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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, 2011

 

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

 

Commission File No. 000-54119 

OverNear, Inc.

(Exact name of registrant as specified in it charter)

 

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

 

9595 Wilshire Blvd., Suite 900

Beverly Hills, CA 90212

(Address of principal executive offices) (Zip Code)

 

(310) 744-6060

(Registrant's telephone number, including area code)

 

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files). o Yes    x No 

 

Indicate by check mark whether the registrant is a large accelerated filer, 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.

 

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

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

49,242,462 shares of the issuer’s common stock are issued and outstanding as of March 7, 2012. 

 

 

 
 

OVERNEAR, INC.

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED SEPTEMBER 30, 2011

 

        Page
PART I - FINANCIAL INFORMATION    
         
Item 1.   Financial Statements   3
         
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations   4
         
Item 4.   Controls and Procedures   7
         
PART II - OTHER INFORMATION    
         
Item 1.   Legal Proceedings   8
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   8
         
Item 6.   Exhibits   9
     
Signatures   10

 

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

Our financial statements begin on the following page, beginning with page F-1.

 

3
 

 

 

OVERNEAR, INC.
 
CONDENSED BALANCE SHEETS

 

   September 30,   December 31, 
   2011   2010 
   (Unaudited)     
ASSETS        
Current Assets          
Cash  $186,336   $400 
Prepaid expenses   59,123    57,508 
Inventory   18,092    18,092 
Total Current Assets   263,551    76,000 
           
Property and equipment, net   9,644    12,883 
Software development in progress   75,560    - 
           
Production costs, net of accumulated amortization of $552,544 and $459,681 at September 30, 2011 and December 31, 2010, respectively   66,541    159,404 
           
Trademark   1,300    - 
           
TOTAL ASSETS  $416,596   $248,287 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current Liabilities          
Accounts payable  $237,368   $294,417 
Due to stockholders   -    125 
Accrued expenses   122,281    314,718 
Current portion of legal settlement payable   106,250    50,000 
Note payable, stockholder, including accrued interest of $99  at December 31, 2010   -    10,099 
Notes payable, unrelated parties, including accrued interest $802 at December 31, 2010   -    8,802 
Total Current Liabilities   465,899    678,161 
           
Legal settlement payable, net of current portion   168,750    225,000 
           
Total Liabilities   634,649    903,161 
           
Stockholders' Deficit          
Common stock, $0.001 par value; 150,000,000 shares authorized; 42,072,462 and 21,258,896 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively   42,072    21,259 
Preferred stock, $0.001 par value; 50,000,000 shares authorized, none issued at September 30, 2011 and December 31, 2010, respectively   -    - 
Paid-in capital   1,397,137    219,606 
Accumulated deficit   (1,657,263)   (895,739)
Total Stockholders' Deficit   (218,054)   (654,874)
           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $416,595   $248,287 

 

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

 

F-1
 

 

OVERNEAR, INC.
 
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

 

       OverNear, Inc.       OverNear, Inc. 
       and       and 
   OverNear, Inc.   uKarma Corporation   OverNear, Inc.   uKarma Corporation 
                 
   Three   Three   Nine   Nine 
   months ended   months ended   months ended   months ended 
   September 30, 2011   September 30, 2010   September 30, 2011   September 30, 2010 
                     
Sales  $-   $-   $-   $784 
                     
Cost of  Sales   -    -    -    367 
Gross Profit   -    -    -    417 
Selling, General and Administrative Expenses   349,637    355,795    983,652    785,356 
                     
Operating Loss   (349,637)   (355,795)   (983,652)   (784,939)
                     
Other (Expense) Income                    
Interest   (1,942)   (2,599)   (7,301)   (9,120)
Gain on Forgiveness of Debt   230,229    103,912    230,229    103,912 
Other   -    25,000    -    25,950 
Total Other Income   228,287    126,313    222,928    120,742 
                     
Loss before Income Taxes   (121,350)   (229,482)   (760,724)   (664,197)
Provision for Income Taxes   -    -    (800)   (800)
Net Loss  $(121,350)  $(229,482)  $(761,524)  $(664,997)
                     
Loss Per Share-Basic and Diluted  $(0.00)  $(0.02)  $(0.02)  $(0.05)
                     
Weighted Average Number of Shares   38,750,179    14,056,973    33,301,280    14,056,973 

 

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

 

F-2
 

 

OVERNEAR, INC.
 
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)

 

   Preferred Stock   Common Stock   Paid-in   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
Balance at January 1, 2011   -   $-    21,258,896   $21,259   $219,606   $(895,739)  $(654,874)
Private placement of common stock   -    -    6,650,000    6,650    506,500    -    513,150 
Fair value of warrants issued in connection with private placement   -    -    -    -    112,850    -    112,850 
Fair value of warrants issued for services   -    -    -    -    24,923    -    24,923 
Issuance of common stock in lieu of officer compensation   -    -    4,000,000    4,000    96,000    -    100,000 
Issuance of common stock as retainer for professional services   -    -    1,341,247    1,341    49,753    -    51,094 
Issuance of common stock in lieu of settlement of accounts payable   -    -    1,405,332    1,405    51,997    -    53,402 
Issuance of common stock in lieu of officers deferred compensation   -    -    7,416,987    7,417    178,008    -    185,425 
Stock based compensation   -    -    -    -    157,500    -    157,500 
Net Loss for the nine months ended September 30, 2011   -    -    -    -    -    (761,524)   (761,524)
Balance at September 30, 2011   -   $-    42,072,462   $42,072   $1,397,137   $(1,657,263)  $(218,054)

 

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

 

F-3
 

 

OVERNEAR, INC.
 
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

 

       OverNear, Inc. 
       and 
   OverNear, Inc.   uKarma Corporation 
   Nine   Nine 
   months ended   months ended 
   September 30, 2011   September 30, 2010 
Cash Flow from Operating Activities:          
Net loss  $(761,524)  $(664,997)
Adjustment to reconcile net loss to net cash used in operating activities:          
Depreciation   3,239    3,833 
Amortization of production costs   92,863    92,863 
Issuance of stock in lieu of officer compensation   100,000    130,000 
Stock based compensation   157,500    118,549 
Gain on forgiveness of debt   (230,229)   (103,912)
           
Decrease in operating assets net of effects of acquisition of assets from Predecessor entity during the nine months ended September 30, 2010:          
Prepaid expenses   49,479    9,901 
Inventory   -    368 
Increase in operating liabilities net of effects of acquisition of liabilities from Predecessor entity during the nine months ended September 30, 2010:          
Accounts payable   8,854    29,944 
Accrued expenses   210,717    181,576 
Net Cash used in Operating Activities   (369,101)   (201,875)
           
Cash Flow from Investing Activities:          
Due to stockholders   (125)   (125,250)
Software development   (50,637)     
Acquisition of trademark   (1,300)     
Net Cash Used in Investing Activities   (52,062)   (125,250)
           
Cash Flow from Financing Activities:          
Repayments of note payable, unrelated party   (2,693)   (2,137)
Repayment of note payable, stockholders   (16,208)     
Proceeds from private placement of common stock   626,000    - 
Proceeds from mergers   -    348,000 
Net Cash Provided by Financing Activities   607,099    345,863 
           
Net Increase in Cash   185,936    18,738 
           
Cash Balance at Beginning of Period   400    85 
           
Cash Balance at End of Period  $186,336   $18,823 
           
Supplemental Disclosures:          
Interest Paid  $8,202   $8,757 

 

Non-cash activities during nine months ended September 30, 2011:

 

The Company issued 1,341,247 shares of its common stock valued at $51,094 as retainer for professional services.

 

The Company issued 1,405,332 shares of its common stock valued at $53,402 in lieu of settlement of accounts payable.

 

The Company issued 7,416,987 shares to its officers valued at $185,425 in lieu of settlement of deferred compensation.

 

The Company issued 276,000 warrants valued at $24,923 in connection with software development.

 

Non-cash activities during nine months ended September 30, 2010:

 

The predecessor entity forgave advances to a stockholder in the amount of $168,173 in exchange for cancellation of previously issued 5,000,000 stock options and 575,000 warrants to this stockholder.

 

The Company issued 5,500,000 shares of its common stock to its President in lieu of accrued compensation in the amount of $137,500

 

On August 9, 2010, OverNear, Inc. acquired all of the assets and assumed liabilities of uKarma Corporation the predecessor entity. The acquired assets and liabilities, and purchase consideration paid were as follows:

 

Assets and liabilities acquired:

 

Cash  $6,476 
Prepayment and other assets   92,320 
Inventory   18,108 
Property and equipment, net   15,131 
Production costs, net   207,854 
Accounts payable and accrued expenses   (489,963)
Notes payable   (8,561)
   $(158,635)

 

Purchase consideration: 

 

Common stock issued by OverNear, Inc.  $10,559 
Excess of liabilities assumed over assets acquired     
charged to paid-in capital   (169,194)
   $(158,635)

  

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

 

F-4
 

  

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 – NATURE OF OPERATIONS

 

OverNear, Inc. (the “Company”) was incorporated on July 22, 2010 in the State of Nevada as Awesome Living, Inc.  On June 20, 2011, the Company’s name was changed to OverNear, Inc.  The Company’s headquarters are located in Beverly Hills, California.

 

The Company plans to develop and market a location-based messaging platform and mobile application to connect people to people and merchants to shoppers.

 

The Company’s predecessor business developed and marketed a proprietary branded fitness DVD series that targets the rapidly growing market of individuals who seek to enrich their physical, spiritual, and mental wellness. Through infomercials and other marketing initiatives, the predecessor launched its products.  The Company plans to monetize its inventory of fitness DVD series assets by either selling the intellectual property and associated products, licensing the intellectual property and associated products, or entering into a joint venture with a company that will incur all marketing and related costs.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation: On August 9, 2010, the Company entered into a Contribution Agreement (the “Agreement”) with uKarma Corporation (“uKarma”) to acquire all of the assets and assume liabilities of uKarma. Pursuant to the terms of the Agreement, the Company issued 10,558,896 shares of its common stock at par value to uKarma as consideration for the acquired assets and assumed liabilities. Upon transfer of uKarma’s assets and liabilities, the Company continued uKarma’s operations. In the accompanying condensed financial statements, uKarma is referred to as the predecessor entity. The Company in the prior period refers to the operations of both the Company and the predecessor. The accompanying condensed financial statements for the three and nine months ended September 30, 2010 present combined results of operations for the Company and its predecessor for the periods preceding and succeeding the inception of the Company. The Company had no operations for the period from inception (July 22, 2010) through August 8, 2010.

 

The accompanying unaudited interim condensed financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, these condensed financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results for the nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year. These condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2010 that are included in the Form 10-K filed by the Company on December 15, 2011.

 

Use of Estimates: The preparation of the accompanying financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates.

 

Revenue Recognition: The Company generally recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. In instances where the final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Customers’ prepayments are deferred until products are shipped and accepted by the customers.

 

Inventories: Inventories consist of DVDs and are stated at the lower of cost or market, using the first-in, first-out method. At September 30, 2011 and December 31, 2010, accounts payable amounting to approximately $3,000 were secured by the Company’s inventory.

 

F-5
 

  

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property and Equipment: Property and equipment are stated at cost. Depreciation is computed on the straight-line method based on the estimated useful lives of the assets, generally 5 to 7 years. Depreciation expense was $1,079, $1,278, $3,239 and $3,833 for the three and nine months ended September 30, 2011 and 2010, respectively. Maintenance and repairs are charged to expense as incurred; major renewals and betterments that extend the useful lives of property and equipment are capitalized. When property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized.

 

Software Development Costs: Research and development costs are charged to expenses as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customers. Amortization is computed as the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product. As of September 30, 2011, the Company had capitalized software development costs of $75,560. Since the capitalized software is not yet available for general release to customers, no amortization of product development costs is recognized during the three and nine months ended September 30, 2011.

 

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

 

Intangible Assets: Intangible assets consist of a trademark stated at cost which is amortized on a straight-line basis over its statutory life.

 

Production Costs:   Production costs incurred for recording of master copies of the fitness videos are capitalized.  The costs are amortized on a straight line method over the estimated economical useful life of the fitness videos, which is estimated to be five years.  As of September 30, 2011 and December 31, 2010, the Company incurred production costs of $619,085, and recorded amortization expense of $30,954 and $92,863 for each of the three and nine months ended September 30, 2011 and 2010, respectively.

 

Fair Value of Financial Instruments: All financial instruments are carried at amounts that approximate estimated fair value.

 

Income Taxes: The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Taxes” (“FASB ASC 740”). Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At September 30, 2011 and December 31, 2010, the Company has established a full reserve against all deferred tax assets.

 

FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.

 

F-6
 

 

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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

 

Stock Based Compensation:  The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. Generally, all options granted expire ten years from the date of grant. Compensation expense in the amount of $52,500, $22,655, $157,500, and $118,549 related to stock options were recognized for the three and nine months ended September 30, 2011 and 2010, respectively.

 

The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees” (“FASB ASC 505-50”). FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).

 

Reclassifications: Certain items in prior year financial statements have been reclassified to conform to current year presentation.

 

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

 

NOTE 3 – GOING CONCERN

 

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

 

Management of the Company is actively seeking financing and plans to increase production of its location-based mobile platform and associated marketing to generate revenues. During the nine months ended September 30, 2011, the Company was able to raise equity of $626,000 under private placement of common stock (Also see Note 18). The ability of the Company to continue as a going concern is dependent on its ability to meet its financing arrangements and the success of its future operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The report from the Company’s independent registered public accounting firm relating to the year ended December 31, 2010 states that there is substantial doubt about the Company’s ability to continue as a going concern.

 

F-7
 

  

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 4 – BUSINESS COMBINATION

 

On August 9, 2010, the Company entered into a Contribution Agreement (the “Agreement”) with uKarma Corporation (“uKarma”) to acquire all of the assets and assume liabilities of uKarma. Pursuant to the terms of the Agreement, the Company issued 10,558,896 shares of its common stock at par value as consideration for the transfer of uKarma’s assets and liabilities. The Company recorded the acquired assets and assumed liabilities at their book value on the date of transfer. The acquired assets and liabilities assumed were as follows:

 

Assets and liabilities acquired:

 

Cash  $6,476 
Prepayment and other assets   92,320 
Inventory   18,108 
Property and equipment, net   15,131 
Production costs, net   207,854 
Accounts payable and accrued expenses   (489,963)
Notes payable   (8,561)
   $(158,635)

 
Purchase consideration:

 

Common stock issued by OverNear, Inc.  $10,559 
Excess of liabilities assumed over assets acquired     
charged to paid-in capital   (169,194)
   $(158,635)

 

The excess of purchase price over net assets acquired amounted to $169,194 and was charged to paid-in capital.

 

NOTE 5 – PREPAID EXPENSES

 

The predecessor entered into an agreement with a consultant to provide consulting and advisory services for the Company and to appear in the Company’s yoga, health, and wellness film productions, to assist in scriptwriting for the projects such as classes, interviews and introductions, to participate in the project rehearsals, and to assist in marketing and promoting the projects. Accordingly, the Company is to pay a royalty of 8% on the first $300,000 and 10% on above $300,000 on all gross revenue, net of returns, refunds, chargebacks, taxes, and shipping and handling charges. As of September 30, 2011 and December 31, 2010, there was a balance of $57,313 after advancing $70,000 and deducting royalties from sales. Future royalty obligations will be deducted from the current balance.

 

During the nine months ended September 30, 2011, the Board of Directors of the Company approved the issuance of an aggregate 1,341,247 restricted shares of common stock valued at $51,094 to its attorney and consultant in consideration for future legal and consulting services. During nine months ended September 30, 2011, $44,982 of prepaid legal fees and $4,497 of prepaid consulting fees was expensed off.

 

F-8
 

 

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   September 30,   December 31, 
   2011   2010 
   (Unaudited)     
           
Property and Equipment  $14,473   $14,473 
Accumulated Depreciation   (4,829)   (1,590)
           
Property and Equipment, net  $9,644   $12,883 

 

Software development in progress represents cost incurred by the Company for the development of location based messaging platform and mobile application to connect people to people and merchant to shoppers. The software development cost incurred will be amortized when the related software is available for release to the general public.

 

NOTE 7 – ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

    September 30,    December 31, 
    2011    2010 
    (Unaudited)      
Deferred Compensation  $119,882   $313,118 
Accrued Income Tax   2,400    1,600 
Total Accrued Liabilities  $122,282   $314,718 

  

NOTE 8 – LEGAL SETTLEMENT PAYABLE

 

In November 2011, the Company settled a legal dispute for the total amount of $275,000, which was payable $50,000 on December 15, 2011 with the remainder payable in monthly installments of $6,250 through January 7, 2015.

 

Total legal settlement payable  $275,000 
      
Current portion of legal settlement payable   (106,250)
      
Legal settlement payable, net of current portion  $168,750 

  

The following schedule represents maturities of the settlement payable for the twelve months ending September 30:

 

2012  $106,250 
2013   75,000 
2014   75,000 
2015   18,750 
      
   $275,000 

 

F-9
 

 

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 9 – NOTE PAYABLE, STOCKHOLDER

 

At December 31, 2010, note payable to stockholder amounted to $10,099 and carried interest at 6% per annum. The note was repaid during the nine months ended September 30, 2011.

 

NOTE 10 – NOTES PAYABLE, UNRELATED PARTIES

 

At December 31, 2010, notes payable to unrelated parties amounted to $8,802 and carried interest at 6% per annum. These notes were repaid during the nine months ended September 30, 2011.

 

NOTE 11 – PROVISION FOR INCOME TAXES

 

Income taxes (benefit) consisted of the following for the nine months ended September 30, 2011:

 

Current:          
Federal  $-     
State   800     
        $800 
Deferred:          
Federal   (172,000)     
State   (30,000)    
    (202,000)    
Valuation allowance   202,000      
         - 
        $800 

  

Income taxes are disproportionate to income due to net operating loss carryforwards, which are fully reserved. As of the balance sheet date, the Company has federal and state net operating loss carryforwards of approximately $1,140,000 each, which will begin to expire in 2031 and 2021, respectively. The tax benefit of such net operating losses is recorded as an asset to the extent management assesses the utilization of such net operating losses to be more likely than not. Based upon the Company’s short term historical operating performance, the Company has established a valuation allowance for any income tax benefit recorded for its net operating loss carryforwards.

 

The following is a summary of the significant components of the Company’s net deferred income tax assets and liabilities as of September 30, 2011 and December 31, 2010:

 

   September 30, 2011   December 31, 2010 
   (Unaudited)     
Current deferred income tax assets:          
Deferred compensation  $94,000   $53,000 
Less valuation allowance   (94,000)   (53,000)
           
Net current deferred tax assets  $-   $- 
           
Non-current deferred income tax assets and liabilities:          
Net operating loss carryforwards  $454,000   $264,000 
Accumulated depreciation of          
Property and equipment   (31,000)   (2,000)
Less valuation allowance   (423,000)   (262,000)
           
Net non-current deferred tax assets  $-   $- 

 

F-10
 

 

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 11 – PROVISION FOR INCOME TAXES (continued)

 

The Company has applied the provision of FASB ASC 740, “Income Tax” which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not of being sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. At September 30, 2011 and December 31, 2010, the Company had no unrecognized tax benefits.

 

The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of September 30, 2011 and December 31, 2010, the Company has no accrued interest and penalties related to uncertain tax positions.

 

The Company is subject to taxation in the U.S. and files tax returns in the U.S. federal jurisdiction and California state jurisdiction. The Company has not yet filed its tax return for the period from inception (July 22, 2010) through December 31, 2010. The Company currently is not under examination by any tax authority.

 

The reconciliation between the statutory income tax rate and the effective tax rate is as follows:

 

Statutory federal income tax rate   (34.0)%
States taxes   (6.0)
Stock based compensation   8.0 
Other   5.0 
Valuation reserve for income taxes   27.0 
      
    -%

 

NOTE 12 – STOCKHOLDERS’ EQUITY

 

On March 1, 2011, the Board of Directors of the Company approved the issuance of an aggregate 4,103,014 and 3,313,973 restricted shares of the Company’s common stock with a value of $0.025 per share to Bill Glaser and Fred Tannous, respectively, in consideration for the cancellation of deferred and accrued compensation in the amount of $102,575 and $82,850, respectively, owed by the Company.

 

On March 15, 2011, the Board of Directors of the Company appointed Mr. Tannous, previously Chief Financial Officer, as Chief Executive Officer and Mr. Glaser, previously Chief Executive Officer, as President of the Company. The Company amended the employment agreement with Mr. Tannous to issue 4,000,000 shares of restricted common stock of the Company with a value of $0.025 per share in consideration for engaging in the new role and responsibilities. The Company also amended the employment agreement with Mr. Glaser and changed his title from Chief Executive Officer to President of the Company.

 

On March 31, 2011, the Board of Directors of the Company approved the issuance of aggregate 1,405,332 and 1,226,247 restricted shares of the Company’s common stock with a value of $0.038 per share to a service provider in consideration of $53,402 owed and $46,597 prepaid to such service provider, respectively.

On May 18, 2011, the Board of Directors of the Company approved the issuance of an aggregate 115,000 restricted shares of common stock to its consultant in consideration for future consulting services. The shares issued were valued at $4,497.

 

During the nine months ended September 30, 2011, the Company approved the issuance of an aggregate 6,100,000 shares of the Company’s common stock with a value of $0.10 per share to investors under private placement in consideration of $610,000. The Company also approved the issuance of an aggregate 550,000 shares of the Company’s common stock with a value of $0.029 per share to an investor in consideration of $16,000. The Company also issued warrants to purchase 6,100,000 shares of its common stock in connection with this private placement, the fair value of warrant was determined to be $112,850 (See Note 15).

 

F-11
 

 

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 13 – NET LOSS PER SHARE

 

The following table sets forth the computation of basic and diluted net loss per share:

 

       OverNear, Inc.       OverNear, Inc. 
       and       and 
   OverNear, Inc.   uKarma Corporation   OverNear, Inc.   Ukarma Corporation 
   Three months ended   Three months ended   Nine months ended   Nine months ended 
   September 30, 2011   September 30, 2010   September 30, 2011   September 30, 2010 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Numerator:                
Net Loss  $(121,350)  $(229,482)  $(761,524)  $(664,197)
Denominator:                    
Weighted Average of  Common Shares   38,750,179    14,056,973    33,301,280    14,056,973 
                     
Basic and Diluted Net Loss per Share  $(0.00)  $(0.02)  $(0.02)  $(0.05)

 

There were no dilutive securities for the nine months ended September 30, 2011 and 2010.

 

There were also 21,100,000 and 15,000,000 out-of-money stock options and warrants excluded from the calculation of diluted net loss per share for the three months and nine months ended September 30, 2011 and 2010, respectively, because they are anti-dilutive.

 

NOTE 14 – 2010 STOCK OPTION PLAN

 

On August 3, 2010, the Board of Directors approved and adopted the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide the issuance of non-qualified and/or incentive stock options to employees, officers, directors and consultants and other service providers. The Plan was subsequently amended on September 13, 2010 and July 1, 2011. Generally, all options granted expire ten years from the date of grant. It is the Company’s policy to issue new shares for stock options that are exercised rather than issuing treasury shares. Options generally vest over ten years. Prior to any grants under the Plan, there were 25,000,000 shares of common stock reserved for issuance under the Plan.

 

A summary of the status of stock options issued by the Company as of September 30, 2011 is presented in the following table:

 

   For the nine months ended September 30, 2011 
   Number of Shares   Average Price 
Outstanding at the beginning of period   15,000,000   $0.025 
Granted/Exercised/Expired/Cancelled   -     N/A 
Outstanding at the end of period   15,000,000   $0.025 
           
Exercisable at the end of period   3,000,000   $0.025 
           
Shares available for future grant   10,000,000     N/A 

 

The following table sets forth additional information about stock options outstanding at September 30, 2011:

 

       Weighted         
       Average   Weighted     
Range of      Remaining   Average     
Exercise  Options   Contractual   Exercise   Options 
Prices  Outstanding   Life   Price   Exercisable 
$0.025   15,000,000    8.92   $0.025    3,000,000 

 

F-12
 

 

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 14 – 2010 STOCK OPTION PLAN (continued)

 

As of September 30, 2011, there was $787,500 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 3.75 years.

 

NOTE 15 – STOCK WARRANTS

 

During the nine months ended September 30, 2011, the Company issued stock purchase warrants to investors in a private placement and a software developer for the right to purchase 6,100,000 and 276,000 shares of the Company’s common stock at the price of $0.25 and $0.01 per share, respectively.  The warrants vest immediately and have a term of five years from the date warrants are issued.  The warrants were valued at $112,850 and $24,923, respectively, using the Black-Scholes option pricing model.

 

The assumptions used in the Black-Scholes option pricing model are as follows: 

 

    Nine months ended 
    September 30, 2011 
Weighted average fair value per option granted  $0.10 
Risk-free interest rate   0.24 - 1.1% 
Expected dividend yield   0%
Expected lives   2.5 

  

NOTE 16 – EMPLOYMENT AGREEMENTS

 

On August 3, 2010, the Company entered into a 5-year agreement with Bill Glaser for his services as Chief Executive Officer. The agreement was amended on March 15, 2011 to change his title from Chief Executive Officer to President. Per the amendment to the agreement dated August 8, 2011, Mr. Glaser is compensated with an annual salary of $180,000. Mr. Glaser’s annual salary will increase to $250,000 in the event that either (i) the Company raises an aggregate $5,000,000 in debt or equity financing after August 3, 2010 or (ii) the Company recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) the Company raises an aggregate $10,000,000 in debt or equity financing after August 3, 2010 or (ii) the Company recognizes $10,000,000 in cumulative gross revenues. Mr. Glaser will receive a bonus of 5% of the Company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). His agreement also provides for options to purchase 5,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan at an exercise price of $0.025 per share, of which 500,000 shares became exercisable on December 31, 2010 and the remainder of which will become exercisable on the following schedule: 500,000 shares at the end of each subsequent six (6) month period. The options expire 10 years after grant.

 

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

 

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

 

F-13
 

 

OVERNEAR, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 16 – EMPLOYMENT AGREEMENTS (continued)

 

On September 13, 2010, the Company entered into a 5-year agreement with Fred E. Tannous for his services as Chief Financial Officer. The agreement was amended on March 15, 2011 to add the position of Chief Executive Officer. Per the amendment to the agreement dated August 8, 2011, Mr. Tannous is compensated with an annual salary of $180,000. Mr. Tannous’ annual salary will increase to $250,000 in the event that either (i) the Company raises an aggregate $5,000,000 in debt or equity financing after August 3, 2010 or (ii) the Company recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) the Company raises an aggregate $10,000,000 in debt or equity financing after August 3, 2011 or (ii) the Company recognizes $10,000,000 in cumulative gross revenues.

 

As a signing bonus, Mr. Tannous was issued shares of the Company’s common stock valued at $50,000. Mr. Tannous will also receive a bonus of 5% of the Company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). His agreement also provides for options to purchase 10,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan at an exercise price of $0.025 per share, of which 1,000,000 shares became exercisable on December 31, 2010 and the remainder of which will become exercisable on the following schedule: 1,000,000 shares at the end of each subsequent six (6) month period. The options expire 10 years after grant.

 

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

 

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

 

NOTE 17 – GAIN ON FORGIVENESS OF DEBT

 

During the nine months ended September 30, 2011 and 2010, the Company entered into arrangements with various professional service providers for amounts less than the liability recorded in accounts payable. The Company’s officers also forgave their deferred compensation during the nine months ended September 30, 2011. As a result of these transactions, the Company recorded gain on forgiveness of debt of $230,229 and $103,912 for the nine months ended September 30, 2011 and 2010, respectively.

 

NOTE 18 – SUBSEQUENT EVENTS

 

As of January 30, 2012, the Company issued an aggregate of 1,090,000 shares of common stock to its consultants in consideration for consulting services. The shares were valued at $56,500.

 

Subsequent to the nine months ended September 30, 2011, the Company raised a total of $625,000 in a private placement of its common stock.  The Company issued 6,070,000 shares of common stock and warrants to purchase 6,070,000 shares of its common stock in connection with this private placement.

 

 

F-14
 

 

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

 

The following discussion should be read in conjunction with our financial statements as of, and for the quarters ended, September 30, 2011 and 2010 and the related notes included therein. References to the “Company,” “we,” “our,” or “us” in this section refers to OverNear, Inc.

 

Overview

 

We plan to develop and market a location-based mobile messaging platform and mobile application to connect people to people and merchants to shoppers and plan to sell, joint venture, or license a fitness DVD series.  We were formed in July 2010 as a wholly owned subsidiary of uKarma. uKarma developed and marketed proprietary branded personal health and wellness products, including a proprietary branded fitness DVD series (Xflowsion).   On June 17, 2011, we changed our name to OverNear, Inc. and added the mobile messaging portion of our business.

 

On August 9, 2010, uKarma’s operating health and wellness business’ assets, including its Xflowsion DVD series, and liabilities were transferred into the Company pursuant to a Contribution Agreement in anticipation of being spun-off to uKarma’s shareholders of record as of August 12, 2010 on a pro-rata basis.  Thus, our historical financial results are those of uKarma’s health and wellness business that were transferred. uKarma subsequently changed its name to Innolog Holdings Corporation.

 

We began generating revenue in the second quarter of 2007 via our predecessor company. Our predecessor, however, incurred net losses since then without reaching profits. Our limited history of operations makes prediction of future operating results difficult, and we believe that period-to-period comparisons of our operating results should not be relied on as predictive of our future results.

 

Critical Accounting Policies and Estimates  

 

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

 

The following accounting policies, which are also described in Note 2 to our financial statements, are critical to aid the reader in fully understanding and evaluating this discussion and analysis:

 

Revenue Recognition: The Company generally recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. In instances where the final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Customers’ prepayments are deferred until products are shipped and accepted by the customers.

 

Inventories: Inventories consist of DVDs and are stated at the lower of cost or market, using the first-in, first-out method.

 

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

 

Production Costs:  Production costs incurred for recording of master copies of the fitness videos are capitalized.  The costs are amortized on a straight line method over the estimated economical useful life of the fitness videos, which is estimated to be five years. 

 

Income Taxes: The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Taxes” (“FASB ASC 740”). Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities.

 

4
 

 

 

FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.

 

Stock Based Compensation:  The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. Generally, all options granted expire ten years from the date of grant.

   

The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees” (“FASB ASC 505-50”). FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).

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

 

Results of Operations

 

The results of operations for the three months and nine months ended September 30, 2010 present the combined results of operations for the Company and our predecessor.

 

Comparison of Three Months Ended September 30, 2011 and September 30, 2010

 

Sales.  We had no sales during the third quarter of 2011 or 2010. This is due to not selling our DVD series, while formulating the business plan and strategy for our mobile app business as well as initiating our software development.

 

Selling, General and Administrative (SGA).  During the third quarter of 2011, our SGA expenses were $349,637, while total SGA expenses during the third quarter of 2010 were $355,795, representing a slight decrease of approximately 2%.  This resulted from an increase of $24,000 or 7% in officers’ compensation, $23,000 or 6% in accounting services, $30,000 or 8% in stock-based compensation expense, and $5,000 or 2% in automobile and computer expenses, offset by a decrease of $78,000 or 22% in consulting and legal fees and $10,000 or 3% in royalty expenses.

 

Gain on Forgiveness of Debt.  During the three months ended September 30, 2011 and 2010, we entered into arrangements with various professional service providers for amounts less than the liability recorded in accounts payable. Our officers also forgave their deferred compensation during the three months ended September 30, 2011. As a result of these transactions, we recorded gain on forgiveness of debt of $230,229 and $103,912 for the three months ended September 30, 2011 and 2010, respectively.

 

Net Loss.  We had a net loss of $121,350 during the third quarter of 2011 compared to a net loss of $229,482 during the third quarter of 2010.

 

Comparison of Nine Months Ended September 30, 2011 and September 30, 2010

 

Sales.  We had no sales during the nine months ended September 30, 2011, while we had $784 in sales during the nine months ended September 30, 2010. This is due to not selling our DVD series, while formulating the business plan and strategy for our mobile app business as well as initiating our software development.

 

Cost of Sales.  As we had no sales during the nine months ended September 30, 2011, we had no cost of sales during the period. In comparison, we had $367 in cost of sales during the nine months ended September 30, 2010.

 

Gross Profit.  Gross profit during the nine months ended September 30, 2010 was $417, representing a gross margin of approximately 53%.  We had no gross profit during the nine months ended September 30, 2011 as we had no sales.

 

5
 

 

Selling, General and Administrative (SGA).  During the nine months ended September 30, 2011, our SGA expenses were $983,652, while total SGA expenses during the nine months ended September 30, 2010 were $785,356, representing an increase of approximately 26%.  This resulted from an increase of $168,000 or 21% in officers’ compensation, $36,000 or 5% in accounting services and legal services, $39,000 or 5% in stock-based compensation expense, and $15,000 or 2% in automobile, computer, and public relations expenses, offset by a decrease of $49,000 or 6% in consulting fees and $10,000 or 1% in royalty expenses.

 

Gain on Forgiveness of Debt.  During the nine months ended September 30, 2011 and 2010, we entered into arrangements with various professional service providers for amounts less than the liability recorded in accounts payable. Our officers also forgave their deferred compensation during the nine months ended September 30, 2011. As a result of these transactions, we recorded gain on forgiveness of debt of $230,229 and $103,912 for the nine months ended September 30, 2011 and 2010, respectively.

 

Net Loss.  We had a net loss of $761,524 during the nine months ended September 30, 2011 compared to a net loss of $664,997 during the nine months ended September 30, 2010.

 

LIQUIDITY

 

Cash Flows

 

Net cash used in operating activities was $369,101 for the nine months ended September 30, 2011 while net cash used in operating activities was $201,875 for the nine months ended September 30, 2010. The increase in cash used in operating activities is due primarily to fees related to services provided by consultants.

 

Net cash used in investing activities was $52,062 for the nine months ended September 30, 2011 while net cash used in investing activities was $125,250 for the nine months ended September 30, 2010. The decrease in cash used in investing activities is due to a significant repayment of amounts due to stockholders in the amount of $125,250 during the nine months ended September 30, 2010 as compared to $50,637 we paid during the nine months ended September 30, 2011 for the development of software.

  

Net cash provided by financing activities was $607,099 for the nine months ended September 30, 2011 while net cash provided by financing activities was $345,863 for the nine months ended September 30, 2010. The increase in cash flow from financing activities is due to proceeds from the issuance of our securities in a private placement.

 

CAPITAL RESOURCES

 

As of September 30, 2011, we had negative working capital of $202,348. To satisfy current working capital needs, we raised $626,000 through a private placement of our securities during the first nine months of 2011. There is no guarantee that we will be able to meet current working capital needs if we do not receive additional infusions of cash through loans, stock sales, revenues, or other sources. We expect to incur substantial losses over the next two years.

 

As of September 30, 2011, we had cash of $186,336. We have obtained additional capital through an equity financing and intend to obtain additional capital through debt or equity financings.

 

We plan to engage outside contractors and consultants who are willing to be paid in stock rather than cash or a combination of stock and cash. Expenses incurred that cannot be paid in stock, such as auditors' fees, will be paid in cash. There are no assurances that we will be able to meet our capital requirements or that our capital requirements will not increase. If we are unable to raise necessary capital to meet our capital requirements, we may not be able to successfully develop and market our location-based mobile platform or to sell, joint venture, or license our Xflowsion DVD series.

 

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

 

6
 

 

Our management is actively seeking financing and plans to increase production of its location-based mobile platform and associated marketing to increase revenues.  Our ability to continue as a going concern is dependent on our ability to meet our financing arrangements and the success of our future operations.  The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. The report from our independent registered public accounting firm relating to the year ended December 31, 2010 states that there is substantial doubt about our ability to continue as a going concern.

   

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

CONTRACTUAL OBLIGATIONS

 

We 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. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

 

The following table summarizes our contractual obligations as of September 30, 2011, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

 

   Payments Due by Period 
    Total    Less than 1 year    1-3 Years    3-5 Years    5 years + 
Contractual Obligations:                         
Legal Settlement Payable  $275,000   $106,250   $168,750    -    - 
Employment Agreements  $1,605,000   $360,000   $720,000   $525,000    - 

 

Item 4.  Controls and Procedures.

 

Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.  Based on that evaluation, our CEO and CFO concluded that, as of September 30, 2011, our disclosure controls and procedures were not effective at the reasonable assurance level to ensure that the information required to be disclosed by the Company in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, due to the material weaknesses described below.

 

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

 

1.      We do not have written documentation of our internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act.

 

2.      We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  To the extent possible, however, separate individuals should initiate transactions, have custody of assets, and record transactions.

 

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3.      We do not have adequate review and supervision procedures for financial reporting functions.  The review and supervision function of internal control relates to the accuracy of financial information reported.  The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information.  Due to our size and nature, review and supervision may not always be possible or economically feasible.  Management evaluated the impact of the significant number of adjustments as a result of our review and concluded that the resulting control deficiency represented a material weakness.

 

To address these material weaknesses, management performed additional analyses and other procedures during the quarter ended September 30, 2011 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.

 

On August 8, 2011, we formalized our disclosure controls and procedures, and are in the process of utilizing these controls and procedures to determine their effectiveness.

 

Changes in Internal Control over Financial Reporting

 

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

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

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

 

On June 17, 2009 Jeffrey Fischer (the “Landlord”) filed a complaint for breach of lease against uKarma Corporation and Bill Glaser, our President, in the Los Angeles Superior Court in Los Angeles, California and subsequently named Fred Tannous, our Chief Executive Officer, as an additional defendant. On November 19, 2010, Awesome Living, Inc. (uKarma’s successor and now known as OverNear, Inc.) filed a cross-complaint against the Landlord, Hilary Fischer, Barry Fischer, and Garvin Drive Limited Partnership, all parties to the subject lease. The judge mandated a settlement conference for November 2011, and the parties reached a settlement on November 7, 2011 for the total amount of $275,000. Of this amount, $50,000 was paid on December 15, 2011 and the remainder is payable in monthly installments of $6,250 through January 7, 2015.

 

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

 

On July 15, 2011, we issued to Square One Solutions, Inc. a 5-year warrant to purchase up to 45,000 shares of our common stock at an exercise price of $0.01 per share as consideration for its services under a Master Service Agreement dated July 15, 2011. This issuance was exempt from registration requirements in reliance on section 4(2) of the Securities Act.

 

On August 3, 2011, we issued to Square One Solutions, Inc. a 5-year warrant to purchase up to 231,000 shares of our common stock at an exercise price of $0.01 per share as consideration for its services under a Master Service Agreement dated July 15, 2011. This issuance was exempt from registration requirements in reliance on section 4(2) of the Securities Act.

 

On September 30, 2011, we issued an aggregate 4,800,000 shares of our common stock to 14 investors in a private placement of our common stock and warrants. As part of this offering, we also issued warrants to purchase an aggregate 4,250,000 shares of our common stock. The aggregate consideration paid by these investors was $441,000. This issuance was exempt from registration requirements in reliance on section 4(2) of the Securities Act and Rule 506 of Regulation D, based in part by representations made by the investors in subscription agreements.

 

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Item 6.  Exhibits

 

Exh. No.   Exhibit Description
     
3.1   Articles of Incorporation, as amended (2)
     
3.2   Bylaws (1)
     
10.1   Master Service Agreement between Square One Solutions, Inc. and OverNear, Inc., dated July 15, 2011 (2)
     
10.2   Advisory Board Agreement between OverNear, Inc. and Chad Hahn, dated July 15, 2011 (2)
     
10.3   Amendment #2 to Employment Agreement with Fred E. Tannous, dated August 8, 2011 (3)
     
10.4   Amendment #2 to Employment Agreement with Bill Glaser, dated August 8, 2011 (3)
     
31.1   Section 302 Certification by the Registrant’s Principal Executive Officer *
     
31.2   Section 302 Certification by the Registrant’s Principal Financial Officer *
     
32.1   Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer *

 

* Filed herewith. 

(1) Filed on September 15, 2010 as an exhibit to our Registration Statement on Form 10, and incorporated herein by reference.
(2) Filed on August 5, 2011 as an exhibit to our Quarterly Report on Form 10-Q, and incorporated herein by reference.
(3) Filed on December 15, 2011 as an exhibit to our Annual Report on Form 10-K, and incorporated herein by reference.

 

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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.

 

  OVERNEAR, INC.
  (Registrant)
   
Date: March 7, 2012 By:  /s/ Fred E. Tannous
   

Fred E. Tannous

   

Chief Executive Officer (Principal Executive

Officer) and Chief Financial Officer

(Principal Financial & Accounting Officer)

     

 

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