Attached files
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EX-32.1 - EXHIBIT 32.1 - EMARINE GLOBAL INC. | ex321.htm |
EX-31.1 - EXHIBIT 31.1 - EMARINE GLOBAL INC. | ex311.htm |
EX-31.2 - EXHIBIT 31.2 - EMARINE GLOBAL INC. | ex312.htm |
EX-32.2 - EXHIBIT 32.2 - EMARINE GLOBAL INC. | ex322.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended September 30, 2009
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _____________ to _____________.
Pollex, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
(State
or other jurisdiction of incorporation or organization)
|
95-4886472
(I.R.S.
Employer Identification No.)
|
3000
Scott Boulevard, Suite 204
Santa
Clara, CA
(Address
of principal executive offices)
|
95054
(Zip
Code)
|
Registrant’s telephone number,
including area code (408) 970-8050
(Former
name, former address and former fiscal year, if changed since last
report.)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
o
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, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
(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 o No x
Applicable
only to issuers involved in bankruptcy proceedings during the preceding five
years:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes o
No o
Applicable
only to corporate issuers:
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of November 16, 2009, there were
5,120,417 shares of common stock, par value $0.001, issued and
outstanding.
1
TABLE OF
CONTENTS
3
|
||
ITEM
1
|
Financial
Statements
|
4
|
ITEM
2
|
Managements’
Discussion and Analysis of Financial Condition and Results of
Operations.
|
10
|
ITEM
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
13
|
ITEM
4
|
Controls
and Procedures
|
13
|
ITEM
4T
|
Controls
and Procedures
|
13
|
PART
II – OTHER INFORMATION
|
||
ITEM
1
|
Legal
Proceedings
|
15
|
ITEM
1A
|
Risk
Factors
|
15
|
ITEM
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
15
|
ITEM
3
|
Defaults
Upon Senior Securities
|
15
|
ITEM
4
|
Submission
of Matters to a Vote of Security Holders
|
15
|
ITEM
5
|
Other
Information
|
16
|
ITEM
6
|
Exhibits
|
16
|
2
PART
I - FINANCIAL INFORMATION
Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. Our future results and shareholder values may
differ materially from those expressed in these forward-looking statements.
Readers are cautioned not to put undue reliance on any forward-looking
statements.
3
ITEM 1 Financial
Statements
POLLEX,
INC. AND SUBSIDIARY
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
September
30
|
December
31
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSET
|
||||||||
Cash
|
1,040 | 8,659 | ||||||
Total
current asset
|
1,040 | 8,659 | ||||||
Property
and equipment, net of accumulated
|
||||||||
depreciation
of $21,465 and $15,233
|
5,363 | 11,595 | ||||||
Other
assets
|
||||||||
License
Agreements, net of accumulated
|
||||||||
amortization
of $3,005,392 and $2,542,178
|
4,382,382 | 4,845,596 | ||||||
Goodwill
|
52,912 | 52,912 | ||||||
Other
receivable
|
6,500 | - | ||||||
Deposits
|
3,090 | 3,090 | ||||||
Total
other assets
|
4,444,884 | 4,901,598 | ||||||
Total
Assets
|
4,451,287 | 4,921,852 | ||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accrued
expenses and accounts payable
|
661,556 | 524,951 | ||||||
Due
to affiliate
|
194,056 | 194,056 | ||||||
Loans
payable
|
503,942 | 296,400 | ||||||
Total
Current Liabilities
|
1,359,554 | 1,015,407 | ||||||
Stockholders'
Equity
|
||||||||
Common
stock, authorized 300,000,000 shares;
|
||||||||
par
value $0.001; 5,120,417 issued and outstanding
|
||||||||
at
September 30, 2009 and December 31,2008, respectively
|
5,120 | 5,120 | ||||||
Additional
paid-in-capital
|
109,774,861 | 91,024,861 | ||||||
Accumulated
deficit
|
(106,688,248 | ) | (87,123,536 | ) | ||||
Total
Stockholders’ Equity
|
3,091,733 | 3,906,445 | ||||||
Total
Liabilities and Stockholders’ Equity
|
4,451,287 | 4,921,852 | ||||||
See
accompanying notes to consolidated financial statements.
|
4
POLLEX,
INC. AND SUBSIDIARY
|
||||||||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
|
||||||||||||||||
For
the three months ended
|
For
the nine months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
REVENUES
|
$ | - | $ | - | $ | 60,000 | $ | 732,239 | ||||||||
COSTS
AND EXPENSES
|
||||||||||||||||
Cost
of goods sold
|
- | 54,000 | 667,142 | |||||||||||||
Selling,
general and administrative
|
6,428,326 | 6,331,509 | 19,101,266 | 19,071,920 | ||||||||||||
Impairment
of license agreements
|
- | 9,095,227 | - | 9,095,227 | ||||||||||||
Depreciation
|
2,078 | 2,078 | 6,232 | 6,232 | ||||||||||||
Amortization
|
154,404 | 435,408 | 463,214 | 1,306,225 | ||||||||||||
Total
Costs and Expenses
|
6,584,808 | 15,864,222 | 19,624,712 | 30,146,746 | ||||||||||||
NET
LOSS
|
$ | (6,584,808 | ) | $ | (15,864,222 | ) | $ | (19,564,712 | ) | $ | (29,414,507 | ) | ||||
NET
LOSS PER COMMON
|
||||||||||||||||
SHARE
(Basic and Diluted)
|
$ | (1.29 | ) | $ | (3.10 | ) | $ | (3.82 | ) | $ | (5.74 | ) | ||||
WEIGHTED
AVERAGE SHARES
|
||||||||||||||||
OUTSTANDING
|
5,120,417 | 5,120,417 | 5,120,417 | 5,120,417 | ||||||||||||
See
accompanying notes to consolidated financial statements.
|
5
POLLEX,
INC. AND SUBSIDIARY
|
|||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|||||||
For the nine months ended | |||||||
September 30, | |||||||
2009
|
2008
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
Net
loss
|
$ (19,564,712)
|
$ (29,414,507)
|
|||||
Adjustments
to reconcile net loss to net cash
|
|||||||
(used
in) provided by operating activities:
|
|||||||
Depreciation
and amortization
|
469,446
|
1,312,457
|
|||||
Stock
based compensation
|
18,750,000
|
18,750,000
|
|||||
Impairment
of license agreements
|
-
|
9,095,227
|
|||||
Changes
in assets and liabilities:
|
|||||||
(Increase)
decrease in prepaid expenses
|
-
|
(3,310)
|
|||||
(Increase)
decrease in other receivable
|
(6,500)
|
-
|
|||||
(Increase)
decrease in deposits
|
-
|
(200,018)
|
|||||
Increase
(decrease) in accrued expenses
|
136,605
|
366,768
|
|||||
Increase
(decrease) in other payable
|
-
|
5,200
|
|||||
Increase
(decrease) in due to affiliate
|
-
|
88,995
|
|||||
Net
cash provided by (used in) operating activities
|
(215,161)
|
812
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
Cash
acquired in acquisition
|
-
|
-
|
|||||
Net
cash provided by investing activities
|
-
|
-
|
|||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
Loan
proceeds
|
222,542
|
58,400
|
|||||
Repayment
of loan
|
(15,000)
|
(50,000)
|
|||||
Bank
overdraft
|
-
|
(1,695)
|
|||||
Net
cash provided by financing activities
|
207,542
|
6,705
|
|||||
Net
increase in cash
|
(7,619)
|
7,517
|
|||||
CASH
AT BEGINNING OF PERIOD
|
8,659
|
-
|
|||||
|
|||||||
CASH
AT END OF PERIOD
|
$ 1,040
|
$ 7,517
|
|||||
See
accompanying notes to consolidated financial statements.
|
6
POLLEX,
INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September
30, 2009
NOTE A –
BASIS OF PRESENTATION
The
accompanying condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary in order to
make the consolidated financial statements not misleading have been
included. Results for the three and nine months ended September 30,
2009 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2009. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Pollex,
Inc. annual report on Form 10-K for the year ended December 31,
2008.
NOTE B –
GOING CONCERN
As shown
in the accompanying consolidated financial statements, the Company incurred net
losses of $19,564,712 and $29,414,507 for the nine months ended September 30,
2009 and 2008, respectively, and has an accumulated deficit of $106,688,248 as
of September 30, 2009. Management’s plans include raising capital
through the equity markets to fund future operations and generating revenue
through its license agreements. Failure to raise adequate capital and
generate adequate sales revenues could result in the Company having to curtail
or cease operations. Additionally, even if the Company does raise
sufficient capital to support its operating expenses and generate adequate
revenues, there can be no assurances that the revenue will be sufficient to
enable it to develop business to a level where it will generate profits and cash
flows from operations. These matters raise substantial doubt about
the Company’s ability to continue as a going concern. However, the
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. These consolidated
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going
concern.
NOTE C –
RECENT ACCOUNTING PRONOUNCEMENTS
In
June 2009, the Financial Accounting Standards Board (“FASB”) approved the
FASB Accounting Standards Codification (“the Codification”) as the single source
of authoritative nongovernmental generally accepted accounting principles
(“GAAP”). All existing accounting standard documents, such as FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force
and other related literature, excluding guidance from the Securities and
Exchange Commission (“SEC”), have been superseded by the
Codification. All other non-grandfathered, non-SEC accounting
literature not included in the Codification has become
nonauthoritative. The Codification did not change GAAP, but instead
introduced a new structure that combines all authoritative standards into a
comprehensive, topically organized online database. The Codification
is effective for interim or annual periods ending after September 15, 2009,
and impacts the Company’s financial statements as all future references to
authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of the
Company’s financial statements or disclosures as a result of implementing the
Codification during the quarter ended September 30, 2009.
7
POLLEX,
INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September
30, 2009
NOTE C –
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements and
Disclosures" ("SFAS No. 157") and on February 12, 2008 issued FSP FAS
157-2, "Effective Date of FASB Statement No. 157", which are now codified as
FASB Accounting Standards Codification (“ASC”) Topic 820. This
guidance established a common definition for fair value to be applied to
U.S. GAAP guidance requiring the use of fair value, establishes a framework
for measuring fair value, and expands the disclosure about such fair value
measurements. On January 1, 2008, The Company adopted this guidance for
financial assets and liabilities and on January 1, 2009, the Company adopted
this guidance for non-financial assets and non-financial liabilities that are
recognized and disclosed at fair value on a nonrecurring basis. The
adoption of the provisions of ASC 820 did not have a material impact on the
Company’s results of operations, cash flows or financial position.
In
April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board
(APB) 28-1, Interim
Disclosures about Fair Value of Financial Instrument, codified under ASC
Topic 820. This guidance updated the requirements for an entity to
provide disclosures about fair value of financial instruments in interim
financial information. This guidance was to be applied prospectively and was
effective for interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009. The
adoption of these provisions did not have a material impact on the Company’s
results of operations, cash flows or financial position.
In April
2009, the FASB issued FSP No. 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”), codified under
ASC Topic 820, which provides additional guidance for estimating fair value in
accordance with SFAS No. 157. This guidance is effective for the quarter
ending June 30, 2009. The adoption of these provisions did not have
an impact on the Company’s results of operations, cash flows or financial
position.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”, codified
under ASC Topic 805. This standard establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired. This statement also establishes disclosure requirements
which will enable users to evaluate the nature and financial effects of the
business combination. This guidance is effective for us for
acquisitions made after January 1, 2009. Adoption of these provisions
of ASC 805 did not have a material impact on the Company results of operations,
cash flows or financial position.
In April
2009, the FASB issued FSP SFAS No. 141(R)-1, “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies”, codified under ASC Topic 805. This guidance amended
the provisions related to the initial recognition and measurement, subsequent
measurement and disclosure of assets and liabilities arising from contingencies
in a business combination under SFAS No. 141(R). This guidance
carried forward the requirements in SFAS No. 141 for acquired
contingencies, thereby requiring that such contingencies be recognized at fair
value on the acquisition date if fair value can be reasonably estimated during
the allocation period. Otherwise, entities would typically account
for the acquired contingencies in accordance with SFAS No. 5, Accounting for
Contingencies. This guidance had the same effective date as
SFAS No. 141(R), and was therefore adopted January 1,
2009. Adoption of these provisions did not have a material impact on
the Company results of operations, cash flows or financial
position.
8
POLLEX,
INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September
30, 2009
NOTE C –
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, codified under ASC Topic
810. This guidance outlines the accounting and reporting for
ownership interest in a subsidiary held by parties other than the
parent. The Company adopted these provisions on January 1, 2009.
Adoption of these provisions did not have a material impact on the Company
results of operations, cash flows or financial position.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”, which will be included under ASC Topic 810. This
guidance changes how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a company is required to
consolidate an entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. This guidance
is effective for the Company’s fiscal year beginning on January 1,
2010. The Company is currently evaluating the impact of the
implementation of these provisions on its consolidated financial position,
results of operations and cash flows.
In May
2009, the FASB issued SFAS No. 165, Subsequent Events, codified
under ASC Topic 855. SFAS No. 165 is intended to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. This guidance requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. The disclosure requirements were effective for the Company’s
interim reporting period ended on June 30, 2009. The adoption of
these provisions did not have an impact on the Company’s results of operations,
cash flows or financial position.
9
ITEM 2 Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Our
Management’s Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by their very
nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; our
ability to successfully make and integrate acquisitions; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other risks that might be
detailed from time to time in our filings with the Securities and Exchange
Commission.
Although
the forward-looking statements in this Quarterly Report reflect the good faith
judgment of our management, such statements can only be based on facts and
factors currently known by them. Consequently, and because forward-looking
statements are inherently subject to risks and uncertainties, the actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review and consider
the various disclosures made by us in this report and in our other reports as we
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, and results of operations and
prospects.
Overview
Pollex,
Inc., formerly Joytoto USA, Inc., formerly BioStem, Inc. (the “Company,” “we,”
and “us”) was incorporated on November 2, 2001, in the State of
Nevada.
We are a
majority owned subsidiary of Joytoto Korea. We have one wholly-owned subsidiary,
JEI, and two sub-subsidiaries, Joytoto Technologies, Inc., a Nevada corporation
(“JTI”) and Joytoto America, Inc., a California corporation (“JAI”), both of
which are wholly-owned subsidiaries of JEI.
On
October 31, 2007, we divested our two subsidiaries and acquired JEI., and its
two wholly-owned subsidiaries, JAI and JTI The discussion below concerns the
business operations of our new subsidiaries, which are engaged in the business
of providing online gaming services and MP3 and other technical
products. Our business is conducted through our two wholly-owned
subsidiaries, JTI and JAI.
On
February 20, 2008, we entered into an Agreement to Manufacture, Supply and
Market with Hyundai RFmon Corp. (“Hyundai”), a United States distributor of
electronic products. Pursuant to this agreement, upon receipt of an initial
purchase order from Hyundai of a minimum of $10 million, the Company will
manufacture, market and supply to Hyundai various electronic and digital
products, including, but not limited to, ATM machines, DVD download dispensers
and smart teller machines. This agreement will remain in effect until December
31, 2012.
Through
our sub-subsidiary, JTI, we are a virtual, original equipment manufacturer
(“OEM”) of consumer electronics for retailers located throughout the world. JTI
is the exclusive worldwide distributor of Joytoto Korea’s MP3 products and other
consumer electronic devices.
Our
operations are organized into two business segments: Consumer Electronics and
Online Games. Neither of our business segments has generated any
revenues.
Consumer
Electronics
Through
our sub-subsidiary, JTI, we are a virtual, original equipment manufacturer
(“OEM”) of consumer electronics for retailers located throughout the world.
Effective on June 11, 2007, JTI entered into an Exclusive Distributorship
Agreement with Joytoto Korea, whereby JTI was appointed as the exclusive
worldwide distributor of Joytoto Korea’s MP3 products and other consumer
electronic devices. Joytoto Korea has completed all purchase orders existing or
pending as of the date of the Exclusive Distributorship Agreement. In addition,
JTI has fulfilled additional purchase orders. We have entered into direct
contractual relationships with Joytoto Korea’s primary customers.
Online
Games
Through
our sub-subsidiary, JAI, we plan to operate an online game service in North
America.
On April
18, 2007, JAI entered into a Master License Agreement with Joytoto Korea, and
Joyon Entertainment Co., Ltd., a Korean company (collectively, the “Licensors”),
whereby JAI acquired an exclusive license to operate an online game service,
using four online games developed by the Licensors, in the United States, for a
period of ten years . In addition, JAI has the option to enter into an exclusive
license to provide an additional twenty online games through its online game
service. A national appraisal firm, valued the online game license at more than
$36,000,000.
Of the
Licensors games, JAI is licensed to operate the MMORPG (Massively Multiplayer
Online Role-Playing Game), “The Great Merchant” in the United States. The game's
website is currently open and is planning to be in open beta service by the
fourth quarter of 2009.
Results of Operations for the Three Months Ended September 30, 2009 and 2008
10
Introduction
Revenues, Expenses and Loss
from Operations
Our
revenues, selling, general and administrative expenses, depreciation,
amortization, total costs and expenses, and net loss for the three months ended
September 30, 2009 and for the three months ended September 30, 2008 are as
follows:
Three
Months
Ended
September
30, 2008
|
Three Months
Ended
September
30 2009
|
|||||||
Revenue
|
$
|
-
|
$
|
-
|
||||
Cost
of goods sold
|
-
|
-
|
||||||
Net
profit
|
-
|
-
|
||||||
Selling,
general and administrative
|
6,331,509
|
6,428,326
|
||||||
Depreciation
|
2,078
|
2,078
|
||||||
Impairment
of license agreements
|
9,095,227
|
-
|
||||||
Amortization
|
435,408
|
154,404
|
||||||
Total
costs and expenses
|
15,864,222
|
6,584,808
|
||||||
Net
Loss
|
$
|
(15,864,222)
|
(6,584,808)
|
For the
three months ended September 30, 2009 and 2008 there was no revenue
generated. For the three months ended September 30, 2009, our
selling, general and administrative expenses were $6,428,326, consisting mostly
of stock based compensation of $6,250,000. For the three months ended
September 30, 2008 our general and administrative expenses were $6,331,509,
consisting mostly of stock based compensation of $6,250,000. Selling,
general and administrative expenses primarily consist of stock based
compensation due to the shares granted to our executive officers under their
employment agreements. Depreciation for the three months ended September
30, 2009 was $2,078 compared to $2,078 for the three months ended September 30,
2008. During the three months ended September 30, 2008, the Company
recognized an impairment loss of $9,095,227 on it’s license
agreements. The Company did not have any further impairment losses on
it’s licenses in 2009. Amortization for the three months ended
September 30, 2009 was $154,404 compared to $435,408 for the three months ended
September 30, 2008. The decrease in amortization is due to reduced
amortization in 2009 due to the previous impairment. Total costs and
expenses for the three months ended September 30, 2009 was $6,584,808 compared
to $15,864,222 for the three months ended September 30, 2008. The
decrease of $9,279,414 was primarily due to impairment of the license agreements
recognized in 2008.
Nine
months ended September 30, 2009 compared to nine months ended September 30,
2008
Revenues, Expenses and Loss
from Operations
Our
revenues, selling, general and administrative expenses, depreciation,
amortization, total costs and expenses, and net loss for the nine months ended
September 30, 2009 and for the nine months ended September 30, 2008 are as
follows:
Nine
Months Ended
September
30, 2008
|
Nine
Months Ended
September
30, 2009
|
|||||||
Revenue
|
$
|
732,239
|
$
|
60,000
|
||||
Cost
of goods sold
|
667,142
|
54,000
|
||||||
Net
profit
|
65,097
|
6,000
|
||||||
Selling,
general and administrative
|
19,071,920
|
19,101,266
|
||||||
Depreciation
|
6,232
|
6,232
|
||||||
Impairment
of license agreements
|
9,095,227
|
-
|
||||||
Amortization
|
1,306,225
|
463,214
|
||||||
Total
costs and expenses
|
30,146,746
|
19,624,712
|
||||||
Net
Loss
|
$
|
(29,414,507)
|
$
|
(19,624,712)
|
For the
nine months ended September 30, 2009 we had revenue in the amount of
$60,000. For the nine months ended September 30, 2008, we had revenue
in the amount of $732,239. The decrease of $672,239 or 91% was
primarily due to decrease of MP3 sales through our license. For the
nine months ended September 30, 2009, our selling, general and administrative
expenses were $19,071,920. For the nine months ended September 30,
2008 our selling, general and administrative expenses was $19,101,266. Selling,
General and Administrative expenses primarily consist of stock based
compensation of $18,750,000 for the nine months ended September 30, 2009 and
2008 due to the shares granted to our executive officers under their employment
agreements. Depreciation for the nine months ended September
30, 2009 was $6,232 compared to $6,232 for the nine months ended September 30,
2008. During the nine months ended September 30, 2008, the Company
recognized an impairment loss of $9,095,227 on it’s license
agreements. The Company did not have any further impairment losses on
it’s licenses in 2009. Amortization for the nine months ended
September 30, 2009 was $463,214 compared to $1,306,225 for the nine months ended
September 30, 2008. The decrease in amortization is due to reduced
amortization in 2009 due to the previous impairment. Total costs and
expenses for the nine months ended September 30, 2009 was $19,624,712 compared
to $30,146,746 for the nine months ended September 30, 2008. The
decrease of $9,849,795 was primarily due to the impairment of the license
agreements recognized in 2008.
11
Net Loss
Our Net
Loss for the nine months ended September 30, 2009 was $19,564,712 compared to
$29,414,507 for the nine months ended September 30, 2008. The
increase of $9,849,795 or 33% was primarily due to the impairment of the license
agreements recognized in 2008..
Liquidity
Our
primary assets are the two online game license agreements and the Exclusive
Distributorship Agreement. As of September 30, 2009, we have not begun to
generate revenue from these agreements, and as a result we have very few current
assets. Our cash requirements have been relatively small up to this point, but
as a result of the acquisition of JEI and the fact that we are now a public,
reporting company, we anticipate that our cash needs will increase dramatically.
We anticipate satisfying these cash needs through the sale of our common stock
until we not only begin to generate revenue, but until we can generate enough
revenue to sustain our operations.
As
of
September
30, 2009
|
As
of
December
31,
2008
|
Change
|
||||||||||
Cash
|
1,040
|
$
|
8,659
|
$
|
(7,619)
|
|||||||
Total
current asset
|
1,040
|
8,659
|
(7,619)
|
|||||||||
Property
and equipment, net of accumulated depreciation of $21,465 and
$15,233
|
5,363
|
11,595
|
(6,232)
|
|||||||||
License
Agreements, net of accumulated amortization of $3,005,392 and
$2,387,773
|
4,382,382
|
4,845,596
|
(463,214)
|
|||||||||
Goodwill
|
52,912
|
52,912
|
0
|
|||||||||
Other
receivable
|
6,500
|
0
|
6,500
|
|||||||||
Deposits
|
3,090
|
3,090
|
0
|
|||||||||
Total
assets
|
4,451,287
|
4,921,852
|
(470,565)
|
|||||||||
Accrued
expenses and accounts payable
|
661,556
|
524,951
|
136,605
|
|||||||||
Due
to affiliate
|
194,056
|
194,056
|
0
|
|||||||||
Loans
payable
|
503,942
|
296,400
|
207,542
|
|||||||||
Total
Current Liabilities
|
1,359,554
|
1,015,407
|
344,147
|
Cash
Requirements
As stated
above, we anticipate that our cash requirements will increase substantially as a
result of the fact that we are now a public, reporting company and as we begin
to increase operations to generate revenue from our license and distributorship
agreements.
Sources and Uses of
Cash
Operations
For the
nine months ended September 30, 2009, we had a net loss from operations of
$19,624,712 compared to $29,414,507 for the nine months ended September 30,
2008. This was offset by depreciation and amortization of $469,446, stock based
compensation of $18,750,000, an increase in other receivables of $6,500 and
an increase in accrued expenses of $136,605, for total cash used in our
operating activities of $215,161.
Investments
We had no
cash provided by investments for the nine months ended September 30,
2009.
Financing
Our cash
flows from financing activities totaled $207,542.
12
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are
based upon its financial statements, which 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. In consultation with its Board of Directors, we have identified the
following accounting policies that we believe are key to an understanding of our
financial statements. These are important accounting policies that require
management’s most difficult, subjective judgments.
Valuation of License
Agreements
We
account for goodwill and license agreements in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and other Intangible
Assets.” Under SFAS 142, goodwill and intangibles with indefinite lives are not
amortized; rather they are tested for impairment at least annually.
Intangible assets and license agreements, other than goodwill, with definite
lives will be amortized over their useful lives ranging from 3 to 10 years. We
periodically evaluate the reasonableness of the useful lives of these intangible
assets. The license agreements were valued on our balance sheet as
follows:
A.
Upon execution of the Master License Agreement we issued Joyon Korea thirty
million (30,000,000) common shares as consideration. Prior to the acquisition of
the Master License Agreement we had an independent business valuation performed
whereby our enterprise value was calculated to be $0.1799 per share.
Accordingly, the shares issued for the license were valued at $0.1799 per
share.
B.
Prior to the acquisition of the Exclusive Distributorship Agreement we had an
independent business valuation performed whereby our enterprise value was
calculated to be $0.3562 per share. Accordingly, the shares issued for the
license agreement were valued at $0.3562 per share.
C.
License agreements are comprised of the following:
September 30,
2009
|
Estimated
Useful Life
|
||||
Pang
Pang License
|
$
|
279,375
|
3
years
|
||
North
American Master License
|
2,419,444
|
10
years
|
|||
Exclusive
Distributorship
|
4,688,955
|
10
years
|
|||
7,387,774
|
|||||
Less:
accumulated amortization
|
(3,005,392
|
) | |||
$
|
4,382,382
|
Off-balance Sheet
Arrangements
We have
no off-balance sheet arrangements that are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that is deemed by our management to be material to
investors.
As a
smaller reporting company we are not required to provide the information
required by this Item.
ITEM 4T Controls and
Procedures
Evaluation of Disclosure
Controls and Procedures
Our
management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e)) under the
Exchange Act) that is designed to ensure that information required to be
disclosed by the Company in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
13
Pursuant
to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation
with the participation of the Company’s management, the Company’s Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the
effectiveness of the Company’s disclosure controls and procedures (as defined
under Rule 13a-15(e) under the Exchange Act) as of the nine months ended
September 30, 2009. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that as of September 30, 2009, our
disclosure controls and procedures were not effective due to the material
weaknesses described below.
In light
of the material weaknesses described below, we performed additional analysis and
other post-closing procedures to ensure our financial statements were prepared
in accordance with generally accepted accounting principles. Accordingly, we
believe that the financial statements included in this report fairly present, in
all material respects, our financial condition, results of operations and cash
flows for the periods presented.
A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or
combination of control deficiencies, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected. Management has identified the following three
material weaknesses which have caused management to conclude that, as of
September 30, 2009, our disclosure controls and procedures were not
effective:
1. We do
not have written documentation of our internal control policies and procedures.
Written documentation of key internal controls over financial reporting is a
requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the
impact of our failure to have written documentation of our internal controls and
procedures on our assessment of our disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a material
weakness.
2. We do
not have sufficient segregation of duties within accounting functions, which is
a basic internal control. Due to our size and nature, segregation of all
conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of transactions, the
custody of assets and the recording of transactions should be performed by
separate individuals. Management evaluated the impact of our failure to have
segregation of duties on our assessment of our disclosure controls and
procedures and has concluded that the control deficiency that resulted
represented a material weakness.
3. We had
a significant number of audit adjustments last fiscal year. Audit adjustments
are the result of a failure of the internal controls to prevent or detect
misstatements of accounting information. The failure could be due to inadequate
design of the internal controls or to a misapplication or override of controls.
Management evaluated the impact of our significant number of audit adjustments
last year and has concluded that the control deficiency that resulted
represented a material weakness.
To
address these material weaknesses, management performed additional analyses and
other procedures to ensure that the financial statements included herein fairly
present, in all material respects, our financial position, results of operations
and cash flows for the periods presented.
Remediation of Material
Weaknesses
To
remediate the material weaknesses in our disclosure controls and procedures
identified above, we have continued to refine our internal procedures to begin
to implement segregation of duties and to reduce the number of audit
adjustments.
Changes in Internal Control
over Financial Reporting
There
were no changes in our internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
14
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
Consumer Protection
Corporation v. Neo-Tech News, a fictitiously named Defendant whose true legal
identity is not known by Plaintiff, Pollex, Inc. f/k/a Joytoto USA, Inc., ABC
Defendants 1-50, United States District Court for the District of Arizona, Case
No. 08-1953-PHX-JAT
On
December 8, 2008, the Company filed a motion to dismiss the
Complaint. On January 5, 2009, Plaintiff filed its response in
opposition to the motion to dismiss. On January 14, 2009, the Company
filed its reply to the response. The court denied the Company’s
motion to dismiss and on July 27, 2009, the Company filed its
Answer. The Company denies the material allegations in the Complaint
and intends to vigorously defend this action.
ITEM 1A Risk Factors
There are
no material changes to the risk factors in our most recent Annual Report on Form
10-K.
ITEM 2 Unregistered Sales of Equity
Securities and Use of Proceeds
None
ITEM 3 Defaults Upon Senior
Securities
ITEM 4 Submission of Matters to a Vote of
Security Holders
None.
15
ITEM 5 Other Information
None.
ITEM 6 Exhibits
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
|
32.1
|
Chief
Executive Officer Certification Pursuant to 18 USC, Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Chief
Financial Officer Certification Pursuant to 18 USC, Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
16
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Pollex,
Inc.
|
|||
Date:
November 16, 2009
|
/s/
Seong Yong Cho
|
||
By:
Seong Yong Cho
|
|||
Its:
President
|
|||