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APPS GENIUS CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge)
The following plan of operation provides information which management believes
is relevant to an assessment and understanding of our results of operations and
financial condition. The discussion should be read along with our financial
statements and notes thereto. This section includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. Forward-looking statements are often identified by words
like believe, expect, estimate, anticipate, intend, project and similar
expressions, or words which, by their nature, refer to future events. You should
not place undue certainty on these forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our predictions.
Plan of Operations
We were incorporated in the State of Nevada on December 17, 2009 as Apps Genius
Corp.
We create innovative social games and mobile application that let you play
together with real-world friends and family using the infrastructure built by
social and wireless networks. Our cross-platform gaming and mobile applications
allow users to play and interact with the same people such user would play
cards, board games or go bowling within the real world, regardless of the
network they are on. Our Social Gaming and Mobile App technology allows users
and players to reach across the different networks into a virtual application or
gaming environment. Additionally, we have developed unique player incentive
platforms that allow users to share in the success of the game or
application. Currently we are developing our platform for Facebook, iPhone and
Android.
We monetize our social games through virtual currencies through Google Play,
Admob, Facebook Credits, and banner ads through Lifestreet Media and Apple. Our
mobile applications are monetized by either charging fees for downloading
through the Apple iTunes Store or by offering free applications with banner
advertising supplied by Cubics. To date, we have commenced limited operations
and will require outside capital to implement our business model.
In August 2011, we launched our Celebrity Entertainment Division. Our aim with
implementing the Celebrity Entertainment Division is to work with celebrities to
create and distribute social games and software applications that consumers can
use on a variety of platforms. In that regard,
On October 17, 2011, we entered into an exclusive, worldwide licensing
agreement which grants us the right to use Nicole Polizzi's (known by the
stage name "Snooki") name and likeness in the development, manufacture,
marketing, sale and distribution of social applications and social games
(the "Snooki License"). Pursuant to the Snooki License, we will develop a
total of four applications within one year of the execution of the License
Agreement (the "Initial Term"), with the release of the first application
occurring in November 2011. We have also retained the right to release four
additional applications after the Initial Term, provided we successfully
release four applications during the Initial Term.
On February 9, 2012, we entered into a binding term sheet (the "Term Sheet") with Mike Sorrentino, MPS Entertainment, LLC, and Starz Management
& PR, LLS ("Starz") regarding an exclusive, worldwide licensing agreement,
which would grants us the right to use Mike Sorrentino (known by the stage
name "The Situation") name and likeness in the development, manufacture,
marketing, sale and distribution of social applications and social games to
be released and offered on the Android, Apple's iOS, Facebook, and Google+
platforms (the "Sorrentino Agreement").Pursuant to the Term Sheet, we will
develop a total of four apps within eighteen (18) months of the execution
of the Sorrentino Agreement, with the release of the first, second, and
third App occurring within 3 months, 6 months and 9 months of the Effective
Date, respectively. The fourth App shall be released no later than 15
months from the Effective Date. The term of the License (the "Term") shall
be 18 months from the Effective Date.
On April 19, 2012, we acquired the domain name "GetFunded.com" in order to
explore potential opportunities in crowdfunding. "Crowdfunding" describes the
collective cooperation, attention, and trust by people who network and pool
their resources, usually via the Internet, to support efforts initiated by other
people or organizations. Crowdfunding can occur for a wide variety of purposes,
both for-profit and not-for-profit, including mobile app development, disaster
relief, citizen journalism, support of artists by fans, political campaigns,
startup company funding, movie or software development, and scientific
research. Crowdfunding has experienced a sudden increase in popularity and could
become a viable means for start-up companies to raise capital from investors
because of the Jumpstart Our Business Startups Act or "JOBS" Act, which was
signed into law by President Obama on April 5, 2012. The JOBS Act eases certain
securities regulations, particularly for smaller issuers of securities, and
creates an exemption from registration under the Securities Act of 1933 for
crowdfunding, subject to certain restrictions and qualifications. The SEC has
until December 31, 2012 to enact a regulatory system for crowdfunding, but this
could potentially be extended until a later date.
17
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Our website, www.GetFunded.com will position us to be part of crowdfunding when
the SEC regulations become effective and entrepreneurs are able to solicit
capital from investors through these channels. Crowdfunding has already received
a large amount of publicity.
Our Beta version of www.GetFunded.com is open for registration to all
businesses. The GetFunded.com platform initially allows users to donate
financially to the development of a wide range of products and services. In our
initial release, GetFunded.com allows users to contribute to a project in
exchange for services or products. Next, we intend to build and position the
GetFunded.com platform to take advantage of the JOBS Act by allowing users to
use crowdfunding to solicit investors and sell securities through our website
should the JOBS Act become effective and applicable to crowdfunding.
GetFunded.com intends to apply to become an approved portal site with the
ability to allow users to invest and purchase securities in companies through
crowdfunding in accordance with the requirements of the JOBS Act. As soon as the
SEC regulations are announced, we plan to move quickly so that we are able to
become an early established platform for crowdfunding.
Limited Operating History
We have generated a limited financial history and have not previously
demonstrated that we will be able to expand our business. Our business is
subject to risks inherent in growing an enterprise, including limited capital
resources and possible rejection of our business model and/or sales methods.
Critical Accounting Policies and Estimates
While our significant accounting policies are more fully described in Note 1 to
our financial statements for the nine months ended September 30, 2012, 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 bad debts, recovery of long-lived
assets, 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.
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. We have not capitalized any software development costs.
Impairment of long-lived assets
In accordance with ASC Topic 360, we review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable, or at least annually. We recognize an
impairment loss when the sum of expected undiscounted future cash flows is less
than the carrying amount of the asset. The amount of impairment is measured as
the difference between the asset's estimated fair value and its book value. We
did not record any impairment charges during the nine months ended September 30,
2012 and 2011.
18--------------------------------------------------------------------------------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. For all revenue sources
discussed below, in accordance ASC 605-45 "Principal Agent Considerations", we
recognize revenue net of amounts retained by third party entities pursuant to
revenue sharing agreements. Our specific revenue recognition policies are as
follows:
We recognize revenue from the sale of our social games and mobile applications
("Apps") when the App is sold and downloaded by the customer and collection is
reasonably assured.
We recognize revenues from the placement of banner ads on social games and
mobile applications upon placement of the banner and when collection is
reasonably assured.
Some of the our social games contain a virtual currency or point systems that
allow users to increase their game playing levels and gain special
privileges. Users collect points by moving through the levels, buying them or by
completing offers from third-party advertisers that convert into points or
virtual currency. When a user completes an offer for one of our third-party
advertisers, the advertiser pays us a commission. The commission is recognized
as revenue upon completion of the offer and the receipt by us of an electronic
confirmation from the advertiser and when collection is reasonably
assured. Virtual currency revenue for the nine months ended September 30, 2012
and 2011 was insignificant. For revenues generated through Facebook, Facebook
enables payments to the Company through their users. Facebook users can make
payments on the Facebook Platform by using credit cards or other payment methods
available on its website. The primary process for these transactions is through
the purchase of Facebook virtual currency. Facebook users then use this virtual
currency to purchase virtual and digital goods in games and apps from developers
on the Facebook Platform. When a user engages in a payment transaction utilizing
the virtual currency to purchase the Company's applications or games, Facebook
will remit to the Company an amount that is based on the total amount of virtual
currency redeemed less the processing fee that Facebook charges the Company for
the service performed. At such time as the revenue is earned, the Company
records as revenue the net amount of the transaction due to the Company from
Facebook.
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.
Recent accounting pronouncements
Accounting standards that have been issued or proposed by FASB that do not
require adoption until a future date are not expected to have a material impact
on the financial statements upon adoption.
Results of Operations
For the Three and Nine Months Ended September 30, 2012 and 2011
Revenues
For the nine months ended September 30, 2012 and 2011, we recognized revenues of
$6,473 and $10,450, respectively, a decrease of $3,977 or 38.1% and for the
three months ended September 30, 2012 and 2011, we recognized revenues of $1,499
and $1,915, respectively, a decrease of $416 or 21.7%. The decrease in revenues
was mainly attributable to a decrease in the sale of previously developed
applications and advertising revenues and a lack in the development of new games
and applications due to a lack of working capital and development activities.
Pursuant to the Snooki License discussed elsewhere herein, we have developed and
released three games and applications. We have also retained the right to
release four additional applications provided we successfully release four
applications during the initial license term. Additionally, on February 9, 2012,
we entered into a binding term sheet (the "Term Sheet") with Mike Sorrentino,
MPS and Starz regarding an exclusive, worldwide licensing agreement, which
would grants us the right to use Mike Sorrentino (known by the stage name "The
Situation") name and likeness in the development, manufacture, marketing, sale
and distribution of social applications and social games to be released and
offered on the Android, Apple's iOS, Facebook, and Google+ platforms (the
"Sorrentino Agreement").Pursuant to the Term Sheet, we will develop a total of
four apps within eighteen (18) months of the execution of the Sorrentino
Agreement, with the release of the first, second, and third App occurring within
3 months, 6 months and 9 months of the Effective Date, respectively. The fourth
App shall be released no later than 15 months from the Effective Date. The term
of the License (the "Term") shall be 18 months from the Effective Date. To date
we have only released one App.
19
--------------------------------------------------------------------------------Operating Expenses
For the nine months ended September 30, 2012 and 2011, operating expenses
amounted to $1,234,970 and $204,339 respectively, an increase of $1,030,631 or
504.4%. For the three months ended September 30, 2012 and 2011, operating
expenses amounted to $446,853 and $41,634 respectively, an increase of $405,219
or 973.3%. Changes in operating expenses consisted of the following:
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
Licensing fees and expenses $ 67,293 $ - $ 200,237 $ -
Research and development 45,133 - 155,343 43,960
Administrative compensation 47,000 12,000 106,000 40,025
Professional fees 274,479 24,416 649,478 91,466
Other selling, general and administrative 12,948 5,218 123,912 28,888
$ 446,853 $ 41,634 $ 1,234,970 $ 204,339
* For the three and nine months ended September 30, 2012, license fees and
expenses amounted to $67,293 and $200,237, respectively. We did not incur
these expenses in the three and nine months ended September 30, 2011. The
increase was attributable to the following:
1. On October 17, 2011, we entered into an exclusive, worldwide licensing
agreement with NEP Snooki Enterprises, LLC ("NEP") and Starz Management &
PR ("Starz"), which grants us the right to use Nicole Polizzi's (known by
the stage name "Snooki") name and likeness in the development, manufacture,
marketing, sale and distribution of social applications and social games.In
consideration for the exclusive license granted by NEP during the initial
term, we paid a non-refundable license fee of $55,000 (the "Cash Fee"). In
addition, we issued NEP or assignees warrants exercisable for the purchase
of 1,100,000 shares of the Company's common stock at an exercise price
equal to $0.31 per share on a for-cash or cashless exercise basis and
70,000 shares of our common stock were issued to Starz.
2. On February 9, 2012, we entered into an exclusive, worldwide licensing
agreement (the "MPS License Agreement") with Mike Sorrentino and MPS
Entertainment LLC ("MPS") and Starz, which grants the Company the right to
use Mike Sorrentino's (known by the stage name "The Situation") name and
likeness in the development, manufacture, marketing, sale and distribution
of social applications and social games. In consideration for the exclusive
license granted by MPS during the Term, we issued MPS and Starz warrants
exercisable for the purchase of an aggregate of 1,100,000 shares of the
Company's common stock at an exercise price equal to $0.23 per share. For the three and nine months ended September 30, 2012, we recorded licensing
fees of $115,570 and $179,943 from the amortization of the above cash and
equity fees and $6,508 and $20,493 in marketing and promotional fees and
insurance, respectively.
* Research and development expenses consist primarily of salaries and fees paid
to third parties for the development of software and applications as well as
the development of the "Get Funded.com" website. For the nine months ended
September 30, 2012, research and development expenses increased by $111,383
or 253.4% as compared to the nine months ended September 30, 2011. For the
three months ended September 30, 2012, research and development expenses
increased by $45,133 as compared $0 for the three months ended September 30,
2011. In February 2011, we substantially decreased development activities
and in May 2011, we temporarily ceased our research and development
activities until we generated sufficient revenues from our current portfolio
of products or we were able to raise additional working capital funds from
debt or equity financing or loans. In February 2012, pursuant to a Securities
Purchase Agreement, we received net proceeds of approximately $825,000 and
resumed research & development activities to develop new applications with
working capital received from our recent capital raise. In the fourth quarter
of 2012, we expect research and development activities to decrease due to
limited working capital.
20--------------------------------------------------------------------------------* For the nine months ended September 30, 2012, administrative compensation
increased by $65,975 or 164.8% as compared to the nine months ended September
30, 2011. For the three months ended September 30, 2012, administrative
compensation increased by $35,000 or 291.7% as compared to the three months
ended September 30, 2011. In the 2011 period, we reduced administrative
compensation due to the lack of working capital. In February 2012, pursuant
to a Securities Purchase Agreement, we received net proceeds of approximately
$825,000 and resumed the payment of administrative compensation. We expect
administrative salaries to increase in 2012 as we increase our operations.
* For the nine months ended September 30, 2012, professional fees increased by
$558,012 or 610.1% as compared to the nine months ended September 30,
2011. For the three months ended September 30, 2012, professional fees
increased by $250,063 or 1,024.2% as compared to the three months ended
September 30, 2011. We expect professional fees to increase as we incur significant costs associated with our public company reporting requirements,
costs associated with newly applicable corporate governance requirements,
including requirements under the Sarbanes-Oxley Act of 2002 and other rules
implemented by the Securities and Exchange Commission. Additionally, during
the three and nine months ended September 30, 2012, we incurred stock-based
professional fees of $245,767 and $479,904 related to business development
and investor relations services as compared to $3,444 and $18,444 in the
three and nine months ended September 30, 2011.
* For the nine months ended September 30, 2012, other selling, general and administrative expenses increased by $95,024 or 329.0% as compared to the
nine months ended September 30, 2011. During the nine months ended September
30, 2012, we incurred marketing expense of approximately $10,200 in
connection with our exhibition and attendance at the 2012 game Developers
Conference and other marketing efforts as compared to $200 for the 2011
period. Additionally, for the nine months ended September 30, 2012, travel
expenses increased by approximately $21,600 as compared to the 2011 period.
During the nine months ended September 30, 2012, we paid $60,000 for a domain
name which was expensed and included in other selling, general and
administrative expenses. For the three months ended September 30, 2012, other
selling, general and administrative expenses increased by $7,730 or 148,1% as
compared to the three months ended September 30, 2011.
Other Income
For the three and nine months ended September 30, 2012, we recognized interest
income of $192 and $554, as compared to $0 and $37 for the three and nine months
ended September 30, 2011, respectively. The increase in interest income was
attributable to having a higher cash balance with which to earn interest on.
Additionally, for the three and nine months ended September 30, 2012, we
incurred aggregate interest expense of $0 and $639 related to outstanding notes
payable and related party notes, respectively. For the three and nine months
ended September 30, 2011, we incurred aggregate interest expense of $704 and
$704 related to outstanding notes payable and a related party note,
respectively.
Net Loss
As a result of the factors described above, our net loss for the nine months
ended September 30, 2012 and 2011 was $1,228,582 and $194,556, or a net loss per
common share of $0.04 and $0.01 (basic and diluted), respectively. Our net loss
for the three months ended September 30, 2012 and 2011 was $445,162 and $40,423,
or a net loss per common share of $0.01 and $0.00 (basic and diluted),
respectively.
Liquidity and Capital Resources
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 salaries and fees paid to
third parties for the development of our products. 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 increase in working capital requirements to finance additional product and
App development,
Addition of administrative and sales personnel as the business grows,
Increases in advertising, public relations and sales promotions for existing
and new brands as the company expands within existing markets or enters new
markets,
The cost of being a public company, and
Capital expenditures to add additional technology.
21--------------------------------------------------------------------------------
Our net revenues are not sufficient to fund our operating expenses. At September
30, 2012, we had a cash balance of $193,208. Since inception we have funded our
operations as follows:
In 2010, we raised net proceeds of $652,000 from the sale of common
stock to fund our operating expenses, pay our obligations, and for
working capital purposes.
In 2011, we borrowed $111,150 ($101,150 from third parties and
$10,000 from our chief executive officer) pursuant to note
agreements. In January 2012, we borrowed an additional $7,500 from
third parties. These funds were used for working capital purposes
and to pay the fee for the License Agreement. These notes were
unsecured, had interest at 6.0% per annum and were generally due
with one year or less of the original note date or within three
business days of the closing of a private placement of certain
equity securities offered by the Company. In February 2012, the
Company raised net proceeds of approximately $830,000 in a private
placement as discussed below and these notes and all accrued
interest were repaid out of the net proceeds.
On February 9, 2012, we entered into a securities purchase
agreement (the "Securities Purchase Agreement") with certain
accredited investors (the "Investors") relating to the sale and
issuance by us to the Investors of an aggregate of 5,714,286 units,
each unit consisting of (i) one share of common stock, par value
$0.001 per share ("Common Stock"), of the Company, and (ii) a
five-year warrant to purchase one share of Common Stock at an
exercise price of $0.25 per share (each, a "Warrant," and
collectively, the "Warrants"). Each unit was sold at a price of
$0.175. Pursuant to the Securities Purchase Agreement, on February
14, 2012 (the closing date), we issued 5,714,286 shares of common
stock and issued 5,714,286 Warrants for net proceeds to us from the
sale of the units, after deducting the placement agent's fees and
offering expenses, of approximately $830,000. We conducted the
Offering pursuant to a registration statement on Form S-1 which was
declared effective by the Securities and Exchange Commission on
February 9, 2012.The Securities Purchase Agreement contains
provisions that restrict the Company from issuing, except pursuant
to certain exceptions, any Common Stock or Common Stock equivalents
involving a Variable Rate Transaction (as that term is defined in
the Securities Purchase Agreement) until five years from the
closing.
We currently have no material commitments for capital expenditures. We will need
to raise additional funds, particularly if we are unable to generate positive
cash flow as a result of our operations. We estimate that based on current
plans and assumptions, that our available cash will be sufficient to satisfy our
cash requirements under our present operating expectations, without further
financing, for up to 12 months. Other than working capital and funds received
pursuant to the Securities Purchase Agreement, we presently have no other
alternative source of working capital. We will use these funds to fund our
operating expenses, pay our obligations, grow our company, and to develop
products as required by our License Agreement and for the development of new
Apps and games. We may not have sufficient working capital to fund the expansion
of our operations and to provide working capital necessary for our ongoing
operations and obligations after 12 months and we may need to raise significant
additional capital. We do not anticipate we will be profitable in
2012. Therefore our future operations may be dependent on our ability to secure
additional financing. Financing transactions may include the issuance of equity
or debt securities, obtaining credit facilities, or other financing mechanisms.
However, the trading price of our common stock and a downturn in the U.S. equity
and debt markets could make it more difficult to obtain financing through the
issuance of equity or debt securities. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and expenses, fail
to collect amounts owed to us, or experience unexpected cash requirements that
would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of our common stock. The inability to obtain
additional capital may restrict our ability to grow and may reduce our ability
to continue to conduct business operations. If we are unable to obtain
additional financing, we will be required to further curtail our marketing and
development plans and possibly cease our operations.
We anticipate that depending on market conditions and our plan of operations, we
may incur operating losses in the foreseeable future. Therefore, our auditors
have raised substantial doubt about our ability to continue as a going concern
in their audit opinion for the year ended December 31, 2011.
Our liquidity may be negatively impacted by the significant costs associated
with our public company reporting requirements, costs associated with newly
applicable corporate governance requirements, including requirements under the
Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and
Exchange Commission. We expect all of these applicable rules and regulations to
significantly increase our legal and financial compliance costs and to make some
activities more time consuming and costly.
22
--------------------------------------------------------------------------------Our estimate of cash needed for operating activities for the next 12 months is
outlined below:
Description Estimated Cost
Selling and marketing expenses $ 5,000
Research and development activities 15,000
Professional fees 65,000
General and administrative 70,000
Total $ 155,000
Research and development activities- In May 2011, we temporarily ceased our
research and development activities until we generated sufficient revenues from
our current portfolio of products or we are able to raise additional working
capital funds from debt or equity financing or loans. In February 2012, pursuant
to a Securities Purchase Agreement, we received net proceeds of approximately
$830,000 and resumed limited development activities. In February 2012, we began
limited development activities and we estimate that we will incur cash costs and
expenses of approximately $15,000 during the subsequent twelve month period on
research and development activities (excluding non-cash stock-based fees)
Professional fee - Primarily includes professional fees associated with becoming
a public company as summarized as follows:
Amount
Auditing fees $ 25,000
Legal fees 30,000
Other professional fees 10,000
Total $ 65,000
General and administrative - Over the next 12 months, we estimate that we will
incur general and administrative expenses as follows:
Amount
Administrative salaries and benefits $ 60,000
Other 10,000
Total $ 70,000
We believe our current cash balance is sufficient to fund our business plan, and
to continue operating for the next 12 months. If these operating funds are not
sufficient, we will have to scale back our operating plans and it will be
unlikely that we will be able to pursue our overall business plan without
raising additional working capital.
Operating activities
For the nine months ended September 30, 2012 and 2011, net cash flows used in
operating activities amounted to $535,661 and $180,813, respectively. For the
nine months ended September 30, 2012, net cash used in operations of $535,661
was primarily attributable to our net losses of $1,228,582 offset by the add
back of non-cash items such as depreciation expense of $1,010 and stock based
compensation and fees of $652,897, and changes in operating assets and
liabilities of $39,014. For the nine months ended September 30, 2011, net cash
used in operations of $180,813 was primarily attributable to our net losses of
$194,556 offset by the add back of non-cash items such as depreciation expense
of $1,010, stock based compensation of $30,444, and contributed services of
$6,000, and changes in operating assets and liabilities of $23,711.
Financing activities
For the nine months ended September 30, 2012 and 2011 net cash flows provided by
financing activities was $721,141 and $72,500, respectively. During the nine
months ended September 30, 2012, we received net proceeds from sale of common
stock of $838,150 and proceeds from notes payable of $7,500 offset by the
payments of notes payable $118,650 and the payment of insurance premium finance
payable of $5,859. During the nine months ended September 30, 2011, we received
proceeds from notes payable of $75,000, received proceeds from a note payable -
related party of $5,000, and paid $7,500 of deferred financing costs.
23
--------------------------------------------------------------------------------Contractual Obligations
In the normal course of business, we may have certain fixed contractual
obligations and commitments that include future estimated payments. Changes in
our business needs, cancellation provisions, changing interest rates, and other
factors may result in actual payments differing from the estimates. We cannot
provide certainty regarding the timing and amounts of payments. At September 30,
2012, we did not have any material contractual obligations that would require us
to pay cash in future periods.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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