SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: September 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: 333-184459

 

800 COMMERCE, INC.

(Exact name of registrant as specified in its charter)

 

Florida		27-2019626
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
319 Clematis Street, Suite 1008, West Palm Beach, FL 33401
(Address of principal executive office)

 

(561) 249-6511

(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. Yes ☑  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 ☑  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 ☐		Smaller reporting company ☑
(Do not check if a smaller reporting company)

 

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

 

The number of shares outstanding of registrant’s $0.001 par value Common Stock, as of November 23, 2015 was 20,950,000 shares. 

 

800 COMMERCE, INC.

FORM 10-Q

Quarterly Period Ended September 30, 2015

 

INDEX

  

FORWARD-LOOKING STATEMENTS		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014	2
	Statements of Operations and Comprehensive Loss for the three  and nine months ended September 30, 2015 and 2014 (Unaudited)	3
	Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (Unaudited)	4
	Notes to Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosure	19
Item 5.	Other Information	19
Item 6.	Exhibits	20
SIGNATURES

 

 

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this quarterly report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this quarterly report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended December 31, 2014, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report on Form 10-Q and in other reports that we file with the Securities and Exchange Commission (the “SEC”). You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report on Form 10-Q.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this quarterly report on Form 10-Q, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

 

800 COMMERCE, INC.

BALANCE SHEETS

		September 30,				December 31,
		2015					2014
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	2,348			$	3,501
Accounts receivable			655				27,069
Prepaid expenses			750				2,250
Note receivable			—				70,591
Deferred financing costs			1,542				—
Marketable securities			900				30,000
Security deposit			700				700
Total current assets			6,895				134,111
Patents Pending		$	33,950			$	33,950
Property and equipment, net			964				1,441
Total assets		$	41,809			$	169,502
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses		$	48,244			$	68,411
Due to stockholders			481,874				389,721
Convertible note payable, net of discounts of $27,000			18,500				—
Derivative liabilities			53,040				—
Total current liabilities			601,658				458,132
Stockholders' Deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued			—				—
Common stock, $0.001 par value; 90,000,000 shares authorized; 20,950,000 and 19,950,000 shares issued and outstanding, respectively			20,950				19,950
Additional paid-in capital			1,434,252				1,425,252
Accumulated comprehensive loss			(113,100	)			(84,000	)
Accumulated deficit			(1,901,951	)			(1,649,832	)
Total stockholders' deficit			(559,849	)			(288,630	)
Total liabilities and stockholders' deficit		$	41,809			$	169,502
See accompanying notes to unaudited financial statements.

 

800 COMMERCE, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

		Three months ended September 30,								Nine months ended September 30,
			2015				2014				2015				2014
Fee revenue, net		$	1,093			$	98,904			$	107,731			$	289,374
Costs of revenue			—				95,658				100,334				284,845
Gross profit			1,093				3,246				7,397				4,529
Operating expenses:
Salaries and management fees			36,200				28,507				107,356				79,807
Bad debt expense			—				—				70,820				—
Rent			2,250				2,250				6,750				4,500
Travel and entertainment			1,372				1,386				1,372				1,517
Transfer agent and filing fees			1,250				4,166				5,338				10,570
Professional and consulting fees			2,563				2,435				13,589				10,935
Software development and internet expenses			664				358				4,206				1,742
Other general and administrative			3,576				2,291				18,730				6,442
Total operating expenses			47,875				41,393				228,161				115,513
Operating loss			(46,782	)			(38,147	)			(220,764	)			(110,984	)
Other income (expense):
Interest expense			(12,285	)			—				(18,315	)			—
Derivative liability expense			4,611				—				(13,040	)			—
Gain on sale of marketable securities			—				—				—				7,054
Total other income (expense), net			(7,674	)			—				(31,355	)			7,054
Net loss		$	(54,456	)		$	(38,147	)		$	(252,119	)		$	(103,930	)
Other Comprehensive gain, net of tax:
Unrealized loss on marketable securities			(3,300	)			(102,000	)			(29,100	)			(1,596	)
Less reclassification adjustment for gains included in net loss			—				—				—				(7,054	)
Other comprehensive loss			(3,300	)			(102,000	)			(29,100	)			(8,650	)
Comprehensive loss		$	(57,756	)		$	(140,147	)		$	(281,219	)		$	(112,580	)
Net loss per share		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)
Weighted average number of common shares outstanding Basic and diluted			20,191,758				19,950,000				20,030,882				19,950,000
See accompanying notes to unaudited financial statements.

 

800 COMMERCE, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

			Nine months ended September 30,
			2015				2014
Cash flows from operating activities:
Net loss		$	(252,119	)		$	(103,930	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			477				297
Amortization of deferred financing costs			958				—
Amortization of original issue discount			1,000
Amortization of note discount			15,000				—
Initial expense for fair value of derivative liabilities			21,172				—
Bad debt expense			70,820				—
Change in fair value of derivative liabilities			(8,132	)			—
Gain on sale of marketable securities			—				(7,054	)
Change in operating assets and liabilities:
Decrease (increase) in prepaid assets			1,500				(750	)
Increase in note receivable			(229	)			(8,820	)
Increase (decrease) in accounts receivable			26,414				(588	)
Increase in accounts payable and accrued expenses			71,986				118,254
Net cash used in operating activities			(51,153	)			(2,591	)
Cash flows from investing activities:
Proceeds from sale of marketable securities			—				16,554
Payment of security deposits			—				(700	)
Net cash provided by investing activities			—				15,854
Cash flows from financing activities:
Proceeds from issuance of convertible debt			40,000				—
Proceeds from the sale of common stock			10,000				—
Repayments of convertible note			—				(7,000	)
Net cash provided by (used in) financing activities:			50,000				(7,000	)
Net (decrease) increase in cash and cash equivalents			(1,153	)			6,263
Cash and cash equivalents, Beginning			3,501				3,912
Cash and cash equivalents, Ending		$	2,348			$	10,175
Supplemental disclosure of cash flow information:
Cash paid for interest		$	—			$	—
Cash paid for income taxes		$	—			$	—
Schedule of Non-Cash Investing and Financing Activities:
Relassification of derivative liability upon repayment of convertible debt		$	—			$	6,373
Included in issuance of convertible notes for fees		$	5,500			$	—
Debt discount due to derivatives		$	40,000			$	—
Reclass of accounts payable to due to shareholders		$	92,153			$	125,228
Change in fair value for available for sale marketable securities		$	29,100			$	1,596
See accompanying notes to unaudited financial statements.

 800 COMMERCE, INC.

Notes to Financial Statements

September 30, 2015

(Unaudited)

 

 

Note 1 - Organization

 

800 Commerce, Inc. (the “Company” or “800 Commerce”) was formed in the State of Florida on February 10, 2010. The Company was founded for the purpose of marketing credit card processing services on behalf of merchant payment processing service providers. The Company commenced revenue producing activities based on the marketing of credit processing services in March 2010. The Company generates revenue from the marketing of credit processing services by way of fees received from merchant payment processing service providers on whose behalf the Company brokers their processing services. On August 1, 2012, the Company began to receive additional revenue pursuant to a processing service provider’s assignment to the Company of a portion of its fee income under one or more of its service contracts in exchange for the issuance of 500,000 shares of our common stock. On June 29, 2015, the Company received notice that Payventures, LLC (“PV”) would like to review the Assignment Agreement (“PAA”) with the Company and until such review, they have suspended making payments to the Company under the PAA. The last month that the Company has recorded and received payments under the PAA was April 2015. Accordingly, there would not be amounts due PV for license or transaction fees since April 30, 2015.

 

In addition to marketing credit card processing services, the Company also has developed on-line portals and mobile applications offering directories of professional service providers. The Company has completed its’ initial on-line portal and mobile application dedicated to a directory of medical doctors, however the Company has not commenced revenue producing operations by way of the medical directory. The Company intends to maintain its 800 short code and platform, which will be used to run its medical portal and service other developments. The Company has not yet generated any revenues from its directories.

 

Note 2 - Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. These financial statements should be read in conjunction with a reading of the Company’s financial statements and notes thereto as filed with the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (“SEC”) on March 31, 2015. Interim results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the current period.

 

Emerging Growth Company

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 as amended (the “Securities Act”) for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

Notes Receivable

 

The Company records notes receivable from amounts due from a third party upon loans made. The allowance for losses is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. While management uses the best information available to make its evaluations, this estimate is susceptible to significant change in the near term. As of September 30, 2015, based on the above criteria, the Company has an allowance for note receivables of $70,820.

 

Marketable Securities

 

The Company classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASC 605 requires that the following four basic criteria are met (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the month in which commissions are earned.

 

Fair Value of Financial Instruments

 

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

 

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The three hierarchy levels are defined as follows:

 

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

The Company's financial instruments consist primarily of cash, accounts receivable, marketable securities, accounts payable and accrued expenses, due to stockholders and convertible debt. The carrying amount of the Company’s accounts payable, accrued expenses and due to stockholders approximate fair value to their short term. Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are considered level 1 inputs (see Note 6). The Company’s derivative liability is valued using the level 3 inputs (see Note 7). The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows. As of September 30, 2015 and December 31, 2014, the Company’s marketable securities were $900 and $30,000, respectively.

 

Going Concern

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of September 30, 2015, the Company had an accumulated deficit of approximately $1,901,951 and a working capital deficit of $594,763. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management’s Plans

 

The Company has developed on-line portals and mobile applications offering directories of professional service providers. The Company has completed its’ initial on-line portal and mobile application dedicated to a directory of medical doctors, however the Company has not commenced revenue producing operations by way of the medical directory. The Company intends to maintain its 800 short code and platform, which will be used to run its medical portal and service other developments, however, the Company has not yet generated any revenues from its directories.

 

There can be no assurance that the Company will have adequate resources to fund future operations, if any, or that funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. Currently, the Company does not have a revolving loan agreement with any financial institutions, nor can the Company provide any assurance it will be able to enter into any such agreement in the future. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company may seek additional working capital through the issuance of convertible notes payable, however, there can be no assurance that funds will be available to the Company when needed.

 

The Company evaluates, on an ongoing basis, potential business acquisition/restructuring opportunities that become available from time to time, which management considers in relation to its corporate plans and strategies.

 

Note 3 – Sales Concentration and Concentration of Credit Risk

 

Sales and Accounts Receivable

 

Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three and nine months ended September 30, 2015 and 2014 and the accounts receivable balance as of September 30, 2015:

 

				2014								2015
Customer				Sales % Three Months Ended September 30,				Sales % Nine Months Ended September 30,				Sales % Three Months Ended September 30,				Sales % Nine Months Ended September 30,				Accounts Receivable Balance as of September 30, 2015
	A				98.8	%			99.0	%			—				96.5	%		$	—
	B				—				—				97.7	%			—			$	655

 

The Company relies on a few processors to provide, on a non-exclusive basis, transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools.

 

On June 29, 2015, the Company received notice from a merchant provider that they would like to review the Assignment Agreement with the Company and until such review, they have suspended making payments to the Company. The last month that the Company has recorded and received payments under the Assignment Agreement was April 2015. Accordingly, there would be no amounts due for license or transaction fees after April 30, 2015. The balance due as of April 30, 2015 was paid in May 2015.

 

Note 4 – Note Receivable

 

During the year ended December 31, 2014, the Company advanced $75,770 to a third party in exchange for a $75,770 promissory note with a 10% per annum interest rate. The note was to be payable in three installments after the closing of a transaction between the Company and the third party or on demand by the Company. As of December 31, 2014 the outstanding principal amount on the promissory note was $70,820. Based on events and changes in circumstances occurring during the nine months ended September 30, 2015, the Company recorded a reserve against the note and recorded bad debt expense of $70,820.

 

Note 5 – Convertible Notes Payable

 

On May 4, 2015, the Company issued a Convertible Promissory Note for $21,500 to LG Capital Funding, LLC (the “LG Note”). The Company received net proceeds of $20,000 after debt issuance costs of $1,500 paid for lender legal fees. The LG Note carries a per annum interest rate of 8%, matures May 1, 2016 and converts at a 46% discount to the market price defined in the LG Note as the lowest closing price (as defined in the note agreement) per share of the Company’s common stock for the twenty trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note, the Company is required to pay interest at 22% per annum and the holder could at their option declare the LG Note, together with accrued and unpaid interest, to be immediately due and payable. In addition, the LG Note provides for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company. The Company must at all times reserve 11,000,000 shares of common stock for potential conversions.

 

On May 26, 2015, the Company issued a Convertible Promissory Note for $24,000 to Crown Bridge Partners, LLC (the “CB Note”). The Company received net proceeds of $20,000 on June 1, 2015, after debt issuance costs of $1,000 paid for lender legal fees and an Original Issuance Discount (“OID”) of $3,000. The CB Note carries a per annum interest rate of 8%, matures May 26, 2016 and converts at a 47% discount to the market price defined in the CB Note as the average of the two lowest trading prices (as defined in the note agreement) per share of the Company’s common stock for the fifteen trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note, the Company is required to pay interest at 22% per annum and the holder could at their option declare the CB Note, together with accrued and unpaid interest, to be immediately due and payable. In addition, the CB Note provides for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company. The Company must at all times reserve 10,400,000 shares of common stock for potential conversions.

 

The LG Note and the CB note together are referred to as the 2015 Convertible Notes.

 

The debt issuance costs of $2,500 in the aggregate and the OID costs of $3,000 included in the 2015 Convertible Notes, will be amortized over the earlier of the terms of the Note or any redemptions and accordingly, $1,375 and $1,958 has been expensed in interest expense for the three and nine months ended September 30, 2015, respectively. As of September 30, 2015, $45,500 of principal and accrued interest of $1,357 is outstanding on the 2015 Convertible Notes, and the principal amount is carried at $18,500, net of a remaining note discount of $27,000.

 

The Company determined that the conversion feature of the 2015 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the 2015 Convertible Notes were not considered to be conventional debt under EITF 00-19 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments being recorded as a liability on the balance sheet with the corresponding amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. The embedded feature included in the 2015 Convertible Notes resulted in an initial debt discount of $40,000, an initial derivative liability expense of $21,172 and an initial derivative liability of $61,172.

 

As of September 30, 2015, the Company revalued the embedded conversion feature of the 2015 Convertible Notes. The fair value of the 2015 Convertible Notes was calculated at September 30, 2015 based on the average historical effective discounts to market over periods consistent with the terms of the related debt.

 

A summary of the derivative liability balance as of September 30, 2015 is as follows:

 

		2015
Beginning Balance		$	—
Debt discount due to derivatives			40,000
Day one loss on fair value			21,172
Fair Value Change			(8,132	)
Ending Balance		$	53,040

 

Note 6 – Related Party Transactions

 

Management Fees

 

Effective January 1, 2015, the Company has agreed to annual compensation of $78,000 for its President and $60,000 for the Chief Financial Officer (“CFO”).

 

For the three and nine months ended September 30, 2015 and 2014, the Company recorded expenses to its’ officers the following amounts, included in Salaries and Management Fees in the statements of operations, included herein:

 

				Three months ended September 30,								Nine months ended September 30,
				2015				2014				2015				2014
	President			$	19,500			$	13,500			$	58,500			$	40,500
	CFO				15,000				9,000				45,500				27,000
	Total			$	34,500			$	22,500			$	104,000			$	67,500

 

As of September 30, 2015 and December 31, 2014, the Company owed its’ officer and former Chairman the following amounts, included in amounts due stockholders on the Company’s balance sheet:

 

		September 30,				December 31,
		2015				2014
President		$	123,735			$	85,295
CFO			12,500				—
Former Chairman			66,666				66,666
Total		$	202,901			$	151,961

 

Amounts due Agritek Holdings, Inc.

 

As of December 31, 2012, Agritek owned 6,000,000 shares of the Company’s common stock, representing approximately 32% of the Company’s outstanding common stock. Effective September 4, 2013, Agritek distributed the 6,000,000 shares of the Company’s common stock to their stockholders of record as of September 3, 2013. The Company and Agritek are commonly controlled due to common management and board members. The Company owes Agritek $278,973 and $237,760 as of September 30, 2015 and December 31, 2014, respectively, as a result of advances received from Agritek. These advances are non-interest bearing and are due on demand and are included in amounts due stockholders on the September 30, 2015, balance sheet herein.

 

Marketable Securities

 

The Company’s marketable securities consist solely of 600,000, as of September 30, 2015 and December 31, 2014 of shares of Agritek Holdings, Inc.’s (“Agritek”) common stock, issued to the Company in connection with the Company’s formation in 2010. The Company classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred. The fair value of the Company’s holdings in Agritek’s common stock totaled $900 and $30,000 as of September 30, 2015, and December 31, 2014, respectively. The Company and Agritek are commonly controlled due to common management and board members.

 

The following summarizes the carrying value of marketable securities as of September 30, 2015 and December 31, 2014:

 

		Nine months ended September 30, 2015				Year ended December 31, 2014
Historical cost		$	114,000			$	114,000
Unrealized loss included in accumulated other comprehensive loss			(113,100	)			(84,000	)
Net carrying value		$	900			$	30,000

 

Note 7 – Stockholders’ Deficit

 

Common Stock

 

On September 8, 2015, the Company sold 1,000,000 shares of common stock at $0.01 per share and received proceeds of $10,000.

 

As of September 30, 2015 and December 31, 2014, there were 20,950,000 and 19,950,000 par value $0.001, shares of common stock outstanding, respectively.

 

Stock Options

 

Effective August 1, 2012 the Company adopted the 2012 Equity Incentive Plan (the “2012 Plan”) whereby the Company has reserved five million shares of common stock to be available for grants pursuant to the 2012 Plan.

 

Effective August 1, 2012, the Company entered into two Advisory Board Agreements (“ABA”) pursuant to which, the Company granted to each of Dr. James Canton and Mr. Scott Climes a non-qualified stock option to purchase 800,000 shares of common stock of the Company at an exercise price of $0.30 per share. The options were granted under the 2012 Plan and have a three year term and expired August 1, 2015. Mr. Climes was a member of the board of directors of the Company (resigned August 5. 2014) and Dr. Canton was the Chairman of the Board of Directors of the Company at the time (resigned January 15, 2014).

 

A summary of the activity of options for the nine months ended September 30, 2015 is as follows:

 

			Options				Weighted- Average exercise price				Weighted- Average grant date fair value
Balance January 1, 2015			1,600,000			$	0.30			$	0.21
Options expired			(1,600,000	)
Outstanding, September 30, 2015			—

 

As of September 30, 2015, 5,000,000 options are available for future grants under the 2012 Plan.

 

Note 8 – Commitments and Contingencies

 

The Company is not a party to any litigation and, to its knowledge, no action, suit or proceeding has been threatened against the Company.

 

Effective April 1, 2014, the Company entered into a rent sharing agreement for the use of 1,300 square feet with a company controlled by the Company’s CFO. The Company has agreed to pay $750 per month for the space.

 

Rent expense for the three and nine months ended September 30, 2015, was $2,250 and $6,750, respectively, compared to $2,250 and $4,500 for the three and nine months ended September 30, 2014, respectively.

 

Other Agreements

 

Our business agreements consist primarily of banking ISO agreements and technology licensing agreements. Banking agreements are typically agreements with merchant banks which provide all direct relationships with the credit card issuing banks, PCI compliant gateways for our merchant processing clients and administrative functions. These agreements typically involve a split of the fees received between the banks and the Company based on interchange rate, agent commissions, or a fixed fee per transaction. Licensing agreements are infrastructure in nature and establish the connection to the end user that enables the Company to deliver and collect payment for the transacted media content or service application. Licensing agreements typically involve a split of the fees received between the technology provider, carriers and the Company.

 

On August 1, 2012 the Company entered into a series of agreements with Payventures, LLC (“PV”) and Payventures Tech, LLC (“PVTECH”). PV operates a business of promoting merchant services offered by certain banks, including credit and debit card transaction processing and network services (“Merchant Services”) to merchants. Pursuant to an Assignment Agreement (“PAA”) between PV and the Company PV assigned fifty percent (50%) of PV’s rights to receive residual payments from certain Assigned Customer(s), in exchange for five hundred thousand (500,000) shares of the Company’s restricted common stock. The term of the Assignment Agreement commences on the Effective Date and shall continue for a period of one (1) year after which it shall renew for successive one year terms automatically, unless terminated in accordance with the terms thereof. Either party has the right to terminate this Agreement at the end of the then current Term, upon thirty (30) days prior written notice to the other party. PV may terminate this Agreement at any time on thirty (30) days written notice to the Company provided however, that if such termination is without default or other material cause by the Company, then PV shall continue to pay the referral fees contemplated therein despite such termination, subject to the other provisions thereof that survive termination. In addition, PV may terminate the assignment of the Assigned Customer, and any obligation to pay the share of the Assigned Customer residual to the Company, upon thirty (30) days prior notice to the Company. PV may terminate the assignment of the Assigned Customer and substitute one or more comparable Assigned Customers upon thirty (30) days prior notice to the Company. PV shall not be required to replace an Assigned Customer if such Assigned Customer terminates its merchant account with PV.

 

Effective October 1, 2012, PV and the Company entered into the First Amendment to Assignment Agreement (the “Amendment”). The Amendment replaces the assignment to the Company of 50% of PV’s residuals from the initial Assigned Customer to the assignment of 30% of PV’s residual payments received from a newly Assigned Customer, and such account shall henceforth be the Assigned Customer under the Assignment Agreement. Subsequently, on May 1, 2013 and May 1, 2014, the parties entered into amendments to change the assigned customer.

 

PV and the Company also entered into a Consulting Agreement, whereby PV will provide services to the Company, including; coordination of mobile messaging services, customer contact, customer assistance services and merchant acquisition and processing services. PV will be compensated at their standard hourly rate for such services. The term of the Consulting Agreement commences on the Effective Date and shall continue for a period of one (1) year, after which it shall renew for successive one year terms automatically, unless terminated in accordance with the terms thereof. Either Party hereto has the right to terminate the Consulting Agreement at any time on thirty (30) days written notice.

 

Also on August 1, 2012, PV and the Company executed an Agent Referral Agreement, whereby PV will compensate the Company for any customer referred to PV by the Company that subsequently utilizes PV’s Merchant Services. The term of the Agent Referral Agreement is for two years and automatically renews for each year thereafter (the “Term”) unless 60 days prior written notice is given by either party.

 

PVTECH and the Company entered into a Hosted Platform License & Services Agreement (“HPLSA”) whereby PVTECH will provide the Company access to their hosted ecommerce and processing platform products, as well as related services and support. Pursuant to the terms of the agreement, the Company will pay PVTECH a monthly licensing fee of $2,500 and a transaction fee of $0.07 per transaction, that beginning in April 2013, has a minimum transaction fee of $2,500 per month. The term of the HPSLA shall be for one (1) year, with automatic renewals for successive one (1) year terms thereafter (each a "Renewal Term") until either party gives written notice to terminate the HPLSA no less than three (3) calendar months prior to the commencement of a Renewal Term. Either party may terminate the HPLSA: (a) upon a material breach by the other party if such breach is not cured within thirty (30) days following written notice to the breaching party; or (b) where the other party is subject to a filed bankruptcy petition or formal insolvency proceeding that is not dismissed within thirty (30) days. On June 29, 2015, the Company received notice that PV would like to review the above agreements with the Company and until such review, they have suspended making payments to the Company under the PAA. The last month that the Company has recorded and received payments under the PAA was April 2015. Accordingly the Company has recorded, as part of cost of sales, the following amounts for the three and nine months ended September 30, 2015 and 2014:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Hosted licensing fee		$	—			$	7,500			$	10,000			$	22,500
Transaction fees			—				7,500				10,000				22,500
Total		$	—			$	15,000			$	20,000			$	45,000

 

During the year ended December 31, 2014, the Company began utilizing Trumpia’s business to consumer mobile marketing platform that integrates SMS and application technologies (apps). Trumpia’s platform integrates marketing automation, SMS marketing, mobile apps, mobile coupons and other customer engagement tools. Trumpia software hones messaging by filtering contacts based on criteria like personal interests, location and purchasing and click-through choices. The Company pays $2,100 annually for the platform. Since 2006, Trumpia has developed mobile messaging and cross-channel marketing automation technologies for industry-leading franchises and brands, including McDonald’s, GE, Intercontinental Hotels and Capital One. Trumpia has placed in the top 10% on Inc.5000’s “List of Fastest Growing Companies” in 2012.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The Company commenced revenue producing activities based on the marketing of credit processing services in March 2010. The Company generates revenue from the marketing of credit processing services by way of fees received from merchant payment processing service providers on whose behalf the Company brokers their processing services. On August 1, 2012, the Company began to receive additional revenue pursuant to a processing service provider’s assignment to the Company of a portion of its fee income under one or more of its service contracts in exchange for the issuance of 500,000 shares of our common stock.

 

In addition to marketing credit card processing services, the Company also has developed on-line portals and mobile applications offering directories of professional service providers. The Company has completed its’ initial on-line portal and mobile application dedicated to a directory of medical doctors, however the Company has not commenced revenue producing operations by way of the medical directory. The Company intends to maintain its 800 short code and platform, which will be used to run its medical portal and service other developments.

 

Results of Operations

 

For the three and nine months ended September 30, 2015 compared to the three and nine months ended September 30, 2014

 

Revenues

 

Revenues for the three and nine months ended September 30, 2015 were $1,093 and $107,731, respectively, compared to $98,904 and $289,374 for the three and nine months ended September 30, 2014, respectively, and were comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Assignment Agreement		$	—			$	98,037			$	103,962			$	286,869
Other Agent Agreements			1,093				867				3,769				2,505
Total		$	1,093			$	98,904			$	107,731			$	289,374

 

Predominately, all of the revenue is a result of the Assignment Agreement. On June 29, 2015, the Company received notice that PV would like to review the above agreements with the Company and until such review, they have suspended making payments to the Company under the PAA. The last month that the Company has recorded and received payments under the PAA was April 2015. Other revenues are from an Agent Referral Agreement from marketing of credit card processing services on behalf of merchant payment processing service providers. We have entered into agent referral agreements with merchant payment processing service providers, including Payventures, LLC, and FrontStream Payments, Inc. (“FrontStream”) pursuant to which we receive a commission, based on a percentage of the net revenue received by the payment processor from customers we introduced to them. The Company’s agreement with FrontStream (formerly Direct Technologies, LLC) was entered into on July 31, 2009 with a three (3) year term and automatically renews for successive one year terms, unless terminated by either party pursuant to the terms of the agreement. The Company receives an amount equal to 70% of the residual for the previous month's activity, on or about the 25^th day of the next month.

 

Costs of Revenues

 

For the three and nine months ended September 30, 2015, cost of revenues was $-0- and $100,334, respectively, compared to $95,658 and $284,845 for the three and nine months ended September 30, 2014, respectively. The expenses for the 2015 and 2014 periods were comprised of costs associated with a Consulting Agreement and Hosted License Fee whereby services provided to the Company, including: coordination of mobile messaging services, customer contact, customer assistance services and merchant acquisition and processing services. Pursuant to the Consulting Agreement, the consultant is compensated at standard hourly rates for such services. As a result of the Company not receiving revenues since April 2015, the Company only incurred the below corresponding costs and through April for the nine months ended September 30, 2015. Cost of revenues were comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Merchant acquiring and processing services		$	—			$	34,324			$	42,275			$	99,280
Mobile messaging services			—				26,689				21,803				77,395
Customer contact and assistant services			—				19,645				16,256				57,170
Hosted license fees			—				7,500				10,000				22,500
Transaction fees			—				7,500				10,000				22,500
Short code fees			—				—				—				6,000
Total		$	—			$	95,658			$	100,334			$	284,845

 

Operating Expenses

 

Operating expenses were $47,875 and $228,161, respectively, for the three and nine months ended September 30, 2015 compared to $41,393 and $115,513, respectively, for the three and nine months ended September 30, 2014 and were comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Salaries and management fees		$	36,200			$	28,507			$	107,356			$	79,807
Reserve for bad debt expense			—				—				70,820				—
Rent			2,250				2,250				6,750				4,500
Transfer agent and filing fees			1,250				4,166				5,338				10,570
Professional and consulting fees			2,563				2,435				13,589				10,935
Travel and entertainment			1,372				1,386				1,372				1,517
Internet expense			664				358				4,206				1,742
General and other administrative			3,576				2,291				18,730				6,442
Total		$	47,875			$	41,393			$	228,161			$	115,513

 

Salaries and management fees are comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
President		$	19,500			$	13,500			$	58,500			$	40,500
CFO			15,000				9,000				45,500				27,000
Salary, other			1,700				6,007				3,356				12,307
Total			36,200				28,507				107,356				79,807

 

Rent expense for the three and nine months ended September 30, 2015, was $2,250 and $6,750, respectively, compared to $2,250 and $4,500 for the three and nine months ended September 30, 2014 pursuant to a rent sharing agreement the Company entered into on April 1, 2014, wherein the Company agreed to pay $750 per month for use of 1,300 square feet with a company controlled by the Company’s CFO.

 

Professional and consulting fees decreased for the three and nine months ended September 30, 2015 compared to the 2014 period and is comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Accounting fees		$	2,563			$	2,035			$	12,471			$	7,835
Legal fees			—				400				1,118				3,100
Total			2,563				2,435				13,589				10,935

 

General and other administrative costs for the three and nine months ended September 30, 2015 were $3,576 and $18,730, respectively, compared to $2,291 and $6,442 for the three and nine months ended September 30, 2014, respectively. The significant expenses is comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Licensing fees		$	—			$	—			$	2,100			$	—
Telephone expenses			2,192				389				7,205				1,577
Advertising			—				—				3,500				—
Investor relations costs			998				500				4,492				1,820
General and other administrative			386				1,402				1,433				3,045
Total		$	3,576			$	2,291			$	18,730			$	6,442

 

Other Income (Expense), Net

 

Other expenses for the nine months ended September 30, 2015 was $31,355, compared to other income of $7,054 for the nine months ended September 30, 2014. For the nine months ended September 30, 2015, other expenses was comprised of: 1) derivative liability expense of $13,040 as a result of the initial derivative liability expense of $21,172 recorded on the 2015 Convertible Notes reduced by the gain due to change in the fair value of the embedded derivative liability from the date of issuance of the 2015 Convertible notes to September 30, 2015, of $8,132 and 2) interest expense of $18,315 comprised of the following:

 

Amortization of note discount		$	15,000
Interest on face value of Notes			1,357
Amortization of deferred financing fees			958
Amortization of OID			1,000
Total		$	18,315

 

The 2014 period is the result of the gain on sale of marketable securities of $7,054.

 

Capital Resources and Liquidity

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of September 30, 2015, we had cash and cash equivalents of $2,348, a decrease of $1,153, from $3,501 as of December 31, 2014. At September 30, 2015, we had current liabilities of $601,658 compared to current assets of $6,895 which resulted in working capital deficit of $594,763. The current liabilities are comprised of accounts payable and accrued expenses, amounts due to stockholders and convertible notes payable.

 

Operating Activities

 

For the nine months ended September 30, 2015, net cash used in operating activities was $51,153 compared to $2,951 for the nine months ended September 30, 2014. The company had a net loss $252,119 for the nine months ended September 30, 2015 compared to a net loss of $103,930 for the nine months ended September 30, 2014. Negative cash flow for the nine months ended September 30, 2015 was a result of the net loss reduced by non-cash expenses of $101,295 and a net increase in operating assets and liabilities of $99,671. The net cash used in operating activities for the nine months ended September 30, 2014 was comprised of the net loss, the gain on sale of marketable securities and $108,096 of changes in operating assets and liabilities.

 

Investing Activities

 

During the nine months ended September 30, 2015, net cash provided by investing activities was $-0- compared to $15,854 for the nine months ended September 30, 2014. The 2014 period was a result of $16,554 received from the sale of marketable securities less payment of security deposits of $700

 

Financing Activities

 

During the nine months ended September 30, 2015, net cash provided by financing activities was $50,000 compared to cash used in financing activities of $7,000 for the nine months ended September 30, 2014. The 2015 amount is a result proceeds of $40,000 received upon the issuance of convertible promissory notes and proceeds received of $10,000 upon the sale of common stock. The 2014 amount was comprised of a repayment of the remaining $7,000.

  

The Company has limited cash and cash equivalents on hand. The Company maintains its’ daily operations and capital needs through revenue from our marketing of credit processing services by way of fees we receive from merchant payment processing service providers on whose behalf we broker their processing services, as well as from the sale of marketable securities the Company owns.

 

We will need to raise funds to continue to be able to support our operating expenses and to meet our other obligations as they become due. Sources available to us that we may utilize include the sale of unsecured convertible debentures from unaffiliated investors which may cause dilution to our stockholders.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the accompanying unaudited financial statements, the Company had an accumulated deficit at September 30, 2015, a net loss and net cash used in operating activities for the reporting period then ended. These conditions raise substantial doubt about its ability to continue as a going concern.

 

The Company is attempting to produce sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to produce sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds.

 

The unaudited financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Basis of Presentation

 

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. These financial statements should be read in conjunction with a reading of the Company’s financial statements and notes thereto as filed with the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (“SEC”) on March 31, 2015. Interim results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the current period.

 

Emerging Growth Company

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 as amended (the “Securities Act”) for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

Notes Receivable

 

The Company records notes receivable from amounts due from a third party upon loans made. The allowance for losses is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. While management uses the best information available to make its evaluations, this estimate is susceptible to significant change in the near term. As of September 30, 2015, based on the above criteria, the Company has an allowance for note receivables of $70,820.

 

Marketable Securities

 

The Company classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASC 605 requires that the following four basic criteria are met (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the month in which commissions are earned.

 

Fair Value of Financial Instruments

 

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

 

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The three hierarchy levels are defined as follows:

 

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

The Company's financial instruments consist primarily of cash, accounts receivable, marketable securities, accounts payable and accrued expenses, due to stockholders and convertible debt. The carrying amount of the Company’s accounts payable, accrued expenses and due to stockholders approximate fair value to their short term. Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are considered level 1 inputs (see Note 6). The Company’s derivative liability is valued using level 3 inputs (see Note 7). The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows. As of September 30, 2015 and December 31, 2014, the Company’s marketable securities were $900 and $30,000, respectively.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our President, who serves as our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and he determined that our disclosure controls and procedures were not effective as of September 30, 2015 due to a control deficiency. During the period we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until we acquire or merge with another company.

 

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

We are not a party to any material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us.

 

Item 1A. Risk Factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

 

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

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number		Description of Exhibit
3.1		Articles of Incorporation (Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
3.2		Articles of Amendment to the Articles of Incorporation filed October 11, 2011 (Incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
4.1		Specimen Stock Certificate (Incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.1		Advisory Board Agreement dated May 22, 2012 by and between 800 Commerce, Inc. and James Canton (Incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.2		Advisory Board Agreement effective August 1, 2012 by and between 800 Commerce, Inc. and Scott Climes (Incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.3		Business Development and Consulting Agreement dated May 15, 2012 between 800 Commerce, Inc. and Daniel Najor (Incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.4		800 Commerce Inc.’s 2012 Equity Incentive Plan (Incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.5		Assignment Agreement dated August 1, 2012 by and between 800 Commerce, Inc. and Payventures, LLC (Incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.6		Consulting Agreement dated August 1, 2012 by and between 800 Commerce, Inc. and Payventures, LLC (Incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.7		Agent Referral Agreement dated August 1, 2012 by and between 800 Commerce, Inc. and Payventures, LLC (Incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.8		Hosted Platform License & Services Agreement dated August 1, 2012 by and between 800 Commerce, Inc. and Payventures Tech, LLC (Incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.9		Client Agreement dated August 7, 2012 by and between 3Cinteractive, LLC and 800 Commerce, Inc. (Incorporated herein by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.10		Proposed Statement of Work dated September 20, 2012 by and between 800 Commerce, Inc. and interactiveMD (Incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
10.11		Convertible Promissory Note Agreement with Scott Climes (Incorporated herein by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the Commission on December 7, 2012).
10.12		NonCompetition, Non-Solicitation and Confidentiality Agreement (Incorporated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 Amendment No. 3 as filed with the Commission on April 25, 2013).
10.13		First Amendment to Assignment Agreement (Incorporated herein by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 Amendment No. 3 as filed with the Commission on April 25, 2013).
10.14		Referral Marketing Agreement with Direct Technologies, LLC (now known as Frontstream Payments) (Incorporated herein by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 Amendment No. 3 as filed with the Commission on April 25, 2013).
10.15		Patent Assignment Agreement (Incorporated herein by reference to Exhibit 10.15 to the Company’s Post-Effective Amendment No. 1 to Form S-1 as filed with the Commission on September 20, 2013).
14.1		Code of Business Conduct and Ethics (Incorporated herein by reference to Exhibit 14.1 to the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).
31.1*		Rule 13a-14(a)/15d-14(a) Certification of President
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1*		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS*		XBRL Instance
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase
101.DEF*		XBRL Taxonomy Extension Definition Linkbase
101.LAB*		XBRL Taxonomy Extension Labels Linkbase
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of this quarterly report on Form 10-Q 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 Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: November 24, 2015

800 COMMERCE, INC.

 

By:   /s/ B. Michael Friedman                         

B. Michael Friedman

President (principal executive officer)

 

By:   /s/ Barry Hollander                                 

Barry Hollander

Chief Financial Officer (principal financial and accounting officer)