UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 2)

 

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

For the fiscal year ended September 30, 2014
or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________to _______________.

 

 Commission File Number: 0-49801

 

DUBLI, INC.

 

Nevada		13-4067623
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

6750 N. Andrews Ave, Suite 200

Ft Lauderdale, FL 33309

(Address of principal executive offices)

 

561-362-2381

(Issuer’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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

Common Stock, par value $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 þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐    No þ

 

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 ☐    No þ

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

 

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” as defined in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No þ

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of March 31, 2014 was $18.1 million.

 

As of April 8, 2015, 432,204,678 million shares of the registrant’s Common Stock, par value $0.001 per share, were outstanding and 185,000 shares of the registrant’s Preferred Stock, par value $0.01 per share, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE. None

 

 

 

EXPLANATORY NOTE   The Company is filing this Amendment No. 2 (“Amendment”) to its Form 10-K/A for the fiscal year ended September 30, 2014 (the "Original Filing") for the purpose of correcting a typographical error in its Report of Independent Registered Public Accounting Firm--namely, the date of the Report on Page F-1 of Item 15 Exhibits and Financial Statements Schedules to the Original Filing which was incorrectly stated as April 14, 2015. The correct date of the Report was April 15, 2015. The Amendment is also to correct an error in Amendment No. 1 as described below.   Rule 12b-15 requires the Company to re-file the entire Item being amended. The Company filed Amendment No. 1 to its Form 10-K as Form 10K/A on April 22, 2015, but although the Report of the Independent Registered Public Accounting Firm is part of Item 15 of the Original Filing, Amendment No. 1 did not include all of Item 15. Therefore, the Company is filing this Amendment on Form 10-K/A to include all of Item 15 Exhibits and Financial Statements Schedules. As stated above, the only change in the Amendment is the date on the Report of Independent Registered Public Accounting Firm. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing.

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

(a)	The following documents are filed as part of this report:
	Report of Independent Registered Public Accounting Firm
	Consolidated Financial Statements:
	Consolidated Balance Sheets
	Consolidated Statements of Operations
	Consolidated Statements of Comprehensive Income (Loss)
	Consolidated Statements of Stockholders’ Equity (Deficit)
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements

 

 

(b)	Exhibits
	The exhibits listed in the Exhibit Index immediately below are filed as part of this Annual Report on Form 10-K, or are incorporated by reference therein

 

EXHIBIT INDEX

 

Item No		Exhibit Description
2.1		Agreement for Share Exchange dated as of February 3, 2003, by and among Clamshell Enterprises, Inc. and Shutterport, Inc. (incorporated by reference to Exhibit 2.2 included in our Current Report on Form 8-K filed on March 4, 2003).
2.2		Agreement and Plan of Merger dated August 10, 2009 among DubLi, Inc., DubLi Merger Sub, and CG Holdings Ltd. (incorporated by reference to Exhibit 10.1 included in our Current Report on Form 8-K filed on August 14, 2009).
2.3		Amended and Restated Plan of Merger (incorporated by reference to Exhibit 10.2 included in our Current Report on Form 8-K filed on September 30, 2009.
3.1		Articles of Incorporation dated June 4, 1999 (incorporated by reference to Exhibit 3.1(a) included in our Registration Statement on Form 10-SB filed on May 6, 2002).
3.2		Certificate of Amendment to Articles of Incorporation dated February 14, 2001 (incorporated by reference to Exhibit 3.1(b) included in our Registration Statement on Form 10-SB filed on May 6, 2001).
3.3		Article of Amendment to Articles of Incorporation dated May 22, 2003 (incorporated by reference to Exhibit 3.1 included in our Information Statement on Schedule 14C filed on April 22, 2003).
3.4		Certificate of Designation filed October 16, 2009 (incorporated by reference to Exhibit 3.3 included in our Current Report on Form 8-K filed on October 23, 2009).
3.5		Amendment to Certificate of Designation dated December 30, 2009 (incorporated by reference to Exhibit 4.1 included in our Current Report on Form 8-K filed on December 30, 2009).
3.6		Certificate of Amendment to Certificate of Designation dated May 24, 2010 (incorporated by reference to Exhibit 3.1 included in our Quarterly Report on Form 10-Q filed on May 24, 2010).
3.7		Certificate of Designation filed August 20, 2012 (incorporated by reference to Exhibit 3.1 included in our Current Report on Form 8-K filed on August 21, 2012).
3.8		Certificate of Amendment to Articles of Incorporation dated September 25, 2012 (incorporated by reference to Exhibit 3.1 included in our Current Report on Form 8-K filed on September 27, 2012).
3.9		Bylaws (incorporated by reference to Exhibit 3(ii) included in our Registration Statement on Form 10-SB filed on May 6, 2002).
3.10		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 included in our Current Report on Form 8-K filed on October 23, 2009).
4.1		2010 Omnibus Equity Compensation Plan (incorporated by reference to Exhibit 4.2 included in our Registration Statement on Form S-8 filed on September 30, 2010).
10.1		Employment Agreement dated as of October 1, 2009, among CG Holdings Limited, DUBLICOM Limited, DUBLI NETWORK Limited, Lenox Resources LLC, Lenox Logistik und Service GmbH, DubLi Properties LLC, and DubLi.com LLC, and Andreas Kusche (incorporated by reference to Exhibit 10.3 included in our Current Report on Form 8-K filed on October 23, 2009).†

 

 

Item No		Exhibit Description
10.2		Employment Agreement dated as of October 1, 2009, among CG Holdings Limited, DUBLICOM Limited, DUBLI NETWORK Limited, Lenox Resources LLC, Lenox Logistik und Service GmbH, DubLi Properties LLC, and DubLi.com LLC, and Betina Dupont Sørensen (incorporated by reference to Exhibit 10.4 included in our Current Report on Form 8-K filed on October 23, 2009).†
10.3		Office Lease dated as of December 01, 2009 by and between 485 Properties, LLC and the Company.*
10.4		Voting Agreement dated as of March 3, 2009 between Michael Hansen and Michel Saouma.*
10.5		Employment Agreement, dated as of February 26, 2013, between DubLi, Inc. and Eric Nelson (incorporated by reference to Exhibit 10.1 included in our Current Report on Form 8-K filed on February 28, 2013).†
10.6		Employment Agreement, dated as of February 27, 2013, between DubLi, Inc. and Michael Hansen  (incorporated by reference to Exhibit 1.01 included in our Current Report on Form 8-K filed on March 5, 2013).†
10.7		Loan Agreement dated April 23, 2013 between DubLi, Inc. and Michael Hansen (incorporated by reference to Exhibit 10.1 included in our Current Report on Form 8-K filed on April 23, 2013).
10.8		Purchase Agreement dated June 19, 2013 among DubLi, Inc. and Michael Hansen, Andreas Kusche, Eric Nelson, Thomas Sikora and Rick Daglio. (incorporated by reference to Exhibit 10.1 included in our Current Report on Form 8-K filed on June 21, 2013).
10.9		Amendment to the Purchase Agreement (incorporated by reference to Exhibit 10.1 included in our Current Report on Form 8-K filed on November 21, 2013).
10.10		Land Parcel Sale Agreement, dated as of December 27, 2013, between Crown Group Investments Limited and Elite Star Engineering Limited (incorporated by reference to Exhibit 10.1 included in our Current Report on Form 8-K filed on April 28, 2014).
10.11		Amendment to Land Parcel Sale Agreement, dated February 16, 2014 (incorporated by reference to Exhibit 10.2 included in our Current Report on Form 8-K filed on April 28, 2014).
10.12		Amendment to Land Parcel Sale Agreement, dated February 26, 2014 (incorporated by reference to Exhibit 10.3 included in our Current Report on Form 8-K filed on April 28, 2014).
10.13		Second Land Parcel Sale Agreement, dated as of December 27, 2013, between Crown Group Investments Limited and Mr. Varun Sudhir Marodia (incorporated by reference to Exhibit 10.4 included in our Current Report on Form 8-K filed on April 28, 2014).
10.14		Loan Agreement dated May 6, 2014 between DubLi, Inc. and Sleiman Chamoun. (incorporated by reference to Exhibit 10.1 included in our Current Report on Form 8-K filed on May 9, 2014).
10.15		Promissory Note dated August 11, 2014 between DubLi, Inc. and Michael Hansen. (incorporated by reference to Exhibit 10.2 included in our Current Report on Form 8-K filed on August 28, 2014).
10.16		Amended and Restated Promissory Note dated August 27, 2014 between DubLi, Inc. and Michael Hansen. (incorporated by reference to Exhibit 10.2 included in our Current Report on Form 8-K filed on August 28, 2014).
14		Code of Business Conduct and Ethics dated January 2, 2004 (incorporated by reference to Exhibit 14.1 included in our Current Report on Form 8-K filed on November 6, 2012).
21.1		Subsidiaries. (incorporated by reference to Exhibit 21.1 included in our Annual Report on Form 10-K filed on April 15, 2015).
23.1		Consent of Independent Registered Public Accounting Firm (incorporated by reference to Exhibit 23.1 included in our Annual Report on Form 10-K filed on April 15, 2015).
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
32.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 as amended, and 18 USC. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification of Principal Accounting Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

*   Filed herewith.

†   Indicates management contract or compensatory plan.

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders

DubLi, Inc.

Ft Lauderdale, Florida

 

We have audited the accompanying consolidated balance sheets of DubLi, Inc. and subsidiaries (the “Company”) as of September 30, 2014 and 2013 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years in the two year period ended September 30, 2014. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of DubLi, Inc. and subsidiaries as of September 30, 2014 and 2013 and the consolidated results of their operations, comprehensive income (loss) and their cash flows for each of the years in the two year period ended September 30, 2014 in conformity with accounting principles generally accepted in the United States of America. 

 

/s/ Mayer Hoffman McCann P.C.

 

Boca Raton, Florida

April 15, 2015

 

 

DubLi, Inc. and Subsidiaries

Consolidated Balance Sheets

 

		September 30,
		2014				2013
ASSETS
Current assets
Cash and cash equivalents		$	2,111,812			$	131,422
Restricted cash			904,465				385,040
Other receivables and prepaid expenses			441,153				134,063
Deferred costs			3,387,549				1,087,564
Land held for sale			1,225,269				812,537
Total current assets			8,070,248				2,550,626
Property and equipment, net			1,442,708				2,849,390
Other assets			45,045				95,477
TOTAL ASSETS		$	9,558,001			$	5,495,493
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts payable		$	1,916,297			$	1,522,182
Amounts payable to Business Associates			1,820,905				1,668,931
Customer deposits			1,054,190				618,296
Other payables and accrued liabilities			2,383,661				1,555,437
Note payable			500,000				-
Amounts due to related parties			6,438,948				2,765,316
Unearned subscriptions fees			6,141,882				1,502,184
Unearned advertising			1,052,845				1,492,997
Liabilities of discontinued operations			652,419				6,401,821
TOTAL LIABILITIES			21,961,147				17,527,164
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock
25 million shares authorized, $0.01 par value, 185,000 shares issued and outstanding			1,850				1,850
Common stock
500 million shares authorized, $0.001 par value, 432.2 million and 430.6 million shares issued and outstanding, respectively			432,204				430,593
Additional paid-in-capital			25,115,841				24,649,646
Accumulated other comprehensive loss			(353,051	)			(855,179	)
Accumulated deficit			(37,599,990	)			(36,258,581	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)			(12,403,146	)			(12,031,671	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	9,558,001			$	5,495,493

 

See accompanying notes to consolidated financial statements

 

 

DubLi, Inc. and Subsidiaries

Consolidated Statements of Operations

 

		For the years ended September 30,
		2014				2013
Revenues:
Business license fees		$	2,292,161			$	3,844,324
Membership subscription fees and commission income			1,704,507				1,275,343
Advertising and marketing programs			358,109				11,645,381
Other			124,067				63,142
			4,478,844				16,828,190
Cost of revenues			2,343,653				1,575,036
Gross income			2,135,191				15,253,154
Selling, general and administrative expenses			9,041,195				11,922,611
Land and software impairment charges			-				2,054,796
Income (loss) from operations			(6,906,004	)			1,275,747
Interest expense			37,061				8,541
Income (loss) before income taxes			(6,943,065	)			1,267,206
Income taxes			-				-
Income (loss) from continuing operations			(6,943,065	)			1,267,206
Income from discontinued operations, net of taxes			5,601,656				2,546,931
Net income (loss)		$	(1,341,409	)		$	3,814,137
Earnings (loss) per share
Basic:
Continuing operations		$	(0.02	)		$	0.00
Discontinued operations		$	0.01			$	0.01
Diluted:
Continuing operations		$	N/A			$	0.00
Discontinued operations		$	N/A			$	0.01
Weighted average shares outstanding
Basic			432,192,421				418,406,518
Diluted			432,192,421				423,180,961

 

See accompanying notes to consolidated financial statements

 

 

DubLi, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

 

		For the years ended September 30,
		2014				2013
Net income (loss)		$	(1,341,409	)		$	3,814,137
Foreign currency translation adjustment			502,128				(931,565	)
Comprehensive income (loss)		$	(839,281	)		$	2,882,572

 

See accompanying notes to consolidated financial statements

 

 

DubLi, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity (Deficit)

 

																						Accumulated
		Preferred stock								Common stock								Additional				other								Total
		Shares				Par				Shares				Par				paid-in				comprehensive				Accumulated				equity
		outstanding				value				outstanding				value				capital				income (loss)				deficit				(deficit)
Balance, September 30, 2012			185,000			$	1,850				408,513,205			$	408,513			$	20,970,205			$	76,386			$	(40,072,718	)		$	(18,615,764	)
Stock based compensation			-				-				2,000,000				2,000				640,762				-				-				642,762
Common stock issuances for bonus incentives			-				-				6,060,606				6,060				593,940				-				-				600,000
Common stock issuances for services			-				-				316,786				317				78,612				-				-				78,929
Options exercised			-				-				2,278,064				2,278				291,457				-				-				293,735
Private placements			-				-				11,424,906				11,425				2,074,670				-				-				2,086,095
Foreign currency translation adjustment			-				-				-				-				-				(931,565	)			-				(931,565	)
Net income			-				-				-				-				-				-				3,814,137				3,814,137
Balance, September 30, 2013			185,000				1,850				430,593,567				430,593				24,649,646				(855,179	)			(36,258,581	)			(12,031,671	)
Stock based compensation			-				-				-				-				272,806				-				-				272,806
Common stock issuance for bonus incentive			-				-				1,111,111				1,111				98,889				-				-				100,000
Common stock issuance for services			-				-				500,000				500				94,500				-				-				95,000
Foreign currency translation adjustment			-				-				-				-				-				502,128				-				502,128
Net loss			-				-				-				-				-				-				(1,341,409	)			(1,341,409	)
Balance, September 30, 2014			185,000			$	1,850				432,204,678			$	432,204			$	25,115,841			$	(353,051	)		$	(37,599,990	)		$	(12,403,146	)

 

See accompanying notes to consolidated financial statements

 

 

DubLi, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

		For the years ended September 30,
		2014				2013
Cash flows from operating activities:
Income (loss) from continuing operations		$	(6,943,065	)		$	1,267,206
Adjustments to reconcile income (loss) to net cash flows from operating activities:
Depreciation and amortization			198,428				182,255
Land and software impairment charges			-				2,054,796
Stock based compensation			272,806				642,762
Common stock issuances for bonus incentives			100,000				600,000
Common stock issuances for services			95,000				78,929
Changes in operating assets and liabilities:
Restricted cash			(519,424	)			5,294,303
Other receivables and prepaid expenses			(307,090	)			257,839
Deferred costs			(2,299,985	)			(1,087,564	)
Other assets			50,432				-
Accounts payable			394,110				560,690
Amounts payable to Business Associates			151,974				(10,915,104	)
Customer deposits			435,894				(2,209,879	)
Other payables and accrued liabilities			828,225				204,089
Amounts due to related parties – services rendered			816,898				555,316
Unearned subscription fees			4,639,698				(423,862	)
Unearned advertising			(440,152	)			(6,587,238	)
Net cash flows from continuing operations			(2,526,251	)			(9,525,462	)
Income from discontinued operations			5,601,656				2,546,931
Net change in asset and liabilities of discontinued operations			(5,749,402	)			(4,745,683	)
Net cash flows from discontinued operations			(147,746	)			(2,198,752	)
Net cash flows from operating activities			(2,673,997	)			(11,724,214	)
Cash flows from investing activities:
Purchases of equipment and software			(14,060	)			(464,288	)
Proceeds from sale of land			812,537				-
Net cash flows from investing activities			798,477				(464,288	)
Cash flows from financing activities:
Proceeds from notes payable and advances – related party			2,856,735				2,210,000
Proceeds from note payable			500,000				-
Proceeds from preferred stock issuance			-				70,300
Proceeds from common stock issuances			-				2,086,095
Proceeds from stock options exercised			-				293,735
Net cash flows from financing activities			3,356,735				4,660,130
Effect of exchange rate changes			499,175				(928,667	)
Net change in cash and cash equivalents			1,980,390				(8,457,039	)
Cash and cash equivalents, beginning of year			131,422				8,588,461
Cash and cash equivalents, end of year		$	2,111,812			$	131,422
Supplemental cash flow information:
Cash paid for interest		$	37,061			$	8,541
Cash paid for income taxes			-				-

 

See accompanying notes to consolidated financial statements

 

 

DubLi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

1. The Company

 

Description of Business

DubLi, Inc. (“DubLi,” the “Company,” “we,” or “us”), through its wholly owned subsidiaries, is a global E-commerce and network marketing company. The Company is organized in Nevada and its principal executive offices are located in Ft. Lauderdale, Florida.  The Company’s wholly owned subsidiaries are incorporated in Florida, the British Virgin Islands, Cyprus, the United Arab Emirates and India (incorporated on January 2, 2015).

 

Our E-commerce transactions are conducted through DubLi.com websites in Europe, North America, Australia and through a global portal serving the rest of the world. We have a large network of independent Business Associates that sell our various E-commerce products. Prior to March 28, 2013, DubLi’s principal business consisted of reverse auctions program conducted online that were designed to: (i) sell its proprietary electronic gift cards; and (ii) enable consumers to purchase merchandise through its shopping portals from online retailers at discount prices. Effective March 28, 2013 the Company discontinued its auctions program.

 

Our President and Chief Executive Officer, Michael Hansen has a direct ownership of approximately 79.8 million shares of our common stock and 185,000 shares of our Super Voting Preferred Stock as of September 30, 2014. As a result, Mr. Hansen had the power to cast approximately 56% of the combined votes that can be cast by our common stockholders. Accordingly, he has the power to influence or control the outcome of important corporate decisions or matters submitted to a vote of our stockholders, including, but not limited to, increasing the authorized capital stock of the Company, the dissolution, merger or sale of the Company, the size and membership of the Board of Directors, and all other corporate actions.

 

Liquidity

The Company incurred operating losses for the period since its incorporation through September 30, 2012, and experienced negative net cash flows from its operating activities of approximately $11.7 million and $2.7 million for the 2013 and 2014 fiscal years, respectively. As a result, the Company had stockholders’ and working capital deficits of approximately $12.4 million and $13.9 million, respectively, as of September 30, 2014.

 

We continue to update our product offerings which places additional demands on future cash flows and may decrease liquidity as we improve our systems. Our future liquidity and capital requirements will depend on numerous factors including market acceptance of our revised operations and revenues generated from such operations, competitive pressures, and acquisitions of complementary products, technologies or businesses. We intend to increase our marketing efforts in order to grow our network of Business Associates which we expect will improve sales of our E-commerce products. The marketing efforts will place additional demands on our cash flows and liquidity. We cannot offer any assurance that we will be successful in generating revenues from operations; adequately dealing with competitive pressures; acquiring complementary products, technologies or business; or increasing our marketing efforts.

 

Because of constraints on our sources of capital and our liquidity needs, we continued to borrow from Michael Hansen, our President and CEO, during the years ended September 30, 2013 and 2014. Operations during fiscal 2014 were financed in part through (i) borrowings from Mr. Hansen amounting approximately $1.5 million during August 2014 pursuant to an amended and restated revolving loan commitment to fund the Company up to $5 million through December 31, 2015; (ii) the sale of land in Dubai in March 2014 which resulted in net proceeds of $0.8 million; and (iii) an unsecured loan in May 2014 from a private lender of $0.5 million.

 

The Company is pursuing the sale of a parcel of land in Dubai for approximately $1.25 million. Management anticipates that the completion of the land sale should occur within ninety days from February 9, 2015, the date of the Sale Agreement – Memorandum of Understanding which was entered into with an unaffiliated purchaser. In the event that the land sale fails to close or our operating cash flows are insufficient to meet our expenditures through September 30, 2015, we will draw down the available funds of $3.5 million under the loan commitment by Mr. Hansen, who has indicated that he has the ability to provide the funds as and when a drawdown is requested.

 

On October 17, 2014, the Company fully repaid Mr. Hansen’s loan of $1 million borrowed during fiscal 2013 and on November 14, 2014 fully repaid the private lender for the unsecured loan of $0.5 million.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

These consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and includes the accounts of DubLi, Inc. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

 

Use of Estimates

The preparation of these consolidated financial statements, in conformity with US GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results may differ from these estimates.

 

Reclassifications of Prior Period Amounts

Certain prior period amounts in the consolidated financial statements and notes thereto, have been reclassified to conform to current period’s presentation. However, total assets, total liabilities, revenues and net income were not changed as a result of those reclassifications.

 

 

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Update No. 2014-08 – Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). This update revised the guidance to be applied in determining when the discontinuation or disposal of operating activities and entities should be presented as discontinued operations in the financial statements. Under the previous guidelines, the reporting of discontinued operations was based upon two factors, relating to the elimination of operations and continued cash flows, and the continued involvement in the operations of the disposed component of an entity. Under the new guidance provided by ASU 2014-08, the reporting of discontinued operations will be based upon whether the disposal or discontinuation represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.

 

Under the new guidance, the reporting of discontinued operations affects the presentation of the assets, liabilities and results of operations of the discontinued component or group of components, and does not affect comprehensive income or loss. ASU 2014-08 is effective for annual and interim reporting periods beginning on or after December 15, 2014. Early adoption is permitted if discontinued operations have not already been reported in financial statements previously issued or available for issuance. The Company has adopted the new guidance in its consolidated financial statements during fiscal 2013.

 

In May 2014, the FASB issued Update No. 2014-09 Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The new guidance provided by ASU 2014-09 is intended to remove inconsistencies and weaknesses in the existing revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability, provide more useful information and simplify the preparation of financial statements. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact that the new guidance may have on its consolidated financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016 and earlier adoption is permitted. The Company is currently evaluating the impact that the new guidance may have on its consolidated financial statements.

 

Foreign Currency

Financial statements of foreign subsidiaries operating in other than highly inflationary economies are translated at year-end exchange rates for assets and liabilities and historical exchange rates during the year for income and expense accounts. The resulting translation adjustments are recorded within other comprehensive income or loss. Intercompany transaction gains or losses at each period end arising from subsequent measurement of balances for which settlement is not planned or anticipated in the foreseeable future are included as translation adjustments and recorded within other comprehensive income or loss. Financial statements of subsidiaries operating in highly inflationary economies are translated using a combination of current and historical exchange rates and any translation adjustments are included in current earnings. Loss resulting from foreign currency transactions for the year ended September 30, 2014 of approximately $127,000 and a gain of approximately $229,000 for the year ended September 30, 2013, respectively, have been recorded in selling, general and administrative expenses. The Company has no subsidiaries operating in highly inflationary economies.

 

In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, companies with foreign operations or foreign currency transactions are required to prepare the statement of cash flows using the exchange rates in effect at the time of the cash flows. The Company uses an appropriately weighted average exchange rate for the year for translation if the result is substantially the same as if the rates at the dates of the cash flows were used. The consolidated statement of cash flows reports the effect of exchange rate changes on cash balances held in foreign currencies as a separate part of the reconciliation of the change in cash and cash equivalents during the year.

 

Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities of three months or less at the date of transaction to be cash equivalents.

 

The Company maintains its cash in bank deposit accounts in the United States, Cyprus and United Arab Emirates, which at times may exceed the federally insured limits in those countries. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

Restricted cash

The Company has agreements with organizations that process credit card transactions of the Company. The credit card processors have financial risk of chargebacks associated with the credit card transactions because the processor generally forwards the cash proceeds to the Company soon after each transaction is completed but before the expiration of the time period in which the purchaser may request a refund. The Company’s agreements with the credit card processors allow them to create and maintain a reserve account by retaining a certain portion of the cash generated from the credit card transactions that would otherwise be delivered to the Company, herein known as “Restricted Cash”. The reserve requirement with each card processor is set at their respective fixed percentage for all transactions to be held and on their respective rolling term period from the date of the transaction.

 

 

Fair Value of Financial Instruments

The Company has adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) for measurement and disclosures about the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820 are:

 

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 - Inputs (other than quoted market prices included in Level1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life; and

Level 3 - Inputs reflect Management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date. The carrying amounts of the Company's financial assets and liabilities, such as cash and cash equivalents, restricted cash, accounts receivable, other receivables and prepaid expenses, deferred costs, accounts payable, Business Associates payable, other payables and accrued liabilities, amounts due to a related party, unearned subscription fees and advertising, and liability of discontinued operations approximate their fair values because of the short maturity of these instruments.

 

Property and Equipment

Property and equipment are recorded at cost. Computers and equipment, computer software, furniture and fixtures are depreciated over five years. Leasehold improvements included in furniture and fixtures are amortized on a straight-line basis over the term of the lease. Land is not amortized. The cost of maintenance and repairs of equipment is charged to expense when incurred. When the Company sells, disposes or retires property and equipment, the related gains or losses are included in operating results.

 

Impairment of Long-Lived Assets

In accordance with ASC 360, Property, Plant and Equipment - Subsequent Measurement (“ASC 360”), the Company reviews the carrying value of our long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors. Estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, changes to the business model or changes in operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, an impairment loss will be recognized, measured as the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined using available market data, comparable asset quotes and/or discounted cash flow models.

 

Revenue Recognition

The Company recognizes revenues in accordance with ASC 605, Revenue Recognition which requires that four basic criteria be met before revenues can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured. Determination of criteria (iii) and (iv) are based on Management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and cash back to customers, estimated returns and allowances, and other adjustments are recorded in the same period the related revenues are recorded. The Company defers any revenues that are subject to refund, and, for which the product has not been delivered or the service has not been rendered.

 

 

DubLi has a global network marketing organization with Business Associate representatives in many countries throughout the world. The Company offers Business Associates a wide variety of products and services to sell to their customers, many of whom are also recruited to become Business Associates themselves. Business Associates earn commissions on sales of products and services that they sell directly, and earn commissions on “downstream” sales of products and services made by Business Associates that they recruit into the marketing network. The Company also offers various membership packages to customers and a Partner program whereby customers are recruited who shop on our DubLi Shopping Mall.

 

The Company’s revenue recognition policies for each of its products and services are as follows:

 

E-commerce and memberships

 

●

Business license fees - Business Associates pay an initial business license fee and partner program participants (excluding not-for-profit organizations) pay a setup fee for the marketing and training services provided by the Company which enables them to begin their sales operations in selling DubLi’s products and services. The business license fee or partner setup fee is recognized as revenue ratably over twelve months.   Effective March 2014, our Business Associates were no longer required pay a monthly fee to maintain their current membership status which was recorded as revenue in the respective period for which it was paid. Partner program participants continue to pay a monthly maintenance fee which is recorded as revenue in the respective period for which it was paid.

 

	●	Membership subscription fees - (i) Effective April 2014 our Business Associates were required to purchase our membership subscription products for resale in the form of qualifying vouchers or membership packages for Business Associates or membership packages for DubLi’s customer as described under item (ii) below. These membership subscription products have a shelf life of twelve months. Revenue is recognized ratably over a twelve month period when any membership subscription product is activated or immediately upon expiry. Revenue is also recognized for breakage when a reasonable and reliable estimate can be made; and (ii) DubLi customers who purchase a Premium or a V.I.P. membership package pay a monthly or an annual subscription fee, respectively. The monthly subscription fee is recorded as revenue in the respective period for which it was paid and the annual subscription fee is recognized ratably over the subscription period.
	●	Commission income - The Company receives varying percentages in commission income earned from merchants participating in its online shopping malls. These commissions are calculated based upon the agreed rates with the participating merchants on all our customers transactions processed through our online mall platform and are recognized on an accrual basis from data obtained from the merchant. A percentage of the commission income is payable, in the form of cash back, to the customer for all purchase transactions. This cash back amount due the customer is accrued as a deduction from commission income at the time the commission income is recognized.

 

●

Advertising and marketing - During fiscal year 2012, three advertising programs were introduced and sold to Business Associates which represented a pool of funds that were collected in advance of several planned television and telemarketing advertising campaigns to generate new DubLi.com Shopping Mall customers for our Business Associates and/or Partners. Several marketing packages were also introduced and sold during fiscal year 2013 which were no longer available as of September 2013. Revenues for the respective advertising and marketing programs are recognized at a fixed rate per customer allocated to Business Associates in accordance with the terms and obligations under the programs or upon breakage based upon the following criteria - (i) when the Business Associate became inactive for twelve months and redemption was deemed remote, (ii) when the Business Associate accepted an exchange under any replacement program, or (iii) when waivers and releases were obtained from the Business Associate.

 

Auctions (Discontinued operations)

Effective March 28, 2013, the Company discontinued its auctions program. Any remaining unused Credits owned by Business Associates following the discontinuance had been reclassified as a liability of discontinued operations. Credits breakage associated with inactive Business Associates are recognized as revenues after twelve months of the termination of the auctions program or when waivers and releases are obtained from Business Associates who have opted to accept any replacement program.

 

Prior to March 28, 2013, revenues from the auctions program were recorded on a net basis of (i) bidding Credits used and broken in auctions, (ii) sale of goods and handling fees, and (iii) net auctioned value of gift cards. Net auctioned value of gifts cards was arrived at based upon the auctioned face value of the gift card less its associated cost of the gift card.

 

Cost of Revenues

Cost of revenues are principally commissions based upon each Business Associate's volume of sales, any “Down-line” sales by other Business Associates under the sponsoring Business Associate, and purchase transactions through our Shopping Malls made by customers under the sponsoring Business Associate. Commissions due to Business Associates at the time of such transaction are recorded as deferred costs until the corresponding revenues are recognized. Special incentive bonuses are recognized when the Business Associate meets the sales target goals or specific criteria, and are recorded as deferred costs which are then expensed ratably as the corresponding revenues are recognized.

 

Commissions and other incremental direct costs including credit card processing fees in connection with the auctions program had been fully expensed as of March 28, 2013 and reported as cost of revenues under discontinued operations.

 

 

Selling, General and Administrative Expenses

Selling, general and administrative expenses include costs associated with advertising expenses, stock compensation, staff payroll costs, outside services, bank transaction fees, and other general administrative costs.

 

Comprehensive Income (loss)

Comprehensive income (loss) is net earnings or loss after tax plus certain items that are recorded directly to stockholders’ equity. Other than foreign currency translation adjustments, the Company has no other comprehensive income (loss) components.

 

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) under which deferred tax assets and liabilities are determined based on temporary differences between accounting and tax bases of assets and liabilities and net operating loss and credit carry forwards, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. A provision for income tax expense is recognized for income taxes payable for the current period, plus the net changes in deferred tax amounts.

 

In accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes, the Company adopted a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

 

In the event of a distribution of the earnings of certain international subsidiaries, the Company would be subject to withholding taxes payable on those distributions to the relevant foreign taxing authorities. Since the Company currently intends to reinvest undistributed earnings of these international subsidiaries indefinitely, the Company has made no provision for income taxes that might be payable upon the remittance or repatriation of these earnings. The Company has also not determined the amount of tax liability associated with an unplanned distribution of these permanently reinvested earnings. In the event that in the future the Company considers that there is a reasonable likelihood of the distribution of the earnings of these international subsidiaries (for example, if the Company intends to use those distributions to meet our liquidity needs), the Company will be required to make a provision for the estimated resulting tax liability, which will be subject to the evaluations and judgments of uncertainties described above.

 

The Company conducts business globally and, as a result, one or more of our subsidiaries file income tax returns in U.S. federal and state, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in the countries in which each respective company operates. The Company is currently under ongoing tax examinations in several countries. While such examinations are subject to inherent uncertainties, the Company does not currently anticipate that any such examination would have a material adverse impact on its consolidated financial statements.

 

Earnings (loss) per Share

The Company computes earnings (loss) per share in accordance with ASC 260, Earnings per Share which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common stock outstanding during the year using the treasury stock method and any convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the year is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

For the year ended September 30, 2014, potential dilutive securities, which consisted of outstanding stock options and other compensation arrangements not included in dilutive weighted average shares amounted to approximately 0.3 million. For the year ended September 30, 2013, dilutive securities amounting to approximately 4.8 million included in the dilutive weighted average shares, consisted of outstanding stock options and other compensation arrangements.

 

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Share-Based Compensation, which requires the use of the fair value method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (warrants and options). The fair value of each option award is estimated on the date of the stock option grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatility is based on weighted average of the historical volatility of the Company's common stock and selected peer group comparable volatilities and other factors estimated over the expected term of the options. The expected term of stock options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.

 

 

Segment Policy

The Company derives its revenues from the E-Commerce and Memberships segment which includes business license fees, membership subscription fees, commission income, and, advertising and marketing programs; and Auctions segment (reported as discontinued operations). Management also evaluates its performance on the segments as a whole and in each of four major geographic regions as described in Note 14 - Segment Information.

 

3. Restricted Cash 

 

Restricted cash represents chargeback reserves held by the Company’s credit card processor. Amounts of restricted cash held, by type of currency were as follows:

 

		September 30,
		2014				2013
Euro		$	206,312			$	216,123
Australian Dollar			77,563				10,548
United States Dollar			620,590				158,369
Total		$	904,465			$	385,040

   

4. Deferred Costs

 

Deferred costs represent commission costs which are directly related to: (i) unearned subscription fees which are expensed ratably over the subscription periods; and (ii) advertising and marketing programs which are expensed when all services and obligations are fulfilled. Deferred costs expensed are included in cost of revenues.

 

5. Land Held for Sale

 

		September 30,
		2014				2013
Cost		$	2,114,412			$	1,432,237
Less: Valuation allowance			889,143				619,700
		$	1,225,269			$	812,537

  

On August 14, 2012, the Company acquired two mixed-use parcels of vacant land in Dubai, United Arab Emirates at a fair value of $3.5 million. On December 27, 2013, the Company entered into two separate property sale agreements with unaffiliated third parties for the two parcels of land for a total cash consideration of approximately $2.0 million. The sale of the first parcel closed on March 12, 2014 while the sale of the second parcel (“Second Parcel”) was cancelled due to a change in the closing conditions imposed by the local governmental recording authorities.

 

During the year ended September 30, 2013, Management determined, based upon the offer price of the property sale agreements, that the Company’s carrying values exceeded the fair value of the two parcels of land. As a result, the Company recorded an impairment charge of approximately $1.5 million to reduce the carrying value of the land to its fair value.

 

Subsequently on February 9, 2015, the Company entered into a Property Sale Agreement – Memorandum of Understanding (“Sale Agreement”) for the sale of the Second Parcel with an unaffiliated third party for approximately $1.25 million. The transaction did not close on or before March 20, 2015 as initially expected. However, Management anticipates that completion of the land sale should occur within ninety days from February 9, 2015 as stipulated in the Sale Agreement. Upon completion, the Company is not expected to realize any significant gain or loss on disposal. Accordingly, the Second Parcel was reclassified as Land Held for Sale from Property and Equipment – land held for investment in the consolidated financial statements.

 

 

6. Property and Equipment

 

Property and equipment comprised the following:

 

		September 30,
		2014				2013
Land:
Held for investment		$	-			$	2,114,412
Held for sales incentives			3,562,500				3,562,500
Less: Valuation allowance			(2,687,752	)			(3,576,895	)
			874,748				2,100,017
Computers and equipment			308,004				303,511
Computer software			690,565				690,565
Furniture and fixtures			102,805				93,237
			1,101,374				1,087,313
Accumulated depreciation			(533,414	)			(337,940	)
			567,960				749,373
		$	1,442,708			$	2,849,390

  

Land Held for Sales Incentives 

The Company acquired a land parcel consisting of 15 lots in the Cayman Islands in March 2010. As of September 30, 2014, the land value of approximately $0.9 million included the contract price and land filled cost of approximately $3.6 million less a valuation allowance of approximately $2.7 million that was based on Management’s evaluation of the estimated fair value.

 

The investment in the land parcel in the Cayman Islands is intended to provide incentive rewards to the best performing DubLi Business Associates upon attaining certain performance objectives.

 

Depreciation

Depreciation expense was $198,428 and $182,255, for the years ended September 30, 2014 and 2013, respectively. During the year ended September 30, 2013, the Company recorded a software impairment charge of approximately $0.4 million due to obsolescence of certain components of our shopping mall operating system.

 

7. Amounts Due to Related Parties

 

Amounts due to related parties comprised the following:

 

		September 30,
		2014				2013
Unsecured notes payable to Mr. Hansen		$	2,500,000			$	1,000,000
Amounts due for advances by Mr. Hansen			2,566,735				1,210,000
Amounts due for services rendered			1,372,213				555,316
		$	6,438,948			$	2,765,316

  

During August 2014, the Company entered into an amended and restated revolving loan agreement with Michael Hansen to fund the Company up to $5 million through December 31, 2015 at an interest of 6% per annum. Subsequently, the Company drew down $1.5 million under the revolving loan and has $3.5 million in available funds for the cash flow needs of the Company.

 

On April 23, 2013, the Company entered into a loan agreement with Mr. Hansen, for an unsecured loan of up to $1 million at an interest rate of 3% per annum beginning May 1, 2013 which was fully drawn down during fiscal 2013. On October 17, 2014, the Company repaid the principal amount of $1 million with cash generated from current operations.

 

Amounts due for services rendered are comprised of accrued compensation due to the officers of the Company and unpaid Board of Directors fees. Amounts due for advances and services rendered are non-interest bearing and have no terms of repayment.

 

 

8. Note Payable

 

On May 6, 2014, the Company entered into an unsecured loan agreement with a private lender to provide $500,000 for business development purposes at an interest rate of 10% per annum. The outstanding principal and accrued interest were fully repaid on November 14, 2014.

 

9. Discontinued Operations

 

Effective March 28, 2013, the Company discontinued its auctions program. As a result, the operating results for the auctions program have been reclassified as income from discontinued operations in the consolidated statements of operations as follows:

 

		For the years ended September 30,
		2014				2013
Revenues:
Bidding Credits used in auctions		$	-			$	22,390,910
Bidding Credits broken in auctions			-				3,075,312
Credits breakage recognized			5,601,656				-
Gross revenues			5,601,656				25,466,222
Sale of goods and handling fees			-				1,668,897
Auctioned value of gift cards			-				706,913,874
Less: Cost of gift cards auctioned			-				(724,264,261	)
Net auctioned value of gift cards			-				(15,681,490	)
Net revenues			5,601,656				9,784,732
Cost of revenues:
Commissions paid on sales of Credits			-				7,174,715
Cost of goods sold at auctions			-				63,086
Total cost of revenues			-				7,237,801
Income from discontinued operations			5,601,656				2,546,931
Income taxes			-				-
Income from discontinued operations, net of taxes		$	5,601,656			$	2,546,931

 

Included in Liabilities of discontinued operations at September 30, 2014 and 2013 are unused Credits of approximately $0.7 million and $6.4 million, respectively. All the costs associated with unused Credits following the termination of the auctions have been fully expensed as of the effective date of the termination. Credits breakage associated with inactive Business Associates are recognized as revenues after twelve months or when waivers and releases are obtained from Business Associates who have opted to accept any replacement program.

 

 

10. Income Taxes

 

The provision (benefit) for income taxes comprised the following:

 

		For the years ended September 30,
		2014				2013
Income (loss) from continuing operations before income taxes:
United States		$	(876,048	)		$	(1,023,840	)
Foreign			(6,067,017	)			2,291,046
		$	(6,943,065	)		$	1,267,206
Current tax expense (benefit):
Federal		$	-			$	-
Foreign			-				-
			-				-
Deferred tax expense (benefit):
Federal			-				-
Foreign			-				-
		$	-			$	-

  

The tax effect of significant items comprising our net deferred tax assets as of September 30, 2014 and 2013 are as follows:

 

		For the years ended September 30,
		2014				2013
Deferred tax assets:
Stock Options		$	333,322			$	333,322
Federal and state net operating loss carry forwards			1,532,648				1,321,844
Foreign net operating loss carry forwards			1,386,980				1,254,854
Land impairment			1,011,401				71,873
Other			100,786				94,647
Gross deferred tax assets			4,365,137				3,076,540
Less: Valuation allowance			(4,353,169	)			(3,060,200	)
Net deferred tax assets			11,968				16,340
Deferred tax liabilities			(11,968	)			(16,340	)
Net deferred taxes		$	-			$	-

  

At September 30, 2014, the Company had approximately $4.2 million of net operating loss carry forwards for US federal income tax purposes that will expire beginning in 2019.  Due to Internal Revenue Code Section 382 limitations related to the change in ownership of the Company, the utilization of pre-acquisition net operating losses is limited on an annual basis.  The Company had approximately $14.1 million of foreign net operating loss carry forwards at September 30, 2014 in Cyprus that will expire in 2019.

 

In assessing the ability to realize the deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the period in which these temporary differences become deductible.  In making this assessment, Management considered the projected future taxable income, and prudent and feasible tax planning strategies.  As of September 30, 2014 and 2013, valuation allowances of approximately $4.4 million and $3.1 million have been recorded, respectively. The valuation allowance has been established to reduce deferred income tax assets, principally domestic and foreign tax loss carryforwards to amounts more likely than not to be realized. Consequently the change in the Company’s valuation allowance of approximately $1.3 million was primarily due to an increase in Federal and state net operating loss, and land impairment.

 

 

A reconciliation of US statutory federal income tax rate related to pretax income (loss) from continuing operations to the effective tax rate for the years ended September 30 is as follows:

 

		2014				2013
Statutory rate			34	%			34	%
Federal minimum taxes			-				-
Permanent difference			-				-
Effect of foreign earnings			(17	)			(42	)
Change in valuation allowance			(64	)			9
State tax effect, net of federal benefit			-				-
Effect of land impairment charge			42				-
Other			5				(1	)
Statutory rate			-	%			-	%

 

The Company operates as a US corporation with foreign subsidiaries. As a result, the Company's expected statutory rate is 34 percent and would apply to its foreign earnings if such amounts were earned in the US. The Company's foreign earnings were derived principally in Cyprus, which has a tax rate of 10 percent, and in the British Virgin Islands, which does not assess a corporate income tax on earnings. As a result, the Company's effective rate was reduced significantly by the effect of the utilization of the Company’s foreign earnings, change in valuation allowance and effect of land impairment charge.

 

Under ASC 740 an entity may only recognize or continue to recognize tax positions that meet a more likely than not threshold.  In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions.  The Company assesses its income tax positions and records tax benefits for all years subject to examination based on Management's evaluation of the facts, circumstances and information available at the reporting date.  For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recognized the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the Company's consolidated financial statements.  Management believes that the Company has not taken any material tax positions that would be deemed to be uncertain, therefore the Company has not established a liability for uncertain tax positions for the years ended September 30, 2014 and 2013. As of September 30, 2014, the tax years beginning from year ended September 30, 2011 through year ended September 30, 2014 were determined to be open for purposes of the Company’s ASC 740 analysis.

 

11. Commitments and Contingencies

 

Employment agreements

The Company has employment agreements with certain officers, which extend from 24 to 60 months, and are renewable for successive one year terms. These agreements provide for base levels of compensation and separation benefits. Future minimum payments under these employment agreements as of September 30, 2014 are as follows:

 

September 2015		$	825,000
September 2016			645,000
September 2017			645,000
September 2018			268,750
Total		$	2,383,750

 

Leases

The Company leases its office premises located in Florida for a two year term which renews automatically for another two years if it is not terminated at the end of the initial lease period. Future minimum payments under the lease as of September 30, 2014 is as follows:

 

September 2015		$	137,000
September 2016			34,000
Total		$	171,000

 

 

12. Stockholders’ Equity

 

Preferred stock 

 

The pertinent rights and privileges of each share of the Super Voting Preferred Stock (“Preferred Stock”) are as follows:

 

(i)	each share shall not be entitled to receive any dividends;

 

(ii)	each share shall participate pari passu with the common stock of the Company in the proceeds available to the Company's stockholders upon the liquidation, dissolution, or winding up of the Company;

 

(iii)

each share shall be mandatorily converted into one share of common stock upon the earlier of (i) the consummation of a “Change in Control Transaction” (as defined in the Company’s Articles of Incorporation) or any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such shares and (ii) August 17, 2017; and

 

(iv)

each share of Preferred Stock is entitled 2,000 votes of common stock held at the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company or action by written consent in lieu of meetings with respect to any and all matters presented to the stockholders of the Company. Each holder of Preferred Stock shall vote together with the holders of common stock, as a single class, except (a) as provided by Nevada Statutes and (b) with regard to the amendment, alteration or repeal of the preferences, rights, powers or other terms with the written consent of the majority of holders of Preferred Stock.

 

Common stock

During the year ended September 30, 2014, the Company entered into transactions which required the issuance of approximately 1.6 million shares of its common stock as described in items (c) and (d) below. These 1.6 million shares were included in the Company’s basic and diluted weighted average shares computation for the year ended September 30, 2014.

 

As of September 30, 2014, a total of approximately 3.6 million shares were committed for issuance and reflected as issued on the books of the Company, but stock certificates were not issued due to certain administrative and documentation requirements. The shares of common stock were in respect of the following: (a) the receipt of cash proceeds from an investor for $6,000, or $0.10 per share, (b) the receipt of cash proceeds totaling approximately $294,000 from the exercise of stock options at a price of $0.15 per share, (c) the issuance of a stock award pursuant to a consulting agreement valued at $95,000 or $0.19 per share, and (d) the payment of bonus incentive for $100,000 or $0.09 per share. Certificates for these shares committed for issuance are expected to be issued during fiscal year 2015.

 

13. Stock Based Compensation

 

The Company’s 2010 Omnibus Equity Compensation Plan (the “Plan”) was approved on September 30, 2010 by Mr. Hansen, who was the Company’s majority stockholder at the time. A proxy statement or an information statement has not yet been submitted to all of the Company’s stockholders for approval. The Plan’s potential participants include board members, executives, employees, and certain consultants and advisers of the Company and the Plan has been implemented in order to attract, incentivize and retain highly qualified individuals and keep the Company competitive with other companies with respect to executive compensation. Awards under the Plan may be made to participants in the form of (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) deferred stock; (vi) stock awards; (vii) performance shares; (viii) other stock-based awards; and (ix) other forms of equity-based compensation as may be provided and are permissible under the Plan and the law. A total of 50 million shares of common stock have been reserved for issuance under the Plan.

 

The fair value of stock options awards was estimated using the Black-Scholes options-pricing model, with the following assumptions:

 

		Years ended September 30,
		2014				2013
Dividend yield		$	-			$	-
Expected volatility			121	%			174	%
Risk free interest rate			1.13	%			0.84	%
Expected life			4.6 years				7.7 years

  

During the years ended September 30, 2014 and 2013, we recognized $272,806 and $642,762, respectively, of employee stock option compensation. The unamortized stock option compensation expense at September 30, 2014 and 2013 were approximately $79,000 and $985,000, respectively, and are expected to be recognized over a period of 1.8 and 3.9 years, respectively.

 

 

The following summarizes the stock option activity for the years ended September 30, 2014 and 2013:

 

		2014								2013
		Number of				Weighted average				Number of				Weighted average
		shares				exercise price				shares				exercise price
Outstanding at beginning of year			10,083,100			$	0.16				15,435,970			$	0.22
Granted			1,025,628				0.09				7,171,241				0.12
Exercised			-				-				(2,482,163	)			0.14
Forfeited			(6,742,537	)			0.13				(10,041,948	)			0.22
Outstanding at end of year			4,366,191			$	0.20				10,083,100			$	0.16
Exercisable			3,699,523			$	0.22				2,731,297			$	0.24

 

The following summarizes information about stock options outstanding and exercisable at September 30, 2014:

 

								Options Outstanding								Options Exercisable
								Weighted average
Exercise				Number				remaining contract				Weighted average				Number				Weighted average
price range				outstanding				in years				exercise price				exercisable				exercise price
$	0.00-0.10				1,000,000				9.4			$	0.09				333,332			$	0.09
	0.11-0.20				1,358,450				6.8				0.13				1,358,450				0.13
	0.21-0.30				1,456,050				6.7				0.28				1,456,050				0.28
	0.31-0.40				551,691				2.3				0.35				551,691				0.35
					4,366,191				6.8			$	0.20				3,699,523			$	0.22

 

The following table summarizes information about shares of restricted stock awards activity under the Plan for the years ended September 30, 2014 and 2013:

 

Balance outstanding, October 1, 2012			1,000,000
Granted			1,000,000
Vested			(2,000,000	)
Forfeited			-
Balance outstanding, September 30, 2013			-
Granted			500,000
Vested			(500,000	)
Forfeited			-
Balance outstanding, September 30, 2014			-

 

During the year ended September 30, 2014, the Company granted a restricted stock award for 500,000 shares to a consultant under the Plan which vested immediately. The shares of common stock committed for issuance were included in the Company’s basic and diluted weighted average shares computation for the year ended September 30, 2014.

 

 

14. Segment Information

 

The Company divides its product and service lines into two segments: (1) E-Commerce and Memberships segment which includes business license fees, membership subscription fees and commission income, and, advertising and marketing programs; and (2) Auctions segment (reported as discontinued operations).

 

		For the years ended September 30,
		2014				2013
E-commerce and memberships
Revenues		$	4,478,844			$	16,828,190
Cost of revenues			2,343,653				1,575,036
Gross income from continuing operations		$	2,135,191			$	15,253,154
Discontinued operations (auctions)
Revenues		$	5,601,656			$	9,784,732
Cost of revenues			-				7,237,801
Income from discontinued operations, net of taxes		$	5,601,656			$	2,546,931

 

The total revenues recorded in our four geographic regions are summarized as follows:

 

		For the years ended September 30,
		2014				2013
Revenues:
European Union		$	3,370,841			$	11,512,246
North America			5,568,767				4,110,226
Australia			362,859				427,140
Global			778,033				10,563,310
		$	10,080,500			$	26,612,922
Represented by revenues from:
Continuing operations		$	4,478,844			$	16,828,190
Discontinued operations			5,601,656				9,784,732
		$	10,080,500			$	26,612,922

 

15. Subsequent Events

 

Repayment of Loan and Services to Related Parties

On October 17, 2014, and as discussed in Note 7 - Amounts Due to Related Parties, the Company repaid Mr. Hansen the principal amount of the unsecured loan of $1 million and approximately $0.6 million for services rendered by related parties.

 

Repayment of Loan to a Private Lender

On November 14, 2014, and as discussed in Note 8 – Note Payable, the Company fully repaid the loan amount of $500,000 and accrued interest pursuant to an unsecured loan agreement entered with a private lender on May 6, 2014.

 

Lease Settlement

On December 18, 2014, the Company entered into a Stipulation of Settlement Agreement with a former landlord for a final lease settlement sum of $500,000. The amount was fully expensed in selling, general and administrative expenses during the year ended September 30, 2014.

 

Sale of Land in Dubai

On February 9, 2015, and as described in Note 5 – Land Held for Sale, the Company entered into a Property Sale Agreement – Memorandum of Understanding for the sale of a parcel of land in Dubai with an unaffiliated third party for approximately $1.25 million.

 

 

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.

 

April 29, 2015
	DUBLI, INC
	By:	/s/ MICHAEL HANSEN
		Michael Hansen
		President and Chief Executive Officer