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EXCEL - IDEA: XBRL DOCUMENT - EMARINE GLOBAL INC. | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - EMARINE GLOBAL INC. | f10q0914ex31i_pollex.htm |
EX-32.1 - EXHIBIT 32.1 - EMARINE GLOBAL INC. | f10q0914ex32i_pollex.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
o 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: 000-49933
Pollex, Inc.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) |
95-4886472 (I.R.S. Employer Identification No.) |
2005 De La Cruz Blvd. Suite 235 Santa Clara, CA (Address of principal executive offices) |
95050 (Zip Code) |
Registrant’s telephone number, including area code (408) 350-7340
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes □ No.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
(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 o No x
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 18, 2014, there were 5,121,688 shares of common stock, par value $0.001, issued and outstanding.
1 |
POLLEX, INC.
PART I – FINANCIAL INFORMATION | Page | |
ITEM 1 | Financial Statements | 3 |
ITEM 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 11 |
ITEM 3 | Quantitative and Qualitative Disclosures About Market Risk | 15 |
ITEM 4 | Controls and Procedures | 15 |
PART II – OTHER INFORMATION | ||
ITEM 1 | Legal Proceedings | 16 |
ITEM 1A | Risk Factors | 16 |
ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
ITEM 3 | Defaults Upon Senior Securities | 16 |
ITEM 4 | Mine Safety Disclosures | 16 |
ITEM 5 | Other Information | 16 |
ITEM 6 | Exhibits | 16 |
2 |
PART I – FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
3 |
ITEM 1 Financial Statements
POLLEX, INC.
|
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 9,833 | $ | 4,745 | ||||
Due from related party | 7,363 | - | ||||||
Total Current Assets | 17,196 | 4,745 | ||||||
Property and equipment, net | - | 188 | ||||||
License agreements, net | - | 80,000 | ||||||
Other asset - Deposit | 1,300 | 1,300 | ||||||
Total Assets | $ | 18,496 | $ | 86,233 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accrued expenses and accounts payable | $ | 912,203 | $ | 835,406 | ||||
Amounts due to affiliate under service agreement | 951,000 | 771,000 | ||||||
Advances from affiliate | 368,477 | 333,277 | ||||||
Loans payable | 1,215,799 | 1,160,403 | ||||||
Total Current Liabilities | 3,447,479 | 3,100,086 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders' Deficit | ||||||||
Common stock, authorized 300,000,000 shares; | ||||||||
par value $0.001; 5,121,688 issued and outstanding | ||||||||
at September 30, 2014 and December 31, 2013, respectively | 5,120 | 5,120 | ||||||
Additional paid-in capital | 136,934,861 | 136,874,861 | ||||||
Accumulated deficit | (140,368,964 | ) | (139,893,834 | ) | ||||
Total Stockholders’ Deficit | (3,428,983 | ) | (3,013,853 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 18,496 | $ | 86,233 |
See accompanying notes to financial statements. |
4 |
POLLEX, INC.
|
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
REVENUES | $ | 24,905 | $ | 23,563 | $ | 60,625 | $ | 101,312 | ||||||||
COSTS AND EXPENSES | ||||||||||||||||
Cost of goods sold | - | 6,891 | 586 | 30,718 | ||||||||||||
Selling, general and administrative | 71,098 | 22,574 | 220,871 | 97,887 | ||||||||||||
Related party service agreement | 60,000 | 60,000 | 180,000 | 180,000 | ||||||||||||
Bad debt expense | - | 8,932 | - | 37,442 | ||||||||||||
Impairment of license agreements | - | - | 70,000 | - | ||||||||||||
Depreciation and amortization | - | 8,651 | 10,188 | 26,373 | ||||||||||||
Total Costs and Expenses | 131,098 | 107,048 | 481,645 | 372,420 | ||||||||||||
OPERATING LOSS | (106,193 | ) | (83,485 | ) | (421,020 | ) | (271,108 | ) | ||||||||
OTHER EXPENSE | ||||||||||||||||
Interest expense | (17,944 | ) | (19,649 | ) | (54,110 | ) | (58,308 | ) | ||||||||
Total Other Expense | (17,944 | ) | (19,649 | ) | (54,110 | ) | (58,308 | ) | ||||||||
LOSS BEFORE INCOME TAXES | (124,137 | ) | (103,134 | ) | (475,130 | ) | (329,416 | ) | ||||||||
PROVISION FOR INCOME TAXES | - | - | - | - | ||||||||||||
NET LOSS | $ | (124,137 | ) | $ | (103,134 | ) | $ | (475,130 | ) | $ | (329,416 | ) | ||||
NET LOSS PER COMMON SHARE (Basic and Diluted) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.06 | ) | ||||
WEIGHTED AVERAGE SHARES | ||||||||||||||||
OUTSTANDING | 5,121,688 | 5,121,688 | 5,121,688 | 5,121,688 |
See accompanying notes to financial statements.
5 |
POLLEX, INC. | ||||||
STATEMENTS OF CASH FLOWS | ||||||
(UNAUDITED) |
For the nine months ended September 30, | ||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (475,130 | ) | $ | (329,416 | ) | ||
Adjustments to reconcile net loss to net cash used in continuing operating activities: | ||||||||
Depreciation and amortization | 10,188 | 26,373 | ||||||
Bad debt expense | - | 37,442 | ||||||
Impairment of license agreements | 70,000 | - | ||||||
Contributed Service | 60,000 | - | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (708 | ) | (37,442 | ) | ||||
(Increase) decrease in receivable from affiliate | (7,363 | ) | - | |||||
Increase (decrease) in accrued expenses | 76,797 | 13,017 | ||||||
Increase (decrease) in amounts due affiliate under service agreement | 180,000 | 180,000 | ||||||
Net cash used in operating activities | (86,216 | ) | (110,026 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Net cash used in investing activities | - | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from advance from affiliate | 75,200 | 113,600 | ||||||
Repayment of advance from affiliate | (40,000 | ) | - | |||||
Loan proceeds | 85,000 | - | ||||||
Repayment of loan | (28,896 | ) | - | |||||
Net cash provided by financing activities | 91,304 | 113,600 | ||||||
Net increase in cash | 5,088 | 3,574 | ||||||
CASH AT BEGINNING OF PERIOD | 4,745 | 3,836 | ||||||
CASH AT END OF PERIOD | $ | 9,833 | $ | 7,410 | ||||
SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for taxes | $ | - | $ | - | ||||
Assumption of accounts receivable by lender | $ | 708 | $ | - |
See accompanying notes to financial statements.
6 |
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2014
(UNAUDITED)
NOTE A – BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. Results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the financial statements and footnotes thereto included in the Pollex, Inc. annual report on Form 10-K for the year ended December 31, 2013.
NOTE B – GOING CONCERN
As shown in the accompanying financial statements, the Company incurred net losses of $475,130 and $329,416 for the nine months ended September 30, 2014 and 2013, respectively, and has an accumulated deficit of $140,368,964 at September 30, 2014. In order to fund future operations, the Company will need to raise capital through the equity markets and generate revenue through its license agreements. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE C – LICENSE AGREEMENTS
The Company began operating the online game, The Great Merchant, in open beta testing in January 2010. During the nine months ended September 30, 2014 and 2013, the Company generated revenues of $59,917 and $63,521, respectively, from this beta testing.
The Company has acquired license agreements for online games for use in South Korea. Each license also has a royalty fee which varies for each license. The licenses have terms of 2 to 3 years, beginning when they are launched commercially. Under the license agreements, the Company is required to pay the licensor 24%- 25% of gross sales.
The Company engaged a Korea-based service provider to support and maintain the online games in South Korea, and collect payments from customers. Under this agreement the service provider is required to pay the Company 29% of the gross sales on the contracted games. For the nine months ended September 30, 2014 and 2013, the Company billed such 29%, or $708 and $37,443, respectively. For the nine months ended September 30, 2014 and 2013, the Company was billed $586 and $30,718, respectively, by the licensor on these games.
In June 2014, the Company decided to no longer utilize its’ licenses in South Korea and to focus on the Great Merchant and other gaming opportunities in the US. As such, the license agreements were written off and an impairment of $70,000 was recognized during the nine months ended September 30, 2014. The licenses are comprised as follows:
September 30, | December 31, | Estimated | ||||||||
2014 | 2013 | Useful Life | ||||||||
License agreements | $ | - | $ | 122,500 | 2-3 years | |||||
Accumulated amortization | - | (42,500 | ) | |||||||
$ | - | $ | 80,000 |
Amortization expense was $10,000 and $24,687 for the nine months ended September 30, 2014 and 2013, respectively.
7 |
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2014
(UNAUDITED)
NOTE C – LICENSE AGREEMENTS (Continued)
At December 31, 2013, a note holder agreed to assume the amounts due from the Korea-based service provider, up to $150,000. As such, the Company reduced the note by $708 and $138,897 at September 30, 2014 and December 31, 2013, respectively.
NOTE D – RELATED PARTY TRANSACTIONS
Certain expenses have been paid on behalf of the Company by Joytoto Co., Ltd (“Joytoto Korea”), of which the Company is a majority owned subsidiary. The Company has recognized the expenses and corresponding payable to Joytoto Korea as due to affiliate. The advances are non-interest bearing and have no specific repayment date. During the nine months ended September 30, 2014, the Company received proceeds of $75,200 and repaid $40,000.
The Company has entered into a Service Agreement with Gameforyou, Incorporated, a wholly-owned subsidiary of Joytoto Korea. Under this agreement, Gameforyou, Incorporated provides translation, customer support, and system operations and maintenance. The Company is required to pay Gameforyou, Incorporated $10,000 in cash and $10,000 in cash or stock each month. Any issuance of stock will be at the market value or at a price determined and agreed to by both parties. For the nine months ended September 30, 2014 and 2013, $180,000 and $180,000, respectively, were recognized in the Statement of Operations under this agreement. At September 30, 2014 and December 31, 2013, $951,000 and $771,000, respectively were due to Gameforyou, Incorporated.
The amount due from a related party of $7,363 represents an amount paid by the Company on behalf of a related party.
NOTE E – LOANS PAYABLE
The loans payable consists of borrowings from two notes. The terms of the promissory notes are one year and bear interest at an annual rate of 6% and are unsecured. The notes may be repaid at any time prior to its due date without a prepayment penalty. Of the notes, $1,130,799 are in default at September 30, 2014 and $85,000 are due March 31, 2015.
At December 31, 2013, one of the note holders agreed to assume the amounts due from the Korea-based service provider, up to $150,000.
As such, the Company reduced the note by $708 and $138,897 at September 30, 2014 and December 31, 2013, respectively.
During the nine months ended September 30, 2014, the Company received proceeds of $85,000 and repaid $28,896.
NOTE F - INCOME TAXES
At September 30, 2014 and December 31, 2013, the Company had unused net operating loss carryforwards of approximately $6,087,000 and $5,742,000, respectively, for income tax purposes, which expire between 2027 and 2034. The net operating loss carryforwards may result in future income tax benefits of approximately $2,070,000 and $1,952,000, respectively; however because realization is uncertain at this time, a valuation reserve in the same amount has been established. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
8 |
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2014
NOTE F - INCOME TAXES (Continued)
Significant components of the Company’s deferred tax liabilities and assets at September 30, 2014 and December 31, 2013 are as follows:
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
Deferred tax liabilities | $ | - | $ | - | ||||
Deferred tax asset- | ||||||||
Net operating loss carryforward | 2,070,000 | 1,952,000 | ||||||
Valuation allowance | (2,070,000 | ) | (1,952,000 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
The income tax expense (benefit) differs from the amount computed by applying the United States statutory corporate income tax rate as follows:
September 30, | ||||||||
2014 | 2013 | |||||||
U.S statutory income tax rate | 34 | % | 34 | % | ||||
Change in valuation allowance of deferred tax assets | (34 | %) | (34 | %) | ||||
Net deferred tax asset | - | % | - | % |
NOTE G – WARRANTS
Warrant activity for the nine months ended September 30, 2014 is as follows:
Shares | Weighted Average Grant Date Fair Value | |||||||
Outstanding, January 1, 2014 | 946,667 | $ | 41.46 | |||||
Granted | - | - | ||||||
Forfeited | - | - | ||||||
Expired | - | - | ||||||
Exercised | - | - | ||||||
Outstanding, September 30, 2014 | 946,667 | $ | 41.46 |
The weighted average remaining contractual life and exercise price of the warrants outstanding and exercisable at September 30, 2014 was 0.09 years and $4.95, respectively. The warrants outstanding had no intrinsic value at September 30, 2014.
9 |
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2014
NOTE H- EMPLOYMENT AGREEMENTS
On March 21, 2014, the Company entered into three year employment agreement Seong Sam Cho, to serve as Chief Executive Officer,
President and Chairman for an annual salary of $1.00.
For the nine months ended September 30, 2014, the Company recorded $60,000 for the fair value of the services contributed by Seong Sam Cho.
10 |
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include, but are not limited to, international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
Pollex, Inc., formerly Joytoto USA, Inc., formerly BioStem, Inc. (the “Company,” “we,” and “us”) was incorporated on November 2, 2001, in the State of Nevada, under the name “Web Views Corporation”.
We are a majority owned subsidiary of Joytoto Co., Ltd. (“Joytoto Korea”). We are determined to focus our efforts on our Online Games business by acquiring new game licenses and making such games commercially available in South Korea and the United States.
Our operations are focused on Online Games. We have acquired licenses from various online game developers to use in South Korea. Our Online Games business segment has generated $60,625 for the nine months ended September 30, 2014.
As of September 30, 2014, the Company entered into license agreements for 15 games for use in South Korea. These agreements allow the Company to release and service these games in South Korea. The Company opened one of these games in South Korea under open beta testing on March 16, 2011. Open Beta testing allows users and players to test the game while not implementing the full revenue generating service of the game. One of the games was launched commercially in July 14, 2012. The Company decided to no longer utilize its licenses in South Korea and to focus on the Great Merchant and other gaming opportunities in the US.
The Company engaged a Korea-based service provider to support and maintain the online game and collect payments from customers. Under this agreement, the service provider is required to pay the Company 29% of gross sales. For the nine months ended September 30, 2014, the Company billed 29%, or $708. The remaining revenues were generated from the Company's online game, the Great Merchant, which has been in beta testing since 2010.
Revenues, Expenses and Loss from Operations
Three months ended September 30, 2014 compared to three months ended September 30, 2013
Our revenues, selling, general and administrative expenses, depreciation, amortization, total costs and expenses, and net loss for the three months ended September 30, 2014 and for the three months ended September 30, 2013 are as follows:
11 |
Three Months Ended September 30, 2014 | Three Months Ended September 30, 2013 | |||||||
Revenue | $ | 24,905 | $ | 23,563 | ||||
Cost of services | - | 6,891 | ||||||
Selling, general and administrative | 71,098 | 22,574 | ||||||
Related party service agreement | 60,000 | 60,000 | ||||||
Bad debt expense | - | 8,932 | ||||||
Depreciation and amortization | - | 8,651 | ||||||
Total costs and expenses | 131,098 | 107,048 | ||||||
Other expense - interest expense | (17,944 | ) | (19,649 | ) | ||||
Net Loss | $ | (124,137 | ) | $ | (103,134 | ) |
For the three months ended September 30, 2014, we generated $24,905 in revenue compared to $23,563 for the three months ended September 30, 2013. The increase of $1,342 or 6% was primarily due to an increase in revenue from the Great Merchant in the current quarter.
The costs of services represent the Company's payments to the licensor for the online games which are active. These games began operating in the third quarter of 2012.
For the three months ended September 30, 2014, our selling, general and administrative expenses of $71,098 consisted primarily of $29,160 in professional fees, $20,000 in contributed services, and $3,750 in rental expense. For the three months ended September 30, 2013, our selling, general and administrative expenses of $22,574 consisted primarily of $7,500 in professional fees and $3,750 in rental expense. The increase of $48,524 or 215% was primarily due to increase in services contributed by our CEO and office expenses.
The related party service agreement is for services provided by a related party for game translation, customer support, and system operations and maintenance. The Company is required to pay $10,000 in cash and $10,000 in cash or stock each month.
The allowance for doubtful accounts represents management’s best estimate of the amount of probable credit losses. The Company has determined that all amounts billed to the game service provider are uncollectible as none of the amounts had been paid, the Company has granted extended payment terms, and the ultimate collection of the receivables is not certain.
Depreciation is of computers and other office furniture and equipment. The amortization relates to the in service license agreements. The impairment of the license agreements relates to the cancellation of the game licenses discussed above.
For the three months ended September 30, 2014, we had $131,098 in total costs and expenses compared to $107,048 for the three months ended September 30, 2013. The increase of $24,050 or 22% was primarily due to contributed services of $20,000 in the current quarter.
Other Expenses for the three months ended September 30, 2014 consisted of interest expense of $17,944. Other Expenses for the three months ended September 30, 2013 consisted of interest expense of $19,649. The decrease of $1,705 or 9% was primarily due to increase in total costs and expenses.
Net Loss
Our Net Loss for the three months ended September 30, 2014 was $124,137 compared to $103,134 for the three months ended September 30, 2013. The increase of $21,003 or 20% was primarily due to increase in selling general and administrative expenses.
12 |
Nine months ended September 30, 2014 compared to nine months ended September 30, 2013
Our revenues, selling, general and administrative expenses, depreciation, amortization, total costs and expenses, and net loss for the nine months ended September 30, 2014 and for the nine months ended September 30, 2013 are as follows:
Nine months Ended September 30, 2014 | Nine months Ended September 30, 2013 | |||||||
Revenue | $ | 60,625 | $ | 101,312 | ||||
Cost of services | 586 | 30,718 | ||||||
Selling, general and administrative | 220,871 | 97,887 | ||||||
Related party service agreement | 180,000 | 180,000 | ||||||
Bad debt expense | 70,000 | 37,442 | ||||||
Depreciation and amortization | 10,188 | 26,373 | ||||||
Total costs and expenses | 481,645 | 372,420 | ||||||
Other expense - interest expense | (54,110 | ) | (58,308 | ) | ||||
Net Loss | $ | (475,130 | ) | $ | (329,416 | ) | ||
For the nine months ended September 30, 2014, we generated $60,625 in revenue compared to $101,312 for the nine months ended September 30, 2013. The decrease of $40,687 or 40% was primarily due to decrease in revenue from our online games.
For the nine months ended September 30, 2014, our selling, general and administrative expenses of $220,871 consisted primarily of $86,759 in professional fees, $34,359 in office expense $60,000 in contributed services and $12,230 in rental expense. For the nine months ended September 30, 2013, our selling, general and administrative expenses of $97,887 consisted primarily of $33,750 in professional fees and $11,336 in rental expense. The increase of $122,984 or 125% was primarily due to increase in administrative fees.
The related party service agreement are for services provided by a related party for game translation, customer support, and system operations and maintenance. The Company is required to pay $10,000 in cash and $10,000 in cash or stock each month.
The allowance for doubtful accounts represents management’s best estimate of the amount of probable credit losses. The Company has determined that all amounts billed to the game service provider are uncollectible as none of the amounts had been paid, the Company has granted extended payment terms, and the ultimate collection of the receivables is not certain.
Depreciation is of computers and other office furniture and equipment. The amortization relates to the in service license agreements. The impairment of the license agreements relates to the cancellation of the game licenses discussed above.
For the nine months ended September 30, 2014, we had $481,645 in total costs and expenses compared to $372,450 for the nine months ended September 30, 2013. The increase of $109,225 or 29% was primarily due to increase in selling general and administrative expenses.
Other Expenses for the nine months ended September 30, 2014 consisted of interest expense of $54,110. Other Expenses for the nine months ended September 30, 2013 consisted of interest expense of $58,308. The decrease of $4,198 or 7% was primarily due to a decrease in interest expense.
Net Loss
Our Net Loss for the nine months ended September 30, 2014 was $475,130 compared to $329,416 for the nine months ended September 30, 2013. The increase of $145,714 or 44% was primarily due to increase in administrative fees and decrease in revenue.
13 |
Liquidity and Capital Resources
Introduction
Our primary assets are cash and the online game license agreements.
During the nine months ended September 30, 2014, our online games business generated $59,917 in total revenues while in its open beta testing and commercial service. We have begun to generate revenue from our other license agreements.
Our cash requirements have been relatively small up to this point, but we anticipate that our cash needs will increase dramatically. We anticipate satisfying these cash needs through the sale of our common stock until we can generate enough revenue to sustain our operations.
As of September 30, 2014 | As of December 31, 2013 | Change | ||||||||||
Cash | $ | 9,833 | $ | 4,745 | $ | 5,088 | ||||||
Due from related party | 7,363 | - | 7,363 | |||||||||
Total current assets | 17,196 | 4,745 | 12,451 | |||||||||
Property and equipment, net | - | 188 | (188 | ) | ||||||||
License Agreements, net | - | 80,000 | (80,000 | ) | ||||||||
Deposits | 1,300 | 1,300 | 0 | |||||||||
Total assets | 18,496 | 86,233 | (67,737 | ) | ||||||||
Accrued expenses and accounts payable | 912,203 | 835,406 | 76,797 | |||||||||
Due to affiliate | 951,000 | 771,000 | 180,000 | |||||||||
Advances from affiliate | 368,477 | 333,277 | 35,200 | |||||||||
Loans payable | 1,215,799 | 1,160,403 | 55,396 | |||||||||
Total Current Liabilities | 3,447,479 | 3,100,086 | 347,393 |
Cash Requirements
As stated above, we anticipate that our cash requirements will increase substantially as we begin to increase operations to generate revenue from our license agreements.
14 |
Sources and Uses of Cash
Operations
For the nine months ended September 30, 2014 we had a net loss of $475,130 compared to $329,416 for the nine months ended September 30, 2013. This was offset by depreciation and amortization of $10,188, an increase in accrued expenses of $76,797, an increase in amounts due to affiliate under service agreement of $180,000 for total cash used in our operating activities of $86,216.
Investments
We had $0 invested in cash used in investment activities for the nine months ended September 30, 2014 and nine months ended September 30, 2013.
Financing
For the nine months ended September 30, 2014, our cash flows from financing activities totaled $91,304 from loan proceeds.
For the nine months ended September 30, 2013, our cash flows from financing activities totaled $113,600 from proceeds from advance from affiliate.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our board of directors, we have identified the following accounting policies that we believe are key to an understanding of our financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
Valuation of License Agreements
As of September 30, 2014, the Company has entered into license agreements for 15 games for use in South Korea. These agreements allow the Company to release and service these games in South Korea. The Company opened one of these games in South Korea under open beta testing on March 16, 2011. Open Beta testing allows users and players to test the game while not implementing the full revenue generating service of the game. One of the games was launched commercially in July 14, 2012. The Company decided to no longer utilize its licenses in South Korea and to focus on the Great Merchant and other gaming opportunities in the US.
The Company engaged a Korea-based service provider to support and maintain the online game and collect payments from customers. Under this agreement, the service provider is required to pay the Company 29% of gross sales. For the nine months ended September 30, 2014 and 2013, the Company billed 29%, or $708 and $37,443, respectively.
Revenue Recognition
Revenues are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2014 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer concluded that as of September 30, 2014, our disclosure controls and procedures were not effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 1 | Legal Proceedings |
None.
ITEM 1A | Risk Factors |
There are no material changes to the risk factors in our most recent Annual Report on Form 10-K.
ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
ITEM 3 | Defaults Upon Senior Securities |
None.
ITEM 4 | Mine Safety Disclosures. |
Not applicable.
ITEM 5 | Other Information |
None.
ITEM 6 | Exhibits |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Principal Financial and Accounting Officer | |
32.1 | Principal Executive Officer and Principal Financial and Accounting Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
EX-101.INS | XBRL INSTANCE DOCUMENT* | |
EX-101.SCH | XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT* | |
EX-101.CAL | XBRL TAXONOMY EXTENSION CALCULATION DOCUMENT* | |
EX-101.DEF | XBRL TAXONOMY EXTENSION DEFINITION DOCUMENT* | |
EX-101.LAB | XBRL TAXONOMY EXTENSION LABELS DOCUMENT* | |
EX-101.PRE | XBRL TAXONOMY EXTENSION PRESENTATION DOCUMENT* | |
16 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pollex, Inc. | |||
November 19, 2014 | |||
By: | /s/Seong Sam Cho | ||
Seong Sam Cho | |||
Its: President, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | |||