UNITED STATES

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 March 31, 2015

 

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

 

Commission File No. 000-54119

 

Rowl, Inc.

(Exact name of registrant as specified in it charter)

 

Nevada		27-3101494
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

9595 Wilshire Blvd, Suite 900

Beverly Hills, CA 90212

(Address of principal executive offices) (Zip Code)

 

(310) 744-6060

(Registrant's telephone number, including area code)

 

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

 

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 than the registrant was required to submit and post such files).  o  Yes     x  No 

 

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

 

Large accelerated filer  ¨	Accelerated filer   ¨
Non-accelerated filer  ¨	Smaller reporting company  x

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

90,521,713 shares of the issuer’s common stock are issued and outstanding as of May 15, 2015

 

 

 

FORM 10-Q

Rowl, Inc.

INDEX

 

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Balance Sheets at March 31, 2015 (unaudited) and December 31, 2014	1
	Unaudited Condensed Statements of Operations for the Three Months Ended March 31, 2015 and 2014	2
	Unaudited Condensed Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	3
	Notes to Unaudited Interim Condensed Financial Statements	4-10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11-14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	16
Signatures		17

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

ROWL, INC.

CONDENSED BALANCE SHEETS

 

		March 31,				December 31,
		2015				2014
		(unaudited)
ASSETS
Current Assets:
Cash		$	123,136			$	251,896
Other current assets			253,970				260,948
Total Current Assets			377,106				512,844
Furniture and equipment, net			38,581				88,471
Software development costs			572,106				631,289
Intangible assets			93,836				93,836
Other assets			239,460				293,293
Total Assets		$	1,321,089			$	1,619,733
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	99,724			$	70,519
Accrued expenses			168,621				183,633
Convertible debt, net of discount			109,344				-
Total Current Liabilities			377,689				254,152
Commitments and contingencies
Stockholders' Equity
Common stock, $0.001 par value; 500,000,000 shares authorized; 80,521,713 and 80,125,728 shares issued and outstanding at  March 31, 2015 and December 31, 2014, respectively			80,522				80,126
Series A preferred stock, $0.001 par value; 50,000,000 shares authorized, 3,210,000 issued and outstanding at March 31, 2015 and December 31, 2014, respectively			3,210				3,210
Series B preferred stock, $0.001 par value; 50,000,000 shares authorized, 2,000,000 issued and outstanding at March 31, 2015 and December 31, 2014, respectively			2,000				2,000
Paid-in capital			12,521,264				12,042,516
Accumulated deficit			(11,663,596	)			(10,762,271	)
Total Stockholders' Equity			943,400				1,365,581
Total Liabilities and Stockholders’ Equity		$	1,321,089			$	1,619,733

 

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

 

 

ROWL, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three months ended March 31,
		2015				2014
Sales		$	-			$	-
Cost of  Sales			-				-
Gross Profit			-				-
Selling, General and Administrative Expenses			817,238				703,957
Research and Development			57,775				130,071
Operating Loss			(875,013	)			(834,028	)
Other Income (Expense):
Interest expense			(1,226	)			(380	)
Interest expense - Amortization of debt discount			(9,344	)			-
Loss on sale of assets			(19,316	)			-
Other			3,574				-
Other Income (Expense), Net			(26,312	)			(380	)
Net Loss		$	(901,325	)		$	(834,408	)
Loss Per Share-Basic and Diluted		$	(0.01	)		$	(0.01	)
Weighted average shares used in computing earnings per share – basic and diluted			80,471,965				68,763,812

 

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

 

 

ROWL, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		Three months ended March 31,
		2015				2014
Cash Flow from Operating Activities:
Net loss		$	(901,325	)		$	(834,408	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			5,574				1,613
Amortization of software development costs			59,183				-
Loss on sale of assets			19,316				-
Issuance/vesting of stock warrants for services			91,353				9,262
Issuance/vesting of common stock for services			125,168				62,448
Stock based compensation – stock options			112,975				72,231
Amortization of debt discounts			9,344				-
Issuance of Series B Preferred stock for officers’ compensation			-				2,000
Change in operating assets and liabilities:
Other assets			15,459				(24,146	)
Accounts payable			29,205				(18,750	)
Accrued expenses			(40,012	)			30,916
Legal settlement payable			-				(18,750	)
Net Cash Used in Operating Activities			(473,760	)			(706,514	)
Cash Flow from Investing Activities:
Proceeds from sale of assets			25,000				-
Purchase of equipment			-				(4,545	)
Sub-lease deposits			25,000				-
Net Cash Provided by (Used in) Investing Activities			50,000				(4,545	)
Cash Flow from Financing Activities:
Proceeds from private placement of common stock			45,000				1,426,000
Proceeds from convertible notes			250,000				-
Net Cash Provided by Financing Activities			295,000				1,426,000
Net (Decrease) Increase in Cash			(128,760	)			714,941
Cash Balance at Beginning of Period			251,896				172,532
Cash Balance at End of Period		$	123,136			$	887,473
Supplemental Disclosures:
Interest Paid		$	-			$	380
Taxes Paid		$	-			$	-
Non-cash investing and financing activities:
Discount on convertible debts from beneficial conversion features		$	150,000			$	-

 

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

 

 

ROWL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Rowl, Inc. (“the Company”) was incorporated on July 22, 2010 in the State of Nevada as Awesome Living, Inc. On July 31, 2014 and June 20, 2011, the name of the corporation was changed to Rowl, Inc. and OverNear, Inc., respectively. The Company’s headquarters are located in Beverly Hills, California.  The Company is developing a location-based social networking and mobile advertising platform, which was released for use by the general public in September 2014.  The financial statements of Rowl, Inc. (which may be referred to as "Rowl," the "Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The Company operates in a rapidly changing technological and digital entertainment market and its activities are subject to significant risks and uncertainties, including failing to secure additional funding to further exploit the Company’s current technology.

 

The condensed financial statements of the Company included herein are unaudited for the periods ended March 31, 2015 and March 31, 2014 have been prepared from the books and records of the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and in the case of the condensed balance sheet as of December 31, 2014, have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented. Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. These condensed financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2014. The Company has assessed subsequent events through the date of filing of these condensed financial statements with the Securities and Exchange Commission and believes that the disclosures made herein are adequate to make the information presented herein not misleading.  

 

A summary of the Company's critical accounting policies are disclosed below. The Company's critical accounting policies are further described under the caption “Critical Accounting Policies” in Management's Discussion and Analysis of Financial Condition and Results of Operations and in more detail in the Company's 2014 Annual Report on Form 10-K.

 

Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates. Significant estimates include, but are not limited to, recoverability of software development costs and long-lived assets, the valuation allowance related to deferred tax assets and the fair value of stock options, warrants and shares issued for non-cash consideration. It is reasonably possible that changes in estimates will occur in the near term.

 

Software Development Costs - Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customers and revenues are generated. Amortization is computed as the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product. As of March 31, 2015 and December 31, 2014, the Company had capitalized software development costs of $710,200, respectively, for the development of a location-based social networking mobile application.   During the three months ended March 31, 2015 and 2014, the Company incurred research and development costs of $57,775 and $130,071, respectively.

 

Impairment of Long-Lived assets - The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. There were no impairment losses during the three months ended March 31, 2015 and 2014. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue, which could result in impairment of long-lived assets in the future.

 

Net Loss Per Share - The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share are computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options, warrants, and convertible debt using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. There were 45,749,500 and 34,695,500 warrants, 20,078,000 and 17,100,000 stock options, and convertible notes convertible into approximately 1,000,000 and 0 shares, excluded for the three months ended March 31, 2015 and 2014, respectively, because they were anti-dilutive.

 

 

Beneficial Conversion Features - In certain instances, the Company entered into convertible notes that provide for an effective or actual rate of conversion that is below market value, and the embedded beneficial conversion feature (“BCF”) does not qualify for derivative treatment. In these instances, the Company accounts for the value of the BCF as a debt discount, which is then amortized to interest expense over the life of the related debt using the effective interest method.

 

Stock Based Compensation - The Company accounts for stock options issued to employees under ASC 718 “Share-Based Payment”. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite vesting period. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model. In accordance with the guidance, an asset acquired in exchange for issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company has accounted for certain issuances as other assets in the accompanying balance sheets.

 

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505 “Equity”. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.

 

Recent Accounting Pronouncements – In April 2015, the FASB issued Accounting Standard Update (“ASU”) 2015-03 Simplifying the Presentation of Debt Issuance Costs. This update requires capitalized debt issuance costs to be classified as a reduction to the carrying value of debt rather than a deferred charge, as is currently required. This update will be effective for the Company for all annual and interim periods beginning after December 15, 2015 and is required to be adopted retroactively for all periods presented, and early adoption is permitted. The Company is currently evaluating the expected impact of this new accounting standard on its financial statements.

 

The Financial Accounting Standards Board issues Accounting Standard Updates (“ASU”) to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.

 

NOTE 2 – GOING CONCERN

 

The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses, and the operations in the near future are expected to deplete working capital.

 

Management of the Company is actively seeking financing to continue the marketing and development of its location-based mobile platform and market its product and service as well as look for synergistic partners that can add value to the Company. The ability of the Company to continue as a going concern is dependent on its ability to obtain financing arrangements and the success of its future operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The report from the Company’s independent registered public accounting firm related to the year ended December 31, 2014 states that there is substantial doubt about the Company’s ability to continue as a going concern. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. The financial statements do not include any adjustments that might result from these uncertainties.

 

NOTE 3 – FURNITURE AND EQUIPMENT AND SOFTWARE DEVELOPMENT COSTS

 

Furniture and Equipment consisted of the following:

 

		March 31,
		2015				December 31,
		(Unaudited)				2014
Furniture and equipment		$	68,926			$	119,097
Accumulated depreciation			(30,345	)			(30,626	)
Furniture and equipment, net		$	38,581			$	88,471

 

Depreciation expense for the three months ended March 31, 2015 and 2014 was $5,574 and $1,613, respectively.

 

During the three months ended March 31, 2015, the Company sold furniture and equipment with a gross value of $50,171 and a net book value as of the date of sale of $44,316 for $25,000. The Company recognized a loss on the sale of assets of $19,316 which is included in the accompanying statement of operations.

 

 

 

The Company released its mobile application on September 4, 2014 which prior to that date was in development. Upon the date of release to customers, the Company had capitalized $710,200 in costs. The software is being amortized over its estimated useful life of 3 years.

 

Software development costs consisted of the following:

  

		March 31,
		2015				December 31,
		(Unaudited)				2014
Software development costs		$	710,200			$	710,200
Accumulated amortization			(138,094	)			(78,911	)
Software development costs, net		$	572,106			$	631,289

 

Amortization expense for the three months ended March 31, 2015 and 2014 was $59,183 and $0, respectively.

 

NOTE 4 – ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

		March 31,
		2015				December 31,
		(Unaudited)				2014
Accrued salaries and related expenses		$	74,842			$	110,093
Sublease deposits			38,553				13,553
Registration rights penalties			47,000				47,000
Other			8,226				12,987
Total accrued liabilities		$	168,621			$	183,633

 

NOTE 5 – CONVERTIBLE DEBT

 

During the three months ended March 31, 2015 the Company entered into convertible promissory notes with various investors totaling $250,000. The notes bear interest at a rate of 8% per annum, compounded annually, and have maturity dates one (1) year from the date of issuance. The notes along with convertible interest thereon, are convertible at the option of the holder into shares of the Company’s common stock at $0.25 per share.

 

The Company determined that there was a beneficial conversion feature as the conversion price of $0.25 was below the assessed fair value of the Company’s common stock of $0.40 on the dates of issuance. Accordingly, the Company recorded a debt discount of $150,000 related to the beneficial conversion feature which will be amortized over the term of the notes using the straight-line method as it approximates the effective interest method due to the short-term nature of the notes. The debt discount was computed as the difference between the fair value of the common stock issuable upon conversion of the convertible debt and the total price to convert based on the effective conversion price.

 

During the three months ended March 31, 2015, the Company amortized $9,344 of this discount and $140,656 remains to be amortized.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

The Company is authorized to issue 500,000,000 shares of its $0.001 par value common stock.

 

During the three months ended March 31, 2015, the Company issued 283,485 shares of the Company’s common stock for consulting services, with a value of $113,394, based on the fair market value of the Company’s common stock on the date of grant.

 

During the three months ended March 31, 2015, prepaid consulting costs included in other assets in the accompanying balance sheet, stemming from the issuance of common stock in previous periods was amortized, resulting in a charge to expense of $10,774.

 

The fair value of common stock issued in connection with services rendered by various professionals was determined based upon the evaluation of fair value made by the Company’s management, which considered the values associated with common stock sold for cash during the period.

 

 

 

Preferred Stock

 

The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001 per share. The preferred stock may be issued in one or more series.

 

The first series consists of 3,210,000 shares and is designated as series A convertible preferred stock (“Series A Preferred Stock”). The holders of Series A Preferred Stock are entitled to receive, if, when and as declared by the Board, dividends at an annual rate of 8% of the original purchase price of Series A Preferred Stock. No dividends were declared as of or for the three months ended March 31, 2015 and 2014.  In the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive the amount of $0.50 per share. Each share of Series A Preferred Stock issued and outstanding is entitled to the number of votes equal to the number of shares of common stock into which such share of Series A Preferred Stock could be converted.  Each share of Series A Preferred Stock is convertible at the option of the holder at any time after the date of issuance into equal number of shares of common stock. In addition, the Company shall have the right to convert the Series A Convertible Preferred Stock into shares of the Company’s common stock in its sole discretion at any time, at which time, such Series A Convertible Preferred Stock shall automatically and without any required action by any holder, be converted into 103% of fully paid, non-assessable shares of common stock. As of the date when these financial statements were available to be issued, no preferred shares had been converted to common stock.

 

On March 26, 2014 the Company designated 2,000,000 shares of preferred stock as Series B Preferred Stock (“Series B Preferred Stock”). Each share of Series B Preferred Stock is entitled to the equivalent of one hundred (100) votes of Common Stock. The holders of Series B Preferred Stock are not entitled to dividends and do not receive liquidation preferences or conversion privileges.

 

On March 26, 2014, the Company issued to its officers 2,000,000 shares of preferred stock designated as series B Preferred Stock.  The fair value of the Series B Preferred Stock on the date of issuance was determined to be $2,000 and was recorded as officers’ compensation.  Subsequent to March 31, 2015, 1,000,000 of these shares were returned to the Company and will be cancelled and retired to treasury, see Note 8.

 

In connection with the Company’s December 31, 2012 sale of $802,500 in units consisting of an aggregate of 3,210,000 shares of the Company’s Series A Preferred Stock and warrants to purchase an aggregate of 3,210,000 shares of the Company’s common stock, the Company was required to file a registration statement registering the shares of common stock.  Such Series A Preferred Stock were convertible into 3,210,000 shares of common stock.  Such registration statement was required to be filed within 60 days of the final closing date (the “Filing Date”) and to be declared effective by 150 days from the Filing Date.  The Company did not meet the required Filing Date and the required effectiveness date passed.  Pursuant to the registration rights agreement, if the registration statement was not filed on a timely basis or was not declared effective by the SEC for any reason on a timely basis, the Company was required to pay each investor monthly liquidated damages equal to 1.0% of the investment amount subscribed for by such investor (capped at 12%) until the registration statement is filed or declared effective, as the case may be. The Company’s registration statement was declared effective by the SEC on February 14, 2014.  At March 31, 2015 and December 31, 2014, the Company had accrued $47,000 of estimated liquidated damages that it will owe to the holders of the outstanding Series A Preferred stock.

 

Private Placement

 

In the third quarter of 2014, the Company opened a new private placement for the sale of common stock at $0.40 per share. During the three months ended March 31, 2015, the company sold 112,500 shares of the Company’s common stock to accredited investors for $45,000.

 

During the three months ended March 31, 2014, the Company issued 5,704,000 shares of the Company’s common stock to accredited investors in private placements. Total consideration from the issuance of common stock amounted to $1,426,000 for the period ended March 31, 2014.  The common stock issued included warrants with a fair value of $232,673.

 

Stock Options

 

During 2010, the Board of Directors approved and adopted the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide for the issuance of non-qualified and/or incentive stock options to employees, officers, directors and consultants and other service providers. The Plan was subsequently amended on various dates. Generally, all options granted expire five to ten years from the date of grant. It is the policy of the Company to issue new shares for stock options exercised, rather than issue treasury shares. Effective July 1, 2012, the total number of shares of common stock reserved for issuance was reduced to 15,000,000 shares, subject to annual increases of up to an amount equal to 15% of the outstanding fully-diluted shares of common stock of the Company and any such increase cannot be made until the fully-diluted shares of common stock outstanding exceeds 100,000,000 shares.

 

During the three months ended March 31, 2015 and 2014, no stock options were issued. During the three months ended March 31, 2015, 478,000 options were forfeited and 20,100,000 remained outstanding. As of March 31, 2015 there were 16,650,000 options vested. Stock option expense for the three months ended March 31, 2015 and 2014 was $112,975 and $72,231, respectively.

 

Subsequent to March 31, 2015, 10,000,000 of these options were forfeited, see Note 8.

 

 

 

Warrants

 

During the three months ended March 31, 2015, no warrants were issued, and 125,000 vested per the terms of the related service contracts resulting a charge for services related to warrants of $57,775. Of this amount, $16,987 relates to development and $40,788 relates to promotional contracts. The Company revalued the vested warrants using the Black-Scholes option pricing model with the following range of inputs:

 

Risk-free interest rate			0.26 - 1.37	%
Expected dividend yield			0	%
Expected lives		1.5 - 5.4 years
Expected volatility			100	%

 

During the three months ended March 31, 2014, the Company issued warrants to purchase common stock to investors in private placements for the right to purchase 5,704,000 shares of the Company’s common stock at $0.50 per share. The warrants vested immediately and have a term of five years from the date the warrants were issued. The warrants were valued at $232,673, using the Black-Scholes option pricing model.

 

During the three months ended March 31, 2015, prepaid consulting costs included in other assets in the accompanying balance sheet, stemming from the issuance of warrants in previous periods was amortized, resulting in a charge to expense of $33,578.

 

NOTE 7 – COMMITMENTS AND CONTIGENCIES

 

Employment Agreement

 

On August 3, 2010, the Company entered into a 5-year (“Term”) agreement with Bill Glaser for his services as Chief Executive Officer. The agreement was amended on March 15, 2011 to change his title from Chief Executive Officer to President and extended the term to March 15, 2016. Per the amendment to the agreement dated August 8, 2011, Mr. Glaser is compensated with an annual salary of $180,000, which was increased to $190,000 in 2013. Mr. Glaser’s annual salary is to increase to $250,000 in the event that either (i) Rowl raises an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) Rowl raises an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $10,000,000 in cumulative gross revenues. In January 2014, the salary increased to $250,000 as the Company raised an aggregate of $5 million in equity financings.  His agreement also provides for options to purchase 5,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) at an exercise price of $0.025 per share, of which 2,500,000 shares became exercisable on January 1, 2013 and the remainder of which will become exercisable on the following schedule: 500,000 shares at the beginning of each subsequent six (6) month period. The options expire 10 years after grant.

 

In the event of a change of control of Rowl prior to the one (1) month anniversary of Mr. Glaser’s termination, Mr. Glaser will be due the greater of (i) the remainder of his annual salary during the Term or (ii) $250,000. All unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to Rowl on a per share basis less the exercise price of the stock option, the value of which is multiplied to the number of options held by Mr. Glaser.  In the event of Mr. Glaser’s termination without cause by Rowl, Mr. Glaser will be paid the lesser of (i) the remainder of his annual salary during the Term or (ii) one (1) year’s salary, and all stock options held by Mr. Glaser under the Plan will immediately vest in full and remain outstanding and exercisable until ten (10) years from the grant date.

 

On September 13, 2010, the Company entered into a 5-year (“Term”) agreement with Fred E. Tannous for his services as Chief Financial Officer. The agreement was amended on March 15, 2011 to add the additional title of Chief Executive Officer and extended the term to March 15, 2016. Per the amendment to the agreement dated August 8, 2011, Mr. Tannous is compensated with an annual salary of $180,000, which was increased to $190,000 in 2013. Mr. Tannous’ annual salary is to increase to $250,000 in the event that either (i) Rowl raises an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) Rowl raises an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $10,000,000 in cumulative gross revenues.  In January 2014, the salary increased to $250,000 as the company raised an aggregate of $5 million in equity financings.

 

Mr. Tannous was issued shares of Rowl’s common stock valued at $50,000, as a signing bonus.  His agreement also provides for options to purchase 10,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) at an exercise price of $0.025 per share, of which 5,000,000 shares became exercisable on January 1, 2013 and the remainder of which will become exercisable on the following schedule: 1,000,000 shares at the beginning of each subsequent six (6) month period. The options expire 10 years after grant. For accepting the CEO position, Mr. Tannous received 4,000,000 restricted shares of common stock in March 2011, the fair value of the shares was determined to be $100,000.

 

In the event of a change of control of Rowl prior to the one (1) month anniversary of Mr. Tannous’ termination, Mr. Tannous will be due the greater of (i) the remainder of his annual salary during the Term or (ii) $250,000. All unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to Rowl on a per share basis less the exercise price of the stock option, the value of which is multiplied to the number of options held by Mr. Tannous.

 

 

 

In the event of Mr. Tannous’ termination without cause by Rowl, Mr. Tannous will be paid the lesser of (i) the remainder of his annual salary during the Term or (ii) one (1) year’s salary, and all stock options held by Mr. Tannous under the Plan will immediately vest in full and remain outstanding and exercisable until ten (10) years from the grant date.

 

Subsequent to period end, the Company entered into a separation agreement with Mr. Tannous, see Note 8.

 

Lease Commitment

 

The Company leases two facilities in Santa Monica, California. The first facility is for two years, with monthly payments ranging from $4,386 to $4,517 which expires in May 2015. The Company has subleased this facility to a third party with lease payments equaling those that are owed by the Company. The second lease is a three (3) year three (3) month lease expiring in November 2017 and includes payments ranging from $10,345 to $11,305. Effective March 1, 2015, the Company has subleased this facility to a third party with lease payments equaling those that are owed by the Company. In addition, the Company received a $25,000 security deposit from the lessee. The Company is required to pay additional amount for operating expenses under both these leases, which is the responsibility of the lessees.

 

On March 1, 2015, the Company entered into a lease agreement for office space in Palos Verdes Estates, CA. The lease agreement is for one (1) year at $500 per month.

 

On March 13, 2015, the Company entered into a lease agreement for office space at 9595 Wilshire Blvd, Suite 900 Beverly Hills, CA 90212. The lease agreement is for one (1) year at $1,817 per month.

 

Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

NOTE 8 – SUBSEQUENT EVENTS

 

Subsequent to March 31, 2015, the Company executed the following common stock transactions:

 

●	On April 3, 2015, the company canceled advances of approximately $60,000 to one of its employees. Accordingly, the Company will record a charge to expense of an equal amount in the second quarter of 2015.
●	On April 6, 2015, the Company amended an agreement with one of it’s consultants. The original agreement dated July 22, 2014 was for three (3) years and included warrants to purchase 2,664,000 shares of common stock. The Company and the consultant agreed to amend the original agreement to add 500,000 common stock warrants which vest immediately, are exercisable at $0.40, and have a ten (10) year term. All other terms from the original agreement remained the same.
●	On April 10, 2015 the Company invited Michael Portera and C. Edward Carter to join the Company's board of directors. Michael Portera is currently the Company's Director of Business Development. C. Edward Carter has, from time-to-time provided consulting and advisory services to the Company with respect to certain activities and specific projects.
●	On April 28, 2015 the Company granted C. Edward Carter, Director, 1,500,000 options to purchase the Company’s common stock at an exercise price of $0.40.  The options vest quarterly over three (3) years. The initial term of Mr. Carter’s agreement is one year.  In the event that the Director is not re-elected after the initial term, he will forfeit any unvested options.
●	On May 6, and effective April 30, 2015 the Company entered into a Separation Agreement with its former Chief Executive Officer and Chief Financial Officer Fred Tannous. As part of the agreement, Mr. Tannous waived all severance payments and commitments under his employment agreement as outlined in Note 7.  The Company agreed to pay Mr. Tannous $100 severance and concurrently entered into a six-month consulting agreement as described below. In addition, Mr. Tannous returned 1,000,000 shares of the Company’s Series B Preferred Stock which provided him substantial voting power, and the Company will cancel and retire these shares to treasury. Further, Mr. Tannous agreed to forfeit his 10,000,000 stock options, 9,000,000 of which were vested as of the separation date.
●	Concurrently with the separation agreement noted above, the Company entered into a consulting agreement with Fred Tannous.  The agreement is for six months and calls for monthly payments of $10,000, and other rent and phone allowances that were paid for by the Company prior to the separation.

 

 

●	On May 6, 2015, the Company formed a wholly-owned subsidiary, Open Me Technologies, Inc. for the purpose of an asset purchase as described below.
●	On May 7, 2015, the Company appointed Michael Portera as the Treasurer of the Company.
●	On May 8, 2015, the Company’s wholly-owned subsidiary, Open Me Technologies, Inc. (“Buyer”) acquired all or substantially all of the assets of Open Me, Inc. (“Seller”) pursuant to an Asset Purchase Agreement by and among the Company, Buyer and Seller dated May 8, 2015 (the “Agreement”).  The Company issued ten million (10,000,000) of its common stock to Seller as consideration for the purchase, and assumed certain liabilities of Seller.  The Agreement provides for customary representations, warranties and indemnities of the parties.  Twenty-five percent (25%) of the shares issued to Seller (2.5 million shares) were placed into a one-year third party escrow.  Seller will receive the stock after one-year unless the Company or Buyer makes an indemnification claim during such time for breach by Seller of any of its representations, warranties or covenants in the Agreement (in which case the stock shall be held pending either (a) mutual agreement of the parties or (b) the date an of arbitration order resolving such dispute).  The Agreement gives the Seller the right, but not the obligation, to also satisfy indemnity claims in cash.  The indemnity has a $45,000 basket for many (but not all) claims, which must be met before the indemnity is triggered (and which then provides the indemnifying party must pay from the first dollar of losses).  The indemnity cap for many (but not all) claims is the escrowed stock; and for certain other claims it is the aggregate shares issued to Seller.  The Seller and certain of its principals agreed to a four (4) year non-compete. All of the shares issued to Seller are subject to a lock-up and leak-out arrangement. The lock-up prohibits sale or transfer of the shares until both (a) the shares have been held for one year and (b) the Company’s stock is then publically-traded on the NASDAQ, a regional or national stock exchange or on the OTC market.  Once the lock-up expires, the shares may be sold subject to the following volume limitations (the leak-out period): the maximum number of shares that Seller and all of its stockholders may sell, in the aggregate, in each three (3) month period is that amount of the Company’s common stock equal to the greater of (x) one percent (1%) of the total number of outstanding shares of the Company’s common stock or (y) one percent (1%) of the average reported weekly trading volume for the Company’s common stock during the four (4) weeks preceding such sale.  Additionally, and as an exception to the lock-up and leak-out restrictions, Seller and its shareholders were granted certain tag-along rights tied to sales of the Company’s common stock by Bill Glaser, the Company’s president.
●	On May 11, 2015 the Company invited and appointed Will Glaser to join the Company's board of directors.  In consideration for joining the board of directors, the Company granted Mr. Glaser 2,000,000 options to purchase the Company’s common stock at an exercise price of $0.40.  The options vest quarterly over three (3) years.  To vest in all the options, Mr. Glaser must be reelected to the Board for three (3) terms of one (1) year each and fulfill each term.
●	Subsequent to March 31, 2015, the company entered into various convertible promissory notes totaling $145,000. The terms of the notes range from three (3) months to one (1) year, accrue interest at 8% compounded annually, and are convertible at $0.25 per share. Two (2) of these notes totaling $25,000 contain no warrants, one (1) note totaling $20,000 contains warrants exercisable at $0.25 to purchase 80,000 shares of common stock, and three (3) notes totaling $100,000 contain warrants exercisable at $0.25 to purchase 200,000 shares of common stock.

 

 

 

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our financial statements as of, and for the quarterly periods ended, March 31, 2015 and 2014 and the related notes included therein. References to the “Company,” “we,” “our,” or “us” in this section refers to Rowl, Inc.

 

Forward-Looking Statements

 

Certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, without limitation, statements concerning the Company's future financial position and results of operations, planned expenditures, business strategy and other plans for future operations, the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future demand and industry conditions. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may” and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in this Quarterly Report on Form 10-Q, the specific risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

 

The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company's condensed financial statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

 

Overview

 

We were formed as Awesome Living, Inc. in Nevada in July 2010 as a wholly owned subsidiary of uKarma Corporation, a Nevada corporation (“uKarma”). uKarma developed and marketed proprietary branded personal health and wellness products, including a proprietary branded fitness DVD series (Xflowsion). On August 9, 2010, the assets of uKarma’s operating health and wellness business, including its Xflowsion DVD series, and its liabilities were transferred into Awesome Living, Inc. pursuant to a Contribution Agreement. uKarma subsequently changed its name to Innolog Holdings Corporation (“Innolog”), and issued 10,700,000 shares of Awesome Living, Inc. common stock to our management. This, along with other subsequent issuances of our common stock, significantly reduced Innolog’s percentage ownership of our common stock.    The Contribution Agreement anticipated a pro-rata spin-off of the Awesome Living, Inc. common stock owned by uKarma to uKarma’s shareholders of record as of August 12, 2010.  The spin-off was effected on February 14, 2014, the day the Spin-off was declared effective by the SEC.

 

Following the transfer of our assets into Awesome Living, Inc., we made a decision to change the focus of our business from personal health and wellness products to developing a location-based social networking and mobile advertising platform.  On June 20, 2011, we changed our name from Awesome Living, Inc. to OverNear,, Inc. and subsequently, on July 31, 2014, we changed our name from OverNear, Inc. to Rowl, Inc. to better reflect our new business, and operate with a focus on developing a location-based social networking and mobile advertising platform.  To date, we have generated no revenues from our planned social networking and mobile advertising service.  Our limited history of operations makes prediction of future operating results difficult, and we believe that period-to-period comparisons of our operating results should not be relied on as predictive of our future results.

 

On May 8, 2015, the Company’s newly formed wholly-owned subsidiary, Open Me Technologies, Inc. (“Buyer”) acquired all or substantially all of the assets of Open Me, Inc. (“Seller”) pursuant to an Asset Purchase Agreement by and among the Company, Buyer and Seller dated May 8, 2015 (the “Agreement”).  The Company issued ten million (10,000,000) of its common stock to Seller as consideration for the purchase, and assumed certain liabilities of Seller.  The Agreement provides for customary representations, warranties and indemnities of the parties.  Twenty-five percent (25%) of the shares issued to Seller (2.5 million shares) were placed into a one-year third party escrow.  Seller will receive the stock after one-year unless the Company or Buyer makes an indemnification claim during such time for breach by Seller of any of its representations, warranties or covenants in the Agreement (in which case the stock shall be held pending either (a) mutual agreement of the parties or (b) the date an of arbitration order resolving such dispute).  The Agreement gives the Seller the right, but not the obligation, to also satisfy indemnity claims in cash.  The indemnity has a $45,000 basket for many (but not all) claims, which must be met before the indemnity is triggered (and which then provides the indemnifying party must pay from the first dollar of losses).  The indemnity cap for many (but not all) claims is the escrowed stock; and for certain other claims it is the aggregate shares issued to Seller.  The Seller and certain of its principals agreed to a four (4) year non-compete. All of the shares issued to Seller are subject to a lock-up and leak-out arrangement. The lock-up prohibits sale or transfer of the shares until both (a) the shares have been held for one year and (b) the Company’s stock is then publically-traded on the NASDAQ, a regional or national stock exchange or on the OTC market.  Once the lock-up expires, the shares may be sold subject to the following volume limitations (the leak-out period): the maximum number of shares that Seller and all of its stockholders may sell, in the aggregate, in each three (3) month period is that amount of the Company’s common stock equal to the greater of (x) one percent (1%) of the total number of outstanding shares of the Company’s common stock or (y) one percent (1%) of the average reported weekly trading volume for the Company’s common stock during the four (4) weeks preceding such sale.  Additionally, and as an exception to the lock-up and leak-out restrictions, Seller and its shareholders were granted certain tag-along rights tied to sales of the Company’s common stock by Bill Glaser, the Company’s president. 

 

 

 

Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us 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 financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.  

  

The following accounting policies, which are also described in Note 1 to our financial statements, are critical to aid the reader in fully understanding and evaluating this discussion and analysis:

 

Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates. Significant estimates include, but are not limited to, recoverability of software development costs and long-lived assets, the valuation allowance related to deferred tax assets and the fair value of stock options, warrants and shares issued for non-cash consideration. It is reasonably possible that changes in estimates will occur in the near term.

 

Software Development Costs - Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customers and revenues are generated. Amortization is computed as the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product.

 

Impairment of Long-Lived assets - The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed.

 

Net Loss Per Share - The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share are computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options, warrants, and convertible debt using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive.

 

Beneficial Conversion Features - In certain instances, the Company entered into convertible notes that provide for an effective or actual rate of conversion that is below market value, and the embedded beneficial conversion feature (“BCF”) does not qualify for derivative treatment. In these instances, the Company accounts for the value of the BCF as a debt discount, which is then amortized to interest expense over the life of the related debt using the effective interest method.

 

Stock Based Compensation - The Company accounts for stock options issued to employees under ASC 718 “Share-Based Payment”. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite vesting period. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model. In accordance with the guidance, an asset acquired in exchange for issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company has accounted for certain issuances as other assets in the accompanying balance sheets.

 

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505 “Equity”. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.

 

Recent Accounting Pronouncements - Management does not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on the financial statements.

 

 

 

Results of Continuing Operations

  

Following are the results of the Company's operations for the three months ended March 31, 2015 and 2014.

 

Comparison of Three Months Ended March 31, 2015 and March 31, 2014

 

Selling, General and Administrative (SGA) expenses - During the first quarter of 2015, our total SGA expenses were $817,238, while total SGA expenses during the first quarter of 2014 were $703,957, representing an increase of approximately 16.1%.  The increase in SGA costs is primarily attributable to increases of approximately $59,200 related to the amortization of software, $36,600 for consulting services, $21,000 for employee health insurance, $40,700 in stock option compensation, net of reductions of approximately $32,100 in professional services, and $19,700 in travel.

 

Research and development - During the first quarter of 2015, our research and development expenses were $57,775 compared to $130,071 in the first quarter of 2014, representing a decrease of approximately 55.6%. The reduction in research and development is primarily due to the higher costs incurred during the first quarter of 2014 prior to the launch of the Company’s location-based social networking platform in September 2014. In addition, the Company started reducing not mandatory expenses in the first quarter of 2015 in order to preserve working capital.

 

Net Loss - We had a net loss of $901,325 during the first quarter of 2015 compared to a net loss of $834,108 during the first quarter of 2014. The increase in net loss is due increase in SGA, net of reductions in research and development a described above as well as increases related to the loss on sale of assets of approximately $19,300 and amortization of beneficial conversion feature debt discounts of approximately $9,300. The sale of assets was completed in conjuncture with the sublease of one of the Company’s locations in Santa Monica. The amortization of debt discounts stems from convertible promissory notes that contained beneficial conversion features. There were no such notes in the first quarter of 2014.

 

Liquidity and Capital Resources

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $473,760 for the three months ended March 31, 2015 while net cash used in operating activities was $706,514 for the three months ended March 31, 2014. The decrease in cash used in operating activities is due primarily to an increase in stock based compensation, issuance/vesting of stock warrants, common stock for services, and software amortization that are included in net loss, but added-back for cash flow purposes. These not cash items totaled $421,913 for the three months ended March 31, 2015 compared to $147,554 in the comparable period in 2014.

 

Cash Flows from Investing Activities

 

Net cash provided by in investing activities was $50,000 for the three months ended March 31, 2015 while net cash used in investing activities was $4,545 for the three months ended March 31, 2014. The increase in cash provided by investing activities is primarily due to the sale of furniture and equipment for $25,000 and the receipt of a sub-lease deposit of $25,000. In the first quarter of 2014 the only use of funds for investing activities was for the purchase of equipment.

 

Cash Flows from Financing Activities

 

Net cash provided by financing activities was $295,000 for the three months ended March 31, 2015 compared to $1,426,000 provided during the three months ended March 31, 2014. This decrease was due to a decrease in proceeds from the issuance of our securities in private placement offerings of $1,381,000, net of proceeds of $250,000 for convertible promissory notes which were not present during 2014.

 

CAPITAL RESOURCES

 

As of March 31, 2015, we had negative working capital of $1,000.  Subsequent to March 31, 2015, we raised an additional $145,000 from various convertible notes, as disclosed in Note 8 in the accompanying financial statements. There is no guarantee that we will be able to meet current working capital needs if we do not receive additional infusions of cash through loans, stock sales, revenues, or other sources. We expect to incur substantial losses over the next year. As of March 31, 2015, we had cash of $123,136.  

 

We plan to engage outside contractors and consultants who are willing to be paid in stock rather than cash or a combination of stock and cash.  Expenses incurred that cannot be paid in stock, such as audit and accounting fees, will be paid in cash. There are no assurances that we will be able to meet our capital requirements through year-end or that our capital requirements will not increase. If we are unable to raise necessary capital to meet our capital requirements, we may not be able to successfully develop and market our location-based social networking and mobile advertising service.

 

Our financial statements were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  In the near term, we expect operating costs to continue to exceed funds generated from operations.  As a result, we expect to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital.

 

 

 

Management of the Company is actively seeking financing to continue the marketing and development of its location-based mobile platform and market its product and service as well as look for synergistic partners that can add value to the Company. The ability of the Company to continue as a going concern is dependent on its ability to obtain financing arrangements and the success of its future operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. The financial statements do not include any adjustments that might result from these uncertainties.

  

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

 

Off-Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our financial statements.  Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

  

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company and are not required to provide the information under this item.

 

Item 4.  Controls and Procedures.

  

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) (“CEO”) and Chief Financial Officer (principal financial officer) (“CFO”), 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. Based on that evaluation, our CEO and CFO concluded that, as of March 31, 2015, our disclosure controls and procedures were not effective at the reasonable assurance level to ensure that the information required to be disclosed by the Company in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, due to the material weaknesses described below.

 

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our management identified the following material weaknesses in our disclosure controls and procedures:

 

1.	We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act.
2.	We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. To the extent possible, however, separate individuals should initiate transactions, have custody of assets, and record transactions.
3.	We do not have adequate review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically feasible. Management evaluated the impact of the significant number of adjustments as a result of our review and concluded that the resulting control deficiency represented a material weakness.

 

To address these material weaknesses, management performed additional analyses and other procedures during the quarter ended March 31, 2015 to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

We are not currently involved in any material legal proceedings, and we are not aware of any material legal proceedings pending or threatened against us. We are also not aware of any material legal proceedings involving any of our directors, officers, or affiliates or any owner of record or beneficially 5% of any class of our voting securities.

 

Item 1A. Risk Factors.

 

Not required of smaller reporting companies.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the three months ended March 31, 2015, the company sold 112,500 shares of the Company’s common stock to accredited investors for $45,000.

 

During the three months ended March 31, 2015, the Company issued 283,485 shares of the Company’s common stock for consulting services, with a value of $113,394, based on the fair market value of the Company’s common stock on the date of grant.

 

During the first quarter of 2014, we raised $1,426,000 via the issuance 5,704,000 shares of common stock with warrants to purchase an equal amount of shares of common stock to accredited investors in a private placement memorandum.  The warrants have an exercise price of $0.50 per share and expire five years from the date of issue.  These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. The certificates to be issued for these unregistered securities will contain a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter, in this transaction. These transactions did not involve a public offering. The recipients were knowledgeable about our operations and financial condition. The recipients had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

 

On March 26, 2014, the Company issued to its officers 2,000,000 shares of preferred stock designated as series B preferred stock (“Series B Preferred Stock”). The holders of Series B Preferred Stock are entitled to the equivalent of 100 votes of common stock for each share of Series B Preferred stock held.  The holders of Series B Preferred stock have no other rights, such as conversion or liquidation. The fair value of the Series B Preferred Stock on the date of issuance was determined to be $2,000 and was recorded as officers’ compensation.

 

On February 1, 2014, the Company entered into a software development agreement pursuant to which it granted a warrant to purchase 125,000 shares of the Company’s common stock at an exercise price of $0.25. The warrant vests over 3 years as follows (a) 20,000 shares after 6 months (b) remaining at the rate of 10,500 shares at the end of every three months, thereafter.  The warrant has a term of 5 years. The fair value of the warrant using Black Scholes model was determined to be $12,625.

 

On January 22, 2014, the Company entered into a consulting services agreement.  In connection with the agreement, the Company granted 300,000 shares of its common stock.

 

These issuances were exempt from registration requirements in reliance on Section 4(2) of the Securities Act.

   

Item 3. Defaults Upon Senior Securities

 

There were no defaults upon senior securities during the quarter ended March 31, 2015.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

On April 10, 2015, the Company appointed Michael Portera and C. Edward Carter to the Company's board of directors. On April 28, 2015, in connection with becoming a Director, the Company granted Mr. Carter a stock option to purchase 1,500,000 shares of the Company’s common stock at an exercise price of $0.40, which vests quarterly in equal installments over three (3) years. On May 7, 2015, the Company appointed Mr. Portera as the Treasurer of the Company.

 

On May 6, and effective April 30, 2015, the Company entered into a Separation Agreement with its former Chief Executive Officer and Chief Financial Officer, Fred Tannous. As part of the agreement, the Company agreed to pay Mr. Tannous $100 severance and Mr. Tannous waived all severance payments and commitments under his employment agreement. In connection with his resignation, Mr. Tannous returned, and the Company will cancel and retire 1,000,000 shares of the Company’s Series B Preferred Stock which provided Mr. Tannous with substantial voting power. Mr. Tannous further agreed to forfeit his 10,000,000 stock options, 9,000,000 of which were vested as of the separation date. Concurrently with the separation agreement noted above, the Company entered into a consulting agreement with Mr. Tannous for a term of six months, which provides for monthly payments of $10,000, and other rent and phone allowances that were paid for by the Company prior to the separation.

 

On May 12, 2015, the Company appointed Will Glaser to the Company's board of directors, effective May 11, 2015.  On May 11, 2015, in connection with becoming a Director, the Company granted Mr. Glaser a stock option to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.40, which vests quarterly in equal installments over three (3) years.  

 

  

Item 6.  Exhibits

 

Exhibit No.		Exhibit Description
2.1		Contribution Agreement between uKarma and Awesome Living (1)
3.1		Articles of Incorporation (2)
3.2		Bylaws of Awesome Living (1)
31.1		Section 302 Certification by the Registrant’s Principal Executive Officer *
31.2		Section 302 Certification by the Registrant’s Principal Financial Officer *
32.1		Section 906 Certification by the Registrant’s Principal Executive Officer **
32.2		Section 906 Certification by the Registrant’s Principal Financial Officer **
101.INS		XBRL Instance Document (3)
101.SCH		XBRL Taxonomy Extension Schema (3)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase (3)
101.DEF		XBRL Taxonomy Extension Definition Linkbase (3)
101.LAB		XBRL Taxonomy Extension Label Linkbase (3)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase (3)

 

* Filed herewith. 

** Furnished herewith.

 

(1)	Filed on September 15, 2010 as an exhibit to our Registration Statement on Form 10, and incorporated herein by reference.
(2)	Filed on August 5, 2011 as an exhibit to our Quarterly Report on Form 10-Q, and incorporated herein by reference.
(3)	XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

 

SIGNATURES

 

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

 

	ROWL, INC.
	(Registrant)
Date: May 15, 2015	By:	/s/ Bill Glaser
		Bill Glaser
		President
		(Principal Executive Officer)

 

	ROWL, INC.
	(Registrant)
Date: May 15, 2015	By:	/s/ Michael Portera
		Michael Portera
		Treasurer
		(Principal Financial & Accounting Officer)