SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

______________________

 

FORM 10-Q

 

[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarter ended April 30, 2015

 

OR

 

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to ___________

 

Commission file number: 000-1591157

 

POCKET GAMES, INC.

(Exact name of registrant as specified in its charter)

 

Florida		46-3813936
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
445 Central Ave. Suite 355 Cedarhurst, New York		11516
(Address of principal executive offices)		(Zip Code)

 

(347) 460-9994

(Registrant’s telephone number, including area code)

 

Not Applicable

 (Former Name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨	Accelerated filer¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 18,996,327 shares of common stock are issued and outstanding as of June 3, 2015.

 

POCKET GAMES, INC.

FORM 10-Q

April 30, 2015

 

TABLE OF CONTENTS

 

			Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements.			3
	Balance Sheets as of April 30, 2015 (Unaudited) and October 31, 2014			3
	Statements of Operations for the Three and Six Months Ended April 30, 2015 and 2014 (Unaudited)			4
	Statement of Changes in Stockholders’ Equity (Deficit) for the Period from November 1, 2013 to April 30, 2015 (Unaudited)			5
	Statements of Cash Flows for the Six Months Ended April 30, 2015 and 2014 (Unaudited)			6
	Notes to Unaudited Financial Statements			7-17
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.			18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.			23
Item 4.	Controls and Procedures.			23
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.			24
Item 1A.	Risk Factors.			24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.			24
Item 3.	Defaults Upon Senior Securities.			24
Item 4.	Mine Safety Disclosures.			24
Item 5.	Other Information.			24
Item 6.	Exhibits.			25

 

 

PART 1 - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

POCKET GAMES, INC.
CONDENSED BALANCE SHEETS
ASSETS
		April 30,				October 31,
		2015				2014
		(Unaudited)
CURRENT ASSETS
Cash and cash equivalents		$	—			$	430
Loan origination costs			2,834				2,728
TOTAL ASSETS		$	2,834			$	3,158
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft		$	3,814			$	—
Accounts payable			42,639				27,852
Accrued expenses, related parties			11,977				4,071
Accrued expenses			5,304				263
Accrued compensation			153,735				150,679
Deferred revenues			8,983				—
Loans payable, related parties			14,781				15,789
Convertible debenture, net of discount of
$49,148 and $41,815, respectively			80,852				6,185
Total Current Liabilities			322,085				204,839
TOTAL LIABILITIES			322,085				204,839
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.0001 par value; 1,000,000,000 shares authorized
Preferred stock designated, Series A, $0.0001 par value, 1,000 and -0-
shares issued and outstanding, respectively			—				—
Common stock, $0.0001 par value; 499,000,000 shares authorized,
18,996,327 and 15,540,000 shares issued and outstanding, respectively			1,900				1,554
Additional paid-in capital			3,214,249				2,945,426
Subscriptions payable, consisting of -0- and 155,400 shares, respectively			—				10,878
Accumulated deficit			(3,535,400	)			(3,159,539	)
Total Stockholders' Equity (Deficit)			(319,251	)			(201,681	)
TOTAL LIABILITIES AND STOCKHOLDERS'  EQUITY (DEFICIT)		$	2,834			$	3,158
The accompanying notes are an integral part of these financial statements.

 

 

POCKET GAMES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
		For the Three Months Ended								For the Six Months Ended
		April 30,								April 30,
		2015				2014				2015				2014
REVENUES
Application development revenues, related party		$	—				7,500			$	—				31,050
Cost of revenues			—				—				—				—
Gross profit (loss)			—				7,500				—				31,050
OPERATING EXPENSES
General and administrative			19,343				30,577				40,967				55,785
Officer compensation			60,000				60,000				120,000				120,000
Professional fees			76,103				70,660				123,193				166,928
Total Operating Expenses			155,446				161,237				284,160				342,713
LOSS FROM OPERATIONS			(155,446	)			(153,737	)			(284,160	)			(311,663	)
OTHER INCOME (EXPENSES)
Interest expense			(54,701	)			—				(93,771	)			—
Gain on settlement of debt			—				—				2,070				—
Total Other Income (Expenses)			(54,701	)			—				(91,701	)			—
NET LOSS BEFORE INCOME TAXES			(210,147	)			(153,737	)			(375,861	)			(311,663	)
PROVISION FOR INCOME TAXES			—				—				—				—
NET LOSS		$	(210,147	)		$	(153,737	)		$	(375,861	)		$	(311,663	)
NET LOSS PER SHARE, BASIC AND FULLY DILUTED		$	(0.01	)		$	(0.01	)		$	(0.02	)		$	(0.03	)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING, BASIC AND FULLY DILUTED			17,035,681				11,895,056				16,515,580				10,452,127
The accompanying notes are an integral part of these financial statements.

 

 

POCKET GAMES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
From November 1, 2013 through January 31, 2015
(Unaudited)
		Series A																Additional												Total
		Preferred Stock								Common Stock								Paid-In				Subscriptions				Accumulated				Stockholders'
		Shares				Amount				Shares				Amount				Capital				Payable				Deficit				Equity (Deficit)
Balance, November 1, 2013			—				—				6,600,000				660				79,840				—				(46,916	)			33,584
Preferred stock issued for services,
related party			1,000				—				—				—				2,500,000				—				—				2,500,000
Common stock issued for services,
related party			—				—				1,000,000				100				49,900				—				—				50,000
Common stock sold for cash			—				—				5,220,000				522				133,978				—				—				134,500
Common stock issued for services			—				—				1,220,000				122				60,878				10,878				—				71,878
Common stock issued in exchange
for intellectual property			—				—				1,500,000				150				74,850				—				—				75,000
Beneficial conversion feature of
convertible debenture			—				—				—				—				45,980				—				—				45,980
Net loss for the year ended
October 31, 2014			—				—				—				—				—				—				(3,112,623	)			(3,112,623	)
Balance, October 31, 2014			1,000				—				15,540,000				1,554				2,945,426				10,878				(3,159,539	)			(201,681	)
Common stock issued for subscriptions
payable			—				—				155,400				16				10,862				(10,878	)			—				—
Common stock issued for services			—				—				1,265,000				127				70,764				—				—				70,891
Common stock issued for accrued compensation			—				—				478,850				48				47,837				—				—				47,885
Common stock issued for cash			—				—				630,000				63				6,237				—				—				6,300
Common stock issued for conversion of debt			—				—				927,077				93				26,907				—				—				27,000
Issuance of stock options			—				—				—				—				16,614				—				—				16,614
Beneficial conversion feature of
convertible debenture			—				—				—				—				89,602				—				—				89,602
Net loss for the six months ended
April 30, 2015			—				—				—				—				—				—				(375,861	)			(375,861	)
Balance, April 30, 2015			1,000			$	—				18,996,327			$	1,900			$	3,214,249			$	—			$	(3,535,400	)		$	(319,251	)
The accompanying notes are an integral part of these financial statements.

 

POCKET GAMES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
		For the Six Months Ended
		April 30,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(375,861	)		$	(311,663	)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of loan origination costs			5,894				—
Amortization of discount on convertible debenture			82,269				—
Shares issued for services			87,505				55,834
Gain on settlement of debt			(2,070	)			—
Changes in operating assets and liabilities:
Deferred costs			—				7,221
Prepaid expenses			—				2,000
Bank overdraft			3,814				—
Accounts payable			16,856				17,871
Accrued expenses, related parties			7,906				1,960
Accrued expenses			5,041				—
Accrued officer compensation			50,941				81,250
Deferred revenues			8,983				(8,500	)
Net Cash Used by Operating Activities			(108,722	)			(154,027	)
CASH FLOWS FROM INVESTING ACTIVITIES			—				—
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs			(6,000	)			—
Payments on loans payable - related parties			(1,008	)			—
Proceeds from convertible debenture			109,000				—
Proceeds from sale of common stock			6,300				134,500
Net Cash Provided by Financing Activities			108,292				134,500
DECREASE IN CASH AND CASH EQUIVALENTS			(430	)			(19,527	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			430				21,458
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	—			$	1,931
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest		$	—			$	—
Cash paid for income taxes		$	—			$	—
Non-cash investing and financing activities:
Stock issued for subscription receivable - founder		$	—			$	50,000
Subscription receivable paid through reduction of accrued salary - founder		$	—			$	46,250
Stock issued for conversion of debt		$	27,000			$	—
Stock issued for accrued compensation		$	47,885			$	—
Discount on beneficial conversion feature of
convertible debentures		$	89,602			$	—
The accompanying notes are an integral part of these financial statements.

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

Note 1 - Nature of Business and Significant Accounting Operations

 

Pocket Games, Inc. (the “Company”) was incorporated on October 4, 2013(“Inception”) under the laws of the State of Florida. The Company is engaged in the development, marketing and sale of interactive games for mobile devices, tablets and computers. The Company has limited customers, products and revenues to date.

 

The accompanying unaudited financial statements for Pocket Games, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.”) and with the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein, and should be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s filing of Form 10-K and any amendments as filed with the Securities and Exchange Commission.

 

The Company has adopted a fiscal year end of October 31.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Segment Reporting

Under FASB ASC 280-10-50, the Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

 

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued interest reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company also had debt instruments that required fair value measurement on a recurring basis.

 

Foreign Currency Transactions

The Company translates foreign currency transactions to the Company's functional currency (United States Dollar), at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

 

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term highly liquid investments purchased with original maturities of three months or less. Cash and cash equivalents at April 30, 2015 and October 31, 2014 were $-0- and $430, respectively.

 

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable may result from our product sales or outsourced application development services. Management must make estimates of the uncollectability of accounts receivables. Management specifically analyzed customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.

 

Revenue Recognition

The Company generates revenue from three sources; sale of game applications, sale of advertising provided with games, and outsourced application development services. The Company recognizes revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured, which is typically after receipt of payment and delivery, net of any credit card charge-backs and refunds. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Revenues on advertising are deferred and recognized ratably over the advertising period.

 

Concentration of Revenue

All the revenue included in the accompanying financial statements is from one line of business, outsourced application development services, from a single related party customer, based in the United Kingdom.

 

Software Development Costs

Costs incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985 “Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market but may be expensed if the Company is in the development stage. Amortization of capitalized software development costs begins upon initial product shipment. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six months), using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset. During the three months ended January 31, 2015 and 2014, the Company did not capitalize any software development costs.

 

Website Development Costs

The Company accounts for website development costs in accordance with ASC 350-50, “Accounting for Website Development Costs” (“ASC 350-50”), wherein website development costs are segregated into three activities:

 

	1)	Initial stage (planning), whereby the related costs are expensed.
	2)	Development (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures.
	3)	Post-implementation (after site is up and running: security, training, admin), whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality.

 

The Company has not capitalized any website development costs during the six months ended April 30, 2015 and the year ended October 31, 2014.

 

Advertising and Promotion

All costs associated with advertising and promoting products are expensed as incurred.

 

Research and Development

Expenditures for research and product development costs are expensed as incurred. The Company has expensed development costs of $-0- and $22,362 during the six months ended April 30, 2015 and 2014, respectively.

 

Income Taxes

The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

 

Basic and Diluted Loss Per Share

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, there were no outstanding potential common stock equivalents and therefore basic and diluted earnings per share result in the same figure.

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

Stock-Based Compensation

The Company adopted FASB guidance on stock based compensation upon inception on October 4, 2013. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company recognized $87,505 and $-0- for services and compensation for the six months ended April 30, 2015 and 2014, respectively.

 

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

 

In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.

 

In July 2013, the FASB issued ASU No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carryforwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on our financial position or results of operations.

 

Note 2 - Going Concern

 

As shown in the accompanying financial statements, the Company has incurred continuous losses from operations, has an accumulated deficit of $3,535,400, has a negative working capital of $319,251 and has cash on hand of $-0- as of April 30, 2015, and has generated minimal revenues to date, all of which are from a related party. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company will require approximately $360,000 to meet its operating expenses and carry out its plan of operations over the next twelve months. Management is currently seeking additional sources of capital to fund

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

short term operations through debt or equity investments, including loans from Officers and Directors. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.

 

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 3 – Fair Value of Financial Instruments

 

Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

 

The Company has convertible notes that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of April 30, 2015 and October 31, 2014, respectively:

 

		Fair Value Measurements at April 30, 2015
		Level 1				Level 2				Level 3
Assets
Cash		$	—			$	—			$	—
Total assets			—				—				—
Liabilities
Loans payable, related parties			—				14,781				—
Convertible debenture, net of discount of $49,148			—				80,852				—
Total liabilities			—				95,633				—
		$	—			$	(95,633	)		$	—

 

		Fair Value Measurements at October 31, 2014
		Level 1				Level 2				Level 3
Assets
Cash		$	430			$	—			$	—
Total assets			430				—				—
Liabilities
Loans payable, related parties			—				15,789				—
Convertible debenture, net of discount of $41,815			—				6,185				—
Total liabilities			—				21,974				—
		$	430			$	(21,974	)		$	—

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the six months ended April 30, 2015 and the year ended October 31, 2014.

 

Level 2 liabilities consist of short term unsecured loans payable to related parties. No fair value adjustment was necessary during the six months ended April 30, 2015 and the year ended October 31, 2014.

 

Note 4 – Related Party Transactions

 

Promissory Note

From time to time the Company received unsecured loans, bearing interest at 12% per annum, maturing on December 31, 2014 (in default) from one of the Company’s Directors and Treasurer, as disclosed in Note 5.

 

Stock Issuances

On December 15, 2013, the Company issued 1,000,000 shares of common stock to an officer of the Company as payment for compensation in lieu of cash. The fair value of the common stock was $50,000 based on recent sales prices of the Company’s common stock on the date of grant, and was paid ratably against accrued compensation over the subsequent six month period.

 

On April 25, 2014, the Company issued 1,000 shares of Series A Preferred Stock to its chief executive officer and sole director as a bonus for services provided. The fair value of the common stock was $2,500,000 based on the closing stock price of the Company’s common stock on the date of grant which is the best evidence of fair value.

 

On February 17, 2015, the Company issued 478,850 shares of common stock to an officer of the Company as payment for accrued compensation in lieu of cash. The fair value of the common stock was $47,885 based on the closing stock price of the Company’s common stock on the date of grant which is the best evidence of fair value.

 

Revenues

The Company entered into a contract, as amended in January 2014 and again in June 2014, whereby the Company will develop and deliver, on a milestone schedule, a game application, to an entity related to an officer of the Company. The officer is an owner and a director on the customer's Board.

 

Employment Contracts

On October 4, 2013, the Company entered into two employment agreements with the two officers of the Company. Both agreements are for a term of three years and require monthly payments of $10,000 to each officer.

 

Rents

The Company no longer leases office space from a shareholder and consultant (the “Landlord”). There is no formal agreement and no rent has been paid. The amounts due to the Landlord were $3,500 and $500 as of April 30, 2015 and October 31, 2014, respectively. These amounts are included in accrued expenses, related parties on the accompanying balance sheets.

 

The Company leases office space at a rate of $250 per month. As of April 30,2015, $750 was due for rent. This amount is included in accounts payable on the accompanying balance sheet.

 

Note 5 – Loans Payable, Related Parties

 

Loans payable, related parties, consists of the following at April 30, 2015 and October 31, 2014, respectively:

 

		April 30,				October 31,
		2015				2014
12% unsecured promissory note, bearing interest at 12% per annum from a related party, one of the Company’s Directors and Treasurer, maturing on December 31, 2014 (in default).		$	9,500			$	—
Miscellaneous loans, non-interest bearing, due on demand			14,781				15,789
		$	24,281			$	15,789

 

The Company recognized interest expense of $565 and $-0- during the six months ended April 30, 2015 and 2014, respectively. No interest has been paid to date.

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

Note 6 – Convertible Debenture

 

Convertible debentures consist of the following at April 30, 2015 and October 31, 2014, respectively:

 

		January 31,				October 31,
		2015				2014
Originated October 6, 2014, unsecured $48,000 convertible promissory note, which carries an 8% interest rate and matures on July 9, 2015 (“First KBM Note”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. (less unamortized discount on beneficial conversion feature of $5,102 and $41,815, respectively)		$	15,898			$	6,185
Originated November 7, 2014, unsecured $43,000 convertible promissory note, which carries an 8% interest rate and matures on August 11, 2015 (“Second KBM Note”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. (less unamortized discount on beneficial conversion feature of $15,989 and $-0-, respectively)			27,011				—
Originated December 10, 2014, unsecured $33,000 convertible promissory note, which carries an 8% interest rate and matures on September 12, 2015 (“Third KBM Note”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. (less unamortized discount on beneficial conversion feature of $13,293 and $-0-, respectively)			19,707				—
Originated February 23, 2015, unsecured $33,000 convertible promissory note, which carries an 8% interest rate and matures on November 25, 2015. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. (less unamortized discount on beneficial conversion feature of $14,764 and $-0-, respectively)			18,236				—
Convertible debenture			80,852				6,185
Less: current maturities of convertible debenture			(80,852	)			(6,185	)
Long term convertible debenture		$	—			$	—

 

The Company recognized interest expense in the amount of $5,041 and $-0- for the six months ended April 30, 2015 and 2014, respectively, related to the convertible debenture.

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible debt. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.

 

The aforementioned accounting treatment resulted in a total debt discount equal to $89,602 for the six months ended April 30, 2015 and $45,980 for the year ended October 31, 2014. The discount is amortized on a straight line basis, which approximated the effective interest method due to the short term duration of the note, from the dates of issuance until the stated redemption date of the debts, as noted above.

 

The convertible debentures, consisting of total original face values of $124,000 from KBM Worldwide, Inc., that created the beneficial conversion feature carry default provisions that place a “maximum share amount” on the note holders that can be owned as a result of the conversions to common stock by the note holders is 4.99% of the issued and outstanding shares of Pocket Games.

 

During the six months ended April 30, 2015 and 2014, the Company recorded debt amortization expense in the amount of $82,270 and $-0-, respectively, attributed to the aforementioned debt discount.

 

KBM Worldwide, Inc. Convertible Note

On October 6, 2014, we entered into a Securities Purchase Agreement with KBM Worldwide, Inc. (“KBM”), pursuant to which we sold to KBM an 8% Convertible Promissory Note in the original principal amount of $48,000. The First KBM Note has a maturity date of July 9, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 58% multiplied by the Market Price (representing a discount rate of 42%). “Market Price” means the average of the lowest three (3) Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the First KBM Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First KBM Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

 

The Company evaluated the First KBM Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0328 below the market price on October 6, 2014 of $0.067 provided a value of $45,980, of which $36,713 and $-0- was amortized during the six months ended April 30, 2015 and 2014, respectively.

 

On November 7, 2014, we entered into a Securities Purchase Agreement with KBM Worldwide, Inc. (“KBM”), pursuant to which we sold to KBM an 8% Convertible Promissory Note in the original principal amount of $43,000. The Second KBM Note has a maturity date of August 11, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 58% multiplied by the Market Price (representing a discount rate of 42%). “Market Price” means the average of the lowest three (3) Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Second KBM Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Second KBM Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

 

The Company evaluated the Second KBM Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0329 below the market price on November 7, 2014 of $0.09 provided a value of $43,000, of which $27,011 and $-0- was amortized during the six months ended April 30, 2015 and 2014, respectively.

 

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

On December 10, 2014, we entered into a Securities Purchase Agreement with KBM Worldwide, Inc. (“KBM”), pursuant to which we sold to KBM an 8% Convertible Promissory Note in the original principal amount of $33,000. The Third KBM Note has a maturity date of September 12, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 58% multiplied by the Market Price (representing a discount rate of 42%). “Market Price” means the average of the lowest three (3) Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Third KBM Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Third KBM Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

 

The Company evaluated the Third KBM Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0493 below the market price on December 10, 2014 of $0.0899 provided a value of $27,176, of which $13,884 and $-0- was amortized during the six months ended April 30, 2015 and 2014, respectively.

 

On February 23, 2015, we entered into a Securities Purchase Agreement with Vis Vires Group, Inc. (“Vis Vires”), pursuant to which we sold to Vis Vires an 8% Convertible Promissory Note in the original principal amount of $33,000. The Vis Vires Note has a maturity date of November 25, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 58% multiplied by the Market Price (representing a discount rate of 42%). “Market Price” means the average of the lowest three (3) Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Vis Vires Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Third KBM Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

 

The Company evaluated the Vis Vires Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0541 below the market price on February 23, 2015 of $0.0860 provided a value of $19,426, of which $4,662 and $-0- was amortized during the six months ended April 30, 2015 and 2014, respectively.

 

Note 7 – Changes in Stockholders’ Equity (Deficit)

 

Authorized Shares, Common Stock

The Company is authorized to issue 499,000,000 shares of $0.0001 par value common stock. As of January 31, 2015, 16,045,000 shares were issued and outstanding.

 

Authorized Shares, Preferred Stock

The Company is also authorized to issue 1,000,000 shares of its preferred stock. On April 25, 2014, the Company designated (the “Designation”) a series of our preferred stock as Series A Preferred Stock, (“Series A Preferred Stock”) and issued 1,000 shares of the Series A Preferred Stock to its chief executive officer and sole director.

 

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

As a result of the Designation:

 

·

The Company is authorized to issue 1,000 shares of Series A Preferred Stock;

·

Holders of the A Preferred Stock will not be entitled to receive dividends;

·

The holders of the Series A Preferred Stock then outstanding shall not be entitled to receive any distribution of Company assets;

·

The Series A Preferred Stock will not be convertible into shares of the Company’s common stock.

·

The holders of the Series A Preferred Stock shall have the following voting rights:

(i)

To vote together with the holders of the Common Stock as a single class on all matter submitted for a vote of holders of Common Stock;

(ii)

Each one (1) share of Series A Preferred Stock shall have voting rights equal to 50,000 shares of our Common Stock, providing for the holder of the Series A Preferred Stock to have aggregate voting rights equal to 50,000,000 shares of our Common Stock;

(iii)

The holder of the Series A Preferred Stock shall be entitled to receive notice of any stockholders’ meeting in accordance with the Articles of Incorporation and By-laws of the Company.

(iv)

So long as any shares of Series A Preferred Stock remain outstanding, we will not, without the written consent or affirmative vote of the holders of 100% of the outstanding shares of the Series A Preferred Stock, (i) amend, alter, waive or repeal, whether by merger consolidation, combination, reclassification or otherwise, the Articles of Incorporation, including this Certificate of Designation, or our By-laws or any provisions thereof (including the adoption of a new provision thereof), (ii) create, authorize or issue any class, series or shares of Preferred Stock or any other class of capital stock. The vote of the holders of at least one-hundred percent of the outstanding Series A Stock, voting separately as one class, shall be necessary to adopt any alteration, amendment or repeal of any provisions of this Resolution, in addition to any other vote of stockholders required by law.

 

Preferred Stock Issuances, for the Period Ending October 31, 2014

On April 25, 2014, the Company issued 1,000 shares of Series A Preferred Stock to its chief executive officer and sole director as a bonus for services provided. The fair value of the common stock was $2,500,000 based on recent sales prices of the Company’s common stock on the date of grant.

 

Common Stock Issuances, for the Period Ending October 31, 2014

On various dates between November 4, 2013 and November 6, 2013, the Company sold a total of 1,500,000 shares of common stock at $0.004 per share amongst three individuals, resulting in total proceeds of $6,000.

 

On various dates between November 6, 2013 and November 11, 2013, the Company sold a total of 500,000 shares of common stock at $0.05 per share amongst three individuals, resulting in total proceeds of $25,000.

 

On various dates between November 15, 2013 and December 5, 2013, the Company sold a total of 1,100,000 shares of common stock at $0.025 per share amongst five individuals, resulting in total proceeds of $27,500.

 

On December 12, 2013, the Company issued 200,000 vested common shares to an attorney for legal services. The fair value of the common stock was $10,000 based on recent sales prices of the Company’s common stock on the date of grant.

 

On December 15, 2013, the Company issued 1,000,000 shares of common stock to an officer of the Company as payment for compensation in lieu of cash. The fair value of the common stock was $50,000 based on recent sales prices of the Company’s common stock on the date of grant, and was paid ratably against accrued compensation over the subsequent six month period.

 

On various dates between February 21, 2014 and March 24, 2014, the Company sold a total of 1,120,000 shares of common stock at $0.05 per share amongst nine individuals, resulting in total proceeds of $56,000.

 

On various dates between March 11, 2014 and March 17, 2014, the Company sold a total of 1,000,000 shares of common stock at $0.02 per share amongst four individuals, resulting in total proceeds of $20,000.

 

On May 8, 2014, the Company issued 600,000 shares of common stock pursuant to an agreement with our transfer agent to provide DTC advisory services. The fair value of the common stock was $30,000 based on recent sales prices of the Company’s common stock on the date of grant.

 

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

On May 14, 2014, the Company issued 1,500,000 shares of common stock for the purchase of Intellectual Property pursuant to a Purchase Agreement. The fair value of the common stock was $75,000 based on recent sales prices of the Company’s common stock on the date of grant. The Intellectual Property, consisting of the fair value of the common stock, along with a cash payment of $20,000, was subsequently impaired and expensed as Development Costs within the Statement of Operations.

 

On June 11, 2014, the Company issued 120,000 vested common shares to an attorney for legal services. The fair value of the common stock was $6,000 based on recent sales prices of the Company’s common stock on the date of grant.

 

Common Stock Issuances, for the Period Ending April 30, 2015

During the six months ended April 30, 2015, the Company issued 1,265,000 shares of common stock for consulting services. The fair value of the common stock was $70,891 based on the market price of the Company’s common stock on the date of grant.

 

During the six months ended April 30, 2015, the Company issued 478,850 shares of common stock for payment of accrued compensation. The fair value of the common stock was $47,885 based on the market price of the Company’s common stock on the date of grant.

 

During the six months ended April 30, 2015, the Company issued 630,000 shares of common stock for cash in the amount of $6,300.

 

During the six months ended April 30, 2015, the Company issued 927,077 shares of common stock for the conversion of convertible notes payable in the amount of $27,000. As the conversions were within the terms of the agreement, no additional gain or loss on the conversion has been recognized.

 

During the six months ended April 30, 2015, the Company issued 500,000 stock options to a service provider and exercisable over a 4 year term expiring on April 28, 2019. The values of the options were estimated using a Black-Scholes option pricing model equal to $16,614. The key inputs to the model were the number of options 500,000, share price on the grant date of $0.04, exercise price of $0.20, terms of 4 years, volatility of 211% and a discount rate of 0.43%. As the shares are fully vested on the date of agreement, the value of the options of $16,614 was fully expensed on the date of grant.

 

Subscriptions Payable, for the Period Ending October 31, 2014

On May 1, 2014, the Company granted 300,000 shares of common stock pursuant to an agreement with a consultant to provide services from May 1, 2014 through June 30, 2014. The fair value of the common stock was $15,000 based on recent sales prices of the Company’s common stock on the date of grant. The shares were presented as Subscriptions Payable in the accompanying Balance Sheet and subsequently issued on September 17, 2014.

 

Subscriptions Payable, for the Period Ending January 31, 2015

On November 6, 2014, the Company issued 155,400 shares of common stock pursuant to an agreement with a consultant which had previously been recorded as Subscriptions Payable in the amount of $15,878 in the accompanying Balance Sheet at October 31, 2014.

 

Note 8 – Commitments and Contingencies

 

Intellectual Property Purchase Agreement

On February 12, 2014, the Company entered into an Intellectual Property Purchase Agreement, whereby the Company purchased from the seller a certain software game application. Subject to the terms and conditions of this Agreement, the Company issued to the seller 1,500,000 shares of common shares. Additionally, the Company agreed to pay to the Seller the cost for development and modification of $40,000, of which $20,000 was paid during the year ended October 31, 2014 and is included in development costs in the accompanying statement of operations, and the remaining balance of $20,000 shall be paid as the work passes through quality control.

 

 

POCKET GAMES, INC.

Notes to Condensed Financial Statements

April 30, 2015

(Unaudited)

 

Note 9 – Subsequent Events

 

On May 7, 2015, we entered into a Securities Purchase Agreement with 145 Carroll, LLC, pursuant to which we sold an 8% Convertible Promissory Note in the original principal amount of $10,000. The Note has a maturity date of February 8, 2016, and is convertible into our common stock at the Variable Conversion Price. The Variable Conversion Price shall mean 58% multiplied by the Market Price (representing a discount rate of 42%). “Market Price” means the average of the lowest three (3) Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The shares of common stock issuable upon conversion of the Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

 

On May 8, 2015, we entered into a Securities Purchase Agreement with JDF Capital Inc., pursuant to which we sold a 10% Convertible Promissory Note in the original principal amount of $110,000. The Note has a maturity date of May 8, 2016, and is convertible into our common stock at the Conversion Price. The Conversion Price shall mean the lower of (i) 58% of the average of the 3 lowest reported sale prices of the Common Stock for the 10 Trading Days immediately prior to the Issuance Date or (ii) 58% of the average of the 3 lowest reported sale prices for the 10 Trading Days immediately prior to the Conversion Date. The shares of common stock issuable upon conversion of the Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

 

Overview

 

We were incorporated in the State of Florida on October 4, 2013, to engage in the development and distribution of mobile games. We have generated only minimal revenues from business operations from a related party. Our independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that we can continue as an on-going business unless we obtain additional capital to pay our ongoing operational costs. Accordingly, we must locate sources of capital to pay our operational costs.

 

From our inception on October 4, 2013 through April 30, 2015, our business operations have primarily been focused on developing our business plan, developing the features of our first mobile game products, and developing a game for DNA Interactive Games Limited (“DNAIG”), a related party.

 

During the year ended October 31, 2014, we ceased all developmental activities related to Pocket Football and do not anticipate completion of the Pocket Games product. We directed our efforts to the development of the Idol Hands game under the terms of our March 17, 2014, agreement with Fluid Games Limited (“FGL”), a company formed under the laws of the United Kingdom. During the period ending April 30, 2014, we redesigned the Idol Hand's camera operated control system and the menu system control in order to allow the user to control the game via an ordinary Keyboard and Mouse, rather than having to buy additional equipment from a third party. During March 2014, we tested the game and newly developed control system. In April 2014, the voice over work for the game was recalibrated and recorded. These modifications were needed to convert the tutorial voiceover of the hand movements from the ‘camera control system’ to the newly implemented ‘Keyboard and Mouse’ system.

 

We completed 100% of the development of the Idol Hands game on September 1, 2014 and are currently undergoing quality assurance testing of the. We are in negotiations with online digital download retailers for distribution of the Idol Hands game including Stream, Amazon and Game. There is no assurance we will be successful in securing agreements with these retailers to distribute the Idol Hands game.

 

Idol Hands will initially be sold exclusively as a ‘Digital Download’ for the PC platform through various online stores who will process the purchases from their site and pay us between 60 and 75 the purchase price. Purchasers of the game will pay a fee to download the product and own the title.

 

Should we receive $350,000 of sales from the sale of the Idol Hands game, we plan to develop applications for iPad and iPhone as well as various Android tablets and phones. We plan to interview marketing companies to assist us with the marketing of the Idol Hands game and continue negotiations with online digital download retailers to potentially sell the game.

 

 

Third Party Development

On October 22, 2013, we entered into an agreement with DNA Interactive Games Limited (the “DNA Agreement”), a company formed under the laws of the United Kingdom (“DNAIG”), which is controlled by our Chief Executive Officer, David Lovatt, to develop a game known as SH3G for iPad and the Android tablet platforms. Through the DNA Agreement, as amended, DNAIG agreed to pay us an aggregate fee of approximately $59,500 as we meet certain milestones, as outlined in the chart below. Through July 31, 2014, we have received $45,540. As set forth in the chart below, we received or expect to receive the following payments from DNAIG as we meet the milestones:

 

Milestone	Amount Paid	Milestone Date	Status of Milestone
Submission of Military Campaign to Apple	$3,000 Paid	May 19, 2014	100%
Submission of improved User Interface & game balancing	$6,490 Paid	May 19, 2014	100%
Submission of DLC, Wolfpack content cleared for submission to Apple by QA	$3,000	June 13th 2014	98%
Android Build Submission	$14,000	October 1, 2014	65%

 

 

Through July 31, 2014, we paid $35,178 to FGL to assist us with the development of SH3G.

 

Meeting the milestones above is dependent upon us raising sufficient capital through placement of our common stock or issuance of debt securities. We have not located investors to provide us with the capital required to meet these milestones and we may not be successful in locating investors to provide us with capital. If we are unable to obtain financing, we will not meet the milestones above and may have to suspend or cease operations.

 

From inception on October 4, 2013, through January 31, 2015, we incurred an accumulated deficit of $3,536,186, including development costs, professional fees, general and administrative fees and interest expense. We have funded our operation through our revenue and through the sale of common stock to our two officers, and 35 non-affiliated investors.

 

As of April 30, 2015, we had cash on hand of $-0- which is not sufficient to pay for our operating costs. If we are unable to generate sufficient revenues or raise additional monies to fund our operations we will be unable to complete development of our products and may be forced to cease operations.

 

We have generated minimal revenues from our operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies. To become profitable and competitive, we must develop the business plan and execute the plan. Our management will attempt to secure financing through various means including borrowing and investment from institutions and private individuals.

 

Since inception, the majority of our time has been spent on organizational matters and development of our first mobile game product, Pocket Football.

 

 

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2015 AND 2014:

 

		For the Six				For the Six
		Months Ended				Months Ended
		April 30, 2015				April 30, 2014
Revenues, Related Party		$	—			$	31,050
General and Administrative			40,967				55,785
Officer Compensation			120,000				120,000
Professional Fees			123,193				166,928
Total Operating Expenses			284,160				342,713
Net Operating (Loss)			(284,160	)			(311,663	)
Total Other Income (Expense)			(91,701	)			—
Net (Loss)		$	(375,861	)		$	(311,663	)

 

Revenues, Related Party:

 

The Company was established on October 4, 2013 and is in the development stage and had no independent revenues or significant operations during the six months ended April 30, 2015 and 2014. Related party revenues were $-0- and $31,050 for the six months ended April 30, 2015 and 2014, respectively.

 

General and Administrative:

 

General and administrative expense was $40,967 and $55,785 for the six months ended April 30, 2015 and 2014, respectively. General and administrative expenses consisted of bank fees, SEC filing costs and costs associated with the pursuit of getting our stock traded on the OTCBB.

 

Officer Compensation:

 

Officer compensation expense was $120,000 and $120,000 for the six months ended April 30, 2015 and 2014, respectively. Officer compensation expense consisted of a monthly fee of $10,000 to each of our two officers.

 

Professional Fees:

 

Professional fees expense was $123,193 and $166,928 for the six months ended April 30, 2015 and 2014, respectively. Professional fees consisted of legal, consulting, accounting and auditing costs necessary to prepare our public filings.

 

Net Operating Loss:

 

Net operating loss for the six months ended April 30, 2015 was $284,160, or ($0.018) per share, and $311,663, or ($0.030) per share, for the six months ended April 30, 2014. Net operating loss consisted primarily of fees incurred in connection with the pursuit of listing of our Common Stock on the OTCBB and with establishing an account with our transfer agent, as well as legal and audit fees related to our SEC filing costs, along with the development of our software products during the six months ended April 30, 2015 and 2014.

 

Other Income (Expense):

 

Other expense was $91,701 and $-0- for the six months ended April 30, 2015 and 2014, respectively. Other expenses consisted of interest expense in the amount of $93,771 on loans and notes payable. Other income consisted of the gain on the settlement of debt in the amount of $2,070.

 

 

Net Loss:

 

Net loss for the six months ended April 30, 2015 was $375,861, or ($0.023) per share, and $311,663, or ($0.030) per share, for the six months ended April 30, 2014. Net loss consisted primarily of fees incurred in connection with the pursuit of listing of our Common Stock on the OTCBB and with establishing an account with our transfer agent, as well as legal and audit fees related to our SEC filing costs, along with the development of our software products, and related party interest expense.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following table summarizes total current assets, liabilities, accumulated (deficit) and working capital (deficit) at April 30, 2015 and October 31, 2014.

 

		April 30,				October 31,
		2015				2014
Current Assets		$	2,834			$	3,158
Current Liabilities		$	322,085			$	204,839
Accumulated (Deficit)		$	(3,535,400	)		$	(3,159,539	)
Working Capital (Deficit)		$	(319,251	)		$	(204,521	)

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. To date, we have funded our operations through the sale of our common stock. Our primary uses of cash have been for the development of games, compensation, and professional fees. All funds received have been expended in the furtherance of growing the business and establishing brand portfolios. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

 

• An substantial increase in working capital requirements to finance our operations,
• Addition of administrative and professional personnel as the business grows,
• The cost of being a public company, and
• Payments for development of games.

 

Satisfaction of our Cash Obligations for the Next 12 Months

 

Our current cash on hand as of April 30, 2015 was $-0-, which is insufficient to meet our current monthly operating costs of approximately $30,000. As of April 30, 2015, we had current liabilities of $318,910.

 

We have a net loss and net cash used in operations of $108,722 and $154,027, respectively, for the six months ended April 30, 2015 and our stockholders’ deficit was $319,251, with an accumulated deficit of $3,535,400 as of April 30, 2015.

 

We currently have no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.

 

We are dependent on the sale of our securities to fund our operations, and will remain so until we generate sufficient revenues to pay for our operating costs. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees.

 

If we are unable to raise the funds we will seek alternative financing through means such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

 

Going Concern

 

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.

 

Critical Accounting Policies and Estimates

 

While our significant accounting policies are more fully described in Note 1 to our financial statements for the period ended April 30, 2015, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to the accounting for and recovery of long-lived assets including income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.

 

Software Development Costs

Costs incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985 “Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market but may be expensed if the Company is in the development stage. Amortization of capitalized software development costs begins upon initial product shipment. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six months), using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset. During the period from October 4, 2013 (inception) to April 30, 2015 the Company did not capitalize any software development costs.

 

Revenue recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. We intend on generating revenue from three sources; sale of game applications, sale of advertising provided with games, and outsourced application development services. To date, all revenues have been derived from a related party.

 

Revenue through October 31, 2013, and to present includes only outsourced application development services recognized in accordance with ASC 605-28 "Milestone Method". We may bill for these services prior to attainment of the performance milestones. Receipts in excess of revenue earned as of the balance sheet date are included in deferred revenue.

 

Stock-based compensation

We account for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. We account for non-employee share-based awards in accordance with ASC Topic 505-50.

 

Contractual Obligations

 

As of April 30, 2015, we have no fixed contractual obligations or commitments that include future estimated payments.

 

Off-Balance Sheet Arrangements

 

As of the date of this report, we did not have any off-balance sheet arrangements that have, or is reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, to allow for timely decisions regarding required disclosure.

 

As of April 30, 2015, the end of our second quarter covered by this report, we carried out an evaluation, under the supervision of our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this quarterly report because there was no segregation of the duties with only two members in our management team. Our board of directors has only two members. We do not have a formal audit committee.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of April 30, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of April 30, 2015, our internal control over financial reporting is ineffective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

 

Inherent limitations on effectiveness of controls

 

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

None.

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

We are not a party to, and none of our property is the subject of, any pending legal proceedings. To our knowledge, no governmental authority is contemplating any such proceedings.

 

 

ITEM 1A. RISK FACTORS.

 

Not required to be provided by smaller reporting companies.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

On March 17, 2014, we entered into an agreement with Fluid Games, Ltd to acquire certain intellectual property for the game known as Idol Hands. In exchange for the game, we issued 1,500,000 shares of common stock valued at $0.05 per share. We also paid $40,000 as additional consideration.

 

On October 29, 2014, we issued 155,400 shares of our common stock valued at $0.05 per share for legal services.

 

During the six months ended April 30, 2015, the Company issued 1,265,000 shares of common stock for consulting services. The fair value of the common stock was $68,041 based on the market price of the Company’s common stock on the date of grant.

 

During the six months ended April 30, 2015, the Company issued 478,850 shares of common stock for payment of accrued compensation. The fair value of the common stock was $47,885 based on the market price of the Company’s common stock on the date of grant.

 

During the six months ended April 30, 2015, the Company issued 630,000 shares of common stock for cash in the amount of $6,300.

 

During the six months ended April 30, 2015, the Company issued 927,077 shares of common stock for the conversion of convertible notes payable in the amount of $27,000.

 

With respect to the transactions noted above. Each of the recipients of securities of the Company was an accredited investor, or is considered by the Company to be a “sophisticated person”, inasmuch as each of them has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of receiving securities of the Company. No solicitation was made and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance of its securities as described above was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

 

ITEM 5. OTHER INFORMATION.

 

None

 

ITEM 6. EXHIBITS.

 

Exhibit No.	Description
3.1	Articles of Incorporation(incorporated by reference to Exhibit 3.1 of the Form S-1 filed with the Securities and Exchange Commission by Pocket Games, Inc. on December 18, 2013)
3.2	Bylaws(incorporated by reference to Exhibit 3.1 of the Form S-1 filed with the Securities and Exchange Commission by Pocket Games, Inc. on December 18, 2013)
3.3*	Amended Articles of Incorporation dated April 25, 2014
4.1	Form of Subscription Agreement(incorporated by reference to Exhibit 4.1 of the Form S-1 filed with the Securities and Exchange Commission by Pocket Games, Inc. on December 18, 2013)
10.1	Executive Employment Agreement with David Lovatt(incorporated by reference to Exhibit 10.1 of the Form S-1 filed with the Securities and Exchange Commission by Pocket Games, Inc. on December 18, 2013)
10.2	Executive Employment Agreement with Elliott Polatoff(incorporated by reference to Exhibit 10.2 of the Form S-1 filed with the Securities and Exchange Commission by Pocket Games, Inc. on December 18, 2013)
10.3	Consulting Agreement with Yaakov Sean Fulda(incorporated by reference to Exhibit 10.3 of the Form S-1 filed with the Securities and Exchange Commission by Pocket Games, Inc. on December 18, 2013)
10.4	SH3G IOS/Android Milestone Schedule with DNA Interactive Games Limited(incorporated by reference to Exhibit 10.4 of the Form S-1/A filed with the Securities and Exchange Commission by Pocket Games, Inc. on January 15, 2014)
10.5	Rental Agreement with Yaakov Fulda(incorporated by reference to Exhibit 10.6 of the Form S-1/A filed with the Securities and Exchange Commission by Pocket Games, Inc. on January 15, 2014)
10.6	Memorandum of Deliverables by Fluid Games(incorporated by reference to Exhibit 10.6 of the Form S-1/A filed with the Securities and Exchange Commission by Pocket Games, Inc. on February 21, 2014)
10.7	Intellectual Property Purchase Agreement(incorporated by reference to Exhibit 10.7 of the Form S-1/A filed with the Securities and Exchange Commission by Pocket Games, Inc. on March 27, 2014)
10.8*	DTC Advisory Services Agreement with Vstock Transfer, LLC dated May 8, 2014
10.9*	Promissory Note with Elliot Polatoff dated May 7, 2014
10.10*	Amendment to Promissory Note with Elliot Polatoff dated June 24, 2014
31.1*	Certification of David Lovatt, CEO and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1*	Certification of David Lovatt, CEO and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Labels Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

* Filed herewith

 

 

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.

 

	POCKET GAMES, INC.
Date: June __, 2015	By:	/s/ David Lovatt
		David Lovatt, Chief Executive Officer (Principal Executive Officer)
Date: June __, 2015	By:	/s/ David Lovatt
		David Lovatt, Chief Financial Officer and Principal Accounting Officer