UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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: 000-54741

 

THE PULSE NETWORK, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		45-4798356
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

10 Oceana Way Norwood, MA 02062

(Address of principal executive offices) (Zip Code)

 

(781) 688-8000

(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. Yes x No ¨

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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
(Do not check if a smaller reporting company)

 

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

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY 

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of November 17, 2014, there were 192,179,331 shares of common stock issued and outstanding, consisting of:  (i) 114,703,331 shares of common stock; (ii) 1,000 shares of common stock issuable upon the conversion of all our currently outstanding shares of Series A Preferred Stock; (iii) 75,000,000 shares of common stock issuable upon the conversion of all of our currently outstanding shares of Series B Preferred Stock; and (iv) 2,475,000 shares of common stock issuable upon the exercise of all of our outstanding warrants and options.  

 

 

 

THE PULSE NETWORK, INC.

TABLE OF CONTENTS

 

			Page
PART 1 – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)			3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3.	Quantitative and Qualitative Disclosure About Market Risk			15
Item 4.	Controls and Procedures			15
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings			16
Item 1A.	Risk Factors			16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			16
Item 3.	Defaults Upon Senior Securities			16
Item 4.	Mine Safety Disclosures			16
Item 5.	Other Information			16
Item 6.	Exhibits			17

 

2

 

PART I. FINANCIAL INFORMATION

 

ITEM1. FINANCIAL STATEMENTS.

 

THE PULSE NETWORK, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2014 and MARCH 31, 2014

 

		September 30,				March 31,
		2014				2014
ASSETS
CURRENT ASSETS:
Cash		$	12,747			$	118,215
Accounts receivable			206,654				194,212
Prepaid expenses and deposits			17,509				10,529
Total current assets			236,910				322,956
PROPERTY AND EQUIPMENT, net			83,556				114,663
OTHER ASSETS:
Other assets			35,648				36,373
TOTAL ASSETS		$	356,114			$	473,992
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank		$	150,000			$	150,000
Accounts payable			429,137				298,219
Accrued compensation			1,000,423				878,879
Accrued expenses			24,565				47,392
Accounts receivable purchase agreements			295,472				-
Note payable - other			-				10,000
Convertible notes payable - net			-				115,404
Current portion of long-term debt			116,667				116,667
Current portion of capital lease obligations			16,799				20,178
Deferred revenue			637,908				484,055
Client funds pass through liability			28,206				397,559
Advances from stockholder			101,397				244,637
Current portion of note payable related party			57,662				19,107
Note payable - stockholders			110,100				103,789
Current portion of related party loan			121,500				-
Advances from affiliate			188,500				-
Current portion of deferred compensation			61,389				59,875
Total current liabilities			3,339,725				2,945,761
DEFERRED COMPENSATION, net of current portion			776,722				807,800
LONG TERM DEBT, net of current portion			48,611				106,945
CONVERITBLE DEBENTURE			175,000				-
CAPITAL LEASE OBLIGATIONS, net of current portion			12,683				20,030
RELATED PARTY LOAN			-				121,500
NOTE PAYABLE RELATED PARTY, net of current portion			35,569				-
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Undesignated convertible preferred stock, authorized 25,000,000 shares designated as follows:
Series A convertible preferred stock, $0.001 par value, authorized, issued and outstanding 1,000			1				1
Series B convertible preferred stock, $0.001 par value, authorized, issued and outstanding 15,000,000			15,000				15,000
Common stock: $0.001 par value, authorized, 200,000,000 shares; issued and outstanding, 91,200,000 and 90,700,000 shares, respectively			91,200				90,700
Additional paid-in capital			561,177				425,767
Accumulated deficit			(4,699,574	)			(4,059,512	)
Total stockholders' deficiency			(4,032,196	)			(3,528,044	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)		$	356,114			$	473,992

 

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

 

3

 

THE PULSE NETWORK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		For The Three Months Ended								For The Six Months Ended
		September 30, 2014				September 30, 2013				September 30, 2014				September 30, 2013
NET SALES		$	483,248			$	624,917			$	1,204,670			$	1,559,139
COST OF SALES			96,857				195,766				266,458				424,748
GROSS PROFIT			386,391				429,151				938,212				1,134,391
SELLING EXPENSES			54,966				181,148				116,218				302,334
GENERAL AND ADMINISTRATIVE EXPENSES			626,929				705,250				1,201,824				1,403,351
NET LOSS FROM OPERATIONS			(295,504	)			(457,247	)			(379,830	)			(571,294	)
INTEREST EXPENSE			99,876				32,271				260,232				51,559
NET LOSS		$	(395,380	)		$	(489,518	)		$	(640,062	)		$	(622,853	)
NET LOSS PER COMMON SHARE, basic and diluted		$	(0.00	)		$	(0.01	)		$	(0.01	)		$	(0.01	)
WEIGHTED AVERAGE SHARES USED IN PER SHARE COMPUTATION, basic and diluted			91,200,000				90,436,667				91,123,077				90,276,111

 

The accompanying notes are an integral part of these consolidated interim financial statements

 

4

 

THE PULSE NETWORK, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 

		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(640,062	)		$	(622,853	)
Adjustments to reconcile net loss to net cash provided (used for) by operating activities:
Stock-based compensation			26,506				59,514
Stock-based expense			32,000				-
Depreciation			31,106				38,394
Non cash interest expense			83,716				-
Changes in operating assets and liabilities:
Accounts receivable			(12,442	)			66,448
Prepaid expenses and deposits			(6,980	)			34,154
Other assets			725				302
Accounts payable			130,918				140,556
Accrued compensation			121,544				487,810
Accrued expenses			(22,827	)			(33,688	)
Deferred revenue			153,853				14,661
Client funds pass through liability			(369,353	)			-
Due to affiliates			-				25,003
Deferred compensation			(29,564	)			(25,801	)
Net cash provided by (used for) for operating activities			(500,860	)			184,500
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment			-				(4,596	)
Net cash used for investing activities			-				(4,596	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock			-				140,000
Net proceeds from note payable - bank			-				(30,000	)
Net proceeds from accounts receivable purchase agreements			485,000				-
Repayment of proceeds under accounts receivable purchase agreement			(131,024	)			-
Repayment of proceeds under accounts receivable purchase agreement - second			(58,504	)			-
Repayment from note payable - other			(10,000	)			-
Repayment of convertible notes			(115,404	)			-
Proceeds from convertible debenture			175,000				-
Repayment of long-term debt			(58,334	)			(58,334	)
Payments of capital lease obligations			(10,726	)			(8,678	)
Net proceeds from note payable - stockholders			-				103,789
Repayment of advances from stockholder			(143,240	)			(80,033	)
Proceeds from note payable related party			100,000				-
Repayment of note payable related party			(25,876	)			(12,310	)
Advances from affiliate			188,500				-
Net cash provided by financing activities			395,392				54,434
NET INCREASE (DECREASE) IN CASH			(105,468	)			234,338
CASH:
Beginning of period			118,215				31,670
End of period		$	12,747			$	266,008
SUPPLEMENTAL CASH FLOWS DISCLOSURE
Property and equipment acquired through capital lease		$	-			$	4,693
Fair value of beneficial conversion feature recorded in additional paid in capital		$	77,405			$	-

 

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

 

5

 

THE PULSE NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.

OUTLOOK

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited resources and operating history. As shown in the accompanying financial statements, as of September 30, 2014 the Company has an accumulated deficit of approximately $4,700,000 and has negative working capital of approximately $3,100,000. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of new business opportunities.

 

Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.

 

These conditions 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 of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

 

Concentrations of Sales to Certain Customers – During the three month period ended September 30, 2014, the Company had sales to three customers A, B, and C that accounted for approximately 50% of total revenue. During the six month period ended September 30, 2014, the Company had sales to three customers A, B, and D that accounted for approximately 51% of total revenue.

 

3.	PROPERTYAND EQUIPMENT

 

Property and equipment at September 30, 2014 and March 31, 2014 consists of the following:

 

		September 30,				March 31,
		2014				2014
Computer equipment		$	191,536			$	191,536
Audio and video equipment			87,761				87,761
Furniture and fixtures			12,478				12,478
Office equipment			55,189				55,189
Event equipment			82,020				82,020
			428,984				428,984
Accumulated depreciation			(345,428	)			(314,321	)
Property and equipment, net		$	83,556			$	114,663

 

6

 

4.	RELATED PARTY TRANSACTIONS

 

Advances from stockholder at September 30, 2014 and March 31, 2014, respectively, consists of non-interest bearing advances of $101,397 and $244,637 from Stephen Saber. These advances have no set repayment terms.

 

Note payable related party consists of two loans from John C. Saber, the father of the three majority stockholders. Under the terms of the first note agreement dated January 23, 2013 the Company borrowed $50,000 repayable in twenty-four monthly principal and interest installments of $2,150 through maturity in January 2015. This note accrues interest at 3.042 per annum. The unpaid balance of this note is $8,546 and $19,107 at September 30, 2014 and March 31, 2014, respectively. Under the terms of the second note agreement dated May 15, 2014 the Company borrowed $100,000 repayable in monthly principal and interest installments of $4,614 through maturity in May 2016. This note accrues interest at 10% per annum. The unpaid balance of this note at September 30, 2014 is $84,685.

 

Related party loan at September 30, 2014 consists of loans previously due to Stephen Saber in the amount of $111,500 and Nicholas C. Saber in the amount of $10,000, and accrued interest of $4,682, totaling $126,182, which was transferred to CrossTech Partners, LLC. Stephen, Nicholas and John Saber own 100% of Crosstech Partners, LLC. The loan bears interest at 6.5% and matures with all unpaid principal and interest due on September 3, 2015.

 

Note payable – stockholders consists of a note dated September 3, 2013 under the terms of which the Company borrowed $110,100 from Saber Insurance Trust, of which the three majority stockholders are primary beneficiaries. The loan terms state repayment of the loan was to be in full by June 1, 2014 including interest at 8.6% per annum. The Company received net proceeds of $103,000 reflecting a discount in the amount of $7,100 representing the interest to be earned over the term of the note. The discount is being amortized through a charge to interest expense using the interest method. As of June 30, 2014 the discount amount of $7,100 has been amortized in full. During the period ended September 30, 2014, $3,156 of interest expense has been accrued.

 

Advances from affiliate consists of $188,500 and $0 at September 30, 2014 and March 31, 2014, respectively, for advances from Crosstech Partners, LLC with no stated repayment terms.

 

The Company leased its office space under a non-cancelable lease agreement with a related party which expired July 15, 2014. Future minimum rent payments under this agreement are $0 for the twelve month period ended September 30, 2015. Total rent expense, including common area, maintenance, taxes, insurance and utilities was $0 and $27,090 for the three month period ended September 30, 2014 and 2013 respectively, and $25,578 and $54,180 for the six month ended September 30, 2014 and 2013, respectively.

 

On February 4, 2014, the Company entered into a new non-cancelable 10 year lease agreement with a related party (32.5% of which is beneficially owned by Stephen Saber and Nicholas Saber, two of our officers and directors) with a commencement date of May 1, 2014. The new space is located at 10 Oceana Way, Norwood, Massachusetts and has approximately 10,000 square feet of leased space. Future minimum rent payments under this agreement are $120,000 for the twelve month period ending September 30, 2015. For each of the years ending March 31, 2016 through 2024, the minimum rent payment will be $120,000 and $20,000 for the year ending March 31, 2025. Total rent expense, including common area, maintenance, taxes, insurance and utilities was $29,684 and $0 for the three month period ended September 30, 2014 and 2013 respectively, and $29,684 and $0 for the six month period ended September 30, 2014 and 2013, respectively.

 

5.	ACCRUED COMPENSATION

 

Accrued compensation for the three and six month period ended September 30, 2014 includes $935,426 and $863,622, respectively, of amounts due to the three officers and directors payable under the terms of their employment agreements.

 

7

 

6.	DEFERRED COMPENSATION

 

In September 2004 the Company entered into a deferred compensation arrangement with a former stockholder. Under the terms of the arrangement, beginning in January 2005, the former stockholder receives semi-monthly payments of $4,167 through December 2024. The amount included on the Company’s balance sheets at September 30, 2014 and March 31, 2014 represents the net present value of the remaining payments calculated using a discount rate of 5%. The amount of deferred compensation expected to be paid within twelve months of the balance sheet date is classified as a current liability with the remainder classified as non-current. Future maturities of this obligation are as follows:

 

Year ending September 30:
2015			61,389
2016			64,534
2017			67,839
2018			71,313
2019			74,966
Thereafter			498,070
Total		$	838,111

 

7.	NOTE PAYABLE - BANK

 

Note payable – bank consists of a revolving line of credit with Boston Private Bank & Trust Company. Under the terms of the agreement the Company may borrow up to $150,000 and interest accrues at the bank’s base rate plus 1% (4.5% at September 30, 2014) of the outstanding balance. This loan agreement expired on September 30, 2014. This loan was repaid in full on October 6, 2014 with proceeds from the TCA Global Credit financing described in note 16.

 

8.	ACCOUNTS RECEIVABLE PURCHASE AGREEMENTS

 

On April 15, 2014, the Company entered into an accounts receivable purchase agreement with Super G Funding, LLC (Super G). Under this agreement the Company received $250,000 in exchange for accounts receivable of the Company totaling $315,000. This agreement is secured by a security interest in substantially all assets of the Company subordinate to the security interest held by Boston Private Bank. The note requires the Company to make daily payments of $1,676 as the accounts receivable sold under the agreement are collected until such time as the full amount has been collected. The Company is accounting for this transaction as if it were short term note payable. Although the terms of the agreement appear to indicate this is a factoring arrangement without recourse, Financial Accounting Standards Board Accounting Standard Codification (ASC) section 860-10-40-5 “Transfers and Servicing of Financial Assets – DE recognition” states that for such a transaction to be considered a transfer certain criteria must be met. The first of these criteria is the transferred financial assets have been isolated from the transferor, put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership. Transferred financial assets are isolated in bankruptcy or other receivership only if the transferred financial assets would be beyond the reach of the powers of a bankruptcy trustee or other receiver for the transferor or any of its consolidated affiliates included in the financial statements being presented. Under the Super G agreement Super G’s security interest in the accounts receivable and other assets of the Company is subordinate to that of Boston Private Bank & Trust Company under the Company’s lending arrangements with them. As such the Super G agreement does not appear to result in “isolation of transferred financial assets beyond the reach of the transferor and its creditors.” The unpaid balance of this accounts receivable purchase agreement is $111,476 at September 30, 2014.

 

On July 7, 2014, Company entered into a second accounts receivable purchase agreement with Super G under substantially the same terms as the first. This agreement requires the Company to make daily payments of $1,676 as the accounts receivable sold under the agreement are collected until such time as the full amount has been collected. The unpaid balance of this accounts receivable purchase agreement is $183,996 at September 30, 2014.

 

8

 

9.	NOTE PAYABLE-OTHER

 

The company received a $50,000 loan on July 26, 2012 in financing related to an exchange agreement which was terminated. The interest rate is 12% per annum. The principle balance of the note has been paid in full as of September 30, 2014. Accrued interest of $10,000 is included in accounts payable and is past due as of September 30, 2014.

 

10.	CONVERITBLE NOTE PAYABLE

 

On December 13, 2013 the Company issued a convertible promissory note. The Purchaser of the note has advanced the Company $52,500 in principle net of $2,500 of expense incurred by the purchaser. The note accrues interest at 10% per annum and is due and payable 12 months from the date of issuance. The note is convertible beginning 90 days from issuance at a 37.5% discount to the Volume Weighted Average Price (VWAP) of the common stock for the 10 trading days immediately prior to the conversion date, or the VWAP on the issuance date. The Company has determined there is a beneficial conversion feature of $31,500 as of December 31, 2013 based on the intrinsic value of the beneficial conversion feature as calculated using the VWAP on the issuance date of the note. The value of the beneficial conversion feature has been recorded as a discount to the note on the balance sheet at December 31, 2013 and will be amortized using the interest method through the earliest conversion date. This convertible note was repaid in full on July 7, 2014.

 

On February 6, 2014 the Company entered into a convertible promissory note agreement with a maximum borrowing limit of $335,000. The purchaser of the note has advanced the Company $60,000 net of a 10% original issue discount upon closing of this note. The full principle amount and any unpaid interest was due in full on February 6, 2016. Upon issuance of the note the Company determined there was a beneficial conversion feature with an intrinsic value of $59,659. The note was convertible as of the effective date of the agreement and therefore the entire discount related to the beneficial conversion feature has been charged to interest expense as of March 31, 2014. This convertible note was repaid in full on August 25, 2014.

 

11.	CONVERTIBLE DEBENTURE

 

On April 29, 2014, the Company issued a non-interest bearing convertible debenture. The purchaser of the debenture advanced the Company $175,000 in principle due three years from the issuance date. At any time the purchaser may convert the amount outstanding at a conversion rate equal to 65% of the second lowest closing bid price of the Company’s common stock for the 20 trading days immediately preceding the date of conversion of the debenture. The Company determined there was a beneficial conversion feature with an intrinsic value of $77,405 as of June 30, 2014. The debenture is convertible as of the effective date of the agreement and therefore the entire discount related to the beneficial conversion feature has been recorded in additional paid-in capital and charged to interest expense during the quarter ended June 30, 2014. The Company has also issued 500,000 shares of common stock with an aggregate fair value of $32,000 to the purchaser in connection with this agreement which is included in general and administrative expenses in the statement of operations.

 

12.	CAPITAL LEASE OBLIGATIONS

 

The Company leases certain equipment under capital leases expiring in various years through 2018. The net book value of assets held under capital leases at September 30, 2014 and March 31, 2014 is $34,521 and $43,325 respectively. The annual repayments of capital lease obligations at September 30, 2014 are as follows:

 

9

 

2015			$	19,514
2016				9,608
2017				4,143
Total minimum lease payments				33,265
Less amount representing interest				3,783
Present value of minimum lease payments				29,482
Present value of minimum lease payments due within one year				16,799
Present value of net minimum lease payments due beyond one year			$	12,683

 

13.	CLIENT FUNDS PASS THROUGH LIABILITY

 

The Company collects and receives funds from attendees who register for our clients’ upcoming events. Per the terms of the contracts, the Company remits the balance of funds collected to its clients at 30 and 45 days post event. The Company client funds pass through liability at September 30, 2014 and March 31, 2014 is $28,206 and $397,559 respectively.

 

14.	STOCK-BASED COMPENSATION

 

The Company recorded the stock-based compensation expense attributable to options of $12,196 and $26,506 during the three and six month period ended September 30, 2014. There was no stock based compensation recognized during the three months ended September 30, 2013. At September 30, 2014, there was $175,616 unrecognized compensation cost related to non-vested stock options and $58,539 unrecognized compensation related to vested stock options which will be recognized through July 2017.

 

Summary of Options Activity

 

		Stock Options
						Weighted
						Average
						Exercise
		Options				Price
Outstanding, July 1, 2014			1,800,000			$	-
Granted			-			$	-
Exercised			-			$	-
Forfeited or expired			(25,000	)		$	0.17
Outstanding, September 30, 2014			1,775,000			$	0.17

 

15.	COMMITMENTS AND CONTINGENCIES

 

Employment agreements – On April 1, 2013 the Company entered into employment agreements with three of its executive stockholders. Each of these agreements has a five year term beginning April 1, 2013 and ending on April 1, 2018. Unless otherwise terminated each of these agreements shall annually extend for one additional year beginning on the second anniversary date of each agreement. Compensation under these agreements is as follows.

 

10

 

Stephen Saber, chief executive officer of the Company is to receive an annual base salary of $350,000 and a monthly bonus equal to 1.5% of all monthly net revenues of the Company. The bonus is to be paid within fifteen days of the end of each month. If the executive is terminated other than for cause, the executive is entitled to an amount equal to the executive’s annual base salary in effect at the time of termination.

 

Nicholas Saber, president of the Company is to receive an annual base salary of $275,000 and a monthly bonus equal to 1.5% of all monthly net revenues of the Company. The bonus is to be paid within fifteen days of the end of each month. If the executive is terminated other than for cause, the executive is entitled to an amount equal to the executive’s annual base salary in effect at the time of termination.

 

John Saber, chief information officer of the Company is to receive an annual base salary of $225,000 and a monthly bonus equal to 1.5% of all monthly net revenues of the Company. The bonus is to be paid within fifteen days of the end of each month. If the executive is terminated other than for cause, the executive is entitled to an amount equal to the executive’s annual base salary in effect at the time of termination.

 

Effective January 1, 2014, amendments were approved to the existing employment agreements with its three officers and directors: Stephen Saber, Nicholas Saber and John Saber.

 

The amendments to the individual agreements provide for an initial base salary, commencing January 1, 2014, of $250,000 for Stephen Saber, $200,000 for Nicholas Saber, and $200,000 for John Saber. The amendment has removed the provision to automatically increase the officers’ base salaries 7% on April 1 of each year. The amendment also removed providing bonus compensation equal to 1.5% of all monthly net revenues of the Company.

 

Effective September 26, 2014, amendment No. 2 was approved to the existing employment agreements with its three officers and directors: Stephen Saber, Nicholas Saber and John Saber.

 

Amendment No. 2 to the individual agreements provide for an initial base salary, commencing September 16, 2014, of $350,000 for Stephen Saber, $275,000 for Nicholas Saber, and $225,000 for John Saber. Amendment No. 2 automatically increases the officers’ base salaries 7% on April 1 of each year. Amendment No. 2 also provides bonus compensation equal to 1.5% of all monthly net revenues of the Company.

 

16.	SUBSEQUENT EVENTS

 

On October 3, 2014, the Company’s wholly-owned subsidiary, The Pulse Network, Inc., a Massachusetts corporation (Pulse Massachusetts), entered into a Securities Purchase Agreement, with Mike Koenigs.com, Inc., a Minnesota corporation (“MikeKoenigs.com”), pursuant to which Pulse Massachusetts acquired a 100% membership interest of You Everywhere Now, LLC, a California limited liability company (“You Everywhere Now”). You Everywhere Now, in turn, holds 100% of the membership interests of VoiceFollowUp, LLC, a California limited liability company, and Traffic Geyser, LLC, a California limited liability company. Closing of the transactions under the Securities Purchase Agreement were conditioned upon closing and funding under the Credit Agreement.

 

On October 6, 2014, the Company borrowed $2,400,000 from TCA Global Credit Master Fund, LP (the “Lender”) pursuant to the terms of a Senior Secured Revolving Credit Facility Agreement, dated September 30, 2014 (the “Credit Agreement”), among the Company, as borrower, and certain of its subsidiaries (the “Subsidiary Guarantors”) as joint and several guarantors, and the Lender. The funds have been and will be used for general corporate purposes, including repayment of certain obligations of the Company. Under the Credit Agreement, the Company may borrow an amount equal to the lesser of 80% of the amount in a certain Lock Box Account (as defined in the Credit Agreement) and the revolving loan commitment, which initially is $1,400,000. The Company may request that the revolving loan commitment be raised by various specified amounts at specified times, up to a maximum of $5,000,000. In each case, the decision to grant any such increase in the revolving loan commitment is at the Lender’s sole discretion. The loan matures on the earlier of March 30, 2015, subject to a six-month extension at the request of the Company, or upon 60 days written notice by the Lender. The Company may prepay the Revolving Loan (as defined in the Credit Agreement), without penalty, provided it is repaid more than 180 days prior to maturity date. If Company prepays more than eighty percent (80%) of the Revolving Loan Commitment within 9 days following the effective date, there is a prepayment penalty equal to 2.5% of the Revolving Loan Commitment (as defined in the Credit Agreement).

 

Management of the Company has evaluated subsequent events through the date these financial statements were issued and determined there are no other subsequent events that require disclosure.

 

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FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

 Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. As used in this quarterly report, the terms "we", "us", "our company", and "Pulse" mean The Pulse Network, Inc., unless otherwise indicated. All dollar amounts refer to US dollars unless otherwise indicated.

 

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Item2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Results of operations for three and six month periods ended September 30, 2014 compared to three months ended September 30, 2013.

 

Revenues and Cost of Revenues

 

During the three and six month periods ended September 30, 2014 and 2013 the Company generated revenues from 2 primary business segments, being:

 

	·	Revenues earned from usage of the Pulse Network Platform for management and support of client events or conferences.
	·	Revenues earned by providing ongoing development and support for client content and digital marketing programs.

 

Three Months Ended September 30, 2014 and 2013

 

Total revenues for the three months ended September 30, 2014 decreased by 22.7% to $483,248 from $624,917 during the three months ended September 30, 2013.

 

The decrease for the three months ended September 30, 2014 is mainly attributable to the postponement of a hosted conference and the discontinuation of one client’s event.

 

The Company showed a 5.6% growth in revenues earned from usage of the Pulse Network Platform for management and support of client events or conferences during the three months ended September 30, 2014 compared to the same period in the prior year.

 

Cost of revenues for the three months ended September 30, 2014 decreased by 50.5% to $96,856 from $195,766 during the three months ended September 30, 2013. This decrease is mainly attributable to reduction in revenue as described above and a reduction in advisors payroll.

 

Six Months Ended September 30, 2014 and 2013

 

Total revenues for the six months ended September 30, 2014 decreased by 22.7% to $1,204,670 from $1,559,139 during the three months ended September 30, 2013.

 

The decrease for the six months ended September 30, 2014 is mainly attributable to the postponement of two hosted conferences and the discontinuation of three client’s event.

 

Cost of revenues for the six months ended September 30, 2014 decreased by 37.3% to $266,458 from $424,748 during the three months ended September 30, 2013. This decrease is mainly attributable to reduction in revenue as described above and reduction in advisors payroll.

 

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Selling and Marketing

 

Three Months Ended September 30, 2014 and 2013

 

Selling and marketing expenses for the three months ended September 30, 2014 decreased by 69.7% to $54,966 from $181,147 for the three months ended September 30, 2013. The decrease in selling and marketing expenses is attributable to a reduction in sales payroll and related stock-based compensation expenses.

 

Six Months Ended September 30, 2014 and 2013

 

Selling and marketing expenses for the six months ended September 30, 2014 decreased by 61.6% to $116,218 from $302,334 for the six months ended September 30, 2013. The decrease in selling and marketing expenses is attributable to a reduction in sales payroll, related stock-based compensation expenses and decrease in meals entertainment expenses.

 

General and Administrative

 

Three Months Ended September 30, 2014 and 2013

 

General and administrative expenses for the three months ended September 30, 2014 decreased by 11.1% to $626,899 from $705,250 for the three months ended September 30, 2013. The decrease in general and administrative expenses is mainly attributable to a decrease in officer’s payroll and payroll taxes.

 

General and administrative expenses includes $8,293 of stock-based compensation for the three months ended September 30, 2014 compared to $21,627 for the three months ended September 30, 2013.

 

Six Months Ended September 30, 2014 and 2013

 

General and administrative expenses for the six months ended September 30, 2014 decreased by 14.4% to $1,201,824 from $1,403,351 for the six months ended September 30, 2013. The decrease in general and administrative expenses is mainly attributable to a decrease in marketing payroll, officer’s payroll and payroll taxes.

 

General and administrative expenses includes $18,862 of stock-based compensation for the six months ended September 30, 2014 compared to $21,627 for the six months ended September 30, 2013.

 

Net Loss Attributable to the Company

 

Three Months Ended September 30, 2014 and 2013

 

The net loss attributable to the Company for the three months ended September 30, 2014 decreased 19.2% to $395,380 compared to $489,518 for three months ended September 30, 2013. The decrease is mainly attributable to a decrease in sales payroll.

 

Six Months Ended September 30, 2014 and 2013

 

The net loss attributable to the Company for the six months ended September 30, 2014 increased 2.8% to $640,062 compared to $622,853 for six months ended September 30, 2013.

 

Liquidity and Capital Resources

 

As of September 30, 2014 the Company’s total current assets were $236,910 and current liabilities were $3,339,725. On September 30, 2014 the Company had an accumulated deficit of $4,699,574. For the six months ended September 30, 2014 the Company financed its operations with proceeds from convertible debt in the amount of $175,000, proceeds from an accounts receivable purchase agreements for $485,000, proceeds from a note payable related party of $100,000, and $188,500 in advances from affiliates. As a result, the Company had a working capital deficit of $3,102,815 on September 30, 2014 compared with a working capital deficit of $2,622,805 at March 31, 2014.

 

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Operating activities used cash of $500,860 in the six months ended September 30, 2014 compared to providing cash of $184,500 for the six months ended September 30, 2013. There were no investing activities in the six months ended September 30, 2014 compared to $4,596 for the six months ended September 30, 2013.

 

Financing activities provided cash of $395,392 during the six months ended September 30, 2014, compared to $54,434 during the six months ended September 30, 2013.

 

2014 financing activities primarily consists of proceeds of $485,000 from accounts receivable purchase agreements, $175,000 from a convertible debenture, $100,000 from a note payable related party, $188,500 in advances from affiliates, less repayment of bank debt, accounts receivable purchase agreements, proceeds from note payable, issuance of convertible debt, note payable related party, stockholders borrowings and capital lease obligations.

 

2013 financing activities primarily consist of proceeds totaling $140,000 from issuance of common stock in a private placement, $103,789 in an interest bearing related party loan, less repayment of bank debt, stockholders borrowings and capital lease obligations.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2014, the Company had no off balance sheet arrangements that have had or that would be expected to be reasonably likely to have a future material effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

 

Item 4. Controls and Procedures.

 

During the period ended September 30, 2014, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as of September 30, 2014.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not currently involved in any legal proceedings. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

 

Item 1A. Risk Factors.

 

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits.

 

EXHIBIT INDEX

 

(a) The following Exhibits, as required by Item 601 of Regulation SK, are attached or incorporated by reference, as stated below.

 

Exhibit		Description
2.1		Share Exchange Agreement, dated March 29, 2013, by and among the Registrant, The Pulse Network, Inc., a Massachusetts corporation (“The Pulse Network”), and the holders of common stock of The Pulse Network. (2)
2.2		Form of Articles of Share Exchange (2)
3.1.1		Form of Articles of Incorporation (1)
3.1.2		Form of Certificate of Amendment to Articles of Incorporation (2)
3.1.3		Form of Certificate of Change (2)
3.1.4		Form of Certificate of Designation for Series A Preferred Stock (2)
3.1.5		Form of Certificate of Designation for Series B Preferred Stock (2)
3.1.6		Form of Amendment to Certificate of Designation for Series B Preferred Stock (2)
3.1.7		Bylaws (1)
4.1		2013 Stock Option Plan (2)
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *		XBRL Instance Document
101.SCH *		XBRL Taxonomy Extension Schema Document
101.CAL *		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF *		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB *		XBRL Taxonomy Extension Label Linkbase Document
101.PRE *		XBRL Taxonomy Extension Presentation Linkbase Document

__________________

 

*	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.
(1)	Filed and incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-174443), as filed with the Securities and Exchange Commission on May 24, 2011.
(2)	Filed and incorporated by reference to the Company’s Current Report on Form 8-K (File No. 000-54741), as filed with the Securities and Exchange Commission on March 29, 2013.

 

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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. 

 

	The Pulse Network, Inc.
Date: November 18, 2014	By:	/s/ Stephen Saber
		Stephen Saber
		Chief Executive Officer (Principal Executive Officer)

 

  

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