Attached files
| file | filename |
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| EX-31.1 - Nhale, Inc. | ex31-1.htm |
| EX-32.1 - Nhale, Inc. | ex32-1.htm |
| EXCEL - IDEA: XBRL DOCUMENT - Nhale, Inc. | Financial_Report.xls |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission File Number: 333-182761
GANKIT CORPORATION
(Exact name of small business issuer as specified in its charter)
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Nevada
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38-3870905
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5201 Memorial Drive, Suite 1115
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Houston, TX
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77007
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(Address of principal
executive offices)
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(Zip Code)
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Registrant's telephone number, including area code: (713) 510-3559
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
There were 30,000,000 shares of the registrant’s common stock issued and outstanding as of April 11, 2014.
IMPORTANT INFORMATION REGARDING THIS FORM 10-Q
Unless otherwise indicated, references to “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to GankIt Corporation.
Readers should consider the following information as they review this Quarterly Report:
Forward-Looking Statements
The statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include any statement that may project, indicate or imply future results, events, performance or achievements. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expect,” “may,” “should,” “intend,” “plan,” “could,” “estimate” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.
Given the risks and uncertainties relating to forward-looking statements, investors should not place undue reliance on such statements. Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q and are not guarantees of future performance. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such expectations may prove to have been incorrect. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
Except to the extent required by applicable securities laws, we expressly disclaim any obligation or undertakings to release publicly any updates or revisions to any statement or information contained in this Quarterly Report on Form 10-Q, including the forward-looking statements discussed above, to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement or information is based.
GANKIT CORPORATION
FINANCIAL STATEMENTS ON FORM 10-Q
AS OF AND FOR THE NINE MONTHS ENDED FEBRUARY 28, 2014
TABLE OF CONTENTS
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Part I. Financial Information
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4
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Item 1. Financial Statements
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4
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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9
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Item 3. Quantitative and Qualitative Disclosures About Market Risks
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13
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Item 4. Controls and Procedures
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13
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Part II. Other Information
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14
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Item 1. Legal Proceedings
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14
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Item 1A. Risk Factors
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14
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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14
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Item 3. Defaults Upon Senior Securities
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14
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Item 4. Mine Safety Disclosures
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14
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Item 5. Other Information
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14
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Item 6. Exhibits
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14
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Signatures
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15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GANKIT CORPORATION
BALANCE SHEETS
(Unaudited)
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February 28, 2014
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May 31,
2013
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ASSETS
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Cash and cash equivalents
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$ | 14,606 | $ | 23,998 | ||||
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Restricted cash
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12,167 | 9,062 | ||||||
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Prepaid expenses and other current assets
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4,459 | 8,183 | ||||||
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Total current assets
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31,232 | 41,243 | ||||||
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Property, plant and equipment, net
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2,218 | - | ||||||
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Intangible assets, net
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12,667 | 15,667 | ||||||
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Total non-current assets
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14,885 | 15,667 | ||||||
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TOTAL ASSETS
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$ | 46,117 | $ | 56,910 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Accounts payable and accrued expenses
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$ | 63,322 | $ | 22,119 | ||||
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Accounts payable, related party
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42,040 | 28,040 | ||||||
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Customer deposits
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37,521 | 4,287 | ||||||
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Shareholder advances
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100,500 | 100,500 | ||||||
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Notes payable
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350,000 | 50,000 | ||||||
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Total current liabilities
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593,383 | 204,946 | ||||||
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TOTAL LIABILITIES
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593,383 | 204,946 | ||||||
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STOCKHOLDERS' DEFICIT
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Common stock, $0.0001 par value; 100 million shares authorized, 30,000,000 issued and outstanding at February 28, 2014 and May 31, 2013.
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3,000 | 3,000 | ||||||
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Additional paid in capital
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110,250 | 110,250 | ||||||
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Accumulated deficit
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(660,516 | ) | (261,286 | ) | ||||
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TOTAL STOCKHOLDERS' DEFICIT
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(547,266 | ) | (148,036 | ) | ||||
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TOTAL LIABILITIES
AND STOCKHOLDERS' DEFICIT
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$ | 46,117 | $ | 56,910 | ||||
The accompanying notes are an integral part of these financial statements.
4
GANKIT CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended February 28,
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Nine Months Ended February 28,
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2014
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2013
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2014
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2013
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REVENUES
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Revenue
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$ | 51,374 | $ | 1,094 | $ | 151,725 | $ | 20,135 | ||||||||
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TOTAL REVENUES
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51,374 | 1,094 | 151,725 | 20,135 | ||||||||||||
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COST OF REVENUES
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Processing fees
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4,365 | 676 | 14,789 | 4,064 | ||||||||||||
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Products
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42,042 | 3,206 | 159,243 | 45,965 | ||||||||||||
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Total cost of revenues
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46,407 | 3,882 | 174,032 | 50,029 | ||||||||||||
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Gross profit (loss)
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4,967 | (2,788 | ) | (22,307 | ) | (29,894 | ) | |||||||||
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OPERATING EXPENSES
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Sales and marketing expenses
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73,451 | - | 158,323 | 5,241 | ||||||||||||
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General and administrative expenses
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56,256 | 50,394 | 194,559 | 110,387 | ||||||||||||
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Depreciation and amortization
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1,208 | 1,000 | 3,277 | 3,667 | ||||||||||||
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Total operating expenses
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130,915 | 51,394 | 356,159 | 119,295 | ||||||||||||
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Loss from operations
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(125,948 | ) | (54,182 | ) | (378,466 | ) | (149,189 | ) | ||||||||
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OTHER EXPENSE
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Interest expense
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(11,145 | ) | (1,875 | ) | (20,764 | ) | (5,625 | ) | ||||||||
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Total other expense
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(11,145 | ) | (1,875 | ) | (20,764 | ) | (5,625 | ) | ||||||||
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Net loss
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$ | (137,093 | ) | $ | (56,057 | ) | $ | (399,230 | ) | $ | (154,814 | ) | ||||
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Net loss per share - basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
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Weighted average number of
shares outstanding – basic and diluted
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30,000,000 | 20,000,000 | 30,000,000 | 20,000,000 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
5
GANKIT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended February 28,
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2014
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2013
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$ | (399,230 | ) | $ | (154,814 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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3,277 | 3,667 | ||||||
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Changes in operating assets and liabilities:
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Prepaid expenses and other current assets
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3,724 | 275 | ||||||
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Accounts payable and accrued expenses
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41,203 | 13,391 | ||||||
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Accounts payable, related party
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14,000 | 28,000 | ||||||
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Stock payable
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- | 1,500 | ||||||
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Customer deposits
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33,234 | (1,157 | ) | |||||
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Net cash used in operations
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(303,792 | ) | (109,138 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES
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Restricted cash
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(3,105 | ) | 6,588 | |||||
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Purchases of property, plant and equipment
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(2,495 | ) | - | |||||
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Net cash provided by (used in) investing activities
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(5,600 | ) | 6,588 | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from advances from shareholders
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- | 100,500 | ||||||
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Proceeds from notes payable
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300,000 | - | ||||||
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Net cash provided by financing activities
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300,000 | 100,500 | ||||||
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Net change in cash and cash equivalents
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(9,392 | ) | (2,050 | ) | ||||
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Cash and cash equivalents, beginning of period
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23,998 | 14,274 | ||||||
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Cash and cash equivalents, end of period
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$ | 14,606 | $ | 12,224 | ||||
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
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Cash paid for interest
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$ | - | $ | - | ||||
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Cash paid for income taxes
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$ | - | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
6
GANKIT CORPORATION
Notes to Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements of GankIt Corporation (“GankIt” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K filed with the SEC on August 29, 2013. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for our interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the fiscal year ended May 31, 2013, as reported in our annual report on Form 10-K, have been omitted.
General
GankIt was incorporated in Nevada on March 8, 2012. The Company launched its e-commerce website in May of 2012 and currently has over 50,000 members. GankIt sells a multitude of consumer products including electronics, appliances, clothing, accessories, sporting goods, gift cards and more. The Company procures most of its products from Amazon.com, and drop-ships the items directly from Amazon.com to the customer. The Company's corporate headquarters are located in Houston, Texas and its fiscal year-end is May 31.
The Company's website, GankIt.com, provides a forum where participants can either bid-to-win products or "Gank" them at a discount to suggested retail prices. When people visit the website they have the opportunity to purchase bids for $0.55 each that can be used in auctions. Each auction starts at $0.01 and increases by one penny each time a bid is placed. The last person to bid on an item is the winner and has the ability to purchase the product for the final auction price.
During an auction, the Company simultaneously offers a "bottomless shelf" of the same product that is being auctioned through its GankIt feature. Each product starts at a suggested retail price which decreases by $0.10 for each bid that is placed during the auction. At any time while an auction is in progress, participants may Gank a product at a discount to the suggested retail price by clicking the Gank button.
Note 2. Going Concern
The Company realized a loss of $399,230 for the nine months ended February 28, 2014 and has an accumulated deficit of $660,516. As a result, the Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
These factors raise substantial doubt about the Company’s ability to continue as a going concern.
In addition to operational expenses, as the Company executes its business plan, it is incurring expenses related to complying with its public reporting requirements. In order to finance these expenditures, the Company has raised capital in the form of debt, which will have to be repaid, as discussed in detail below. The Company has depended on loans from private investors and outside investors for most of its operating capital. The Company will need to raise capital in the next twelve months in order to remain in business.
Management anticipates that significant dilution will occur as a result of any future sales of the Company’s common stock and this will reduce the value of its outstanding shares. The Company cannot project the future level of dilution that will be experienced by investors as a result of its future financings, but it will significantly affect the value of its shares.
7
The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 3. Notes Payable
On April 11, 2012, GankIt signed a promissory note with Hillsmere S.A. in the amount of $50,000. The note bears interest at a rate of 15%, and becomes due and payable on April 10, 2014 and is collateralized by all of the assets of the Company. As of February 28, 2014, the principal balance outstanding was $50,000 and accrued, unpaid interest of $14,167. No interest or principal payments on this note have been made since its inception. On April 4, 2014, the maturity date was extended to April 4, 2015.
On June 21, 2013, Gankit signed a Master Credit Agreement with Levantera, SA, a company formed under the laws of the Marshall Islands, to provide a lending facility of up to $1 million. The Company has the right to periodically prepare a Borrowing Certificate (a “Certificate”) drawing upon this facility. At the end of each fiscal quarter, the Lender may prepare an Evidence of Indebtedness, setting forth advances, payments and interest accruals made during that quarter. Each Certificate and the interest accrued thereon is due one year after the date of the Evidence of Indebtedness. Interest accrued on un-matured amounts is 12% per year. Matured, unpaid amounts accrue interest at 18% per year. As of February 28, 2014, we have borrowed $150,000 on this facility and accrued $11,367 in interest. No interest or principal payments have been made as of February 28, 2014. Subsequent to our most recent borrowing tranche cash receipt on November 30, 2013, we have requested additional funds on this facility which have not arrived. We conclude therefore, that no additional funds are likely to be received pursuant to this financing facility.
On November 17, 2013, the Company signed a $50,000 promissory note with Shield Investments, Inc. and received the proceeds on November 22, 2013. The note is collateralized by all of the assets of the Company, matures on May 17, 2014 and accrues interest at 15% per year for unmatured amounts and 25% (or the highest amount allowed by law) on matured, unpaid amounts. As of February 28, 2014, we have not paid any interest or principal, and we have accrued $2,039 in interest.
On January 13, 2014, the Company signed a $50,000 promissory note with Shield Investments, Inc. and received the proceeds on January 29, 2014. The note is collateralized by all of the assets of the Company, matures on January 13, 2015 and accrues interest at 15% per year for unmatured amounts and 25% (or the highest amount allowed by law) on matured, unpaid amounts. As of February 28, 2014, we have not paid any interest or principal, and we have accrued $616 in interest.
On February 10, 2014, the Company signed a $50,000 promissory note with Shield Investments, Inc. and received the proceeds on February 12, 2014. The note is collateralized by all of the assets of the Company, matures on February 10, 2015 and accrues interest at 15% per year for unmatured amounts and 25% (or the highest amount allowed by law) on matured, unpaid amounts. As of February 28, 2014, we have not paid any interest or principal, and we have accrued $329 in interest.
Note 4. Concentrations
The Company currently purchases approximately 93% of its products from Amazon.com, Walmart and Apple, which presents a risk to the business. In the event that these suppliers increase their prices or refuse to sell products to the Company, business operations could be adversely affected.
Note 5. Related-Party Transactions
Clark Rohde, the Company's majority shareholder, was paid $29,380 during the nine months ended February 28, 2014. Work performed was primarily related to product listings, order processing, shipping and fulfillment, and customer service.
At February 28, 2014, the Company owed $100,500 in advances to its President and CEO. The advances are unsecured, non-interest bearing, and have no specific terms for repayment.
During the nine months ended February 28, 2014, the Company has accrued total compensation of $63,000 to its President and CEO pursuant to the Employment Agreement entered into in April 2012. Of this amount, $49,000 has been paid in cash. Accounts payable – related party represents the salary earned but not yet paid of $42,040 at February 28, 2014.
8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in connection with the Company’s financial statements and related notes thereto, as included in this report on Form 10-Q, as well as the Company’s annual report on Form 10-K, filed August 29, 2013.
Organization and Basis of Presentation
GankIt Corporation (“GankIt” or the “Company”) was incorporated in the state of Nevada on March 8, 2012, with a fiscal year end of May 31. We are an e-commerce business focused on selling a diverse set of products through our website that can either be won through a bidding process or purchased at a discount to the suggested retail price. On March 30, 2012, the Company purchased the web site domain and content, trademarks, and all intellectual property related to GankIt.com from John Arnold for $20,000. Mr. Arnold serves as the sole officer and director of GankIt. On May 4, 2012, we launched our website, GankIt.com, and began accepting payments.
We have developed and continue to develop a robust e-commerce website that offers a wide selection of retail products such as electronics, appliances, furniture, home furnishings, equipment and tools, toys, gift cards, automobiles and more. However, as our business is in its early stages of development, we intend to initially focus on selling products with an average price point under $500. Over the next six months, we will likely focus on selling consumer electronics such as televisions, music players, video players, computers, tablet computers, cameras, phones, and various accessories which we purchase from other retailers such as Amazon.com. Provided that our business obtains additional financing, we intend to diversify our product mix to add other products.
Our business model is different from conventional retail websites in that we offer our users the opportunity to either bid-to-win a product or purchase a product immediately. All of our products can be obtained either by winning a bidding auction or purchasing the product for the "GankIt price” (as described below). When users visit our website, they have the option to sign up for a free membership. If they are interested in bidding to win products, they can purchase bundles of bids for a fixed cost. Our bids presently sell for $0.55 per bid, and the minimum purchase is $22 or 40 bids. However, if they simply want to purchase a product, users can click on the “GankIt” button, and proceed to checkout without buying bids.
When we begin an auction for a product, the bidding starts at one penny, and the GankIt Price starts at the suggested retail price. Each user has the opportunity to place a bid to buy the product for the auction price. The auction price starts at one penny and increases by one penny for each new bid that is placed into the auction. Auction timers typically start counting down from one to seven days. With each new bid that is placed, additional time is added to the auction timer. Single bids add 15 seconds to the auction timer. When less than 15 seconds remain on the auction timer, a single bid placed resets the auction timer to 15 seconds. When multiple auto-bidders are engaged with less than 10 seconds on the auction timer, a "Butler Brawl" resets the auction timer to 30 seconds. When time expires in the auction, the last bidder to place a bid for the product is the winner of the auction and can buy the product for the auction price. At that point, the auction is closed.
In addition, while an auction is open, for each new bid that is placed, the suggested retail price of the product decreases by a specified decrement. Our GankIt decrement is presently $0.10. This new discounted price is referred to as the "GankIt price", or the price for which you can buy the product immediately. At any time throughout the course of the auction, any user may purchase the product for the GankIt price by clicking on the “GankIt” button. When this occurs, the auction remains open and the “GankIt price” reverts back to the original suggested retail price. As new bids are placed, the “GankIt price” then begins to decrease once more until either someone else clicks on the GankIt button (at which time the process starts over again) or the auction ends. Once an item is "ganked" by a user (i.e., once a user decides to purchase the item at the then “GankIt price”), the “GankIt price” resets to the original retail price and a new item is offered for sale at the “GankIt price.” An auction may result in many "ganks", while ultimately only one item will be “won” by a user at the end of the auction.
9
During the course of an auction, members compete to "win" an item (i.e., to have the highest bid when the auction closes and be provided the right to purchase the item auctioned for the final bid price). "Winning an item" means the member is able to purchase the item won at the final bid price, usually a steep discount to the retail price. Each auction competition is for one item only so there is only one “winner” of each auction.
Plan of Operations
We raised $100,000 in February and March 2012, effected through the sale of common stock pursuant to our Registration Statement. Additionally, we raised $300,000 for the nine months ended February 28, 2014 by issuing promissory notes (see Note 3 to the Financial Statements) to accredited investors.
Until recently before the publication of this report on Form 10-Q, we believed that our lending facility with Levantera, SA in the Marshall Islands was sufficient to bring us to a point where the company can operate with positive cash flows from operations. However, because the funds associated with the most recent funding request sent to Levantera has not arrived, we now believe that no additional funds will be received pursuant to this financing facility.
We believe we must raise at least an additional $300,000 (in addition to the already-raised $100,000 capital raise effected through the sale of common stock pursuant to our Registration Statement and the $350,000 already raised pursuant to debt issuances to fully implement our business plan. However, there is no guarantee that we will be able to raise this needed capital. If we fail to produce positive cash flows before or are not able to raise the needed capital to implement our plans, we will not have enough capital to hire additional employees or consultants, continue developing our marketing plan, or purchase products for auction.
During the three months ended February 28, 2014, we ran eleven thirty-second promotional spots on FOX and CNN which generated a significant amount of interest in our website and our products.
We plan to continue to implement an incremental sales and marketing program that will focus on television and internet advertising. We expect to run television commercials and employ the use of banner ads and pay-per-click ads to drive traffic to our website. In addition, we anticipate purchasing a limited amount of product inventory, which will consist primarily of consumer electronics and other consumer household products such as appliances, kitchenware, and apparel.
If our marketing and other operational efforts are successful, we will be able to purchase larger amounts of inventory at lower costs. Additionally, we expect to employ the use of similar sales and marketing devices, only on a larger scale. In addition to increasing our economies of scale related to inventory, sales and marketing efforts, we plan to hire several employees and consultants to manage the anticipated growth of our business. New employees and consultants would be responsible for product procurement, order fulfillment, implementation and management of sales and marketing efforts, customer support, financial accounting and reporting, and conducting other daily operational tasks.
Results of Operations
Although we have generated revenues from our operations, we cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of an early stage business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies. To become profitable and competitive over the long run, we must develop our business and marketing plan and execute it.
Nine Months Ended February 28, 2014 and 2013
Revenues and gross profit or loss
For the nine months ended February 28, 2014, we generated $151,725 of revenues from operations versus $20,135 for the same period in 2013 and a gross loss (revenues minus cost of revenues) of $22,307 versus $29,894 for the same period in 2013. As such, the cost of the products we sold during the quarter was more than the revenue we generated from the sale of such products. We increased our revenues by target marketing, driving new traffic to our website. Moreover, our gross loss for the nine months ended February 28, 2014 was 14.7% as a percentage of sales versus 148.5% for the same period in 2013.
10
Sales and marketing expenses
During the nine months ended February 28, 2013, we had only begun to engage in promotional activities and our marketing expenditures were only $5,241. For the nine months ended February 28, 2014, we vastly increased our advertising budget, spending $158,323 on pay-per-click advertising and promotional television spots.
General and Administrative Expenses
For the nine months ended February 28, 2014, we incurred total general and administrative expenses of $194,559, versus $110,387 for the same period in 2013. The $84,172 increase is principally due to increases in labor (an increase of about $60,000 over the previous year) and statutory report costs (an increase of about $20,000 over the previous year).
Depreciation and Amortization
Depreciation of equipment and amortization of our intangible assets decreased from $3,667 for the nine months ended February 28, 2013 to $3,277 for the same period in 2014.
Interest Expense
Interest expense went from $5,625 for the nine months ended February 28, 2013 to $20,764 for the same period in 2014. The increase is due to higher debt levels.
Three Months Ended February 28, 2014 and 2013
Revenues and Gross Margins
For the three months ended February 28, 2014, we generated $51,374 of revenues versus $1,094 for the same period in 2013 and a gross profit of $4,967 versus a gross loss of $2,788 for the same period in 2013. We increased our revenues by target marketing, driving new traffic to our website and this quarter represents the first quarter that our revenues exceed our cost of revenues, giving us a positive gross margin.
Our gross margins are directly related to the number of people we have online bidding on our products. We began our marketing campaign to drive customers to our website during the last week of May 2013. Since then, our membership has increased dramatically. As you can see from the following table, we have also reduced the gross loss from an average of 221%, and 255% for the quarters ended November 30, 2012 and February 28, 2013, respectively to 35%, 33% and 20% for the quarters ended May 31, 2013, August 31, 2013 and November 30, 2013, respectively, and finally to the current quarter where our gross margins are positive. We believe that we will continue to improve these numbers as our sales and marketing campaigns drive more Gankit customers to our website.
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Quarter Ended
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11/30/12
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02/28/13
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05/31/13
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08/31/13
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11/30/13
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02/28/14
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Revenues
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$ | 6,022 | $ | 1,094 | $ | 9,603 | $ | 53,810 | $ | 46,541 | $ | 51,374 | ||||||||||||
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Gross profit (loss)
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(13,337 | ) | (2,788 | ) | (3,374 | ) | (17,783 | ) | (9,491 | ) | 4,967 | |||||||||||||
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Profit (loss) %
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-221 | % | -255 | % | -35 | % | -33 | % | -20 | % | 10 | % | ||||||||||||
Sales and Marketing Expenses
Our sales and marketing expenses were $73,451 for the three months ended February 28, 2014 versus nil during the same period in the previous year as we have begun to regularly market the website through click advertising and television spots.
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General and Administrative Expenses
For the three months ended February 28, 2014, we incurred total general and administrative expenses of $56,256, versus $50,394 for the same period in 2013. The increase represents small increases in almost all of our administrative categories.
Depreciation and Amortization
Depreciation of equipment and amortization of our intangible assets increased from $1,000 for the three months ended February 28, 2013 to $1,208 for the same period in 2014.
Interest Expense
Interest expense went from $1,875 for the three months ended February 28, 2013 to $11,145 for the same period in 2013. The increase is due to higher debt levels.
Liquidity and Capital Resources
As of February 28, 2014, the Company had current assets of $31,232, comprised of cash and cash equivalents of $14,606, restricted cash of $12,167, and other current assets of $4,459. In addition, the Company had net long-term assets of $14,885, comprised of intangible assets of $20,000 associated with our websites and intellectual property less the accumulated amortization of those assets of $7,333, and computer equipment with an historical cost of $2,495, less accumulated depreciation of $277.
Restricted cash of $12,167 as of February 28, 2014, represents cash held by CC Bill as described below. Total liabilities, consisting solely of current liabilities were $593,383, comprised of outstanding notes payable of $350,000 (described below), customer deposits of $37,521, accounts payable and accrued liabilities of $63,322, unpaid salaries and expenses payable to our President and CEO, John Arnold, of $42,040, and advances from Mr. Arnold of $100,500.
We had negative working capital of $562,151 and an accumulated deficit of $660,516 as of February 28, 2014.
The Company uses CC Bill, a third party payment processor, to accept electronic payments from customers when they purchase products on our website. The Company’s agreement with CC Bill provides that CC Bill charges an 8.95% processing fee on all transactions. They also hold 95% of the Company’s net cash for nine business days, and 5% of the Company’s cash for six months to defray the risk of potential voided transactions or charge backs.
We also recently began accepting payments using PayPal, who does not restrict our use of cash, but takes a 5% processing fee. We also recently began accepting payments from customers using Bank of America as a processing agent. For the nine months ended February 28, 2014, 69% of our transactions were processed through CCBill and only 30% were processed by PayPal. We only began processing through Bank of America during the last week of the current quarter. Consequently only a very small percentage went through that agent.
Our arrangement with CC Bill serves to diminish our liquidity because we do not immediately receive cash when our customers process transactions. The fees that CC Bill charges also further diminish not only our liquidity, but also provide an additional layer of cost to all of our transactions. We intend to migrate our transaction processing from CCBill to PayPal, Bank of America and other credit card processors to minimize the aforementioned cost and liquidity issues.
Cash Flows from Operating Activities
During the nine months ended February 28, 2014 and 2013, the Company used cash in operating activities of $303,792 and $109,138, respectively. The use of cash for operating activities is predominantly attributed to our net loss. However in the current year, the effect of net loss on cash was mitigated to a large extent by customer deposits (purchase of bids by customers who, as of the date of this report, have not used them) and accounts payable and accrued liabilities, much of which is interest on notes payable which are not due until the maturity date.
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Cash Flows from Investing Activities
During the nine months ended February 28, 2014, the Company used restricted cash of $3,105 in investing activities. Additionally, we purchased certain computer equipment for $2,495.
The Company was provided $6,588 for the same period in 2013.
Cash Flows from Financing Activities
During the nine months ended February 28, 2014, we drew down $150,000 from our Levantera debt facility and borrowed $150,000 from another lender, which comprised all of our cash provided by financing activities. During the same period in 2013, we borrowed $100,500 from our President and CEO.
Capital Requirements
We believe we must raise at least an additional $300,000 (in addition to the already-raised $100,000 capital raise effected through the sale of common stock pursuant to our Registration Statement and the $350,000 already raised pursuant debt issuances to fully implement our business plan. However, there is no guarantee that we will be able to raise this needed capital. If we fail to produce positive cash flows before or are not able to raise the needed capital to implement our plans, we will not have enough capital to hire additional employees or consultants, continue developing our marketing plan, or purchase products for auction.
We plan to implement an incremental sales and marketing program that will focus on television and internet advertising. We expect to run television commercials and employ the use of banner ads and pay-per-click ads to drive traffic to our website. In addition, we anticipate purchasing a limited amount of product inventory, which will consist primarily of consumer electronics and other consumer household products such as appliances, kitchenware, and apparel.
Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Our principal executive officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer as appropriate, to allow for timely decisions regarding required disclosure as of the end of the period covered by this report. Based on this evaluation, our principal executive officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to a lack of segregation of duties and an absence of written policies and procedures for accounting and financial reporting.
Change in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended February 28, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K, filed with the Commission on August 29, 2013, and investors are encouraged to review such risk factors prior to making an investment in the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the quarter ended February 28, 2014.
Use of Proceeds From Sale of Registered Securities
Our Registration Statement on Form S-1 (Reg. No. 333-182761) in connection with the sale by us of up to 10 million shares of common stock for $0.01 per share, was declared effective by the SEC on November 28, 2012. We filed a final Rule 424(b)(3) prospectus relating to the offering on January 7, 2013. During the year ended May 31, 2013, the Company received $100,000 in connection with the sale of 10,000,000 shares of common stock.
No payments for our expenses were made directly or indirectly to (1) any of our directors, officers or their associates, nor (2) any person(s) owning 10% or more of any class of our equity securities nor (3) any of our affiliates with the funds raised in the offering, which funds we have not yet officially accepted or used to date.
There has been no material change in the planned use of proceeds from our offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
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Exhibit No.
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Description of Exhibit
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31.1*
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Certification of Principal Executive Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
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32.1**
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Certification of Principal Executive Officer and Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
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101.INS++
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XBRL Instance Document
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101.SCH++
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XBRL Taxonomy Extension Schema Document
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101.CAL++
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF++
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB++
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE++
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XBRL Taxonomy Extension Presentation Linkbase Document
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* Filed herewith.
** Furnished herewith.
++ XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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GankIt Corporation
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By:
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/s/ John Arnold
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John Arnold
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Chairman of the Board and CEO
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(Principal Executive Officer and
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Principal Accounting Officer)
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Date: April 11, 2014
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