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EX-32.2 - 30DC, INC.ex322.txt
EX-31.1 - 30DC, INC.ex311.txt
EX-31.2 - 30DC, INC.ex312.txt
EX-32.1 - 30DC, INC.ex321.txt
EXCEL - IDEA: XBRL DOCUMENT - 30DC, INC.Financial_Report.xls

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    FORM 10-K


[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

       For the fiscal year ended June 30, 2013
                                     Or

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

       For the transition period from _________ to _____________


                        Commission file number: 000-30999

                                   30DC, INC.
 ------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              Maryland                                      16-1675285
  ----------------------------------                  ------------------------
   State or other jurisdiction of                         I.R.S. Employer
    incorporation or organization                       Identification No.

              80 Broad Street, 5th Floor, New York, New York 10004
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               (Address of principal executive offices) (Zip Code)


               Registrant's telephone number, including area code:
                                 (212) 962-4400

           Securities registered pursuant to Section 12(b) of the Act:


 Title of each class registered                        Name of each exchange
                                                        on which registered
----------------------------------                    -----------------------
         Not Applicable                                    Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

                              COMMON STOCK, $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 |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. |_| 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 |_| No |X| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) 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. |_| 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). --------------------------------- ------- --------------------------- --------- Large accelerated filer [___] Accelerated filer [___] --------------------------------- ------- --------------------------- --------- Non-accelerated filer [___] Smaller reporting company [_X_] (Do not check if a smaller reporting company) --------------------------------- ------- --------------------------- --------- Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $5,119,552 as of December 31, 2012. There were 87,413,464 shares outstanding of the registrant's Common Stock as of December 23, 2013.
TABLE OF CONTENTS PART I ITEM 1 Business 4 ITEM 1 A. Risk Factors 10 ITEM 1 B. Unresolved Staff Comments 16 ITEM 2 Properties 16 ITEM 3 Legal Proceedings 17 ITEM 4 Mine Safety Disclosures 17 PART II ITEM 5 Market for Registrant's Common Equity, Related Stockholder 17 Matters and Issuer Purchases of Equity Securities ITEM 6 Selected Financial Data 19 ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 19 ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 24 ITEM 8 Financial Statements and Supplementary Data 24 ITEM 9 Changes in and Disagreements with Accountants on Accounting 25 and Financial Disclosure ITEM 9 A. Controls and Procedures 25 ITEM 9 B Other Information 26 PART III ITEM 10 Directors, Executive Officers, and Corporate Governance 27 ITEM 11 Executive Compensation 31 ITEM 12 Security Ownership of Certain Beneficial Owners and Management 38 and Related Stockholder Matters ITEM 13 Certain Relationships and Related Transactions, and Director Independence 40 ITEM 14 Principal Accounting Fees and Services 41 PART IV ITEM 15 Exhibits, Financial Statement Schedules 42 SIGNATURES 43 -3-
NOTE ABOUT FORWARD-LOOKING STATEMENTS THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS, SUCH AS STATEMENTS RELATING TO OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, PLANS, OBJECTIVES, FUTURE PERFORMANCE AND BUSINESS OPERATIONS. THESE STATEMENTS RELATE TO EXPECTATIONS CONCERNING MATTERS THAT ARE NOT HISTORICAL FACTS. THESE FORWARD-LOOKING STATEMENTS REFLECT OUR CURRENT VIEWS AND EXPECTATIONS BASED LARGELY UPON THE INFORMATION CURRENTLY AVAILABLE TO US AND ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES. ALTHOUGH WE BELIEVE OUR EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS, THEY ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. BY MAKING THESE FORWARD-LOOKING STATEMENTS, WE DO NOT UNDERTAKE TO UPDATE THEM IN ANY MANNER EXCEPT AS MAY BE REQUIRED BY OUR DISCLOSURE OBLIGATIONS IN FILINGS WE MAKE WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FEDERAL SECURITIES LAWS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM OUR FORWARD-LOOKING STATEMENTS. PART I ITEM 1. BUSINESS ---------------- GENERAL ------- THE FOLLOWING IS A SUMMARY OF SOME OF THE INFORMATION CONTAINED IN THIS DOCUMENT. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS DOCUMENT TO "WE," "US," "OUR," "30DC," OR THE "COMPANY" ARE TO 30DC, INC. UNLESS OTHERWISE INDICATED ALL AMOUNTS ARE UNITED STATES DOLLARS. 30DC, INC. F/K/A INFINITY CAPITAL GROUP, INC. --------------------------------------------- On September 10, 2010, Infinity Capital Group, Inc., a Maryland Corporation, ("Infinity") entered into a Plan and Agreement of Reorganization (the "Agreement") with 30DC, Inc., a Delaware corporation, ("30DC DE") and the Shareholders of 30DC DE ("30DC DE Shareholders.") In exchange for 100% of the issued and outstanding shares of 30DC DE, Infinity issued 60,984,000 shares of its restricted common stock. The 30DC DE Shareholders received 13.2 shares of common stock of Infinity for every one share of 30DC DE. Infinity, as a result of the transaction, became the owning entity of 100% of the outstanding shares of common stock of 30DC DE. For purposes of accounting, 30DC DE was considered the accounting acquirer. The business of 30DC DE became the primary business of Infinity. Infinity was renamed 30DC, Inc. (Maryland) ("30DC" and together with its subsidiary "the Company."). 30DC DE was incorporated on October 17, 2008 in the state of Delaware, as a holding company, for the purpose of building, acquiring and managing international web-based sales and marketing companies. On July 15, 2009, 30DC DE completed the acquisitions of the business and assets of 30 Day Challenge ("30 Day") and Immediate Edge ("Immediate"). 30 Day was acquired from the Marillion Partnership and Edward Wells Dale, both of Victoria, Australia, in consideration for the issuance of 2,820,000 shares of Common Stock of 30DC DE. Immediate was acquired from Dan Raine of Cheshire, United Kingdom, in consideration for the issuance of 600,000 shares of Common Stock of 30DC DE. The acquired businesses were sold subject to specific liabilities which included accounts payable, accrued expenses and deferred revenue. The acquisitions were pursuant to an agreement dated November 14, 2008. Mr. Dale and Mr. Raine were part of the founding group of shareholders of 30DC DE and in conjunction with the acquisitions, Mr. Dale was named the Chief Executive Officer of 30DC DE. 30 Day Challenge and Immediate Edge are 30DC's two business divisions Historically, the 30 Day Challenge division has offered a free online ecommerce training program, an online education subscription service, periodic live seminars and a one to one mentoring program. Within the past few years the -4-
Company started selling individual marketing information products each focused on a particular marketing strategy. As further described below, in May 2012, the MagCast Publishing Platform, a cloud-based digital publishing platform was launched. Immediate Edge is an online education program subscription service offering high-end internet marketing instruction and strategies for experienced online commerce practitioners. In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo Media, Ltd. ("Netbloo") for the MagCast Publishing Platform ("MagCast") which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on Apple Corporation's online marketplace Apple Newsstand and includes executive training modules as well as a three-month trial subscription to the Company's Immediate Edge subscription product and other bonus products. Under the terms of the JV Agreement the Company was responsible for marketing, sales and administration and Netbloo was responsible for product development. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which result in commission of 50% of gross revenue for those sales to the affiliate responsible for the sale. Pursuant to ASC 808-10 the joint operating activity with Netbloo is considered a collaborative arrangement. The Company was deemed the principal participant and recorded all revenue under the JV Agreement on a gross basis with the 50% of revenue due Netbloo, net of affiliate commissions and other allowable costs, recorded as commission expense. In October 2012 the Company reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. The contractor agreement was effective October 1, 2012 and final documents were signed on December 31, 2012. The Company has its principal office located at 80 Broad Street, 5th Floor, New York, New York 10004, and its telephone number is (212) 962-4400. The Company maintains a website at WWW.30DCINC.COM, such website is not incorporated into this document. BUSINESS MODEL The Company's long-term strategy is to increase the number of products it sells and services it offers while expanding the audience to which it markets those products and services. Historically, 30DC's approach has been to build its community of members through the Challenge, a free online internet marketing program which has been taken by nearly 200,000 people and continues to be available today. The course content in the Challenge is geared for anyone with an interest in internet marketing; participants might be interested in starting a brand new business, in extending an existing business to the online platform or to make improvements to an existing online business. Challenge participants become part of 30DC's base of customers to whom products and services are marketed. Offerings include: o subscription products ranging in price from $30 - $100 per month, o individual courses covering a range of topics such as valuing web sites, o MagCast, and o one to one mentoring and private business consulting programs. 30DC also generates revenue by promoting third party internet marketing products and services to its base of customers during and after the Challenge. -5-
To expand the market for its products 30DC began a more comprehensive program of selling through affiliate marketing relationships during the year ended June 30, 2012. Approximately one-third of revenues were generated through affiliate sales during the year ended June 30, 2012. During the year ended June 30, 2013 the Company did not offer a full launch sale for the MagCast and affiliate sales were approximately one-fifth of revenue. Affiliates promote 30DC's products to their own customer base and receive a commission from 30DC as a percentage of gross revenue which varies by product and subscription from 20% to 50%. For the MagCast launch during the year ended June 30, 2012, the Company focused on affiliates with large customer bases by conducting private webinars to promote sales to individual affiliate groups of customers. During the fiscal year ended June 30, 2013, 30DC sold MagCast direct to the Company's internal customer list and through webinars and conferences to individual affiliate groups of customers. Subsequent to June 30, 2013, the Company offered a full sale re-launch of MagCast during which approximately 75% of sales were through affiliate relationships. To expand the number of products the Company sells and services it offers while limiting its upfront investment, 30DC developed collaborative arrangement product development relationships. In a typical collaborative arrangement, the cost and human resources devoted to product development will be borne by the collaborative arrangement partner and 30DC will provide marketing, sales, customer training and support. For example, with MagCast Publishing Platform the idea was jointly developed and Netbloo oversaw product development with input from 30DC. Revenue generated from a collaborative arrangement is split 50-50 after allowed costs such as affiliate commissions and processing fees. In addition to marketing and the other responsibilities noted above, 30DC manages the financial aspect of sales; managing merchant processor relationships, collecting funds and issuing refunds. The Company records all sales proceeds as gross revenue with payment to the collaborative arrangement partner reflected as a cost in operating expenses. As noted above, in October 2012 30DC reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and at that point in time, MagCast ceased to be a collaborative arrangement. BUSINESS DIVISIONS THE 30 DAY CHALLENGE -------------------- OVERVIEW The 30 Day Challenge division started in 2005 by offering a free internet marketing educational program that was originally known as the 30 Day Challenge and has evolved into the Company's current Challenge program. The Challenge program is an interactive education program which includes 30 days of instruction and incorporates weekly breaks for participants to put into practice the concepts they learn from the course. Participants are given the framework and guidance to design and develop an Internet business with modules on a range of topics including researching markets (including competition and opportunity), identifying and sustaining niche markets, utilizing social media to build your business and many other subjects pertinent to Internet marketing. There are no prerequisites to taking the course and participants come from around the globe. The Challenge has predominately grown through its own viral marketing campaign whereby members of its existing community spread word of the 30 Day Challenge through email and social media, including Twitter, Facebook, FriendFeed and blogs focused on internet marketing. The growth in participants has resulted in a targeted community to which the 30 Day markets products and services such as individual content specific courses, third party products, one to one mentoring and consulting and most recently the MagCast which was launched in May 2012. As a third party affiliate, 30 Day Challenge earns commissions ranging between 20% and 75% on sales of internet marketing products and services. Specific products include the Dominiche `Buying and Selling Websites' instruction program ("Dominiche"), Online Local Hero instruction program and the Marillion Project which includes intensive consulting and training for up to $10,000 per year. -6-
MagCast resulted from the collaboration of 30DC and Netbloo, an existing Marillion Project customer of the Company, at the time, and fits the model of joint venture product development with limited cost and risk to the Company. MagCast is also an example of a product which is relevant to the Company's historical internet marketing customer base but is also of interest to a much broader audience and thereby increases the potential number of customers. Since the Challenge originated, 30DC has marketed third party products for a number of other producers of information products for the internet marketing industry and for service providers to internet-based businesses such as hosting companies. 30DC has developed a working relationship with a number of these companies that they are now serving as affiliates for 30DC by marketing 30DC's products to their own customer bases. In May 2012, the Company signed a joint venture agreement ("JV Agreement") with Netbloo for MagCast which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on Apple Corporation's online marketplace Apple Newsstand and includes executive training modules as well as a three-month trial subscription to the Company's Immediate Edge subscription product and other bonus products. In October 2012, the Company reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. The contractor agreement was effective October 1, 2012 and final documents were signed on December 31, 2012. MagCast has a dedicated development team which does a combination of software maintenance and development of new product features. Initially Apps created using MagCast were only available to our customers readers in Apple I-Pad devices. MagCast Version 4 released in June 2013 included a version designed to be read on I-Phones which increased the potential audience for our customers from 150 million to 650 million. 30 DAY TECHNOLOGY AND INTELLECTUAL PROPERTY 30 Day employs proprietary technologies to support the viral growth of the community and membership numbers and to support sales of proprietary and third party products. The platform includes a significant amount of self-designed and developed content and software/code solutions for both internal and subscriber use. The free Challenge program has been taped and the video content had been distributed to a hosted platform (YouTube) to widen the awareness of the Company and to increase the potential for search engine optimization (leading to better search engine rankings) and ultimately increased website traffic. The intellectual property of 30 Day includes the Challenge community database, containing nearly 100,000 contacts with interests in internet marketing and e-commerce topics, the content library developed over the past six years and multiple web sites including the principal web site of the Challenge which is www.Challenge.co. MagCast is a cloud-based service to create an application ("App") to publish a digital magazine and includes executive training modules. The software code, domain names and websites to operate MagCast and the executive training modules are all proprietary to 30DC. The Company has filed a trademark application for the name MagCast. -7-
THE IMMEDIATE EDGE ------------------ OVERVIEW Immediate Edge ("Immediate") provides a subscription-based Internet education program offering high-end internet marketing instruction and strategies for online commerce practitioners. Such education includes advice on selling digital products and services, how to run membership sites, affiliate management systems, rewards programs and search engine optimization among other services. Immediate also generates revenue from standalone products and affiliate marketing of targeted third-party products to its customer base. BUSINESS MODEL Immediate charges subscribers $97 per month for its flagship product the Immediate Edge which includes information on topics like social bookmarking, web 2.0, Facebook marketing and Twitter strategies. This can represent value for subscribers because it enables them to avoid paying search engine optimizers fees for their services. Immediate also offers standalone products including software plug-ins that enhance the capabilities of commercially available software designed to drive more traffic to customer web sites. Prior to the acquisition of Immediate' operations by 30DC DE, Immediate was a customer of 30 Day. IMMEDIATE EDGE TECHNOLOGY AND INTELLECTUAL PROPERTY The Immediate Edge intellectual property includes proprietary content developed over the past five years on varying aspects of internet marketing as well as a number of web sites including the primary web site Immediate Edge.com. The member only web site contains self contained training programs ("blueprints") on specific topics, including but not limited to, creating apps, AdSense, Sniper Traffic, Flippa, Facebook, business building, product execution and content clusters which are implementation guides. Members are invited participate in question and answer session with internet marketing industry leaders and the sessions are archived on the member only web site. Members can submit their web site for a thorough site analysis and these are made available for other members to access. Members have access to the training center which contains sections on subjects including, but not limited to, finding a niche, market research, search engine optimization, social marketing, copywriting, outsourcing and selling your web site. Members have access to a variety of tools and shortcuts that a geared to managing an online business. GROWTH OPPORTUNITIES The Challenge affords Immediate Edge with a platform for reaching new subscribers. The Immediate Edge subscription product is promoted to the 30 Day community as a service for online business operators who have gone beyond the initial stage of learning, wanting to take their business to the next level and wanting to stay on-top of trends and ensure their Internet marketing strategies employ the latest tools and techniques. Immediate also runs $1 for one week trial subscriber promotions throughout the year to attract new subscribers. MagCast was launched in May 2012 and targeted our potential customers who want to market to the growing base of Apple I-Pad users. MagCast Version 4 released in June 2013 included a version designed to be read on I-Phones which increased the potential audience for our potential customers to reach from 150 million to 650 million potential customers. MagCast has initially been sold to the Company's historical and existing customer base. The Company believes there is strong future growth to additional customers in the internet marketing industry as well as to customers in new market segments. During the year ended June 30, 2012, the Company started generating revenue through affiliate marketing relationships and during this same period approximately 50% of the MagCast sales were through affiliates. -8-
THE MARKET The worldwide demand for online information and products has grown with the increasing availability of high speed internet, mobile communications and general increase of computing across the globe. New online businesses are starting every day and these entrepreneurs are potential customers with the more sophisticated and successful online businesses being potential customers for the offerings of 30 Day and Immediate. With the May 2012 launch of the MagCast Publishing Platform, the Company has begun selling products which are applicable not only to its historical customer base in the internet marketing industry but to a much wider audience of potential customers. Anyone looking to market to the growing number of Apple I-Pad and I-Phone users is a potential customer for MagCast. According to Apple Inc.'s financial statements, sales of which now exceed 650 million. To penetrate this market, the Company initially launched MagCast by selling through affiliate arrangements with other marketing companies that have introduced MagCast to their customer bases through custom webinars and bonus products specifically tailored to the target audience. The majority of MagCast customers are self-publishers who have never previously published a magazine. MagCast provides substantial training modules and offers additional services to help new publishers succeed. The training and services help a customer to publish their magazine and with marketing to attract subscribers. Other ways for the Company to expand its marketing include paying for traffic generation to its web sites or for leads to promote its products through targeted e-mails. The Company has not historically taken this approach but as this type of marketing becomes more sophisticated and segmenting of target customers more precise, the Company expects the benefits will increase relative to cost and is exploring this avenue to further increase its customer base. COMPETITION As internet commerce has grown at a double digit rate in the past decade, internet marketing and education companies have helped fuel this growth. 30DC is one of a number of companies that offer training to newcomers as well as experienced sellers in "how to grow a business by more effectively marketing on the Internet." While some general education companies offer courses in Internet marketing, 30DC's primary competition comes from small Internet marking companies focused on building a loyal following of customers. 30DC has built relationships with a number of its competitors whereby they cross promote each other's offerings which sometimes overlap and sometimes cover different aspects of Internet marketing. 30DC's free Challenge program is the largest offering of this type from any company we know of and has helped to build the Company's customer base. The Company earns revenue from customers in its database purchasing products and services from third parties, some of whom are competitor Internet marketing companies. There are a number of competitors for the Company's MagCast product including software companies who sell do it yourself products and competitors with similar cloud-based offerings as the Company. The Company sees the market for digital publishing consisting of a number of segments including large companies with sizable internal resources, the historical non-digital publishing market and smaller entrepreneurial businesses. The largest and most well-known competitor is Adobe Systems, Inc. (Nasdaq trading symbol ADBE) which offers Digital Publishing Suite and the Company believes is marketed toward large companies with sizable internal resources and frequently looking to migrate an existing print publication into a digital format. The Company believes MagCast can be a dominant product for the entrepreneurial market, including Internet self- publishers and other creators of user generated content and believes its executive training modules and support are key selling points to customers who have limited resources. Additionally, the Company believes its affiliate marketing network is a valuable competitive advantage in reaching potential customers and utilizes the Company's historical marketing expertise. -9-
INTELLECTUAL PROPERTY The Company's recorded and unrecorded assets consist primarily of property and equipment, goodwill and internally developed intangible property such as domain names, websites, customer lists, copyrights and trademarks. We do not hold any patents or patent applications. The Company holds the following Trademark Applications: TRADEMARK FILED APPLICATION NUMBER TRADEMARK STATUS -------------- -------------------- -------------- ----------------------------- United States 85-647,512 MAGCAST APP Notice of Publication Issued EMPLOYEES As of June 30, 2013, we had approximately 14 employees and contractors. Our employees and contractors are located both in the United States and in our offshore offices. ITEM 1A. RISK FACTORS --------------------- RISKS RELATING TO OUR BUSINESS AND STRUCTURE RISKS RELATED TO OUR BUSINESS AND INDUSTRY ------------------------------------------ THE COMPANY HAS A LIMITED OPERATIONAL HISTORY. We have a limited history upon which an evaluation of our prospects and future performance can be made. Our proposed operations are subject to all business risks associated with new enterprises. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the expansion of a business operation in an emerging industry, and the continued development of advertising, promotions, and a corresponding customer base. There is a possibility that we could sustain losses in the future, and there are no assurances that we will ever operate profitably. GOING CONCERN The consolidated financial statements included herein have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of June 30, 2013, the Company has a working capital deficit of approximately $1,841,000 and has accumulated losses of approximately $3,143,000 since its inception. Its ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due. In May 2012, the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to -10-
take additional measures to conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. To fund working capital for the next twelve months, the Company expects operations to continue to improve through increased sales of MagCast, to reduce costs due to 100% ownership of MagCast, to settle additional liabilities using the Company's stock and to raise additional capital. THE COMPANY MAY NEED ADDITIONAL FINANCING FOR WHICH 30DC HAS NO COMMITMENTS, AND THIS MAY JEOPARDIZE EXECUTION OF THE COMPANY'S BUSINESS PLAN. 30DC has limited funds, and such funds may not be adequate to carry out the business plan. The Company's ultimate success depends upon its ability to raise additional capital. The Company has not investigated the availability, source, or terms that might govern the acquisition of additional capital and will not do so until it determines a need for additional financing. If the Company needs additional capital, it has no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to the Company. If not available, 30DC's operations will be limited to those that can be financed with its modest capital. WE WILL INCUR EXPENSES IN CONNECTION WITH OUR SEC FILING REQUIREMENTS AND WE MAY NOT BE ABLE TO MEET SUCH COSTS, WHICH COULD JEOPARDIZE OUR FILING STATUS WITH THE SEC. As a public reporting company we are required to meet the filing requirements of the SEC. We estimate accounting and legal expenses on an annualized basis to be approximately $150,000, which includes both the annual audit and the review of the quarterly reports by our auditors. These costs can increase significantly if the Company is subject to comment from the SEC on its filings and/or we are required to file supplemental filings for transactions and activities. During the last two years, we have been unable to meet our filing requirements on a timely basis. If we continue to be unable to meet our filing requirements or are not compliant in meeting the filing requirements of the SEC, we could lose our status as a 1934 Act Company, which could compromise our ability to raise funds. WE ARE HIGHLY DEPENDENT ON THE SERVICES OF KEY PERSONNEL. Our success depends and will depend on the efforts and abilities of Edward Dale, our President, Chief Executive Officer and a Director, Dan Raine, our Executive VP of Business Development and Netbloo Media, Ltd., a contractor that co-developed MagCast. The loss of any of them would have a material adverse effect on us. Our success also depends upon our ability to attract and retain qualified personnel required to fully implement our business plan. There can be no assurance that we will be successful in these efforts. 30DC'S OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST WHICH MAY NOT BE RESOLVED FAVORABLY TO THE COMPANY. Certain conflicts of interest may exist between 30DC and its officers and directors. The Company's Officers and Directors have other business interests to which they devote their attention and may be expected to continue to do so although management time should be devoted to 30DC business. As a result, conflicts of interest may arise that can be resolved only through exercise of such judgment as is consistent with fiduciary duties to 30DC. See "Directors and Executive Officers". -11-
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY. We must continually implement and improve our products and/or services, operations, operating procedures and quality controls on a timely basis, as well as expand, train, motivate and manage our work force in order to accommodate anticipated growth and compete effectively in our market segment. Successful implementation of our strategy also requires that we establish and manage a competent, dedicated work force and employ additional key employees in corporate management, product design, client service and sales. We can give no assurance that our personnel, systems, procedures and controls will be adequate to support our existing and future operations. If we fail to implement and improve these operations, there could be a material, adverse effect on our business, operating results and financial condition. IF WE DO NOT CONTINUALLY UPDATE OUR PRODUCTS, THEY MAY BECOME OBSOLETE AND WE MAY NOT BE ABLE TO COMPETE WITH OTHER COMPANIES. The Internet and online commerce industries are characterized by rapid technological change, changing market conditions and customer demands, and the emergence of new industry standards and practices that could render our existing Web site and proprietary technology obsolete. Our future success will substantially depend on our ability to enhance our existing services, develop new services and proprietary technology and respond to technological advances in a timely and cost-effective manner. The development of other proprietary technology entails significant technical and business risk. There can be no assurance that we will be successful in developing and using new technologies or adapt our proprietary technology and systems to meet emerging industry standards and customer requirements. If we are unable, for technical, legal, financial, or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, or if our new products and electronic commerce services do not achieve market acceptance, our business, prospects, results of operations and financial condition would be materially adversely affected. We cannot assure you that we will be able to keep pace with technological advances or that our products will not become obsolete. We cannot assure you that competitors will not develop related or similar products and bring them to market before we do, or do so more successfully, or that they will not develop technologies and products more effective than any that we have or are developing. If that happens, our business, prospects, results of operations and financial condition will be materially adversely affected. WE RELY ON PROPRIETARY RIGHTS. We regard substantial elements of our web sites and underlying technology as proprietary. Despite our precautionary measures, third parties may copy or otherwise obtain and use our proprietary information without authorization, or develop similar technology independently. Any legal action that we might bring or other steps we might take to protect this property could be unsuccessful, expensive and distract management from day-to-day operations. Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and evolving, and we can give no assurance regarding the future viability or value of any of these proprietary rights. SYSTEMS FAILURES COULD HARM OUR BUSINESS. Temporary or permanent outages of our computers or software equipment could have an adverse effect on our business. Although we have not experienced any catastrophic outages to date, we currently do not have fully redundant systems for our web sites and other services at an alternate site. Therefore, our systems are vulnerable to damage from break-ins, unauthorized access, vandalism, fire, earthquakes, power loss, telecommunications failures and similar events. -12-
Experienced computer programmers seeking to intrude or cause harm, or hackers, may attempt to penetrate our network security from time to time. Although we have not experienced any catastrophic security breaches to date, if a hacker were to penetrate our network security, they could misappropriate proprietary information, cause interruptions in our services, dilute the value of our offerings to customers and damage customer relationships. We might be required to expend significant capital and resources to protect against, or to alleviate, problems caused by hackers. We also may not have a timely remedy against a hacker who is able to penetrate our network security. In addition to purposeful security breaches, the inadvertent transmission of computer viruses could expose us to system damage, operational disruption, loss of data, litigation and other risks of loss or harm. WE DEPEND ON CONTINUED PERFORMANCE OF AND IMPROVEMENTS TO OUR COMPUTER NETWORK. Any failure of our computer systems that causes interruption or slower response time of our web sites or services could result in a smaller number of users of our web sites. If sustained or repeated, these performance issues could reduce the attractiveness of our web sites to consumers and our subscription products and services. Increases in the volume of our web site traffic could also strain the capacity of our existing computer systems, which could lead to slower response times or system failures. We may not be able to project accurately the rate, timing or cost of any increases in our business, or to expand and upgrade our systems and infrastructure to accommodate any increases in a timely manner. INTERNET COMMERCE SECURITY THREATS COULD POSE A RISK TO OUR ONLINE SALES AND OVERALL FINANCIAL PERFORMANCE. A significant barrier to online commerce is the secure transmission of confidential information over public networks. We and our partners rely on encryption and authentication technology to provide the security and authentication necessary to effect secure transmission of confidential information. There can be no assurance that advances in computer capabilities; new discoveries in the field of cryptography or other developments will not result in a compromise or breach of the algorithms used by us and our partners to protect consumer's transaction data. If any such compromise of security were to occur, it could have a materially adverse effect on our business, prospects, financial condition and results of operations. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and the privacy of users may also hinder the growth of online services generally, especially as a means of conducting commercial transactions. To the extent that our activities, our partners or third-party contractors involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. There can be no assurance that our security measures will not prevent security breaches or that failure to prevent such security breaches will not have a materially adverse effect on our business, prospects, financial condition and results of operations. RISK OF CAPACITY CONSTRAINTS; RELIANCE ON INTERNALLY DEVELOPED SYSTEMS; SYSTEM DEVELOPMENT RISKS. A key element of our strategy is to generate a high volume of traffic on, and use of, our services across our network infrastructure and systems. Accordingly, the satisfactory performance, reliability and availability of our software systems, transaction-processing systems and network infrastructure are critical to our reputation and our ability to attract and retain customers, as well as maintain adequate customer service levels. Our revenues depend on the number of visitors who sign up for our services. Any systems interruptions that result in the unavailability of our software systems or network infrastructure would reduce the volume of sign ups and the attractiveness of our service offerings. We may experience periodic systems interruptions from time to time. Any -13-
substantial increase in the volume of traffic on our software systems or network infrastructure will require us to expand and upgrade further our technology, transaction-processing systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our Web site or timely expand and upgrade our systems and infrastructure to accommodate such increases. We will use a combination of industry supplied software and internally developed software and systems for our search engine, distribution network, and substantially all aspects of transaction processing, including order management, cash and credit card processing, and accounting and financial systems. Any substantial disruptions or delays in any of our systems would have a materially adverse effect on our business, prospects, financial condition and results of operations. THERE ARE RISKS ASSOCIATED WITH OUR DOMAIN NAMES. We currently hold various Web domain names relating to our brand. The acquisition and maintenance of domain names is generally regulated by governmental agencies and their designees. The regulation of domain names in the United States and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, there can be no assurance that we will be able to acquire or maintain relevant domain names in all of the countries in which it conducts business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We, therefore, may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our proprietary rights. Any such inability could have a materially adverse effect on our business, prospects, financial condition and results of operations. STORAGE OF PERSONAL INFORMATION ABOUT OUR CUSTOMERS COULD POSE A SECURITY THREAT. Our policy is not to willfully disclose any individually identifiable information about any user to a third party without the user's consent. This policy is accessible to users of our services when they initially register. Despite this policy, however, if third persons were able to penetrate our network security or otherwise misappropriate our users' personal information or credit card information, we could be subject to liability. These could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims. They could also include claims for other misuses of personal information, such as for unauthorized marketing purposes. These claims could result in litigation. In addition, the Federal Trade Commission and other states have been investigating certain Internet companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the use of personal information are introduced or if they chose to investigate our privacy practices. WE FACE POSSIBLE LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITES. We may be subjected to claims for defamation, negligence, copyright or trademark infringement or based on other theories relating to the information we publish on our Web site and across our distribution network. These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We could also be subjected to claims based upon the content that is accessible from our Web sites and distribution network through links to other Web sites. WE HAVE AGREED TO INDEMNIFY OUR OFFICERS AND DIRECTORS AGAINST LAWSUITS. Our operating subsidiary is a Delaware corporation. Delaware law permits the indemnification of officers and directors against expenses incurred in successfully defending against a claim. Delaware law also authorizes Delaware corporations to indemnify their officers and directors against expenses and liabilities incurred because of their being or having been an officer or -14-
director. Our organizational documents provide for this indemnification to the fullest extent permitted by law. We currently do not maintain any insurance coverage. In the event that we are found liable for damage or other losses, we would incur substantial and protracted losses in paying any such claims or judgments. We have not maintained liability insurance in the past, but intend to acquire such coverage immediately upon resources becoming available. There is no guarantee that we can secure such coverage or that any insurance coverage would protect us from any damages or loss claims filed against it. IF WE ENGAGE IN ANY ACQUISITION, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER REALIZE THE ANTICIPATED BENEFITS OF THE ACQUISITION. We intend to acquire businesses, technologies, services or products or license technologies that we believe are a strategic fit with our business, though none have been identified at the time of this filing, other than the Netbloo transaction. We have limited experience in identifying acquisition targets, and successfully completing and integrating any acquired businesses, technologies, services or products into our current infrastructure. The process of integrating any acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may divert significant management attention from our ongoing business operations. As a result, we will incur a variety of costs in connection with an acquisition and may never realize our anticipated benefits. WE MAY ENGAGE IN TRANSACTIONS THAT PRESENT CONFLICTS OF INTEREST. The Company and officers and directors may enter into agreements with the Company from time to time which may not be equivalent to similar transactions entered into with an independent third party. A conflict of interest arises whenever a person has an interest on both sides of a transaction. While we believe that it will take prudent steps to ensure that all transactions between the Company and any officer or director is fair, reasonable, and no more than the amount it would otherwise pay to a third party in an "arms-length" transaction, there can be no assurance that any transaction will meet these requirements in every instance. THE COMPANY MAY IN THE FUTURE ISSUE MORE SHARES WHICH COULD CAUSE A LOSS OF CONTROL BY ITS PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS. 30DC may issue further shares as consideration for the cash or assets or services out of its authorized but unissued common stock that would, upon issuance, represent a majority of the voting power and equity of the Company. The result of such an issuance would be those new stockholders and management would control the Company, and persons unknown could replace the Company's management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of 30DC by its current shareholders, which could present significant risks to investors. THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES. The Company is a "penny stock" company. Our securities currently trade over the counter ("OTC") on the OTC Pink market operated by OTC Market Group, Inc and are subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction -15-
prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of shareholders to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions. In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute "penny stocks" within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions. Shareholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. THE COMPANY WILL PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE. The Company has not paid dividends on our common stock and does not anticipate paying such dividends in the foreseeable future. OUR INVESTORS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES FOR VARIOUS CONSIDERATIONS IN THE FUTURE. There may be substantial dilution to our shareholders a result of future decisions of the Board to issue shares without shareholder approval for cash, services, or acquisitions. ITEM 1B. UNRESOLVED STAFF COMMENTS ---------------------------------- Not Applicable. ITEM 2. PROPERTIES ------------------ FACILITIES The current corporate address is 80 Broad Street, 5th Floor, New York, New York 10004. The telephone number is 212-962-4400. The Company entered into a new lease effective March 2011 for twelve months which was renewed in March 2013 for twelve months. The lease is non-cancellable with a minimum monthly payment of $99 and provision for additional charges for use of facilities and services utilized on an as-needed basis. Rent expense incurred under the lease in the years ended June 30, 2013 and 2012 was approximately $1,188 and $1,393, respectively. -16-
REAL PROPERTY None. MINERAL PROPERTIES None. ITEM 3. LEGAL PROCEEDINGS ------------------------- 30DC anticipates that it (including any future subsidiaries) will from time to time become subject to claims and legal proceedings arising in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings and 30DC cannot assure that their ultimate disposition will not have a materially adverse effect on the Company's business, financial condition, cash flows or results of operations. The Company is not a party to any pending legal proceedings, nor is the Company aware of any civil proceeding or government authority contemplating any legal proceeding as of the date of this filing. ITEM 4. MINE AND SAFETY DISCLOSURES ------------------------------------ Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES -------------------------------------------------------------------------------- The Company's common stock is presently traded over the counter ("OTC") on the OTC Pink market operated by OTC Market Group, Inc. Our trading symbol is "TDCH." The following table sets forth the range of high and low closing prices for the common stock of each full quarterly period during the years ended June 30, 2013 and 2012. The quotations were obtained from information published by the FINRA and reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. MARKET INFORMATION FISCAL YEAR ENDED JUNE 30, 2013: HIGH LOW ----------- ----------- Quarter Ended September 30, 2012 $0.10 $0.05 Quarter Ended December 31, 2012 $0.15 $0.06 Quarter ended March 31, 2013 $0.15 $0.05 Quarter ended June 30, 2013 $0.09 $0.01 FISCAL YEAR ENDED JUNE 30, 2012: HIGH LOW ----------- ----------- Quarter Ended September 30, 2011 $0.60 $0.17 Quarter Ended December 31, 2011 $0.53 $0.29 Quarter Ended March 31, 2012 $0.36 $0.13 Quarter Ended June 30, 2012 $0.25 $0.10 -17-
HOLDERS As of June 30, 2013, the Company had approximately 134 holders of record of the Common Stock. Since a portion of the Company's common stock may be held in "street" or nominee name, the Company is unable to determine the exact number of beneficial holders. DIVIDEND POLICY The Company currently anticipates that it will retain all of its earnings to finance the operation and expansion of its business, and therefore does not intend to pay dividends on its Common Stock in the foreseeable future. Since its inception, the Company has never declared or paid any cash dividends on its Common Stock. Any determination to pay dividends in the future is at the discretion of the Company's Board of Directors and will depend upon the Company's financial condition, results of operations, capital requirements, limitations contained in loan agreements and such other factors as the Board of Directors deems relevant. RECENT SALES OF UNREGISTERED SECURITIES We made unregistered sales and issuances of our securities during the years ended June 30, 2013 and 2012 as follows. During the year ended June 30, 2013, the Company issued common stock and stock options as follows: TITLE OF CLASS OF DATE OF PURCHASE SECURITIES NO. OF SHARES CONSIDERATION PURCHASER ------------------ --------------- --------------- --------------- ------------- July 15, 2012 Common Stock 500,000 $45,000 Director* October 11, 2012 Stock Options 1,500,000 $-0- Director October 11, 2012 Stock Options 1,500,000 $-0- Officer/Director October 24, 2012 Common Stock 13,487,363 $1,078,989 Affiliate November 20, 2012 Common Stock 15,385 $2,000 Vendor June 26, 2013 Common Stock 55,770 $14,500 Vendor *Issued to GHL, Ltd. whose President, Gregory Laborde, is a director of the Company. ISSUER PURCHASES OF EQUITY SECURITIES 30DC, Inc. did not repurchase any shares of its common stock during the years ended June 30, 2013 and 2012. During the year ended June 30, 2012, the Company did settle payments exceeding the amount due under the Marillion Partnership contractor agreement through the return by Marillion of 1,591,827 of the Company's common shares and such shares have been canceled. TITLE OF CLASS OF DATE OF PURCHASE SECURITIES NO. OF SHARES CONSIDERATION PURCHASER ------------------ --------------- --------------- --------------- ------------- June 28, 2012 Common Stock 1,591,827 $159,183 Affiliate -18-
ITEM 6. SELECTED FINANCIAL DATA ------------------------------- Not applicable. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" ON PAGE 10 AND ELSEWHERE IN THIS REPORT. OVERVIEW The Company has two business divisions, 30 Day Challenge and Immediate Edge. 30 Day Challenge offers a free online ecommerce training program and an online education subscription service. In addition, periodic premium live seminars are produced which are intended to target experienced Internet business operators. Immediate Edge is an online education program subscription service offering high-end internet marketing instruction and strategies for experienced online commerce practitioners. In May of 2012 the Company signed a JV Agreement with Netbloo for the MagCast Publishing Platform ("MagCast") which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on Apple Corporation's online marketplace Apple Newsstand and includes executive training modules as well as a three-month trial subscription to the Company's Immediate Edge subscription product and other bonus products. Under the terms of the JV Agreement the Company is responsible for marketing, sales and administration and Netbloo is responsible for product development. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which resulted in commissions of 50% of gross revenue for those sales to the affiliate responsible for the sale. Pursuant to ASC 808-10 the joint operating activity with Netbloo was considered a collaborative arrangement. The Company was deemed the principal participant and recorded all revenue under the JV Agreement on a gross basis with the 50% of revenue due Netbloo, net of affiliate commissions and other allowable costs, recorded as commission expense. In October 2012 the Company reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. The contractor agreement was effective October 1, 2012 and final documents were signed on December 31, 2012. The Company has been developing and selling its own products and by doing such work itself has been reducing operating costs. As part of the cost reduction efforts, effective February 1, 2012 the Company consolidated its two subscription products; the Immediate Edge and Challenge Plus into a single continuing product under the name Immediate Edge. Resources and marketing efforts for subscriptions are now exclusively for the Immediate Edge. The Company expects future growth to come from new products which are developed internally or through joint venture arrangements. There can be no assurance new -19-
products will be developed and if developed there can be no assurance that new products will produce significant revenue. During the year ended June 30, 2013, the Company released new versions of existing products, developed new products and continued to identify potential others. In June 2013, the Company released MagCast version 4 which among other new features allows customers to offer readers a magazine optimized for the I-Phone which expands the potential target audience for our customers' digital publications from 150 million to 650 million potential readers, based upon Apple Inc.'s statistics. The Company has no plans at this time for purchases or sales of fixed assets which would occur in the next twelve months. The Company has no expectation or anticipation of significant changes in number of employees in the next twelve months. LIQUIDITY AND CAPITAL RESOURCES The Company had a cash balance of $164,634 at June 30, 2013 and the Company had a working capital deficit of $1,840,688. At November 30, 2013, the Company had a working capital deficit of approximately $1,323,000; the approximately $517,000 reduction in working capital deficit reflects approximately $270,000 in accounts receivable, net of affiliate commissions payable, from the August 2013 MagCast re-launch, approximately $106,000 in liabilities satisfied by issuance of Company stock, approximately $50,000 in forgiveness of debt and approximately $100,000 in payments toward outstanding liabilities. To fund working capital during the year ending June 30, 2014, the Company expects to raise capital and to improve the results of operations from increasing revenue. The Company expects increased revenue from further sales of MagCast Publishing Platform, including a re-launch sale in the first quarter which will be primarily through affiliates, and marketing to customers outside it's historical customer base with the goal of recurring revenue through monthly licenses, Market Pro Max which has not been extensively marketed and introduction of new products some of which will be extensions of existing product lines. Included in liabilities of discontinued operations at June 30, 2013 is $102,051 (including $31 included in due to related parties) in notes payable plus related accrued interest that are in default for lack of repayment by their due date. Approximately $42,000 of this amount has been paid or settled for stock subsequent to June 30, 2013. During the year ended June 30, 2013, the Company used $873,510 in operating activities. During the year ended June 30, 2012, operating activities provided the Company with $1,033,204. The decrease of $1,906,714 in funds provided from operating activities was due to a number of factors. For the year ended June 30, 2013 the Company suffered a loss of $407,642 compared to a gain of $32,207 during the year ended June 30, 2012. During the year ended June 30, 2012, the Company had an increase in accrued expenses and refunds of $865,447 while during the year ended June 30, 2013 the Company had a decrease in accrued expenses and refunds of $819,976 which was primarily the payment of expenses accrued at June 30, 2012. During the year ended June 30, 2013 deferred revenue decreased by $202,341 more than the year ended June 30, 2012 due to the end of the Company's historical mentoring program. Offsetting factors include $200,629 during the year ended June 30, 2013 for noncash expense for equity based compensation to non-employees and employees and an a decrease of $129,990 in accounts receivable during the year ended June 30, 2013 compared to an increase of $156,104 in accounts receivable during the year ended June 30, 2012. During the years ended June 30, 2013 and June 30, 2012 no funds were provided by or used for financing activities. -20-
GOING CONCERN The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of June 30, 2013, the Company has a working capital deficit of approximately $1,841,000 and has accumulated losses of approximately $3,143,000 since its inception. The Company's ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing or to earn profits from its business operations to meet its obligations and pay its liabilities arising from normal business operations when they come due. In May 2012 the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2013 COMPARED TO THE YEAR ENDED JUNE 30, 2012 During the year ended June 30, 2013, the Company recognized revenues of $1,973,072 from its operations compared to $2,916,341 during the year ended June 30, 2012. Revenues of the Company were from the following sources during the year ended June 30, 2013 compared to June 30, 2012. Year Ended Year Ended Increase or June 30, 2013 June 30, 2012 (Decrease) --------------- --------------- ------------- Revenue Commissions $ 255,374 $ 203,188 $ 52,186 Subscription Revenue 516,867 609,951 (93,084) Products and Services 940,747 1,486,719 (545,972) Seminars and Mentoring 260,084 616,483 (356,399) --------------- --------------- ------------- Total Revenues $ 1,973,072 $ 2.916,341 $ (943,269) --------------- --------------- ------------- The Company has made a strategic decision to be more product and less services focused. While profitable, the Company's historic mentoring program was labor intensive and the Company did not believe this could be scaled much further. Commission revenue is opportunistic based upon product promotions by third parties the Company has a relationship with. During the year ended June 30, 2013, approximately 70% of affiliate commissions were earned from one third party whose products were sold to the Company's customers and was responsible for the $52,186 increase in commissions. -21-
The $93,084 decrease in subscription revenue was due to discontinuance of the Company's Challenge Plus subscription product in February 2012 and a decrease in subscribers for the Immediate Edge which averaged 462 subscribers per month for the year ended June 30, 2013 and averaged 477 subscribers per month for the year ended June 30, 2012. When Challenge Plus was discontinued, company resources were consolidated to focus on the Immediate Edge and some costs were eliminated. The $545,972 decrease in products and services revenue was primarily due to the timing of the re-launch promotion of the MagCast Publishing Platform. MagCast was launched in May 2012 and generated revenue of 1,239,371 during the year ended June 30, 2012, the majority of which was from a major sales launch promotion in June 2012. The $356,399 decrease in seminars and mentoring income resulted primarily from a decrease in the number of mentoring students as the program wound down and was phased out at the end of December 2012. The average number of active mentoring students for the year ended June 30, 2013 was 28 and for the year ended June 30, 2012 was an average of 79 mentoring students. The Company discontinued its historical mentoring program as of December 31, 2012 to redirect Company resources toward products and services sales growth which management believes has more potential for long-term growth than mentoring which is labor intensive and does have the ability to leverage and scale. During the year ended June 30, 2013, the Company incurred $2,461,574 in operational expenses compared to $2,843,294 during the year ended June 30, 2012. Operational expenses during the years ended June 30, 2013 and 2012, include the following categories: Year Ended Year Ended Increase or June 30, 2013 June 30, 2012 Decrease ---------------- ------------------ -------------- Accounting Fees $ 129,785 $ 207,324 (77,539) Credit Card Processing Fees 57,392 73,746 (16,354) Commissions 210,331 833,449 (623,118) Independent Contractors 394,230 370,284 23,946 Depreciation and Amortization 67,280 53,701 13,579 Directors Fees 76,814 - 76,814 Internet Expenses 73,513 59,274 14,239 Legal Fees 53,832 84,571 (30,739) Officer's Salaries 276,814 200,000 76,814 Related Party Contractors 936,694 753,428 183,266 Telephone and Data Lines 81,524 90,766 (9,242) Travel & Entertainment 32,214 31,225 989 Other Operating Expenses 71,151 85,526 (14,375) ---------------- ----------------- -------------- Total Operating Expenses $ 2,461,574 $ 2,843,294 $ (381,720) ================ ================= ============== 013fThe decrease of $77,539 in accounting fees was due to a delay in the audit for the Company's June 30, 2012 year-end and an increase in fees due to multiple filings during the year ended June 30, 2012 covering a number of prior periods. The $16,354 decrease credit card processing fees is due to the $545,972 decrease in products and services revenue. Credit card processing fees vary based upon the card used by a customer and are higher for sales to customers outside the United States. The increase of $623,118 decrease in commissions is primarily due to two factors. Due to the acquisition of the balance of the MagCast JV from Netbloo, -22-
effective October 1, 2012 there was no longer a collaborative arrangement. During the year ended June 30, 2012 $444,939 in commissions were recorded for the collaborative arrangement, during the year ended June 30, 2013 $28,933 in commissions were recorded under the collaborative arrangement until it ended. Affiliate commissions decreased $203,968 during the year ended June 30, 2013 due to the $545,972 decrease in products and services revenue. Commissions are paid to affiliates for sales referrals which led directly to a sale and commissions were paid to collaborative arrangement partners who worked with the Company in developing the products which the Company marketed and sold. The increase of $23,946 in independent contractors is primarily due to the approximately $87,000 increased cost for contractors for maintenance and support of the MagCast Publishing Platform offset by the reduction of two contractors in the 30 Day division who were paid a total of approximately $50,000 during the year ended June 30, 2012 one of whom was strictly related to the Challenge Plus subscription product which has been discontinued and the reduction of a contractor in the Immediate Edge division who was paid approximately $17,000. The increase of $13,579 in depreciation and amortization is due to $44,000 in amortization of intangible assets from the asset acquisition in October 2012 offset by a decrease in depreciation of $30,421 due to the end of depreciable life for some of the Company's fixed assets. The increase of $76,814 in directors' fees is for the value of stock options issued to Henry Pinskier, a director of the Company a portion of which was expensed during the year ended June 30, 2013. The increase of $14,239 in Internet expenses is due to an increase in storage and hosting fees related to the MagCast Publishing Platform which was launched in May 2012. The decrease of $30,739 in legal fees was from a decrease in SEC counsel costs due a delay in the Company filing its 10K for the year ended June 30, 2012 and multiple filings during the year ended June 30, 2012. The increase of $76,814 in officer's salaries is for the value of stock options issued to Theodore A. Greenberg, chief financial officer and a director of the Company a portion of which was expensed during the year ended June 30, 2013. Related Party Contractor Fees consist of payments to Marillion Partnership, Raine Ventures, LLC and through March 1, 2012, Jesselton, Ltd. under contracts for services which include Ed Dale acting as 30DC's Chief Executive Officer, Dan Raine acting as 30DC's Vice President of Business Development and Clinton Carey acting as 30DC's Chief Operating Officer respectively as well as the consulting contract with GHL Group, Ltd. whose President, Gregory H. Laborde is a Director of the Company and a services contract with Netbloo Media, Ltd. which was the joint developer of the MagCast Publishing Platform. The $183,266 net increase primarily results from $225,000 for Netboo which started in October 2012, a $40,000 one-time bonus awarded to the Marillion Partnership upon completion of the asset acquisition which included the remaining 50% of the MagCast Publishing Platform, $36,313 paid to GHL, Group, Ltd. during the year ended June 30, 2013 and 500,000 shares of common stock issued to GHL Group, Ltd. valued at $45,000 offset by a decrease of $176,262 for Jesselton which is no longer a contractor to the Company. During the year ended June 30, 2013, the Company recognized a net loss from continuing operations of $475,075 compared to a net income of $54,285 during the year ended June 30, 2012. The net negative change of $529,360 was a primarily the result of the $943,269 decrease in revenues and $381,720 decrease in operational expenses during the period shown above. -23-
ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS Significant accounting policies and recent accounting pronouncements are included in Note 2 in the Notes to the Financial Statements included herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ------------------------------------------------------------------- Our Company's business activities contain elements of risk. Neither our investments nor an investment in us is intended to constitute a balanced investment program. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The audited financial statements of 30DC, Inc. for the years ended June 30, 2013 and 2012 appear as pages F-1 through F-25. -24-
30DC, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012 F-1
INDEX Page F-3 Report of Independent Registered Public Accounting Firms Page F-5 Consolidated Balance Sheets Page F-6 Consolidated Statements of Operations Page F-7 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) Page F-8 Consolidated Statements of Cash Flows Page F-9 Notes to Consolidated Financial Statements F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors 30DC, Inc. New York, New York We have audited the accompanying consolidated balance sheet of 30DC, Inc. and its subsidiaries (collectively the "Company") as of June 30, 2013 and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders' equity (deficiency) and cash flows for the year then ended. 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 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 misstatements. 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. An audit also includes 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 consolidated financial position of 30DC, Inc. and its subsidiaries as of June 30, 2013 and the results of their consolidated operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered losses from operation and has a working capital deficit as of June 30, 2013. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ MaloneBailey, LLP www.malone-bailey.com Houston, Texas December 23, 2013 F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of 30DC Inc. We have audited the accompanying consolidated balance sheet of 30DC Inc. and its Subsidiary (collectively the "Company") as of June 30, 2012 and the related consolidated statements of operations and comprehensive income, changes in stockholders' deficiency and cash flows for the year then ended. 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 also 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 provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 30DC Inc. and its Subsidiary as of June 30, 2012, and the consolidated results of their operations and their cash flow for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a working capital deficit and stockholders' deficiency as of June 30, 2012. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Marcum LLP New York, NY June 3, 2013 F-4
30DC, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June June 30, 2013 30, 2012 ---------------- ------------------- Assets Current Assets Cash and Cash Equivalents $ 116,650 $ 1,031,167 Restricted Cash 47,984 - Accrued Commissions Receivable 32,035 15,805 Accounts Receivable 26,114 156,104 Prepaid Expenses 3,648 - Assets of Discontinued Operations 72,458 95,625 ---------------- ------------------- Total Current Assets 298,889 1,298,701 Property and Equipment, Net 23,045 34,100 Intangible Assets, Net 286,000 - Goodwill 2,252,849 1,503,860 ---------------- ------------------- Total Assets $ 2,860,783 $ 2,836,661 ================ =================== Liabilities and Stockholders' Equity (Deficiency) Current Liabilities Accounts Payable $ 514,294 $ 581,775 Accrued Expenses and Refunds 374,219 494,603 Accrued Commissions Expense - 699,592 Deferred Revenue 23,649 244,378 Due to Related Parties 924,057 606,827 Liabilities of Discontinued Operations 303,358 374,756 ---------------- ------------------- Total Current Liabilities 2,139,577 3,001,931 ---------------- ------------------- Total Liabilities 2,139,577 3,001,931 ---------------- ------------------- Stockholders' Equity (Deficiency) Preferred Stock, Par Value $0.001, 10,000,000 Authorized, -0- Issued - - Common Stock, Par Value $0.001, 100,000,000 authorized, 86,986,939 and 72,928,421 issued and outstanding respectively 86,987 72,928 Paid in Capital 3,880,469 2,600,410 Accumulated Deficit (3,143,392) (2,735,750) Accumulated Other Comprehensive Loss (102,858) (102,858) ---------------- ------------------- Total Stockholders' Equity (Deficiency) 721,206 (165,270) ---------------- ------------------- Total Liabilities and Stockholders' Equity (Deficiency) $ 2,860,783 $ 2,836,661 ================ =================== The accompanying notes are an integral part of the consolidated financial statements. F-5
30DC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS YEARS ENDED JUNE 30, 2013 2012 --------------- ----------------- Revenue Commissions $ 255,374 $ 203,188 Subscription Revenue 516,867 609,951 Products and Services 940,747 1,486,719 Seminars and Mentoring 260,084 616,483 --------------- ----------------- Total Revenue 1,973,072 2,916,341 Operating Expenses 2,461,574 2,843,294 --------------- ----------------- Operating Income (Loss) (488,502) 73,047 Other Income (Expense) Forgiveness of Debt 13,461 - Foreign Currency Transaction Loss (34) (18,762) --------------- ----------------- Total Other Income (Expense) 13,427 (18,762) --------------- ----------------- Income (Loss) From Continuing Operations (475,075) 54,285 Income (Loss) From Discontinued Operations 67,433 (22,078) --------------- ----------------- Net Income (Loss) (407,642) 32,207 Foreign Currency Translation Gain - 18,064 --------------- ----------------- Comprehensive Income (Loss) $ (407,642) $ 50,271 =============== ================= Weighted Average Common Shares Outstanding Basic 82,657,326 74,511,549 Diluted 82,657,326 74,511,549 Income (Loss) Per Common Share (Basic and Diluted) Continuing Operations $ (0.01) $ 0.00 Discontinued Operations 0.00 (0.00) Net Income (Loss) Per Common Share $ (0.00) $ 0.00 The accompanying notes are an integral part of the consolidated financial statements. F-6
30DC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) ACCUMULATED TOTAL OTHER STOCKHOLDERS' COMMON STOCK ADDITIONAL COMPREHENSIVE ACCUMULATED EQUITY SHARES PAR VALUE PAID IN CAPITAL INCOME (LOSS) DEFICIT (DEFICIENCY) -------------- ----------- --------------- ------------- ------------- ------------ Balance - June 30, 2011 74,520,248 $ 74,520 $ 2,758,001 $ (120,922) $(2,767,957) $ (56,358) Net Income - - - - 32,207 32,207 Foreign currency translation - - - 18,064 - 18,064 Settlement of Excess Payment to Related Party (1,591,827) (1,592) (157,591) - - (159,183) -------------- ----------- --------------- ------------- ------------- ------------ Balance - June 30, 2012 72,928,421 $ 72,928 $2,600,410 $ (102,858) $(2,735,750) $ (165,270) Net Loss - - - - (407,642) (407,642) Netbloo Asset Acquisition 13,487,363 13,487 1,065,502 1,078,989 Issuance of Common Stock to Non-Employees 515,385 516 46,484 - - 47,000 Issuance of Stock Options to Employees 153,629 - - 153,629 Issuance of Common Stock to Settle Liabilities 55,770 56 14,444 - - 14,500 -------------- ----------- --------------- ------------- ------------- ------------ Balance - June 30, 2013 86,986,939 $ 86,987 $ 3,880,469 $ (102,858) $(3,143,392) $ 721,206 ============== =========== =============== ============= ============= ============ The accompanying notes are an integral part of the consolidated financial statements. F-7
30DC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30, June 30, 2013 2012 -------------- ----------------- Cash Flows from Operating Activities: Net Income (Loss) $ (407,642) $ 32,207 (Gain) Loss From Discontinued Operations (67,433) 22,078 Adjustments to Reconcile Income (Loss) from Continuing Operations to Net Cash Provided By (Used In) Operating Activities Depreciation and Amortization 67,280 53,701 Equity Based Payments To Non-Employees 47,000 - Equity Based Payments To Employees 153,629 - Gain on Debt Forgiveness (13,461) - Changes in Operating Assets and Liabilities Restricted Cash (47,984) Accrued Commissions Receivable (16,230) 23,561 Accounts Receivable 129,990 (156,104) Prepaid Expenses (3,648) - Due From Related Party (Note 7) - (159,183) Accounts Payable (39,520) 25,819 Accrued Expenses and Refunds (120,384) 197,825 Accrued Commissions Expense (699,592) 667,622 Deferred Revenue (220,729) (18,388) Due to Related Parties 317,230 344,066 -------------- ----------------- Net Cash Provided by (Used in) Operating Activities (921,494) 1,033,204 -------------- ----------------- Cash Flows from Investing Activities Purchases of Property and Equipment (12,225) (7,118) -------------- ----------------- Net Cash Used in Investing Activitities (12,225) (7,118) -------------- ----------------- Cash Flows from Discontinued Operations Cash Flows From Operating Activities 19,202 (24,971) -------------- ----------------- Net Cash Provided by (Used in) Discontinued Operations 19,202 (24,971) -------------- ----------------- Effect of Foreign Exchange Rate Changes on Cash - (3,738) -------------- ----------------- Increase (Decrease) in Cash and Cash Equivalents (914,517) 997,377 Cash and Cash Equivalents - Beginning of Period 1,031,167 33,790 -------------- ----------------- Cash and Cash Equivalents - End of Period $ 116,650 $ 1,031,167 ============== ================= Supplemental Disclosures of Non Cash Financing Activity Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ 3,666 $ 5,036 Income taxes 1,236 1,736 Common Stock Issued for Asset Acquisition Customer Lists $ 75,000 $ - Software 255,000 - Goodwill 748,989 - Common Stock Issued to Settle Liabilities $ 14,500 $ - Common Stock Surrendered to Settle Related Party Liability (See Note 7) $ - $ 159,183 The accompanying notes are an integral part of the consolidated financial statements. F-8
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY -------------------------------------------------------------------- 30DC, Inc., Delaware, ("30DC DE") was incorporated on October 17, 2008 in the state of Delaware, as a holding company, for the purpose of building, acquiring and managing international web-based sales and marketing companies. On July 15, 2009, 30DC DE completed the acquisitions of the business and assets of 30 Day Challenge ("30 Day") and Immediate Edge ("Immediate"). 30 Day was acquired from the Marillion Partnership and Edward Wells Dale, both of Victoria, Australia, in consideration for the issuance of 2,820,000 shares of Common Stock of 30DC DE. Immediate was acquired from Dan Raine of Cheshire, United Kingdom, in consideration for the issuance of 600,000 shares of Common Stock of 30DC DE. The acquired businesses were sold subject to specific liabilities which included accounts payable, accrued expenses and deferred revenue. The acquisitions were pursuant to an agreement dated November 14, 2008. Mr. Dale and Mr. Raine were part of the founding group of shareholders of 30DC DE and in conjunction with the acquisitions, Mr. Dale was named the Chief Executive Officer of 30DC DE. In accordance with the provisions of Accounting Standards Codification ("ASC") 805, "Business Combinations", the acquisitions of 30 Day and Immediate were accounted for as transactions between entities under common control, whereby the acquired assets and liabilities of 30 Day and Immediate were recognized in the financial statements at their carrying amounts. On September 10, 2010, shareholders of 30DC DE exchanged 100% of their 30DC DE shares for 60,984,000 shares of Infinity Capital Group, Inc. ("Infinity"), a publicly traded company which trades over the counter ("OTC") on the OTC Pink market operated by OTC Market Group, Inc. 30DC DE became a wholly owned subsidiary of Infinity Capital Group, Inc. which has subsequently changed its name to 30DC, Inc. ("30DC" and together with its subsidiary "the Company"). After the share exchange, the former shareholders in 30DC DE held approximately 90% of the outstanding shares in Infinity and the officers of 30DC DE became the officers of Infinity. 30DC DE was the accounting acquirer in the transaction and its historical financial statements will be the historical financial statements of 30DC. Infinity's operations were discontinued and subsequent to the share exchange are accounted for as discontinued operations. 30DC offers internet marketing services and related training that help Internet companies in operating their businesses. 30DC's core business units are 30 Day and Immediate. 30 Day, with approximately 100,000 active online participants, offers a free e-commerce training program year round along with an online education subscription service and periodic premium live seminars that are targeted to experienced internet business operators. Immediate is an online educational program subscription service offering high-end Internet marketing instruction and strategies for experienced online commerce practitioners. Other revenue streams include sales of instructional courses and software tools related to internet marketing and from commissions on third party products sold via introduction to the 30DC customer base of active online participants and subscribers which are referred to as affiliate marketing commissions. The Company's recorded and unrecorded assets consist primarily of property and equipment, goodwill and internally developed intangible property such as domain names, websites, customer lists and copyrights. In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo Media, Ltd. ("Netbloo") for the MagCast Publishing Platform ("MagCast") which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on Apple Corporation's online marketplace Apple Newsstand and includes executive training modules as well as a three-month trial subscription to the Company's Immediate Edge subscription product and other bonus products. Under the terms of the JV Agreement the Company was responsible for marketing, sales and administration and Netbloo was responsible for product development. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which result in commission of 50% of gross revenue for those sales to the affiliate responsible for the sale. Pursuant to ASC 808-10 the joint operating activity with Netbloo is considered a collaborative arrangement. The Company was deemed the principal participant and recorded all revenue under the JV Agreement on a gross basis with the 50% of revenue due Netbloo, net of affiliate commissions and other allowable costs, recorded as commission expense. F-9
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 In October 2012 the Company reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. The contractor agreement was effective October 1, 2012 and final documents were signed on December 31, 2012. Please see Note 3 for further details on the acquisition. GOING CONCERN The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of June 30, 2013 and 2012, the Company has a working capital deficit of approximately $1,841,000 and $1,703,000, respectively, and has accumulated losses of approximately $3,143,400 and $2,736,000, respectively, since its inception. The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing or to earn profits from its business operations to meet its obligations and pay its liabilities arising from normal business operations when they come due. In May 2012, the Company launched MagCast which the Company expects to be an integral part of its businesses on an ongoing basis. MagCast is being sold through an affiliate network which expands the Company's selling capability and has a broad target market beyond the Company's traditional customer base. Until the Company achieves sustained profitability it does not have sufficient capital to meet its needs and continues to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made and there can be no assurance that any additional funds will be available to cover expenses as they may be incurred. If the Company is unable to raise additional capital or encounters unforeseen circumstances, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, issuance of additional shares of the Company's stock to settle operating liabilities which would dilute existing shareholders, curtailing its operations, suspending the pursuit of its business plan and controlling overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------- BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and include the accounts of 30DC, Inc., (f/k/a Infinity Capital Group, Inc.) and its subsidiary 30DC DE. The Company has determined that the acquisition date for the Netbloo asset acquisition (see Note 3) was October 24, 2012. All operating activity starting October 1, 2012 is included in these financial statements, the Company believes the operating activity for the period October 1 through October 23, 2012 does not have a material impact on these financial statements. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. F-10
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk related to cash and cash equivalents. The vendor which processes the Company's credit card sales requires that 10% of sales be maintained in a reserve account on a rolling six month basis. The $47,984 amount held in the reserve account at June 30, 2013 has been classified as restricted cash. There was no reserve account at June 30, 2012. ACCOUNTS RECEIVABLE Accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount becomes questionable. The allowance for doubtful accounts was based on a review of all outstanding amounts. We analyze the aging of receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer creditworthiness or weakening in economics trends could have a significant impact on the collectability of receivables and the allowance. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances will be made. Allowances are applied to accounts receivable where events or changes in circumstance indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgment and estimates as mentioned above. Where the expectation on or the actual recoverability of commissions and other receivables is different from the original estimate, such difference will impact the carrying value of commissions and other receivables and doubtful debts expenses in the periods in which such estimate is changed or the receivable are collected. PROPERTY AND EQUIPMENT Equipment is recorded at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to operations as incurred. Asset and related accumulated depreciation amounts are relieved from the accounts for retirements or dispositions. Depreciation on equipment is computed using the straight-line method. Estimated useful lives of three to ten years are used for equipment, while leasehold improvements are amortized, using the straight line method, over the shorter of either their economic useful lives or the term of the leases. GOODWILL AND INTANGIBLE ASSETS The Company accounts for goodwill and intangible assets in accordance with ASC 350 "Intangibles-Goodwill and Other" ("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. The Company completed an evaluation of goodwill at June 30, 2013 and determined that there was no impairment. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in the Company's share exchange with Infinity which occurred on September 10, 2010 and the excess of the purchase price over the fair value of net assets acquired in the Company's purchase of Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max on October 24, 2012. ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. F-11
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates. LONG LIVED ASSETS In accordance with ASC 360 "Property Plant and Equipment," the Company reviews the carrying value of intangibles subject to amortization and long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. 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 property, if any, exceeds its fair market value. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated Other Comprehensive Loss consists of cumulative adjustments of foreign currency translation which is further discussed in the foreign currency translation and measurement below. REVENUE RECOGNITION The Company generally applies revenue recognition principles in accordance with ASC 605, "Revenue Recognition". Accordingly, revenue is generally recognized when persuasive evidence of an agreement exists, services have been rendered or product delivery has occurred, the selling price to the customer is fixed or determinable and collectability is reasonably assured. The Company generates revenues in four categories, (i) commissions, (ii) seminars and mentoring (iii) subscriptions and (iv) products and services. Commissions are all affiliate marketing commissions generated when a customer is referred to a third-party via the Internet and the customer makes a purchase, which is paid for at the time of purchase. Revenue from commissions is recognized when the customer purchase is made from the third-party. Seminars and mentoring are educational in nature. Seminars are live events held in different cities throughout the world where customers will pay a fee to attend what is typically a three-day event. Seminar fees are paid in advance and classified as deferred revenue until the seminar is held. Mentoring services are offered over a period of time, typically a one-year period. Fees for mentoring are paid in advance and mentoring revenue is recognized ratably over the period of service. The Company chose to discontinue its historical mentoring program with the final mentoring students completing the program in December 2012. All subscription revenue is from monthly online subscriptions for information on Internet marketing. All subscriptions are paid in advance and subscription revenue is recognized ratably over the term of the subscription. Products and services revenues are from sales of online educational courses and productivity tools which customers use in their Internet marketing businesses. Revenue from products and services is recognized in accordance with the specific guidance for recognizing software revenue, where applicable, the Company recognizes revenue from perpetual software licenses at the inception of the license term, assuming all revenue recognition criteria have been met. Term-based software license revenue is recognized on a subscription basis over the term of the license entitlement. The Company recognizes revenue for software hosting or software-as-a-service (SaaS) arrangements as the service is delivered, generally on a straight-line basis, over the contractual period of performance. In software hosting arrangements where software licenses are sold, the associated software revenue is recognized according to whether perpetual licenses or term licenses are sold, subject to the above guidance. In SaaS arrangements where software licenses are not sold, the entire arrangement is recognized on a subscription basis over the term of the arrangement. Deferred revenue consists F-12
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 of the unearned portion of subscription payments, seminar fees and mentoring revenue as of the financial statement date. Pursuant to ASC 808-10, the JV Agreement with Netbloo was classified as a collaborative arrangement. The Company was deemed to be the principal participant and recorded all transactions under the JV Agreement on a gross basis. The JV Agreement ended when 30DC acquired the remaining 50% in October 2012 and there was no longer a collaborative arrangement. EQUITY-BASED PAYMENTS The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 505-50, "Equity-Based Payments to Non-Employees", which requires that such equity instruments are recorded at their fair value on the measurement date, with the measurement of such compensation being subject to periodic adjustment as the underlying equity instruments vest. The Company account for equity instruments issued to employees in accordance with ASC 718 "Stock Compensation". Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. FOREIGN CURRENCY TRANSLATION AND REMEASUREMENT The functional currency of the Company's 30 Day Challenge division switched to the United States dollar from the Australian dollar on July 1, 2012. All other Company operations have and continue to use the United States dollar as their functional currency. For all accounting periods prior to July 1, 2012, the Company followed ASC 830 "Foreign Currency Matters", under which functional currency assets and liabilities are translated into the reporting currency, US Dollars, using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other comprehensive income. Functional statements of operations amounts expressed in functional currencies are translated using average exchange rates for the respective periods. Re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the Statement of Operations. The historical foreign currency translation loss remains on the Balance Sheet at $(102,858) which was the balance at June 30, 2012. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and use assumptions that affect certain reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates in these financial statements are the bad debt allowance charged against accounts receivable, estimated useful lives used to calculate depreciation of property and equipment and the estimate of the Company's future taxable income used to calculate the Company's deferred tax valuation allowance. The Company evaluates all of its estimates on an on-going basis. FORGIVENESS OF DEBT The company has settled some debts for cash and/or payment in stock for less than the full amount due to the creditor. The Company records the difference between the amount that was owed and the amount which was paid as other income. During the year ended June 30, 2013, the Company settled two amounts owed to vendors from prior years for a total amount of $13,461 less than the full amount owed. F-13
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 NET INCOME OR LOSS PER SHARE The Company computes net loss per share in accordance with ASC 260 "Earnings per Share." Under ASC 260, basic net loss per share is computed by dividing net loss per share available to common stockholders by the weighted average number of shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the "treasury stock" and/or "if converted" methods as applicable. The computation of basic loss per share excludes potentially dilutive securities consisting of 3,401,522 warrants and 3,600,000 options because their inclusion would be anti-dilutive. In computing net loss per share, warrants with an insignificant exercise price are deemed to be outstanding common stock. RELATED PARTIES A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party. RECENT ACCOUNTING PRONOUNCEMENTS Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements. NOTE 3. ACQUISITION ------------------- In October 2012 the Company reached an agreement for the Company to purchase Netbloo's 50% interest in the MagCast JV Agreement and Market Pro Max an online marketing platform that allows anyone to create digital products and quickly build a variety of eCommerce marketing websites for a purchase price of 13,487,363 shares of the Company's common stock. Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. The contractor agreement was effective October 1, 2012 and final documents were signed on December 31, 2012. The Company has determined that control of the acquired assets changed hands on October 24, 2012, in accordance with ASC 805-10-25-6 the 13,487,363 shares were valued using the $0.08 per share closing price on that date for total purchase price consideration of $1,078,989. In accordance with purchase acquisition accounting, the company initially allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values as of the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. F-14
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The company has finalized its purchase price allocation. Tangible Assets $ - Customer Lists 75,000 Software 255,000 Goodwill 748,989 -------------- Total purchase price $ 1,078,989 ============== NOTE 4. PRO FORMA FINANCIAL INFORMATION --------------------------------------- The following unaudited consolidated pro forma information gives effect to the Netbloo acquisition (see Note 3) as if this transaction had occurred at the beginning of each period presented. The following unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the results that would have been attained had the acquisition of this business been completed at the beginning of each period presented, nor are they indicative of results that may occur in any future periods. Year Ended Year Ended June 30, 2013 June 30, 2012 (Unaudited) (Unaudited) ---------------- ---------------- Revenues $ 1,988,830 $ 2,950,189 Operating Expenses 2,531,126 2,462,535 Other Income (Expense) 13,427 (18,762) ---------------- ---------------- Income (Loss) from Continuing Operations (528,869) 468,892 Income (Loss) from Discontinued Operations 67,433 (22,078) ---------------- ---------------- Net Income (Loss) (461,436) 446,814 Foreign Currency Translation Gain - 18,064 ---------------- ---------------- Comprehensive Income (Loss) $ (461,436) $ 464,878 ================ ================ Basic and Diluted Income (Loss) Per Share $ (0.01) $ 0.01 Weighted Average Shares Outstanding - Basic & Diluted 86,934,233 87,994,563 NOTE 5. COLLABORATIVE ARRANGEMENT --------------------------------- Pursuant to ASC 808-10, prior to the Company's purchase of Netbloo's 50% interest in the MagCast JV Agreement (discussed in Note 3) the joint operating activity was considered a collaborative arrangement. In May of 2012 the Company signed a joint venture agreement ("JV Agreement") with Netbloo for the MagCast Publishing Platform ("MagCast") which was jointly developed. MagCast provides customers access to a cloud-based service to create an application ("App") to publish a digital magazine on Apple Corporation's online marketplace Apple Newsstand and includes executive training modules as well as a three-month trial subscription to the Company's Immediate Edge subscription product and other bonus products. Under the terms of the JV Agreement the Company was responsible for marketing, sales and administration and Netbloo was responsible for product development. MagCast was launched in May 2012 and a majority of sales were the result of affiliate marketing relationships which result in commission of 50% of gross revenue for those sales F-15
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 to the affiliate responsible for the sale. Pursuant to ASC 808-10 the joint operating activity with Netbloo was considered a collaborative arrangement. The Company was deemed the principal participant and recorded all transactions under the JV Agreement on a gross basis with the 50% amount net of affiliate commissions and other allowable costs due Netbloo recorded as commission expense. The following revenue and expense amounts from transactions under the JV Agreement are included in the Statement of Operations for the Years ended June 30, 2013 and June 30, 2012; Year Ended Year Ended June 30, 2013 June 30, 2012 ------------------ ------------------ Sales of MagCast Publishing Platform $ 76,457 $ 1,239,371 Affiliate Commission Expense 4,291 320,081 Transaction Fees 5,956 29,412 Independent Contractors 5,449 - Internet Expenses 2,895 - Netbloo Commissions 28,933 444,939 ------------------ ------------------ Net Profit $ 28,933 $ 444,939 ================== ================== The Company has acquired Netbloo's 50% share of the MagCast JV (see Note 3), accordingly there is no longer a collaborative arrangement to report on subsequent to September 30, 2012. NOTE 6. DISCONTINUED OPERATIONS ------------------------------- On September 10, 2010, immediately prior to the share exchange with 30DC DE, Infinity withdrew its election to operate as a Business Development Company ("BDC") under the Investment Company Act of 1940 ("1940 Act"). Infinity historically operated as a non-diversified, closed-end management investment company and prepared its financial statements as required by the 1940 Act. 30DC is no longer actively operating the BDC and the assets, liabilities and results of operations of Infinity's former business are shown as discontinued operations in the Company's financial statements subsequent to the share exchange with 30DC. Investment companies report assets at fair value and the Company has continued to report investment assets in discontinued operations on this basis. Results of Discontinued Operations for the Year Ended Year Ended June 30, 2013 June 30, 2012 --------------- --------------- Other Income $ - $ - Other expenses 13,900 18,328 Loss from operations (13,900) (18,328) Realized gain on marketable securities 35,645 - Unrealized gain (loss) on marketable securities 45,688 (3,750) --------------- --------------- Net gain (loss) $ 67,433 $ (22,078) =============== =============== F-16
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 Assets and Liabilities of Discontinued Operations as of June 30, 2013 June 30, 2012 --------------- --------------- ASSETS Marketable securities $ 72,458 $ 95,625 --------------- --------------- Total assets of discontinued operations $ 72,458 $ 95,625 =============== =============== LIABILITIES Accounts payable $ 80,028 $ 94,428 Accrued expenses 67,375 58,138 Notes payable 102,020 124,770 Due to related parties 53,935 97,420 --------------- --------------- Total liabilities of discontinued operations $ 303,358 $ 374,756 =============== =============== NOTES PAYABLE Included in liabilities of discontinued operations at June 30, 2013 and June 30, 2012 are $102,051 and $169,801 respectively (including $31 and $45,031 respectively of notes payable included in due to related parties) in notes payable plus related accrued interest of which are all in default for lack of repayment by their due date. For the years ended June 30, 2013 and June 30, 2012 the Company incurred interest expense on notes payable of $12,251 and $15,884 respectively which is included in the Statement of Operations under income (loss) from discontinued operations. NOTE 7. RELATED PARTY TRANSACTIONS ----------------------------------- The Company entered into three-year Contract For Services Agreements commencing July 2009 ("Commencement Date") with the Marillion Partnership ("Marillion") for services which includes Mr. Edward Dale acting as the Company's Chief Executive Officer, with 23V Industries, Ltd. ("23V") for services which include Mr. Dan Raine acting as the Company's Vice President of Business Development and with Jesselton, Ltd. ("Jesselton") for services which include Mr. Clinton Carey acting as the Company's Chief Operating Officer. Effective April 1, 2010, Raine Ventures, LLC replaced 23V Industries, Ltd in providing consulting services to the Company which include Mr. Raine acting as the Company's Vice President of Business Development. These agreements are non-cancelable by either party for the initial two years and then with six months notice by either party for the duration of the contract. Mr. Dale is a director of the Company and Mr. Carey was a director until resigning in October 2012, Mr. Dale and Mr. Raine are both beneficial owners of greater than 10% of the Company's outstanding common stock. Marillion Partnership is owned by affiliates of Mr. Dale. 23V and Raine Ventures are owned 100% by Mr. Raine. Jesselton voluntarily withdrew from its contract with the Company effective March 1, 2012 and Mr. Carey resigned as a director of the Company in October 2012. The Marillion and Raine Ventures contracts expired June 30, 2012 and have continued on a month to month basis under the same terms. Cash remuneration under the Marillion, 23V and Raine Ventures agreements was initially $250,000 per year and $200,000 under the Jesselton agreement. On December 12, 2011 cash remuneration for the Marillion and Jesselton agreements was amended for the year ended June 30, 2012 to the Australian Dollar equivalent of the originally contracted amounts at the exchange rate on the contract start date of July 15, 2009. The Marillion original annual contract amount of $250,000 has been amended to $317,825 AUD Dollars and the Jesselton original annual contract amount of $200,000 has been amended to $254,260 AUD which was accrued on a proportionate basis through February 29, 2012 due to Jesselton's voluntary withdrawal from its contract effective March 1, 2012 resulting in $169,507 AUD ($175,052 USD) for Jesselton remuneration during the year ended June 30, 2012. F-17
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 During the year ended June 30, 2012 Marillion was paid $476,111 AUD ($491,690 USD) which exceeds Marillion's contracted amount by $158,139 AUD ($159,183 USD). The $159,183 was settled by Marillion surrendering 1,591,827 of the Company's common shares, which it held and the Company has canceled these shares. Contractor fees earned by Raine Ventures totaled $251,785 and $250,000 for the years ended June 30, 2013 and 2012 respectively. If in any year starting from the Commencement Date, revenues of 30DC, Inc. doubles then a bonus equal to 50% of cash remuneration will be due in shares of 30DC, Inc. as additional compensation. The bonus was not earned in the fiscal years ended June 30, 2012 and June 30, 2013. During the term of the agreements, Marillion, Jesselton and Raine Ventures were prohibited from engaging in any other business activity that competes with 30DC, Inc. without written consent of the 30DC, Inc. Board of Directors. In July, 2009 when 30DC acquired 30 Day and Immediate, Messrs. Dale and Carey signed executive services agreements with the Company and Mr. Raine signed a consulting services agreement with the Company. Pursuant to the agreements with Marillion, Jesselton and 23V (effective April 1, 2010 Raine Ventures replaced 23V), the contract for services agreements memorialized the preexisting contractual relationship and formally set the terms and conditions between the parties from July 1, 2009 and all prior understandings and agreements - oral or written were merged therein, including the respective executive services and consulting services agreements. All compensation under the contract for services agreements is identical with the respective executive services and consulting agreements. Where applicable under local law, all payroll and other taxes are the responsibility of Marillion, Jesselton, 23V and Raine Ventures and they have provided the Company with indemnification of such taxes which under the prior contracts may have been a liability of the Company. The parties acknowledged that the effective date of the agreements relates back to the contractual relationship between the parties. Beginning July 1, 2011, the Company paid Marillion $2,500 AUD ($2,582 USD) per month to cover office related expenses which is included in operating expenses. Effective July 15, 2012, the Company entered into a six-month Consulting Services Agreement with GHL Group, Ltd., whose President, Gregory H. Laborde is a Director. Pursuant to the Consulting Services Agreement, GHL Group received 500,000 shares of the Company's restricted common stock and payments of $3,000 monthly for services including but not limited to evaluation of financial forecasts, assisting in the development of business and financial plans and assisting in the identification of potential acquisitions and financial sources. The 500,000 shares were valued at the $0.09 per share price on July 15, 2012 and $45,000 was recorded as related party contractor fees on that date which combined with cash payments resulted in total fees $81,313 during the year ended June 30, 2013. The contract expired January 15, 2013 and continued on a month to month basis under the terms of the expired agreement until July 15, 2013 when the monthly amount was increased to $5,000. Effective October 1, 2012, the Company entered into a three year contractor agreement with Netbloo Media, Ltd., joint developer of the MagCast Publishing Platform, with annual compensation of $300,000 which is payable in monthly installments of $25,000 and which may be terminated after two years subject to a six-month termination payment. During the year ended June 30, 2013, contractor fees earned by Netbloo totaled $225,000. Marillion was awarded a $40,000 bonus upon completion of the asset acquisition of the 50% of the MagCast JV which had been owned by Netbloo and Market Pro Max. On October 11, 2012, Henry Pinskier, a Director of the Company received an option to purchase 1,500,000 of the Company's common shares details of which are in Note 12. During the year ended June 30, 2013, the Company recorded $76,814 in expense for the option which is reflected as Directors' Fees in the supplemental schedule of operating expenses (see Note 12). On October 11, 2012, Theodore A. Greenberg, Chief Financial Officer and a Director of the Company received an option to purchase 1,500,000 of the Company's common shares details of which are in Note 12. During the year ended F-18
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 June 30, 2013, the Company recorded $76,814 in expense for the option which is included in Officer's Salary in the supplemental schedule of operating expenses (see Note 12). At June 30, 2012, due to related parties mainly includes $275,317 due to Jesselton, which consists of $167,317 for contractor fees and $108,000 for fees related to the share exchange between 30DC DE and Infinity, $9,815 due to Raine Ventures under its contractor agreement and $321,000 due to Theodore A. Greenberg for compensation. At June 30, 2013, due to related parties mainly includes $265,220 due to Jesselton, which consists of $157,220 for contractor fees and $108,000 for fees related to the share exchange between 30DC DE and Infinity, $14,617 due to Marillion Partnership under its contractor agreement, $115,915 due to Netbloo, Ltd. which consists of $25,000 due under its contractor agreement and $90,915 remaining to be paid for Netbloo's earnings from the collaborative arrangement (see note 5) and $521,000 due to Theodore A. Greenberg for compensation. NOTE 8. PROPERTY AND EQUIPMENT ------------------------------- PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING: June 30, 2013 June 30, 2012 --------------- --------------- Computer and Audio Visual Equipment $ 449,884 $ 437,659 Office equipment and Improvements 68,859 68,859 --------------- --------------- 518,743 506,518 Less accumulated depreciation and amortization (495,698) (472,418) --------------- --------------- $ 23,045 $ 34,100 =============== =============== Depreciation expense was $23,280 for the year ended June 30, 2013 and $53,701 for the year ended June 30, 2012. Effective July 1, 2012, US dollar is the functional currency for the entire Company. Prior to July 1, 2012 property and equipment, net were stated in the functional currency where located and where applicable were translated to the reporting currency of the US Dollar at each period end. Accordingly, property and equipment, net were subject to change as a result of changes in foreign currency exchange rates. NOTE 9. INTANGIBLE ASSETS -------------------------- INTANGIBLE ASSETS CONSISTS OF THE FOLLOWING: June 30, 2013 ------------------- Customer Lists $ 75,000 Software 255,000 ------------------- 330,000 Less accumulated amortization (44,000) ------------------- $ 286,000 =================== Customer lists and software were acquired as part of the MagCast and Market Pro Max asset acquisitions in October 2012 and are being amortized over their estimated useful lives of five years. Amortization expense was $44,000 for the year ended June 30, 2013 and none for the year ended June 30, 2012. F-19
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 10. INCOME TAXES ---------------------- The Company's income tax provision (benefit) consists of the following: Year Ended Year Ended June 30, 2013 June 30, 2012 --------------- --------------- Federal Current $ - $ - Deferred (110,800) 18,200 State and Local Current $ - $ - Deferred (6,600) 1,200 Change in valuation allowance 117,400 (19,400) --------------- --------------- Income tax provision (benefit) $ - $ - =============== =============== Deferred taxes are provided for the tax effects of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Significant temporary differences at June 30, 2013 and June 30, 2012 are as follows: Year Ended Year Ended June 30, 2013 June 30, 2012 ---------------- ---------------- Deferred tax asset Net operating loss carryforward - Federal $ 434,300 $ 384,400 Net operating loss carryforward - State 9,600 6,600 Intangible Asset Amortization 9,400 - Fixed asset depreciation 12,400 21,500 Accrued expenses 222,400 158,200 ---------------- ---------------- Total deferred tax asset 688,100 570,700 Less valuation allowance (688,100) (570,700) ---------------- ---------------- Total net deferred tax asset $ - $ - ================ ================ The following is a reconciliation of the U.S. tax statutory income tax rate to the effective tax rate from continuing operations: Year Ended Year Ended June 30, 2013 June 30, 2012 --------------- --------------- U.S. statutory rate (34.0%) 34.0% State and local taxes net of federal benefit (1.3) 1.3 Change in valuation allowance 24.7 (35.7) Stock option expense 11.4 - Other permanent differences (0.8) 0.4 --------------- --------------- Effective income tax rate (0.0%) (0.0%) =============== =============== F-20
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 The Company applies the provisions of ASC 740, which prescribes the recognition and measurement criteria related to tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Management has concluded that it is more likely than not that the Company will not be able to realize all of its tax benefits and therefore a valuation allowance of approximately $688,100 has been established. For the years ended June 30, 2013 and June 30, 2012, the change in valuation allowance was an increase of $117,400 and a decrease of $19,400 respectively. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state and local and foreign jurisdictions. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company's policy for recording interest and penalties associated with uncertain tax positions is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest as of or years ended June 30, 2013 and 2012. As a corporation formed in the United States, the Company is subject to the United States corporation income tax on worldwide net income. Since majority ownership of the Company's shares are held by Australian residents, the Company is deemed to be an Australian resident corporation and is subject to Australian corporate income tax on worldwide net income. Corporate income taxes paid to Australia will generally be available as a credit against United States corporation income tax. The 30DC DE did not have nexus to any individual state in the United States prior to the share exchange with Infinity on September 10, 2010 and accordingly no deferred tax asset was recognized for state taxes prior to that date. Australia does not have any state corporation income tax. Future changes in Company operations might impact the geographic mix which could affect the Company's overall effective tax rate. As of June 30, 2013 and June 30, 2012, the Company had approximately $1,277,400 and $1,130,600 of U.S. federal net operating loss carryovers, respectively which expire starting in 2030. The U.S. net operating loss carryovers may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% change in ownership in the future as determined under the regulations. At the time of the share transaction, Infinity had approximately $936,300 in U.S. federal net operating loss carryovers and $170,500 U.S. capital loss carryovers which expire beginning in 2023 and are not included in the net operating loss carryover above. The business of Infinity is included in discontinued operations, pursuant to limitations under Internal Revenue Code Section 382 these carryovers cannot be utilized to offset future taxable income from continuing operations. The Company had realized gains of $35,645 from discontinued operations during the year ended June 30, 2013 which was offset by Infinity's carryovers. The Company has filed all U.S. federal tax returns and has filed state and local tax returns due since the share transaction. The Company is in the process of filing State and local tax returns for Infinity from 2005-2009. The Company believes no material tax balance is due for all tax returns which have not yet been filed. F-21
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 11. STOCKHOLDERS' EQUITY ----------------------------- COMMON STOCK During the year ended June 30, 2013, the Company issued common stock as follows: 500,000 shares of common stock with a fair value of $45,000 to GHL Group, Ltd. for consulting services (see Note 7), 15,385 shares of common stock to a consultant as partial payment for services of $2,000, 13,487,363 shares of common stock with a fair value of $1,078,989 to Netbloo Media, Ltd. as consideration for purchase of 50% of the MagCast JV and Market Pro Max (see Note 3), 55,770 shares of common stock to Michael A. Littman as payment for $14,500 included in accounts payable. Mr. Littman is an attorney who has provided services to the Company and who provided services to Infinity prior to the share exchange. During the year ended June 30, 2012, the Company had the following transactions in common stock: On June 28, 2012, Marillion Partnership surrendered 1,591,827 of the Company's common shares it held and the Company has canceled these shares (see note 7). WARRANTS AND OPTIONS At June 30, 2012, the Company had 600,000 fully vested options outstanding as follows: 404,000 options exercisable at 80 cents per share expiring August 7, 2018, 156,000 of these options are held by Pierce McNally a director of the Company, 196,000 options exercisable at 50 cents per share expiring January 5, 2019, 36,500 of these options are held by Pierce McNally a director of the Company, The balance of these options were held by a former employee and former directors of Infinity. 161,163 warrants (net of forfeitures) are due to Imperial Consulting Network under an agreement signed in June 2010 at an exercise price of $0.0001 per share. Such warrants are yet to be issued. Pursuant to a private placement memorandum ("PPM") issued in August 2010 the Company offered units consisting of one share of common stock, one warrant at 37 cents per share exercisable until March 15, 2011 ("37-Cent Warrant") and one warrant at 50 cents per share exercisable five years from the date of issuance ("50-Cent Warrant") for a price of 26 cents per unit. A first closing was held on September 22, 2010 under which 2,554,205 37-Cent Warrants were issued along with 2,554,205 50-Cent Warrants expiring September 22, 2015. From November 2010 through March 2011, an additional 847,317 37-Cent Warrants were issued and 847,317 50-Cent Warrants were issued. All of the 37-Cent Warrants expired March 15, 2011 unexercised. F-22
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 Further information relating to warrants is as follows: WEIGHTED WEIGHTED AVERAGE NUMBER AVERAGE REMAINING OF EXERCISE CONTRACT SHARES PRICE LIFE (YEARS) -------------------------------------------- Outstanding warrants at 06/30/12 3,401,522 $ 0.50 3.30 Granted - - - Exercised - - - Forfeited/expired - - - Outstanding warrants at 6/30/13 3,401,522 0.50 2.30 Exercisable on 6/30/13 3,401,522 0.50 2.30 On October 11, 2012, the Company's board of directors approved the Company's 2012 stock option plan (see Note 12) and grants of 3,000,000 options to purchase the Company's common stock with an exercise price of $0.08 per share expiring on October 10, 2022. 1,500,000 of these options were granted to Theodore A. Greenberg, the Company's Chief Financial Officer and a Director of the Company and 1,500,000 of these options were granted to Henry Pinskier who joined the Company as a Director in October 2012 and became Chairman in January 2013. NOTE 12 - STOCK BASED COMPENSATION PLANS ---------------------------------------- The Company follows FASB Accounting Standards Codification No. 718 - Compensation - Stock Compensation for share based payments to employees. The Company follows FASB Accounting Standards Codification No. 505 for share based payments to Non-Employees. The Company recognized expense in the amount of $153,629 respectively for the year ended June 30, 2013. 3,000,000 options were granted in the period of which 1,000,000 vested January 1, 2013, 1,000,000 vest January 1, 2014 and 1,000,000 vest on January 1, 2015. The cost of options vesting January 1, 2013 was recorded in the period and the cost of options vesting in the future is being recorded on a straight-line basis over the vesting period. There was no impact on the Company's cash flow. The Company's stock incentive plan is the 30DC, Inc. 2012 Stock Option and Award Plan (the "Plan"). The Plan provides for the grant of non-qualified stock options to selected employees and directors. The Plan is administered by the Board and authorizes the grant of options 7,500,000. The Board determines which eligible individuals are to receive options or other awards under the Plan, the terms and conditions of those awards, the applicable vesting schedule, the option price and term for any granted options, and all other terms and conditions governing the option grants and other awards made under the Plans. The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model using the assumptions noted as follows: expected volatility was based on historical trading in the company's stock from the September 10, 2010 date of the Infinity/30DC transaction through the October 11, 2012 date the options were issued. The expected term of options granted was determined using the simplified method under SAB 107 and represents one-half the exercise period. The risk-free rate is calculated using the U.S. Treasury yield curve, and is based on the expected term of the option. The Company has estimated there will be no forfeitures. During the year ended June 30, 2013, Henry Pinskier, Chairman of the Company was issued an option exercisable for 1,500,000 shares of the Company's common stock and Theodore A. Greenberg, the Company's Chief Financial Officer and a Director, was issued an option exercisable for 1,500,000 shares of the Company's common stock. The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the year ended June 30, 2013: F-23
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 Risk-free interest rate 0.67-0.88 % Expected option life 5.1-6.1 years Expected volatility 526.82-576.16 % Expected dividend yield 0.0 % Further information relating to stock options is as follows: WEIGHTED WEIGHTED AVERAGE NUMBER AVERAGE REMAINING OF EXERCISE CONTRACT SHARES PRICE LIFE (YEARS) ------------------------------------------ Outstanding options at 06/30/12 600,000 $ 0.70 6.24 Granted 3,000,000 0.08 9.28 Exercised - - - Forfeited/expired - - - Outstanding options at 6/30/13 3,600,000 0.18 8.61 Exercisable on 6/30/13 1,600,000 0.31 7.77 The options have a contractual term of ten years. The aggregate intrinsic value of shares outstanding and exercisable was $0 at June 30, 2013. Total intrinsic value of options exercised was $0 for the year ended June 30, 2013 as no options were exercised during this period. At June 30, 2013, shares available for future stock option grants to employees and directors under the 2012 Stock Option Plan were 4,500,000. NOTE 13. SUPPLEMENTAL SCHEDULE OF OPERATING EXPENSES ---------------------------------------------------- Year Ended Year Ended June 30, 2013 June 30, 2012 ------------------- ------------------ Related Party Contractor Fees (1) $ 936,694 $ 753,428 Officer's Salary 276,814 200,000 Directors' Fees 76,814 - Independent Contractors 394,230 370,284 Commissions 210,331 833,449 Professional Fees 183,617 291,895 Telephone and Data Lines 81,524 90,766 Travel Expenses 32,214 31,225 Other Operating Costs 269,336 272,247 ------------------- ------------------ Total Operating Expenses $ 2,461,574 $ 2,843,294 =================== ================== ----------------------------- (1) Related party contractors include Marillion which provides services to the Company including for Edward Dale to act as Chief Executive Officer of the Company, Raine Ventures which provides services to the Company including for Dan Raine to act as Vice President for Business Development, GHL Group, Ltd., whose President, Gregory H. Laborde is a Director, Netbloo which was the joint developer of the MagCast Publishing Platform and through March 1, 2012 included Jesselton, Ltd. which provided services to the Company including Clinton Carey serving as Chief Operating Officer of the Company. F-24
30DC, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 14. SUBSEQUENT EVENTS --------------------------- On September 9, 2013, the Company issued 300,000 shares to Michael A. Littman as payment for $78,000 included in accounts payable. Mr. Littman is an attorney who has provided services to the Company and who provided services to Infinity prior to the share exchange. On September 24, 2013, the Company issued 26,525 shares to a creditor as full payment for a note payable and accrued interest totaling $6,896. On November 4, 2013, the Company issued 100,000 shares to a creditor as full payment for a note payable and accrued interest totaling $19,794. Management has evaluated subsequent events to determine if events or transactions occurring through the date on which the financial statements were issued, require potential adjustment to or disclosure in the Company's financial statements. F-25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------------------------------------------------- Not applicable. ITEM 9A. CONTROLS AND PROCEDURES -------------------------------- DISCLOSURE CONTROLS AND PROCEDURES Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our Company is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report on Form 10-K (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Specifically, management's evaluation was based on the following material weaknesses, which existed as of June 30, 2013: (1) Financial Reporting Systems: We did not maintain a fully integrated financial consolidation and reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements for external reporting purposes. (2) Segregation of Duties: We do not currently have a sufficient complement of technical accounting and external reporting personal commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not effectively segregate certain accounting duties due to the small size of its accounting staff, and maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals by the Company's personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement of accounting staff. (3) Overpayment of Contractor Fees: The Company did not maintain proper controls over revenue received , and disbursements for, a Paypal e-commerce account and a related party bank account which had been used historically by the business prior to the Infinity transaction, As a result, during the fiscal year ended June 30, 2012, Marillion, which is a company affiliated with our Chief Executive Officer, was paid contractor fees of $158,139 AUD ($159,183 USD) in excess of the amount of its annual contract. The Company has taken steps to prevent future occurrences by notifying all repeat paying customers that payments are to be remitted to specific company accounts which have more appropriate financial controls. The Company's Board has stipulated that the accounts in question are no longer to be used for any ongoing or new business, any deposit errors are to be immediately corrected by transfer of funds to appropriate accounts and that the Company's Chief Financial Officer be informed of all receipts so funds can be tracked on a timely basis. -25-
We believe that our weaknesses in internal control over financial reporting and our disclosure controls relate in part to the fact that we are an emerging business with limited personnel. Management and the Board of Directors believe that the Company must allocate additional human and financial resources to address these matters. Throughout the year, the Company has been continuously improving its monitoring of current reporting systems and its personnel. The Company intends to continue to make improvements in its internal controls over financial reporting and disclosure controls until its material weaknesses are remediated. REMEDIATION OF MATERIAL WEAKNESS As our current financial condition allows, we are in the process of analyzing and developing our processes for the establishment of formal policies and procedures with necessary segregation of duties, which will establish mitigating controls to compensate for the risk due to lack of segregation of duties. DISCLOSURE CONTROLS AND PROCEDURES Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected, at this time. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There was no change in the Company's internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2013, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. The Company is not an "accelerated filer" for the fiscal year ended June 30, 2013 because it is qualified as a "small business issuer". Hence, under current law, the internal controls certification and attestation requirements of Section 404 of the Sarbanes-Oxley act will not apply to the Company. This Annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report on Form 10-K. ITEM 9B. OTHER INFORMATION -------------------------- Not applicable. -26-
PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE --------------------------------------------------------------- The following table sets forth information as to persons who currently serve as 30DC, Inc., directors or executive officers, including their ages as of June 30, 2013. NAME AGE POSITION -------------------------- ------------------- --------------------------------- Edward Dale 43 President, CEO and Director (1) Theodore A. Greenberg 54 CFO, Secretary and Director Henry Pinskier 53 Chairman of the Board (2) Gregory H. Laborde 49 Director Pierce McNally 64 Director Clinton Carey 43 Former Director (3) -------------------------- (1) Mr. Dale resigned as Chairman of the Board on January 31, 2013 and remains a Director. (2) Mr. Pinskier was elected as a Director on October 11, 2012 and was elected Chairman of the Board on January 31, 2013 (3) Mr. Carey resigned as the Chief Operating Officer of the Company on March 1, 2012. Mr. Carey resigned as a Director of the Company on October 11, 2012. 30DC's directors are elected by the Company's shareholders and hold office until their successors are duly elected and qualified under 30DC's bylaws. Unless otherwise indicated, the directors named above will serve until the next annual meeting of 30DC stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. BIOGRAPHICAL INFORMATION The following is a brief account of the business experience during at least the past five years of the directors and Officers of 30DC, indicating the principal occupation and employment during that period by each, and the name and principal business of the organizations by which they were employed. EDWARD DALE, DIRECTOR AND CHIEF EXECUTIVE OFFICER Mr. Dale, age 43, has served as a Director and President and CEO of 30DC since the transaction between Infinity and 30DC DE on September 10, 2010. Mr. Dale was a founding shareholder of 30DC DE and served as its President, Chief Executive Officer and a director from October 2008 until September 10, 2010. From 2005 to 2008, Mr. Dale developed the 30 Day Challenge business, which he ran for 4 years as part of the Marillion Partnership and was sold to 30DC DE in July 2009. In 2006, Mr. Dale created and marketed the Dominiche `Buying and Selling websites' program. Mr. Dale is a beneficiary of the Marillion Trust which is a partner in the Company's majority shareholder, Marillion Partnership. On January 31, 2013, Mr. Dale was adjudicated in personal bankruptcy in Australia resulting from claims of personal creditors, which is the equivalent of involuntary bankruptcy in the United States. This action was due to personal creditors unrelated to the Company and 30DC, Inc. is not a party to the matter. At that time, Mr. Dale -27-
resigned as Chairman of the Board of Directors of the Company a position he had held since the transaction between Infinity and 30DC CE on September 10, 2010 and remains a Director. HENRY PINSKIER, CHAIRMAN OF THE BOARD Mr. Pinskier, age 53, joined the Company's board of directors on October 11, 2012 and was elected Chairman of the Board on January 31, 2013. Mr. Pinskier serves as Chair and Joint Owner (1993- current) of Medi7 Pty Ltd., a General Practice medical services company with 70 Doctors and staff across multiple clinics in Melbourne Australia. Mr. Pinskier also currently serves as Chair for Spondo P/L an unlisted Public Company, which provides syndicated, secure easy to use video on demand system utilizing Pay Per View with a multi-level payment distribution process. He has previously served on the boards of 3 publicly listed companies in Australia related to Health technology in the area of Medical devices and services as well as having served as a Director of a Private US company with an Australian subsidiary delivering safety surveillance services. Mr. Pinskier has been involved in the Health Sector and IT /IM sector as well as having served as a Director in the past on a number of Victorian public sector organizations, VMIA the State Government of Victoria's Insurance Company from 2005-2011, Yarra Valley Water from 2008-2011 and The Alfred Group of Hospitals from 2000-2009. From 1985 until 2000, he practiced medicine. Across the different organizations he Chaired Strategy subcommittees, Risk and Audit Committees, Nomination Committees and been part of Finance Committees. Mr. Pinskier attended and graduated MBBS from Monash University in 1984. THEODORE A. GREENBERG, DIRECTOR AND CHIEF FINANCIAL OFFICER Mr. Greenberg, age 54, has served as a Director, Chief Financial Officer and Secretary of 30DC and Infinity since November 15, 2005. Mr. Greenberg is a senior financial executive with more than 30 years experience in private equity, consulting, industry and public accounting. He was a General Partner and co-founder of Park Avenue Equity Partners, LP, a $110 million private equity fund focused on the middle market. In his five years with Park Avenue, Mr. Greenberg, sourced, evaluated and negotiated deals and worked extensively with portfolio companies post acquisition. Prior to founding Park Avenue, he worked with Development Capital, LLC on direct equity investments and served as consulting CFO to one of Development Capital's portfolio companies. Previously, Ted directed the financial services practice at Marcum & Kliegman, LLP, a New York Metropolitan area accounting and consulting firm where he advised on merger and acquisition transactions, as well as operations and taxation. Mr. Greenberg graduated with a BS in Accounting, Cum Laude, from the State University of New York at Albany in 1980 and received an MBA in Finance & Business Policy from the University of Chicago in 1987. Mr. Greenberg earned certification as a Certified Public Accountant in New York State. GREGORY H. LABORDE, DIRECTOR Mr. Laborde, age 49, has served as a Director of 30DC since September 10, 2010. Prior to the transaction between Infinity and 30DC DE, Mr. Laborde served as President, Chief Executive Officer and Chairman of the Board of Infinity. Mr. Laborde currently serves as President and Chief Executive Officer of 21st Century Investor Relations and has over 22 years experience on Wall Street in the areas of investment banking, trading, sales and financial consulting. From 1986 to 1997, Mr. Laborde worked in corporate finance at a number of prestigious NYC based investment banks, including: Drexel Burnham Lambert, Lehman Brothers, Gruntal & Co., and Whale Securities. During his Wall Street tenure, Mr. Laborde was involved in over 20 public and private financing transactions totaling over 100 million dollars. In 1999 he founded and took public Origin Investment Group, a business development company that was involved in investing in IT related businesses. Mr. Laborde earned a Bachelor of Science degree in Engineering from Lafayette College in 1986. -28-
PIERCE MCNALLY, DIRECTOR Mr. McNally, age 64, has served as a Director of 30DC and Infinity since 2006. Mr. McNally, serves of counsel to Gray Plant Mooty, (Minneapolis, St. Cloud, MN and Washington, D.C.) practicing in the areas of business law and entrepreneurial services. He also serves as Chief Strategy Officer and General Counsel of Cielostar, Inc. a healthcare and benefits technology payments solutions company located in Minneapolis, MN. He has served as Chairman and Director of Lockermate Corporation of Minnetonka, Minnesota, a company that provides locker organizing systems and fashion accessories to the retail trade. He served as Minnesota American's Chairman of the Board, Chief Executive Officer and Secretary from October 1994 until January 2000, when Minnesota American merged with CorVu Corporation (OTC: CRVU). He served as Chairman and Director of Corporate Development of Nicollet Process Engineering, Inc. from May 1995 until April 1999, when he retired from the board. He also served on the board of directors of Digital Town (OTC:BB DGTW) and Outsell, LLC. In December, 1983, Pierce was elected to the board of directors of his family company, Midwest Communications, Inc., owner of numerous broadcast properties including WCCO-TV, WCCO-AM and WLTE in the Twin Cities. In 1989, he was subsequently also elected an officer of the company and he served in both capacities until the company merged with CBS, Inc. (NYSE:CBS) in 1992. Mr. McNally completed his undergraduate studies at Stanford University. He received his law degree from the University of Wisconsin Law School in 1978. He is a member of Order of the Coif. CLINTON CAREY, FORMER DIRECTOR (RESIGNED OCTOBER 11, 2012) Mr. Carey, age 43, served as a Director of 30DC since the transaction between Infinity and 30DC DE on September 10, 2010 through his resignation from the board on October 11, 2012. Mr. Carey served as the Company's Chief Operating Officer from September 10, 2010 through March 1, 2012. Mr. Carey was a founding shareholder of 30DC DE and served as a director from October 2008 until September 10, 2010 and Chief Operation Officer starting in July 2009. Over the past 17 years, Mr. Carey has been involved in startup businesses at both the management and the directorial level. Mr. Carey was a director of Roper River Resources and was involved in the reverse takeover of Roper River Resources by Webjet, in Australia. Following Webjet, Mr. Carey became involved in several technology companies including Banque Technology Systems (UK), MobiData Ltd (Australia) and MDS Group Ltd (UK) for which he helped raise capital and was involved in strategic planning and business development. Mr. Carey holds a degree in Economics from Bond University. No appointee for a director position has been found guilty of any civil regulatory or criminal offense or is currently the subject of any civil regulatory proceeding or any criminal proceeding. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires that the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent stockholders are required by regulation to furnish to the Company copies of all Section 16(s) forms they file. The following persons failed to file forms during the past two fiscal years as required under Section 16(a) as follows: None. -29-
CONFLICTS OF INTEREST Members of the Company's management are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management anticipates it will devote only a minor amount of time to the Company's affairs. The Company's Board of Directors has adopted a policy that the Company will not seek a merger with, or acquisition of, any entity in which any officer or director serves as an officer or director or in which they or their family members own or hold a controlling ownership interest. Although the Board of Directors could elect to change this policy, the Board of Directors has no present intention to do so. There can be no assurance that management will resolve all conflicts of interest in favor of the Company. COMMITTEES OF THE BOARD OF DIRECTORS 30DC is managed under the direction of its board of directors. EXECUTIVE COMMITTEE 30DC does not have an Executive Committee at this time. AUDIT COMMITTEE 30DC does not have an Audit Committee, at this time but plans to institute an audit committee in the future. COMPENSATION COMMITTEE 30DC does not have a Compensation Committee at this time but plans to institute a Compensation Committee in the future. CONFLICTS OF INTEREST - GENERAL The Company's directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity, involved in participation with such other business entities. While each officer and director of the Company's business is engaged in business activities outside of its business, the amount of time they devote to Infinity's business will be up to approximately 40 hours per week. CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES Presently no requirement contained in the Company's Articles of Incorporation, Bylaws, or minutes which requires officers and directors of the Company's business to disclose to 30DC business opportunities which come to their attention. The Company's officers and directors do, however, have a fiduciary duty of loyalty to 30DC to disclose to it any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. The Company has no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such person. -30-
ITEM 11. EXECUTIVE COMPENSATION ------------------------------- The following table sets forth the compensation paid and accrued to officers during the fiscal years ended June 30, 2013, 2012 and 2011. The table sets forth this information for 30DC and Infinity Capital Group, Inc., including salary, bonus, and certain other compensation to the named executive officers for the past three fiscal years and includes all Officers as of June 30, 2013. SUMMARY EXECUTIVES COMPENSATION TABLE -------------------- -------- ------------ ---------- ---------- ---------- ------------- -------------- -------------- ---------- NON-EQUITY NON-QUALIFIED INCENTIVE DEFERRED STOCK OPTION PLAN COMPENSATION ALL OTHER SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL NAME & POSITION YEAR ($) ($) ($) ($) ($) ($) ($) ($) -------------------- -------- ------------ ---------- ---------- ---------- ------------- -------------- -------------- ---------- Edward Dale, CEO 2013 338,596 40,000 0 0 0 0 0 378,596 (1) 2012 328,376 0 0 0 0 0 0 328,376 2011 280,221 79,643 0 0 0 0 0 359,864 -------------------- -------- ------------ ---------- ---------- ---------- ------------- -------------- -------------- ---------- Dan Raine, 2013 251,785 0 0 0 0 0 0 251,785 VP Business 2012 250,000 0 0 0 0 0 0 250,000 Development (2) 2011 250,000 0 0 0 0 0 0 250,000 -------------------- -------- ------------ ---------- ---------- ---------- ------------- -------------- -------------- ---------- Theodore A. 2013 200,000 0 0 76,814 0 0 0 276,814 Greenberg, CFO, 2012 200,000 0 0 0 0 0 0 200,000 and Secretary (3) 2011 200,000 0 0 0 0 0 0 200,000 -------------------- -------- ------------ ---------- ---------- ---------- ------------- -------------- -------------- ---------- Clinton Carey, 2013 0 0 0 0 0 0 0 0 Former COO (4) 2012 175,052 0 0 0 0 0 0 175,052 2011 200,000 0 0 0 0 0 0 200,000 -------------------- -------- ------------ ---------- ---------- ---------- ------------- -------------- -------------- ---------- (1) During the year ended June 30, 2011, Marillion Partnership ("Marillion"), a company affiliated with Edward Dale was paid $359,864, which includes a bonus of $79,643. This amount was included in related party contractor fees. By contract Marillion receives annual contractor fees of $250,000 however, since payment is made in Australian Dollars, and the amount reported in the Company's financial statements is based upon the average exchange rate for the year, fluctuation in the exchange rate can cause the amount reported to vary from the contract amount. 30DC's Board of Directors approved Marillion receiving a bonus based on the net cash flow of the 30 Day Challenge business unit until such point as 30DC completed the Agreement which closed on September 10, 2010. On December 12, 2011 cash remuneration under the Marillion contractor agreement was amended for the year ended June 30, 2012 to the Australian Dollar equivalent of the originally contracted amount at the exchange rate on the contract start date of July 15, 2009. The original annual contract amount of $250,000 was amended to $317,825 AUD Dollars Effective July 1, 2012 the United States Dollar equivalent amount varies with the exchange rate. During the year ended June 30, 2012, Marillion received annual contractor fees of $328,376. During the year ended June 30, 2012, Marillion was paid $158,139 AUD ($159,183 USD) in fees beyond their contracted amount. On June 28, 2012, this excess amount was settled by Marillion surrendering 1,591,827 of the Company's common shares, which it held and the Company has canceled these shares. During the year ended June 30, 2013 the board awarded Marillion a one-time bonus of $40,000 upon completion of the asset acquisition which included the remaining 50% of the MagCast Publishing Platform. -31-
(2) During the years ended June 30, 2011 and June 30, 2012, Raine Ventures, LLC., a company affiliated with Dan Raine earned $250,000 which were included in related party contractor fees. During the year ended June 30, 2013 Raine Ventures earned $251,785. (3) During the year ended June 30, 2011, Theodore A. Greenberg earned salary of $200,000 for his services as an officer of the Company. $100,000 of this amount was paid in shares of the Company and the balance was accrued but not actually paid. Mr. Greenberg earned salary of $200,000 during the years ended June 30, 2012 and June 30, 2013 which was accrued but has not been paid. (4)During the year ended June 30, 2011, Jesselton earned $200,000 in contractor fees which were included in related party contractor fees, Jesselton, also earned $250,000 pursuant to a consulting agreement for services in connection with the closing of the acquisition of 30DC by Infinity; $125,000 was paid in shares of the Company. On December 12, 2011 cash remuneration under the Jesselton contractor agreement was amended for the year ended June 30, 2012 to the Australian Dollar equivalent of the originally contracted amount at the exchange rate on the contract start date of July 15, 2009. The original annual contract amount of $200,000 was amended to $254,260 AUD Dollars Effective July 1, 2012 the United States Dollar equivalent amount varies with the exchange rate. During the year ended June 30, 2012, Jesselton, earned $175,052 in contractor fees. On March 1, 2012, Mr. Carey resigned as the Company's Chief Operating Officer. At such time, Jesselton voluntarily resigned from its contract. OPTION/SAR GRANTS IN THE LAST FISCAL YEAR COMPENSATION PURSUANT TO STOCK OPTION PLAN No options were issued under the Company's 2008 stock option plan. On October 11, 2012 our directors approved the Company's 2012 Stock Option Plan (the "Plan") authorizing the plan to grant options to purchase up to 7,500,000 shares of our common stock. The board's responsibility will include the selection of option recipients, as well as, the type of option granted and the number of shares covered by the option and the exercise price. Plan options may either qualify as non-qualified options or incentive stock options under Section 422 of the Internal Revenue Code. Any incentive stock option granted under the plan must provide for an exercise price of at least 100% of the fair market value on the date of such grant and a maximum term of ten years. All of our officers, directors, key employees and consultants will be eligible to receive non-qualified options under the plan. Only officers, directors and employees who are formally employed by the Company are eligible to receive incentive options. All incentive options are non-assignable and non-transferable, except by will or by the laws of descent and distribution. If an optionee's employment is terminated for any reason other than death, disability or termination for cause, the stock option will lapse on the earlier of the expiration date or three months following the date of termination. If the optionee dies during the term of employment, the stock option will lapse on the earlier of the expiration date of the option or the date one-year following the date of death. If the optionee is permanently and totally disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code, the plan option will lapse on the earlier of the expiration date of the option or one year following the date of such disability. -32-
On October 11, 2012, 1,500,000 options to purchase shares of the Company's common stock were issued to Theodore A. Greenberg the Company's Chief Financial Officer and a Director and 1,500,000 options to purchase shares of the Company's common stock were issued to Henry Pinskier who is a Director and who subsequently became Chairman of the Board. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END OPTION AWARDS STOCK AWARDS ---------------- ------------------------------------------------------------------ ---------------------------------------- EQUITY EQUITY INCENTIVE INCENTIVE MARKET PLAN PLAN VALUE AWARDS: AWARDS: NO. OF OF NUMBER MARKET OR EQUITY SHARES SHARES OF PAYOUT INCENTIVE OR OR UNEARNED VALUE OF PLAN UNITS UNITS SHARES, UNEARNED AWARDS: OF OF UNITS OR SHARES, NO. OF NO. OF NUMBER OF STOCK STOCK OTHER UNITS OR SECURITIES SECURITIES SECURITIES THAT THAT RIGHTS OTHER UNDERLYING UNDERLYING UNDERLYING HAVE HAVE THAT RIGHTS UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION NOT NOT HAVE NOT THAT HAVE OPTIONS (#) OPTIONS (#) UNEARNED EXERCISE EXPIRATION VESTED VESTED VESTED NOT NAME EXERCISABLE UNEXERCISABLE OPTIONS (#) PRICE ($) DATE (#) (#) (#) VESTED ($) ---------------- ------------- --------------- ------------- ---------- ----------- -------- -------- ---------- ----------- Theodore A. 500,000 1,000,000 $0.08 10/10/22 Greenberg (1) ---------------- ------------- --------------- ------------- ---------- ----------- -------- -------- ---------- ----------- Henry Pinskier 500,000 1,000,000 $0.08 10/10/22 (1) ---------------- ------------- --------------- ------------- ---------- ----------- -------- -------- ---------- ----------- (1) Options awarded under 2012 stock option plan. CONTRACTOR AGREEMENTS AND TERMINATION OF CONTRACTOR AND CHANGE-IN-CONTROL ARRANGEMENTS MARILLION PARTNERSHIP The Company entered into three-year Contract For Services Agreements commencing July 2009 with the Marillion for services which includes Mr. Edward Dale acting as the Company's Chief Executive Officer providing for among other things, the payment of $250,000 in cash remuneration per year. On December 12, 2011 cash remuneration under the Marillion contractor agreement was amended for the year ended June 30, 2012 to the Australian Dollar equivalent of the originally contracted amount at the exchange rate on the contract start date of July 15, 2009. The original annual contract amount of $250,000 was amended to $317,825 AUD Dollars Effective July 1, 2012 the United States Dollar equivalent amount varies with the exchange rate. During the year ended June 30, 2012, Marillion received annual contractor fees of $328,376. During the year ended June 30, 2012, Marillion was paid $158,139 AUD ($159,183 USD) in fees beyond their contracted amount. On June 28, 2012, this excess amount was settled by Marillion surrendering 1,591,827 of the Company's common shares, which it held and the Company has canceled these shares. The Marillion contractor agreement expired June 30, 2012 and has continued on a month to month basis under the terms of the expired agreement. -33-
DAN RAINE The Company entered into three-year Contract For Services Agreements commencing July 2009 with 23V Industries, Ltd. ("23V") for services which include Mr. Dan Raine acting as the Company's Vice President of Business Development providing for among other things, the payment of $250,000 in cash remuneration per year. Effective April 1, 2010, Raine Ventures, LLC ("Raine Ventures") replaced 23V Industries, Ltd in providing consulting services to the Company including Mr. Raine acting as the Company's Vice President of Business Development. The Raine Ventures contractor agreement expired June 30, 2012 and has continued on a month to month basis under similar terms of the expired agreement. In July, 2009 when 30DC DE acquired 30 Day and Immediate, Messrs. Dale and Carey signed executive services agreements with the Company and Mr. Raine signed a consulting services agreement with the Company. Pursuant to the agreements with Marillion, Jesselton and 23V (effective April 1, 2010 Raine Ventures replaced 23V), the contract for services agreements memorialized the preexisting contractual relationship and formally set the terms and conditions between the parties from July 1, 2009 and all prior understandings and agreements - oral or written were merged therein, including the respective executive services and consulting services agreements. All compensation under the contract for services agreements is identical with the respective executive services and consulting agreements. Where applicable under local law, all payroll and other taxes are the responsibility of Marillion, Jesselton, 23V and Raine Ventures and they have provided the Company with indemnification of such taxes which under the prior contracts may have been a liability of the Company. The parties acknowledged that the effective date of the agreements relates back to the contractual relationship between the parties. If in any year starting from the commencement date, revenues of 30DC, Inc. doubles, compared to the preceding year, then a bonus equal to 50% of cash remuneration will be due in shares of 30DC, Inc. as additional compensation. This threshold was not achieved for the fiscal years ending June 30, 2013 and 2012. CLINTON CAREY The Company entered into three-year Contract For Services Agreements commencing July 2009 with Jesselton, Ltd. ("Jesselton") for services which include Mr. Clinton Carey acting as the Company's Chief Operating Officer. On March 1, 2012, Mr. Carey resigned as the Company's Chief Operating Officer. At such time, Jesselton voluntarily resigned from its contract. During the year ended June 30, 2012, Jesselton, earned $175,052 in contractor fees. DESCRIPTION OF 30 DC DE CONTRACTOR AGREEMENTS The Marillion, Jesselton and Raine V contractor agreements were with 30DC DE, a subsidiary of 30DC, at this time no one has contractor or employment agreements with 30DC. The agreements provided the following terms: BONUSES: Performance bonuses and milestones for such bonus are to be determined by the Board of Directors. SALARY: Annual reviews of compensation are to be performed by the Board of Directors. At such review the Board of 30DC shall consider: the responsibilities of the contractor, the performance of the company, the performance of the contractor's division, the performance of the contractor, the remuneration available in the workforce outside the 30DC for persons with responsibilities and experience equivalent to those of the contractor and the benefits which have accrued and will accrue under the agreement. -34-
TAKEOVER EVENT: If, a Trade Sale or a Takeover Event occurs and the Executive providing services through one of the contractor agreements is required to resign as Officer of the Company, and the Agreement is effectively terminated, then in addition to any other entitlements due to the contractor in accordance with the terms of this Agreement, the contractor will be entitled to: - be paid a lump sum equal to at least the total of all amounts that, if the contract had continued until the end of the term, 30DC would have become liable to pay to the contractor during that period; and - be issued with that number of shares in 30DC comprising 50% of the cash remuneration. None of the Executives providing services through the contractor agreements were required to resign their positions with 30DC as a result of the transaction with Infinity so this provision did not apply. NETBLOO MEDIA, LTD. Effective October 1, 2012, Netbloo received a three year contractor agreement with annual compensation of $300,000 which is payable in monthly installments of $25,000 and may be terminated after two years subject to a six month termination payment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In August 2008, the Board of Directors approved and created a compensation committee. The committee consisted of the independent directors of the Company. Contemporaneous with the Infinity/30DC transaction, two of the independent directors resigned and the compensation committee ceased to exist. The Company plans to form a new compensation committee when new independent directors join the board. DIRECTOR COMPENSATION Historically, the Company has not paid any Directors fees for meeting attendance. In September 2013, the Company approved annual fees to non-executive directors of $30,000 per year and $50,000 per year for the board chairman. At the Company's option, directors fees may be paid in stock. (REMAINDER OF PAGE LEFT BLANK INTENTIONALLY) -35-
DIRECTORS COMPENSATION The following table sets forth certain information concerning compensation paid to the Company's directors during the year ended June 30, 2013: FEES NON-QUALIFIED EARNED NON-EQUITY DEFERRED NAME OR PAID STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER IN CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL ($) ($) ($) ($) ($) ($) ($) ---------------- --------- ---------- ---------- ------------------ ------------------ ------------------ ---------- Edward Dale (1) $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Clinton Carey $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- (2) Theodore A. $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Greenberg (3) Gregory H. $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Laborde (4) Pierce McNally $ -0- $ -0- $-0- $ -0- $ -0- $ -0- $ -0- Henry Pinskier $ -0- $ -0- $76,814 $ -0- $ -0- $ -0- $76,814 ---------------- (1) During the year ended June 30, 2013, Marillion Partnership, the Company's majority shareholder and of which Edward Dale, is the beneficial owner of the shares, was paid $378,596 which was included in related party contractor fees. (2) Mr. Carey resigned as a director of the Company on October 11, 2012. (3) During the year ended June 30, 2013, Theodore A. Greenberg earned salary of $200,000 and received a stock option award for which $76,814 was charged to officers' salaries for his services as an officer of the Company, the $200,000 was accrued but not actually paid. (4) During the year ended June 30, 2013, GHL Group, whose President, Gregory H. Laborde is a Director, was paid $81,313 which was included in related party contractor fees. $45,000 of this amount was paid but issuance of 500,000 of the Company's restricted common shares. All of the Company's officers and/or directors will continue to be active in other companies. All officers and directors have retained the right to conduct their own independent business interests. Historically, the Company has not paid any Directors fees for meeting attendance. In September 2013, the Company approved annual fees to non-executive directors of $30,000 per year and $50,000 per year for the board chairman. At the Company's option, directors fees may be paid in stock. INDEMNIFICATION OF DIRECTORS AND OFFICERS 30DC's officers and directors are indemnified as provided by the Maryland Revised Statutes and the bylaws. Under the Maryland Revised Statutes, director immunity from liability to a company or its shareholders for monetary liabilities applies automatically -36-
unless it is specifically limited by a company's Articles of Incorporation. The Company's Articles of Incorporation do not specifically limit the directors' immunity. Excepted from that immunity are: (a) a willful failure to deal fairly with Infinity or its shareholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; and (d) willful misconduct. The Company's bylaws provide that it will indemnify the directors to the fullest extent not prohibited by Maryland law; provided, however, that it may modify the extent of such indemnification by individual contracts with the directors and officers; and, provided, further, that the Company shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof, initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized by the board of directors, (c) is provided by the Company, in sole discretion, pursuant to the powers vested under Maryland law or (d) is required to be made pursuant to the bylaws. The Company's bylaws provide that it will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of Infinity as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under the bylaws or otherwise. The Company's bylaws provide that no advance shall be made by the Company to an officer except by reason of the fact that such officer is or was the Company's director in which event this paragraph shall not apply, in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made: (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of 30DC, Inc. EQUITY COMPENSATION PLAN INFORMATION STOCK OPTION PLAN The Company has two stock Option Plans. As of June 30, 2013, 600,000 options are outstanding under the 2008 Option Plan of which all 600,000 are exercisable. During the year ended June 30, 2013, we did not issue any shares under the option plan. We have reserved a total of 970,934 shares of common stock for issuance under the 2008 Option Plan. On October 11, 2012 our directors approved the Company's 2012 Stock Option Plan (the "Plan") authorizing the plan to grant options to purchase up to 7,500,000 shares of our common stock. On October 11, 2012, 1,500,000 options to purchase shares of the Company's common stock were issued to Theodore A. Greenberg the Company's Chief Financial Officer and a Director and 1,500,000 options to purchase shares of the Company's common stock were issued to Henry Pinskier who is a Director and who subsequently became Chairman of the Board. At June 30, 2013, 500,000 of the options issued to Mr. Greenberg and 500,000 of the options issued to Mr. Pinskier are exercisable. -37-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. -------------------------------------------------------------------------------- The following table sets forth information with respect to the beneficial ownership of 30DC, Inc. outstanding common stock by: o each person who is known by 30DC to be the beneficial owner of five percent (5%) or more of 30DC's common stock; o 30DC's chief executive officer, its other executive officers, and each director as identified in the "Management-- Executive Compensation" section; and o all of the Company's directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock and options, warrants and convertible securities that are currently exercisable or convertible within 60 days of the date of this document into shares of the Company's common stock are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The information below is based on the number of shares of 30DC, Inc. common stock that 30DC believes was beneficially owned by each person or entity as of June 30, 2013, including options exercisable within 60 days. TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS BENEFICIAL OWNER (1) BENEFICIAL OWNER CLASS (2) ----------- ----------------------------- ----------------------- -------------- Common Edward Dale, Director, 20,036,440 23.03% President, CEO and Former Chairman of the Board (Directly and Beneficially through Marillion Partnership)(3) Common Gregory H. Laborde, Director, 3,457,250 3.97% Former President, CEO, and Chairman of the Board (Beneficially through GHL Group, Ltd.) Common Theodore A. Greenberg, CFO, 2,080,770 1.82% Secretary and Director (4) Common Pierce McNally, Director (5) 192,500 0.0% Common Dan Raine (Beneficially 10,560,000 12.14% through Raine Ventures, LLC) -38-
TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS BENEFICIAL OWNER (1) BENEFICIAL OWNER CLASS (2) ----------- ----------------------------- ----------------------- -------------- Common Henry Pinskier, Director and 747,000 0.28% Chairman of the Board (6) Common Jonathan Lint (Beneficially 13,487,363 15.51% through Netbloo Media, Ltd.) Common All Directors and Executive 26,513,960 29.68% Officers as a Group (5 persons) ------------------------ (1) All directors can be reached at the address of the Company. (2) At June 30, 2013, the Company had 86,986,939 shares of its common stock issued and outstanding. The Company had 1,600,000 options issued and outstanding which were exercisable, but these options are not included in this calculation as the Company considers them to be "out of the money" and does not expect the status to change in the next 60 days. (3) Mr. Dale resigned as Chairman of the Board on January 31, 2013 and remains a Director. (4) Mr. Greenberg's ownership total includes 500,000 options which were exercisable at June 30, 2013 but not included in his percentage. (5) Mr. McNally's ownership total includes 192,500 options which were exercisable at June 30, 2013 but not included in his percentage. (6) Mr. Pinskier's ownership total includes 500,000 options which were exercisable at June 30, 2013 but not included in his percentage. Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination of beneficial ownership of securities. That rule provides that a beneficial owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security. Rule 13d-3 also provides that a beneficial owner of a security includes any person who has the right to acquire beneficial ownership of such security within sixty days, including through the exercise of any option, warrant or conversion of a security. Any securities not outstanding which are subject to such options, warrants or conversion privileges are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person. Those securities are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person. -39-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ------------------------------------------------------- RELATED PARTY TRANSACTIONS OFFICERS AND DIRECTORS During the years ended June 30, 2013 and 2012, Marillion Partnership ("Marillion"), a company affiliated with Edward Dale was paid contractor fees of $378,596 (inclusive of $40,000 bonus) and $328,376 respectively. Mr. Dale is CEO, President and a Director of the Board of the Company. During the year ended June 30, 2012, Marillion was paid $158,139 AUD ($159,183 USD) in fees beyond their contracted amount. On June 28, 2012, this excess amount was settled by Marillion surrendering 1,591,827 of the Company's common shares, which it held and the Company has canceled these shares. 30DC DE entered into a three-year Contract For Services Agreement commencing July 2009 with the Marillion for services which includes Mr. Edward Dale acting as the Company's Chief Executive Officer providing for among other things, the payment of $250,000 in cash remuneration per year. On December 12, 2011 cash remuneration under the Marillion contractor agreement was amended for the year ended June 30, 2012 to the Australian Dollar equivalent of the originally contracted amount at the exchange rate on the contract start date of July 15, 2009. The original annual contract amount of $250,000 was amended to $317,825 AUD Dollars Effective July 1, 2012 the United States Dollar equivalent amount varies with the exchange rate. If in any year starting from the commencement date, revenues of 30DC doubled then Marillion would be due shares in 30DC, Inc. equal to 50% of cash remuneration as additional compensation; this threshold was not achieved during the term of the contract. The Marillion contractor agreement expired June 30, 2012 and has continued on a month to month basis under the terms of the expired agreement. During the years ended June 30, 2013 and 2012, Theodore A. Greenberg earned salary of $200,000 each year. Mr. Greenberg is CFO and a Director of the Company. On October 11, 2012 Mr. Greenberg was issued 1,500,000 options to purchase shares of the Company's common stock. The company computed the cost of these options using the Black-Scholes option pricing formula which resulted in total cost of $119,288 of which $76,814 was recorded as expense during the year ended June 30, 2013. On October 11, 2012 1,500,000 options to purchase shares of the Company's common stock were issued to Henry Pinskier who is a Director and Chairman of the Board of the Company. The company computed the cost of these options using the Black-Scholes option pricing formula which resulted in total cost of $119,288 of which $76,814 was recorded as expense during the year ended June 30, 2013. During the years ended June 30, 2013 and 2012 GHL Group, Ltd. whose President, Gregory H. Laborde is a Director, earned contractor fees of $81,313 and $-0- respectively. $45,000 of this amount was paid by issuance of 500,000 of the Company's restricted common shares. OTHER SHAREHOLDERS During the years ended June 30, 2013 and 2012, Jesselton, Ltd. ("Jesselton"), a company affiliated with Clinton Carey earned contractor fees of $-0- and $175,052 respectively. Mr. Carey resigned as COO of the Company on March 1, 2012 and resigned as a Director of the Company on October 11, 2012. -40-
During the year ended June 30, 2013 and 2012, Raine Ventures, LLC , a company affiliated with Dan Raine earned contractor fees of $251,785 and $250,000 respectively. Mr. Raine has beneficial ownership of 12.13% of the Company. During the years ended June 30, 2013 and 2012 Netbloo earned contractor fees of $225,000 and $-0- respectively. Netbloo is a greater than 5% shareholder. In August 2008, 30DC contracted with two consultants in connection with the acquisition and merger process which resulted in signing of the Agreement with Infinity. Compensation under both consulting agreements was contingent on completion of the transaction with Infinity. Upon execution of the Agreement $250,000 (US) was owed to Jesselton, Ltd , a consulting firm which Mr. Carey, former COO and formerly a Director of the Company, is associated with and $250,000 (Australian) was owed to the other consultant. $125,000 of the amount due to Jesselton was satisfied by issuance of 480,770 of the Company's common shares. At June 30, 2013, $108,000 of this amount remains due to Jesselton. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ----------------------------------------------- GENERAL. Marcum, LLP ("Marcum"), the independent registered public accounting firm for 30DC, Inc. ("the Company") was dismissed on June 6, 2013, by the Company's Board of Directors. The actions to dismiss the Company's current auditors and engage new auditors was approved by the Board of Directors. No audit committee exists, other than the members of the Board of Directors. On June 12, 2013, the Board of Directors of the Company approved the engagement of new auditors, Malone Bailey, LLP, of Houston, Texas to be the Company's independent registered public accountant. Prior to engaging Malone Bailey, LLP, the Company had not consulted Malone Bailey, LLP regarding the application of accounting principles to a specified transaction, completed or proposed, the type of audit opinion that might be rendered on the Company's financial statements or a reportable event, nor did the Company consult with Malone Bailey, LLP, regarding any disagreements with its prior auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the prior auditor, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports. The Company's Board of Directors has considered whether the provisions of audit services are compatible with maintaining independence. The following table represents aggregate fees billed to the Company for the years ended June 30, 2013 and 2012 by Malone Bailey LLP and Marcum, LLP Year Ended June 30, 2013 2012 ----------------------- ------------------------ Audit Fees $ 70,000 $ 206,010 Audit-related Fees $ -0- $ -0- Tax Fees $ -0- $ -0- All Other Fees $ -0- $ -0- ----------------------- ------------------------ Total Fees $ 70,000 $ 206,010 -41-
PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ------------------------------------------------ The following is a complete list of exhibits filed as part of this Form 10K. Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of Regulation S-K. (a) Audited financial statements for years ended June 30, 2013 and 2012 (b) EXHIBIT NO. DESCRIPTION -------- --------------------------------------------------------------- 3.1 Articles of Incorporation of Infinity Capital Group, Inc. (1) 3.2 Bylaws of Infinity Capital Group, Inc. (1) 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act 101.INS XBRL Instance Document (2) 101.SCH XBRL Taxonomy Extension Schema Document (2) 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (2) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (2) 101.LAB XBRL Taxonomy Extension Label Linkbase Document (2) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (2) --------- (1) Incorporated by reference from the exhibits included in the Company's Form 8K12g3 filed with the Securities and Exchange Commission (www.sec.gov), dated May 5, 2005. A copy can be provided by mail, free of charge, by sending a written request to 30DC, Inc., 80 Broad Street, 5th Floor, NY, NY 10004. (2) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. -42-
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 30DC, Inc. Dated: December 23, 2013 By: /s/ Edward Dale --------------------------------------------- Edward Dale, President and Chief Executive Officer (Principal Executive Officer) By: /s/ Theodore A. Greenberg --------------------------------------------- Theodore A. Greenberg, Chief Financial Officer (Principal Accounting Officer), Secretary and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: December 23, 2013 30DC , Inc. -------------------------------------- /s/ Edward Dale -------------------------------------- Edward Dale, Director /s/ Theodore A. Greenberg -------------------------------------- Theodore A. Greenberg, Director /s/ Henry Pinskier -------------------------------------- Henry Pinskier, Director /s/ Gregory Laborde -------------------------------------- Gregory Laborde, Director -43-