UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2017

 

¨   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: 000-49933

 

Pollex, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada (State or other jurisdiction of incorporation or organization)	95-4886472 (I.R.S. Employer Identification No.)
2005 De La Cruz Blvd. Suite 142 Santa Clara, CA (Address of principal executive offices)	95050 (Zip Code)

 

Registrant’s telephone number, including area code (408) 350-7340

 

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x       No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). x Yes ¨ No.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

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

(Do not check if a smaller reporting company)

 

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

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 15, 2017, there were 5,121,689 shares of common stock, par value $0.001, issued and outstanding.

 

 

POLLEX, INC.

 

TABLE OF CONTENTS

 

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

 

 

PART I – FINANCIAL INFORMATION

 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

 

 

ITEM 1    Financial Statements

POLLEX, INC.

 

BALANCE SHEETS

 

		March 31,
		2017				December 31,
		(Unaudited)				2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	8,968			$	9,160
Total Current Assets			8,968				9,160
Equipment, net of accumulated depreciation of $10,497 and $10,497 at March 31, 2017 and December 31, 2016, respectively			-				-
Other asset - Deposit			1,300				1,300
Total Assets		$	10,268			$	10,460
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable		$	118,134			$	118,134
Accrued expenses			651,047				621,397
Amounts due to affiliate under service agreement			1,500,387				1,440,387
Advances from affiliate			682,256				707,756
Loans payable			1,215,799				1,215,799
Total Current Liabilities			4,167,623				4,103,473
Stockholders' Deficit
Preferred stock, authorized 10,000,000 shares; par value $0.001; none issued and outstanding
Common stock, authorized 300,000,000 shares; par value $0.001; 5,121,689 issued and outstanding at March 31, 2017 and 2016, respectively			5,120				5,120
Additional paid-in capital			137,134,861				137,114,861
Accumulated deficit			(141,297,336	)			(141,212,994	)
Total Stockholders’ Deficit			(4,157,355	)			(4,093,013	)
Total Liabilities and Stockholders’ Deficit		$	10,268			$	10,460

 

See accompanying notes to financial statements.

 

 

POLLEX, INC.

 

STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the three months ended
		March 31,
		2017				2016
REVENUES		$	43,461			$	34,136
COSTS AND EXPENSES
Selling, general and administrative			49,816				30,227
Related party service agreement			60,000				60,000
Total Costs and Expenses			109,816				90,227
OPERATING LOSS			(66,355	)			(56,091	)
OTHER EXPENSE
Interest expense			(17,987	)			(18,187	)
Total Other Expense			(17,987	)			(18,187	)
LOSS BEFORE INCOME TAXES			(84,342	)			(74,278	)
PROVISION FOR INCOME TAXES			-				-
NET LOSS		$	(84,342	)		$	(74,278	)
NET LOSS PER COMMON SHARE (Basic and Diluted)		$	(0.02	)		$	(0.01	)
WEIGHTED AVERAGE SHARES OUTSTANDING			5,121,689				5,121,689

 

See accompanying notes to financial statements.

 

 

POLLEX, INC.

 

STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the three months ended March 31,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(84,342	)		$	(74,278	)
Adjustments to reconcile net loss to net cash used in continuing operating activities:
Contributed Service			20,000				20,000
Changes in assets and liabilities:							-
Increase (decrease) in accrued expenses			29,650				16,332
Increase (decrease) in amounts due affiliate under service agreement			60,000				45,000
Net cash provided by/(used in) operating activities			25,308				7,054
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of advance from affiliate			(25,500	)			(4,437	)
Net cash (used in)/provided by financing activities			(25,500	)			(4,437	)
Net (decrease)/increase in cash			(192	)			2,617
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			9,160				5,922
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	8,968			$	8,539
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest		$	-			$	-
Cash paid for taxes		$	-			$	-

 

See accompanying notes to financial statements.

 

 

POLLEX, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2017

(UNAUDITED)

 

NOTE A – BASIS OF PRESENTATION

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. Results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the financial statements and footnotes thereto included in the Pollex, Inc. annual report on Form 10-K for the year ended December 31, 2016.

 

NOTE B – GOING CONCERN

 

As shown in the accompanying financial statements, the Company incurred net losses of $84,342 and $74,278 for the three months ended March 31, 2017 and 2016, respectively, had negative working capital of $4,157,655 at March 31, 2017 and had an accumulated deficit of $141,297,336 at March 31, 2017.  Management’s plans include raising capital through the equity markets to fund future operations and generating revenue through its license agreement. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Additionally, even if the Company does raise sufficient capital to support its operating expenses, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE C – LICENSE AGREEMENTS

 

The Company began operating The Great Merchant in open beta testing in January 2010, and the game opened for full commercial service in September 2011. During the three months ended March 31, 2017 and 2016, the Company generated revenues of $43,461 and $34,136, respectively, from The Great Merchant.

 

NOTE D – RELATED PARTY TRANSACTIONS

 

Certain expenses have been paid on behalf of the Company by Joytoto Co., Ltd (“Joytoto Korea”), of which the Company is a majority owned subsidiary. The Company has recognized the expenses and corresponding payable to Joytoto Korea as due to affiliate. The advances are non-interest bearing and have no specific repayment date. During the three months ended March 31, 2017, the Company repaid $25,500. During the three months ended March 31, 2016, the Company repaid $4,437. At March 31, 2017 and December 31, 2016, $682,256 and $707,756 respectively were due to Joytoto Korea.

 

The Company has entered into a Service Agreement with Gameforyou, Incorporated, a wholly-owned subsidiary of Joytoto Korea. Under this agreement, Gameforyou, Incorporated provides translation, customer support, and system operations and maintenance. The Company is required to pay Gameforyou, Incorporated $10,000 in cash and $10,000 in cash or stock each month. Any issuance of stock will be at the market value or at a price determined and agreed to by both parties. For the three months ended March 31, 2017 and 2016, $60,000 and $60,000, respectively, were recognized in the Statement of Operations under this agreement. At March 31, 2017 and December 31, 2016, $1,500,387 and $1,440,387 respectively were due to Gameforyou, Incorporated.

 

 

POLLEX, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2017

(UNAUDITED)

 

NOTE E – LOANS PAYABLE

 

The loans payable consists of borrowings from two notes. The terms of the promissory notes are one year and bear interest at an annual rate of 6% and are unsecured. The notes may be repaid at any time prior to its due date without a prepayment penalty and are callable upon demand.

 

NOTE F - INCOME TAXES

 

At March 31, 2017 and December 31, 2016, the Company had unused net operating loss carryforwards of approximately $7,075,000 and $6,990,000, respectively, for income tax purposes, which expire between 2027 and 2036. The net operating loss carryforwards may result in future income tax benefits of approximately $2,405,000 and $2,377,000, respectively; however, because realization is uncertain at this time, a valuation reserve in the same amount has been established. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

Significant components of the Company’s deferred tax liabilities and assets at March 31, 2017 and December 31, 2016 are as follows:

 

		March 31,				December 31,
		2017				2016
Deferred tax asset-
Net operating loss carryforward			2,405,000				2,377,000
Valuation allowance			(2,405,000	)			(2,377,000	)
Net deferred tax asset		$	-			$	-

 

The income tax expense (benefit) differs from the amount computed by applying the United States statutory corporate income tax rate as follows:

 

		March 31,
		2016				2015
U.S statutory income tax rate			34	%			34	%
Change in valuation allowance of deferred tax assets			(34	)%			(34	)%
Net deferred tax asset			-	%			-	%

 

 

POLLEX, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2017

(UNAUDITED)

 

NOTE G- COMMITMENTS AND CONTINGENCIES

 

Property Leases:

 

On October 1, 2016, the Company signed a month-to-month lease with rent payments of $3,255.

 

Employment Agreements:

 

On March 21, 2014, the Company entered into three-year employment agreement through March 21, 2017 with Mr. Seong Sam Cho, to serve as Chief Executive Officer, President and Chairman for an annual salary of $1.00. For the months ended March 31, 2017 and March 31, 2016, the Company recorded $20,000 and $20,000, respectively, for the fair value of the services contributed by Seong Sam Cho. Services include development and implementation of the Company’s strategy, ensure that Company is organized and risks are monitored and managed, and effective communication with shareholders and the public.

 

On April 6, 2017, the Company entered into a new one year employment agreement through April 6, 2018 with Mr. Seong Sam Cho, to serve as Chief Executive Officer, President and Chairman for an annual salary of $80,000.

 

NOTE H- EARNINGS (NET LOSS) PER SHARE

 

In accordance with ASC 260, basic earnings per share are computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. There were no dilutive financial instruments issued or outstanding for the periods ended March 31, 2017 and December 31, 2016.

 

 

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

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include, but are not limited to, international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

 

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

Overview

 

Pollex, Inc., formerly Joytoto USA, Inc., formerly BioStem, Inc. (the “Company,” “we,” and “us”) was incorporated on November 2, 2001, in the State of Nevada, under the name “Web Views Corporation.”

 

We are a majority owned subsidiary of Joytoto Co., Ltd. (“Joytoto Korea”). We are determined to focus our efforts on our Online Games business by acquiring new game licenses and making such games commercially available in South Korea and the United States.

 

Our operations are focused on Online Games. Our Online Games business segment has generated $43,461 for the three months ended March 31, 2017.

 

Our major online game business is The Great Merchant. The online game is operating at its website http://www.thegreatmerchant.com. The website operated in open beta testing on January 2010. The game opened for full commercial service on September 1, 2011. The Great Merchant is a free-to-play MMO (Massively Multiplayer Online) PC game. Players can download the game for free from our website and interact with other players in the game to trade, fight, and explore the game world. The game is set in 14th century Asia with Korea, China, Taiwan, and Japan as the main explorable countries. As a free-to-play game, the Great Merchant offers micro-transactions through PayPal which players can purchase in game currency (GP) to further their character and purchase items to increase their character’s abilities and in-game looks. We anticipate that other purchase methods such as credit cards and mobile phone payments will be added in the future.

 

Revenues, Expenses and Loss from Operations

 

Three months ended March 31, 2017 compared to three months ended March 31, 2016

 

Our revenues, selling, general and administrative expenses, total costs and expenses, and net loss for the three months ended March 31, 2017 and for the three months ended March 31, 2016 are as follows:

 

		Three Months Ended March 31, 2017				Three Months Ended  March 31, 2016
Revenue		$	43,461			$	34,136
Selling, general and administrative			49,816				30,227
Related party service agreement			60,000				60,000
Total costs and expenses			109,816				90,227
Other expense - interest expense			(17,987	)			(18,187	)
Net Loss		$	(84,342	)		$	(74,278	)

 

For the three months ended March 31, 2017, we generated $43,461 in revenue compared to $34,136 for the three months ended March 31, 2016.  The increase of $9,325 or 27% was primarily due to increase in revenue from our online game due increased amounts in player spending and increased organic growth of players.

 

For the three months ended March 31, 2017, our selling, general and administrative expenses of $49,816 consisted primarily of $20,055 in professional fees, $20,000 in payroll and $5,055 in rental expense.  For the three months ended March 31, 2016, our selling, general and administrative expenses of $30,227 consisted primarily of $7,675 in professional fees and $20,000 in payroll. The increase of $19,589, or 65%, was primarily due to an increase in professional expenses.

 

 

The related party service agreement is for services provided by a related party for game translation, customer support, and system operations and maintenance. The Company is required to pay $10,000 in cash and $10,000 in cash or stock each month.

 

For the three months ended March 31, 2017, we had $109,816 in total costs and expenses compared to $90,227 for the three months ended March 31, 2016.  The increase of $19,589, or 22%, was primarily due to an increase in professional expenses.

 

Other Expenses for the three months ended March 31, 2017 consisted of $17,987. Other Expenses for the three months ended March 31, 2016 consisted of $18,187. The decrease of $200, or 1%, was primarily due to less interest expense.

 

Net Loss

 

 Our Net Loss for the three months ended March 31, 2017 was $84,342 compared to $74,278 for the three months ended March 31, 2016.  The increase of $10,064, or 14%, was primarily due to an increase in costs and expenses.

 

Liquidity and Capital Resources

 

Our primary asset is cash.

 

During the three months ended March 31, 2017, our online games business segment generated $43,641 in total revenues while in commercial service.

 

Our cash requirements have been relatively small up to this point, but we anticipate that our cash needs will increase dramatically. We anticipate satisfying these cash needs through the sale of our common stock until we can generate enough revenue to sustain our operations.

 

		As of March 31, 2017				As of December 31, 2016				Change
Cash and cash equivalents		$	8,968			$	9,160			$	192
Total current assets			8,968				9,160				192
Deposits			1,300				1,300				0
Total assets			10,268				10,460				192
Accounts payable			118,134				118,134				0
Accrued expenses			651,047				621,397				60,000
Due to affiliate under service agreement			1,500,387				1,440,387				25,500
Advances from affiliate			682,256				707,756				0
Loans payable			1,215,799				1,215,799				0
Total Current Liabilities			4,167,623				4,103,473				64.150

 

Cash Requirements

 

As stated above, we anticipate that our cash requirements will increase substantially as we begin to increase operations to generate revenue from our license agreements.

 

Sources and Uses of Cash

 

Operations

 

For the three months ended March 31, 2017 we had a net loss of $84,342 compared to $74,278 for the three months ended March 31, 2016.  This was offset by an increase in accrued expenses of $29,650, an increase in amounts due to affiliate under service agreement of $60,000 for total cash used in our operating activities of $25,308.

 

Investments

 

We had no cash used in investment activities for the three months ended March 31, 2017 and March 31, 2016.

 

Financing

 

For the three months ended March 31, 2017, our cash flows used in financing activities totaled $25,500 from repayment of advance from affiliate.

 

 

For the three months ended March 31, 2016, our cash flows used in financing activities totaled $4,437 from repayment of advance from affiliate.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our board of directors, we have identified the following accounting policies that we believe are key to an understanding of our financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.

 

Revenue Recognition

 

Revenues are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.

 

Off-balance Sheet Arrangements

 

We have no off-balance sheet arrangements that 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 that is deemed by our management to be material to investors.

 

 

ITEM 3     Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

ITEM 4     Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation, with the participation of our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2017 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer concluded that as of March 31, 2017, our disclosure controls and procedures were not effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1

Legal Proceedings

 

None.

 

ITEM 1A

Risk Factors

 

There are no material changes to the risk factors in our most recent Annual Report on Form 10-K.

 

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

 

ITEM 3

Defaults Upon Senior Securities

 

None.

 

ITEM 4

Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5

Other Information

 

None.

 

ITEM 6

Exhibits

 

31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Principal Financial and Accounting Officer
32.1		Principal Executive Officer and Principal Financial and Accounting Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

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.

 

	Pollex, Inc.
May 22, 2017
	By:	/s/Seong Sam Cho
		Seong Sam Cho
		Its: President, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer)