Attached files
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| EX-32.1 - EXHIBIT 32.1 - EMARINE GLOBAL INC. | ex321.htm |
| EX-31.1 - EXHIBIT 31.1 - EMARINE GLOBAL INC. | ex311.htm |
| EXCEL - IDEA: XBRL DOCUMENT - EMARINE GLOBAL INC. | Financial_Report.xls |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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x
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2012
OR
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from_____________ to _____________.
Commission file number 000-49933
POLLEX, INC.
(Exact name of registrant as specified in its charter)
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Nevada
(State or other jurisdiction of
incorporation or organization)
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95-4886472
(I.R.S. Employer
Identification No.)
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2005 De La Cruz Blvd. Suite 142
Santa Clara, CA
(Address of principal executive offices)
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95050
(Zip Code)
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Registrant’s telephone number, including area code (408) 350-7340
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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None
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None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Aggregate market value of the voting stock held by non-affiliates: $90,185 as of the Registrant's most recently completed second fiscal quarter. The voting stock held by non-affiliates on that date consisted of 1,288,355 shares of common stock.
Applicable Only to Registrants Involved in Bankruptcy Proceedings During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
Applicable Only to Corporate Registrants
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of April 16, 2013, there were 5,121,688 shares of common stock, par value $0.001, issued and outstanding.
Documents Incorporated by Reference
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None.
Pollex, Inc.
PART I
This Annual Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management's Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
Business Overview
Overview
Pollex, Inc., formerly Joytoto USA, Inc., formerly BioStem, Inc. (the “Company,” “we,” and “us”) was incorporated on November 2, 2001, in the State of Nevada, as Web Views Corporation.
We are a majority owned subsidiary of Joytoto Co., Ltd. (“Joytoto Korea”). We are determined to focus our efforts on our Online Games business by acquiring new game licenses and making such games commercially available in South Korea and the United States.
Products and Services
Our operations are focused on Online Games. The Company has acquired licenses from various online game developers to use in South Korea. Our Online Games business segment has generated $160,808 for the fiscal year ended December 31, 2012.
Our major online game business is The Great Merchant. The online game is operating at its website http://www.thegreatmerchant.com. The website operated in open beta testing on January 2010. The game opened for full commercial service on September 1, 2011. The Great Merchant is a free-to-play MMO (Massively Multiplayer Online) PC game. Players can download the game for free from our website and interact with other players in the game to trade, fight, and explore the game world. The game is set in 14th century Asia with Korea, China, Taiwan, and Japan as the main explorable countries. As a free-to-play game, the Great Merchant offers micro-transactions through PayPal which players can purchase in game currency (GP) to further their character and purchase items to increase their character’s abilities and in game looks. Additional purchase methods such as credit cards and mobile phone payments will be added in the future.
Online Games
As of December 31, 2012, the Company has entered into license agreements for 15 games for use in South Korea. These agreements allow the Company to release and service these games in South Korea. The Company opened one of these games in South Korea under open beta testing on March 16, 2011. Open Beta testing allows users and players to test the game while not implementing the full revenue generating service of the game. One of the games was recently launched commercially in July 14, 2012. The remainder of the games are expected to be launched in consecutive succession in the third quarter of 2013.
For the game licenses, the Company was required to pay aggregate license fees of $210,500, ranging from $0 to $30,000 per game. For two games, the Company was required to prepay $30,000 in non-refundable deposits which can be used for future commission payments. For one game, the Company was required to make a $5,000 non-refundable deposit.
During 2012, the Company entered into two of the above license agreements for 2-3 years for a total of $110,000, of which $75,000 was paid. One of these games was launched commercially. Under the license agreements, the Company is required to pay the licensor 24%- 25% of gross sales.
In March of 2012, the Company entered into a termination agreement relating to one of the licenses. The Company received $35,000, plus value added tax, to terminate a license with a carrying value of $10,000 and a related deposit of $20,000. As a result of this termination agreement, the Company’s total license fees were $130,500, deposits for future commissions were $10,000 and other deposits were $5,000.
The Great Merchant is an economic based MMORPG (Massively Multiplayer Online Role Playing Game) online at http://www.thegreatmerchant.com. While the game is free to play and there is no cost for users to purchase and connect to the game, the game prompts the user to use micro transactions to purchase in-game points that can be used in the game to further the in-game operations of their own character. Unlike different MMORPGs on the market, the Great Merchant player can advance through the game by trading online items and virtual goods.
Customer Service
We focus on retention of our current subscribers and believe our ability to establish and maintain long-term relationships with subscribers depends, in part, on the strength of our customer support and service operations. We utilize frequent communication and feedback from our subscribers to continually improve our website and our service. Our subscribers can communicate with our customer service representatives by email and by telephone. We focus on eliminating the need for customer support calls by automating certain self-service features on our website.
Marketing and Advertising
Our sales and marketing efforts are designed to attract visitors to our website and convert and retain them as paying subscribers in a cost effective manner. We will employ a multi-channel customer advertising strategy and market and advertise to potential subscribers through a combination of paid and unpaid sources. We believe that our paid marketing efforts are significantly enhanced by the benefits of word-of-mouth advertising and referrals by existing subscribers. We regularly monitor the effectiveness of our marketing efforts primarily by conducting surveys during our registration process. We use the survey results to actively manage our online and offline media and channel mix in order to improve the efficiency of our marketing expenditures.
We are currently pursuing the following customer advertising activities:
Online advertising. We will advertise online through search engines, advertising networks and partner websites. We use a pay-per-click spending model on search engines and pay-per-conversion model on our various online advertising, affiliate and partner networks, in order to match our costs with new customer additions.
Word-of-mouth referrals. We believe that we have developed a loyal customer base, and new customers frequently indicate they have heard about us from current customer.
Competition
Our business is extremely competitive, particularly with respect to the online gaming marketplace. In addition, the market for the products we develop is subject to rapid technological change. We intend to compete with numerous online gaming companies, many of which have significantly greater financial, technical, and marketing resources than we do.
We have not expended funds for research and development costs since inception.
Distribution
As our game licenses are distributed as free-to-play, there is no need for brick and mortar distribution channels. We will be distributing our games through online marketing channels, digital distribution outlets, PC gaming portals, social media sites to increase our core audience. Usage of online marketing tools such as pay per click and pay per view advertising on online channels and platforms will be used to grow and maintain our current user base.
Reports to Security Holders
We will file the necessary reports with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including but not limited to, current reports on Form 8-K, annual reports on Form 10-K, and quarterly reports on Form 10-Q. You may read and copy these reports, statements or other information filed by us in the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public at the Website maintained by the SEC at www.sec.gov.
Employees
As of April 16, 2013, we have one employee, which is full time.
We have a limited operating history and limited historical financial information upon which you may evaluate our performance.
We are in our early stages of development and face risks associated with a new company in a growth industry. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future.
We operate in a competitive industry and continue to be under the pressure of eroding gross profit margins, which could have a material adverse effect on our business.
The market for the products we intend to develop is very competitive and subject to rapid technological change. The prices for our intended products tend to decrease over their life cycle, which can result in decreased gross profit margins for us. There is also substantial and continuing pressure from customers to reduce their total cost for products. We expend substantial amounts on the value creation services required to remain competitive, retain existing business, and gain new customers, and we must evaluate the expense of those efforts against the impact of price and margin reductions. Further, our margins will be lower in certain geographic markets and certain parts of our business than in others. For example, the products we intend to sell in the Asian markets tend to have lower profit margins than in the United States. If we are unable to effectively compete in our industry or are unable to maintain acceptable gross profit margins, our business could be materially adversely affected.
Products developed by us may be found to be defective and, as a result, warranty and/or product liability claims may be asserted against us, which may have a material adverse effect on the company.
We may face claims for damages as a result of defects or failures in the products we intend to develop, or which we have developed for value-added resellers. Our ability to avoid liabilities, including consequential damages, may be limited as a result of differing factors, such as the inability to exclude such damages due to the laws of some of the countries where we do business. Our business could be materially adversely affected as a result of a significant quality or performance issue in the products developed by us, if we are required to pay for the damages that result.
Our share ownership is concentrated.
Joytoto Co. Ltd., a Korean company, beneficially owns approximately 42.3% of our voting shares (including shares owned by its wholly-owned subsidiary, Joyon Entertainment Co., Ltd.). As a result, this stockholder can exert significant influence over all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation or sale of all or substantially all of assets, as well as any charter amendment and other matters requiring stockholder approval. In addition, this stockholder may dictate the day to day management of the business. This concentration of ownership may delay or prevent a change in control and may have a negative impact on the market price of our common stock by discouraging third party investors. In addition, the interests of this stockholder may not always coincide with the interests of our other stockholders.
We have licensed, or will license, from third parties certain intellectual properties. If these licenses terminate, or if these third parties do not comply with the terms of our license, or if the underlying licensed patents are found to be invalid, our business could be negatively impacted.
We have licensed, or will license, from third parties, certain intellectual properties necessary to service games in a region or territory of agreement. In return for the use of their technology, we have paid or agreed to pay, or will agree to pay the licensor, certain fees and royalties based on sales of the product. If these licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or if we are unable to enter into necessary licenses on acceptable terms, our business could be negatively impacted.
Our non-U.S. locations may represent a significant portion of our sales, and consequently, we may be exposed to risks associated with operating internationally.
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import and export regulations that could erode profit margins or restrict exports;
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the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations;
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potential restrictions on transfers of funds;
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foreign currency fluctuations;
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import and export duties and value-added taxes;
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transportation delays and interruptions;
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uncertainties arising from local business practices and cultural considerations; and
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potential military conflicts and political risks.
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While we intend to adopt measures to reduce the potential impact of losses resulting from the risks of doing business abroad, we cannot ensure that such measures will be adequate.
When we make acquisitions, we may not be able to successfully integrate them or attain the anticipated benefits.
We may, in the future, acquire other businesses that are synergistic with ours. If we are unsuccessful in integrating our acquisitions, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse effect on our business. In addition, we may not realize all of the anticipated benefits from our acquisitions, which could result in an impairment of goodwill or other intangible assets.
We lack proper internal controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive , who is also our Chief Financial Officer, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
During the course of the preparation of our December 31, 2012 financial statements, we identified certain material weaknesses relating to our internal controls and procedures. Some of these internal control deficiencies may also constitute deficiencies in our disclosure and internal controls.
Our business may require additional capital for continued growth, and our growth may be slowed if we do not have sufficient capital.
The continued growth and operation of our business may require additional funding for working capital. We may be unable to secure such funding when needed in adequate amounts or on acceptable terms, if at all. To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially at a price lower than the market price at the time of such issuance. Similarly, we may seek debt financing and may be forced to incur significant interest expense. If we cannot secure sufficient funding, we may be forced to forego strategic opportunities or delay, scale back or eliminate operations, acquisitions, and other investments.
Our ability to obtain needed financing may be impaired by such factors as the condition of the economy and capital markets, both generally and specifically in our industry, and the fact that we are not profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
Our inability to use shares of our common stock to finance future acquisitions could impair the growth and expansion of our business.
The extent to which we will be able or willing to use shares of our common stock to consummate acquisitions will depend on (i) the market value of our securities which will vary, (ii) liquidity, which is presently limited, and (iii) the willingness of potential sellers to accept shares of our common stock as full or partial payment for their business. Using shares of our common stock for this purpose may result in significant dilution to existing stockholders. To the extent that we are unable to use common stock to make future acquisitions, our ability to grow through acquisitions may be limited by the extent to which we are able to raise capital through debt or equity financings. We may not be able to obtain the necessary capital to finance any acquisitions. If we are unable to obtain additional capital on acceptable terms, we may be required to reduce the scope of expansion or redirect resources committed to internal purposes. Our failure to use shares of our common stock to make future acquisitions may hinder our ability to actively pursue our acquisition program.
We are subject to financial reporting and other requirements for which our accounting, and other management systems and resources may not be adequately prepared .
We are subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires us to conduct an annual management assessment of the effectiveness of our internal controls over financial reporting. These reporting and other obligations will place significant demands on our management, administrative, operational and accounting resources. We anticipate that we may need to (i) upgrade our systems, (ii) implement additional financial and management controls, reporting systems and procedures, (iii) implement an internal audit function, and (iv) hire additional accounting, internal audit and finance personnel. If we are unable to accomplish these objectives in a timely and effective manner, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to maintain effective internal controls could have a negative impact on our ability to manage our business and on our stock price.
Public company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and rules implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs in 2013 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all.
Shares of our stock suffer from low trading volume and wide fluctuations in market price.
Our common stock is currently quoted on the Over the Counter Bulletin Board trading system under the symbol PLLX.OB. An investment in our common stock currently is illiquid and subject to significant market volatility. This illiquidity and volatility may be caused by a variety of factors including low trading volume and market conditions.
In addition, the value of our common stock could be affected by actual or anticipated variations in our operating results; changes in the market valuations of other similarly situated companies serving similar markets; announcements by us or our competitors of significant acquisitions, strategic partnerships, collaborations, joint ventures or capital commitments; adoption of new accounting standards affecting our industry; additions or departures of key personnel; introduction of new products or services by us or our competitors; actual or expected sales of our common stock or other securities in the open market; conditions or trends in the market in which we operate; and other events or factors, many of which are beyond our control.
Stockholders may experience wide fluctuations in the market price of our securities. These fluctuations may have an extremely negative effect on the market price of our securities and may prevent a stockholder from obtaining a market price equal to the purchase price such stockholder paid when the stockholder attempts to sell our securities in the open market. In these situations, the stockholder may be required either to sell our securities at a market price which is lower than the purchase price the stockholder paid, or to hold our securities for a longer period of time than planned. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies by using common stock as consideration or to recruit and retain managers with equity-based incentive plans.
Our common stock is traded on the OTCQB which may make it more difficult for investors to resell their shares due to suitability requirements.
Our common stock is currently traded on the OTCQB where we expect it to remain in the foreseeable future. Broker-dealers often decline to trade in OTC:BB stocks given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.
There is substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm has issued an opinion on our consolidated financial statements that states that the consolidated financial statements were prepared assuming we will continue as a going concern and further states that our net losses of $627,661 and $582,072 in 2012 and 2011, respectively, and accumulated deficit of $139,570,946 at December 31, 2012 raise substantial doubt about our ability to continue as a going concern. Our plans concerning these matters include raising capital through the equity markets to fund future operations and generating revenue through our license agreements. Additionally, even if we do raise sufficient capital to support our operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable us to develop business to a level where it will generate profits and cash flows from operations.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
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changes in our industry;
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competitive pricing pressures;
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our ability to obtain working capital financing;
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additions or departures of key personnel;
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sales of our common stock;
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our ability to execute our business plan;
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operating results that fall below expectations;
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loss of any strategic relationship;
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regulatory developments; and
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economic and other external factors.
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In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our common stock is subject to the “Penny Stock” rules of the SEC, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
Our common stock is considered a “Penny Stock”. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock. The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder's ability to buy and sell our stock. In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit investors’ ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our common stock may be affected by limited trading volume and price fluctuation which could adversely impact the value of our common stock.
There has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.
We have never paid nor do we expect in the near future to pay dividends.
We have never paid cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock for the foreseeable future. Investors should not rely on an investment in our Company if they require income generated from dividends paid on our capital stock. Any income derived from our common stock would only come from rise in the market price of our common stock, which is uncertain and unpredictable.
None.
The Company leases approximately 1,021 square feet of office space in Santa Clara, California, for $1,250 per month pursuant to the terms of a two (2) year lease agreement commencing September 5, 2012 and ending September 30, 2014.
The Company is not a party to any legal proceedings
Not Applicable.
Market Information
Our common stock is currently quoted on the OTCQB. Our common stock has traded under the symbol PLLX since October 24, 2008.
The following table sets forth the high and low bid information for each quarter within the two most recent fiscal years, as provided by the NASDAQ Stock Market. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
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Fiscal Year
Ended
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Bid Prices
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December 31,
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Period
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High
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Low
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2011
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First Quarter
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$
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0.05
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$
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0.0031
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Second Quarter
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$
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0.70
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$
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0.02
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Third Quarter
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$
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0.07
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$
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0.022
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Fourth Quarter
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$
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0.085
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$
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0.02
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2012
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First Quarter
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$
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0.07
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$
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0.016
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Second Quarter
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$
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0.085
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$
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0.021
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Third Quarter
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$
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0.135
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$
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0.026
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Fourth Quarter
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$
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0.20
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$
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0.032
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Our transfer agent is Corporate Stock Transfer.
As of April 16, 2013, the number of holders of record of shares of our common stock is 5,121,689.
Dividend Policy
There have been no cash dividends declared on our common stock. Dividends are declared at the sole discretion of our Board of Directors.
Recent Sales of Unregistered Securities
The Company did not consummate any unregistered sales of its securities during the fiscal year ended December 31, 2012.
Securities Authorized for Issuance Under Equity Compensation Plans.
None.
As a smaller reporting company we are not required to provide the information required by this Item.
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Introduction
Pollex, Inc., formerly Joytoto USA, Inc., formerly BioStem, Inc. (the “Company,” “we,” and “us”) was incorporated on November 2, 2001, in the State of Nevada, as Web Views Corporation.
We are a majority owned subsidiary of Joytoto Korea. We are determined to focus our efforts on our Online Games business by acquiring new game licenses and making such games commercially available in South Korea and the United States.
Year ended December 31, 2012 compared to the Year ended December 31, 2011
Revenues, Expenses and Loss from Operations
Our revenues, selling, general and administrative expenses, depreciation, amortization, total costs and expenses, and net loss for the year ended December 31, 2012 and for the year ended December 31, 2011 are as follows:
|
Year Ended
December 31,
2012
|
Year Ended
December 31,
2011
|
|||||||
|
Revenue
|
$
|
160,808
|
$
|
64,768
|
||||
|
Cost of goods sold
|
76,555
|
-
|
||||||
|
Selling, general and administrative
|
225,443
|
237,739
|
||||||
|
Related party service agreement
|
240,000
|
324,000
|
||||||
| Bad debt expense | 97,842 | - | ||||||
|
Impairment of license agreements
|
53,000
|
20,000
|
||||||
|
Depreciation and Amortization
|
26,413
|
5,593
|
||||||
|
Total costs and expenses
|
719,253
|
587,332
|
||||||
|
Other expense
|
69,216
|
59,508
|
||||||
|
Net Loss
|
$
|
627,661
|
$
|
582,072
|
||||
Revenue
Total revenue for the year ended December 31, 2012 was $160,808 compared $64,768 for the year ended December 31, 2011. The increase of $96,040 or 148% was primarily due to the launch of new games in 2012.
Selling, General and Administrative
General and Administrative expenses for the year ended December 31, 2012 was $225,443 compared $237,739 for the year ended December 31, 2011. The decrease of $12,296 or 5% was primarily due to a decrease in travel and office expenses.
Related party service agreement
Related party service agreement for the year ended December 31, 2012 was $240,000 compared $324,000 for the year ended December 31, 2011. The decrease of $84,000 or 26% was primarily due to decrease in the amount of the service agreement due to the related party.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2012 was $26,413 compared $5,593 for the year ended December 31, 2011. The increase of $20,820 or 372% was primarily due to increased depreciation on computers, office equipment and game licenses.
Interest expense
Interest expense for the year ended December 31, 2012 was $74,216 compared $59,508 for the year ended December 31, 2011. The increase of $14,708 or 25% was primarily due to increasing interest expenses from amounts owed to debtors.
Impairment expense
At December 31, 2012, the Company determined that license agreements with carrying values of $48,000 and related deposits of $5,000 were impaired due to the non-launching of these games. As such, an impairment loss of $53,000 is reflected in Statement of Operations for the year ended December 31, 2012.
Bad debt expense
The allowance for doubtful accounts represents Management’s best estimate of the amount of probable credit losses. The Company has determined that all amounts billed to the game service provider are uncollectible as none of the amounts had been paid, the Company has granted extended payment terms, and the ultimate collection of the receivables is not certain.
Our Net Loss for the year ended December 31, 2012 was $627,661 compared $582,072 for the year ended December 31, 2011. The increase of $45,589 or 8% was primarily the impairment of license agreements and bad debt expense
Liquidity and Capital Resources
Introduction
Our primary assets are the online game license agreements and the Exclusive Distributorship Agreement. We have not begun to generate significant revenue from the online game license agreements, and as a result, we have very few current assets. Our cash requirements have been relatively small up to this point, but as our operations increase, we anticipate that our cash needs will increase dramatically. We anticipate satisfying these cash needs through the sale of our common stock until we not only begin to generate revenue, but until we can generate enough revenue to sustain our operations.
Cash Requirements
As stated above, we anticipate that our cash requirements will increase substantially as we begin to increase operations to generate revenue from our license and distributorship agreements.
Sources and Uses of Cash
Operations
Net loss for the year ended December 31, 2012 was $627,661 compared $582,072 for the year ended December 31, 2011. The increase of $45,589 or 8% was primarily due to the impairment of license agreements and bad debt expense. This was offset by selling, general and administrative costs of $225,443 related party service agreement of $240,000, and depreciation and amortization of $26,413.
Revenue for the year ended December 31, 2012 was $160,808 compared $64,768 for the year ended December 31, 2011. The increase of $96,040 or 148% was primarily due to the launch of new games in 2012.
Investments
For the year ended December 31, 2012, we invested $75,000, which relates to the acquisition of license agreements of $110,000 offset by license termination of $35,000.
For the year ended December 31, 2011, we invested $1,977, which relates the purchase of property and equipment of $1,977.
Financing
For the year ended December 31, 2012, our cash flows from financing activities totaled $165,566, from $170,000 in loan proceeds offset by the repayment of $4,434 in loans.
For the year ended December 31, 2011, our cash flows from financing activities totaled $238,041, from $359,000 in loan proceeds offset by the repayment of $120,959 in loans and repayment of advances from affiliate.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with its Board of Directors, the Company has identified the following accounting policies that it believes are key to an understanding of its financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
Valuation of License Agreements
In 2007, the Company acquired the following license agreements:
|
●
|
On February 23, 2007, Joytoto America Inc., ("JAI") a subsidiary of Joytoto USA Inc., entered into a license agreement with Joytoto Korea, for one game, Pang Pang Terrible, for consideration of $400,000. The license is for the United States of America territory and is for a term of 3 years.
|
|
|
●
|
On April 18, 2007, JAI entered into an exclusive North American Master License Agreement with Joytoto Korea and Joyon Korea. The license gives JAI the exclusive right to the use and commercialization of 4 game titles immediately, and the right to acquire no less than 20 additional game title licenses for no additional consideration. The term of the agreement is 10 years and allows for two 5 year extensions for additional consideration of $10,000. Upon execution of the Master License Agreement, Joyon Entertainment Inc., a subsidiary of Joytoto USA Inc., issued Joyon Korea 30,000,000 common shares as consideration. Prior to the acquisition of the Master License Agreement, JEI had an independent business valuation performed whereby the Company’s enterprise value was calculated to be $0.1799 per share. Accordingly, the shares issued for the license were valued at this amount.
|
|
|
●
|
On June 11, 2007, Joytoto Technologies Inc., ("JTI") a subsidiary of Joytoto USA Inc., entered into an Exclusive Distributorship Agreement with Joytoto Korea. The agreement provides that JTI has the worldwide, exclusive right to distribute, market, promote and sell Joytoto Korea’s current and future model MP3 player devices. As consideration for the Exclusive Distributorship Agreement, JEI issued Joytoto Korea 30,000,000 common shares. Prior to the acquisition of the Exclusive Distributorship Agreement the Company had an independent business valuation performed whereby the Company’s enterprise value was calculated to be $0.3562 per share. Accordingly, the shares issued for the license agreement were valued at this amount.
|
|
|
●
|
On June 30, 2010, the Company sold Joyon Entertainment, Inc., and its subsidiaries, Joytoto Technologies Inc. and Joytoto America, Inc.
|
These license agreements were being amortized over their useful lives ranging from 3 to 10 years. The company periodically evaluates the reasonableness of the useful lives of these intangible assets. In 2008 and 2009, these licenses were evaluated for impairment as follows:
|
●
|
At September 30, 2008, the Company reviewed its license agreements for impairment due to the deteriorating market for consumer goods in the US. At that time, the Company reviewed and adjusted its discounted cash flow projections. As a result of this assessment, the Company determined that the value of its license agreements was $5,000,000. As such, an impairment charge of $9,095,227 was recorded to reduce the carrying amount of the license agreements to this amount.
|
|
The Company reviewed its license agreements for impairment again at December 31, 2009 and determined that the license agreements were completely impaired and should be reduced to zero. Accordingly, the Company recognized an impairment loss of $4,227,975 in 2009. The Company reached this conclusion due to its’ inability to generate the revenues originally anticipated as well the difficulty in raising the necessary funds to develop and utilize the licenses due to the current difficult credit environment.
|
During 2010, the Company entered into license agreements for 16 online games for use in South Korea. These agreements called for a total of $120,500 in license fees, $30,000 in nonrefundable royalty prepayments on two of the licenses and a $5,000 non-refundable deposit on one of the licenses. The Company paid $73,750 of these fees during the nine months ended September 30, 2010 and will pay the remaining fees of $81,750 when the games are launched commercially. Each license also has a royalty fee which varies for each license. Future royalties will be offset against the $30,000 prepayment. The licenses have terms of 2 to 3 years, beginning when they are launched commercially.
In 2011, the licensor terminated two of these agreements due to the licensor’s inability to install and localize the game for the South Korean territory. These licenses were for $20,000, of which $10,000 was paid by the Company. The Company has determined that the possibility of realizing these license agreements or recovering those funds advanced is minimal due to the locality of the licensor in China. As such, the Company has concluded that these licenses are impaired and has written them off.
Also in 2011, the Company decided to terminate two of the agreements due to problems in scheduling the launch dates. The Company did not pay any deposits to acquire licenses for these two games.
The Company began operating the online game, The Great Merchant, in open beta testing in January 2010.
During 2012, the Company entered into two additional license agreements for 2-3 years for a total of $110,000, of which $75,000 was paid. One of these games was launched commercially. Under the license agreements, the Company is required to pay the licensor 24%- 25% of gross sales.
On March 9, 2012, the Company entered into a termination agreement relating to one of its license agreements. The license agreement had a carrying value of $10,000 and related prepaid revenue of $20,000. As part of the termination, the licensor paid the Company $35,000, plus VAT. The Company recognized a gain of $5,000 on this termination.
The Company engaged a Korea-based service provider to support and maintain the online game, and collect payments from customers. Under this agreement, the service provider is required to pay the Company 29% of gross sales. For the year ended December 31, 2012, the Company billed such 29%, or $97,842.
Revenue Recognition
Revenues are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.
Equipment and Depreciation
Equipment is stated at cost and is depreciated using the straight line method over the estimated useful lives of the respective assets. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life of the assets are capitalized. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized in operations.
Stock-Based Compensation
The Company accounts for employee stock based compensation and stock issued for services using the fair value method. The Company accounts for stock issued for services using the fair value method. The measurement date of shares issued for services is the date at which the counterparty’s performance is complete.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
As a smaller reporting company we are not required to provide the information required by this Item.
POLLEX, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
CONTENTS
|
Pages
|
|
Reports of Independent Registered Public Accounting Firms
|
F-2 - F-3 |
|
Balance Sheets
|
F-4
|
|
Statement of Operations
|
F-5
|
|
Statement of Stockholders’ Deficit
|
F-6
|
|
Statement of Cash Flows
|
F-7
|
|
Notes to Financial Statements
|
F-8
|
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Pollex, Inc.
Santa Clara, CA
We have audited the accompanying balance sheet of Pollex, Inc. as of December 31, 2012 and the related statement of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pollex, Inc. as of December 31, 2012, and the results of its operations and its cash flows for the year ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company incurred a net loss of $627,661 in 2012, had negative working capital of $2,831,661 and had an accumulated deficit of $139,570,946 at December 31, 2012. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note B. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
/s/ Cowan, Gunteski & Co., P.A.
April 16, 2013
Tinton Falls, NJ
Reply to: 730 Hope Road Tinton Falls NJ 07724 Phone: 732.676.4100 Fax: 732.676.4101
40 Bey Lea Road, Suite A101 Toms River NJ 08753 Phone: 732.349.6880 Fax: 732.349.1949
Member of CPAmerica International
www.CowanGunteski.com
F-2
 |
One Arin Park | Phone: 732-671-2244 |
| Certified Public Accountants | Middletown, NJ 07748 | |
| & Management Consultants | 1715 Highway 35 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Pollex, Inc.
Santa Clara, CA
We have audited the accompanying balance sheet of Pollex, Inc. as of December 31, 2011 and the related statement of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pollex, Inc. as of December 31, 2011, and the results of its operations and its cash flows for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company incurred net losses of $582,072 in 2011, had negative working capital of $2,203,113 and had an accumulated deficit of $138,943,285 at December 31, 2011. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note B. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
/s/ Meyler & Company, LLC
March 30, 2012
Middletown, NJ
POLLEX, INC.
BALANCE SHEETS
|
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 3,836 | $ | 5,415 | ||||
| Accounts receivable, net allowance for doubtful accounts of $97,842 and 0 at December 31, 2012 and 2011, respectively | - | - | ||||||
|
Total current assets
|
3,836 | 5,415 | ||||||
|
Property and equipment, net of accumulated
|
||||||||
|
depreciation of $8,475 and $4,982 at December 31, 2012 and 2011, respectively
|
2,004 | 5,497 | ||||||
|
License agreements, net of accumulated
|
||||||||
|
amortization of $25,108 and $2,188 at December 31, 2012 and 2011, respectively
|
127,392 | 98,312 | ||||||
|
OTHER ASSETS:
|
||||||||
|
Prepaid royalty
|
10,000 | 30,000 | ||||||
|
Deposits
|
1,300 | 6,000 | ||||||
|
Total other assets
|
11,300 | 36,000 | ||||||
|
Total Assets
|
$ | 144,532 | $ | 145,224 | ||||
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accrued expenses and accounts payable
|
$ | 833,691 | $ | 649,238 | ||||
|
Amounts due to affiliate under service agreement
|
567,950 | 291,000 | ||||||
|
Advances from affiliate
|
134,556 | 114,556 | ||||||
|
Loans payable
|
1,299,300 | 1,153,734 | ||||||
|
Total Current Liabilities
|
2,835,497 | 2,208,528 | ||||||
|
Stockholders' Deficit
|
||||||||
|
Common stock, authorized 300,000,000 shares;
|
||||||||
|
par value $0.001; 5,121,688 shares issued and outstanding
|
||||||||
|
at December 31, 2012 and 2011, respectively
|
5,120 | 5,120 | ||||||
|
Additional paid-in capital
|
136,874,861 | 136,874,861 | ||||||
|
Accumulated deficit
|
(139,570,946 | ) | (138,943,285 | ) | ||||
|
Total Stockholders’ Deficit
|
(2,690,965 | ) | (2,063,304 | ) | ||||
|
Total Liabilities and Stockholders’ Deficit
|
$ | 144,532 | $ | 145,224 | ||||
See accompanying notes to financial statements.
POLLEX, INC.
STATEMENTS OF OPERATIONS
| For the year ended | ||||||||
| December 31, | ||||||||
|
2012
|
2011
|
|||||||
|
REVENUES
|
$ | 160,808 | $ | 64,768 | ||||
|
COSTS AND EXPENSES
|
||||||||
|
Cost of services
|
76,555 | - | ||||||
|
Selling, general and administrative
|
225,443 | 237,739 | ||||||
|
Related party service agreement
|
240,000 | 324,000 | ||||||
| Bad debt expense | 97,842 | - | ||||||
|
Impairment of license agreements
|
53,000 | 20,000 | ||||||
|
Depreciation and amortization
|
26,413 | 5,593 | ||||||
|
Total Costs and Expenses
|
719,253 | 587,332 | ||||||
|
OPERATING LOSS
|
(558,445 | ) | (522,564 | ) | ||||
|
OTHER INCOME (EXPENSE)
|
||||||||
|
Gain on license termination
|
5,000 | - | ||||||
|
Interest expense
|
(74,216 | ) | (59,508 | ) | ||||
|
Total Other Expense
|
(69,216 | ) | (59,508 | ) | ||||
|
LOSS BEFORE INCOME TAXES
|
(627,661 | ) | (582,072 | ) | ||||
|
PROVISION FOR INCOME TAXES
|
- | - | ||||||
|
NET LOSS
|
$ | (627,661 | ) | $ | (582,072 | ) | ||
|
NET LOSS PER COMMON SHARE (Basic and Diluted)
|
$ | (0.12 | ) | $ | (0.11 | ) | ||
|
WEIGHTED AVERAGE SHARES
|
||||||||
|
OUTSTANDING
|
5,121,688 | 5,085,158 | ||||||
See accompanying notes to financial statements.
Pollex, Inc.
STATEMENT OF STOCKHOLDERS’ DEFICIT
For the years ended December 31, 2011 and 2012
|
Additional
|
Total
|
|||||||||||||||||||
|
Common Stock
|
Paid-in
|
Accumulated
|
Stockholders'
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Deficit
|
||||||||||||||||
|
Balance, December 31, 2011
|
4,955,022 | 4,953 | 136,855,028 | (138,361,213 | ) | (1,501,232 | ) | |||||||||||||
|
Shares issued to cancel debt
|
166,666 | 167 | 19,833 | - | 20,000 | |||||||||||||||
|
Net loss for the year ended December 31, 2011
|
- | - | - | (582,072 | ) | (582,072 | ) | |||||||||||||
|
Balance, December 31, 2011
|
5,121,688 | 5,120 | 136,874,861 | (138,943,285 | ) | (2,063,304 | ) | |||||||||||||
|
Net loss for the year ended December 31, 2012
|
- | - | - | (627,661 | ) | (627,661 | ) | |||||||||||||
|
Balance, December 31, 2012
|
5,121,688 | $ | 5,120 | $ | 136,874,861 | $ | (139,570,946 | ) | $ | (2,690,965 | ) | |||||||||
See accompanying notes to consolidated financial statements.
POLLEX, INC.
STATEMENTS OF CASH FLOWS
| For the year ended | ||||||||
| December 31, | ||||||||
|
2012
|
2011
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$ | (627,661 | ) | $ | (582,072 | ) | ||
|
Adjustments to reconcile net loss to net cash
|
||||||||
|
used in continuing operating activities:
|
||||||||
|
Gain on license termination
|
(5,000 | ) | - | |||||
|
Depreciation and amortization
|
26,413 | 5,593 | ||||||
| Bad debt expense | 97,842 | - | ||||||
|
Impairment of license agreements
|
53,000 | 20,000 | ||||||
|
Changes in assets and liabilities:
|
||||||||
| (Increase) decrease in accounts receivable | (97,842 | ) | - | |||||
| (Increase) decrease in deposits | (300 | ) | - | |||||
|
(Increase) decrease in receivable from affiliate
|
- | 1,963 | ||||||
|
Increase (decrease) in accrued expenses
|
184,453 | 21,415 | ||||||
|
Increase (decrease) in amounts due affiliate under service agreement
|
276,950 | 291,000 | ||||||
|
Net cash used in operating activities
|
(92,145 | ) | (242,101 | ) | ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase of property and equipment
|
- | (1,977 | ) | |||||
|
Proceeds from termination of license agreement
|
35,000 | - | ||||||
|
Acquisition of license agreements
|
(110,000 | ) | - | |||||
|
Net cash used in investing activities
|
(75,000 | ) | (1,977 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Loan proceeds
|
150,000 | 359,000 | ||||||
|
Repayment of loan
|
(4,434 | ) | (61,459 | ) | ||||
|
Advance from affiliate
|
20,000 | - | ||||||
|
Repayment of advances from affiliate
|
- | (59,500 | ) | |||||
|
Net cash provided by financing activities
|
165,566 | 238,041 | ||||||
|
Net increase (decrease) in cash
|
(1,579 | ) | (6,037 | ) | ||||
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
5,415 | 11,452 | ||||||
|
|
||||||||
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 3,836 | $ | 5,415 | ||||
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
||||||||
|
Cash paid for interest
|
$ | - | $ | - | ||||
|
Cash paid for taxes
|
$ | - | $ | - | ||||
|
Settlement of accounts payable with common stock
|
$ | - | $ | 20,000 | ||||
See accompanying notes to financial statements.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE A – ORGANIZATION AND DESCRIPTION OF BUSINESS
Pollex, Inc. (the “Company”) is a majority owned subsidiary of Joytoto Co., Ltd. (“Joytoto Korea”). The Company previously had one wholly-owned subsidiary, Joyon Entertainment, Inc. (“JEI”), and had two sub-subsidiaries, Joytoto Technologies, Inc., a Nevada corporation (“JTI”) and Joytoto America, Inc., a California corporation (“JAI”), both of which were wholly-owned subsidiaries of JEI.
Effective June 24, 2010, the Company dissolved JTI. The Company filed a certificate of dissolution with the Secretary of State of Nevada on June 24, 2010.
Effective June 30, 2010, the Company, along with JEI, sold 100% of the issued and outstanding common stock of JAI to Joytoto Korea in exchange for the return and cancellation of 166,667 shares of the Company’s common stock held by Joytoto Korea.
Effective August 6, 2010, JEI was dissolved. The Company is determined to focus its business on its Online Games by acquiring new game licenses to provide commercial service of such games in South Korea and the United States.
Operations are now focused in Online Games by acquiring new game licenses to provide commercial service of such games in South Korea and the United States.
The Company is currently operating “The Great Merchant” and 5 other online games which it acquired. The Company acquired licenses for 15 games for use in South Korea.
NOTE B – GOING CONCERN
As indicated in the accompanying financial statements, the Company incurred net losses of $627,661 and $582,072 for the years ended December 31, 2012 and 2011, had negative working capital of $2,831,661 and $2,203,113 at December 31, 2012 and 2011, respectively, and had accumulated deficits of $139,570,946 and $138,943,285 at December 31, 2012 and 2011, respectively. Management’s plans include raising capital through the equity markets to fund future operations and generating revenue through its license agreements. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generallly accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. In addition, amounts on deposit with Paypal, a third party payment processor, are considered cash equivalents.
Equipment and Depreciation
Equipment is stated at cost and is depreciated using the straight line method over the estimated useful lives of the respective assets. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life of the assets are capitalized. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation is eliminated from the accounts and any resulting gain or loss is recognized in operations.
Revenue Recognition
The Company recognizes revenue from the sale of products and services in accordance with Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.” Revenues are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectibility is reasonably assured. The Company recognizes revenues from the sale of the Great Merchant, when the game has been played and paid for by the customer. The Company recognizes revenues from the sales of its other online games when the game has been played and the Company invoices the Korean service provider.
Accounts Receivable and Allowance for Doubtful Accounts.
The allowance for doubtful accounts represents management’s best estimate of the amount of probable credit losses. The Company has determinate that all amounts billed to the game service provider are uncollectible as none of these amounts have been paid, the Company has granted extended payments terms, and the ultimate collection of these receivables is not certain.
Intangible assets and license agreements with definite lives are amortized over their useful lives ranging from 3 to 10 years. The Company periodically evaluates the reasonableness of the useful lives of these intangible assets. The Company begins amortizing license agreements when they are put into service, which is when the contractual life of the agreements commences.
The Company reviews long-lived assets, including intangibles with definite useful lives, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Advertising Expense
Advertising expenses are included in selling, general and administrative expenses in the Statement of Operations and are expensed as incurred. The Company incurred $723 and $240 in advertising expenses for the years ended December 31, 2012 and 2011, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
The Company recognizes and measures uncertain tax positions and record tax benefits when it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties as a component of income tax expense.
At December 31, 2012 and 2011, the Company had not incurred any liability for the payment of tax related interest and there was no tax interest or penalties recognized in the consolidated statements of operations.
Net Loss Per Common Share
Basic earnings per share (“EPS”) is computed by dividing the income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock and common stock equivalents outstanding during the periods. There are no potential dilutive common shares at December 31, 2012 and 2011.
Stock-Based Compensation
The Company accounts for employee stock based compensation and stock issued for services using the fair value method.
The Company accounts for stock issued for services using the fair value method. The measurement date of shares issued for services is the date at which the counterparty’s performance is complete.
NOTE D – FIXED ASSETS
Fixed Assets are comprised of the following:
|
December 31,
|
Estimated
|
||||||||
|
2012
|
2011
|
Useful Life
|
|||||||
|
Computers
|
$ | 10,479 | $ | 10,479 |
3 years
|
||||
|
Accumulated depreciation
|
(8,475 | ) | (4,982 | ) | |||||
| $ | 2,004 | $ | 5,497 | ||||||
Depreciation expense was $3,493 and $3,405 for the years ended December 31, 2012 and 2011, respectively.
NOTE E – LICENSE AGREEMENTS
During 2010, the Company acquired license agreements for 16 online games for use in South Korea. These agreements called for a total of $120,500 in license fees, $30,000 in nonrefundable royalty prepayments on two of the licenses and a $5,000 non refundable deposit on one of the licenses. The Company paid $73,750 of these fees during the nine months ended September 30, 2010 and will pay the remaining fees of $81,750 when the games are launched commercially. Each license also has a royalty fee which varies for each license. Future
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE E – LICENSE AGREEMENTS (CONTINUE)
royalties will be offset against the $30,000 prepayment. The licenses have terms of 2 to 3 years, beginning when they are launched commercially.
In 2011, the licensor terminated two of these agreements acquired in 2010 due to the licensor’s inability to install and localize the game for the South Korean territory. These licenses cost $20,000, of which $10,000 was paid by the Company. The Company has determined that the possibility of realizing these license agreements or recovering those funds advanced is minimal due to the locality of the licensor in China. As such, the Company has concluded that these licenses are impaired and has recognized a charge to operations.
Also in 2011, the Company decided to terminate two additional agreements acquired during 2010 due to problems in scheduling the launch dates. The Company did not pay any deposits to acquire the licenses for these two games.
The Company began operating the online game, The Great Merchant, in open beta testing in January 2010. During the years ended December 31, 2012 and 2011, the Company generated revenues of $62,965 and $64,768 from this beta testing.
During 2012, the Company acquired two additional license agreements for 2-3 years for a total of $110,000, of which $75,000 was paid. One of these games was launched commercially. Under the license agreements, the Company is required to pay the licensor 24%- 25% of gross sales.
On March 9, 2012, the Company entered into a termination agreement relating to one of its license agreements. The license agreement had a carrying value of $10,000 and related prepaid revenue of $20,000. As part of the termination, the licensor paid the Company $35,000, plus VAT. The Company recognized a gain of $5,000 on this termination.
The Company engaged a Korea-based service provider to support and maintain the online game, and collect payments from customers. Under this agreement the service provider is required to pay the Company 29% of gross sales. For the year ended December 31, 2012, the Company billed such 29%, or $97,842. The Company has not recognized the revenue on these billings as they have not been collected and the Company has concluded that collectability is not reasonably assured.
At December 31, 2012, the Company determined that license agreements with carrying values of $48,000 and related deposits of $5,000 were impaired since the Company could not project when such games would generate revenues. As such, an impairment loss of $53,000 is reflected in the Statement of Operation for the year ended December 31, 2012
Amortization expense related to those licenses was $22,920 and $2,188 for the years ended December 31, 2012 and 2011, respectively.
NOTE F – RELATED PARTY TRANSACTIONS
Certain expenses have been paid on behalf of the Company by Joytoto Korea. The Company has recognized the expenses and corresponding payable to Joytoto Korea as due to affiliate. The advances are non-interest bearing and have no specific repayment date.
On March 21, 2011, the Company, entered into a Conversion and Release Agreement (the “Agreement”) with Joytoto Korea. Pursuant to the terms of the Agreement, the Company issued 166,666 shares of its common stock, valued at $11,667 on the agreement date, to Joytoto Korea in consideration for the cancellation of $20,000 owed to Joytoto Korea by the Company. The Company recorded this $20,000 debt cancellation as a capital transaction.
During the year ended December 31, 2011, the Company repaid $59,500 in amounts owed to Joytoto Korea. The weighted average amount due to Joytoto Korea was $129,624 and $145,441 for the years ended December 31, 2012 and 2011, respectively.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE F – RELATED PARTY TRANSACTIONS (CONTINUED)
On July 1, 2010, the Company entered into a Service Agreement with Gameforyou, Incorporated, a wholly-owned subsidiary of Joytoto Korea. Under this agreement, Gameforyou, Incorporated provides translation, customer support, and system operations and maintenance. The Company is required to pay Gameforyou, Incorporated $10,000 in cash and $10,000 in cash or stock each month. Any issuance of stock will be at the market value or price determined by both parties and must be agreed by both parties. For the years ended December 31, 2012 and 2011, $240,000 and $324,000, respectively, were recognized in the Statement of Operations under this agreement. The Company also borrowed $36,950 from Gameforyou, Incorporated during the year ended December 31, 2012. At December 31, 2012 and 2011, $567,950 and $291,000 were due to Gameforyou, Incorporated.
NOTE G – LOANS PAYABLE
The loans payable consists of borrowings from two individual noteholders. The terms of the promissory notes are one year and bears interest at an annual rate of 6% and are unsecured. The notes may be repaid at any time prior to its due date without a prepayment penalty. During the year ended December 31, 2012, the Company received proceeds of $150,000 and repaid $4,434. During the year ended December 31, 2011, the Company received proceeds of $359,000 from these borrowings and repaid $61,459.
NOTE H - INCOME TAXES
At December 31, 2012, the Company had an unused net operating loss carryforward of approximately $5,439,000 for income tax purposes, which expires between 2027 and 2032. This net operating loss carryforward may result in future income tax benefits of approximately $1,849,000; however because realization is uncertain at this time, a valuation reserve in the same amount has been established. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2012 and 2011 are as follows:
|
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Deferred tax liabilities
|
$ | - | $ | - | ||||
|
Deferred tax asset-
|
||||||||
|
Net operating loss carryforward
|
1,849,000 | 1,635,000 | ||||||
|
Valuation allowance
|
(1,849,000 | ) | (1,635000 | ) | ||||
|
Net deferred tax asset
|
$ | - | $ | - | ||||
The income tax expense (benefit) differs from the amount computed by applying the United States statutory corporate income tax rate as follows:
|
December 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
U.S statutory income tax rate
|
34 | % | 34 | % | ||||
|
Utilization of net operating loss carryforwards
|
- | - | ||||||
|
Change in valuation allowance of deferred tax assets
|
(34 | %) | (34 | %) | ||||
|
Net deferred tax asset
|
- | % | - | % | ||||
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE I- WARRANTS
The following summarizes warrant activity during 2010 and 2011:
|
Shares
|
Weighted Average Grant Date Fair Value
|
|||||||
|
Outstanding, December 31, 2010
|
946,667 | $ | 41.46 | |||||
|
Granted
|
- | - | ||||||
|
Forfeited
|
- | - | ||||||
|
Expired
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Outstanding, December 31, 2011
|
946,667 | $ | 41.46 | |||||
|
Granted
|
- | - | ||||||
|
Forfeited
|
- | - | ||||||
|
Expired
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Outstanding, December 31, 2012
|
946,667 | $ | 41.46 | |||||
The weighted average remaining contractual life and exercise price of the warrants outstanding and exercisable at December 31, 2012 was 1.84 years and $4.95, respectively. The intrinsic value of the warrants outstanding and exercisable at December 31, 2012 was $0 as the stock price exceeded the exercise price.
The weighted average remaining contractual life and exercise price of the warrants outstanding and exercisable at December 31, 2011 was 2.84 years and $4.95, respectively. The intrinsic value of the warrants outstanding and exercisable at December 31, 2011 was $0 as the stock price exceeded the exercise price
NOTE J – COMMITMENTS AND CONTINGENCIES
Property Leases:
On September 5, 2012, the Company signed a lease for office space in Santa Clara, California. The lease term is through September 30, 2014. The Company’s made a deposit of $1,300 and the rent payments are $1,250 per month.
The Company was leasing an apartment in Santa Clara, California for use by its former President. The lease was for a term of one year and was through December 31, 2012. The lease payments were $3,300 per month. This lease was not renewed
The minimum future lease commitment on the above leases is $26,250 through September 30, 2014.
Rent expense for the years ended December 31, 2012 and 2011 was $47,644 and $54,365, respectively
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE J – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements:
On March 21, 2011, the Company entered into three year employment agreements with both Seong Yong Cho, to serve as President and Chief Executive Officer, and Seong Sam Cho, to serve as Chief Financial Officer, respectively. Pursuant to the terms of the employment agreements, Mr. Seong Yong Cho would continue to serve as President and Chief Executive Officer of the Company for an annual salary of $1.00 and Mr. Seong Sam Cho will continue to serve as Chief Financial Officer of the Company for an annual salary of $1.00. These employment agreements run through March 21, 2014. On December 4, 2012, Seong Yong Cho resigned from his position as the Company’s Chief Executive Officer, President and Chairman and Seong Sam Cho was appointed as the Company’s Chief Executive Officer, President and Chairman.
There are no events required to be disclosed under the Item.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act as a process designed by, or under the supervision of a Company's principal executive and principal financial officer and effected by a Company's Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
We conducted an evaluation, with the participation of our Chief Executive Officer , who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of December 31, 2012, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer has concluded that as of December 31, 2012, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following three material weaknesses that have caused management to conclude that, as of December 31, 2012, our disclosure controls and procedures were not effective at the reasonable assurance level:
1. We do not have formalized documentation related to our internal control policies and procedures; however, there are informal policies and procedures that cover the recording and reporting of financial transactions. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act and was applicable to us for the year ending December 31, 2012. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
3. We do not have sufficient personnel working on our accounting functions to ensure we can timely file our quarterly and annual reports, as indicated by the filing of this annual report after the original due date (but within the extension period). Management evaluated the impact of our lack of internal accounting personnel to ensure we can timely file our required quarterly and annual reports and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Remediation of Material Weaknesses
To remediate the material weaknesses in our disclosure controls and procedures identified above, we have continued to refine our internal procedures to begin to implement segregation of duties and to seek additional internal accounting personnel.
Management’s Report On Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
|
●
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
|
|
●
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
|
|
●
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based on its assessment, we concluded that, as of December 31, 2012, our internal control over financial reporting is not effective based on those criteria.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.
Changes in Internal Control over Financial Reporting
Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There are no events required to be disclosed by the Item.
Directors and Executive Officers
The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person. Our executive officers are elected annually by the Board of Directors. The directors serve one year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers.
|
Name
|
Age
|
Position(s)
|
||
|
Seong Sam Cho
|
47
|
President, Chief Executive Officer, Chief Financial Officer, Secretary, and Chairman
|
||
Seong Sam Cho (Sam Cho) , 47, has been the President, Chief Executive Officer and Chairman of the Company since December 4, 2012 and the Chief Financial Officer, Secretary, and a Director since October 31, 2007. He has been the CEO of Joytoto Co., Ltd. since December 2006, and has been a director of Joytoto Co. Ltd. since December 2005. He served as the COO of Joytoto Co., Ltd. from December 2005 to November 2006. He has been the Chairman of the Board of Joyon Entertainment Co. Ltd., which is a subsidiary of Joytoto Co., since December 1999. Mr. Cho lectures on digital content and culture at the faculty of Sookmyung Women's University as a professor. He also participates actively as a member of the committee for Ministry of Information & Communication and Ministry of Culture & Tourism of the Korean government. Mr. Cho is a subcommittee member of the Federation of Korean Industries and Mirae Forum division of the game department. He has been engaged in the IT industry for approximately 20 years. He founded Sam Electronics Co., Ltd. in 1988. He received the prize of the Ministry of Information and Communication for the Software Industry Development on December 2001. Mr. Cho is qualified to be a director of the Company based on his experience and history in the online games industry in South Korea and abroad.
Family Relationships
There are no family relationships between or among any of the current directors, executive officers or persons nominated or charged by the Company to become directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has, during the past ten years:
|
●
|
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
|
|
●
|
had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
|
|
●
|
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or
|
|
●
|
been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
None of our officers and directors are directors of any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
Director Independence
Our board of directors has determined that currently none of it members qualify as “independent” as the term is used in Item 407 of Regulation S-K as promulgated by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. - Marketplace Rule 4200.
Board Leadership Structure and Role in Risk Oversight
Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to partially combine these roles. Due to the small size of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions partially combined.
Seong Sam Cho, our Chairman, also serves as the Company’s Chief Executive Officer. The Company is actively seeking other qualified individuals to serve on the Company’s Board of Directors. At this time, the Company does not have Directors and Officers liability insurance which has been a deterring factor in seeking other qualified directors. Mr. Cho is actively involved in oversight of the company’s day to day activities.
Our Board of Directors is primarily responsible for overseeing our risk management processes. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the Board’s appetite for risk. While the Board oversees our company, our company’s management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.
Board Diversity
While we do not have a formal policy on diversity, our Board considers diversity to include the skill set, background, reputation, type and length of business experience of our Board members as well as a particular nominee’s contributions to that mix. Although there are many other factors, the Board seeks individuals with experience on public company boards as well as experience with advertising, marketing, legal and accounting skills.
Board Assessment of Risk
Our risk management function is overseen by our Board. Our management keeps our Board apprised of material risks and provides our directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect the Company, and how management addresses those risks. Mr. Seong Sam Cho, a director and our Chief Executive Officer works closely together with the Board once material risks are identified on how to best address such risk. If the identified risk poses an actual or potential conflict with management, our independent directors may conduct the assessment. The Board focuses on these key risks and interfaces with management on seeking solutions.
Meetings and Committees of the Board of Directors
Our Board of Directors did not hold any formal meeting during the fiscal year ended December 31, 2012.
We currently do not maintain any committees of the Board of Directors. Given our size and the development of our business to date, we believe that the board through its meetings can perform all of the duties and responsibilities which might be contemplated by a committee.
Except as may be provided in our bylaws, we do not currently have specified procedures in place pursuant to which whereby security holders may recommend nominees to the Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the best of the Company’s knowledge, officers, directors and greater than 10% shareholders have been in compliance with Section 16(a) of the Securities Exchange Act of 1934 for the year ended December 31, 2012.
Code of Ethics
We have not yet adopted a Code of Ethics although we expect to as we develop our infrastructure and business.
Executive Officers and Directors
The following tables set forth certain information about compensation paid, earned or accrued for services by (i) our Chief Executive Officer and (ii) all other executive officers who earned in excess of $100,000 in the fiscal year ended December 31, 2012 (“Named Executive Officers”):
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)*
|
Option Awards
($)*
|
Non-Equity
Incentive Plan Compensation
($)
|
Nonqualified Deferred Compensation
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||
|
Seong Yong Cho
|
2011
|
1
|
--
|
---
|
---
|
---
|
---
|
1
|
||||||||||||||||
|
Chief Executive Officer,
President, and Director (1)
|
2012
|
1
|
--
|
--
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--
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1 | |||||||||||||||
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Seong Sam Cho
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2011
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1
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--
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1
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Chief Executive Officer, President, Chief Financial Officer,
Secretary, and Chairman (2)
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2012
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1
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--
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--
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-
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1
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* Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC.
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(1)
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Resigned from all positions on December 4, 2012
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(2)
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Appointed as President, Chief Executive Officer and Chairman on December 4, 2012.
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Employment Contracts
On March 21, 2011, the Company entered into three year employment agreements with both Seong Yong Cho, to serve as President and Chief Executive Officer, and Seong Sam Cho, to serve as Chief Financial Officer, respectively. Pursuant to the terms of the employment agreements, Mr. Seong Yong Cho would continue to serve as President and Chief Executive Officer of the Company for an annual salary of $1.00 and Mr. Seong Sam Cho will continue to serve as Chief Financial Officer of the Company for an annual salary of $1.00. These employment agreements run through March 21, 2014. On December 4, 2012, Seong Yong Cho resigned from his position as the Company’s Chief Executive Officer, President and Chairman and Seong Sam Cho was appointed as the Company’s Chief Executive Officer, President and Chairman.
Other Compensation
Director Compensation
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers as of December 31, 2012:
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Option Awards
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Stock Awards
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Name
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Number of Securities Underlying Unexercised Options
(#)
Exercisable
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Number of
Securities
Underlying Unexercised
Options
(#)
Unexercisable
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Equity
Incentive Plan Awards:
Number of Securities Underlying Unexercised Unearned
Options
(#)
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Option Exercise Price
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Option Expiration
Date
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Number of Shares or Unites of
Stock That Have Not
Vested
(#)
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Market Value of
Shares or Unites of
Stock That Have
Not Vested
($)
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Equity Incentive
Plan
Awards: Number of Unearned Shares,
Units or Other
Rights That Have Not Vested
(#)
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Equity Incentive
Plan
Awards: Market or Payout
Value of Unearned Shares,
Units or Other
Rights That Have Not Vested
($)
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-
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-
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-
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-
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-
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-
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-
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-
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Seong Sam Cho (1)(3)
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-
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-
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-
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-
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-
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-
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-
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-
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-
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| (1) |
Seong Yong Cho and Seong Sam Cho were each granted a total of 700,000 shares of our common stock from Joytoto Co., Ltd. and Joyon Entertainment Co., Ltd., under their employment agreements. However, those shares were subject to a repurchase right by the Company over the next thirty six (36) months beginning November 1, 2007, at a purchase price of $0.001 per share. Such repurchase right expires as to 1/36 th of the shares for every month the employee is employed by the Company in their current capacity. Therefore, if the employee remains employed with us over the next thirty six (36) months, they will each own the shares free and clear of our repurchase right. The 36 month term expired on October 31, 2010 without the Company exercising its’ repurchase right. Therefore, these employees own 700,000 shares of our common stock free and clear from our repurchase right.
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| (2) | Resigned from all positions on December 4, 2012 | |
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(3)
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Appointed as Chief Executive Officer, President and Chairman on December 4, 2012 |
The Company has not adopted an equity compensation plan.
The following table sets forth, as of April 16, 2013, certain information with respect to the Company’s equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 50% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
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Title of Class
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Name and Address
of Beneficial Owner (3)
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Amount and Nature of
Beneficial Ownership
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Percent
of Class (1)
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Common Stock
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Joytoto Co. Ltd. (4)(5)
3 FL Sungwoo Bldg
717-3 Sooseo-Dong
Kangnam Gu, Seoul, Korea
135-220
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1,166,666
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22.8%
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Common Stock
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Joyon Entertainment Co., Ltd.(4)(5)
3 FL Sungwoo Bldg
717-3 Sooseo-Dong
Kangnam Gu, Seoul, Korea
135-220
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1,000,000
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19.5%
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Common Stock
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Doo Ho Choi
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266,666
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5.2%
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Common Stock
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Seong Yong Cho
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700,000
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13.7%
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Common Stock
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Seong Sam Cho (2)
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700,000
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13.7%
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Common Stock
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All Directors and Officers
As a Group (1 persons)
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700,000
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13.7%
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(1)
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Unless otherwise indicated, based on 5,121,689 shares of common stock issued and outstanding. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for the purposes of computing the percentage of any other person.
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(2)
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Indicates one of our officers or directors. Beneficial ownership by these officers does not include shares owned by Joytoto Co., Ltd. or Joyon Entertainment Co., Ltd.
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(3)
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Unless indicated otherwise, the address of the shareholder is c/o Pollex, Inc., 2005 De La Cruz Blvd. Suite 235, Santa Clara, CA 95050.
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(4)
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Joyon Entertainment Co., Ltd. is a wholly-owned subsidiary of Joytoto Co. Ltd., and as such, the shares of common stock held by both are attributed to the other. Combined, they own 42.3% of our outstanding common stock.
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The issuer is not aware of any person who owns of record, or is known to own beneficially, ten percent or more of the outstanding securities of any class of the issuer, other than as set forth above. There are no classes of stock other than common stock issued or outstanding.
There are no current arrangements which will result in a change in control.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company has not adopted an Equity Compensation Plan.
On July 1, 2010, the Company entered into a Service Agreement with Gameforyou, Incorporated, a wholly-owned subsidiary of Joytoto Korea. Under this agreement, Gameforyou, Incorporated provides translation, customer support, and system operations and maintenance. The Company is required to pay Gameforyou, Incorporated $10,000 in cash and $10,000 in cash or stock each month. Any issuance of stock will be at the market value or price determined by both parties and must be agreed by both parties. For the years ended December 31, 2012 and 2011, $324,000 and $240,000, respectively, were recognized in the Statement of Operations under this agreement. The Company also borrowed $36,950 from Gameforyou, Incorporated during the year ended December 31, 2012. At December 31, 2012 and 2011, $567,950 and $291,000 were due to Gameforyou, Incorporated
Audit Fees
During the year ended December 31, 2012, Cowan, Gunteski & Co., P.A. billed us $32,000 in fees for professional services for the audit of our financial statements and review of financial statements included in our Form 10-Q’s, as applicable.
During the year ended December 31, 2011, Meyler & Co., LLC billed us $32,000 in fees for professional services for the audit of our financial statements and review of financial statements included in our Form 10-Q’s, as applicable.
Audit - Related Fees
During the year ended December 31, 2012, Cowan, Gunteski & Co., P.A. billed us billed us $0 relating to procedures performed in connection with proxy and registration information filed with the SEC. There were no amounts billed related to any assurance and related services related to the performance of the audit or review of our financial statements.
During the year ended December 31, 2011, Meyler & Co., LLC billed us billed us $0 relating to procedures performed in connection with proxy and registration information filed with the SEC. There were no amounts billed related to any assurance and related services related to the performance of the audit or review of our financial statements.
Tax Fees
During the year ended December 31, 2012, Cowan, Gunteski & Co., P.A. billed us billed us $0 for professional services for tax preparation.
During the year ended December 31, 2011, Meyler & Co., LLC billed us billed us $0 for professional services for tax preparation.
All Other Fees
During the years ended December 31, 2012, Cowan, Gunteski & Co., P.A. did not bill us for any other fees.
During the years ended December 31, 2011, Meyler & Co., LLC did not bill us for any other fees.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
We do not currently have an Audit Committee. The policy of our Board of Directors, which acts as our Audit Committee, is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to our Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.
PART IV
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(b)
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| Exhibits |
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3.1 (1)
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Articles of Incorporation dated September 20, 2001
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3.2 (2)
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Articles of Amendment to Articles of Incorporation dated June 17, 2003
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3.3 (3)
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Certificate of Amendment to Articles of Incorporation dated January 7, 2005
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3.4 (6)
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Certificate of Amendment to Articles of Incorporation dated November 18, 2005
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3.5 (4)
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Certificate of Amendment to Articles of Incorporation dated Effective October 31, 2007
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3.6 (1)
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Bylaws of Web Views Corporation dated November 10, 2001
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10.1 (5)
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Stock Exchange Agreement, dated October 12, 2007
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10.2 (5)
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Agreement to Purchase Subsidiaries and Cancel Shares, dated October 12, 2007
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10.3 (7)
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License Agreement dated February 23, 2007
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10.4 (7)
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Lease Agreement dated February 26, 2007
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10.5 (7)
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Master License Agreement dated April 18, 2007
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10.6 (7)
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Exclusive Distributorship Agreement dated June 11, 2007
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10.7 (8)
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Employment Agreement with Seong Yong Cho dated October 31, 2007
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10.8 (8)
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Employment Agreement with Seong Yong Cho dated October 31, 2007
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10.9 (8)
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Employment Agreement with Doo Ho Choi dated October 31, 2007
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10.10 (9)
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Agreement to Manufacture, Supply and Market among Hyundai RFmon Corp and Joytoto USA, Inc. dated February 20, 2008
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10.11 (10)
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Stock Purchase Agreement
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10.12 (11)
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Conversion and Release Agreement
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10.13 (11)
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Employment Agreement with Seong Yong Cho
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10.14 (11)
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Employment Agreement with Seong Sam Cho
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
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32.1
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Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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(1)
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Incorporated by reference from our Registration Statement on Form 10SB12G filed with the Commission on July 23, 2002.
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(2)
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Incorporated by reference from our Current Report on Form 8-K filed with the Commission on June 25, 2003.
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(3)
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Incorporated by reference from our Current Report on Form 8-K filed with the Commission on January 7, 2005.
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(4)
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Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 6, 2007.
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(5)
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Incorporated by reference from our Current Report on Form 8-K filed with the Commission on October 31, 2007.
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(6)
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Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 14, 2007.
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(7)
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Incorporated by reference from our Current Report on Form 8-K filed with the Commission on December 14, 2007.
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(8)
(9)
(10)
(11)
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Incorporated by reference from our Annual Report on Form 10-K filed with the Commission on April 16, 2008.
Incorporated by reference from our Annual Report on Form 10-K filed with the Commission on April 15, 2009.
Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August 16, 2010.
Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 25, 2011.
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In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Pollex, Inc.
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Dated: April 16, 2013
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By:
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/s/ Seong Sam Cho
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Seong Sam Cho
|
|||
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President, Chief Executive Officer, Chief Financial Officer,
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|||
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Secretary and Chairman (Principal Executive Officer and Principal Financial and Accounting Officer)
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In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
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Signature
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Title
|
Date
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||
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/s/ Seong Sam Cho
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President, Chief Executive Officer, Chief Financial Officer,
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April 16, 2013
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||
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Seong Sam Cho
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Secretary and Chairman (Principal Executive Officer and Principal Financial and Accounting Officer)
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21