divestiture, Mr. Raine resigned as the Company's VP of Business Development and Rained Ventures resigned from its contract. Raine Ventures earned $166,667 during the eight months ended February 28, 2014. All amounts earned by Raine Ventures in the years ended June 30, 2013 and 2014 are included in results from discontinued operations. (4) By contract, Jesselton was due $254,260 AUD per year but on March 1, 2012, Mr. Carey resigned as the Company's Chief Operating Officer and Jesselton voluntarily resigned from its contract. During the year ended June 30, 2012, Jesselton, earned $175,052 in contractor fees. Clinton Carey was engaged by the Company as a contractor in July 2013 but is no longer an officer of the Company. OPTION/SAR GRANTS IN THE LAST FISCAL YEAR COMPENSATION PURSUANT TO STOCK OPTION PLAN No options were issued under the Company's 2008 stock option plan. No options were issued under the Company's 2012 stock option plan however options issued in a previous year continued to vest. On October 11, 2012 our directors approved the Company's 2012 Stock Option Plan (the "Plan") authorizing the plan to grant options to purchase up to 7,500,000 shares of our common stock. The board's responsibility will include the selection of option recipients, as well as, the type of option granted and the number of shares covered by the option and the exercise price. Plan options may either qualify as non-qualified options or incentive stock options under Section 422 of the Internal Revenue Code. Any incentive stock option granted under the plan must provide for an exercise price of at least 100% of the fair market value on the date of such grant and a maximum term of ten years. All of our officers, directors, key employees and consultants will be eligible to receive non-qualified options under the plan. Only officers, directors and employees who are formally employed by the Company are eligible to receive incentive options. All incentive options are non-assignable and non-transferable, except by will or by the laws of descent and distribution. If an optionee's employment is terminated for any reason other than death, disability or termination for cause, the stock option will lapse on the earlier of the expiration date or three months following the date of termination. If the optionee dies during the term -33-
of employment, the stock option will lapse on the earlier of the expiration date of the option or the date one-year following the date of death. If the optionee is permanently and totally disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code, the plan option will lapse on the earlier of the expiration date of the option or one year following the date of such disability. On October 11, 2012, 1,500,000 options to purchase shares of the Company's common stock were issued to Theodore A. Greenberg the Company's Chief Financial Officer and a Director and 1,500,000 options to purchase shares of the Company's common stock were issued to Henry Pinskier who is a Director and who subsequently became Chairman of the Board. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END ---------------- ------------------------------------------------------------------ --------------------------------------- OPTION AWARDS STOCK AWARDS ---------------- ------------------------------------------------------------------ --------------------------------------- EQUITY EQUITY INCENTIVE INCENTIVE MARKET PLAN PLAN VALUE AWARDS: AWARDS: NO. OF OF NUMBER MARKET OR EQUITY SHARES SHARES OF PAYOUT INCENTIVE OR OR UNEARNED VALUE OF PLAN UNITS UNITS SHARES, UNEARNED AWARDS: OF OF UNITS OR SHARES, NO. OF NO. OF NUMBER OF STOCK STOCK OTHER UNITS OR SECURITIES SECURITIES SECURITIES THAT THAT RIGHTS OTHER UNDERLYING UNDERLYING UNDERLYING HAVE HAVE THAT RIGHTS UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION NOT NOT HAVE NOT THAT HAVE OPTIONS (#) OPTIONS (#) UNEARNED EXERCISE EXPIRATION VESTED VESTED VESTED NOT NAME EXERCISABLE UNEXERCISABLE OPTIONS (#) PRICE ($) DATE (#) (#) (#) VESTED ($) ---------------- ------------- --------------- ------------- ---------- ----------- ------- -------- ---------- ----------- Theodore A. 1,000,000 500,000 $0.08 10/10/22 Greenberg (1) ---------------- ------------- --------------- ------------- ---------- ----------- ------- -------- ---------- ----------- Henry Pinskier 1,000,000 500,000 $0.08 10/10/22 (1) ---------------- ------------- --------------- ------------- ---------- ----------- ------- -------- ---------- ----------- (1) Options awarded under 2012 stock option plan. CONTRACTOR AGREEMENTS AND TERMINATION OF CONTRACTOR AND CHANGE-IN-CONTROL ARRANGEMENTS MARILLION PARTNERSHIP The Company entered into a three-year Contract for Services Agreement commencing July 2009 with Marillion an affiliate of the Company that manages marketing and development for the Company and provides the services of Edward Dale as CEO of the Company for among other things, the payment of $250,000 in cash remuneration per year. On December 12, 2011 cash remuneration under the Marillion contractor agreement was amended for the year ended June 30, 2012 to the Australian Dollar equivalent of the originally contracted amount at the exchange rate on the contract start date of July 15, 2009. The original annual contract amount of $250,000 was amended to $317,825 AUD Dollars Effective July 1, 2012 the United States Dollar equivalent amount varies with the exchange rate. The Marillion contractor agreement expired June 30, 2012 and has continued on a month to month basis under the terms of the expired agreement. During the years ended June 30, 2014 and June 30, 2013, Marillion received annual contractor fees of $294,653 and $338,596 respectively. -34-
RAINE VENTURES, LLC The Company entered into a three-year Contract For Services Agreement commencing July 2009 with 23V Industries, Ltd. ("23V") for services which include Mr. Dan Raine acting as the Company's Vice President of Business Development providing for among other things, the payment of $250,000 in cash remuneration per year. Effective April 1, 2010, Raine Ventures, LLC ("Raine Ventures") replaced 23V Industries, Ltd in providing consulting services to the Company including Mr. Raine acting as the Company's Vice President of Business Development. The Raine Ventures contractor agreement expired June 30, 2012 and continued on a month to month basis under similar terms through February 28, 2014 when the Company divested the Immediate Edge and Mr. Raine resigned as the Company's VP of Business Development and Rained Ventures resigned from its contract. If in any year starting from the commencement date of the Marillion and Raine Ventures contractor agreements, revenues of 30DC, Inc. doubles, compared to the preceding year, then a bonus equal to 50% of cash remuneration will be due in shares of 30DC, Inc. as additional compensation. This threshold was not achieved for the fiscal years ending June 30, 2014 and 2013. DESCRIPTION OF 30 DC DE CONTRACTOR AGREEMENTS The Marillion and Raine Ventures contractor agreements were with 30DC DE, a subsidiary of 30DC. The agreements provided the following terms: BONUSES: Performance bonuses and milestones for such bonus are to be determined by the Board of Directors. SALARY: Annual reviews of compensation are to be performed by the Board of Directors. At such review the Board of 30DC shall consider: the responsibilities of the contractor, the performance of the company, the performance of the contractor's division, the performance of the contractor, the remuneration available in the workforce outside the 30DC for persons with responsibilities and experience equivalent to those of the contractor and the benefits which have accrued and will accrue under the agreement. TAKEOVER EVENT: If, a Trade Sale or a Takeover Event occurs and the Executive providing services through one of the contractor agreements is required to resign as Officer of the Company, and the Agreement is effectively terminated, then in addition to any other entitlements due to the contractor in accordance with the terms of this Agreement, the contractor will be entitled to: - be paid a lump sum equal to at least the total of all amounts that, if the contract had continued until the end of the term, 30DC would have become liable to pay to the contractor during that period; and - be issued with that number of shares in 30DC comprising 50% of the cash remuneration. None of the Executives providing services through the contractor agreements were required to resign their positions with 30DC as a result of the transaction with Infinity so this provision did not apply. When the Company divested Immediate Edge, on February 28, 2014, Raine Ventures resigned its contractor agreement and is due no further compensation under its contract. -35-
NETBLOO MEDIA, LTD. Effective October 1, 2012, Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In August 2008, the Board of Directors approved and created a compensation committee. The committee consisted of the independent directors of the Company. Contemporaneous with the Infinity/30DC transaction, two of the independent directors resigned and the compensation committee ceased to exist. The Company plans to form a new compensation committee when new independent directors join the board. DIRECTOR COMPENSATION Historically, the Company had not paid any Directors fees for meeting attendance. In September 2013, the Company approved annual fees to non-executive directors of $30,000 per year and $50,000 per year for the board chairman. At the Company's option, director's fees may be paid in stock. (REMAINDER OF PAGE LEFT BLANK INTENTIONALLY) -36-
DIRECTORS COMPENSATION The following table sets forth certain information concerning compensation paid to the Company's directors during the year ended June 30, 2014: FEES NON-QUALIFIED EARNED OR NON-EQUITY DEFERRED NAME PAID IN STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL ($) ($) ($) ($) ($) ($) ($) ---------------- ------------ ------- -------- --------------- ------------- ------------- ---------- Edward Dale (1) $ -0- $ -0- $ -0- $ -0- $ -0- $-0- $-0- Theodore A. $ -0- $ -0- $ -0- $ -0- $ -0- $-0- $-0- Greenberg (2) Gregory H. $30,000 $ -0- $ -0- $ -0- $ -0- $-0- $30,000 Laborde (3) Pierce McNally $30,000 $ -0- $-0- $ -0- $-0- $ -0- $30,000 (4) Henry Pinskier (5) $50,000 $-0- $33,618 $ -0- $-0- $ -0- $83,618 ---------------- (1) During the year ended June 30, 2014, Marillion Partnership, an affiliate of the Company that manages marketing and development for the Company and provides the services of Edward Dale as CEO of the Company was paid $294,653 which was included in related party contractor fees. (2) During the year ended June 30, 2014, Theodore A. Greenberg earned salary of $200,000 and received a stock option award for which $33,619 was charged to officers' salaries for his services as an officer of the Company, the $153,000 was accrued but not actually paid. (3) During the year ended June 30, 2014, GHL Group, whose President, Gregory H. Laborde is a Director, earned $60,000 which was included in related party contractor fees. $25,000 of the director fees due Mr. Laborde remain unpaid and the Company has the option to pay this in stock. (4) $27,000 of the director fees due Pierce McNally remain unpaid and the Company has the option to pay this in stock. (5) $42,000 of the director fees due Henry Pinskier remain unpaid and the Company has the option to pay this in stock. All of the Company's officers and/or directors will continue to be active in other companies. All officers and directors have retained the right to conduct their own independent business interests. INDEMNIFICATION OF DIRECTORS AND OFFICERS 30DC's officers and directors are indemnified as provided by the Maryland Revised Statutes and the bylaws. Under the Maryland Revised Statutes, director immunity from liability to a company or its shareholders for monetary liabilities applies automatically unless it is specifically limited by a company's Articles of Incorporation. The Company's Articles of Incorporation do not specifically limit the directors' immunity. Excepted from that immunity are: (a) a willful failure to deal fairly -37-
with Infinity or its shareholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; and (d) willful misconduct. The Company's bylaws provide that it will indemnify the directors to the fullest extent not prohibited by Maryland law; provided, however, that it may modify the extent of such indemnification by individual contracts with the directors and officers; and, provided, further, that the Company shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof, initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized by the board of directors, (c) is provided by the Company, in sole discretion, pursuant to the powers vested under Maryland law or (d) is required to be made pursuant to the bylaws. The Company's bylaws provide that it will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of Infinity as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under the bylaws or otherwise. The Company's bylaws provide that no advance shall be made by the Company to an officer except by reason of the fact that such officer is or was the Company's director in which event this paragraph shall not apply, in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made: (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of 30DC, Inc. EQUITY COMPENSATION PLAN INFORMATION STOCK OPTION PLAN The Company has two stock Option Plans. As of June 30, 2014, 600,000 options are outstanding under the 2008 Option Plan of which all 600,000 are exercisable. During the year ended June 30, 2014, we did not issue any shares under the option plan. We have reserved a total of 970,934 shares of common stock for issuance under the 2008 Option Plan. On October 11, 2012 our directors approved the Company's 2012 Stock Option Plan (the "Plan") authorizing the plan to grant options to purchase up to 7,500,000 shares of our common stock. On October 11, 2012, 1,500,000 options to purchase shares of the Company's common stock were issued to Theodore A. Greenberg the Company's Chief Financial Officer and a Director and 1,500,000 options to purchase shares of the Company's common stock were issued to Henry Pinskier who is a Director and who subsequently became Chairman of the Board. At June 30, 2014, 1,000,000 of the options issued to Mr. Greenberg and 1,000,000 of the options issued to Mr. Pinskier are exercisable. -38-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. -------------------------------------------------------------------------------- The following table sets forth information with respect to the beneficial ownership of 30DC, Inc. outstanding common stock by: o each person who is known by 30DC to be the beneficial owner of five percent (5%) or more of 30DC's common stock; o 30DC's chief executive officer, its other executive officers, and each director as identified in the "Management-- Executive Compensation" section; and o all of the Company's directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock and options, warrants and convertible securities that are currently exercisable or convertible within 60 days of the date of this document into shares of the Company's common stock are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The information below is based on the number of shares of 30DC, Inc. common stock that 30DC believes was beneficially owned by each person or entity as of June 30, 2014, including options exercisable within 60 days. TITLE NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS BENEFICIAL OWNER (1) BENEFICIAL OWNER OF CLASS (2) --------- ------------------------------- -------------------- --------------- Common Edward Dale, Director, 20,036,440 26.07% President, CEO (Directly and Beneficially through Marillion Partnership) Common Gregory H. Laborde, Director, 3,507,250 4.56% (Beneficially through GHL Group, Ltd.) Common Theodore A. Greenberg, CFO, 2,680,770 3.44% Secretary and Director Common Pierce McNally, Director (3) 292,500 0.13% -39-
TITLE NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS BENEFICIAL OWNER (1) BENEFICIAL OWNER OF CLASS (2) --------- ------------------------------- -------------------- --------------- Common Henry Pinskier, Director and 1,247,000 1.60% Chairman of the Board Common Jonathan Lint (Beneficially 13,487,363 17.55% through Netbloo Media, Ltd.) Common All Directors and Executive 27,763,960 35.21% Officers as a Group (5 persons) --------- (1) All directors can be reached at the address of the Company. (2) At June 30, 2014, the Company had 76,853,464 shares of its common stock issued and outstanding. The Company had 2,600,000 options issued and outstanding which were exercisable, but 600,000 of these options are not included in this calculation as the Company considers them to be "out of the money" and does not expect the status to change in the next 60 days. (3) Mr. McNally's ownership total includes 192,500 options which were exercisable at June 30, 2014 but not included in his percentage. Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination of beneficial ownership of securities. That rule provides that a beneficial owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security. Rule 13d-3 also provides that a beneficial owner of a security includes any person who has the right to acquire beneficial ownership of such security within sixty days, including through the exercise of any option, warrant or conversion of a security. Any securities not outstanding which are subject to such options, warrants or conversion privileges are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person. Those securities are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ------------------------------------------------------- RELATED PARTY TRANSACTIONS OFFICERS AND DIRECTORS During the years ended June 30, 2014 and 2013, Marillion Partnership ("Marillion"), an affiliate of the Company that manages marketing and development for the Company and provides the services of Edward Dale as CEO was paid contractor fees of $294,653 and $378,596 (inclusive of $40,000 bonus) respectively. Mr. Dale is CEO, President and a Director of the Board of the Company. During the years ended June 30, 2014 and 2013, Theodore A. Greenberg earned salary of $200,000 each year. Mr. Greenberg is CFO and a Director of the Company. On October 11, 2012 Mr. Greenberg was issued 1,500,000 options to purchase shares of the Company's common stock. The company computed the cost of -40-
these options using the Black-Scholes option pricing formula which resulted in total cost of $119,288 of which $33,619 and $76,814 were recorded as expense during the years ended June 30, 2014 and 2013 respectively. During the years ended June 30, 2014 and 2013, Henry Pinskier earned directors' fees of $50,000 and $-0- respectively. Mr. Pinskier is a Director and Chairman of the Board of the Company. On October 11, 2012 Mr. Pinskier was issued 1,500,000 options to purchase shares of the Company's common stock. The company computed the cost of these options using the Black-Scholes option pricing formula which resulted in total cost of $119,288 of which $33,618 and $76,814 were recorded as expense during the years ended June 30, 2014 and 2013 respectively. During the years ended June 30, 2014 and 2013, Gregory Laborde earned directors' fees of $30,000 and $-0- respectively. During the years ended June 30, 2014 and 2013 GHL Group, Ltd. whose President, Gregory H. Laborde is a Director, earned contractor fees of $60,000 and $81,313 respectively. $45,000 of this amount earned during the year ended June 30, 2013 was paid by issuance of 500,000 of the Company's restricted common shares. During the years ended June 30, 2014 and 2013, Pierce McNally earned directors' fees of $30,000 and $-0- respectively. OTHER SHAREHOLDERS During the year ended June 30, 2014 and 2013, Raine Ventures, LLC , a company affiliated with Dan Raine earned contractor fees of $166,667 and $251,785 respectively. Mr. Raine had beneficial ownership of greater than 5% of the Company until February 28, 2014. On February 28, 2014, the Company divested the Immediate Edge in return for 10,560,000 of the Company shares which was all of the Company shares owned by Raine Ventures. During the years ended June 30, 2014 and 2013 Netbloo earned contractor fees of $300,000 and $225,000. Netbloo is a greater than 5% shareholder. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ----------------------------------------------- GENERAL. Malone Bailey, LLP is the Company's principal auditing accountant firm. The Company's Board of Directors has considered whether the provisions of audit services is compatible with maintaining independence. The following table represents aggregate fees billed to the Company for the years ended June 30, 2014 and 2013 by Malone Bailey, LLP Year Ended June 30, 2014 2013 --------------- --------------- Audit Fees $ 71,600 $ 70,000 Audit-related Fees $ 0 $ 0 Tax Fees $ 0 $ 0 All Other Fees $ 0 $ 0 --------------- --------------- Total Fees $ 71,600 $ 70,000 -41-
PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ------------------------------------------------ The following is a complete list of exhibits filed as part of this Form 10K. Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of Regulation S-K. (a) Audited financial statements for years ended June 30, 2014 and 2013 (b) EXHIBIT NO. DESCRIPTION ----------- -------------------------------------------------------------- 3.1 Articles of Incorporation of Infinity Capital Group, Inc. (1) 3.2 Bylaws of Infinity Capital Group, Inc. (1) 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act 101.INS XBRL Instance Document (2) 101.SCH XBRL Taxonomy Extension Schema Document (2) 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (2) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (2) 101.LAB XBRL Taxonomy Extension Label Linkbase Document (2) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (2) ------------- (1) Incorporated by reference from the exhibits included in the Company's Form 8K12g3 filed with the Securities and Exchange Commission (www.sec.gov), dated May 5, 2005. A copy can be provided by mail, free of charge, by sending a written request to 30DC, Inc., 80 Broad Street, 5th Floor, NY, NY 10004. (2) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. -42-
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 30DC, Inc. Dated: October 10, 2014 By: /s/ Edward Dale ------------------------------------ Edward Dale, President and Chief Executive Officer (Principal Executive Officer) By: /s/ Theodore A. Greenberg ------------------------------------ Theodore A. Greenberg, Chief Financial Officer (Principal Accounting Officer), Secretary and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: October 10, 2014 30DC , Inc. ------------------------------------- /s/ Edward Dale ------------------------------------- Edward Dale, Director /s/ Theodore A. Greenberg ------------------------------------- Theodore A. Greenberg, Director /s/ Henry Pinskier ------------------------------------- Henry Pinskier, Director /s/ Gregory Laborde ------------------------------------- Gregory Laborde, Director -43