Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period Ended September 30, 2014
or
[ ] TRANSITION REPORT UNDER 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.
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(Exact name of registrant as specified in its charter)
MARYLAND 16-1675285
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
80 BROAD STREET, 5TH FLOOR, NEW YORK, NY 10004
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(Address of principal executive offices) (Zip Code)
(212) 962-4400
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Registrant's telephone number, including area code
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes[_x_] No[__]
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 (ss.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 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_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of November 14, 2014, the number of shares outstanding of the registrant's
class of common stock was 76,853,464.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheets (Unaudited) as of
September 30, 2014 and June 30, 2014 3
Condensed Consolidated Statements of Operations (Unaudited) for
the Three Months Ended September 30, 2014 and 2013 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Three Months Ended September 30, 2014 and 2013 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Mine Safety Disclosures 18
Item 5. Other Information 18
Item 6. Exhibits 18
Signatures 19
-1-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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-2-
30DC, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September June
30, 2014 30, 2014
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Unaudited
Assets
Current Assets
Cash and Cash Equivalents $ 144,612 $ 102,684
Restricted Cash 126,835 83,730
Accrued Commissions Receivable 6,031 12,706
Accounts Receivable 149,185 38,313
Prepaid Expenses 23,598 24,291
Assets of Discontinued Operations 87,485 116,313
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Total Current Assets 537,746 378,037
Property and Equipment, Net 18,538 19,066
Intangible Assets, Net 203,500 220,000
Goodwill 2,027,564 2,027,564
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Total Assets $ 2,787,348 $ 2,644,667
================ ===================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 188,626 $ 190,228
Accrued Expenses and Refunds 688,491 625,565
Deferred Revenue 124,654 90,716
Due to Related Parties 815,390 805,483
Liabilities of Discontinued Operations 213,526 216,548
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Total Current Liabilities 2,030,687 1,928,540
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Total Liabilities 2,030,687 1,928,540
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Stockholders' Equity
Preferred Stock, Par Value $0.001, 10,000,000 Authorized, -0- Issued - -
Common Stock, Par Value $0.001, 100,000,000 authorized,
76,853,464 issued and outstanding 76,853 76,853
Paid in Capital 3,835,460 3,826,606
Accumulated Deficit (3,052,794) (3,084,474)
Accumulated Other Comprehensive Loss (102,858) (102,858)
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Total Stockholders' Equity 756,661 716,127
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Total Liabilities and Stockholders' Equity $ 2,787,348 $ 2,644,667
================ ===================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
-3-
30DC, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
Three Months Ended September 30
Unaudited
2014 2013
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Revenue
Commissions $ 13,935 $ 18,974
Subscription Revenue 29,954 -
Products and Services 656,178 1,923,905
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Total Revenue 700,067 1,942,879
Operating Expenses 638,081 1,285,282
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Operating Income 61,986 657,597
Other Income
Forgiveness of Debt - 87,253
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Total Other Income - 87,253
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Income From Continuing Operations 61,986 744,850
Loss From Discontinued Operations (30,306) (8,012)
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Net Income $ 31,680 $ 736,838
=============== ==================
Weighted Average Common Shares Outstanding
Basic 76,853,464 87,069,922
Diluted 77,398,919 87,454,537
Earnings (Loss) Per Common Share (Basic)
Continuing Operations $ 0.00 $ 0.01
Discontinued Operations (0.00) (0.00)
Net Income (Loss) Per Common Share $ 0.00 $ 0.01
Earnings (Loss) Per Common Share (Diluted)
Continuing Operations $ 0.00 $ 0.01
Discontinued Operations (0.00) (0.00)
Net Income (Loss) Per Common Share $ 0.00 $ 0.01
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
-4-
30DC, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30
Unaudited
2014 2013
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Cash Flows from Operating Activities:
Net Income $ 31,680 $ 736,838
Loss From Discontinued Operations 30,306 8,012
Adjustments to Reconcile Income from Continuing Operations
to Net Cash Provided By Operations
Depreciation and Amortization 18,328 20,335
Equity Based Payments To Employees 8,854 24,764
Gain on Debt Forgiveness - (87,253)
Changes in Operating Assets and Liabilities
Restricted Cash (43,105) (163,472)
Accrued Commissions Receivable 6,675 18,498
Accounts Receivable (110,872) (703,053)
Prepaid Expenses 693 (3,589)
Accounts Payable (1,602) 356,231
Accrued Expenses and Refunds 62,926 514,257
Deferred Revenue 33,938 88,367
Due to Related Parties 9,907 (245,762)
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Net Cash Provided By Operating Activities 47,728 564,173
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Cash Flows from Investing Activities
Purchases of Property and Equipment (1,300) (3,298)
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Net Cash Used in Investing Activitities (1,300) (3,298)
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Cash Flows from Discontinued Operations
Cash Flows From Operating Activities (4,500) (37,262)
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Net Cash Used in Discontinued Operations (4,500) (37,262)
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Increase in Cash and Cash Equivalents 41,928 523,613
Cash and Cash Equivalents - Beginning of Period 102,684 116,372
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Cash and Cash Equivalents - End of Period $ 144,612 $ 639,985
=============== ================
Supplemental Disclosures of Non Cash Financing Activity Cash
paid during the period for:
Interest $ 1,332 $ 25,211
Income taxes 300 -
Common Stock Issued to Settle Liabilities $ - $ 54,100
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
-5-
30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") and with instructions to Form-10Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information required by
GAAP for a complete set of financial statements. In the opinion of management,
all adjustments, (including normal recurring accruals) considered necessary for
a fair presentation have been included in the financial statements. Operating
results for the interim period are not necessarily indicative of the results
that may be expected for the fiscal year ended June 30, 2015 or any other
period. In addition, the balance sheet data at June 30, 2014 was derived from
the audited financial statements but does not include all disclosures required
by GAAP. This Form 10-Q should be read in conjunction with the Audited Financial
Statements for the year ended June 30, 2014 included in the Company's annual
report on Form 10-K which was filed on October 10, 2014.
The unaudited condensed consolidated financial statements include the accounts
of 30DC, Inc., (f/k/a Infinity Capital Group, Inc.) and its subsidiary 30DC,
Inc., Delaware, ("30DC DE").
REVENUE RECOGNITION
The Company offers customers the option to purchase its digital products for a
single payment or for a higher price consisting of a down payment and additional
payments over a period of time which can be as long as one year. Pursuant to ASC
605 the Company has determined that revenue is realizable and the earnings
process is complete and the four criteria for revenue recognition stated in SAB
Topic 13 are met at the time of the initial purchase. Accordingly, the Company
deems the sale to have occurred at the time of initial purchase and records the
full amount paid and/or due from a customer as revenue. Typically customers are
offered a period to review the product and request a refund and if a refund is
requested the company reverses the revenue which was recorded at the time of the
sale. The Company records a liability for future refunds and reduces revenue by
that amount. If a customer defaults on an additional payment, the customer loses
access to the digital product. Based upon its past experience with extended
payment plans, the Company has estimated the number of future defaulted payments
and has reduced revenue and accounts receivable by that amount.
For an additional charge, the Company offers customers ancillary services which
are not required to be purchased with a product. These services include
additional technical support and/or specific product services. The Company
recognizes revenue when the service is completed; receipts for services which
have not been completed are included in deferred revenue.
NET INCOME OR LOSS PER SHARE
The Company computes net income or loss per share in accordance with ASC 260
"Earnings per Share." Under ASC 260, basic net income or 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,
includes 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. In computing diluted earnings per
share for the three month period ended September 30, 2014, the Company has
included as outstanding 2,000,000 options which are exercisable and have an
exercise price below the average market price for the Company's shares during
the period. In computing diluted earnings per share for the three month period
ended September 30, 2013, the Company has included as outstanding 1,000,000
options which are exercisable and have an exercise price below the average
market price for the Company's shares during the period.
-6-
30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
(UNAUDITED)
NOTE 2. GOING CONCERN
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The condensed 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
September 30, 2014, the Company had a working capital deficit of approximately
$1,493,000 and had accumulated losses of approximately $3,053,000 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 the past few years, the
Company switched its focus to developing its own products. 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 directly to customers and
through an affiliate network which expands the Company's selling capability and
has a broad target market beyond the Company's traditional customer base. In
April of 2014, the Company began offering the Ultimate Product System which
incorporates 30DC's digital marketing platform Market Pro Max. 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 condensed 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.
For the past few years, the Company offered MagCast through a once per year
large-scale promotion for which the majority of sales were through marketing
affiliates which are unrelated parties who earn commissions by referring
customers to the Company and a majority of the Company's annual sales were
during the promotion. The Company held a smaller promotion through marketing
affiliates in July 2014 than in prior years. The Company does not expect to have
a large-scale promotion during this fiscal year.
NOTE 3. DIVESTITURE
-------------------
Effective February 28, 2014, the Company divested assets and liabilities that
made up its Immediate Edge subscription business ("Edge") to Raine Ventures, LLC
("Raine") in exchange for the 10,560,000 common shares of the Company which
Raine had held. Included with the Edge business was cash of approximately $1,000
and intangible assets including goodwill of approximately $225,000. Raine
assumed liability for deferred revenue of approximately $19,000. The Company
recorded zero gain or loss on the divestiture. Operating results for the Edge
have been reclassified as discontinued operations for the three months ended
September 30, 2013 (see note 4). Raine had been party to a contractor agreement
with the Company which had expired in 2012 and was extended on a month to month
basis and was terminated concurrent with the divestiture.
-7-
30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
(UNAUDITED)
NOTE 4. DISCONTINUED OPERATIONS
-------------------------------
The Company has included two businesses in discontinued operations; the
Immediate Edge business which was divested effective February 28, 2014 (see note
3) and the business of Infinity which was discontinued after the share exchange
with 30DC DE on September 10, 2010. Prior to the share exchange, 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
THREE MONTHS ENDED SEPTEMBER 30, 2014 THREE MONTHS ENDED SEPTEMBER 30, 2013
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IMMEDIATE EDGE INFINITY TOTAL IMMEDIATE EDGE INFINITY TOTAL
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Revenues $ - $ - $ - $ 97,069 $ - $ 97,069
Operating expenses - 1,478 1,478 105,093 1,930 107,023
Income (Loss) from operations - (1,478) (1,478) (8,024) (1,930) (9,954)
Forgiveness of debt - - - - 796 796
Realized gain on marketable securities - - - - - -
Unrealized gain (loss) on marketable securities - (28,828) (28,828) - 1,146 1,146
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Net Income (Loss) $ - $ (30,306) $ (30,306) $ (8,024) $ 12 $ (8,012)
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Assets and Liabilities of Discontinued Operations as of
SEPTEMBER 30, 2014 JUNE 30, 2014
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IMMEDIATE EDGE INFINITY TOTAL IMMEDIATE EDGE INFINITY TOTAL
-------------- ----------- ---------- --------------- -------- ---------
Assets
Cash $ - $ - $ - $ - $ - $ -
Prepaid expenses - - - - - -
Marketable securities - 87,485 87,485 - 116,313 116,313
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Total Current Assets - 87,485 87,485 - 116,313 116,313
Goodwill - - - - - -
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Total Assets of Discontinued Operations $ - $ 87,485 $ 87,485 $ - $116,313 $ 116,313
======================================= =======================================
LIABILITIES
Accounts payable $ - $ 72,201 $ 72,201 $ - $ 72,201 $ 72,201
Accrued expenses - 63,775 63,775 - 62,297 62,297
Deferred revenue - - - - - -
Notes payable - 56,550 56,550 - 61,050 61,050
Due to related parties - 21,000 21,000 - 21,000 21,000
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Total Liabilities of Discontinued Operations $ - $ 213,526 $ 213,526 $ - $216,548 $ 216,548
======================================= =======================================
Notes Payable
Included in liabilities of discontinued operations at September 30, 2014 and
June 30, 2014 are $56,550 and $61,050 respectively in notes payable plus related
accrued interest of which are all in default for lack of repayment by their due
date.
-8-
30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
(UNAUDITED)
For the three months ended September 30, 2014 and September 30, 2013 the Company
incurred interest expense on notes payable of $1,478 and $1,897 respectively
which is included in the Statement of Operations under income (loss) from
discontinued operations.
Marketable Securities
At September 30, 2014 the fair value of marketable securities held for sale was
$87,485 which included cumulative net unrealized gains of $21,045. June 30, 2014
the fair value of marketable securities held for sale was $116,313 which
included cumulative net unrealized gains of $49,873.
NOTE 5. RELATED PARTY TRANSACTIONS
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At September 30, 2014, due to related parties totaled $815,390. This consisted
of $4,900 due to GHL Group, Ltd., whose President, Gregory H. Laborde is a
Director, under their consulting services agreement, $121,500 accrued for
directors' fees for services of non-executive directors and $689,000 due to
Theodore A. Greenberg, CFO and director, for compensation.
NOTE 6. INCOME TAXES
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As of June 30, 2014, the Company had net operating loss carryovers for United
States income tax purposes of approximately $925,300, which begin to expire in
2030. For income tax purposes, net income for the three month period ended
September 30, 2014 is completely offset by the net operating loss carryovers;
accordingly no income tax provision has been provided. For future periods, 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
as determined under the regulations.
NOTE 7. STOCKHOLDERS' EQUITY
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COMMON STOCK
During the three months ended September 30, 2014, the Company did not issue any
common stock.
WARRANTS
Information relating to outstanding warrants is as follows:
Weighted
Weighted Average
Number Average Remaining
of Exercise Contract
Shares Price Life (years)
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Outstanding warrants at 06/30/14 3,401,522 $ 0.50 1.30
Granted - - -
Exercised - - -
Forfeited/expired - - -
Outstanding warrants at 9/30/14 3,401,522 0.50 1.05
Exercisable on 9/30/14 3,401,522 0.50 1.05
The aggregate intrinsic value of warrants outstanding and exercisable was $0 at
September 30, 2014. Total intrinsic value of warrants exercised was $0 for the
three months ended September 30, 2014 as no warrants were exercised during this
period.
-9-
30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
(UNAUDITED)
NOTE 8. STOCK BASED COMPENSATION PLANS
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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 $8,854 and $24,764 for the three
months ended September 30, 2014 and September 30, 2013 respectively for options
granted in prior periods the cost of which is being recorded on a straight-line
basis over the vesting period. There was no impact on the Company's cash flow.
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 06/30/14 3,600,000 $ 0.18 7.61
Granted - - -
Exercised - - -
Forfeited/expired - - -
Outstanding options at 9/30/14 3,600,000 0.18 7.36
Exercisable on 9/30/14 2,600,000 0.22 7.10
The options have a contractual term of ten years. The aggregate intrinsic value
of options outstanding and exercisable was $0 at September 30, 2014. Total
intrinsic value of options exercised was $0 for the three months ended September
30, 2014 as no options were exercised during this period.
At September 30, 2014, shares available for future stock option grants to
employees and directors under the 2012 Stock Option Plan were 4,500,000.
-10-
30DC, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
(UNAUDITED)
NOTE 9. SUPPLEMENTAL SCHEDULE OF OPERATING EXPENSES
---------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2014 September 30, 2013
-------------------- -------------------
Related Party Contractor Fees (1) $ 164,184 $ 159,508
Officer's Salary 37,427 62,382
Directors' Fees 31,927 39,882
Independent Contractors 106,376 118,168
Commission Expense 144,738 719,348
Professional Fees 57,204 34,829
Credit Card Processing Fees 26,253 96,934
Telephone and Data Lines 10,052 6,106
Other Operating Costs 59,920 48,125
-------------------- -------------------
Total Operating Expenses $ 638,081 $ 1,285,282
==================== ===================
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(1) Related party contractors include Marillion an affiliate of the
Company that manages marketing and development for the Company and
provides the services of Edward Dale as Chief Executive Officer of the
Company, GHL Group, Ltd., whose President, Gregory H. Laborde is a
Director and Netbloo which was the joint developer of the MagCast
Publishing Platform
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND
BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING
CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN
THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT
IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE
TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS.
FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY
OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE.
THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS.
OVERVIEW
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").
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 the digital distribution platforms Apple Newsstand and Google Play
and includes executive training modules to develop and market a digital
magazine. 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. In
October 2012 the Company reached an agreement 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.
Effective February 28, 2014, the Company divested assets and liabilities that
made up to Raine Ventures, LLC ("Raine") in exchange for the 10,560,000 common
shares of the Company which Raine had held. Please see Note 3 for further
details on the divestiture.
-12-
30DC offers internet marketing services and related training that help Internet
companies in marketing and operating their businesses. 30DC's core business
platforms are MagCast and Market Pro Max. Other revenue streams include sales of
instructional courses 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 has continued to update the MagCast platform and released version 4
in the summer of 2013 which enabled customers to offer a version of their
magazine tailored for the IPhone which significantly expanded the potential
number of magazine readers. MagCast version 6 released in July 2014 enables
customers to publish on Google Play where their digital magazine is available to
users of Android Devices. The Company now offers ancillary services to assist
customers in creating their Apps and provides customers with training in
developing and marketing their digital publications.
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.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2014 COMPARED TO THE THREE MONTH
PERIOD ENDED SEPTEMBER 30, 2013.
During the three months ended September 30, 2014, 30DC, Inc. recognized revenues
of $700,067 from continuing operations compared to $1,942,879 during the three
months ended September 30, 2013. Revenues from continuing operations were from
the following sources during the three months ended September 30, 2014 compared
to September 30, 2013.
Three Months Ended Three Months Increase
September 30, Ended or
2014 September 30, 2013 (Decrease)
------------------- -------------------- --------------
Revenue
Commissions $ 13,935 $ 18,974 $ (5,039)
Subscription Revenue 29,954 - 29,954
Products and Services 656,178 1,923,905 (1,267,727)
------------------- -------------------- --------------
Total Revenues $ 700,067 $ 1,942,879 $ (1,242,812)
The $29,954 increase in subscription revenue was due to a new online forum
subscription product which was launched in April 2014 and has a recurring
monthly charge.
The $1,267,727 decrease in products and services revenue was mainly due to a
decrease of $1,289,113 in revenue from the MagCast Publishing Platform which
resulted from a smaller launch promotion in July 2014 than August 2013. This was
partially offset by a $19,964 increase in sales of Market Pro Max including the
Ultimate Product System which is a training program that includes a lifetime
license for one Market Pro Max marketing web site.
During the three months ended September 30, 2014, the Company incurred $638,081
in operational expenses for continuing operations compared to $1,285,282 during
the three months ended September 30, 2013. Operational expenses during the three
months ended September 30, 2014 and 2013, include the following categories:
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Three Months Three Months Increase
Ended Ended or
September 30, 2014 September 30, 2013 Decrease
------------------ ------------------ --------
Accounting Fees $ 51,250 $ 22,207 $ 29,043
Advertising 11,386 192 11,194
Credit Card Processing Fees 26,253 96,934 (70,681)
Commissions 144,738 719,348 (574,610)
Independent Contractors 106,376 118,168 (11,792)
Depreciation and Amortization 18,328 20,335 (2,007)
Directors' Fees 31,927 39,882 (7,955)
Internet Expenses 8,561 8,255 306
Legal Fees 5,954 12,622 (6,668)
Officer's Salaries 37,427 62,382 (24,955)
Related Party Contractors 164,184 159,508 4,676
Telephone and Data Lines 10,052 6,106 3,946
Other Operating Expenses 21,645 19,343 2,302
-------------------------------------------------
Total Operating Expenses $ 638,081 $ 1,285,282 $(647,201)
=================================================
The increase of $29,043 in accounting fees was primarily due to $10,750,
including a one-time setup fee of $4,750, paid to an e-commerce accounting firm
which was engaged July 2014 to automate and administer recording and reconciling
30DC's daily transactions, and an increase of $17,793 in charges from the
Company's independent auditing firm due to a delay in timing of the Company's
audit for the fiscal year ending June 30, 2013 which resulted in charges being
delayed beyond September 30, 2013.
The increase of $11,194 in advertising is due to the Company advertising its
digital products on Facebook and the cost of marketing consultant who helped
with the advertising campaign.
The decrease of $70,681 in credit card processing fees resulted from the
$1,242,812 decrease in revenue and a decrease of approximately 1% in the
effective credit card processing rate.
The decrease of $574,610 in commissions resulted from the $1,267,727 decrease in
products and services revenue, a significant portion of which are sales
marketing affiliate relationships which result in commission expense.
The decrease of $11,792 in independent contractors is primarily due to the
Company terminating its relationship with two long-term contractors, one at the
end of July 2014, saving the Company approximately $9,000 per month, and one at
the end of August 2014, saving the Company approximately $6,000 per month,
offset by an increase of $6,000 per month to a contractor who has assumed
additional responsibilities.
The decrease of $7,955 in directors' fees is from a reduction in the charge for
amortization of stock option expense over the vesting period, for stock options
previously issued to Henry Pinskier, the Company's board chair, in the September
2014 quarter from the amount in the September 2013 quarter due to fewer options
remaining unvested.
The decrease of $6,668 in legal fees was due to a decrease in a number of items
which went through legal review including press releases and nonrecurring cost
for the legal review of a presubmission request to the SEC regarding reporting
requirements of the Netbloo asset acquisition in the September 2013 quarter.
The decrease of $24,955 in officer's salaries was due to a reduction in a
reduction in base salary for Theodore A. Greenberg, the Company's CFO from
$200,000 to $132,000 per year and a reduction in the charge for amortization of
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stock option expense over the vesting period, for stock options previously
issued to Mr. Greenberg in the September 2014 quarter from the amount in the
September 2013 quarter due to fewer options remaining unvested.
During the three months ended September 30, 2014, the Company recognized a net
income from continuing operations of $61,986 compared to a net income from
continuing operations of $744,850 during the three months ended September 30,
2013. The decrease in net income from continuing operations of $682,864 was due
to the decrease in revenue $1,242,812 offset by the decrease in operating
expenses $647,201 and forgiveness of debt income of $87,253 in the September
2013 quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $144,612 at September 30, 2014 and the Company
had a working capital deficit of $1,492,941. To fund working capital for the
next 12 months, the Company expects to raise capital and to improve the results
of operations from increasing revenue as well as a reduction in operating costs.
The Company expects increased revenue from further sales of MagCast Publishing
Platform through its Digital Publishing Blueprint training course and by
marketing to customers outside its historical customer base with the goal of
recurring revenue through annual licenses. The Company also expects increased
revenue from further sales of Market Pro Max through its Ultimate Product System
training course and introduction of new products some of which will be
extensions of existing product lines. Additionally, the Company intends to
increase funds available by raising capital, though at this time the Company has
not commenced any offerings and cannot guarantee that they will be successful in
its capital raising efforts. If the results of operations and capital raised, if
any, are not sufficient to fund the Company's expenses as they come due, the
Company will defer amounts due to related parties and to the extent possible
utilize shares of the Company to satisfy its liabilities.
Included in liabilities of discontinued operations at September 30, 2014 is
$56,550 in notes payable plus related accrued interest that are in default for
lack of repayment by their due date.
During the three month period ended September 30, 2014, operating activities
provided the Company with $47,728. During the three month period ended September
30, 2013, operating activities provided the Company with $564,173. The decrease
of $516,445 in funds provided by operating activities was a combination of the
decrease of net income from continuing operations of approximately $705,000, a
decrease of approximately $358,000 in the change in accounts payable due to
payment of affiliate commissions which were due at September 30, 2014 from the
MagCast relaunch in August 2013, a decrease of approximately $451,000 in in the
change accrued expenses and refunds due to payment of commissions which accrued
on accounts receivable at September 30, 2013 and change in status of accrued
contractor fees in the September 30, 2013 quarter from due to related parties
because Clinton Carey was no longer a member of the Company's board. This was
offset by a decrease in change in accounts receivable of approximately $592,000
due to the collection of accounts receivable from the MagCast relaunch in August
2013, a decrease to the change in due to related parties of approximately
$256,000 because Clinton Carey was no longer a member of the Company's board, a
decrease in change in the amount of restricted cash which is the amount held in
reserve by the Company's credit card processor which was higher at September 30,
2014 due to the MagCast relaunch in August 2013 and a decrease of approximately
$87,000 in forgiveness of debt income which was including in net income from
continuing operations in the September 2013 quarter but did not generate cash.
GOING CONCERN
The condensed 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
September 30, 2014, the Company has a working capital deficit of approximately
$1,493,000 and has accumulated losses of approximately $3,053,000 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 the
past few years, the Company switched its focus to developing its own products.
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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
directly to customers and through an affiliate network which expands the
Company's selling capability and has a broad target market beyond the Company's
traditional customer base. In April of 2014, the Company began offering the
Ultimate Product System which incorporates 30DC's digital marketing platform
Market Pro Max. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------
The Company earns the majority of its revenue in United States dollars ("USD")
and pays a significant amount of its expense in Australian dollars ("AUD").
Material fluctuations in the exchange rate between USD and AUD may have material
impact on the Company's results of operations.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------------
DISCLOSURES CONTROLS AND PROCEDURES
We have adopted and maintain disclosure controls and procedures (as such term is
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 Chief Executive Officer (Principal
Executive Officer) and Principal Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b) for the quarter ended September 30, 2014, our
Chief Executive Officer and Chief Financial Officer, carried out an evaluation
under the supervision and with the participation of our management, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period
covered by this report. Based on the foregoing evaluation, they have concluded
that our disclosure controls and procedures are not effective in timely alerting
them to material information required to be included in our periodic SEC filings
and to ensure that information required to be disclosed in our periodic SEC
filings is accumulated and communicated to our management, including our Chief
Executive Officer, to allow timely decisions regarding required disclosure as a
result of the deficiency in our internal control over financial reporting
discussed below.
MANAGEMENT'S QUARTERLY REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
With the participation of our Chief Executive Officer and Chief Accounting
Officer, we have evaluated the effectiveness of our "internal control over
financial reporting" (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the " Exchange Act ")),
as of the end of the period covered by this report. Based upon such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that, as
of the end of such period, our "internal control over financial reporting" is
not effective due to the material weaknesses noted below, in ensuring that (i)
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information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms and (ii) information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
(1) 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.
(2) 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.
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. In
July 2014, the Company contracted an e-commerce accounting firm to automate a
number of our accounting processes and to provide outsourced bookkeeping
services that provide for segregation of some of the duties which previously had
not been.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended September 30, 2014, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-------------------------
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
-------------------------------------------------------------------
During the period July 1, 2014 through September 30, 2014 the Company did not
issue any equity securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
---------------------------------------
Included in liabilities of discontinued operations at September 30, 2014 is
$56,550 in notes payable plus related accrued interest that are in default for
lack of repayment by their due date.
ITEM 4. MINE SAFETY DISCLOSURES
-------------------------------
Not Applicable.
ITEM 5. OTHER INFORMATION
-------------------------
None.
ITEM 6. EXHIBITS
----------------
The following is a complete list of exhibits filed as part of this Form 10-Q.
Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of
Regulation S-K.
------------- ------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
------------- ------------------------------------------------------------------
31.1 Section 302 Certification - CEO
------------- ------------------------------------------------------------------
31.2 Section 302 Certification - CFO
------------- ------------------------------------------------------------------
32.1 Section 906 Certification - CEO
------------- ------------------------------------------------------------------
32.2 Section 906 Certification - CFO
------------- ------------------------------------------------------------------
101.INS XBRL Instance Document (1)
------------- ------------------------------------------------------------------
101.SCH XBRL Taxonomy Extension Schema Document (1)
------------- ------------------------------------------------------------------
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1)
------------- ------------------------------------------------------------------
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1)
------------- ------------------------------------------------------------------
101.LAB XBRL Taxonomy Extension Label Linkbase Document (1)
------------- ------------------------------------------------------------------
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1)
--------------------------------------------------------------------------------
(1) 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.
-18-
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and 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.
-------------------------------
Registrant
Dated: November 14, 2014 By:/s/ Edward Dale
-----------------------------
Edward Dale
Principal Executive Officer
Chief Executive Officer
President
Dated: November 14, 2014 By:/s/ Theodore A. Greenberg
-----------------------------
Theodore A. Greenberg,
Principal Accounting Officer
Chief Financial Officer
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