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EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER - FAL EXPLORATION CORP.f10q0912ex31i_appsgenius.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER - FAL EXPLORATION CORP.f10q0912ex31ii_appsgenius.htm
EX-32.1 - SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - FAL EXPLORATION CORP.f10q0912ex32i_appsgenius.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 333-170715

APPS GENIUS CORP
 (Name of Registrant as specified in its charter)

 NEVADA
 
 27-1517938
(State or other jurisdiction of  
incorporation of rganization)
 
 (I.R.S. Employer Identification No.)
 
825 S.E. 8th Avenue, Suite 207
Deerfield Beach, FL 33441
(Address of principal executive office)

(732) 530-1267
 (Registrant’s telephone number)

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 þ 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 þ No o

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
(Do not check if smaller reporting company)
o
Smaller reporting company
þ

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  35,949,372 shares of common stock are issued and outstanding as of November 9, 2012.
 
 
 

 
 
APPS GENIUS CORP
FORM 10-Q
September 30, 2012

TABLE OF CONTENTS
 
   
Page No.  
 
PART I. - FINANCIAL INFORMATION
Item 1.
Financial Statements.
3
 
Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011
 3
 
Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)
 4
 
Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)
 5
 
Notes to Unaudited Financial Statements.
 6-16
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
17
Item 3
Quantitative and Qualitative Disclosures About Market Risk.
24
Item 4
Controls and Procedures.
24
 
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
24
Item 1A.
Risk Factors.
24
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
24
Item 3.
Defaults Upon Senior Securities.
25
Item 4.
Mine Safety Disclosures.
25
Item 5.
Other Information.
25
Item 6.
Exhibits.
25
 
FORWARD LOOKING STATEMENTS
 
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
 
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and in other reports that we file with the SEC.   You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
 
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
 
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
 
 
 

 
 
APPS GENIUS CORP
BALANCE SHEETS
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(Unaudited)
       
ASSETS
 
             
CURRENT ASSETS:
           
    Cash
  $ 193,208     $ 7,728  
    Accounts receivable
    515       2,196  
    Prepaid expenses
    209,991       435,020  
    Other receivable
    2,241       -  
    Security deposit
    675       -  
                 
        Total Current Assets
    406,630       444,944  
                 
PROPERTY AND EQUIPMENT, net
    3,393       4,403  
                 
OTHER ASSETS:
               
    Prepaid expenses, net of current portion
    -       58,733  
    Deferred financing costs
    -       7,500  
                 
        Total Other Assets
    -       66,233  
                 
        Total Assets
  $ 410,023     $ 515,580  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
CURRENT LIABILITIES:
               
    Notes payable
  $ -     $ 101,150  
    Note payable - related party
    -       10,000  
    Accounts payable
    33,499       44,206  
    Accounts payable - related party
    -       21,000  
    Accrued salaries
    10,000       -  
    Accrued expenses
    3,715       3,887  
    Insurance premium finance payable
    -       6,696  
    Due to related party
    -       1,871  
 
               
        Total Current Liabilities
    47,214       188,810  
                 
                 
STOCKHOLDERS' EQUITY:
               
Preferred stock ($0.001 par value; 20,000,000 shares authorized; No shares
         
       issued or outstanding at September 30, 2012 and December 31, 2011, respectively)
    -       -  
    Common stock ($0.001 par value; 100,000,000 shares authorized;
               
        34,749,372 and 26,521,400 shares issued and outstanding
               
        at September 30, 2012 and December 31, 2011, respectively)
    34,749       26,521  
    Additional paid-in capital
    2,478,306       1,221,913  
    Accumulated deficit
    (2,150,246 )     (921,664 )
                 
        Total Stockholders' Equity
    362,809       326,770  
                 
        Total Liabilities and Stockholders' Equity
  $ 410,023     $ 515,580  
 
See notes to unaudited financial statements
 
 
3

 
 
APPS GENIUS CORP
STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
 
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
REVENUES
  $ 1,499     $ 1,915     $ 6,473     $ 10,450  
                                 
OPERATING EXPENSES:
                               
     Licensing fees and expenses
    67,293       -       200,237       -  
     Research and development
    45,133       -       155,343       43,960  
     Administrative compensation
    47,000       12,000       106,000       40,025  
     Professional fees
    274,479       24,416       649,478       91,466  
     Other selling, general and administrative
    12,948       5,218       123,912       28,888  
                                 
        Total Operating Expenses
    446,853       41,634       1,234,970       204,339  
                                 
LOSS FROM OPERATIONS
    (445,354 )     (39,719 )     (1,228,497 )     (193,889 )
                                 
OTHER INCOME (EXPENSE):
                               
     Interest expense
    -       (675 )     (560 )     (675 )
     Interest expense - related party
    -       (29 )     (79 )     (29 )
     Interest income
    192       -       554       37  
                                 
        Total Other Income (Expense)
    192       (704 )     (85 )     (667 )
                                 
NET LOSS
  $ (445,162 )   $ (40,423 )   $ (1,228,582 )   $ (194,556 )
                                 
NET LOSS PER COMMON SHARE:
                               
    Basic and diluted
  $ (0.01 )   $ -     $ (0.04 )   $ (0.01 )
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
                         
    Basic and diluted
    34,156,981       25,799,226      
32,360,203
      25,687,078  
 
See notes to unaudited financial statements
 
 
4

 
 
APPS GENIUS CORP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
For the Nine Months Ended
September 30,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (1,228,582 )   $ (194,556 )
Adjustments to reconcile net loss from operations to net cash
               
used in operating activities:
               
Stock-based compensation and fees
    652,897       30,444  
Contributed services
    -       6,000  
Depreciation
    1,010       1,010  
Changes in assets and liabilities:
               
Accounts receivable
    1,681       2,729  
Prepaid expenses
    49,758       (55,000 )
Security deposit
    (675 )     -  
Accounts payable and accrued expenses
    (10,879 )     19,031  
Accrued salaries
    10,000       -  
Accounts payable - related party
    (9,000 )     9,500  
Due to related parties
    (1,871 )     29  
                 
NET CASH USED IN OPERATING ACTIVITIES
    (535,661 )     (180,813 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from notes payable
    7,500       75,000  
Proceeds from notes payable - related party
    -       5,000  
Payment of notes payable
    (108,650 )     -  
Payment of notes payable - related party
    (10,000 )     -  
Payment of insurance premium finance payable
    (5,859 )     -  
Payment of deferred financing costs
    -       (7,500 )
Proceeds from sale of common stock
    1,000,000       -  
Payment of placement costs and fees
    (161,850 )     -  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES
    721,141       72,500  
                 
NET INCREASE (DECREASE) IN CASH
    185,480       (108,313 )
                 
CASH  - beginning of year
    7,728       121,426  
                 
CASH - end of period
  $ 193,208     $ 13,113  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:
               
Cash paid for:
               
Interest
  $ 2,637     $ -  
Income taxes
  $ -     $ -  
                 
Non-cash investing and financing activities:
               
Issuance of common stock and warrants for services charged to prepaid expenses
  $ 396,471     $ -  
Common stock issued for future services
  $ -     $ 120,556  
Common stock issued for accounts payable- related party
  $ 12,000     $ -  
Reclassification of insurance premiums payable and prepaid expeenses to other receivable
  $ 3,078     $ -  
 
See notes to unaudited financial statements.
 
 
5

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Apps Genius Corp (the “Company”) was incorporated in the State of Nevada on December 17, 2009.  The Company’s principal business is focused on creating innovative social games and mobile applications that let people play together with real-world friends and family using the currently available infrastructure built by both social and mobile networks. The Company’s cross-platform gaming and mobile applications allow users to play and interact with multiple people on multiple networks whether or not they have a preexisting relationship with them. The Company’s Social Gaming and Mobile App technology allows users and players to reach across the multiple networks into a virtual application or gaming environment.  Additionally, the Company has developed unique player incentive platforms that allow users to share in the success of the game or application.  Currently, the Company is developing its platform for Facebook, iPhone and Android.

Basis of presentation and going concern

Management acknowledges its responsibility for the preparation of the accompanying interim financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the interim period presented. These financial statements should be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Form 10-K annual report for the year ended December 31, 2011.  The accompanying unaudited financial statements for Apps Genius Corp have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

As reflected in the accompanying financial statements, the Company had a net loss and net cash used in operations of $1,228,582 and $535,661, respectively, for the nine months ended September 30, 2012 and an accumulated deficit of $2,150,246 at September 30, 2012 and has minimal revenues. These matters raise substantial doubt about the company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise additional capital, and generate more revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Use of estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the nine months ended September 30, 2012 and 2011 include the useful life of property and equipment, allowance for doubtful accounts receivable, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets, and the value of stock-based compensation and fees.

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents.

Concentrations

Concentration of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all non-interest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited insurance coverage is available to all depositors, including consumers, businesses, and governmental entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution. A non-interest-bearing transaction account is a deposit account where interest is neither accrued nor paid; depositors are permitted to make an unlimited number of transfers and withdrawals; and the bank does not reserve the right to require advance notice of an intended withdrawal.

 
6

 

APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Concentrations (continued)

Concentration of credit risk(continued)

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through September 30, 2012. There were no balances in excess of FDIC insured levels as of September 30, 2012.

Concentration of revenue and geographic area

The Company sells its products to its customers through revenue sharing arrangements. The following represents identifiable concentrations for any arrangement where revenue exceeded 10% of the total revenues for the nine months ended September 30, 2012 as follows:

 
Arrangement
 
Percentage of total revenues
For the nine months ended September 30, 2012
 
Percentage of accounts receivable
balance at September 30, 2012
1
 
78.1%
 
64.3%

The Company has customers in countries other than USA. During the nine months ended September 30, 2012 and 2011, customers located in the USA represented substantially all of the Company’s total revenues.

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2012 and December 31, 2011, the Company does not, based on a review of its outstanding balances, have an allowance for doubtful accounts.

Fair value measurements and fair value of financial instruments

The Company adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

*
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
*
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.
*
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and amounts due to related party approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820.

Prepaid expenses

Prepaid expenses (current and long-term portion) consist primarily of prepayments (in cash and equity instruments) for public relation services, consulting and business advisory services, licensing fees, and prepaid insurance which are being amortized over the terms of their respective agreements.

 
7

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.  When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Software development costs

Costs incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985 “Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market. Amortization of capitalized software development costs begins upon initial product shipment. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six months), using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable.  Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset.  If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset.  During the nine months ended September 30, 2012 and 2011, the Company did not capitalize any software development costs.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews, long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charges during the nine months ended September 30, 2012 and 2011.

Revenue recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured.  For all revenue sources discussed below, in accordance ASC 605-45 “Principal Agent Considerations”, the Company recognizes revenue net of amounts retained by third party entities pursuant to revenue sharing agreements. The Company’s specific revenue recognition policies are as follows:

The Company recognizes revenue from the sale of its social games and mobile applications (“Apps”) when the App is sold and downloaded by the customer and collection is reasonably assured.

The Company recognizes revenues from the placement of banner ads on its social games and mobile applications upon placement of the banner and when collection is reasonably assured.

Some of the Company’s social games contain a virtual currency or point systems that allow users to increase their game playing levels and gain special privileges.  Users collect points by moving through the levels, buying them or by completing offers from third-party advertisers that convert into points or virtual currency. When a user completes an offer for one of our third-party advertisers, the advertiser pays the Company a commission.  The commission is recognized as revenue upon completion of the offer and the receipt by the Company of an electronic confirmation from the advertiser and when collection is reasonably assured.   Virtual currency revenue for the nine months ended September 30, 2012 and 2011 was insignificant. For revenues generated through Facebook, Facebook enables payments to the Company through their users. Facebook users can make payments on the Facebook Platform by using credit cards or other payment methods available on its website. The primary process for these transactions is through the purchase of Facebook virtual currency. Facebook users then use this virtual currency to purchase virtual and digital goods in games and apps from developers on the Facebook Platform. When a user engages in a payment transaction utilizing the virtual currency to purchase the Company’s applications or games, Facebook will remit to the Company an amount that is based on the total amount of virtual currency redeemed less the processing fee that Facebook charges the Company for the service performed. At such time as the revenue is earned, the Company records as revenue the net amount of the transaction due to the Company from Facebook.
 
 
8

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income taxes

The Company is governed by the Income Tax Law of the United States. The Company utilizes ASC Topic 740, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, 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 reporting 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.

Under ASC Topic 740, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.  

Stock-based compensation

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

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of operations. For the nine months ended September 30, 2012 and 2011, advertising expense was $2,140 and $215, respectively.

Research and development

Research and development costs which consist primarily of salaries and fees paid to third parties for the development of software and applications are expensed as incurred. For the nine months ended September 30, 2012 and 2011, research and development costs were $155,343 and $43,960, respectively.

Net loss per share of common stock
 
Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.  Potentially dilutive common shares consist of common stock warrants (using the treasury stock method). These common stock equivalents may be dilutive in the future. All potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Warrants
    8,914,286       -       8,914,286       -  
Stock options
    525,000       -       525,000       -  
Total
    9,439,286       -       9,439,286       -  
 
Recent accounting pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
 
 
9

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
 
NOTE 2 - PROPERTY AND EQUIPMENT

At September 30, 2012 and December 31, 2011, property and equipment consisted of the following:

 
Useful Life
 
September 30, 2012
   
December 31, 2011
 
Office equipment and furniture
7 Years
  $ 214     $ 214  
Computer equipment
5 Years
    6,581       6,581  
        6,795       6,795  
Less: accumulated depreciation
      (3,402 )     (2,392 )
      $ 3,393     $ 4,403  

For the nine months ended September 30, 2012 and 2011, depreciation expense amounted to $1,010 and $1,010, respectively.
 
NOTE 3 – RELATED PARTY TRANSACTIONS

Note payable – related party

In August 2011, the Company entered into a note agreement with Adam Kotkin, the Company’s chief executive officer (“CEO”) in the amount of $5,000. This note is unsecured, bears interest at 6.0% and is due on the earlier of 1) August 31, 2012 or 2) within three business days of the closing of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000, with the proceeds of the offering to be received directly by the Company. On December 28, 2011, the Company entered into a promissory note agreement with CEO in the amount of $5,000. This note bears interest at 6.0%, is secured by all of the assets of the Company and is due on the earlier of 1) June 30, 2012 or 2) within three business days of the closing of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000. In February 2012, theses notes and all accrued interest were repaid. At September 30, 2012 and December 31, 2011, the aggregate principal amounts due under these loans amounted to $0 and $10,000, respectively. At September 30, 2012 and December 31, 2011, interest due under these notes amounted to $0 and $108, respectively, which has been included in due to related party on the accompanying balance sheets. For the nine months ended September 30, 2012 and 2011, interest expense related to these notes amounted to $79 and $29, respectively.

Other

The Company’s CEO from time to time, provided advances to the Company for working capital purposes. At September 30, 2012 and December 31, 2011, the Company had advances payable to the CEO of $0 and $1,763, respectively. These advances were short-term in nature and non-interest bearing and are included in due to related party on the accompanying balance sheets.

As of September 30, 2012 and December 31, 2011, the Company owed $0 and $21,000, respectively, to a company owned by its chief financial officer for services rendered.
 
NOTE 4 – NOTES PAYABLE

On June 28, 2011, the Company entered into two note agreements with two individuals in the aggregate amount of $20,000. These notes were unsecured, bear interest at 6.0% and were due on the earlier of 1) December 28, 2011 or 2) within three business days of the closing of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000, with the proceeds of the offering to be received directly by the Company.

In August 2011, the Company entered into three note agreements with three parties in the aggregate amount of $55,000. These notes were unsecured, bear interest at 6.0% and were due on the earlier of 1) August 31, 2012 or 2) within three business days of the closing of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000, with the proceeds of the offering to be received directly by the Company.

On November 15, 2011, the Company entered into a promissory note agreement with a third party in the amount of $26,150. The note bears interest at 6.0%, was secured by all of the assets of the Company and was due on the earlier of 1) May 15, 2012 or 2) within three business days of the closing of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000.

On January 3, 2012, the Company entered into two note agreements with two individuals in the aggregate amount of $7,500. These notes were secured, bear interest at 6.0% and were due on the earlier of 1) June 30, 2012 or 2) within three business days of the closing of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000, with the proceeds of the offering to be received directly by the Company.
 
 
10

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
 
NOTE 4 – NOTES PAYABLE (continued)

In February 2012, the above notes and all accrued interest were repaid. At September 30, 2012 and December 31, 2011, aggregate principal due under the above notes amounted to $0 and $101,150, respectively, and interest amounts due under the loans amounted to $0 and $1,925, respectively. The weighted average interest rate on the Company’s short-term obligations was 6%.

NOTE 5 – STOCKHOLDERS’ EQUITY

Preferred stock

The Company authorized 20,000,000 preferred shares. Preferred shares may be designated by the Company’s board of directors.  There were no shares designated as of September 30, 2012.
 
Financing

On February 9, 2012, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited investors (the “Investors”) relating to the sale and issuance by the Company to the Investors of an aggregate of 5,714,286 units, each unit consisting of (i) one share of common stock, par value $0.001 per share (“Common Stock”), of the Company, and (ii) a five-year warrant to purchase one share of Common Stock at an exercise price of $0.25 per share (each, a “Warrant,” and collectively, the “Warrants”).  Each unit was sold at a price of $0.175. Pursuant to the Securities Purchase Agreement, on February 14, 2012 (the closing date), the Company issued 5,714,286 shares of common stock and issued 5,714,286 Warrants for net proceeds to the Company of $830,650 from the sale of the units, after deducting the placement agent’s fees and expenses of $90,000, legal fees of $75,000 and other offering expenses of $4,350. The Company conducted the Offering pursuant to a registration statement on Form S-1 which was declared effective by the Securities and Exchange Commission on February 9, 2012.

Pursuant to the Placement Agent Agreement between the Company and Rodman & Renshaw, LLC (the “Placement Agent”), dated as of June 29, 2011, and as amended on August 8, 2011 and on December 19, 2011, the Company paid the Placement Agent, a cash fee equal to 7% of the gross proceeds of the Offering or $70,000, as well as a non-accountable expense allowance equal to 2% of the gross proceeds of the Offering or $20,000.  In September 2011, the Company paid a $7,500 advance to Rodman upon execution of this Agreement, which was applied against the 2% non-accountable expense allowance. At December 31, 2011, the $7,500 advance has been reflected as deferred financing costs on the accompanying balance sheet. In addition, the Company issued to the Placement Agent 400,000 five-year warrants to purchase shares of Common Stock equal to 7% of the number of shares sold in the Offering, with an exercise price equal to 125% of the public offering price or $0.21875.

The Company agreed to pay Rodman a fee equal to 5% in kind consideration of the aggregate consideration paid or received by the Company in connection with a transaction consummated during the term or tail period, as defined, with (a) a candidate introduced to the Company by Rodman (a “Rodman Candidate”) or (b) a candidate introduced to the Company by a Rodman candidate. A transaction or combination of transactions shall include the purchase of sale of assets or outstanding stock, or a merger, acquisition or other business combinations.

The Securities Purchase Agreement contains provisions that restrict the Company from issuing, except pursuant to certain exceptions, any Common Stock or Common Stock equivalents involving a Variable Rate Transaction (as that term is defined in the Securities Purchase Agreement) until five years from the closing.

The Warrants are exercisable, at the option of each holder, in whole or in part by delivering to the Company a duly executed exercise notice accompanied by payment in full for the number of shares of Common Stock purchased upon such exercise (except in the case of a cashless exercise).  The exercise price and the number of shares of Common Stock purchasable upon the exercise of each Warrant are subject to adjustment in the event of stock dividends, distributions, and splits.

Pursuant to existing anti-dilution price protection right for a certain investor who purchased the Company’s common shares in an April 2010 offering, the Company issued 346,479 shares of its common stock in April 2012.

Common stock issued for services

On February 27, 2012, the Company issued 163,636 shares of its common stock to the Company’s chief financial officer for services rendered and for accounts payable of $12,000 that was outstanding at December 31, 2011. The Company valued these common shares at the fair value of $0.11 per common share based on the quoted trading price of the common stock on the grant date which is the measurement date. In connection with issuance of these common shares, the Company recorded stock-based compensation of $6,000 and reduced accounts payable by $12,000.
 
 
11

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012

NOTE 5 – STOCKHOLDERS’ EQUITY (continued)

Common stock issued for services (continued)

On April 10, 2012, the Company entered into a one-year consulting agreement for business development services.  In connection with the agreement, the Company issued 1,000,000 shares of its common stock.  The Company valued these common shares at the fair value of $0.108 per common share or $108,000 based on the quoted trading price of the common stock on the grant date which is the measurement date and was being amortized over the one year service period. Additionally, the Company issued 500,000 warrants for the purchase of 500,000 shares of the Company’s common stock at an exercise price equal to $0.25 per share exercisable for a two year period. The Company calculated the $35,581 fair value of the 500,000 warrants granted using the Black-Scholes option pricing model and using actual historical volatility of 168.7%, and was being amortized over the one year service period. During the third quarter of 2012, the contract was verbally terminated and any remaining prepaid amounts were written off. Accordingly, in connection with this agreement, for the nine months ended September 30, 2012, the Company recorded professional fees of $143,581.
 
On June 11, 2012, the Company issued 75,000 shares of its common stock to the Company’s chief financial officer for services rendered. The Company valued these common shares at the fair value of $0.08 per common share based on the quoted trading price of the common stock on the grant date which is the measurement date. In connection with issuance of these common shares, the Company recorded stock-based compensation of $6,000.

On August 24, 2012, the Company entered into a four month consulting agreement for business development services This Agreement shall remain in effect for a fixed term of four months (the “Initial Term”) commencing on the August 24, 2012 and continuing through December 23, 2012, and, provided that, if the Company is funded or purchased (or has entered into a memorandum of understanding, letter of intent or similar document) (a “Transaction”) by another company during the Initial Term whereby the consultant’s services made a direct contribution to such Transaction, the Initial Term shall automatically be renewed for an additional eight (8) months (the “Additional Term” and together with the Initial Term, the “Consulting Period”). If the Company enters into a Transaction during the Initial Term without any direct contribution by the Consultant’s Services, this Agreement will not be automatically renewed for an Additional Term. As consideration for consultant’s performance of the services, the Company shall pay Consultant 2,000,000 shares of the Company’s common stock in equal monthly installments during the Initial Term of 500,000 shares per month. If this Agreement is extended for the Additional Term, then the Company shall issue an additional 4,000,000 shares of the Company’s common stock to the consultant. The 500,000 shares of Company’s common stock for each month of Service during the Initial Term shall be issued to and earned by the Consultant on or before the fifth (5th) calendar day of each month. The first payment date shall be on or before September 5, 2012 and each month thereafter, with the last payment date of the Initial Term shall be on December 5, 2012. In the event that this Agreement is extended to include the Additional Term, the 4,000,000 shares of the Company’s common stock shall be awarded to the consultant in a lump sum either (a) by January 5, 2013 or (b) within 5 business days of the date on which the Company is funded or purchased by another Company, whichever is feasible. In connection with the agreement, the Company issued 500,000 shares of its common stock on September 5, 2012. The Company valued these common shares at the fair value of $0.015 per common share or $7,500 based on the quoted trading price of the common stock on the grant date of August 24, 2012, which is the measurement date. For the nine months ended September 30, 2012, the Company recorded professional fees of $7,500. Each subsequent monthly issuance of share pursuant to this consulting agreement shall be valued at the fair value of such common share based on the quoted trading price of the common stock on the grant date, which will be the measurement date.

On September 1, 2012, the Company issued 428,571 shares of its common stock to the Company’s chief financial officer for services rendered. The Company valued these common shares at the fair value of $0.014 per common share based on the quoted trading price of the common stock on the grant date which is the measurement date. In connection with issuance of these common shares, the Company recorded stock-based compensation of $6,000.

Equity incentive plan

On September 23, 2010, the Company’s board of directors adopted, and the Company’s stockholders approved the Apps Genius Corp Equity Incentive Plan (the “Plan”), which covers 5,000,000 shares of common stock.  The purpose of the Plan is to advance the interests of the Company by enhancing the ability of the Company to (i) attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries; (ii) reward such persons for such contributions; and (iii) encourage such persons or entities to take into account the long-term interest of the Company through ownership of shares of the Company’s common stock, par value $.001 per share. The Plan is intended to accomplish these objectives by enabling the Company to grant awards in the form of incentive and nonqualified stock options, stock appreciation rights, restricted stock, deferred stock, or other stock based awards. The Plan will be administered by the Board of Directors of the Company or, upon its delegation, by the Compensation Committee of the Board of Directors.  The Plan became effective on September 23, 2010 and will terminate on September 23, 2020.
 
 
12

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
 
NOTE 5 – STOCKHOLDERS’ EQUITY (continued)

Equity incentive plan (continued)

Subject to adjustment as provided in the Plan, the aggregate number of shares of common stock reserved for issuance pursuant to awards granted under the Plan shall be five million (5,000,000) shares; provided, however, that within sixty (60) days of the end of each fiscal year following the adoption of the Plan, the Board, in its discretion, may increase the aggregate number of shares of Common Stock available for issuance under the Plan by an amount not greater than the difference between (i) the number of shares of Common Stock available for issuance under the Plan on the last day of the immediately preceding fiscal year, and (ii) the number of shares of Common Stock equal to 15% of the shares of Common Stock outstanding on the last day of the immediately preceding fiscal year. As of September 30, 2012, no instruments have been granted under the Plan.

Common stock warrants

On February 9, 2012, the Company entered into an exclusive, worldwide licensing agreement (the “MPS License Agreement”) with Mike Sorrentino and MPS Entertainment LLC (“MPS”) and Starz Management & PR (“Starz”) (See Note 6). Pursuant to the MPS Licensing Agreement, the Company issued warrants exercisable for the purchase of 1,000,000 shares of the Company’s common stock at an exercise price equal to $0.23 per share (the “MPS Warrants”) and the Company has issued Starz warrants exercisable for the purchase of 100,000 shares of the Company’s common stock at an exercise price equal to $0.23 per share (the “Starz Warrants”).  The MPS Warrants will be exercisable by MPS until the later of (i) one hundred fifty (150) days following the end of the Term (and any extensions thereto) or (ii) eighteen (18) months following the Effective Date.  The MPS Warrants can be exercised as follows: 500,000 warrants on the Effective date, and 166,667 on the release of the second game, 166,667 upon release of the third game and 166,666 upon release of the fourth game.  The Starz Warrants shall vest upon the release of each game at 25,000 warrants per game.  These Warrants may be exercised, in whole or in part, at such time by means of a cashless exercise. The Company accounted for the equity instruments issued pursuant to the License Agreement in accordance with ASC 505-50, “Equity Based Payments to Non-Employees”.  

The Company calculated the fair value of the 1,000,000 MPS Warrants granted using the Black-Scholes option pricing model and recorded the fair value of $167,090 as a deferred license costs included in prepaid expenses which will be amortized over the license term of 18 months.  The Company calculated the fair value of the 100,000 Starz Warrants granted using the Black-Scholes option pricing model and recorded the fair value of $16,709 as a deferred license costs included in prepaid expenses which will be amortized over the vesting period. In applying the Black-Scholes method, the Company calculated volatility using actual historical volatility, utilized discount rates obtained from the Federal Reserve Statistical Release for treasury instruments of the same duration, and an expected term based on the estimated contractual term of the warrants of 18 months. The value of the MPS Warrant and Starz Warrant on the grant date was based upon the following Black-Scholes assumptions; exercise prices of $.23, actual historical volatility of 176.74%, expected term of 18 months and discount rate of 0.27%. In connection with these Warrants, for the nine months ended September 30, 2012, the Company’s amortization of these licensing fees amounted to $78,523 and a remaining deferred licensing cost of $105,276 (included in prepaid expenses) at September 30, 2012 which will be amortized over the remaining estimated license term.

Warrant activities for the nine months ended September 30, 2012 are summarized as follows:

   
Number of Warrants
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Life (Years)
   
 
Aggregate Intrinsic Value
 
Balance at December 31, 2011
    1,200,000     $ 0.33              
Issued
    7,714,286       0.25              
Exercised/forfeited
    -       -              
Balance at September 30, 2012
    8,914,286     $ 0.26       3.31     $ -  
Warrants exercisable at September 30, 2012
    8,339,286     $ 0.26       3.31     $ -  

 
13

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
 
NOTE 5 – STOCKHOLDERS’ EQUITY (continued)

Stock Options

On March 1, 2012, the Company entered into a financial service agreement with a third party for a seven month term. In connection with the financial service agreement, the Company issued an aggregate of 500,000 stock options to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.14 per common share. The stock options expire on March 1, 2017. The Company calculated the $66,749 fair value of the 500,000 stock options granted using the Black-Scholes option pricing model and using actual historical volatility of 177.3%.  For the nine months ended September 30, 2012, the Company recorded professional fees of $66,749.

In connection with services to be rendered related to the purchase of a game for a period of 12 months, on March 21, 2012, the Company issued options exercisable for the purchase of 25,000 shares of the Company’s common stock at an exercise price equal to $0.12 per share exercisable for a two year period. Additionally, the Company shall pay to Seller 10% of the aggregate net revenue generated from sales and advertising of the game, if any, for the lifetime of the game. The Company calculated the $2,342 fair value of the 25,000 stock options granted using the Black-Scholes option pricing model and using actual historical volatility of 173.4% which will be amortized over the one year service period. For the nine months ended September 30, 2012, the Company expensed to professional fees $1,233 and had a remaining prepaid expense of $1,109 at September 30, 2012 which will be amortized over the remaining financial agreement term.

Stock option activities for the nine months ended September 30, 2012 are summarized as follows:

   
Number of Options
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Life (Years)
   
 
Aggregate Intrinsic Value
 
Balance at December 31, 2011
    -     $ -              
Granted
    525,000       0.14              
Exercised/forfeited
    -       -              
Balance at September 30, 2012
    525,000     $ 0.14       4.28     $ -  
Options exercisable at September 30, 2012
    525,000     $ 0.14       4.28     $ -  

The weighted-average grant-date fair value of options granted to employees/consultants during the nine months ended September 30, 2012 was $.13. As of September 30, 2012, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $1,109.

NOTE 6 – COMMITMENT AND CONTINGENCIES

Consulting Agreement for Business Development Services

On June 1, 2011, the Company entered into a consulting agreement for financial and business advisory services.  Pursuant to the consulting agreement, if directly or indirectly, as a result of introductions or other efforts of the consultant, one or more individuals or entities purchases or invests in the Company, the Company shall pay the consultant (a) 10% of the amount of the investment and (b) a non-accountable expense allowance of 3% of the aggregate amount of the investment and (c) a cashless warrant representing underlying shares equal to 10% of the shares purchased in any investment, which will be exercisable for seven years at the same exercise price as the investors.

Licensing Agreements

NEP Snooki Enterprises, LLC

On October 17, 2011 (the “Effective Date”), the Company entered into an exclusive, worldwide licensing agreement (the “License Agreement”) with NEP Snooki Enterprises, LLC (the “NEP”) and Starz Management & PR (“Starz”), which grants the Company the right to use Nicole Polizzi’s (known by the stage name “Snooki”) name and likeness in the development, manufacture, marketing, sale and distribution of social applications and social games (the “Apps”) to be released and offered on the Android, Apple's iOS, Facebook, and Google+ platforms. Pursuant to the License Agreement, the Company will develop a total of four Apps within one year of the Effective Date (the “Initial Term”), with the release of the first App scheduled for late November 2011 and the release of the second App in February 2012. The term of the License (the “Term”) shall be one (1) year from the earlier of (i) the Release Date of fourth App described above or (ii) eight months after the Effective Date.
 
 
14

 
 
APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
 
NOTE 6 – COMMITMENT AND CONTINGENCIES (continued)

Licensing Agreements (continued)

In the event that the Company successfully releases four Products within the Term, the Company, with the mutual agreement of the parties and the payment of an additional cash fee, shall be entitled to release up to four additional new Products and the Term shall be extended for an additional one-year period.

In consideration for the exclusive license granted by NEP during the Initial Term, the Company paid a non-refundable license fee of $55,000 (the “Cash Fee”). In the event that the Company and NEP mutually agree to extend the Term and produce additional products, then upon such mutual agreement, the Company shall pay an Additional Cash Fee of $50,000. The Company shall be entitled to recover the Cash Fees or Additional Cash Fees from any revenue generated by the sale of the products related to the License Agreement by deducting the Cash Fee (or Additional Cash Fees, if applicable) prior to the payment of any royalties, as described below; provided, however, the Company shall only be entitled to deduct a maximum of $13,750 for each product.

The Company shall pay NEP non-returnable royalties (“Royalties”) in an amount equal to 50% of the revenue generated, directly or indirectly, from the virtual sale of the Products, advertising sponsorship, commercial tie-ins and/or product placement related to the licensed property, and shall pay Starz Royalties equal to 10% of the revenue generated from the sale of the products related to the licensed property. The revenue shall be calculated as the gross revenue less any mandatory third party commissions, including fees from all sites that sell and market the products and any additional marketing or advertising expenses, and any recovery of Cash Fees as permitted, as discussed above.

In addition, on the Effective Date, the Company issued NEP or assignees warrants exercisable for the purchase of 1,100,000 shares of the Company’s common stock at an exercise price equal to $0.31 per share on a for-cash or cashless exercise basis (the “Warrants”) and 70,000 shares of the Company’s common stock were issued to Starz.  The Warrants will be exercisable by Licensor until the later of (i) one hundred fifty (150) days following the end of the Term (and any extensions thereto) or (ii) eighteen (18) months following the Effective Date.  If at any time after the six (6) month anniversary of the date hereof, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant shares by the holder, then this Warrant may be exercised, in whole or in part, at such time by means of a cashless exercise.
 
In connection with the Cash Fees paid and equity instruments issued pursuant to the License Agreement, for the nine months ended September 30, 2012 and 2011, the Company recorded licensing fees of $101,220 and $0 and the remaining prepaid expense of $92,473 at September 30, 2012 which will be amortized over the remaining initial estimated license term of 20 months.

Mike Sorrentino and MPS Entertainment LLC

On February 9, 2012 (the “Effective Date”), the Company entered into an exclusive, worldwide licensing agreement (the “MPS License Agreement”) with Mike Sorrentino and MPS Entertainment LLC (“MPS”) and Starz Management & PR (“Starz”), which grants the Company the right to use Mike Sorrentino’s (known by the stage name “The Situation”) name and likeness in the development, manufacture, marketing, sale and distribution of social applications and social games (the “Apps”) to be released and offered on the Android, Apple's iOS, Facebook, and Google+ platforms. Pursuant to the MPS License Agreement, the Company will develop a total of four Apps within 18 months of the Effective Date (the “Initial Term”), with the release of the first, second, and third App occurring within 3 months, 6 months and 9 months of the Effective Date, respectively. The fourth App shall be released no later than 15 months from the Effective Date. The term of the License (the “Term”) shall be 18 months from the Effective Date.

The Company shall pay MPS non-returnable royalties (“Royalties”) in an amount equal to 42.5% of the revenue generated, directly or indirectly, from the virtual sale of the Products, advertising sponsorship, commercial tie-ins and/or product placement related to the licensed property, and shall pay Starz Royalties equal to 15% of the revenue generated from the sale of the products related to the licensed property. The revenue shall be calculated as the gross revenue less any mandatory third party commissions, including fees from all sites that sell and market the products and any bonus payments made. The Company shall pay a bonus to Licensor equal to $10,000 per 100,000 active users up to 1,000,000 active users. The bonus is fully recoupable by the Company against future revenues.

 
15

 

APPS GENIUS CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012

NOTE 6 – COMMITMENT AND CONTINGENCIES (continued)

In consideration for the exclusive license granted by Licensor during the Term, the Company has issued Licensor warrants exercisable for the purchase of 1,000,000 shares of the Company’s common stock at an exercise price equal to $0.23 per share (the “Situation Warrants”) and the Company has issued Starz warrants exercisable for the purchase of 100,000 shares of the Company’s common stock at an exercise price equal to $0.23 per share (the “Starz Warrants”).  The Situation Warrants will be exercisable by Licensor until the later of (i) one hundred fifty (150) days following the end of the Term (and any extensions thereto) or (ii) eighteen (18) months following the Effective Date.  The Situation warrants can be exercised as follows: 500,000 warrants on the Effective date, and 166,667 on the release of the second game, 166,667 upon release of the third game and 166,666 upon release of the fourth game.  The Starz Warrants shall vest upon the release of each game at 25,000 warrants per game.

In connection with the equity instruments issued pursuant to the MPS License Agreement, for the nine months ended September 30, 2012 and 2011, the Company recorded licensing fees of $78,523 and $0 and the remaining prepaid expense of $105,276 at September 30, 2012 which will be amortized over the remaining portion of the initial estimated license term of 18 months.

The Company accounted for the equity instruments issued pursuant to the License Agreement in accordance with ASC 505-50, “Equity Based Payments to Non-Employees” (See Note 5).  

NOTE 7 – SUBSEQUENT EVENTS

In connection with the consulting agreement dated August 24, 2012 (See Note 5 above), the Company is obligated to issue 500,000 shares of its common stock on October 5, 2012. The Company valued these common shares at the fair value of $0.032 per common share or $16,000 based on the quoted trading price of the common stock on the grant date of October 5, 2012, which is the measurement date. Additionally, the Company is obligated to issue 500,000 shares of its common stock on November 5, 2012. The Company valued these common shares at the fair value of $0.021 per common share or $10,500 based on the quoted trading price of the common stock on the grant date of November 5, 2012, which is the measurement date.

On October 24, 2012, the Company issued 200,000 shares of its common stock to a consultant for services rendered. The Company valued these common shares at the fair value of $0.03 per common share based on the quoted trading price of the common stock on the grant date which is the measurement date. In connection with issuance of these common shares, the Company recorded stock-based compensation of $6,000.
 
 
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Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Plan of Operations

We were incorporated in the State of Nevada on December 17, 2009 as Apps Genius Corp.
 
We create innovative social games and mobile application that let you play together with real-world friends and family using the infrastructure built by social and wireless networks. Our cross-platform gaming and mobile applications allow users to play and interact with the same people such user would play cards, board games or go bowling within the real world, regardless of the network they are on.  Our Social Gaming and Mobile App technology allows users and players to reach across the different networks into a virtual application or gaming environment.  Additionally, we have developed unique player incentive platforms that allow users to share in the success of the game or application.  Currently we are developing our platform for Facebook, iPhone and Android.
 
We monetize our social games through virtual currencies through Google Play, Admob, Facebook Credits, and banner ads through Lifestreet Media and Apple. Our mobile applications are monetized by either charging fees for downloading through the Apple iTunes Store or by offering free applications with banner advertising supplied by Cubics. To date, we have commenced limited operations and will require outside capital to implement our business model.
 
In August 2011, we launched our Celebrity Entertainment Division. Our aim with implementing the Celebrity Entertainment Division is to work with celebrities to create and distribute social games and software applications that consumers can use on a variety of platforms. In that regard,

On October 17, 2011, we entered into an exclusive, worldwide licensing agreement which grants us the right to use Nicole Polizzi’s (known by the stage name “Snooki”) name and likeness in the development, manufacture, marketing, sale and distribution of social applications and social games (the “Snooki License”). Pursuant to the Snooki License, we will develop a total of four applications within one year of the execution of the License Agreement (the “Initial Term”), with the release of the first application occurring in November 2011. We have also retained the right to release four additional applications after the Initial Term, provided we successfully release four applications during the Initial Term.
 
On February 9, 2012, we entered into a binding term sheet (the “Term Sheet”) with Mike Sorrentino, MPS Entertainment, LLC, and Starz Management & PR, LLS (“Starz”) regarding an exclusive, worldwide licensing agreement, which would  grants us the right to use Mike Sorrentino (known by the stage name “The Situation”) name and likeness in the development, manufacture, marketing, sale and distribution of social applications and social games to be released and offered on the Android, Apple's iOS, Facebook, and Google+ platforms (the “Sorrentino  Agreement”).Pursuant to the Term Sheet, we will develop a total of four apps within eighteen (18) months of the execution of the Sorrentino Agreement, with the release of the first, second, and third App occurring within 3 months, 6 months and 9 months of the Effective Date, respectively. The fourth App shall be released no later than 15 months from the Effective Date. The term of the License (the “Term”) shall be 18 months from the Effective Date.
 
On April 19, 2012, we acquired the domain name “GetFunded.com” in order to explore potential opportunities in crowdfunding.  “Crowdfunding” describes the collective cooperation, attention, and trust by people who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.  Crowdfunding can occur for a wide variety of purposes, both for-profit and not-for-profit, including mobile app development, disaster relief, citizen journalism, support of artists by fans, political campaigns, startup company funding, movie or software development, and scientific research.  Crowdfunding has experienced a sudden increase in popularity and could become a viable means for start-up companies to raise capital from investors because of the Jumpstart Our Business Startups Act or “JOBS” Act, which was signed into law by President Obama on April 5, 2012.  The JOBS Act eases certain securities regulations, particularly for smaller issuers of securities, and creates an exemption from registration under the Securities Act of 1933 for crowdfunding, subject to certain restrictions and qualifications.  The SEC has until December 31, 2012 to enact a regulatory system for crowdfunding, but this could potentially be extended until a later date.
 
 
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Our website, www.GetFunded.com will position us to be part of crowdfunding when the SEC regulations become effective and entrepreneurs are able to solicit capital from investors through these channels. Crowdfunding has already received a large amount of publicity.

Our Beta version of www.GetFunded.com is open for registration to all businesses.  The GetFunded.com platform initially allows users to donate financially to the development of a wide range of products and services. In our initial release, GetFunded.com allows users to contribute to a project in exchange for services or products. Next, we intend to build and position the GetFunded.com platform to take advantage of the JOBS Act by allowing users to use crowdfunding to solicit investors and sell securities through our website should the JOBS Act become effective and applicable to crowdfunding.

GetFunded.com intends to apply to become an approved portal site with the ability to allow users to invest and purchase securities in companies through crowdfunding in accordance with the requirements of the JOBS Act.  As soon as the SEC regulations are announced, we plan to move quickly so that we are able to become an early established platform for crowdfunding.

Limited Operating History

We have generated a limited financial history and have not previously demonstrated that we will be able to expand our business. Our business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods.

Critical Accounting Policies and Estimates

While our significant accounting policies are more fully described in Note 1 to our financial statements for the nine months ended September 30, 2012, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

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

Software development costs

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

Impairment of long-lived assets

In accordance with ASC Topic 360, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. We did not record any impairment charges during the nine months ended September 30, 2012 and 2011.
 
 
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Revenue recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured.  For all revenue sources discussed below, in accordance ASC 605-45 “Principal Agent Considerations”, we recognize revenue net of amounts retained by third party entities pursuant to revenue sharing agreements. Our specific revenue recognition policies are as follows:

We recognize revenue from the sale of our social games and mobile applications (“Apps”) when the App is sold and downloaded by the customer and collection is reasonably assured.

We recognize revenues from the placement of banner ads on social games and mobile applications upon placement of the banner and when collection is reasonably assured.

Some of the our social games contain a virtual currency or point systems that allow users to increase their game playing levels and gain special privileges.  Users collect points by moving through the levels, buying them or by completing offers from third-party advertisers that convert into points or virtual currency. When a user completes an offer for one of our third-party advertisers, the advertiser pays us a commission.  The commission is recognized as revenue upon completion of the offer and the receipt by us of an electronic confirmation from the advertiser and when collection is reasonably assured.  Virtual currency revenue for the nine months ended September 30, 2012 and 2011 was insignificant. For revenues generated through Facebook, Facebook enables payments to the Company through their users. Facebook users can make payments on the Facebook Platform by using credit cards or other payment methods available on its website. The primary process for these transactions is through the purchase of Facebook virtual currency. Facebook users then use this virtual currency to purchase virtual and digital goods in games and apps from developers on the Facebook Platform. When a user engages in a payment transaction utilizing the virtual currency to purchase the Company’s applications or games, Facebook will remit to the Company an amount that is based on the total amount of virtual currency redeemed less the processing fee that Facebook charges the Company for the service performed. At such time as the revenue is earned, the Company records as revenue the net amount of the transaction due to the Company from Facebook.

Stock-based compensation

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

Recent accounting pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

Results of Operations

For the Three and Nine Months Ended September 30, 2012 and 2011

Revenues

For the nine months ended September 30, 2012 and 2011, we recognized revenues of $6,473 and $10,450, respectively, a decrease of $3,977 or 38.1% and for the three months ended September 30, 2012 and 2011, we recognized revenues of $1,499 and $1,915, respectively, a decrease of $416 or 21.7%.  The decrease in revenues was mainly attributable to a decrease in the sale of previously developed applications and advertising revenues and a lack in the development of new games and applications due to a lack of working capital and development activities. Pursuant to the Snooki License discussed elsewhere herein, we have developed and released three games and applications. We have also retained the right to release four additional applications provided we successfully release four applications during the initial license term. Additionally, on February 9, 2012, we entered into a binding term sheet (the “Term Sheet”) with Mike Sorrentino, MPS and Starz regarding an exclusive, worldwide licensing agreement, which would  grants us the right to use Mike Sorrentino (known by the stage name “The Situation”) name and likeness in the development, manufacture, marketing, sale and distribution of social applications and social games to be released and offered on the Android, Apple's iOS, Facebook, and Google+ platforms (the “Sorrentino  Agreement”).Pursuant to the Term Sheet, we will develop a total of four apps within eighteen (18) months of the execution of the Sorrentino Agreement, with the release of the first, second, and third App occurring within 3 months, 6 months and 9 months of the Effective Date, respectively. The fourth App shall be released no later than 15 months from the Effective Date. The term of the License (the “Term”) shall be 18 months from the Effective Date. To date we have only released one App.
 
 
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Operating Expenses

For the nine months ended September 30, 2012 and 2011, operating expenses amounted to $1,234,970 and $204,339 respectively, an increase of $1,030,631 or 504.4%. For the three months ended September 30, 2012 and 2011, operating expenses amounted to $446,853 and $41,634 respectively, an increase of $405,219 or 973.3%. Changes in operating expenses consisted of the following:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Licensing fees and expenses
  $ 67,293     $ -     $ 200,237     $ -  
Research and development
    45,133       -       155,343       43,960  
Administrative compensation
    47,000       12,000       106,000       40,025  
Professional fees
    274,479       24,416       649,478       91,466  
Other selling, general and administrative
    12,948       5,218       123,912       28,888  
    $ 446,853     $ 41,634     $ 1,234,970     $ 204,339  
 
*
For the three and nine months ended September 30, 2012, license fees and expenses amounted to $67,293 and $200,237, respectively. We did not incur these expenses in the three and nine months ended September 30, 2011.  The increase was attributable to the following:
 
  1.
On October 17, 2011, we entered into an exclusive, worldwide licensing agreement with NEP Snooki Enterprises, LLC (“NEP”) and Starz Management & PR (“Starz”), which grants us the right to use Nicole Polizzi’s (known by the stage name “Snooki”) name and likeness in the development, manufacture, marketing, sale and distribution of social applications and social games.In consideration for the exclusive license granted by NEP during the initial term, we paid a non-refundable license fee of $55,000 (the “Cash Fee”). In addition, we issued NEP or assignees warrants exercisable for the purchase of 1,100,000 shares of the Company’s common stock at an exercise price equal to $0.31 per share on a for-cash or cashless exercise basis and 70,000 shares of our common stock were issued to Starz.
 
  2. On February 9, 2012, we entered into an exclusive, worldwide licensing agreement (the “MPS License Agreement”) with Mike Sorrentino and MPS Entertainment LLC (“MPS”) and Starz, which grants the Company the right to use Mike Sorrentino’s (known by the stage name “The Situation”) name and likeness in the development, manufacture, marketing, sale and distribution of social applications and social games. In consideration for the exclusive license granted by MPS during the Term, we issued MPS and Starz warrants exercisable for the purchase of an aggregate of 1,100,000 shares of the Company’s common stock at an exercise price equal to $0.23 per share.
     
 
For the three and nine months ended September 30, 2012, we recorded licensing fees of $115,570 and $179,943 from the amortization of the above cash and equity fees and $6,508 and $20,493 in marketing and promotional fees and insurance, respectively.
 
*
Research and development expenses consist primarily of salaries and fees paid to third parties for the development of software and applications as well as the development of the “Get Funded.com” website. For the nine months ended September 30, 2012, research and development expenses increased by $111,383 or 253.4% as compared to the nine months ended September 30, 2011. For the three months ended September 30, 2012, research and development expenses increased by $45,133 as compared $0 for the three months ended September 30, 2011.   In February 2011, we substantially decreased development activities and in May 2011, we temporarily ceased our research and development activities until we generated sufficient revenues from our current portfolio of products or we were able to raise additional working capital funds from debt or equity financing or loans. In February 2012, pursuant to a Securities Purchase Agreement, we received net proceeds of approximately $825,000 and resumed research & development activities to develop new applications with working capital received from our recent capital raise. In the fourth quarter of 2012, we expect research and development activities to decrease due to limited working capital.
 
 
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*
For the nine months ended September 30, 2012, administrative compensation increased by $65,975 or 164.8% as compared to the nine months ended September 30, 2011. For the three months ended September 30, 2012, administrative compensation increased by $35,000 or 291.7% as compared to the three months ended September 30, 2011. In the 2011 period, we reduced administrative compensation due to the lack of working capital.  In February 2012, pursuant to a Securities Purchase Agreement, we received net proceeds of approximately $825,000 and resumed the payment of administrative compensation. We expect administrative salaries to increase in 2012 as we increase our operations.
 
*
For the nine months ended September 30, 2012, professional fees increased by $558,012 or 610.1% as compared to the nine months ended September 30, 2011.  For the three months ended September 30, 2012, professional fees increased by $250,063 or 1,024.2% as compared to the three months ended September 30, 2011.  We expect professional fees to increase as we incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. Additionally, during the three and nine months ended September 30, 2012, we incurred stock-based professional fees of $245,767 and $479,904 related to business development and investor relations services as compared to $3,444 and $18,444 in the three and nine months ended September 30, 2011.
 
*
For the nine months ended September 30, 2012, other selling, general and administrative expenses increased by $95,024 or 329.0% as compared to the nine months ended September 30, 2011.  During the nine months ended September 30, 2012, we incurred marketing expense of approximately $10,200 in connection with our exhibition and attendance at the 2012 game Developers Conference and other marketing efforts as compared to $200 for the 2011 period. Additionally, for the nine months ended September 30, 2012, travel expenses increased by approximately $21,600 as compared to the 2011 period. During the nine months ended September 30, 2012, we paid $60,000 for a domain name which was expensed and included in other selling, general and administrative expenses. For the three months ended September 30, 2012, other selling, general and administrative expenses increased by $7,730 or 148,1% as compared to the three months ended September 30, 2011.  
 
Other Income

For the three and nine months ended September 30, 2012, we recognized interest income of $192 and $554, as compared to $0 and $37 for the three and nine months ended September 30, 2011, respectively. The increase in interest income was attributable to having a higher cash balance with which to earn interest on. Additionally, for the three and nine months ended September 30, 2012, we incurred aggregate interest expense of $0 and $639 related to outstanding notes payable and related party notes, respectively. For the three and nine months ended September 30, 2011, we incurred aggregate  interest expense of $704 and $704 related to outstanding notes payable and a related party note, respectively.

Net Loss

As a result of the factors described above, our net loss for the nine months ended September 30, 2012 and 2011 was $1,228,582 and $194,556, or a net loss per common share of $0.04 and $0.01 (basic and diluted), respectively. Our net loss for the three months ended September 30, 2012 and 2011 was $445,162 and $40,423, or a net loss per common share of $0.01 and $0.00 (basic and diluted), respectively.

Liquidity and Capital Resources

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

  
An increase in working capital requirements to finance additional product and App development,
  
Addition of administrative and sales personnel as the business grows,
  
Increases in advertising, public relations and sales promotions for existing and new brands as the company expands within existing markets or enters new markets,
  
The cost of being a public company, and
  
Capital expenditures to add additional technology.
 
 
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Our net revenues are not sufficient to fund our operating expenses.  At September 30, 2012, we had a cash balance of $193,208. Since inception we have funded our operations as follows:

In 2010, we raised net proceeds of $652,000 from the sale of common stock to fund our operating expenses, pay our obligations, and for working capital purposes.
 
In 2011, we borrowed $111,150 ($101,150 from third parties and $10,000 from our chief executive officer) pursuant to note agreements. In January 2012, we borrowed an additional $7,500 from third parties. These funds were used for working capital purposes and to pay the fee for the License Agreement. These notes were unsecured, had interest at 6.0% per annum and were generally due with one year or less of the original note date or within three business days of the closing of a private placement of certain equity securities offered by the Company. In February 2012, the Company raised net proceeds of approximately $830,000 in a private placement as discussed below and these notes and all accrued interest were repaid out of the net proceeds.

On February 9, 2012, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited investors (the “Investors”) relating to the sale and issuance by us to the Investors of an aggregate of 5,714,286 units, each unit consisting of (i) one share of common stock, par value $0.001 per share (“Common Stock”), of the Company, and (ii) a five-year warrant to purchase one share of Common Stock at an exercise price of $0.25 per share (each, a “Warrant,” and collectively, the “Warrants”).  Each unit was sold at a price of $0.175. Pursuant to the Securities Purchase Agreement, on February 14, 2012 (the closing date), we issued 5,714,286 shares of common stock and issued 5,714,286 Warrants for net proceeds to us from the sale of the units, after deducting the placement agent’s fees and offering expenses, of approximately $830,000. We conducted the Offering pursuant to a registration statement on Form S-1 which was declared effective by the Securities and Exchange Commission on February 9, 2012.The Securities Purchase Agreement contains provisions that restrict the Company from issuing, except pursuant to certain exceptions, any Common Stock or Common Stock equivalents involving a Variable Rate Transaction (as that term is defined in the Securities Purchase Agreement) until five years from the closing.

We currently have no material commitments for capital expenditures. We will need to raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations.   We estimate that based on current plans and assumptions, that our available cash will be sufficient to satisfy our cash requirements under our present operating expectations, without further financing, for up to 12 months. Other than working capital and funds received pursuant to the Securities Purchase Agreement, we presently have no other alternative source of working capital. We will use these funds to fund our operating expenses, pay our obligations, grow our company, and to develop products as required by our License Agreement and for the development of new Apps and games. We may not have sufficient working capital to fund the expansion of our operations and to provide working capital necessary for our ongoing operations and obligations after 12 months and we may need to raise significant additional capital. We do not anticipate we will be profitable in 2012.  Therefore our future operations may be dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will be required to further curtail our marketing and development plans and possibly cease our operations.

We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern in their audit opinion for the year ended December 31, 2011.
 
Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.
 
 
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Our estimate of cash needed for operating activities for the next 12 months is outlined below:
 
Description
 
Estimated Cost
 
Selling and marketing expenses
  $ 5,000  
Research and development activities
    15,000  
Professional fees
    65,000  
General and administrative
    70,000  
Total
  $ 155,000  

Research and development activities- In May 2011, we temporarily ceased our research and development activities until we generated sufficient revenues from our current portfolio of products or we are able to raise additional working capital funds from debt or equity financing or loans.  In February 2012, pursuant to a Securities Purchase Agreement, we received net proceeds of approximately $830,000 and resumed limited development activities. In February 2012, we began limited development activities and we estimate that we will incur cash costs and expenses of approximately $15,000 during the subsequent twelve month period on research and development activities (excluding non-cash stock-based fees)

Professional fee - Primarily includes professional fees associated with becoming a public company as summarized as follows:

   
Amount
 
Auditing fees
  $ 25,000  
Legal fees
    30,000  
Other professional fees
    10,000  
Total
  $ 65,000  

General and administrative – Over the next 12 months, we estimate that we will incur general and administrative expenses as follows:

   
Amount
 
Administrative salaries and benefits
  $ 60,000  
Other
    10,000  
Total
  $ 70,000  

We believe our current cash balance is sufficient to fund our business plan, and to continue operating for the next 12 months. If these operating funds are not sufficient, we will have to scale back our operating plans and it will be unlikely that we will be able to pursue our overall business plan without raising additional working capital.

Operating activities
 
For the nine months ended September 30, 2012 and 2011, net cash flows used in operating activities amounted to $535,661 and $180,813, respectively. For the nine months ended September 30, 2012, net cash used in operations of $535,661 was primarily attributable to our net losses of $1,228,582 offset by the add back of non-cash items such as depreciation expense of $1,010 and stock based compensation and fees of $652,897, and changes in operating assets and liabilities of $39,014. For the nine months ended September 30, 2011, net cash used in operations of $180,813 was primarily attributable to our net losses of $194,556 offset by the add back of non-cash items such as depreciation expense of $1,010, stock based compensation of $30,444, and contributed services of $6,000, and changes in operating assets and liabilities of $23,711.
 
Financing activities
 
For the nine months ended September 30, 2012 and 2011 net cash flows provided by financing activities was $721,141 and $72,500, respectively. During the nine months ended September 30, 2012, we received net proceeds from sale of common stock of $838,150 and proceeds from notes payable of $7,500 offset by the payments of notes payable $118,650 and the payment of insurance premium finance payable of $5,859. During the nine months ended September 30, 2011, we received proceeds from notes payable of $75,000, received proceeds from a note payable – related party of $5,000, and paid $7,500 of deferred financing costs. 
 
 
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Contractual Obligations

In the normal course of business, we may have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. At September 30, 2012, we did not have any material contractual obligations that would require us to pay cash in future periods.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
Item 3. 
Quantitative and Qualitative Disclosures About Market Risk.
 
Not required for smaller reporting companies.

Item 4. 
Controls and Procedures.

Evaluation of disclosure controls and procedures
 
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of September 30, 2012. Based on this evaluation, our principal executive officer and principal financial officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules.
 
Changes in Internal Controls
 
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended September 30, 2012 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.
 
We are not a party to, and none of our property is the subject of, any pending legal proceedings. To our knowledge, no governmental authority is contemplating any such proceedings.

Item 1A. 
Risk Factors.
 
Not required to be provided by smaller reporting companies.
 
Item 2. 
Unregistered Sales of Equity Securities and Use of Proceeds.
 
On August 24, 2012, we entered into a four month consulting agreement for business development services This Agreement shall remain in effect for a fixed term of four months commencing on the August 24, 2012 and continuing through December 23, 2012. As consideration for consultant’s performance of the services, we shall pay Consultant 2,000,000 shares of the Company’s common stock in equal monthly installments during the Initial Term of 500,000 shares per month. In connection with the agreement, we issued 500,000 shares of our common stock on September 5, 2012. We valued these common shares at the fair value of $0.015 per common share or $7,500 based on the quoted trading price of the common stock on the grant date of August 24, 2012, which is the measurement date. Each subsequent monthly issuance of share pursuant to this consulting agreement shall be valued at the fair value of such common share based on the quoted trading price of the common stock on the grant date, which will be the measurement date.
 
 
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On September 1, 2012, we issued 428,571 shares of our common stock to the Company’s chief financial officer for services rendered. We valued these common shares at the fair value of $0.014 per common share based on the quoted trading price of the common stock on the grant date which is the measurement date.

These issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that Act.  Each person to whom the shares were issued was an accredited investor and acquired the shares for investment and not with a view to the sale or distribution and received information concerning us, our business and our financial condition, and the stock certificates bear an investment legend.  No brokerage fees were paid in connection with any of these stock issuances.

Item 3. 
Defaults Upon Senior Securities.
 
None.

Item 4. 
Mine Safety Disclosures.
 
Not applicable
 
Item 5. 
Other Information.
 
None.

Item 6. 
Exhibits.

Exhibit No.
Description
 
31.1*
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
   
31.2*
Rule 13a-14(a)/15d-14(a) certificate of Principal Financial Officer
 
32.1**
Section 1350 certification of Chief Executive Officer and Chief Financial Officer

101.INS†
XBRL Instance Document
   
101.SCH †
XBRL Taxonomy Schema
   
101.CAL †
XBRL Taxonomy Calculation Linkbase
   
101.DEF †
XBRL Taxonomy Definition Linkbase
   
101.LAB †
XBRL Taxonomy Label Linkbase
   
101.PRE †
XBRL Taxonomy Presentation Linkbase

* Filed herewith.
** In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are furnished and not filed.
† Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
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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.

 
APPS GENIUS CORP
     
Date: November 9, 2012
By:
/s/ Adam Kotkin  
   
Adam Kotkin, Chief Executive Officer
(Principal Executive Officer)
     
     
Date: November 9, 2012    
By:
/s/ Adam Wasserman 
   
Adam Wasserman, Chief Financial Officer and Principal Accounting Officer

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