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 March 31, 2015

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

 

For the transition period from ___________________ to ___________________

 

Commission File Number 333-186330

 

APPTIGO INTERNATIONAL, INC.
(Name of small business issuer in its charter)

 

NEVADA	99-0382426
(State of incorporation or organization)	(IRS Identification No.)

 

1801 SW 3rd Avenue, Suite 402
Miami, FL 33129
(Address of principal executive offices)

 

(844) 277-8446
(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15(d) of the Exchange Act during the past 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 o	Accelerated Filer o
Non-Accelerated Filer o (Do not check if a 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

 

29,225,000 shares of the issuer’s common stock, $.001 par value, were outstanding at May 18, 2015.

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	1
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	17
ITEM 4. CONTROLS AND PROCEDURES.	17
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	18
ITEM 6. EXHIBITS	18
SIGNATURES	19

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

APPTIGO INTERNATIONAL, INC.

Formerly known as BALIUS CORP.

Condensed Consolidated Balance Sheets

(unaudited)

 

		March 31				December 31
		2015				2014
Assets
Cash		$	2,060			$	9,513
Due from related party			7,618				–
Total current assets			9,678				9,513
Furniture and Fixtures net accumulated depreciation $6,028 and $4,019			43,692				45,702
Deposits			5,592				5,592
Total assets		$	58,962			$	60,807
Liabilities and Stockholders' Deficit
Accounts payable and accrued liabilities		$	14,270			$	36,987
Payroll liabilities			26,876				29,925
Convertible debenture - related party - net of discount $3,178 and $4,419			8,350				16,408
Convertible debenture - net of discount $103,963 and $38,105			95,749				22,470
Derivative liability			476,000				324,826
Total current liabilities			621,245				430,616
Long term convertible debenture			203,886				100,556
Total liabilities			825,131				531,172
Commitments and contingencies
Stockholders' Deficit
Preferred stock, $0.001 par value: 1,000,000 authorized 145,000 and 145,000 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively			1,450				1,450
Common stock, $0.001 par value: 100,000,000 authorized; 29,225,000 and 29,225,000 shares issued and outstanding as of  March 31, 2015 and December 31, 2014, respectively			29,225				29,225
Common stock - unissued			1,033				1,033
Additional paid in capital			1,808,806				1,637,841
Accumulated deficit			(2,606,683	)			(2,139,914	)
Total stockholders' deficit			(766,169	)			(470,365	)
Total liability and stockholders' deficit		$	58,962			$	60,807

 

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

 

 

APPTIGO INTERNATIONAL, INC.

Formerly known as BALIUS CORP.

Condensed Consolidated Statement of Operations

(unaudited)

                 

 

		For the three months ended				For the three months ended
		March 31,				March 31,
		2015				2014
Revenue		$	–			$	–
Operating expenses
Selling, general and administrative expenses			260,255				6,762
Research and development expense			33,779				–
Depreciation expense			2,009				–
Total operating expenses			296,043				6,762
Loss from operation			(296,043	)			(6,762	)
Other income(expense)
Interest expense - related party			(709	)			–
Interest expense			(18,843	)			–
Derivative expense			(151,174	)			–
Loss before income tax			(466,769	)			(6,762	)
Provision for income tax			–				–
Net Loss		$	(466,769	)		$	(6,762	)
Net loss per share: basic and diluted		$	(0.02	)		$	(0.00	)
Weighted averages shares outstanding: basic and diluted.			30,258,000				12,550,000

 

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

 

APPTIGO INTERNATIONAL, INC.

Formerly known as BALIUS CORP.

Condensed Consolidated Statement of Cash Flows

(unaudited)

 

		For the three months ended				For the three months ended
		March 31,				March 31,
		2015				2014
Cash flows from operating activities
Net loss		$	(466,769	)		$	(6,762	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation			2,009				–
Stock-based compensation			95,965				–
Changes in operating assets and liabilities
Accrued interest - related party			709				–
Accrued interest			18,843				–
Accounts payable and accrued liabilities			(22,717	)			1,000
Payroll liabilities			(3,049	)			–
Derivative Liability			151,174				–
Due from related party			(7,618	)			4,000
Net cash used in operating activities			(231,453	)			(1,762	)
Cash flows from investing activities
Proceeds from loan from shareholder			–				1,500
Net cash provided by investing activities			–				1,500
Cash flow from financing activities
Repayment of convertible debenture - related party			(10,000	)			–
Proceeds from convertible debenture			234,000				–
Net cash provided by financing activities			224,000				–
Net decrease in cash and cash equivalents			(7,453	)			(262	)
Cash and cash equivalents at beginning of period			9,513				2,776
Cash and cash equivalents at end of period		$	2,060			$	2,514
Supplemental disclosure of cash flow information
Cash paid during period for
Cash paid for interest		$	–			$	–
Cash paid for income taxes		$	–			$	–

 

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

 

 

APPTIGO INTERNATIONAL, INC.

Formerly known as BALIUS CORP.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Apptigo International Inc. and its wholly-owned subsidiary (“collectively “Apptigo” or the “Company”) designs, develops, markets and sells software applications. The Company sells its products worldwide through online stores.

 

Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

 

The Company’s year ends on December 31.

 

Nature of Business Operations

 

Organization and Description of Business

The Company was originally incorporated under the laws of the State of Nevada on October 23, 2012 under the name of “Balius Corp.” (“Inception”). Effective April 15, 2014, we acquired Apptigo Inc., a Nevada corporation incorporated on October 31, 2012 (“Apptigo”). Under the terms of the Agreement and Plan of Reorganization Agreement, dated April 14, 2014 by and between the Company, its principal shareholder, Apptigo, and its shareholders, Apptigo agreed to exchange all of the outstanding common and preferred shares of Apptigo for common and preferred shares of the Company. The closing of the acquisition transaction was completed effective April 15, 2014.

 

At closing of the acquisition transaction, Apptigo became the Company’s wholly-owned subsidiary and the Company became Apptigo’s parent. Thereafter, the principal shareholder of the Company cancelled 10,000,000 shares of the Company’s common stock owned by him. As a result of the closing of the acquisition transaction, the Company had 8,250,000 shares of common stock outstanding and 145,000 Series A Preferred Shares outstanding, which preferred shares are convertible into 4,550,000 common shares.

 

Following the acquisition transaction, the Company filed Amended and Restated Articles of Incorporation to change its name to “Apptigo International, Inc.,” increase the number of authorized common shares, authorize preferred shares, and approved a 3.5-for-1 forward split of the outstanding shares, including the shares issued at the closing of the acquisition transaction. The forward stock split was effective at the opening of business on April 30, 2014. The effect of the stock split has been applied retroactively. Also, in connection with the acquisition transaction the Company filed a Certificate of Designations, Preferences and Rights for Series A Convertible Preferred Stock.

 

Going Concern

 

The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. The Company has reported a net loss of $466,769 for the three months ended March 31, 2015. The Company has a net negative working capital of $611,567 as of March 31 2015.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The operating losses raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to obtain additional financing depends on the success of its growth strategy and its future performance, each of which is subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond the Company's control.

 

 

Fair Value of Financial Instruments

 

The Company adopted the FASB standard related to fair value measurement at inception. The standard defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The recorded values of long-term debt approximate their fair values, as interest approximates market rates. As a basis for considering such assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows.

 

·

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

 

·

Level 2: Inputs, other than 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.

 

Share-based Compensation

 

The Company recognizes share-based compensation, including stock option grants, warrants, restricted stock grants and stock appreciation rights, at their fair value on the grant date. Share based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. Compensation expense is generally recognized on a straight-line basis over the service period.

 

Dividends

 

The payment of dividends by the Company in the future will be at the discretion of the Board of Directors and will depend on earnings, capital requirements and financial condition, as well as other relevant factors. The Company does not intend to pay any cash dividends in the foreseeable future but intend to retain all earnings, if any, for use in the business.

 

Cash and Cash Equivalents

 

For purposes of these financial statements, cash and cash equivalents includes highly liquid debt instruments with maturity of less than three months.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

 

The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

 

 

Intellectual Property

 

Intellectual property is stated at cost.

 

When retired or otherwise disposed, the related carrying value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized. Amortization is recorded over the estimated useful lives of the assets, generally, 3 to 15 years.

 

Software Development Costs

 

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Costs incurred for development are capitalized. Amortization is recorded over the estimated useful lives of the assets, generally, 5 years. For the three months ended March 31, 2015 the company expensed $33,779 compared to $0 for the three months ended March 31, 2014, for research and development.

 

Recent Accounting Pronouncements

 

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2014-15 requiring an entity’s management to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

 

On June 10, 2014, the Financial Accounting Standards Board (FASB) issued a new accounting statement that reduces some of disclosures and reporting requirements for development stage companies. The change will be in effect for the interim and annual reporting periods beginning after December 15, 2014. As of such date, among other things development stage entities will no longer be required to report inception-to-date information. The Company has elected early adoption of this pronouncement and will no longer be reporting inception-to-date information.

 

In January 2014, the FASB issued ASU 2014-04, an update to ASC 310, "Receivables." The ASU clarifies that an in substance repossession or foreclosure occurs upon either the creditor obtaining legal title to the residential real estate property or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The amendments may be adopted using either a modified retrospective transition method or a prospective transition method. Early adoption of the guidance is permitted. The impact of this guidance is currently being evaluated by the Company, but is not expected to have a significant impact on the Company's financial position, results of operations or disclosures.

  

Net Loss per Share

 

Basic and diluted loss per share amounts are computed based on net loss divided by the weighted average number of common shares outstanding.

 

Management Estimates

 

The presentation of financial statements in conformity with generally accepted accounting principles requires 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 reported period. Actual results could differ from those estimates.

 

 

Property, Plant and Equipment

 

Property, plant and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, which for leasehold improvements is 15 years; 10 years for furniture and equipment; and 5 years for computer equipment. The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the preliminary project stage. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated useful lives of the assets, which range from 5 to 7 years. Depreciation and amortization expense on property and equipment was $2,009 and $0 for the three months ended March 31, 2015 and 2014, respectively.

 

 

2. INTANGIBLE PROPERTIES

 

On August 4, 2014, Apptigo entered into an Intellectual Property Purchase Agreement with the Company’s head designer and acquired certain intellectual property assets and rights used in connection with four games developed by him prior to his employment with the Company. The Company authorized to issue 400,000 shares of common stock as full consideration for the purchase of the assets. The closing stock price on August 4, 2014 was $1.61 per share resulting in a total price of $644,000. The total cost has been expensed. As of March 31, 2015, common shares have not been issued.

 

 

3. CONVERTIBLE DEBENTURES

 

On November 18, 2014 the Company entered into a 12% Secured Convertible Debenture with a related party. The debenture carries a one month term. The debenture was issued in the amount of $50,000. Upon maturity of the Note, the Company issued a promissory note in the amount of $55,000 to cover the balance of the note and included an Original Issue Discount (OID) of $5,000. The conversion feature of the note did not change. The new note has a term of one year.

 

		March 31, 2015				December 31, 2014
Convertible debenture		$	20,000			$	55,000
Original issue discount			(3,178	)			(4,411	)
Less: Payment			(10,000	)			(35,000	)
Accumulated interest			1,529				819
Convertible debenture, net of OID		$	8,351			$	16,408

 

On November 21, 2014 the Company entered into a 10% Secured Convertible Debenture. The debenture carries a one year term. The debenture was issued in the amount of $225,000. The company has receive one tranche from this convertible note in the amount of $60,000, which included $5,000 in fees and an OID of $5,000. The debenture has a conversion feature at a share price of 70% of the average of the three lowest closing prices in a 20 day period prior to the conversion. The Company recognized a discount on the note in relation to the warrants issued and a beneficial conversion feature. Interest expense on change in discount of the warrants and beneficial conversion amounted to $4,315 for the three months ended March 31, 2015.

 

		March 31, 2015				December 31, 2014
Convertible debenture		$	60,000			$	60,000
Discount – Warrant			(16,493	)			(17,364	)
Discount – beneficial conversion feature			(12,777	)			(16,221	)
Original issue discount			(3,288	)			(4,520	)
Accumulated interest			2,055				575
Convertible debenture, net of OID		$	29,497			$	22,470

 

On December 2, 2014 the Company entered into a 7% Secured Convertible Debenture. The debenture carries a three year term. The debenture was issued in the amount of $200,000. As of December 31, 2014 the Company has received $100,000. As of March 31, 2015, the Company has received full $200,000.

  

 

		March 31, 2015				December 31, 2014
Convertible debenture		$	100,000			$	100,000
Additional amount received			100,000				–
Accumulated interest			3,886				556
Convertible debenture, net of OID and BCF		$	203,886			$	100,556

 

On February 9, 2015, the Company executed a $59,000 Convertible Promissory Note. The note has an 8% interest rate and a term of 9 month.

 

		March 31, 2015
Convertible debenture		$	59,000
Accumulated interest			517
Convertible debenture		$	59,517

 

 

On March 9, 2015, the Company executed a $50,000 12% Convertible Promissory Note. The note has 12% interest rate and a term of 6 months.

 

		March 31, 2015
Convertible debenture		$	50,000
Beneficial conversion feature			(43,855	)
Accumulated interest			362
Convertible debenture, net of BCF		$	6,507

 

 

On March 25, 2015, the Company executed and sold a $250,000 Convertible Promissory Note. The note has a 12% interest rate and for a term of 1 year. The company received $25,000 which includes an original issue discount of $2,778, upon closing of the transaction.

 

		March 31, 2015
Convertible debenture		$	27,778
Original issue discount			(2,755	)
Beneficial conversion feature			(24,795	)
Convertible debenture, net of OID and BCF		$	228

 

 

4. DERIVATIVE LIABILITY

 

In connection with two Secured Convertible Debentures entered into in November and December 2014, the convertible debentures, contain ratchet provisions regarding the conversion of debt into shares.

 

The Company entered into a 10% Secured Convertible Debenture entered into on November 21, 2014, for a term of 15 months. The debenture is in the amount of $225,000 with funding to be received in four tranches of $50,000. The note includes an Original Issue Discount in the amount of $20,000 and legal fees of $5,000. The original issue discount is prorated over the tranches and the legal fees are applied to the first tranche. The company has received one tranche as of the year ended December 31, 2014 which included $5,000 legal fees and other loan costs and $5,000 original issue discount for a total liability on the convertible note of $60,000 at year end plus accrued interest.

 

 

Conversion of the note is based on a comparison between a fixed conversion price and the lesser of the variable conversion price. The conversion of outstanding debt to shares of common stock is based on the market capitalization of the company’s common stock. The conversion price of the outstanding is fixed at $0.25 unless the market of capitalization of the company is less than $3,000,000. In the event the market capitalization is less than $3,000,000, the conversion factor is 70% of the three lowest closing prices in a the previous 20 trading days. The convertible debenture also includes a “True up” feature, whereas the conversion price is recalculated 20 trading days after the conversion. If the conversion amount on the true up date is less than the conversion amount on the previous conversion, then additional shares would be issued as if the true up conversion amount was applicable on the original conversion.

 

The Company assesses the fair value of the convertible debenture using the Black Scholes pricing model and records a derivative expense for the value. The Company then assesses the fair value of the warrants quarterly based on the Black Scholes Model and increases or decreases the liability to the new value, and records a corresponding gain or loss. The Company uses expected volatility based primarily on historical volatility using weekly pricing observations for recent periods that correspond to the expected life of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates.

 

Due to the ratchet provisions, the Company treats the convertible debenture as a derivative liability in accordance with the provisions of ASC 815 “Derivatives and Hedging” (ASC 815). ASC 815 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that potentially settle in an entity’s own common stock.

 

		March 31, 2015				December 31, 2014
Risk-free interest rate at grant date			.25	%			.25	%
Expected stock price volatility			219	%			139	%
Expected dividend payout			–				–
Expected option in life-years			1				1.25

 

As of March 31, 2015, total derivative liability for this note is $16,504 and the gain in change of derivative liability for the three months ended March 31, 2015 was $163,161.

 

The Company entered into a 7% Secured Convertible Debenture entered into on December 2, 2014, for a term of 3 years. The debenture is in the amount of $200,000 with funding to be received in two tranches of $100,000. Conversion of the note is based on a comparison between a fixed conversion price and the lesser of the variable conversion price. The conversion price of the outstanding balance is the lower of $0.15 or 40% of the 30 day trading average.

 

The Company assesses the fair value of the convertible debenture using the Black Scholes pricing model and records a derivative expense for the value. The Company then assesses the fair value of the warrants quarterly based on the Black Scholes Model and increases or decreases the liability to the new value, and records a corresponding gain or loss. The Company uses expected volatility based primarily on historical volatility using weekly pricing observations for recent periods that correspond to the expected life of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates.

 

Due to the ratchet provisions, the Company treats the convertible debenture as a derivative liability in accordance with the provisions of ASC 815 “Derivatives and Hedging” (ASC 815). ASC 815 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that potentially settle in an entity’s own common stock.

 

		March 31, 2015				December 31, 2014
Risk-free interest rate at grant date			1.59	%			1.59	%
Expected stock price volatility			219	%			139	%
Expected dividend payout			–				–
Expected option in life-years			2.75				3

 

 

As of March 31, 2015, total derivative liability for this note is $225,065 and the loss in change of derivative liability for the three months ended March 31, 2015 was $79,904.

 

The Company entered into a 12% Secured Convertible Debenture entered into on March 9, 2015, for a term of 6 months. The debenture is in the amount of $50,000. Conversion of the note is based on a comparison between the lesser of two variable conversion price. The conversion price of the outstanding balance is the lower of 45% of the lowest trading price for the previous 20 days at date of conversion or 45% of the lowest trading price for the previous 20 days before the date of the note.

 

The Company assesses the fair value of the convertible debenture using the Black Scholes pricing model and records a derivative expense for the value. The Company then assesses the fair value of the warrants quarterly based on the Black Scholes Model and increases or decreases the liability to the new value, and records a corresponding gain or loss. The Company uses expected volatility based primarily on historical volatility using weekly pricing observations for recent periods that correspond to the expected life of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates.

 

Due to the ratchet provisions, the Company treats the convertible debenture as a derivative liability in accordance with the provisions of ASC 815 “Derivatives and Hedging” (ASC 815). ASC 815 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that potentially settle in an entity’s own common stock.

 

		March 31, 2015
Risk-free interest rate at grant date			.1	%
Expected stock price volatility			219	%
Expected dividend payout			–
Expected option in life-years			.5

 

As of March 31, 2015, total derivative liability for this note is $110,150 and the derivate expense for the note was $110,150.

 

The Company entered into a 12% Secured Convertible Debenture entered into on March 9, 2015, for a term of 2 years. The debenture is in the amount of $250,000 which includes a $25,000 original issue discount. At closing the company received $25,000 and an original issue discount of $2,778 for a total liability of $27,778. Conversion of the note is based on a comparison between a fixed conversion price and the lesser of the variable conversion price. The conversion price of the outstanding balance is the lower of $0.087 or 60% of the lowest trading price for the previous 25 days at date of conversion.

 

The Company assesses the fair value of the convertible debenture using the Black Scholes pricing model and records a derivative expense for the value. The Company then assesses the fair value of the warrants quarterly based on the Black Scholes Model and increases or decreases the liability to the new value, and records a corresponding gain or loss. The Company uses expected volatility based primarily on historical volatility using weekly pricing observations for recent periods that correspond to the expected life of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates.

 

Due to the ratchet provisions, the Company treats the convertible debenture as a derivative liability in accordance with the provisions of ASC 815 “Derivatives and Hedging” (ASC 815). ASC 815 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that potentially settle in an entity’s own common stock.

 

		March 31, 2015
Risk-free interest rate at grant date			.59	%
Expected stock price volatility			219	%
Expected dividend payout			–
Expected option in life-years			2

 

As of March 31, 2015, total derivative liability for this note is $124,281 and the derivate expense for the note was $124,281.

 

 

5. WARRANT AND OPTION LIABILITY

 

As of March 31, 2015, these warrants include the following:

 

Warrants granted on November 18, 2014 in connection with the a 12% convertible debenture, the right to purchase up to 200,000 shares of the Company’s common stock with an original exercise price of $0.05.

 

Warrants granted in connection with the convertible debenture entered into on November 21, 2014, the investor has the right to purchase up to 282,575 shares of the Company’s common stock with an initial conversion price of $0.32. The warrants carry a provision for the adjustment based on the terms of the contract. Fair value was determined using the following variables: A discount based on the fair value of the warrants as of March 31, 2015 amounted to $16,493.

 

		Grant Date				March 31, 2015
Risk-free interest rate at grant date			1.63	%			1.63	%
Expected stock price volatility			139	%			139	%
Expected dividend payout			–				–
Expected option in life-years			5				4.88

 

		Number of Warrants				Weighted-Average Price Per Share
Outstanding at December 31, 2014			282,575			$	.21
Granted			–				–
Exercised			–				–
Canceled or expired			–				–
Outstanding at March 31, 2015			282,575			$	.21

  

On June 17, 2014, the Company granted 550,000 options to six employees for services. As of March 31, 2015, a total of 360,000 options have been vested. No options have been exercised and 180,000 options have been canceled due to termination of service contracts. For the three months ended March 31, 2015, a total of $95,965 share-based compensation was recorded.

 

 

6. EQUITY

 

Common Stock

 

The Company was formed in the state of Nevada on October 31, 2012. The Company had authorized capital of 75,000 shares of common stock with a par value of $0.01. On April 17, 2014, the Company filed Amended and Restated Articles of Incorporation with the state of Nevada, increasing its authorized shares from 75,000,000 to 100,000,000 shares of common stock.

 

On April 14, 2014, the Company, entered into an a reverse acquisition transaction with Apptigo Inc., a Nevada corporation incorporated on October 31, 2012, and its shareholders, pursuant to an Agreement and Plan of Reorganization Agreement, dated April 14, 2014 between the Company, its principal shareholder, and Apptigo and its shareholders. Under the terms of the Agreement the shareholders of Apptigo agreed to exchange all of the outstanding common and preferred shares of Apptigo for common and preferred shares of the Company. The closing of the Transaction was completed effective April 15, 2014 (the “Closing Date ”).

 

 

The 3.5-for-1 forward stock split of the Company’s outstanding common shares became effective at the open of business on April 30, 2014. As a result of the forward stock split, the number of outstanding shares of common stock was increased from 8,250,000 to 29,225,000, and the 145,000 outstanding shares of Series A Convertible Preferred Stock will be convertible into 15,925,000 rather than 4,550,000.

 

In May 2014, the Company entered into an agreement for services which included the issuance of 50,000 shares of common stock. As of December 31, 2014 the shares remain unissued.

 

On June 17, 2014, the Company issued 550,000 options for service by six employees for stock based compensation in the amount of $200,531. As of December 31, 2014, 105,000 options have vested. For the three months ended March 31, 2015 and additional 75,000 options have vested for a total of 180,000 vested, additional compensation expense for the three months ended March 31, 2015 totaled $95,965.

 

During the nine months ended September 30, 2014, the Company sold 22,375,000 shares of common stock pursuant to stock purchase agreements in the amount of $600,000. Of the 22,375,000 shares, 600,000 have not been issued as of March 31, 2015. In addition, the Company purchased Intellectual Property from the Company’s head designer for 400,000 shares of common stock at a price of $644,000. None of the 400,000 shares have been issued as of March 31, 2015.

 

During the nine months ended September 30, 2014, the Company received $22,100 from subscription receivable.

 

The Company issued warrant in connection with convertible debentures as described in Note 5.

 

Preferred Stock

 

On April 17, 2014, the Company filed Amended and Restated Articles of Incorporation with the state of Nevada, authorizing 1,000,000 shares of preferred stock with a par value of $0.001.

 

On April 17, 2014, the Company converted the outstanding balance of the Convertible Promissory Note of $80,000 including accrued interest of $4,933 and the balance of the stock purchase of $60,000 from the same note holder in exchange for 145,000 shares of Series A Preferred Stock. The promissory note conversion was retrospectively recorded as of December 31, 2013 due to the reverse acquisition transaction with Apptigo.

 

2014 Stock Incentive Plan

 

On June 19, 2014 (the “ Effective Date ”), the Board of Directors of the Company approved the 2014 Stock Incentive Plan (the “ Plan ”). Awards may be made under the Plan for up to 4,500,000 shares of common stock, $0.001 par value per share, of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the Plan. No Awards can be granted under the Plan after the expiration of 10 years from the Effective Date, but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock grants.

 

 

7. RELATED PARTY TRANSACTIONS

 

On November 18, 2014 the Company entered into a 12% Secured Convertible Debenture with a related party. See note 3  

 

 

8. SUBSEQUENT EVENTS

 

Management has evaluated all subsequent events through the date of filing and there are no reportable events.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto as filed with this report.

 

FORWARD LOOKING STATEMENTS

 

Statements made in this report that are not historical or current facts are “forward-looking statements.” These statements often can be identified by the use of terms such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Forward- looking statements in this report may include statements about:

 

·

our growth strategies;

 

·

our ability to successfully acquire and integrate companies and assets;

 

·

our ability to secure needed funding;

 

·

launching new games and additional functionality to games that are commercially successful;

 

·

updating, supporting, and sustaining our mobile device applications;

 

·

developing new mobile device applications for others;

 

·

our ability to retain and increase our player base and increase in-game micro transactions;

 

·

our player acquisition costs;

 

·

competition from companies in a number of industries, including other casual game developers and publishers and both large and small, public and private Internet companies;

 

·

our relationships with Apple, Google, Twitter, and Facebook and any additional platforms;

 

·

protecting and developing our brand and intellectual property portfolio;

 

·

our ability to successfully enter new markets and manage our expansion;

 

·

costs associated with defending intellectual property infringement and other claims;

 

·

attracting and retaining qualified employees and key personnel;

 

·

our future business development, results of operations, and financial condition; and

 

·

assumptions underlying any of the foregoing.

 

We operate in an evolving environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward- looking statements.

 

 

We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

 

Overview

 

Effective April 15, 2014, we completed our acquisition of all the outstanding shares of common and preferred stock of Apptigo Inc., a Nevada corporation (“Apptigo”), pursuant to an Agreement and Plan of Reorganization with the shareholders of Apptigo. As a result of the transaction, Apptigo is now our wholly-owned subsidiary and continues its focus on designing, developing, and marketing mobile applications. Apptigo was incorporated in the State of Nevada on October 31, 2012.

 

Our company was incorporated in the State of Nevada on October 23, 2012, and established a fiscal year end of December 31. We have not generated revenues, have minimal assets, and have incurred losses since inception. We are a development-stage company commencing operations in the mobile applications business.

 

Our prior business plan was to buy young Irish sport horses and train them for resale. With the acquisition of Apptigo, we ceased this business to focus on the development of applications for mobile devices.

 

Plan of Operations

 

The first application developed by Apptigo is SCORE, which was introduced to market for beta testing in June 2014. SCORE is an interactive dating game that allows people to determine their compatibility through answering online questions. Users of the application can choose to invite anyone to play by:

 

·

Entering a queue that shows other active players and sending invitations through the queue;

 

·

Using the interactive map that shows pins of all the people who are available to play in a specific geographic region; and

 

·

Inviting friends through email, phone number or social media contact lists.

 

SCORE launched in October 2014 at which time our marketing campaign commenced.

 

Our products are developed through a series of steps beginning with the conceptual stage during which our team determines whether the concept is viable for development. Once conceptually cleared, our design team develops the application, after which our programmers create the code for functionality of the application. Generally, from the conceptual stage, an application can require approximately three months to complete development for beta testing. Beta testing normally involves use of the application by approximately 100 or more users and based on feedback on the usage, we release updates created by our programmers until we believe the application is functioning properly. At this stage we would commence the advertising and public relations campaign to fully launch the application to the public.

 

SCORE is our first application to reach the beta testing phase. Once the beta testing is completed, we intend to focus our social marketing tactics to ensure that SCORE is being ranked high in the application market so that it can be organically discovered; to fuel and optimize opportunities to generate downloads of SCORE; and to effectively target and effectively speak to the broad demographic universe of users that we believe will greatly enjoy the SCORE experience. We intend to create a multi-channel online presence capable of optimizing the viral nature of social marketing to promote the SCORE brand and attract new users. Our marketing plan provides for the following:

 

·

Target Twitter users;

 

·

Use social video outlets to showcase informative animated video we have created to describe the SCORE experience;

 

·

Create a basic Tumblr or like blog;

 

·

Create engagement mechanisms for our SCORE application to reconnect with consumers and remind them of SCORE’s presence on their device; and

 

·

Stage events that will generate national human interest buzz for our product.

 

 

In addition, on August 4, 2014, we entered into an Intellectual Property Purchase Agreement (the “Agreement”) with Francisco Obarrio, one of our employees who developed the games under the name 6K Games prior to his employment with us. Under the Agreement we acquired certain intellectual property assets and rights used in connection with four Facebook games known as Prehistorik Olympics, Newton’s Apple, Social Trivia Chat, and Social World. Prehistorik Olympics, Newton’s Apple, and Social Trivia Chat are currently available in beta gameplay on Facebook solely with desktop computers and Social World is in the advanced development stage.

 

Prehistorik Olympics is a multi-player game with excellent graphics and entertaining animations that includes three types of disciplines, each set in a pre-historic scenario with different objectives and difficulty levels. It is extremely easy to play since it uses drag and shot format in all of them. This game has its own messenger.

 

In Newton’s Apple players throw an apple and try to move it towards the target—a basket. At each level, they count with a number of tools to help them achieve the goal. There are six different scenarios and each scenario has its own size and custom blocks. This game includes a level editor for each player to be able to create his own levels and thus compete. It allows the participation of up to 10 users at the same time and, as it has its own chat room, players can interact with their opponents or with friends that are not playing the game.

 

Social Trivia Chat allows users to compete answering questions offered by the system. It includes 20 different categories such as, for example, Animals, Arts & Literature, Celebrities, Entertainment, For Children, General Knowledge, Geography, History, Hobbies, Movies, Music, People, Religion, Science & Nature, Sports, Television, Tv & Movies, and Videos Games, among others. The system offers 110,000 questions in English and 130,000 in Spanish. To play the game the user is first required to select the language for his questions. He must then choose the category in which he wants to participate and the system will automatically display a list of all the rooms available for that category. Once the user enters a room, the system will start showing the questions. Each room can host 20 players each of whom will have three clues to answer correctly. Each round has a set of five questions, each with a different score depending on the difficulty level of the question. After having answered all five questions, the system will show the different scores obtained by the participants and will determine the winner.

 

No prior marketing campaign was launched by 6K Games for these games and prior usage of the games by players has been minimal. Before actively marketing these games, we intend to develop a strategy with our programmers for converting them for use on mobile devices, redesigning and improving the games, correcting any design issues, and modifying and upgrading the games. We intend to develop Prehistorik Olympics but have not definitively determined whether to develop the other three games. We estimate that it will require a minimum of three months to evaluate and prepare a revised version of Prehistorik Olympics for beta testing and, if warranted, eventual launch and marketing of the game. We do not anticipate significant revenue from these games, if ever, until beta testing is completed and they are launched for use on mobile devices. In addition, we are evaluating the additional funding which may be required to complete revisions, improvements, and marketing of the games. Until full review of the games by our programmers, we are unable to determine which aspects of the games would ultimately be retained for re-launch by us or the additional costs to re-launch the games. We currently intend to retain the games on Facebook during the retooling phase.

 

We intend to lend ongoing online support to all of our application efforts through Google keyword search optimization and banner advertisement placement. As social media continues to evolve, we intend to adopt emerging new social channels and technologies that demonstrate capabilities to further enhance and extend our efforts in the most cost efficient manner possible. SCORE is currently available in the iTunes App Store. But based upon recent changes in Facebook policies for new dating applications, we do not believe SCORE will be offered on Facebook.

 

The pricing model for our applications is based upon the freemium pricing strategy commonly used in the industry today. Under this strategy the application is provided free of charge but money is charged for proprietary features, functionality, or virtual goods. We believe this model can significantly increase the revenue potential of a game by eliminating upfront barriers and facilitating purchases throughout a customer’s game experience. Based upon successful use of this model by others, we believe we can use it to build a significant customer base with marginal costs of producing the revenue generating enhancements.

 

 

Prior to our acquisition of Apptigo, Apptigo raised $450,000 through a private placement which we estimate will fund the finish, launch, and basic maintenance and upgrades of the SCORE app. Management intends to seek additional funding to meet our operating requirements, to fully develop the games purchased in August 2014, and to develop other games that we are currently designing and creating.

 

Results of Operations

 

Three Month Period Ended March 31, 2015 Compared to Three month Period Ended March 31, 2014

 

Selling, General and Administrative Expenses

 

During the three months ended March 31, 2015, we incurred $260,255 in general and administrative expenses compared to $6,762 in general and administrative expenses incurred during the three months ended March 31, 2014. General and administrative and professional fee expenses incurred were generally related to corporate overhead, financial and administrative contracted services, such as legal and accounting, developmental costs, and marketing expenses. In addition, the increase is due to increased business activity in connection with the launch of our first mobile application and change in business.  

 

Research and Development Costs

 

Research and development costs for the three months ended March 31, 2015 was $33,779 compared to $0 for the three months ended March 31, 2014. The company expenses costs associated with the planning and development of application programs.

 

Depreciation

 

Depreciation expense for the three months ended March 31, 2015 and 2014 totaled $2,009 and $0, respectively. The increase in depreciation was due to purchase of assets in connection with our new mobile application business.

 

Interest Expense

 

Interest expense for the three months ended March 31, 2015 and 2014, was $18,843 and $0, respectively. The interest expense was related to convertible debentures, see Note 3.

  

Interest expense related party for the three months ended March 31, 2015 and 2014, was $709 and $0 respective. The interest expense was related to a note payable from a significant shareholder.

 

Derivative Expense

 

Derivative expense for the three months ended March, 2015 and 2014 totaled $151,174 and $0, respectively. Derivate expense is in relation to convertible debentures entered into in March 2015, see Note 3.

 

Net Loss

 

For the reasons stated above, our net loss for the three months ended March 31, 2015 was $466,769 or $0.02 per share compared to a net loss of $6,762 or $0.00 per share, during the three months ended March 31, 2014.  The significant change is directly related to the reverse merger and forward stock split, research and development and derivative expenses.

 

 

Liquidity and Capital Resources

 

As of March 31, 2015, we had cash of $2,060 and net negative working capital of $611,567. The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. We anticipate that over the next 12 months we will require a minimum of $1-2 million to meet our cash flow requirements and accomplish our current business plan, including the re-launching and advertising of one or more of the Facebook games acquired in August 2014 and launching and advertising new games we are currently creating.

 

We intend to seek this additional funding from the sale of equity interests but have not determined the specific terms of any such offering. We currently have no agreements or arrangements in place for such financing. If we are unable to secure additional funding, we may be required to reduce our advertising plans or reduce the number of applications we develop or launch.

 

The accompanying financial statements have been prepared contemplating our continuation as a going concern. We reported a net loss of $466,769 for the three months ended March 31, 2015 and had an accumulated deficit of $2,606,683.

 

We have not generated positive cash flows from operating activities. The primary source of capital has been from the sale of equity securities. During the three months ended March 31, 2015, our primary use of capital was for the development and testing of the SCORE mobile application, professional fees, and general and administrative costs. Our working capital requirements are expected to increase in line with the growth of our business.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our 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.

 

Information not required to be filed by Smaller Reporting Companies.

 

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of disclosure controls and procedures

 

Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in internal control over financial reporting

 

There has been no change in our internal control over financial reporting, as defined in Rules 15d-15(f) of the Exchange Act, during our most recent fiscal quarter ended March 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On February 9, 2015, the Company executed a $59,000 Convertible Promissory Note. The note has an 8% interest rate and a term of 9 month.

 

On March 9, 2015, the Company executed a $50,000 12% Convertible Promissory Note. The note has 12% interest rate and a term of 6 months.

 

On March 25, 2015, the Company executed and sold a $250,000 Convertible Promissory Note. The note has an 8% interest rate and for a term of 1 year. The company received $25,000 which includes an original issue discount of $2,778, upon closing of the transaction.

 

These securities have been issued to accredited investors pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933. 

 

 

Item 6. Exhibits.

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
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

 

 

 

 

SIGNATURE PAGE FOLLOWS

 

 

 

 

 

 

 

 

 

 

  

SIGNATURES

 

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

 

		Apptigo International, Inc.
Date: May 20, 2015	By	/s/ Casey Cordes
		Casey Cordes, Chief Executive Officer
		(Principal Executive Officer)
Date: May 20, 2015	By	/s/ David Steinberg
		David Steinberg, Treasurer
		(Principal Financial Officer)