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.

 

or

 

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

 

For the transition period from _______ to _______.

 

Commission File Number: 333-179738

 

UBIQUITY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada	99-0371375
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

 

9801 Research Drive

Irvine, CA 92618

(Address of principal executive offices (Zip Code)

 

(949) 489 - 7600

(Registrant’s telephone number, including area code)

 

UBIQUITY BROADCASTING CORPORATION

(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  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x   No  o

 

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

 

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (do not check if smaller reporting company)	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). Yes o No x

 

As of November 7, 2014, there were 103,076,911 shares of common stock, $0.001 par value issued and outstanding.

 

 

 UBIQUITY, INC.

(FORMERLY UBIQUITY BROADCASTING CORPORATION)

TABLE OF CONTENTS

FORM 10-Q REPORT

September 30, 2014

 

			Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).		2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		10
Item 4.	Controls and Procedures.		10
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.		11
Item 1A.	Risk Factors.		11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		11
Item 3.	Defaults Upon Senior Securities.		12
Item 4.	Mine Safety Disclosures.		12
Item 5.	Other Information.		12
Item 6.	Exhibits.		12
SIGNATURES			13

 

USE OF CERTAIN DEFINED TERMS

 

Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “Ubiquity-NV,” “our Company,” or “the Company” are to the business of Ubiquity, Inc.,  f/k/a  Ubiquity Broadcasting Corporation, and its wholly-owned subsidiary, Ubiquity Broadcasting Corporation, a Delaware Corporation. 

 

  

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

 

UBIQUITY, INC.

(FORMERLY UBIQUITY BROADCASTING CORPORATION)

 

CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2014

 

(UNAUDITED)

 

CONTENTS

 

	PAGE
Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited)	F-1
Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (Unaudited)	F-2
Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2014 and 2013 (Unaudited)	F-3
Notes to the Consolidated Financial Statements (Unaudited)	F-4 - F-10

 

  

UBIQUITY, INC.

(FORMERLY UBIQUITY BROADCASTING CORPORATION)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		September 30, 2014				December 31, 2013
Assets:
Cash and cash equivalents		$	255,146			$	74,300
Accounts receivable, net			47,105				38,105
Accounts receivable - related party			100,000				-
Prepaid expenses			148,142				121,275
Loans receivable - related parties			1,351,043				563,732
Other current assets			191,182				191,182
Total current assets			2,092,618				988,594
Property and equipment, net			880,833				1,003,546
Other assets:
Other assets			53,493				-
Intangible assets, net			16,123,569				14,151,440
Total assets		$	19,150,513			$	16,143,580
Liabilities and Stockholders' Equity:
Current liabilities
Accounts payable		$	454,570			$	756,316
Accrued expenses			3,121,343				2,450,601
Credit cards payable			448,923				482,635
Loans payable - related parties			175,000				7,000
Total current liabilities			4,199,836				3,696,552
Total liabilities			4,199,836				3,696,552
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $0.001, 10,000,000 shares authorized, no shares issued and outstanding			-				-
Common stock, par value $0.001, 800,000,000 shares authorized, 100,907,340 and 92,069,199 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively			100,907				92,069
Additional paid-in capital			141,248,605				126,142,077
Common stock to be issued			250,000				-
Deferred stock-based compensation			-				(312,500	)
Accumulated deficit			(126,648,835	)			(113,474,618	)
Total stockholders' equity			14,950,677				12,447,028
Total liabilities and stockholders' equity		$	19,150,513			$	16,143,580

 

See accompanying notes to the consolidated financial statements.

 

  

UBIQUITY, INC.

(FORMERLY UBIQUITY BROADCASTING CORPORATION)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended September 30, 2014				Three Months Ended September 30, 2013				Nine Months Ended September 30, 2014				Nine Months Ended September 30, 2013
Revenues		$	29,585			$	19,800			$	62,735			$	58,787
Revenues - related party			-				-				250,000				-
			29,585				19,800				312,735				58,787
Costs of sales			45,712				41,845				140,814				110,923
Gross profit (loss)			(16,127	)			(22,045	)			171,921				(52,136	)
Operating expenses:
Meals and entertainment			7,696				10,626				42,967				32,934
Marketing			74,564				30,627				135,506				66,653
Outside services			9,605				54,469				35,371				349,945
Payroll expense			928,874				388,288				1,884,501				1,414,006
Stock-based compensation			2,769,660				814,720				7,550,306				1,541,430
Office and computer			159,432				37,570				305,656				118,450
Professional fees			446,635				358,237				1,278,735				964,903
Rent			153,115				90,867				404,398				301,245
Travel			61,645				33,718				246,989				66,585
Taxes			6,798				2,023				9,109				2,023
Charitable contributions			15,708				36,016				41,173				41,016
Bad debt expense			-				-				-				-
Depreciation and amortization			413,352				400,315				1,183,806				948,106
Other operating expenses			60,307				68,549				227,621				302,826
Total operating expenses			5,107,391				2,326,025				13,346,138				6,150,122
Operating loss			(5,123,518	)			(2,348,070	)			(13,174,217	)			(6,202,258	)
Loss before provision for income taxes			(5,123,518	)			(2,348,070	)			(13,174,217	)			(6,202,258	)
Provision for income taxes			-				-				-				-
Net loss		$	(5,123,518	)		$	(2,348,070	)		$	(13,174,217	)		$	(6,202,258	)
Net loss per share: basic and diluted		$	(0.05	)		$	(0.03	)		$	(0.14	)		$	(0.10	)
Weighted average number of shares outstanding: basic and diluted			98,602,314				68,389,395				95,916,769				64,131,511

 

See accompanying notes to the consolidated financial statements.

 

 

UBIQUITY, INC.

(FORMERLY UBIQUITY BROADCASTING CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended September 30, 2014				Nine Months Ended September 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(13,174,217	)		$	(6,202,258	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,183,806				948,106
Stock-based compensation			7,550,306				1,541,430
Changes in operating assets and liabilities:
Accounts receivable			(9,000	)			(5,250	)
Accounts receivable - related party			(100,000	)			-
Prepaid expenses			(26,867	)			(65,432	)
Other current assets			-				(134,879	)
Accounts payable			(301,746	)			(337,857	)
Accrued expenses			670,742				487,361
Credit cards payable			(33,712	)			44,000
Net cash used in operating activities			(4,240,688	)			(3,724,779	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to related parties			(787,311	)			-
Purchase of property and equipment			(47,702	)			(254,633	)
Other assets			(53,493	)			-
Acquisition of intangible assets			(735,520	)			(353,502	)
Net cash used in investing activities			(1,624,026	)			(608,135	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from loan payable - related party			168,000				-
Equity issuance costs			(443,018	)			(375,126	)
Proceeds from sale of common stock			6,320,578				5,467,918
Net cash provided by financing activities			6,045,560				5,092,792
Change in cash and cash equivalents			180,846				759,878
Cash and cash equivalents, beginning of period			74,300				118,663
Cash and cash equivalents, end of period		$	255,146			$	878,541
Supplemental disclosures of cash flow information:
Cash paid for interest		$	5,000			$	-
Cash paid for income taxes		$	-			$	-
Non-cash investing and financing activities:
Value of common shares issued for assets		$	2,250,000			$	5,400,000
Common stock issued and recorded as deferred compensation		$	-			$	654,030

 

See accompanying notes to financial statements.

 

 

UBIQUITY, INC.

(FORMERLY UBIQUITY BROADCASTING CORPORATION)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(UNAUDITED)

 

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

 

Ubiquity, Inc. formerly Ubiquity Broadcasting Corporation (the "Company" or "Ubiquity") was incorporated in the State of Nevada on December 2, 2011.

 

The Company is focused on the intersection of cloud based cross-platform applications synchronized across all screens for enhancing the digital lifestyle.  Ubiquity has its own studio operations, and is developing ubiquitous digital applications and digital content in connection with its intellectual property. Ubiquity’s technology is seamless, simplistic, and extremely intuitive.  Ubiquity has developed products and services providing a seamless platform for access to all media and content from all devices. These products include mobile commerce, video search, and a customized interface for all personal and public files, including any media and any content from any source to any device.

 

The Company is focused on becoming an industry leader in cloud-based products and services, and management expects its competitive position will be enhanced and sustained by its broad and deep portfolio of patents and intellectual property.

 

Reverse Merger

As previously reported in the Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2013. On March 5, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ubiquity Broadcasting Corporation, a privately held Delaware corporation (“Ubiquity-DE”), and Ubiquity Acquisition Corp., a newly formed, wholly-owned Nevada subsidiary of ours (“Acquisition Sub”), pursuant to which Acquisition Sub was merged with and into Ubiquity-DE, and Ubiquity-DE, as the surviving corporation, became our wholly-owned subsidiary (the “Merger”). A condition to the closing of the merger was that the Company shall have received an audit report of Ubiquity-DE with respect to its two most recently completed fiscal years from an independent accounting firm that is registered with the Public Company Accounting Oversight Board. Ubiquity-DE received an audit report by Silberstein Ungar, PLLC dated September 20, 2013. Accordingly, the merger closed on September 20, 2013. As a result of the Merger, the Company ceased its prior operations, which were insignificant and became a multimedia company focused on the intersection of cloud-based cross platform applications synchronized across all screens for enhancing the digital lifestyle.

  

The transaction was regarded as a reverse merger whereby Ubiquity-DE was considered to be the accounting acquirer as its management retained control of the Company after the Share Exchange. As a result of this accounting treatment the historical financial statements of Ubiquity-DE, the accounting acquirer, are presented for all periods presented. The financial statements of the Company, which are insignificant have been presented from the date of acquisition, deemed to September 20, 2013, forward. Pro-forma financial information has not been provided as the amounts are insignificant.

 

Pursuant to the terms and conditions of the Merger Agreement:

 

	¨	Each share of Ubiquity-DE’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive 19,838,746 shares of our common stock.  An aggregate of 19,838,746  shares of the Company’s common stock were issued to the holders of Ubiquity-DE’s common stock.
	¨	Pursuant to the terms of the Merger Agreement, new members of our board of directors were appointed.   Our new board of directors consists of previously the directors and officer of Ubiquity-DE.

 

The purposes of the transactions described in the Form 8-K were to complete a reverse merger and complete a recapitalization of the Company with the result being that Ubiquity-DE became a wholly-owned subsidiary.  Our business operations will now focus on the business of Ubiquity-DE in the future and our management will be the management of Ubiquity-DE.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has negative working capital, has incurred operating losses from inception, and has not yet produced significant continuing revenues from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

  

The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern. Management anticipates that it will be able to raise additional working capital through the issuance of stock and through additional loans from investors.

 

The ability of the Company to continue as a going concern is dependent upon the Company’s ability to attain a satisfactory level of profitability and obtain suitable and adequate financing. There can be no assurance that management's plan will be successful.

 

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and for the year ended December 31, 2013. In the opinion of management, all adjustments necessary for the financial statements to be not misleading for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

 

Principles of Consolidation 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Ubiquity Broadcasting Corp., a Delaware corporation. All material inter-company accounts and transactions have been eliminated in consolidation.

 

Fair Value of Financial Instruments

The Company follows the guidance of Accounting Standards Codification ("ASC") 820 – Fair Value Measurement and Disclosure. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of our Company. Unobservable inputs are inputs that reflect our Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

As of September 30, 2014 and December 31, 2013, we did not have any level 1, 2, or 3 assets or liabilities. 

 

Revenue Recognition

The Company recognizes revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.  Revenue from packaged product sales to distributors and resellers is usually recorded when related products are shipped. However, when the revenue recognition criteria required for distributor and reseller arrangements are not met, revenue is recognized as payments are received. Revenues from the licensing the rights to technology and/or patents are typically recorded when access to the technology and/or patents is provided.

 

Cost of Revenue

Cost of revenue includes the direct costs to manufacture and distribute the product and the direct costs to provide online services, production, consulting, product support, licensing opportunities, training and certification of sub-contractors.

 

Stock-Based Compensation

The Company accounts for employee stock-based compensation in accordance with the guidance of ASC Topic 718: Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

 

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

 

The Company accounts for employee stock-based compensation in accordance with the guidance of ASC Topic 718: Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

 

  

Concentration of Credit Risks

The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts; however, amounts in excess of the federally insured limit may be at risk if the bank experiences financial difficulties.

 

Use of Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples include estimates of loss contingencies and product life cycles, and assumptions such as the elements comprising a software arrangement, including the distinction between upgrades/enhancements and new products; when the Company reaches technological feasibility for its products; the potential outcome of the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns; and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from these estimates and assumptions.

 

Earnings Per Common and Common Equivalent Share

The computation of basic earnings per common share is computed using the weighted average number of common shares outstanding during the year. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year plus common stock equivalents which would arise from the exercise of warrants outstanding using the treasury stock method and the average market price per share during the year. Options, warrants and convertible preferred stock which are common stock equivalents are not included in the diluted earnings per share calculation for the three and nine months ended September 30, 2014 and 2013 since their effect is anti-dilutive.

 

NOTE 3 - PREPAID EXPENSES

 

Prepaid expenses consisted of the following as of September 30, 2014 and December 31, 2013:

 

		September 30, 2014				December 31, 2013
Commissions		$	46,309			$	46,309
Short term deposits			39,433				34,003
Legal			53,770				39,833
Miscellaneous			8,630				1,130
Total prepaid expenses		$	148,142			$	121,275

 

NOTE 4 - PROPERTY AND EQUIPMENT

 

The Company owned equipment recorded at cost which consisted of the following as of September 30, 2014 and December 31, 2013:

 

		September 30, 2014				December 31, 2013
Machinery and equipment		$	477,104			$	477,104
Office equipment			879,752				879,450
Leasehold improvements			641,599				594,199
Subtotal			1,998,455				1,950,753
Accumulated depreciation			(1,117,622	)			(947,207	)
Property and equipment, net		$	880,833			$	1,003,546

 

Depreciation expense was $170,415 and $224,962 for the nine months ended September 30, 2014 and 2013, respectively.

 

  

NOTE 5 - INTANGIBLE ASSETS

 

The Company has capitalized costs in relation to developing and acquiring intangible assets, which consisted of the following as of September 30, 2014 and December 31, 2013:

 

		September 30, 2014				December 31, 2013
Patents and trademarks		$	7,989,782			$	7,311,156
Data compression			623,628				623,628
Website			2,503,308				2,503,308
Invicta immersive property			2,392,505				2,392,505
Think Mobile Giftsender			2,599,694				2,542,800
Think Media			400,000				400,000
Biznexion			216,400				216,400
Digital Magazine			2,028,000				2,028,000
Monkeybars			2,250,000				-
Goodwill			972,000				972,000
Subtotal, intangible assets			21,975,317				18,989,797
Accumulated amortization			(5,851,748	)			(4,838,357	)
Intangible assets, net		$	16,123,569			$	14,151,440

 

Additions to the intangible assets primarily relate to the Company’s development of patents and trademarks, data compression and the WEAV website project. The Company has incurred heavy costs for intangible assets in the past and does not expect to see intangible costs level out or drop in the future as the company continues to invest and develop its intellectual property. The Company analyzes these assets typically on an annual basis, during the fourth quarter, and when there are other indicating factors. To date the Company has determined that no impairment has been necessary. Amortization expense is recorded using the straight-line method over periods ranging from ten to fifteen years.

 

On April 23, 2014, the Company entered into an asset purchase agreement (the “Monkeybars Agreement”) with Monkeybars Inc. (“Monkeybars”) whereby the Company acquired all of the assets of Monkeybars. In exchange, the Company issued to Monkeybars 1,092,233 shares of restricted common stock, which has an aggregate value of $2,250,000, based upon a market price per share of $2.06 on the date the parties entered into the Monkeybars Agreement. Monkeybars has a music platform that combines a cloud content storage, a sharing application, and social networking search technology. The Company accounted for the transaction as an asset acquisition as Monkeybars' products acquired had yet to generate any revenues and did not constitute a business. The Company is currently evaluating the estimated life of the assets acquired but has recorded amortization expense from the date of acquisition using a ten year period.

 

Amortization expense for all intangible assets was $1,013,391 and $723,144 for the nine months ended September 30, 2014 and 2013, respectively. 

  

NOTE 6 - ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of September 30, 2014 and December 31, 2013:

 

		September 30, 2014				December 31, 2013
Salaries and wages		$	1,911,893			$	1,453,884
Payroll and other taxes			1,151,969				984,831
Interest			11,886				11,886
Accrued rent			45,595				-
Total accrued expenses		$	3,121,343			$	2,450,601

 

NOTE 7 - RELATED PARTY TRANSACTIONS

 

Compensation Related

 

The Company paid or accrued bonuses related to equity raises of $443,018 and $375,126 to two officers during the nine months ended September 30, 2014 and 2013, respectively. These officers receive percentages of 5% and 1.5% for all monies obtained through capital raises.

 

The Company's Chief Executive Officer, Christopher (“Chris”) Carmichael, has accrued salary and directors compensation of $1,443,436 and $1,053,398 as of September 30, 2014 and December 31, 2013, respectively, resulting in part from previous work done for the Company and from his new salary as President and CEO. On December 20, 2013, effective January 1, 2014, the Board of Directors approved to increase Chris Carmichael's annual salary to $525,000 and an annual grant of 171,429 options. The options were accounted for on December 20, 2013 when they were granted.

 

 

Senior Executive Vice President Connie Jordan had accrued salary, and directors pay of $185,964 and $181,743 as of September 30, 2014 and December 31, 2013, respectively, resulting in part from previous work done for the Company and from her salary as SEVP.

 

The Company provides compensation for the members of the board of directors. During the nine months ended September 30, 2014, the Company accrued $205,000 in such compensation which is included within accrued expenses on the accompanying consolidated balance sheet.

 

During the nine months ended September 30, 2014, the Company granted a new member of the board of directors 331,900 shares of common stock. The shares were valued at $2,369,766 based upon the closing market price of the Company's common stock on the date of performance, which was the date assigned to the board of directors.

 

Loans Payable - Related Parties

 

The Carmichael Family has personally guaranteed two Company credit cards and has allowed the Company use of their personal credit cards as needed. Total lines of credit personally guaranteed by the Carmichael Family are up to $800,000 per month.

 

The Company had certain note payables outstanding to related parties as of September 30, 2014 and December 31, 2013. Chris Carmichael was owed $175,000 and $7,000 as of September 30, 2014 and December 31, 2013, respectively. The amounts are unsecured, incur interest at 8% per annum and due on demand.

 

In February 2014, the Company received a $50,000 loan from a shareholder. The proceeds from the loan were used for operations and were expected to be paid back on demand. No formal terms were ever entered into in connection with the loan. During the nine months ended September 30, 2014, the Company repaid the $50,000 loan and an additional $5,000 which was accounted for as interest expense.

  

Licensing and Revenues

 

On August 30, 2010, Ubiquity entered into three separate Patent Licensing Agreements with Sponsor Me, Inc., for the License of the “Immersive Advertising Patent” in the amount of $250,000, another agreement for the license of the “Lifestyle Portal” Patent in the amount of $250,000, and also a Lifestyle Portal Web and Mobile Development reimbursement agreement for the production of the Sponsor Me, Inc. web and mobile site. The balance due on these agreements was $190,915 and $190,915 as of September 30, 2014 and December 31, 2013, respectively, and included with other current assets on the accompanying balance sheets. The Companies are related due to common shareholders including officers and directors of the Company.

 

On February 19, 2014, the Company entered into a Patent Licensing Agreements with Sponsor Me, Inc., for the non-exclusive license of the intellectual products “Internet Protocol Television” in the amount of $250,000. The balance due on this agreement was $100,000 as of September 30, 2014 and is recorded as accounts receivable - related party. The Companies are related due to common shareholders including officers and directors of the Company.

 

Loans Receivable - Related Parties

 

As of September 30, 2014 and December 31, 2013, amounts due from a company controlled by an officer, owed the Company $1,062,559 and $437,812, respectively. The amount is unsecured, does not incur interest and is due on demand. 

  

As of September 30, 2014 and December 31, 2013, amounts due from an employee, owed the Company $288,484 and $125,920, respectively. The amount is unsecured, does not incur interest and is due on demand.

 

NOTE 8 - STOCKHOLDERS’ EQUITY

 

Reverse Stock Split

On April 21, 2014, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate a reverse split of 3.5 to 1 (the “Reverse Split”) in which each shareholder will be issued one (1) share of common stock in exchange for 3.5 shares of their currently issued common stock. The stock split has been retroactively applied to this filing.

 

Preferred Stock

During the nine months ended September 30, 2013, 600,000 shares of Preferred Stock were converted into 685,714 shares of common stock.

 

Proceeds from Sales of Common Stock

During the nine months ended September 30, 2014 and 2013, the Company issued 6,616,372 and 3,976,939 shares of common stock for cash proceeds of $6,070,578 and $5,467,918, respectively. Equity issuance costs related to the stock issuances, as discussed above, were $443,018 and $375,126 for the nine months ended September 30, 2014 and 2013, respectively. In addition, as of September 30, 2014, the Company received cash proceeds of $250,000 in which the shares of common stock have not been issued.

 

 

Common Stock issued for Services

During the nine months ended September 30, 2014, the Company issued 999,872 shares of common stock for services. The Company determined the value of such shares to be $6,820,806 for the nine months ended September 30, 2014 based upon the fair market value of the Company's common stock on the date of performance, which in most cases is the agreement date. Services performed in connection with these issuances relate to assignment to the board of directors, advisory services related to listing on a national exchange, marketing, broadcasting and production related services.

 

On March 22, 2013, the Company entered into an agreement to retain a new co-chairman of the board. The agreement granted 71,429 shares of common stock valued at $8.75 per share for services to be rendered over a twelve month period. In July 2013, the agreement was amended to grant an additional 71,429 shares for services through February 2014. The value of the shares was being amortized over the period of service and accounted for as deferred stock-based compensation. Amortization of deferred stock-based compensation during the nine months ended September 30, 2014 and 2013 was $312,500 and $814,720, respectively. As of September 30, 2014, all deferred stock-based compensation had been fully amortized.

 

Options

On February 1, 2013, the Company granted 71,429 stock options valued at $726,710 with exercise prices of $14.00. The options were valued on the grant dates using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%, expected volatility of 97%, risk-free interest rates of 0.88% and expected lives of 60 months. The options were fully expensed as of September 30, 2013.

 

On May 22, 2014, the Company granted 51,147 stock options to its CEO valued at $417,000 with an exercise price of $4.07. The options were valued on the grant date using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%, expected volatility of 172%, risk-free interest rates of 0.12% and expected life of 60 months. The options were fully vested and expensed as of September 30, 2014.

 

The Company had the following options outstanding as of September 30, 2014 and December 31, 2013:

 

		Number of Options				Weighted Average Exercise Price
Balance, December 31, 2013			1,850,234			$	9.87
Granted			51,147				4.07
Exercised			-				-
Expired			-				-
Balance, September 30, 2014			1,901,381			$	9.71

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

On October 7, 2010, Ubiquity Broadcasting Corporation entered into a 5 year lease for a new building in the city of Irvine, CA. In July 2014, the Company revised their lease agreement for additional square footage. Under the terms of the revised lease agreement, commencing on September 1, 2014 the minimum monthly rent will be $40,953. In addition, the revised lease agreement includes annual rent increases through expiration of January 20, 2020 and other incentives. As of September 30, 2014, the Company recorded accrued rent of $45,595 , in connection with straight ling the rent expense. 

  

On December 10, 2008, Space 150, LLC and Ubiquity agreed to a payment arrangement for the final award as follows: $60,000 was paid on December 10, 2008 at the signing of the agreement and the remaining balance is to be paid out as $45,000 payable at the end of every quarter commencing March 31, 2009 and concluding March 31, 2014. Per the payment agreement Ubiquity retains the right to the website and will be delivered all of the source code and work done on the website, subsequently, Space 150 will transfer the domain names “we-av.net” and “we-av.com” upon completion of the agreement. Of the final award $614,308 was booked as the website asset, $352,661 was booked as legal fees incurred in 2008, and $42,003 was booked as interest respectively as an expense in the 2008 fiscal year. As of September 30, 2014 and December 31, 2013, Ubiquity owed Space 150, LLC $0 and $93,362, respectively. The amounts were personally guaranteed by Chris and Connie Carmichael.

 

At the time of death of the former President of Ubiquity Broadcasting Corporation, Gregory Crotty had accrued $93,743 in salary, 22,857 Common Shares of Ubiquity Broadcasting Corporation, and had 200,929 options to purchase Ubiquity Broadcasting Corporation Common Shares at $5.25 per share. He also had 42,857 shares of common stock issued in his name. Ubiquity will have to issue these shares and pay the balance of his accrued salary to the proper beneficiary once established. As of September 30, 2014, an established beneficiary has yet to be named. All 200,929 options expired as of December 31, 2011 and are not included in total options outstanding.

 

 

During the first quarter of 2013, the EDD California Employment department notified the Company with an assessment of our independent contractors that the Company may have to pay additional taxes based on our independent contractor payments for a total contingent liability of $305,885. The Company filed a formal petition as of April 22, 2013 and has not heard back on any formal final ruling. As of September 30, 2014 and December 31, 2013, the Company has not recorded a provision for the assessment as they do not believe the independent contractors meet the definition of an employee.

 

On May 27, 2014, Think Design Media, Inc. ("TDM"), filed a lawsuit against the Company claiming breach of a December 2013 consulting contract.  TDM disputes the Company's cancellation of the consulting agreement for non-performance.  The estimated range of loss by the Company ranges from $0 to $460,000 which consists of the remaining monthly payments per the agreement plus the maximum amount of bonuses in which could have been earned under the contract. The Company believes that the lawsuit is without merit and that the contract was cancelled within the terms of the agreement and thus no provision for loss has been recorded as it is not probable. In July 2014, the Company filed a notice of demurrer requesting dismissal of the lawsuit as Think Design Media Inc.’s corporate status was suspended in November of 2013 and is not qualified to bring an action.

 

On July 28, 2014, a complaint was filed by the Company as the Plaintiff against Think Mobile, Inc., Carlos E. Orellana and Ivano Stamegna (together, the “TGS Defendants”), in the Superior Court of California, County of Orange (Case No. 30-2014-00736685-CU-CO-CJC). The complaint alleges that on July 12, 2013, the TGS Defendants and the Company entered into an Asset Purchase Agreement for the purchase of the The Gift Sender mobile application (the “TGS Agreement”). The Company alleges that the terms of the TGS Agreement were violated by the TGS Defendants and the TGS Defendants failed to enter into the Agreement in good faith. The Company believes that the TGS Defendants’ actions constitute a breach of contract, breach of implied covenant of good faith and fair dealing, fraudulent inducement, intentional interference with contractual relations, intentional interference with prospective economic advantage and conversion.

 

On September 25, 2014, a complaint was filed by the Company as the Plaintiff against Think Design Media, Inc., Biznexion, Inc., Acosta Investments, LLC, Carlos Orellana, Ivano Stamegna, Roney Lopez, Anthony Cesare, Jenny Giraldo, Liz Mendoza, Daniel Saavedra, Virginia Hernandez, Karla Santin, Jorge Ramos, Carlos Costantini and Mariano Alvarez (together, the “TDM Defendants”), in the Superior Court of California, County of Orange (Case No. 30-2014-00746250-CU-FR-CJC). The complaint alleges that the Company and Think Design Media entered into an Asset Purchase Agreement on July 12, 2013 for the purchase of all of Think Design Media’s assets, including all of its proprietary mobile phone application software, software platforms, and websites (the “TDM Agreement”). Also on July 12, 2013, the Company entered into an Asset Purchase Agreement with Biznexion for the purchase of all of Biznexion’s assets (“BI Agreement). On September 30, 2013, the Company entered into an Asset Purchase Agreement with Acosta Investments (“AI”) and Carlos Orellana for all of AI and Orellana’s assets (“AI Agreement” and together with the BI Agreement and TDM Agreement, the “Agreements”). The Company alleges that the TDM Defendants never had any intention to fulfill the terms of the Agreements and instead improperly acquired and disclosed the Company’s trade secrets. The Company believes that the Defendants’ actions constitute fraud, conversion, misappropriation of trade secrets, trademark infringement, breach of contract, fraudulent transfer, unfair competition, and violation of the Racketeer Influenced and Corrupt Organizations Act.

 

On October 10, 2014, the Company was served with a complaint filed on June 13, 2014 by a former consultant against the Company, in the Superior Court of Arizona, Maricopa County. The complaint alleges that the consultant was to receive warrants to purchase 1,142,857 shares of common stock as a commencement fees for services in which commenced on December 15, 2006. The Company believes the claim is without merit, in addition, the statute of limitations has passed. The Company doesn't believe that a loss is probable and no accrual for loss contingency has been made.

 

NOTE 10 - SUBSEQUENT EVENTS

 

Subsequent to September 30, 2014, the Company issued approximately 2,112,428 shares of common stock for cash proceeds of $645,000.

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2014 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above.

 

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Notice Regarding Forward Looking Statements

 

The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

 

This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

 

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

  

Overview

 

Ubiquity, Inc. (the “Company,” “Ubiquity,”, “We,” or “Us”), f/k/a Ubiquity Broadcasting Corporation, was incorporated in the State of Nevada on December 2, 2011. On March 5, 2013, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ubiquity Acquisition Corporation, a Nevada corporation and wholly-owned subsidiary of the Company (“Acquisition Sub”), and Ubiquity Broadcasting Corporation, a Delaware corporation (“Ubiquity-DE”).

 

Pursuant to the terms of the Merger Agreement, Acquisition Sub merged with and into Ubiquity-DE in a statutory reverse triangular merger (the “Merger”), with Ubiquity-DE surviving as a wholly-owned subsidiary of the Company. At the closing of the Merger on September 20, 2013 (the “Closing Date”), we issued Ubiquity-DE shareholders one share of our common stock, par value $0.001 per share for each share of Ubiquity-DE’s common stock, par value $0.001 (the “Share Exchange”). As a result of the Merger, we ceased our prior operations and became a multimedia company focused on the intersection of cloud-based cross platform applications synchronized across all screens for enhancing the digital lifestyle.

  

The transaction was regarded as a reverse merger whereby Ubiquity-DE was considered to be the accounting acquirer as its management retained control of the Company after the Share Exchange.

 

Business

 

We are a multimedia company focused on the intersection of cloud based, cross platform applications synchronized across all digital mediums for enhancing the digital lifestyle. Our corporate office is located in Irvine, CA, and we have our own studio operations. We are developing ubiquitous digital applications and digital content in connection with our intellectual property.

 

As society transitions from accessing information through search, to having products and services via apps, to ubiquitous content and devices, the nature of all products and services has changed. The consumer wants to access all of his/her information, services, files, and other important data, as well as information in the public domain, from anywhere using any device.

 

Ubiquity’s integrated cloud based platform with backend artificial intelligence is compatible with devices including tablets, phones, set top boxes, televisions and PCs. Our platform provides numerous distribution possibilities for the digital age placing our Company at the forefront of a new class of transmedia and Web 3.0 services.

 

We believe that content, search, and social content sharing are the driving forces behind viewership. The manner in which customers will experience and interact with content is essential and the inclusion of social media and other data streams can provide a complete, immersive experience. The manner in which companies will detect, track and identify elements within the content is crucial to capturing digital revenue. Channels containing our original programming, consumer-generated programming, footage from Hollywood archives, live camera broadcasts, interactive games and music, Transmedia products and services are the content foundation of the network and when combined with social networking and real-time data streams become a rich and highly relevant user experience.

 

We are able to provide services that engage a client’s intended audience and reach new audiences by providing interactive and customized interface with content and services that are both of high production value and are socially relevant.

 

Our goal is to be the leading provider of Web 3.0 technology products services with a special focus on the “Millennial Generation,” namely 13-35 year old consumers. The demand for multi-platform content is increasing dramatically, placing multi-screen content and services at the core of our content distribution strategy. We intend to harness the power of emerging Web 3.0 technologies and concepts to deliver content, entertainment and services to a consumer target that adopts new technology at a dizzying pace.

 

We have three significant areas from which to generate revenues:

 

	·	Ubiquity Labs –Ubiquity’s cloud based, cross platform and AI engaging products are designed and built around its sustainable advantage in its patents.
	·	Ubiquity Intellectual Property – Ubiquity’s sustainable advantage, an existing and growing portfolio of patents focused around the digital lifestyle Web 3.0
	·	Ubiquity Studios – content creation and delivery focused on leveraging the digital lifestyle and Web 3.0 opportunity

 

 

Recent Developments

 

Acquisition of the Social Mashup and IPTV

 

On July 12, 2013, the Company acquired intangible assets, including the Social Mashup and IPTV, from Think Design Media Inc., a California corporation, for 170,843 shares of common stock valued at $14.00 per share for a total purchase price of $2,391,800.

 

The Social Mashup is a series of Application Programming Interfaces (“APIs”) that help small and medium-sized businesses manage their social media presence. The complete suite consists of 6 APIs: SocialMedia Share, SocialMedia Stream, SocialMedia Votes, SocialMedia Analytics, SocialMedia Expressions, and SocialMedia Login ID.

 

SocialMedia Share allows businesses to easily add sharing buttons to their Web sites from all of the major social networks, and track that activity of the shared content through their dashboard. SocialMedia Stream aggregates all of a company's social media feeds into a single wall on their Web site. It also takes comments made on the site, or on any of the social media platforms, and ensures that they are synced across all of the others.

 

SocialMedia LoginID is a set of tools that enables user login using an existing social media account from Facebook, Twitter, Google, Yahoo!, or LinkedIn. The tool uses this information to help the company personalize information for its visitors.

 

SocialMedia Votes is a content and poll module that allows a company to implement, and share opinions and results across entire social networks using SocialMedia Stream. The data shared via these polls and contests can be tracked through the API’s dashboard. SocialMedia Analytics is a tool that provides companies with a broad set of traffic data on the social engagement of its users. The tool tracks information including name, age, gender, interests and activities, and is able to analyze data from all of The Social Mashup tools.

 

IPTV provides Web video publishers and broadcasters with an alternative way to create and deploy video applications that transform standard online videos into interactive, multi-dimensional, personalized user experiences. By adding advertising and other layered content to Web videos, the platform and technology creates new revenue streams for content providers, increasing their ROI and their user base. IPTV also allows the publisher to retain control of their content rather than giving it to a third party that takes a disproportionate amount of the revenue, and gains access to their proprietary viewer data.

 

IPTV's social media APIs make it easy for viewers to login and share video from the platform. It has a robust analytics dashboard that gives publishers access to detailed information about the viewing patterns of any video that they upload. IPTV also allows for elements tagged within the video to link to an eCommerce backend that makes programming shoppable.

 

IPTV for archived video is available today; we also believe the platform will support live streaming in Q4 2013.

 

Acquisition of Gift Sender

 

Additionally on July 12, 2013, the Company acquired intangible assets, including Gift Sender, from Think Mobile, Inc., d/b/a GiftSender, a Delaware corporation, for 170,843 shares of common stock valued at $14.00 per share for a total purchase price of $2,391,800.

 

Gift Sender is an application that lets people purchase, send, redeem, or swap a gift card on a mobile device. In 2012 over $100 billion was spent on gift cards in the US. Mobile gift cards offer significant benefits over the old plastic cards. They can be saved in a "wallet" on the owner's mobile device, they can display real-time balance information, and they can be bought and sent without having to travel to a physical location like a grocery store to make the purchase.

  

Gift Sender has introduced a number of new features that make its gift cards more useful that most other mobile gift card apps. In addition to the more than 100 retailer and restaurant gift cards, the company has created its own currency called "Gift Sender Bucks". Gift Sender Bucks are the same as cash in the app, and can be redeemed by converting them into gift cards at any time. The company expects that Gift Sender Bucks will be a popular option when the sender wants to give the recipient the flexibility to pick their own gift.

 

The recipient of Gift Sender Bucks has the ability to redeem them for exactly the amount of a transaction. If the user wants to make a purchase of $23.67 they no longer need to purchase a $25 gift card, as they do in every other mobile gift card app, and then get stuck with a $1.33 balance that they will never use. This solves one of the major pain points of gift card usage, not only for the recipients, but also for the issuers who have to carry any unredeemed amount as a liability on their balance sheets.

 

Gift Sender also lets users "regift" a gift card that they receive by forwarding it, as new, to someone else. And in a first for a mobile app, Gift Sender lets users swap a gift card with a friend. If one person receives a card for a store that they do not like, they are able to swap it with a friend who may also have an unwanted card. Gift Sender facilitates the swap and takes a fee for the transaction.

 

GiftSender is available on all iOS and Android devices.

 

  

Acquisition of ZoneBox

 

Also on July 12, 2013, the Company acquired intangible assets, including ZoneBox, from Biznexion, Inc., a Delaware corporation, for 15,457 shares of common stock valued at $14.00 per share for a total purchase price of $216,400.

 

Zonebox is a cloud-based communication, collaboration, and content management system. The platform allows users to store, organize, and share files. It is Web-based tool and is offered on a SaaS subscription model with different pricing tiers based on the amount of storage used. The platforms provides networking applications to interact with anyone in a defined environment. It is designed to be an easily user configured intranet without the need for significant IT support.

 

Zonebox is a feature rich platform that has a range of tools necessary to manage a small work group or a large enterprise. It includes drag-and-drop file storage which enables easy sharing of documents, images, spreadsheets, or other data with others within their Zonebox network. There is a wall where people can comment on projects or share information; users can set permissions on all of their content and posts to limit sharing with the entire work group or only selected people.

 

And Zonebox has a variety of proprietary communication tools that are integrated into the platform. There is a messaging system for sharing internal emails. And there are Web-based text, audio, and video chat tools that allow secure connections between any two people in the organization, with the whole organization, or any subset thereof. There is also a group calendar application with sharing and notification capabilities.

 

Zonebox is built to work across platforms with all data stored in the cloud. It is built in .Net with data uploaded to Windows Azure Cloud Storage. The front end is built in Java Script and HTML5 to ensure application portability.

 

Acquisition of Digital Magazine

 

On September 30, 2013 the Company acquired intangible assets of Acosta Investments relating to the digital magazine a California Limited Liability Corporation, for 114,286 shares of common stock for a total purchase price of $400,000. The shares were valued at $1,250,000 on the date of the agreement. As such the digital magazine asset was booked at $400,000 and an loss on the purchase of the digital magazine was recorded for $850,000 The digital magazine application (“Magazine”) is designed to give users a new interactive magazine viewing experience using videos and interactive advertising related to various products within the article. The platform has the ability to create a magazine from scratch by uploading text for articles, images, video and audio files.

 

Acquisition of TAC Friends

 

In 2013 Ubiquity Acquired TaC Friends and associated IP for 57,143 shares of common stock valued at $200,000 TaC Friends promotes the use of SMS and MMF messaging so people interested in social networking do not have to sit in front of a web site. Ubiquity anticipates that the integration of TaC friends into its Sprocket will enable users to enjoy a mobile lifestyle and the need to always be in touch and using the platform.

 

Asset Acquisition - Monkey Bars

 

On April 23, 2014, the Company entered into an asset purchase agreement (the “Monkeybars Agreement”) with Monkeybars Inc. (“Monkeybars”) whereby the Company acquired all of the assets of Monkeybars. In exchange, the Company issued to Monkeybars 1,092,233 shares of restricted common stock, which has an aggregate value of $2,250,000, based upon a market price per share of $2.06 on the date the parties entered into the Monkeybars Agreement. Monkeybars has a music platform that combines a cloud content storage, a sharing application, and social networking search technology. The transaction was completed June 26, 2014, without changes to the original asset purchase agreement. As of the date of these financial statements the shares had not yet been issued.

 

American Tec Company Limited - Pending Licensing Agreement

 

On July 18, 2014, the Company entered into a letter of intent with American Tec Company Limited (“Amtec”) to advance the development and distribution of Ubiquity’s Sprocket software and data analytics in Asia. According to the terms of the LOI, AMTEC will assist the Company with the distribution of Sprocket throughout China, Hong Kong, South East Asia, Vietnam and India. AMTEC will further assist in the distribution structure of Sprocket and will identify key buyers that include major technology companies currently operating in the mobile technology space. Ubiquity will develop and deliver a Sprocket model to AMTEC that will be used to present to potential buyers of Ubiquity’s proprietary mobile solution. Ubiquity will provide all development support of Sprocket and will help AMTEC establish Sprocket throughout Asia. The parties intend to proceed to execute definitive documents for this transaction, but there can be no assurance that such agreements will be agreed upon by the parties and that the transaction will be finalized. See the Company's 8-K filed on August 12, 2014 for additional information.

 

 

Plan of Operations

 

Ubiquity has developed a comprehensive portfolio of intellectual property spanning business and consumer applications in several expansive online and mobile markets. It is uniquely positioned to exploit its families of patents, and patents pending, to drive strategic value to its licensing partners, their customers and drive shareholder value. In addition, on a selective basis, it intends to bring certain products to market complimentary to and supported by its IP.

 

While we have made nominal sales of these products to date, we are in the process of developing marketing and commercialization strategies to support those efforts. We do not expect to begin realizing consistent revenue until the latter half of 2014.

 

We will continue to opportunistically contemplate and complete acquisitions to further solidify our intellectual property and product portfolio. Our intellectual property and families of patents, addresses the following applications:

 

·

Object & logo detection. Ubiquity’s patented and patent pending compression technology enables our software to intelligently discern objects of interest; clean the edges, distinguish vehicles, distinguishing marks and other objects; and continuously track positions for all moving and stationary targets within the video scene all with a high level of accuracy

 

·

Web navigation. Since Netscape, users of the Internet have had a limited framework to navigate web content and organize information. Ubiquity has developed a game-changing patented framework, being commercialized as Sprocket, which enables users to more effectively aggregate content over disparate mediums in a more easy-to-use, centralized way.

 

·	Immersive Advertising. The next evolution in digital advertising must be driven by innovative platforms that more effectively help marketers move their businesses forward.  Technology will only be able to deliver on its promise of moving TV dollars online if it creates greater process efficiencies, drives more commerce, and enables deeper engagement with consumers. Ubiquity’s patented immersive advertising technologies provide for highly stylized and customized online advertising embedded in web content.
·	Online Content Navigation. One of the most important patents at Ubiquity is Sprocket, an easy-to-use navigation tool designed to simplify the management of consumer’s digital lifestyle.

 

·	Lifestyle Portal. Consumers are increasingly demanding content that is relevant to their interests and to their lifestyle, organized in a simple, easy to access online format. Ubiquity’s patented lifestyle portal is integrated into its Sprocket product.

 

·	Smart Card. Ubiquity’s patented smart card technology enables smart cards to improve the convenience and security of any transaction.

 

·	Mobile Transaction Gateway. Mobile commerce in the U.S. is now mainstream commerce. Ubiquity’s patented mobile transaction gateway technology enables carriers and content providers to more seamlessly provide fee-based downloads to end-consumers.

 

·	Inventory Management & Fulfillment. eCommerce transactions continue to grow and it is impacting how companies go to market, and the supply chains that support them. Fulfillment has never been a more critical function. Ubiquity’s inventory management & fulfillment patented technology provides retailers with a more seamless, consistent and cost-effective way to do business.
·	Super Compression. Ubiquity’s patented next generation compression format provides crisp and highly efficient video transmission and mobile editing, which all for on-the-go video editing and production.

 

In addition, through Ubiquity Studios we are pursuing opportunities creating, developing and producing proprietary programming for the global market utilizing our state-of-the-art content production facility that houses three sound stages. The Company’s Officers and consultants have experience in feature film production, distribution and promotions, including target-specific marketing efforts.

 

We currently have under consideration a number of potential film productions and opportunities to distribute films which are either in process or are in the planning stages. The Company is also reviewing and considering several opportunities to distribute productions which are either under production or have completed production by third parties.  

 

As of September 30, 2014, we have taken the following steps to implement our business plan:

 

Completed acquisition of Think Design Media, Inc., Biznexion, Inc., and ThinkMedia Inc. in support the commercialization of our products;

 

·	Commenced marketing and sales plan;
·	Ramped business development efforts to drive Ubiquity Studios projects; and
·	Complete our Agreement and Plan of Merger entered into on March 5, 2013 with Ubiquity Acquisition Corporation and Ubiquity Broadcasting Corporation.
·	Continued IP and Product Development in anticipation of licensing and revenue production

 

  

 Results of Operations

 

Comparison for the nine months ended September 30, 2014 and 2013

 

Net Revenue

 

Net revenue, excluding revenues of $250,000 from a related party, were $62,735 for the nine months ended September 30, 2014 as compared to $58,787 for the nine months ended September 30, 2013, an increase of $3,948 or 6.7%. This increase is primarily attributable to the Company having historically experienced inconsistent revenue streams. This inconsistency is related to event driven nature of its historical revenue. Going forward management anticipates earning revenue from a variety of new sources developed through its Ubiquity Labs products and services; therefore management does not expect inconsistency in its revenue on a gong forward basis.

 

Total Cost of Sales

 

Cost of sales was $140,814 for the nine months ended September 30, 2014 as compared to $110,923 for the nine months ended September 30, 2013 an increase of $29,891 or 26.9%.  The increase is primarily attributable to a base level of fixed costs regardless of the amount of revenues generated. These fixed costs increased during 2014 due to the increase in personnel.

 

Gross Profit

 

Gross profit was $171,921 for the nine months ended September 30, 2014 as compared to gross loss of $52,136 for the nine months ended September 30, 2013 an increase of $224,057 or 429.8%. This increase is primarily attributable to licensing the rights to certain technologies and patents to a related party for $250,000 in which minimal costs were recognized. Excluding the related party transaction, the Company's gross loss would have been $78,079 which is primarily related to the Company having historically experienced inconsistent revenue streams whereby certain costs are fixed regardless of whether revenues are being generated or not.

 

Operating Expenses

 

Operating expense were $13,346,138 for the nine months ended September 30, 2014 as compared to $6,150,122 for the nine months ended September 30, 2013 an increase of $7,196,016 or 117.0%. For the nine months ended September 30, 2014, operating expense primarily consisted of stock-based compensation of $7,550,306, which is dependent upon when we grant common stock for services and when the services are performed; payroll expense of $1,884,501 which increased from the prior like period due to an increase in personnel and salaries for our management team; professional fees of $1,278,735 which increased from the prior like period due to significant costs incurred by us in connection with our recent public filings and legal costs in connection with recent lawsuits filed.

 

Comparison for the three months ended September 30, 2014 and 2013

 

Net Revenue

 

Net revenues were $29,585 for the three months ended September 30, 2014 as compared to $19,800 for the three months ended September 30, 2013, an increase of $9,785 or 49.4%. This increase is primarily attributable to the Company having historically experienced inconsistent revenue streams. This inconsistency is related to event driven nature of its historical revenue. Going forward management anticipates earning revenue from a variety of new sources developed through its Ubiquity Labs products and services; therefore management does not expect inconsistency in its revenue on a gong forward basis.

 

Total Cost of Sales

 

Cost of sales was $45,712 for the three months ended September 30, 2014 as compared to $41,845 for the three months ended September 30, 2013 an increase of $3,867 or 9.2%.  The increase is primarily attributable to a base level of fixed costs regardless of the amount of revenues generated. These fixed costs increased during 2014 due to the increase in personnel.

 

Gross Profit (Loss)

 

Gross loss was $16,127 for the three months ended September 30, 2014 as compared to gross loss of $22,045 for the three months ended September 30, 2013 a decrease of $5,918 or 26.8%. This decrease is primarily related to the Company having historically experienced inconsistent revenue streams whereby certain costs are fixed regardless of whether revenues are being generated or not.

 

Operating Expenses

 

Operating expense were $5,107,391 for the three months ended September 30, 2014 as compared to $2,326,025 for the three months ended September 30, 2013 an increase of $2,781,366 or 119.6%. For the three months ended September 30, 2014, operating expense primarily consisted of stock-based compensation of $2,769,660 which is dependent upon when we grant common stock for services and when the services are performed; payroll expense of $928,874 which decreased from the prior like period due to stock-based compensation incentives instead of cash; professional fees of $446,635 which increased from the prior like period due to significant costs incurred by us in connection with our recent public filings and legal costs in connection with recent lawsuits filed.  

 

  

Liquidity and Capital Resources

 

Cash requirements for, but not limited to, working capital, capital expenditures, and debt repayments have been funded from cash balances on hand, sales of common stock, revolver borrowings including the use of credit cards, loans from officers, and notes payable.

 

At September 30, 2014, Ubiquity had cash and cash equivalents of $255,146 as compared to $74,300 as of December 31, 2013, representing an increase of $180,846.

 

The cash flow used in operating activities increased to $4,240,688 for the nine months ended September 30, 2014 compared to $3,724,779 for the nine months ended September 30, 2013. Our net loss during the nine months ended September 30, 2014 had the biggest impact on our cash used in operating activities as to date we have not generated sufficient revenues to cover our operating expenditures.

 

The cash flow used in investing activities increased to net cash used of $1,624,026 for the nine months ended September 30, 2014, as compared to net cash used of $608,135 for the nine months ended September 30, 2013. We continue to expend monies in connection with the development of our intangible assets on an as needed basis. In addition, we increased our loans to related parties during the nine months ended September 30, 2014 due to company projects being expanded.

 

The cash flow provided by financing activities increased to net cash provided of $6,045,560 for the nine months ended September 30, 2014, as compared to net cash provided of $5,092,792 for the nine months ended September 30, 2013. Due to the loss from operations we continue to raise capital through the sales of our common stock in order to fund operations. Capital is raised on an as needed basis.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has negative working capital, has incurred operating losses since inception, and has not yet produced significant continuing revenues from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern. Management anticipates that it will be able to raise additional working capital through the issuance of stock and through additional loans from investors.

 

The ability of the Company to continue as a going concern is dependent upon the Company’s ability to attain a satisfactory level of profitability and obtain suitable and adequate financing. There can be no assurance that management's plan will be successful.

 

Recent Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flows.

 

Critical Accounting Policies

 

Our significant accounting policies are presented in our notes to financial statements for the period ended September 30, 2014 and fiscal year ended December 31, 2013, which are contained in the Company’s 2013 Annual Report on Form 10-K. The significant accounting policies that are most critical and aid in fully understanding and evaluating the reported financial results include the following:

 

The Company prepares its financial statements in conformity with GAAP. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with our board of directors; however, actual results could differ from those estimates.

 

We issue restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.

 

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

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.

 

Disclosure of controls and procedures.

 

As required by Rule 13a-15 or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and principal accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures were not effective as of June 30, 2014 and that they do not allow for information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting & Financial Officers as appropriate to allow timely decisions regarding required disclosure.

 

The material weaknesses were first identified by us in our audited financial statements filed in Form 8-K on September 27, 2013 for the years ended December 31, 2012 and 2011 in which related to the following:

 

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 which is applicable to us. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2.	We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

 To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. We engaged a third party that specializes in technical accounting and financial reporting to assist us in preparation of our quarterly and annual financial statements and to assist us in documenting our internal controls. However, for the foreseeable future due to our limited accounting personnel we will continue to have limited segregation of duties.

 

Changes in internal controls over financial reporting.

 

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

 

On May 27, 2014, Think Design Media, Inc. ("TDM"), filed a lawsuit against the Company claiming breach of a December 2013 consulting contract.  TDM disputes the Company's cancellation of the consulting agreement for non-performance.  The estimated range of loss by the Company ranges from $0 to $460,000 which consists of the remaining monthly payments per the agreement plus the maximum amount of bonuses in which could have been earned under the contract. The Company believes that the lawsuit is without merit and that the contract was cancelled within the terms of the agreement and thus no provision for loss has been recorded as it is not probable. In July 2014, the Company filed a notice of demurrer requesting dismissal of the lawsuit as Think Design Media Inc.’s corporate status was suspended in November of 2013 and is not qualified to bring an action.

 

In July of 2014, the Company filed an action against Think Mobile Inc. (“Think Mobile”) and its principals alleging breach of contract and conversion among other causes of action. Ubiquity’s claims relate to a breach of the January 2014 agreement by and between Ubiquity and Think Mobile whereby Ubiquity agreed to release the balance of the purchase price from escrow in exchange for Think Mobile’s promise to complete its delivery of certain assets. As a result of Think Mobile’s breach, Ubiquity incurred damages and costs associated with finalizing the development of the purchased asset to be determined at time of trial.

 

On July 28, 2014, a complaint was filed by the Company as the Plaintiff against Think Mobile, Inc., Carlos E. Orellana and Ivano Stamegna (together, the “TGS Defendants”), in the Superior Court of California, County of Orange (Case No. 30-2014-00736685-CU-CO-CJC). The complaint alleges that on July 12, 2013, the TGS Defendants and the Company entered into an Asset Purchase Agreement for the purchase of the The Gift Sender mobile application (the “TGS Agreement”). The Company alleges that the terms of the TGS Agreement were violated by the TGS Defendants and the TGS Defendants failed to enter into the Agreement in good faith. The Company believes that the TGS Defendants’ actions constitute a breach of contract, breach of implied covenant of good faith and fair dealing, fraudulent inducement, intentional interference with contractual relations, intentional interference with prospective economic advantage and conversion.

 

On September 25, 2014, a complaint was filed by the Company as the Plaintiff against Think Design Media, Inc., Biznexion, Inc., Acosta Investments, LLC, Carlos Orellana, Ivano Stamegna, Roney Lopez, Anthony Cesare, Jenny Giraldo, Liz Mendoza, Daniel Saavedra, Virginia Hernandez, Karla Santin, Jorge Ramos, Carlos Costantini and Mariano Alvarez (together, the “TDM Defendants”), in the Superior Court of California, County of Orange (Case No. 30-2014-00746250-CU-FR-CJC). The complaint alleges that the Company and Think Design Media entered into an Asset Purchase Agreement on July 12, 2013 for the purchase of all of Think Design Media’s assets, including all of its proprietary mobile phone application software, software platforms, and websites (the “TDM Agreement”). Also on July 12, 2013, the Company entered into an Asset Purchase Agreement with Biznexion for the purchase of all of Biznexion’s assets (“BI Agreement). On September 30, 2013, the Company entered into an Asset Purchase Agreement with Acosta Investments (“AI”) and Carlos Orellana for all of AI and Orellana’s assets (“AI Agreement” and together with the BI Agreement and TDM Agreement, the “Agreements”). The Company alleges that the TDM Defendants never had any intention to fulfill the terms of the Agreements and instead improperly acquired and disclosed the Company’s trade secrets. The Company believes that the Defendants’ actions constitute fraud, conversion, misappropriation of trade secrets, trademark infringement, breach of contract, fraudulent transfer, unfair competition, and violation of the Racketeer Influenced and Corrupt Organizations Act(RICO).

 

On October 10, 2014, the Company was served with a complaint filed on June 13, 2014 by a former consultant against the Company, in the Superior Court of Arizona, Maricopa County. The complaint alleges that the consultant was to receive warrants to purchase 1,142,857 shares of common stock as a commencement fees for services in which commenced on December 15, 2006. The Company believes the claim is without merit, in addition, the statute of limitations has passed. The Company doesn't believe that a loss is probable and no accrual for loss contingency has been made.

 

Item 1A. Risk Factors.

 

We are a Smaller Reporting Company and are not required to provide the information under this item.

 

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

 

4,032,115 shares were issued in the quarter ended September 30, 2014 to approximately 15 accredited investors as defined in Rule 506 of Regulation D promulgated under the Securities Act for a total of $3,825,446. In addition, proceeds of $250,000 were received from one accredited investor as defined in Rule 506 of Regulation D promulgated under the Securities Act in which the shares have not been issued.

 

The above securities were offered and sold to the investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

 

The Company issued 410,000 shares of common stock to two people for services during the quarter ended September 30, 2014. The shares were valued at a total value of $2,352,660.

 

The above securities were issued to the individuals identified in connection with a transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit  Number		Exhibit Title
31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

 

  

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.

 

	Ubiquity Broadcasting Corporation
	By:	/s/ Christopher Carmichael
		Christopher Carmichael
		Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)
	Dated:	November 14, 2014
	By:	/s/ Brenden Garrison
		Brenden Garrison
		Chief Financial Officer
		(Duly Authorized Officer and Principal
		Financial and Accounting Officer)
	Dated:	November 14, 2014