UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2014

 

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

 

Commission File No. 000-54119

 

Rowl, Inc.

(Exact name of registrant as specified in it charter)

 

Nevada		27-3101494
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

501 Santa Monica Boulevard, Suite 601

Santa Monica, CA 90401

(Address of principal executive offices) (Zip Code)

 

(310) 744-6060

(Registrant's telephone number, including area code)

 

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.  x   Yes     o 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files). o Yes    x No 

 

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨	Accelerated filer   ¨
Non-accelerated filer  ¨	Smaller reporting company  x

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

79,573,735 shares of the issuer’s common stock are issued and outstanding as of November 14, 2014.

 

  

FORM 10-Q

Rowl, Inc.

(Formerly, OverNear, Inc)

INDEX

 

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Balance Sheets at September 30, 2014 (unaudited) and December 31, 2013	1
	Unaudited Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013	2
	Unaudited Condensed Statement of Changes in Stockholders’ Equity for the Period ended September 30, 2014 and December 31, 2013	3
	Unaudited Condensed Statements of Cash Flows for the Six Months Ended September 30, 2014 and  2013	4
	Notes to Unaudited Interim Condensed Financial Statements	5-12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13-16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1a.	Risk Factors	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	19
Signatures		20

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

CONDENSED BALANCE SHEETS

 

		September 30,				December 31,
		2014				2013
		(Unaudited)
ASSETS
Current Assets:
Cash		$	1,171,112			$	172,532
Other current assets			225,448				206,177
Total Current Assets			1,396,560				378,709
Furniture and equipment, net			82,373				22,564
Software development in progress, net			701,745				710,200
Other assets			558,092				109,152
Total Assets		$	2,738,770			$	1,220,625
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	226,217			$	173,963
Accrued expenses and othe current liabilities			122,445				106,585
Legal settlement payable			12,500				68,750
Total Current Liabilities			361,162				349,298
Commitments
Stockholders' Equity
Common stock, $0.001 par value; 150,000,000 shares authorized; 79,573,735 and 64,980,257 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively			79,574				64,980
Preferred stock, $0.001 par value; 50,000,000 shares authorized:
3,210,000 Series A convertible preferred shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively			3,210				3,210
2,000,000 Series B preferred shares issued and outstanding September 30, 2014			2,000				-
Paid-in capital			11,587,992				7,227,834
Accumulated deficit			(9,295,168	)			(6,424,697	)
Total Stockholders' Equity			2,377,608				871,327
Total Liabilities and Stockholders’ Equity		$	2,738,770			$	1,220,625

 

The accompanying notes are an integral part of these condensed financial statements

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Sales		$	-				-				-				-
Cost of Sales			-				-				-				-
Gross Profit			-				-				-				-
Selling, General and Administrative Expenses			874,407				571,456				2,409,049				1,561,130
Research and Development			163,710				135,615				462,996				135,615
Operating Loss			(1,038,117	)			(707,071	)			(2,872,045	)			(1,696,745	)
Other Income (Expense):
Gain on Settlement and Write-off of Accounts Payable			-				50,594				4,547				4,691
Interest Expense			(2,583	)			(251	)			(2,973	)			(687	)
Other Income (Expense), Net			(2,583	)			50,343				1,574				4,004
Loss before Income Taxes			(1,040,700	)			(656,728	)			(2,870,471	)			(1,692,741	)
Provision for Income Taxes			-				-				-				(800	)
Net Loss		$	(1,040,700	)		$	(656,728	)		$	(2,870,471	)		$	(1,693,541	)
Loss Per Share-Basic and Diluted		$	(0.01	)		$	(0.01	)		$	(0.04	)		$	(0.03	)
Weighted average shares used in computing earnings per share:			79,412,680				60,729,409				75,116,488				57,545,715

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) For the Period ended September 30, 2014 and December 31, 2013

 

		Preferred Stock								Common Stock								Paid-in				Stock Subscriptions				Accumulated				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Receivable				Deficit				Equity
Balance at December 31, 2012			3,210,000			$	3,210				53,733,208			$	53,733			$	4,166,548			$	(152,500	)		$	(3,905,434	)		$	165,557
Private placement of common stock							-				7,776,500				7,777				1,614,031				-				-				1,621,808
Fair value of warrants issued in connection with private placement of common stock			-				-				-				-				322,317				-				-				322,317
Proceeds from subscriptions receivable Series A convertible preferred stock			-				-				-				-				-				152,500				-				152,500
Issuance of common stock for consulting services			-				-				1,933,886				1,934				405,209				-				-				407,143
Fair value of warrants issued in connection with consulting services			-				-				-				-				68,142				-				-				68,142
Fair value of warrants issued in connection with software development			-				-				-				-				36,379				-				-				36,379
Issuance of common stock in connection with software development			-				-				638,463				638				133,270				-				-				133,908
Issuance of common stock in payment of settlement of accounts payable and retainer fee			-				-				898,200				898				185,838				-				-				186,736
Stock based compensation			-				-				-				-				296,100				-				-				296,100
Net loss for the period ended December 31, 2013			-				-				-				-				-				-				(2,519,263	)			(2,519,263	)
Balance at December 31, 2013			3,210,000				3,210				64,980,257				64,980				7,227,834				-				(6,424,697	)			871,327
Private placement of common stock			-				-				13,346,500				13,347				2,860,920				-				-				2,874,267
Fair value of warrants issued in connection with private placement of common stock			-				-				-				-				546,733				-				-				546,733
Issuance of Series B preferred stock			2,000,000				2,000				-				-				-				-				-				2,000
Issuance of common stock for consulting services			-				-				1,010,012				1,010				210,107				-				-				211,117
Fair value of warrants issued in connection with consulting services			-				-				-				-				402,940				-				-				402,940
Issuance of common stock in connection with software development			-				-				226,966				227				47,217				-				-				47,444
Fair value of warrants issued in connection with software development			-				-				-				-				30,744				-				-				30,744
Issuance of common stock in connection with promotional contracts			-				-				10,000				10				2,080				-				-				2,090
Stock based compensation			-				-				-				-				338,156				-				-				338,156
Cost related to S-1 filing			-				-				-				-				(78,739	)			-				-				(78,739	)
Net loss for the period ended September 30, 2014			-				-				-				-				-				-				(2,870,471	)			(2,870,471	)
Balance at September 30, 2014			5,210,000			$	5,210				79,573,735			$	79,574			$	11,587,992			$	-			$	(9,295,168	)		$	2,377,608

 

The accompanying notes are an integral part of these condensed financial statements

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		Nine months ended
		September 30,
		2014				2013
Cash Flow from Operating Activities:
Net loss		$	(2,870,471	)		$	(1,693,541	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			14,550				6,242
Gain on settlement of accounts payable			-				(4,691	)
Issuance of stock warrants for consulting services			-				17,680
Issuance of common stock for consulting services			211,117				181,451
Issuance of stock warrants for software development services			30,744				13,220
Issuance of common stock for software development services			47,444				19,500
Stock based compensation			338,156				222,075
Issuance of preferred stock for additional officer compensation			2,000				-
(Increase) Decrease in operating assets:
Prepaid expenses			-				(28,737	)
Other current assets			(133,310	)			(26,316	)
Increase (Decrease) in operating liabilities:
Legal settlement payable			(56,250	)			(62,500	)
Accrued expenses			15,860				39,714
Accounts payable			52,254				3,188
Net Cash Used in Operating Activities			(2,347,906	)			(1,312,715	)
Cash Flow from Investing Activities:
Patent, trademark and domain costs			(8,610	)			(31,078	)
Purchase of equipment			(65,904	)			(10,766	)
Software development in progress			-				(148,498	)
Net Cash Used in Investing Activities			(74,514	)			(190,342	)
Cash Flow from Financing Activities:
Proceeds from private placement of common stock, net of subscription receivable			3,421,000				1,248,125
Proceeds from subscriptions receivable Series A convertible preferred stock			-				152,500
Net Cash Provided by Financing Activities			3,421,000				1,400,625
Net Increase (Decrease) in Cash			998,580				(102,432	)
Cash Balance at Beginning of Period			172,532				150,159
Cash Balance at End of Period		$	1,171,112			$	47,727
Supplemental Disclosures:
Interest Paid		$	2,973			$	687
Taxes Paid		$	-			$	800

 

The accompanying notes are an integral part of these condensed financial statements

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

This summary of significant accounting policies is presented to assists the reader in understanding and evaluating the Company’s financial statements. The financial statements and notes are the representations of the Company’s management, which is responsible for their integrity and objectivity. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Rowl, Inc. (“the Company”) was incorporated on July 22, 2010 in the State of Nevada as Awesome Living, Inc. On July 31, 2014 and June 20, 2011, the name of the corporation was changed to Rowl, Inc. and OverNear,Inc., respectively. The Company’s headquarters are located in Santa Monica, California.  The Company is developing a location-based social networking and mobile advertising platform, which was released for use by the general public in September 2014.  The condensed financial statements of Rowl, Inc. (which may be referred to as "Rowl," the "Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America.

 

The Company operates in a rapidly changing technological and digital entertainment market and its activities are subject to significant risks and uncertainties, including failing to secure additional funding to further exploit the Company’s current technology.

 

On August 9, 2010, the Company entered into a Contribution Agreement (“the Agreement”) with uKarma Corporation (“uKarma”) to acquire all of the assets and assume liabilities of uKarma. Pursuant to the terms of the Agreement, the Company issued 10,558,896 shares of its common stock at par value to uKarma as consideration for the acquired assets and assumed certain liabilities. Upon transfer of the assets and liabilities, the Company continued uKarma’s operations.

 

The Company’s predecessor business developed and marketed a proprietary branded fitness DVD series that targets individuals who seek to enrich their physical, spiritual, and mental wellness. Through infomercials and other marketing initiatives, the predecessor launched its products. The Company plans to monetize the fitness DVD series assets by either selling or licensing the intellectual property and associated products. However, the Company is not certain about achieving success in this line of business and has written off all assets related to such.

 

The condensed financial statements of the Company included herein are unaudited for the periods ended September 30, 2014 and September 30, 2013 have been prepared from the books and records of the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and in the case of the condensed balance sheet as of December 31, 2013, have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented. Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. These condensed financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2013. The Company has assessed subsequent events through the date of filing of these condensed financial statements with the Securities and Exchange Commission and believes that the disclosures made herein are adequate to make the information presented herein not misleading.  

 

A summary of the Company's critical accounting policies are disclosed below. The Company's critical accounting policies are further described under the caption “Critical Accounting Policies” in Management's Discussion and Analysis of Financial Condition and Results of Operations and in more detail in the Company's 2013 Annual Report on Form 10-K.

 

Software Development Costs - Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customer. Capitalized software costs shall be amortized on a product-by-product basis. The annual amortization shall be the greater of the amounts computed using the following: (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product; and (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. As of September 30, 2014 and December 31, 2013, the Company had capitalized software development costs of $710,200 for the development of a location-based social networking mobile application.  During the three and nine months ended September 30, 2014, the Company incurred research and development costs of $163,710 and $462,996; and $135,615 for the corresponding period in 2013.

 

Amortization of capitalized software development costs began on September 4, 2014, when the product was released to customers. Amortization is computed using a straight-line method over the estimated useful life of 7 years. Amortization of for three and nine months ended September 30, 2014 was $8,455.

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

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

 

Net Loss Per Share - The Company applies FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive.

 

Stock Based Compensation - The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. Options granted expire from five through ten years from the date of grant. Stock based compensation expense in the amount of $97,600 and $338,156 was incurred for the three and nine months ended September 30, 2014, and $74,025 and $222,075 for the corresponding period in 2013.

 

The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees”. FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).

 

In accordance with the guidance, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company has accounted for certain issuances as other assets in the accompanying condensed balance sheets.

 

New Accounting Pronouncements - In June 2014, the Financial Accounting Standards Board issued guidance related to financial statement presentation for development stage enterprises. The standard removes the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the standard eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The standard is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein, with early adoption permitted. As a result, the Company adopted this standard as of September 30, 2014 and eliminated since inception information from our financial statement.

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the adoption of ASU 2014-09 will have on our consolidated financial statements and disclosures.

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern.” The amendments in this update provide guidance in U.S. GAAP about management's responsibilities to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The main provision of the amendments are for an entity's management, in connection with the preparation of financial statements, to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Management's evaluation should be based on relevant conditions and events that are known or reasonably knowable at the date the consolidated financial statements are issued. When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, the entity should disclose information that enables users of the consolidated financial statements to understand all of the following: (1) principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern (before consideration of management's plans); (2) management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations; and (3) management's plans that alleviated substantial doubt about the entity's ability to continue as a going concern or management's plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. The amendments in this update are effective for interim and annual reporting periods after December 15, 2016 and early application is permitted. The Company is currently assessing this guidance for future implementation.

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 – GOING CONCERN

 

The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital.

 

Management of the Company is actively seeking financing to continue the development of its location-based mobile platform and market its products and services. The ability of the Company to continue as a going concern is dependent on its ability to meet its financing arrangements and the success of its future operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The report from the Company’s independent registered public accounting firm relating to the year ended December 31, 2013 states that there is substantial doubt about the Company’s ability to continue as a going concern.

 

NOTE 3 – ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

		September 30,
		2014				December 31,
		(Unaudited)				2013
Accrued Professional Fees		$	7,000			$	33,875
Accrued Salaries and Related Expenses			54,892				25,710
Sublease security deposit			13,553				-
Liquidated Damages			47,000				47,000
Total Accrued Liabilities		$	122,445			$	106,585

 

NOTE 4 – LEGAL SETTLEMENT PAYABLE

 

In November 2011, the Company settled a legal dispute for the total amount of $275,000, of which $50,000 was paid on December 15, 2011 with the remainder payable in monthly installments of $6,250 through December 7, 2014. At September 30, 2014 and December 31, 2013, the settlement payable which was due currently amounted to $12,500 and $68,750, respectively.

 

NOTE 5 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

During the nine months ended September 30, 2014, the Company executed the following common stock transactions:

 

·

the issuance of an aggregate 13,346,500 common shares to accredited investors in private placements. Total consideration from the issuance of common stock amounted to $3,421,000 for the period ended September 30, 2014.  The common stock issued included warrants with a fair value of $546,733.

 

·

the issuance of an aggregate 1,010,012 shares of the Company’s common stock with a fair value of $211,117 for consulting services.

 

·

the issuance of 226,966 shares of common stock with a fair value of $47,444 for software development services.

 

·

the issuance of 10,000 shares of common stock with a fair value of $2,090 for promotional contract.

 

The fair value of common stock issued in connection with services rendered by various professionals was determined based upon the evaluation of fair value made by the Company’s management, which considered the values associated with common stock sold for cash during the period.

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 5 – STOCKHOLDERS’ EQUITY (continued)

 

Preferred Stock

 

The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001 per share. The preferred stock may be issued in one or more series and the first series consisted of 18,000,000 shares and is designated as series A convertible preferred stock (“Series A Preferred Stock”). The holders of Series A Preferred Stock are entitled to receive, if, when and as declared by the Board, dividends at an annual rate of 8% of the original purchase price of Series A Preferred Stock. No dividends were declared for the nine months ended September 30, 2014 and 2013. In the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive the amount of $0.50 per share. Each share of Series A Preferred Stock is convertible at the option of the holder at any time after the date of issuance into equal number of shares of common stock. Each share of Series A Preferred Stock issued and outstanding is entitled to the number of votes equal to the number of shares of common stock into which such share of Series A Preferred Stock could be converted.  

 

In connection with the Company’s December 31, 2012 sale of $802,500 in units consisting of an aggregate of 3,210,000 shares of the Company’s Series A Preferred Stock and warrants to purchase an aggregate of 3,210,000 shares of the Company’s common stock, the Company was required to file a registration statement registering the shares of common stock.  Such Series A Preferred Stock were convertible into 3,210,000 shares of common stock.  Such registration statement was required to be filed within 60 days of the final closing date (the “Filing Date”) and to be declared effective by 150 days from the Filing Date.  The Company did not meet the required Filing Date and the required effectiveness date passed.  Pursuant to the registration rights agreement, if the registration statement was not filed on a timely basis or was not declared effective by the SEC for any reason on a timely basis, the Company was required to pay each investor monthly liquidated damages equal to 1.0% of the investment amount subscribed for by such investor (capped at 12%) until the registration statement is filed or declared effective, as the case may be. The Company’s registration statement was declared effective by the SEC on February 14, 2014.  At September 30, 2014 and December 31, 2013, the Company had accrued $47,000 of estimated liquidated damages that it owes to the holders of the outstanding Series A Preferred stock.

 

Preferred Stock Conversion to Common Stock

 

In August and October 2013, the Company obtained the consent of approximately 69% of its preferred shareholders to adopt, approve and ratify the Amended and Restated Certificate of Designations of the Company’s Series A Convertible Preferred Stock. The amendment, which was filed with the state of Nevada on October 4, 2013, provides that the Company shall have the right to convert the Series A Convertible Preferred Stock into shares of the Company’s common stock in its sole discretion at any time, at which time, such Series A Convertible Preferred Stock shall automatically and without any required action by any holder, be converted into 103% of fully paid, non-assessable shares of common stock. As of the date when these financial statements were available to be issued, no preferred shares had been converted to common stock.

 

On March 26, 2014, the Company issued to its officers 2,000,000 shares of preferred stock designated as series B preferred stock (“Series B Preferred Stock”). The holders of Series B Preferred Stock are entitled to the equivalent of 100 votes of common stock for each share of Series B Preferred stock held.  The holders of the Series B Preferred Stock have no other rights, such as conversion or liquidation.  The fair value of the Series B Preferred Stock on the date of issuance was determined to be $2,000 and was recorded as officers’ compensation.

 

Warrants

 

During the nine months ended September 30, 2014, the Company issued warrants to purchase common stock to investors in private placements for the right to purchase 13,284,000 shares of the Company’s common stock at $0.50 per share. The warrants vested immediately and have a term of five years from the date the warrants were issued. The warrants were valued at $546,733, using the Black-Scholes-Merton option pricing model.

 

On February 1, 2014, the Company entered into a software development agreement pursuant to which it granted a warrant to purchase 125,000 shares of the Company’s common stock at an exercise price of $0.25. The warrant vests over 3 years as follows (a) 20,000 shares after 6 months (b) remaining at the rate of 10,500 shares at the end of every three months, thereafter.  The warrant has a term of 5 years. The fair value of the warrant using Black-Scholes-Merton model was determined to be $12,625.

 

 On July 22, 2014, the Company entered into a consulting agreement pursuant to which it granted a warrant to purchase 2,664,000 shares of the Company’s common stock at an exercise price of $0.25. The warrant vests immediately and has a term of 10 years. The fair value of the warrant using Black-Scholes-Merton model was determined to be $402,940, which were recorded as other assets in the accompanying condensed balance sheet at September 30, 2014.

 

On August 22, 2014, the Company entered into a marketing agreement pursuant to which it granted a warrant to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.25. The warrant vests over 2 years, beginning in October 2014, as follows: (a) 250,000 shares after six months (b) remaining at the rate of 181,250 shares at the end of every three months, thereafter. The warrant has a term of 10 years. The fair value of the warrant using Black-Scholes-Merton model was determined to be $161,336.

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 5 – STOCKHOLDERS’ EQUITY (continued)

 

The assumptions used in the Black-Scholes-Merton option pricing model are as follows: 

 

Risk-free interest rate			0.49%-1.34%
Expected dividend yield			0	%
Expected lives			2.5-4 years
Expected volatility			70%-100%

 

Warrants to purchase an aggregate of 45,939,500 shares of the Company’s common stock with exercise prices ranging from $0.01 to $0.75 were outstanding as of September 30, 2014.  A summary of the Company’s warrant activity and related information for the nine months ended September 30, 2014 is as follows:

 

		Warrants				Weighted Average Exercise Price
Outstanding at January 1, 2014			28,866,500			$	0.39
Granted			17,073,000				0.44
Exercised			-				-
Forfeited/Expired			-				-
Outstanding at September 30, 2014			45,939,500			$	0.41

 

Stock Options

 

During 2010, the Board of Directors approved and adopted the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide for the issuance of non-qualified and/or incentive stock options to employees, officers, directors and consultants and other service providers. The Plan was subsequently amended on various dates. Generally, all options granted expire five to ten years from the date of grant. It is the policy of the Company to issue new shares for stock options exercised, rather than issue treasury shares. Options generally vest over ten years. Effective July 1, 2012, the total number of shares of common stock reserved for issuance was reduced to 15,000,000 shares, subject to annual increases of up to an amount equal to 15% of the outstanding fully-diluted shares of common stock of the Company, and any such increase cannot be made until the fully diluted shares of common stock outstanding exceeds 100,000,000 shares.  

 

During the nine months ended September 30, 2014, the Company granted options to purchase an aggregate of 5,850,000 shares of the Company’s common stock to certain employees. 3,000,000 of the stock options were granted with an exercise price of $0.10, 2,750,000 were granted with an exercise price of $0.25 and 100,000 were granted with an exercise price of $0.40; and have contractual terms of five years. At September 29, 2014, the employee that was granted with 2,500,000 options was terminated, as such these options were cancelled. Vesting of the options is through December 2016 through September 2017. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plan) and in the event of certain modifications to the option award agreement. The weighted average exercise price of the options granted was $0.168. The weighted average remaining contractual life was 5.22 and 5.39 for the options outstanding and exercisable, respectively.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies based on the lack of relevant historical data regarding the volatility of its stock price on which to base a meaningful estimate of expected volatility. The expected term of options granted was determined in accordance with the “simplified approach” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates. For option grants to employees and directors, the Company assigns a forfeiture factor of 0%. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant.

 

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees:

 

Weighted-average fair value of options granted		$	0.171
Expected terms			3-10 years
Expected volatility			70 - 100%
Risk-free interest rate			1.06 - 1.12%
Dividend yield			-

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 5 – STOCKHOLDERS’ EQUITY (continued)

 

Stock Options (continued)

 

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing warrants granted to consultants:

 

Weighted-average fair value of options granted		$	0.091
Expected terms			5 - 6 years
Expected volatility			70 - 100%
Risk-free interest rate			1.06 - 1.89%
Dividend yield			-

 

Options to purchase 20,450,000 shares of common stock at a weighted average exercise price of $0.067 per share were outstanding at September 30, 2014, of that amount, 15,350,000 are exercisable at an average price of $0.038 per share.

 

As of September 30, 2014, there was $476,945 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan.  That cost is expected to be recognized over a weighted average period of 3.75 years.

 

The estimated aggregate pretax intrinsic value (the difference between the Company’s estimated stock price on the last day of the period ended September 30, 2014 and the exercise price, multiplied by the number of in-the-money options) is approximately $2,629,400. This amount changes based on the estimated fair value of the Company’s common stock. 

 

Public Offering

 

On February 14, 2014, the SEC issued a notice of effectiveness of the Registration Statement filed by the Company to sell 10,000,000 shares of common stock at a public offering price of $0.50 per share. Accordingly, during the period ended September 30, 2014, the Company offset capitalized costs of $78,739 related to the fund raising efforts to paid-in capital.

 

NOTE 6 – LOSS PER SHARE

 

There were no dilutive securities for the three and nine months ended September 30, 2014 and 2013.  A total of 66,389,500 warrants and stock options were excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2014, and 43,182,500 warrants and stock options were excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2013, because they were anti-dilutive.

 

NOTE 7 – NON-CASH TRANSACTIONS

 

Non cash activities during the nine months ended September 30, 2014 are as follows:

 

·

The Company issued 10,000 shares of its common stock valued at $2,090 in connection with promotional contract. (see Note 5).

 

·

The Company issued 2,664,000 warrants $402,940 in connection with prepaid consulting services. (see Note 5).

 

·

The Company offset capitalized registration statement costs to paid-in capital (see Note 5).

 

Non cash activities during nine months ended September 30, 2013 are as follows:

 

·

The Company issued 898,200 shares of its common stock valued at $186,736 in payment of the settlement of accounts payable and retainer fee.

 

·

The Company issued warrants valued at $3,138 in connection with software development.

 

·

The Company issued 850,000 shares of its common stock valued at $178,234 for consulting services to be performed from June 2013 to August 2015.

 

·

The Company issued warrants valued at $23,400 in connection with consulting services to be performed from August 2013 to August 2015..

 

·

The Company issued 282,583 shares of its common stock valued at $59,475 in connection with software development.

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 8 – COMMITMENTS

 

Employment Agreement

 

On August 3, 2010, the Company entered into a 5-year (“Term”) agreement with Bill Glaser for his services as Chief Executive Officer. The agreement was amended on March 15, 2011 to change his title from Chief Executive Officer to President and extended the term to March 15, 2016. Per the amendment to the agreement dated August 8, 2011, Mr. Glaser is compensated with an annual salary of $180,000, which was increased to $190,000 in 2013. Mr. Glaser’s annual salary is to increase to $250,000 in the event that either (i) Rowl raises an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) Rowl raises an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $10,000,000 in cumulative gross revenues. In January 2014, the salary increased to $250,000 as the Company raised an aggregate of $5 million in equity financings.  His agreement also provides for options to purchase 5,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) at an exercise price of $0.025 per share, of which 2,500,000 shares became exercisable on January 1, 2013 and the remainder of which will become exercisable on the following schedule: 500,000 shares at the beginning of each subsequent six (6) month period. The options expire 10 years after grant.

 

In the event of a change of control of Rowl prior to the one (1) month anniversary of Mr. Glaser’s termination, Mr. Glaser will be due the greater of (i) the remainder of his annual salary during the Term or (ii) $250,000. All unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to Rowl on a per share basis less the exercise price of the stock option, the value of which is multiplied to the number of options held by Mr. Glaser.  In the event of Mr. Glaser’s termination without cause by Rowl, Mr. Glaser will be paid the lesser of (i) the remainder of his annual salary during the Term or (ii) one (1) year’s salary, and all stock options held by Mr. Glaser under the Plan will immediately vest in full and remain outstanding and exercisable until ten (10) years from the grant date.

 

 On September 13, 2010, the Company entered into a 5-year (“Term”) agreement with Fred E. Tannous for his services as Chief Financial Officer. The agreement was amended on March 15, 2011 to add the additional title of Chief Executive Officer and extended the term to March 15, 2016. Per the amendment to the agreement dated August 8, 2011, Mr. Tannous is compensated with an annual salary of $180,000, which was increased to $190,000 in 2013. Mr. Tannous’ annual salary is to increase to $250,000 in the event that either (i) Rowl raises an aggregate $5,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $5,000,000 in cumulative gross revenues. The annual salary will increase to $360,000 in the event that either (i) Rowl raises an aggregate $10,000,000 in debt or equity financing after August 8, 2011 or (ii) Rowl recognizes $10,000,000 in cumulative gross revenues.  In January 2014, the salary increased to $250,000 as the company raised an aggregate of $5 million in equity financings.

 

Mr. Tannous was issued shares of Rowl’s common stock valued at $50,000, as a signing bonus.  His agreement also provides for options to purchase 10,000,000 shares of common stock under the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) at an exercise price of $0.025 per share, of which 5,000,000 shares became exercisable on January 1, 2013 and the remainder of which will become exercisable on the following schedule: 1,000,000 shares at the beginning of each subsequent six (6) month period. The options expire 10 years after grant. For accepting the CEO position, Mr. Tannous received 4,000,000 restricted shares of common stock in March 2011, the fair value of the shares was determined to be $100,000.

 

In the event of a change of control of Rowl prior to the one (1) month anniversary of Mr. Tannous’ termination, Mr. Tannous will be due the greater of (i) the remainder of his annual salary during the Term or (ii) $250,000. All unvested stock options will become vested, and any unexercised stock options will be paid out as cash in the amount equal to the difference between the consideration paid to Rowl on a per share basis less the exercise price of the stock option, the value of which is multiplied to the number of options held by Mr. Tannous.

 

In the event of Mr. Tannous’ termination without cause by Rowl, Mr. Tannous will be paid the lesser of (i) the remainder of his annual salary during the Term or (ii) one (1) year’s salary, and all stock options held by Mr. Tannous under the Plan will immediately vest in full and remain outstanding and exercisable until ten (10) years from the grant date.

 

 

ROWL, INC.

(FORMERLY OVERNEAR, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 8 – COMMITMENTS (continued)

 

The following table summarizes the Company’s minimum obligations in the event of an early termination under employment agreements as of September 30, 2014:

 

Twelve months Ending September 30		Amount
2015		$	500,000
2016			199,000
Total		$	699,000

 

Lease Commitment

 

Following is a summary of operating leases at September 30, 2014:

 

Description of Property		Minimum Annual Rental				Expiration Date		Renewal option
Operations and admin facility #1		$	4,518			May 2015		None
Operations and admin facility #2			10,346			November 2017		None
Total		$	14,864

 

Under the terms of the lease agreement the Company is also required to pay additional amount for operating expenses.

 

Beginning August 1, 2014, the Company subleased its operations and admin facility #1 for $4,518 per month through May 2015. The Company received a deposit in connection with this sublease agreement for $13,553, which in included in accrued expenses and other current liabilities (see Note 3).

 

The following table summarizes the Company’s future minimum lease payments for leases with initial terms in excess of one year, and for each of the next five years and in the aggregate, are:

 

Twelve months Ending September 30		Amount
2015		$	160,597
2016			128,190
2017			132,036
Thereafter			22,610
Total		$	443,433

 

NOTE 9 – VENDOR SETTLEMENTS AND GAIN ON FORGIVENESS OF DEBT

 

The Company has entered into arrangements with various professional service providers for amounts different than the liability recorded in the accounts payable. The Company's officers also forgave their deferred compensation during 2011. As a result of these transactions, the Company recorded gain (loss) on settlement and forgiveness of debt of $0 and $4,547 for the three and nine months ended September 30, 2014. The Company recorded gain (loss) on settlement and forgiveness of debt of $50,594 and $4,691 for the three and nine months ended September 30, 2013.

 

NOTE 10 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through November 14, 2014, the date which the financial statements were available to be issued. There were no additional subsequent events noted that would require adjustment to or disclosure in this financial statement

 

 

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our financial statements as of, and for the quarterly periods ended, September 30, 2014 and 2013 and the related notes included therein. References to the “Company,” “we,” “our,” or “us” in this section refers to Rowl, Inc.

 

Forward-Looking Statements

 

Certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, without limitation, statements concerning the Company's future financial position and results of operations, planned expenditures, business strategy and other plans for future operations, the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future demand and industry conditions. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may” and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in this Quarterly Report on Form 10-Q, the specific risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

 

The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company's condensed financial statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

 

Overview

 

We were formed as Awesome Living, Inc. in Nevada in July 2010 as a wholly owned subsidiary of uKarma Corporation, a Nevada corporation (“uKarma”). uKarma developed and marketed proprietary branded personal health and wellness products, including a proprietary branded fitness DVD series (Xflowsion). On August 9, 2010, the assets of uKarma’s operating health and wellness business, including its Xflowsion DVD series, and its liabilities were transferred into Awesome Living, Inc. pursuant to a Contribution Agreement. uKarma subsequently changed its name to Innolog Holdings Corporation (“Innolog”), and issued 10,700,000 shares of Awesome Living, Inc. common stock to our management. This, along with other subsequent issuances of our common stock, significantly reduced Innolog’s percentage ownership of our common stock.    The Contribution Agreement anticipated a pro-rata spin-off of the Awesome Living, Inc. common stock owned by uKarma to uKarma’s shareholders of record as of August 12, 2010.  We intend to complete the spin-off as soon as practicable.

 

Following the transfer of our assets into Awesome Living, Inc., we made a decision to change the focus of our business from personal health and wellness products to developing a location-based social networking and mobile advertising platform.  On July 23, 2014 and June 20, 2011, we changed our name from Awesome Living, Inc. to Rowl, Inc and OverNear, Inc., respectively, to better reflect our new business, and operate with a focus on developing a location-based social networking and mobile advertising platform.  To date, we have generated no revenues from our planned social networking and mobile advertising service.  Our limited history of operations makes prediction of future operating results difficult, and we believe that period-to-period comparisons of our operating results should not be relied on as predictive of our future results.

 

Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.  

 

 

The following accounting policies, which are also described in Note 1 to our financial statements, are critical to aid the reader in fully understanding and evaluating this discussion and analysis:

 

Software Development Costs - Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customer. Capitalized software costs shall be amortized on a product-by-product basis. The annual amortization shall be the greater of the amounts computed using the following: (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product; and (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. As of September 30, 2014 and December 31, 2013, the Company had capitalized software development costs of $710,200 for the development of a location-based social networking mobile application. During the three and nine months ended September 30, 2014, the Company incurred research and development costs of $163,710 and $462,996; and $135,615 for the corresponding period in 2013.

 

Amortization of capitalized software development costs began on September 4, 2014, when the product was released to customers. Amortization is computed using a straight-line method over the estimated useful life of 7 years. Amortization of for three and nine months ended September 30, 2014 was $8,455.

 

Net Loss Per Share - The Company applies FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive.

 

Stock Based Compensation - The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes-Merton option valuation model. Generally, all options granted expire ten years from the date of grant. Stock based compensation expense in the amount of $97,600 and $338,156 was incurred for the three and nine months ended September 30, 2014, and $74,025 and $222,075 for the corresponding period in 2013

 

The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees”. FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).

 

In accordance with the guidance, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company has accounted for certain issuances as other assets in the accompanying condensed balance sheets.

 

New Accounting Pronouncements - In June 2014, the Financial Accounting Standards Board issued guidance related to financial statement presentation for development stage enterprises. The standard removes the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the standard eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The standard is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein, with early adoption permitted. As a result, the Company adopted this standard as of September 30, 2014 and eliminated since inception information from our financial statement.

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the adoption of ASU 2014-09 will have on our consolidated financial statements and disclosures.

 

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern.” The amendments in this update provide guidance in U.S. GAAP about management's responsibilities to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The main provision of the amendments are for an entity's management, in connection with the preparation of financial statements, to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Management's evaluation should be based on relevant conditions and events that are known or reasonably knowable at the date the consolidated financial statements are issued. When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, the entity should disclose information that enables users of the consolidated financial statements to understand all of the following: (1) principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern (before consideration of management's plans); (2) management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations; and (3) management's plans that alleviated substantial doubt about the entity's ability to continue as a going concern or management's plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. The amendments in this update are effective for interim and annual reporting periods after December 15, 2016 and early application is permitted. The Company is currently assessing this guidance for future implementation. 

 

Results of Continuing Operations

  

Following are the results of the Company's operations for the three and nine months ended September 30, 2014 and 2013.

 

Comparison of Three Months Ended September 30, 2014 and 2013

 

Selling, General and Administrative (SGA) expenses - During the third quarter of 2014, our total SGA expenses were $874,407, while total SGA expenses during the third quarter of 2013 were $571,456, representing an increase of approximately 53%.  The increase in SGA costs is primarily attributable to increased salaries and wages, recruitment, and equity compensation expenses. These expenses increased due to addition of new employees due to increased activities in the launch of our mobile application.

 

Research and development - During the third quarter of 2014, our research and development expenses were $163,710, while total research and development during third quarter of 2014 were $135,615, representing an increase of approximately 21%. The increase in research and development expenses is primarily attributable to additional professionals contracted for continuous development of the product.

 

Net Loss - We had a net loss of $1,040,700 during the third quarter of 2014 compared to a net loss of $656,728 during the third quarter of 2013 due to the various research and development and selling, general and administrative expenses increase as described above.

 

Comparison of Nine Months Ended September 30, 2014 and 2013

 

Selling, General and Administrative (SGA) expenses - During the first nine months of 2014, our total SGA expenses were $2,409,049 while total SGA expenses during the first nine months of 2013 were $1,561,130, representing an increase of approximately 54%.  The increase in SGA costs is primarily attributable to increased salaries and wages, recruitment, equity compensation, consulting, travel, and marketing expenses. These expenses increased due to addition of new employees and increased activities in the launch of our application.

 

Research and development - During the first nine months of 2014, our research and development expenses were $462,996 while total research and development expenses during the first nine months of 2013 were $135,615, representing an increase of approximately 241%. The increase in research and development expenses is primarily attributable to additional professionals contracted for continuous development of the product.  There were no research and development activities during corresponding the first six months of 2013.

 

Net Loss - We had a net loss of $2,870,471 during the first nine months of 2014 compared to a net loss of $1,693,541 during the first nine months of 2013 due to the various research and development and selling, general and administrative expenses increase as described above.

 

 

Liquidity and Capital Resources

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $2,347,906 for the nine months ended September 30, 2014 while net cash used in operating activities was $1,312,715 for the nine months ended September 30, 2013. The increase in cash used in operating activities is due primarily to fees related to services provided by consultants and new employees.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities was $74,514 for the nine months ended September 30, 2014 while net cash used in investing activities was $190,342 for the nine months ended September 30, 2013. The decrease in cash used in investing activities is primarily due to costs capitalized for software development in 2013.

 

Cash Flows from Financing Activities

 

Net cash provided by financing activities was $3,421,000 for the nine months ended September 30, 2014 compared to $1,400,625 provided during the nine months ended September 30, 2013. This increase was due to increase in proceeds from the issuance of our securities in private placement offerings.

 

CAPITAL RESOURCES

 

As of September 30, 2014, we had positive working capital of $1,438,338.   There is no guarantee that we will be able to meet current working capital needs if we do not receive additional infusions of cash through loans, stock sales, revenues, or other sources. We expect to incur substantial losses over the next year.

 

As of September 30, 2014, we had cash of $1,171,112.  We have obtained additional capital through an equity financing and intend to continue raising capital through debt or equity financings.

 

When possible, we will engage outside contractors and consultants who are willing to be paid in stock rather than cash or a combination of stock and cash.  Expenses incurred that cannot be paid in stock, such as audit and accounting fees, will be paid in cash. There are no assurances that we will be able to meet our capital requirements through year-end or that our capital requirements will not increase. If we are unable to raise necessary capital to meet our capital requirements, we may not be able to successfully develop and market our location-based social networking and mobile advertising service.

 

Our financial statements were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  In the near term, we expect operating costs to continue to exceed funds generated from operations.  As a result, we expect to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital.

 

  Our management is actively seeking financing to continue improving our technology and platform and marketing the corresponding location-based mobile application in order to attract users.  Our ability to continue as a going concern is dependent on our ability to arrange for the financing to meet these goals and on the success of our future operations.  The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. The report from our independent registered public accounting firm relating to the year ended December 31, 2013 states that there is substantial doubt about our ability to continue as a going concern.

 

Public Offering

 

On February 14, 2014, the SEC issued a notice of effectiveness of the Registration Statement filed by the Company to sell 10,000,000 shares of common stock at a public offering price of $0.50 per share.

 

 

CONTRACTUAL OBLIGATIONS

 

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.

 

The following table summarizes our total and by period contractual obligations as of September 30, 2014:

 

						Less than
Contractual Obligations		Total				1 year				1-3 Years
Legal Settlement		$	12,500			$	12,500				-
Employment Agreements		$	699,000			$	500,000			$	199,000
Office Lease		$	443,433			$	160,597			$	282,836

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company and are not required to provide the information under this item.

 

Item 4.  Controls and Procedures.

  

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our CEO and CFO concluded that, as of September 30, 2014, our disclosure controls and procedures were not effective at the reasonable assurance level to ensure that the information required to be disclosed by the Company in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, due to the material weaknesses described below.

 

 A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our management identified the following material weaknesses in our disclosure controls and procedures:

 

1.

We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act.

2.

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. To the extent possible, however, separate individuals should initiate transactions, have custody of assets, and record transactions.

3.

We do not have adequate review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically feasible. Management evaluated the impact of the significant number of adjustments as a result of our review and concluded that the resulting control deficiency represented a material weakness.

 

To address these material weaknesses, management performed additional analyses and other procedures during the quarter ended September 30, 2014 to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

We are not currently involved in any material legal proceedings, and we are not aware of any material legal proceedings pending or threatened against us. We are also not aware of any material legal proceedings involving any of our directors, officers, or affiliates or any owner of record or beneficially 5% of any class of our voting securities.

 

Item 1A. Risk Factors.

 

Not required of smaller reporting companies.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the third quarter of 2014, we raised $50,000 via the issuance 162,500 shares of common stock with warrants to purchase 100,000 shares of common stock to accredited investors in a private placement memorandum.  The warrants have an exercise price of $0.50 per share and expire five years from the date of issue.  These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. The certificates to be issued for these unregistered securities will contain a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter, in this transaction. These transactions did not involve a public offering. The recipients were knowledgeable about our operations and financial condition. The recipients had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

 

On July 22, 2014, the Company entered into an advisory service agreement pursuant to which it granted a warrant to purchase 2,664,000 shares of the Company’s common stock at an exercise price of $0.25. The warrant vests immediately and has a term of 10 years. The fair value of the warrant using Black-Scholes-Merton model was determined to be $402,940.

 

On August 1, 2014, the Company issued 10,000 shares of its common stock valued at $2,090 in connection with promotional contract.

 

On August 22, 2014, the Company entered into a marketing agreement pursuant to which it granted a warrant to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.25. The warrant over 2 years as follows: (a) 250,000 shares after six months (b) remaining at the rate of 181,250 shares at the end of every three months, thereafter. The warrant has a term of 10 years. The fair value of the warrant using Black-Scholes-Merton model was determined to be $161,336.

 

These issuances were exempt from registration requirements in reliance on Section 4(2) of the Securities Act.

   

Item 3. Defaults Upon Senior Securities

 

There were no defaults upon senior securities during the quarter ended September 30, 2014.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

 

Item 6.  Exhibits

 

Exhibit No.		Exhibit Description
2.1		Contribution Agreement between uKarma and Awesome Living (1)
3.1		Articles of Incorporation (2)
3.2		Bylaws of Awesome Living (1)
31.1		Section 302 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer *
32.1		Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer **
101.INS		XBRL Instance Document (3)
101.SCH		XBRL Taxonomy Extension Schema (3)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase (3)
101.DEF		XBRL Taxonomy Extension Definition Linkbase (3)
101.LAB		XBRL Taxonomy Extension Label Linkbase (3)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase (3)

 

* Filed herewith. 

** Furnished herewith.

 

(1)

Filed on September 15, 2010 as an exhibit to our Registration Statement on Form 10, and incorporated herein by reference.

(2)

Filed on August 5, 2011 as an exhibit to our Quarterly Report on Form 10-Q, and incorporated herein by reference.

(3)

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.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	ROWL, INC.
	(Registrant)
Date: November 14, 2014	By:	/s/ Fred E. Tannous
		Fred E. Tannous
		Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial & Accounting Officer)