ITEM 1. BUSINESS
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report on Form 10-K.
As used in this annual report on Form 10-K and unless otherwise indicated, the terms “we,” “us,” “Quint” and “our” refer to Quint Media Inc., a Nevada corporation, and/or Exley Media Inc., a Nevada corporation, as the context may require. Unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in Quint’s capital stock.
Overview
We are a digital and social media and entertainment company founded to connect people with content relating to their passions and interests, and with each other. As a key component of our cross-platform implementation, we are pioneering a mobile-native philosophy to transform the way the public consumes news and information. This philosophy is supported by both proprietary technology and a team of international experts that are enabling content creation and consumption specifically for any smartphone or tablet device. In doing so, we believe we offer substantial value to businesses, brands and advertisers. This value will be facilitated by leveraging user data to offer specific targeted advertising and by integrating online marketing such as native and programmatic advertising, including real-time bidding. With real-time bidding, the value of an advertisement is determined in real-time based on the demographic of the user who will see the advertisement and the outcome of an auction, which selects the winning advertiser.
The concept of our network is being engineered with a powerful digital ecosystem at its core. In addition to matching each user with content that is customized to that user’s interests, this center of activities processes and organizes all of the information and user data across our entire digital and social network. Feature-rich applications for iPhone, Android and Blackberry will allow users to follow the stories that matter most to them and receive up-to-the-second updates on those stories as they evolve over time. In doing so, they have important facts, statistics, quotes and multimedia without fluff, and remain updated without re-reading old information.
We strive to become an industry leader through innovation. For example, our ecosystem supports citizen journalism, a socially innovative feature that puts reporting into the public’s hands. Both efficient and interactive, it allows individuals to submit stories (scoops), photos and video of breaking news in any industry and monetize their own content. Bloggers and other individual authors can also partner with us by contributing sought-after content to its communities. In return, partners can generate both traffic and revenue.
We are initially focused on brands relating to lifestyle, entertainment and fashion, with plans to expand our ecosystem to include social networking. Our underlying technology can be applied to any type of content community, regardless of the industry vertical. It is enterprise-grade and infinitely scalable, providing an excellent opportunity to support acquisitions and expansion.
We believe our users are a ready audience for businesses and brands seeking to promote their products and services. By incorporating a secure business intelligence data collection strategy across our ecosystem, we can leverage our valuable user data as a saleable commodity. The power of data analytics coupled with real-time access will help marketers effectively reach their target audiences.
Our Business
Exley
In 2013, we acquired the internet domain name “Slickx.com,” the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure from Lakefield Media Holding AG (“Lakefield”) for $50,000. The platform was subsequently developed further and rebranded “Exley” (getexley.com). Constantin Dietrich, our President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer, and a member of our board of directors, is the founder and Chief Executive Officer of Lakefield.
Functions and Services
We plan to enable users to not only consume digital content from the lifestyle, fashion and entertainment industry, but also to find, create and share the content within these verticals in which they are interested. Our service will connect consumers, creators and advertisers in an environment that is both engaging and social. By building a media network that delivers curated quality content we will offer a global platform that will enable the user to find, share and connect with like-minded people and opinion-leaders. The service is planned to be available on multiple platforms including web, tablet and mobile.
Revenue Model
We plan to generate revenue from advertisements and subscriptions.
Advertisements. One of the major benefits of advertising on a social media site is that advertisers can take advantage of the users’ demographic information and target their ads appropriately. We may sell advertisement space to companies that may be interested in targeting our subscribers. We anticipate that interested advertisers will include premium brand advertisers as well as local and regional advertisers who are looking for innovative new and exciting formats to carefully target the consumer to create an experience that benefits consumers and advertisers. The focus will be to offer content with targeted advertising that reaches the right audience with the right content and the right advertising.
Subscriptions. As the service matures, we may offer paid subscription services that enhance and augment the user experience. Further, there may be a cost for the consumer to download the application.
Competition
We expect that we will face substantial competition from dominant digital media and entertainment companies and websites such as gawker.com and Mode Media’s glam.com, as well as Facebook application providers in the social media space such as Pinterest. We believe that users often utilize multiple digital and social media and entertainment websites or applications, and the use of one of these website or application is not necessarily to the exclusion of others.
Achieving a critical mass of users or subscribers is crucial for digital and social websites and applications. Even though we seek to offer products and services that are unique in the industry, superior in quality, and more appealing than those of our competitors, we will need to establish a solid initial user base and critical mass.
Although we believe that we have access to the tools and certain inherent efficiencies to attract the initial user base, we need to do that at a lower cost per visitor than certain of our traditional online competitors in order to become successful. We also believe that the industry offers substantial room for growth as social networking application platforms and mobile platforms continue to expand and as the Internet especially mobile continues to become the primary source to engage with social media activities and consume, create and share news, events and other lifestyle-related content.
Marketing and Sales Strategy
The use of the Internet is continuing to evolve as a global platform for doing business. We anticipate that initially, our major focus will be to enhance the getexley.com website and the cultivation of our user base. We anticipate using various online marketing methods such as Facebook’s viral channels, online marketing programs and other advertising and marketing programs in order to drive traffic to our own website. We plan to take advantage of a well balanced mix of online and offline marketing strategies.
Our primary target market is focused on Internet users who already participate in social media websites. We, therefore, plan to take advantage of various well-established online marketing programs and make them an integral part of our long-term strategy. Our marketing campaigns will monitor daily statistics and track information such as interests, favorite topics and most read stories in order to quickly get synchronized with our Internet audience.
We plan to participate in other marketing activities that will also aim to raise awareness of the EXLEY brand and attract users by promoting the unique content and quality of our product and services. We plan to primarily advertise through Internet and mobile advertising and will have to run extensive user acquisition campaigns at any given time, targeting various classifications of users.
We plan to use media buying and in-house tools to effectively and efficiently track, measure and optimize the success of our advertising campaigns. We plan to initiate a marketing strategy with a focus on campaigns that we believe will produce a positive return on ad-spend in the medium- to long-term.
Online Advertising
The majority of our advertising and promotional activities will be concentrated on online advertising campaigns and search engine marketing (“SEM”). SEM is a form of internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages like Google or Bing through optimization and advertising. SEM may use search engine optimization (“SEO”) that adjusts or rewrites website content to achieve a higher ranking in search engine results pages or use pay per click listings. SEO is a technique which helps search engines find and rank a website or -page higher than others by affecting their visibility in a search engine’s “natural” or un-paid (“organic”) search results. Its objective is getting traffic from the “free,” “organic,” “editorial” or “natural” listings on search engines such as the major search engines Google, Yahoo and Bing that have such results. In general it is believed that a result (site) that appears earlier or higher and more frequently in the search results list on search engine results pages will get more visitors (traffic) from that search engine.
We have selected Google because of its success and popularity for web users wishing to find something using internet search. The Google Adwords program will allow us to customize the text of our advertisements, the frequency of each advertisement’s appearance, and the length of the advertising contract. For our purposes, we believe that this will give us the maximum amount of flexibility and allow us to closely monitor the costs of the marketing campaign.
Using this strategy will allow us also to design our own ads, and to select target locations such as a city or state and use keywords in our ads. A keyword is a word that is used by an Internet user who is performing an online search to find out information on a specific topic.
Optimizing Our Website
We plan to work with the website development contractor to optimize our website in terms of SEO. SEO may target various kinds of search, including name search, local or image search, video search or search for events and news. Based on the type of search, search engine results pages and other content such as videos or local listings are shown and ranked based on what the search engine considers most relevant to users. Payment is not involved, as it is with paid SEM search ads.
As part of our internet marketing strategy, we regard SEO to consider how search engines work, what users search for, the actual search terms or keywords typed into search engines and which search engines are preferred by their targeted audience. Thus, SEO may involve editing our website’s and pages’ content, HTML and associated coding to both increase its relevance to specific keywords and to remove barriers to the indexing activities of search engines. We therefore plan to work with the web site development contractor to develop a series of keywords or meta-tags for each of the pages of our web site. Meta-tags are keywords that are added to a web page to make it easier to find that specific web page through search engines, web browser software and other applications. The information is not intended to be seen by the casual Internet user. Search engines like Google and Yahoo are designed to seek out these keywords when someone is performing an Internet search for a specific topic.
Intellectual Property
We own one registered trademark for Granisol and an unregistered trade-mark “EXLEY.”
We are planning to develop the EXLEY website and intend to protect its contents by registering for appropriate copyright and trademark protection where we deem such registration necessary or beneficial. We have not conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we received independent opinions of counsel on such matters.
Governmental Regulations
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States and abroad, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. Any court ruling or other governmental action that imposes liability on providers of online services for the activities of their users and other third parties could harm our business. In addition, rising concern about the use of social media technologies for illegal conduct, such as the unauthorized dissemination of national security information, money laundering or supporting terrorist activities may in the future produce legislation or other governmental action that could require changes to our products or services, restrict or impose additional costs upon the conduct of our business or cause users to abandon material aspects of our service.
In the area of information security and data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to practically implement. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities.
We are also subject to federal, state, and foreign laws regarding privacy and protection of member data. We intend to post on our website our privacy policy and user agreement, which describe our practices concerning the use, transmission and disclosure of member data. Any failure by us to comply with our posted privacy policy or privacy related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the interpretation of data protection laws, and their application to the Internet is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to adequately protect our members’ privacy and data could result in a loss of member confidence in our services and ultimately in a loss of members and customers, which could adversely affect our business.
In addition, because we anticipate that our services will be accessible worldwide, certain foreign jurisdictions have claimed and others may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees, or infrastructure.
Research and Development Activities
During the years ended February 28, 2015 and 2014, we spent $0 and $102,300 on website development costs, respectively. We have plans to continue certain research and development activities related to the development of the Exley website.
Employees
At present, we have no employees other than Constantin Dietrich, our President, Chief Executive Officer, Chief Financial Officer, Treasurer and director. We intend to conduct our digital and social media and entertainment business largely through agreements with consultants and other independent third parties.
Recent Developments
On March 10, 2015, we entered into a debt settlement agreement (the “Debt Settlement Agreement”) with Leone Group, LLC (“Leone”), American Capital Ventures, Inc. (“ACV”), Georgia Georgopoulos, Catherine Cozias and Trels Investments, Ltd. (“Trels” and collectively with Leone, ACV, Ms. Georgopoulos and Ms. Cozias, the “Holders”). Pursuant to the Debt Settlement Agreement, the Company and the Holders agreed to settle all of the outstanding debt owed under certain promissory notes and accounts payable, to each of the Holders, and the Holders agreed to convert their respective portions of the debt into shares of restricted common stock of the Company. The Company agreed to issue an aggregate of 346,319,970 shares of common stock in settlement of $1,038,959 of debt owed by the Company to the Holders. As a result of the issuance of shares pursuant to the Debt Settlement Agreement, Leone and ACV each hold approximately 37% of the Company’s common stock. As of March 10, 2015, we had a total of approximately 409,202,970 shares of common stock issued and outstanding.
On March 10, 2015, Joseph Carusone submitted his resignation as Vice President, Investor Relations, and a member of our Board of Directors. On November 13, 2014, Joseph Arcuri submitted his resignation as a member of our Board of Directors. There were no disagreements between us and Mr. Arcuri or Mr. Carusone as to our operations, policies (including accounting or financial policies), or practices.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.
Risks Related to Our Company
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
During the year ended February 28, 2015, we generated a net loss of $423,421. From inception through February 28, 2015, we incurred an aggregate loss of $3,748,088. We anticipate that we will continue to generate losses and will require additional funding to remain in business. On February 28, 2015, we had cash and cash equivalents of $6,809. In order to fund our anticipated budget for the next 12 months, excluding any development or product acquisition costs, we will need to raise additional capital. We have traditionally raised our operating capital from the sale of equity securities and the placement of notes payable, but there can be no assurance that we will continue to be able to do so.
These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM on our financial statements for the year ended February 28, 2015. Although our financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business. Our financial statements contain additional note disclosure describing the circumstances that lead to this disclosure by our independent auditors.
If we fail to grow our user base, our revenue, business and operating results may be harmed.
The size of our user base is critical to our success. Our financial performance will be determined significantly by our success in growing the number of users. If people do not perceive our products and services to be useful, reliable and trustworthy, we may not be able to attract users and grow our revenue. A number of consumer-oriented websites that achieved early popularity have since seen their user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or engagement levels. A number of factors could potentially negatively affect user growth and engagement, including if:
● users engage with other products, services or activities as an alternative to ours;
● influential users or certain age demographics conclude that an alternative product or service is more relevant;
● we are unable to convince potential new users of the value and usefulness of our products and services;
● there is a decrease in the perceived quality of our content;
● we fail to introduce new and improved products or services or if we introduce new or improved products or services that are not favorably received;
● technical or other problems prevent us from delivering our products or services in a rapid and reliable manner or otherwise affect the user experience;
● we are unable to present users with content that is interesting, useful and relevant to them;
● users believe that their experience is diminished as a result of the decisions we make with respect to the frequency, relevance and prominence of advertisements that we display;
● there are user concerns related to privacy and communication, safety, security or other factors;
● there are adverse changes in our products or services that are mandated by, or that we elect to make to address, legislation, regulatory authorities or litigation, including settlements or consent decrees;
● we fail to provide adequate customer service to users; or
● we do not maintain our brand image or our reputation is damaged.
If we are unable to increase our user growth, or if it declines, this could result in our products and services being less attractive to potential new users, as well as advertisers, which would have a material and adverse impact on our business, financial condition and operating results.
Efforts to expand will place a significant strain on our management, operational, financial and other resources.
Given sufficient capital, we plan to expand our operations by marketing our Exley website, which will place a significant strain on our management, operations, technical performance and financial resources. There can be no assurance that we will be able to manage expansion effectively. Our current and planned personnel, systems, procedures, and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel in multiple geographic locations. We may not be able to hire, train, retain, motivate, and manage required personnel, which may limit our growth. If any of this were to occur, it could damage our reputation, limit our growth, negatively affect our operating results and harm our business. We do not currently have the required capital to market either of the offerings.
We are an early-stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.
We are an early-stage company with a limited operating history upon which to base an evaluation of our new business. As a result, the revenue and income potential of our new business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.
Our development efforts rely on external software engineers.
We will be dependent on outside software engineers to drive our development. If our management is not able to execute on our business plan, it is likely stockholders would lose their entire investment.
Risks Relating to the Digital and Social Media and Entertainment Business
We are a digital and social media and entertainment company in a highly competitive field with high investment costs and high risks.
We are a digital and social media and entertainment company. We must achieve a certain level of users of our website, Exley before it can be monetized and produce revenue for us. We will have to raise substantial additional capital to drive users to our website and eventually generate revenues and reach profitability, if ever. We will be dependent upon selling advertisements and finding other ways to monetize our users by selling add-on services. For a social application or site to be able to sell advertisements, it must first attract a sufficient number of users to gain the interest of advertisers in buying ads and offering products on the site or the application. It will take time, management effort and capital to attract users to our website. There can be no assurance that any users will come. These timeframes, along with the general state of development create additional uncertainty as to the potential success of our website. The application may not continue to work as we plan and even if it does, there can be no assurance that an economically viable level of users will come, that advertisers will want to advertise or that we can monetize it. Therefore, it will be costly to maintain the application and market it to attract users and advertisers.
We are entering a very crowded digital and social media and entertainment marketplace where existing competitors have years of experience, are well financed and have the name recognition to draw consumers, none of which we possess.
Our board of directors has determined that the future direction of our company will focus on development of Exley website. This puts our business focus in a very competitive field dominated by several very large and well financed companies such as Facebook, MySpace and Twitter. These companies have established an online presence and community that have become destinations in and of themselves and it will be difficult to make inroads into this space. We will be dependent on a new twist to entry into this space but in the end, all social media sites have similar features and it is likely that if any part of our offering becomes compelling, the competitors will adjust their offerings to be directly competitive with us. This creates substantial uncertainty on our ability to survive in this space or to be able to attract enough users to be able to monetize our site to produce revenues.
The revenue models for our digital and social media and entertainment business require we first obtain a sufficient number of users of our website before we can sell advertisements or generate other revenue and it will take time to generate such users and to then monetize the site.
We will be dependent on selling advertisements and finding other ways to monetize our users by selling add-on services. For a social media site to be able to sell advertisements, they first must attract a sufficient number of users to gain the interest of advertisers in buying ads on the sites. It will take time and money to bring users to our site and there is no assurance any users will come. These time frames along with the general state of development create additional uncertainty as to the potential success of our company. The site may not work as we plan and even if they do there can be no assurance any users will come, that advertisers will want to advertise or that we can monetize them. Additionally, it will be costly to maintain the offerings and market them to attract users.
The security risks or perception of risks of using social media websites may discourage users from using our website.
We and other market participants must be able to transmit confidential information securely over public networks. Third parties may have the technology or know-how to breach the security of user data. Any breach could cause users to lose confidence in the security of our website and choose not use our site.
We cannot assure you that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach of the algorithms that we will use to protect user data. If any such compromise of our security were to occur, it could harm our reputation, business, prospects, financial condition and results of operations. A party who is able to circumvent our security measures could misappropriate information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. We cannot assure you that our security measures will prevent security breaches or that failure to prevent such security breaches will not harm our business, prospects, financial condition and results of operations.
We may be liable if third parties misappropriate our users’ personal information.
If third parties are able to penetrate our network security or otherwise misappropriate our users’ personal information, or if we give third parties improper access to our users’ personal information, we could be subject to liability. This liability could include claims for impersonation or other similar fraud claims. This liability could also include claims for other misuses of personal information, including unauthorized marketing purposes. These claims could result in litigation. Liability for misappropriation of this information could adversely affect our business. In addition, the Federal Trade Commission and state agencies have been investigating various Internet companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the use of personal information are introduced or if government agencies investigate our privacy practices.
System and online security failures could harm our business and operating results.
Our services will depend on the efficient and uninterrupted operation of our computer and communications hardware systems. Our systems and operations will be vulnerable to damage or interruption from a number of sources, including fire, flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. Our Internet host provider does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are also vulnerable to computer viruses, physical, electrical or electronic break-ins and similar disruptions. Any substantial interruptions could result in the loss of data and could completely impair our ability to generate revenues from our service. We do not presently have a full disaster recovery plan in effect to cover the loss of all facilities and equipment.
We currently do not have any patents associated with our Exley website and if we are not able to develop intellectual property protection around our product offering, we may not be able to prevent competitors from recreating our product offering.
Other than certain unregistered trademarks, we do not have any intellectual property protection on the features and software behind our Exley website. We are planning to develop our website and intend to protect its contents by registering for appropriate copyright and trademark protection where our management deems such registration necessary or beneficial, but there is no assurance that we will be able to obtain such protection. We have not conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we received independent opinions of counsel on such matters.
If we do not respond to rapid technological changes, our services could become obsolete and we could lose users.
To remain competitive, we will need to continually enhance and improve the functionality and features of our digital and social media and entertainment website. We may face material delays in introducing new services, products and enhancements. If this happens, our users may forgo the use of our website and use those of our competitors. The Internet and the digital and social media and entertainment industry are rapidly changing. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing website and our technology and systems may become obsolete. Our failure to respond to technological change or to adequately maintain, upgrade and develop our computer network and the systems used to process users’ uses of our website could harm our business, prospects, financial condition and results of operations.
Existing or future government regulation could harm our business, results of operation and financial condition.
We are subject to the same federal, state and local laws as other companies conducting business on the Internet. Today there are relatively few laws specifically directed towards conducting business on the Internet. However, due to the increasing popularity and use of the Internet, many laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and regulations could cover issues such as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm our business. For example, United States and foreign laws regulate our ability to use user information and to develop, buy and sell mailing lists. The vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised thereby. Those laws that do reference the Internet are only beginning to be interpreted by the courts and their applicability and reach are therefore uncertain. These current and future laws and regulations could harm our business, results of operation and financial condition.
The content of our website could expose us to various kinds of liability, which, if prosecuted successfully, could negatively impact our business.
We will face potential liability for negligence, copyright infringement, patent infringement, trademark infringement, defamation, and/or other claims based on the nature and content of the materials our user’s post. Various claims have been brought, and sometimes successfully prosecuted, against Internet content distributors. We could be exposed to liability with respect to the unauthorized duplication of content or unauthorized use of other parties’ proprietary technology. Any imposition of liability that is not covered by insurance, or is in excess of insurance coverage, could materially adversely affect our financial condition and results of operations. Any claim of infringement, with or without merit, could be time consuming, result in costly litigation or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us, or at all. As a result, any such claim of infringement against us could have a material adverse effect upon our business, financial condition, results of operations and cash flows.
Risks Relating to Our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 450,000,000 shares of common stock with a par value of $0.0001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.
Although our common stock is currently listed for quotation on the OTCQB operated by the OTC Markets Group, trading through the OTCQB is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
Our corporate headquarters are located at 330 Clematis Street, Suite 217, West Palm Beach, Florida 33401. One of our significant stockholders has provided use of the office space to us free of charge.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTCQB operated by the OTC Markets Group. Our symbol is “QUNI.”
The following table shows the quarterly range of high and low bid information for our common stock over the fiscal quarters for the last two fiscal years as quoted on the OTCQB. We obtained the following high and low bid information from the OTCQB. These over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
Not adjusted for a three-for-one forward stock split, which became effective with the OTC Markets Group on August 7, 2013.
There were no bids for this quarter.
On May 22, 2015, the closing price of our common stock on the OTCQB was $0.0067 per share.
Holders of Common Stock
As of May 22, 2015, there were 29 holders of record of our common stock. As of such date, 409,202,970 shares were issued and outstanding.
Dividends
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
Effective February 18, 2011, our board of directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of our company by offering opportunities to directors, key employees, officers, independent contractors and consultants of our company to acquire and maintain stock ownership in our company in order to give these persons the opportunity to participate in our company’s growth and success, and to encourage them to remain in the service of our company. A total of 6,000,000 shares of our common stock are available for issuance and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan by our board of directors, and during each 12 month period thereafter, our board of directors is authorized to increase the number of shares issuable by up to 1,500,000 shares.
The following table summarizes certain information regarding our equity compensation plan as of February 28, 2015.
Recent sales of unregistered securities
During the fiscal year ended February 28, 2015, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This annual report on Form 10-K contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report on Form 10-K and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are set forth in the “Risk Factors” section of this annual report on Form 10-K.
We caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations 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.
The following discussion should be read in conjunction with our unaudited financial statements and the related notes that appear elsewhere in this annual report on Form 10-K.
Overview
We are a digital and social media and entertainment company founded to connect people with content relating to their passions and interests, and with each other. As a key component of our cross-platform implementation, we are pioneering a mobile-native philosophy to transform the way the public consumes news and information. This philosophy is supported by both proprietary technology and a team of international experts that are enabling content creation and consumption specifically for any smartphone or tablet device. In doing so, we believe we offer substantial value to businesses, brands and advertisers. This value will be facilitated by leveraging user data to offer specific targeted advertising and by integrating online marketing such as native and programmatic advertising, including real-time bidding. With real-time bidding, the value of an advertisement is determined in real-time based on the demographic of the user who will see the advertisement and the outcome of an auction, which selects the winning advertiser.
The concept of our network is being engineered with a powerful digital ecosystem at its core. In addition to matching each user with content that is customized to that user’s interests, this center of activities processes and organizes all of the information and user data across our entire digital and social network. Feature-rich applications for iPhone, Android and Blackberry will allow users to follow the stories that matter most to them and receive up-to-the-second updates on those stories as they evolve over time. In doing so, they have important facts, statistics, quotes and multimedia without fluff, and remain updated without re-reading old information.
We strive to become an industry leader through innovation. For example, our ecosystem supports citizen journalism, a socially innovative feature that puts reporting into the public’s hands. Both efficient and interactive, it allows individuals to submit stories (scoops), photos and video of breaking news in any industry and monetize their own content. Bloggers and other individual authors can also partner with us by contributing sought-after content to its communities. In return, partners can generate both traffic and revenue.
We are initially focused on brands relating to lifestyle, entertainment and fashion, with plans to expand our ecosystem to include social networking. Our underlying technology can be applied to any type of content community, regardless of the industry vertical. It is enterprise-grade and infinitely scalable, providing an excellent opportunity to support acquisitions and expansion.
We believe our users are a ready audience for businesses and brands seeking to promote their products and services. By incorporating a secure business intelligence data collection strategy across our ecosystem, we can leverage our valuable user data as a saleable commodity. The power of data analytics coupled with real-time access will help marketers effectively reach their target audiences.
Our Business
Exley
In 2013, we acquired the internet domain name “Slickx.com,” the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure from Lakefield Media Holding AG (“Lakefield”) for $50,000. The platform was subsequently developed further and rebranded “Exley” (getexley.com). Constantin Dietrich, our President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer, and a member of our board of directors, is the founder and Chief Executive Officer of Lakefield.
Functions and Services
We plan to enable users to not only consume digital content from the lifestyle, fashion and entertainment industry, but also to find, create and share the content within these verticals in which they are interested. Our service will connect consumers, creators and advertisers in an environment that is both engaging and social. By building a media network that delivers curated quality content we will offer a global platform that will enable the user to find, share and connect with like-minded people and opinion-leaders. The service is planned to be available on multiple platforms including web, tablet and mobile.
Revenue Model
We plan to generate revenue from advertisements and subscriptions.
Advertisements. One of the major benefits of advertising on a social media site is that advertisers can take advantage of the users’ demographic information and target their ads appropriately. We may sell advertisement space to companies that may be interested in targeting our subscribers. We anticipate that interested advertisers will include premium brand advertisers as well as local and regional advertisers who are looking for innovative new and exciting formats to carefully target the consumer to create an experience that benefits consumers and advertisers. The focus will be to offer content with targeted advertising that reaches the right audience with the right content and the right advertising.
Subscriptions. As the service matures, we may offer paid subscription services that enhance and augment the user experience. Further, there may be a cost for the consumer to download the application.
Competition
We expect that we will face substantial competition from dominant digital media and entertainment companies and websites such as gawker.com and Mode Media’s glam.com, as well as Facebook application providers in the social media space such as Pinterest. We believe that users often utilize multiple digital and social media and entertainment websites or applications, and the use of one of these website or application is not necessarily to the exclusion of others.
Achieving a critical mass of users or subscribers is crucial for digital and social websites and applications. Even though we seek to offer products and services that are unique in the industry, superior in quality, and more appealing than those of our competitors, we will need to establish a solid initial user base and critical mass.
Although we believe that we have access to the tools and certain inherent efficiencies to attract the initial user base, we need to do that at a lower cost per visitor than certain of our traditional online competitors in order to become successful. We also believe that the industry offers substantial room for growth as social networking application platforms and mobile platforms continue to expand and as the Internet especially mobile continues to become the primary source to engage with digital and social media and entertainment activities and consume, create and share news, events and other lifestyle-related content.
Marketing and Sales Strategy
The use of the Internet is continuing to evolve as a global platform for doing business. We anticipate that initially, our major focus will be to enhance the getexley.com website and the cultivation of our user base. We anticipate using various online marketing methods such as Facebook’s viral channels, online marketing programs and other advertising and marketing programs in order to drive traffic to our own website. We plan to take advantage of a well balanced mix of online and offline marketing strategies.
Our primary target market is focused on Internet users who already participate in social media websites. We, therefore, plan to take advantage of various well-established online marketing programs and make them an integral part of our long-term strategy. Our marketing campaigns will monitor daily statistics and track information such as interests, favorite topics and most read stories in order to quickly get synchronized with our Internet audience.
We plan to participate in other marketing activities that will also aim to raise awareness of the EXLEY brand and attract users by promoting the unique content and quality of our product and services. We plan to primarily advertise through Internet and mobile advertising and will have to run extensive user acquisition campaigns at any given time, targeting various classifications of users.
We plan to use media buying and in-house tools to effectively and efficiently track, measure and optimize the success of our advertising campaigns. We plan to initiate a marketing strategy with a focus on campaigns that we believe will produce a positive return on ad-spend in the medium- to long-term.
Online Advertising
The majority of our advertising and promotional activities will be concentrated on online advertising campaigns and search engine marketing (“SEM”). SEM is a form of internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages like Google or Bing through optimization and advertising. SEM may use search engine optimization (“SEO”) that adjusts or rewrites website content to achieve a higher ranking in search engine results pages or use pay per click listings. SEO is a technique which helps search engines find and rank a website or -page higher than others by affecting their visibility in a search engine’s “natural” or un-paid (“organic”) search results. Its objective is getting traffic from the “free,” “organic,” “editorial” or “natural” listings on search engines such as the major search engines Google, Yahoo and Bing that have such results. In general it is believed that a result (site) that appears earlier or higher and more frequently in the search results list on search engine results pages will get more visitors (traffic) from that search engine.
We have selected Google because of its success and popularity for web users wishing to find something using internet search. The Google Adwords program will allow us to customize the text of our advertisements, the frequency of each advertisement’s appearance, and the length of the advertising contract. For our purposes, we believe that this will give us the maximum amount of flexibility and allow us to closely monitor the costs of the marketing campaign.
Using this strategy will allow us also to design our own ads, and to select target locations such as a city or state and use keywords in our ads. A keyword is a word that is used by an Internet user who is performing an online search to find out information on a specific topic.
Optimizing Our Website
We plan to work with the website development contractor to optimize our website in terms of SEO. SEO may target various kinds of search, including name search, local or image search, video search or search for events and news. Based on the type of search, search engine results pages and other content such as videos or local listings are shown and ranked based on what the search engine considers most relevant to users. Payment is not involved, as it is with paid SEM search ads.
As part of our internet marketing strategy, we regard SEO to consider how search engines work, what users search for, the actual search terms or keywords typed into search engines and which search engines are preferred by their targeted audience. Thus, SEO may involve editing our website’s and pages’ content, HTML and associated coding to both increase its relevance to specific keywords and to remove barriers to the indexing activities of search engines. We therefore plan to work with the web site development contractor to develop a series of keywords or meta-tags for each of the pages of our web site. Meta-tags are keywords that are added to a web page to make it easier to find that specific web page through search engines, web browser software and other applications. The information is not intended to be seen by the casual Internet user. Search engines like Google and Yahoo are designed to seek out these keywords when someone is performing an Internet search for a specific topic.
Intellectual Property
We own one registered trademark for Granisol and an unregistered trade-mark “EXLEY.”
We are planning to develop the EXLEY website and intend to protect its contents by registering for appropriate copyright and trademark protection where we deem such registration necessary or beneficial. We have not conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we received independent opinions of counsel on such matters.
Recent Developments
On March 10, 2015, we entered into a debt settlement agreement (the “Debt Settlement Agreement”) with Leone Group, LLC (“Leone”), American Capital Ventures, Inc. (“ACV”), Georgia Georgopoulos, Catherine Cozias and Trels Investments, Ltd. (“Trels” and collectively with Leone, ACV, Ms. Georgopoulos and Ms. Cozias, the “Holders”). Pursuant to the Debt Settlement Agreement, the Company and the Holders agreed to settle all of the outstanding debt owed under certain promissory notes and accounts payable, to each of the Holders, and the Holders agreed to convert their respective portions of the debt into shares of restricted common stock of the Company. The Company agreed to issue an aggregate of 346,319,970 shares of common stock in settlement of $1,038,959 of debt owed by the Company to the Holders. As a result of the issuance of shares pursuant to the Debt Settlement Agreement, Leone and ACV each hold approximately 37% of the Company’s common stock. As of March 10, 2015, we had a total of approximately 409,202,970 shares of common stock issued and outstanding.
On March 10, 2015, Joseph Carusone submitted his resignation as Vice President, Investor Relations, and a member of our Board of Directors. On November 13, 2014, Joseph Arcuri submitted his resignation as a member of our Board of Directors. There were no disagreements between us and Mr. Arcuri or Mr. Carusone as to our operations, policies (including accounting or financial policies), or practices.
Results of Operations
Revenues
During the years ended February 28, 2015 and 2014, we generated revenue of $74 and $24, respectively.
Operating Expenses
During the year ended February 28, 2015, we incurred operating expenses totaling $492,267, compared with $534,230 for the year ended February 28, 2014. The decrease of $41,963 in operating expenses is mainly attributable to a decrease in professional fees of $208,999, a decrease in consulting fees - related party of $39,223 and a decrease in general and administrative expenses of $107,661 primarily attributable to a curtailment of operations, offset an increase in website amortization expense of $$34,880 and an increase in an impairment loss of $279,040. In November 2014, we assessed our long-lived assets for any impairment and concluded that there were indicators of impairment as of November 30, 2014 and we calculated that the estimated undiscounted cash flows were less than the carrying amount of the intangible asset. Based on our analysis, we recognized an impairment loss of $279,040 for the year ended February 28, 2015 which reduced the value of capitalized website and website development costs to $0. We did not record any impairment charge on website and website development costs during the year ended February 28, 2014.
Other Expenses
During the year ended February 28, 2015, we incurred interest expense of $40,677, as compared with $31,716 for the year ended February 28, 2014. The increase was due to an increase in our borrowings during the 2015 period.
Loss from Operations
During the year ended February 28, 2015, we realized a loss from continuing operations of $532,870, compared with a loss from continuing operations of $565,922 for the year ended February 28, 2014. The $33,052 increase in loss from continuing operations is mainly attributable to the factors discussed above.
Income (Loss) from Discontinued Operations
During the year ended February 28, 2015, we recorded a gain (loss) from discontinued operations of $109,449, as compared with $(191,481) for the year ended February 28, 2014.
Net Loss
During the year ended February 28, 2015, we realized a net loss of $423,421, or $0.01 per common share, as compared with a net loss of $757,403, or $0.01 per common share, for the year ended February 28, 2014.
Liquidity and Capital Resources
Our financial condition at February 28, 2015 and February 28, 2014 for the respective items are summarized below. We have suffered recurring losses from inception. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our directors and shareholders, the continued issuance of equity to new or existing shareholders, and our ability to achieve and maintain profitable operations.
Working Capital Deficit
Cash Flows
Cash Used in Operating Activities
Our cash used in operating activities for the year ended February 28, 2015, compared to our cash used in operating activities for the year ended February 28, 2014, decreased $191,079, mainly due to a decrease in net loss in fiscal 2015 and compared to fiscal 2014.
Cash Used in Investing Activities
Our cash used in investing activities for the year ended February 28, 2015 was $0, compared to $152,300 for the year ended February 28, 2014, primarily due to during the year ended February 28, 2014, we used cash on websites and website development. We did not invest in these items during the year ended February 28, 2015.
Cash Provided By Financing Activities
Our cash provided by financing activities for the year ended February 28, 2015 was $175,000 due to the issuance of two short-term promissory notes, compared to cash provided by financing activities of $25,000 for the year ended February 28, 2014 from proceeds received from the sale of our common stock of $75,000 and proceeds from promissory notes of $150,000 offset by from the repayment of short-term promissory notes of $200,000.
Cash Requirements
Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation 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 that is material to our stockholders.
Going Concern
Our financial statements and information for the year ended February 28, 2015 have been prepared by our management on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have generated limited revenues to date, had a net loss of $423,421 for the year ended February 28, 2015 and had a stockholders deficit, accumulated deficit and working capital deficit of $1,044,259, $3,748,088 and $1,044,259 at February 28, 2015, respectively. We cannot provide any assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional funds through the sale of debt and/or equity.
On February 28, 2015, we had cash of $6,809. Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months. If we are unable to raise additional capital in the near future, we expect that we will need to curtail operations, liquidate any assets that we might own, seek additional capital on less favorable terms and/or pursue other remedial measures. Our financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Future Financing
We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist.
There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.
Critical Accounting Policies
We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.
Impairment of long-lived assets
In accordance with ASC Topic 360, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. Based on our analysis, we recognized an impairment loss of $279,040 for the year ended February 28, 2015 which reduced the value of intangible assets acquired to $0.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on pages to of this annual report on Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On March 12, 2015, the Company’s Board of Directors approved the dismissal of MaloneBailey, LLP (“MaloneBailey”) as our independent registered public accounting firm. MaloneBailey was engaged as our independent registered public accounting firm to audit our financial statements for the fiscal year ended February 28, 2014. The Company informed MaloneBailey of its dismissal on March 12, 2015. The decision to dismiss MaloneBailey was effective as of the date of notification of dismissal.
The report of MaloneBailey on our financial statements for the fiscal year ended February 28, 2014 did not contain an adverse opinion or a disclaimer of opinion, nor was either such report qualified or modified as to uncertainty, audit scope, or accounting principles, except that such report raised substantial doubts on our ability to continue as a going concern as a result of our continued losses from operations since inception, and our stockholders’ and working capital deficiencies.
During the fiscal year ended February 28, 2014, and through the date of dismissal, (a) we had no disagreements with MaloneBailey on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of MaloneBailey, would have caused it to make reference to the subject matter of the disagreement in connection with its reports and (b) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K), except that, in connection with MaloneBailey’s audit of our financial statements for the fiscal year ended February 28, 2014, MaloneBailey advised us that there was a material weakness in our internal control over financial reporting relating to (1) the lack of multiple levels of management review on complex accounting and financial reporting issues, and (2) a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems.
We provided MaloneBailey with a copy of this disclosure prior to its filing with the SEC, and requested that MaloneBailey furnish us with a letter addressed to the SEC stating whether they agree with the statements made in this Current Report on Form 8-K, and if not, stating the aspects with which they do not agree. A copy of the letter provided by MaloneBailey was filed as Exhibit 16.1 to our current report on Form 8-K filed with the SEC on March 16, 2015.
On March 12, 2015, our Board of Directors approved the engagement of Salberg & Company, P.A. (“Salberg”) as our independent registered public accounting firm, and Salberg was engaged on March 12, 2015. During our two most recent fiscal years and through March 11, 2015, neither the Company nor anyone on its behalf consulted Salberg regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us that Salberg concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of February 28, 2015, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified, in our report on internal control over financial reporting.
Internal control over financial reporting
Management’s annual report on internal control over financial reporting
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of February 28, 2015. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of February 28, 2015, our internal control over financial reporting was not effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting: (1) the lack of multiples levels of management review on complex accounting and financial reporting issues, and (2) a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems. Until such time as we expand our staff to include additional accounting personnel and hire a full time chief financial officer, it is likely we will continue to report material weaknesses in our internal control over financial reporting.
A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of Controls
Our principal executive officer and principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended February 28, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our sole director and executive officer, his age, positions held, and duration of such, are as follows:
Name
Position Held with
our Company
Age
Date First Elected
or Appointed
Constantin Dietrich
Director
February 15, 2013
President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer
August 7, 2013
Business Experience
The following is a brief account of the education and business experience of our sole director and executive officer during at least the past five years, indicating his principal occupation during the period, and the name and principal business of the organization by which he was employed:
Constantin Dietrich: Mr. Dietrich has over 20 years of experience in private equity, investing, marketing, media and executive/management leadership. Since 2012, he has acted as the Chief Executive Officer of Lakefield Media Holding AG, a company that he founded to acquire and leverage established digital and social media properties, located in Switzerland. Mr. Dietrich has expertise in social networks and social discovery. Mr. Dietrich holds a Bachelor of Science degree in business administration from UC of Syracuse University.
We believe Mr. Dietrich is qualified to serve on our board of directors because of his education and business experiences as described above.
Involvement in Certain Legal Proceedings
Our sole director and executive officer has not been involved in any of the following events during the past 10 years:
1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
4. being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5. being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6. being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self- regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons we believe that during year ended February 28, 2015, all filing requirements applicable to our executive officers and directors, and persons who own more than 10% of our common stock were complied with.
Code of Ethics
We have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.
Corporate Governance
Term of Office
Each director of our company is to serve for a term of one year ending on the date of subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified or until his death, resignation or removal. Our board of directors is to elect our officers and each officer is to serve until his successor is elected and qualified or until his death, resignation or removal.
Committees of the Board
Our board of directors held no formal meetings during the year ended February 28, 2015. All proceedings of our board of directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and our By-laws, as valid and effective as if they had been passed at a meeting of our directors duly called and held.
We currently do not have nominating or compensation committees or committees performing similar functions nor do we have a written nominating or compensation committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our board of directors.
We do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.
A shareholder who wishes to communicate with our board of directors may do so by directing a written request to the address appearing on the first page of this annual report.
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee at the present time. Our board of directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.
We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The particulars of compensation paid to the following persons:
(a) our principal executive officers;
(b) each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended February 28, 2015; and
(c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year, who we will collectively refer to as the named executive officers, for our fiscal years ended February 28, 2015 and 2014, are set out in the following summary compensation table:
SUMMARY COMPENSATION TABLE
(1) Mr. Carusone resigned as an executive officer on March 10, 2015.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of February 28, 2015.
Compensation of Directors
Our board of directors has received no compensation to date and there are no plans to compensate them in the near future, unless and until we become profitable in our business operations. We may issue options in the future as we retain the services of independent directors.
The table below shows the compensation of our non-employee directors for their services as directors for the fiscal year ended February 28, 2015:
(1) Mr. Arcuri resigned as a director on November 13, 2014.
Long-Term Incentive Plans, Retirement or Similar Benefit Plans
There are currently no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that we may reimburse our executive employees for up to 70% of their health insurance premiums under their individual policies. We may provide employee benefit plans to our employees in the future.
Our directors, executive officers and employees may receive stock options at the discretion of our board of directors.
Resignation, Retirement, Other Termination, or Change in Control Arrangements
We do not have arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock and preferred stock as of May 22, 2015, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each director and each of our Named Executive Officers and (iii) all executive officers and directors as a group. As of May 22, 2015, there were 409,202,970 shares of our common stock outstanding.
The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
ITEM 13.
ITEM 13. CERTAIN RELATNSHIPS AND RELATED TRANSACTIONS, AND DIRCTOR INDEPENDENCE
Transactions with Related Persons
Except as disclosed below, since March 1, 2013, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:
(i) Any director or executive officer of our company;
(ii) Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
(iii) Any of our promoters and control persons; and
(iv) Any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons.
On May 17, 2013, we entered into a Web Site Asset Purchase Agreement with Lakefield Media Holding AG and its wholly-owned subsidiary, Flawsome XLerator GmbH to acquire the internet domain name “Slickx.com”, the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure for $50,000. On May 21, 2013, we completed the acquisition of these assets and paid $50,000 to Lakefield. Constantin Dietrich, a director and executive officer of our company, is the founder and Chief Executive Officer of Lakefield.
On March 8, 2013, we entered into a Business Development/Advisory Services Agreement with Phys Pharma LLC, a company of which Dr. Cameron Durrant, former President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and a director of our company, is a principal, pursuant to which Phys Pharma agreed to provide us a list of select biopharmaceutical companies which might have an interest in acquiring Granisol and assist us in marketing and selling Granisol to the prospective purchasers. If we sell Granisol to the prospective purchaser introduced by Phys Pharma, we agreed to pay Phys Pharma a fee in an amount equal to 20% of the net proceeds received by us at closing. The Business Development/Advisory Services Agreement expired in March 2014.
Director Independence
Our common stock is quoted on the OTCQB operated by the OTC Markets Group, which does not impose any director independence requirements. Under NASDAQ Marketplace Rule 5605(a)(2), a director is not considered to be independent if he is also an executive officer or employee of the company. We currently have no independent directors as that term is defined by NASDAQ Marketplace Rule 5605(a)(2).
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The following table sets forth the fees billed to our company for the years ended February 28, 2015 and 2014 for professional services rendered by independent registered public accounting firms:
(1) Of these fees, $5,000 relates to services rendered by Salberg & Company, P.A., our current independent registered public accounting firm, and $9,500 relates to services rendered by MaloneBailey LLP, our former independent registered public accounting firm. See Item 9, “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.”
Pre-Approval Policies and Procedures
Our entire board of directors, which acts as our audit committee, pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by our board of directors before the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent registered public accounting firm and believe that the provision of services for activities unrelated to the audit is compatible with maintaining their respective independence.
PART IV
ITEM 15.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Exhibits required by Item 601 of Regulation S-K:
No.
Description
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s registration statement on Form 10-SB filed with the SEC on September 8, 2006).
3.2
Certificate of Change (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on September 15, 2008).
3.3
Articles of Merger (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on December 28, 2010).
3.4
Certificate of Change effective August 7, 2013 (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on August 8, 2013).
3.5
Articles of Merger dated effective August 7, 2013 (incorporated by reference to Exhibit 3.2 to the registrant’s current report on Form 8-K filed with the SEC on August 8, 2013).
3.6
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on November 1, 2013).
10.1
Form of promissory note dated June 15, 2009 (incorporated by reference to Exhibit 10.5 to the registrant’s quarterly report on Form 10-Q filed with the SEC on June 16, 2009).
10.2
Form of Promissory Note dated July 26, 2010 (incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8- K filed with the SEC on July 29, 2010).
10.3
Form of Promissory Note dated September 16, 2010 (incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8- K filed with the SEC on September 28, 2010).
10.4+
2011 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8- K filed with the SEC on February 22, 2011).
10.5
Form of Promissory Note Amendment dated May 18, 2011 (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8- K filed with the SEC on May 18, 2011).
10.6
Form of Promissory Note Amendment dated May 23, 2011 (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8- K filed with the SEC on May 23, 2011).
10.7
Form of $50,000 Promissory Note Amendment dated April 19, 2012(incorporated by reference to Exhibit 4.2 to the registrant’s annual report on Form 10-K for the fiscal year ended February 29, 2012 filed with the SEC on May 18, 2012).
10.8
Form of $250,000 Promissory Note Amendment dated April 19, 2012 (incorporated by reference to Exhibit 4.3 to the registrant’s annual report on Form 10-K for the fiscal year ended February 29, 2012 filed with the SEC on May 18, 2012).
10.9
Termination Agreement dated June 27, 2012 with Apricus Biosciences, Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on June 28, 2012).
10.10
Form of $200,000 Promissory Note Amendment dated July 25, 2012 (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on July 27, 2012).
10.11
Form of $50,000 Promissory Note Amendment dated July 25, 2012 (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on July 31, 2012).
10.12
Form of $250,000 Promissory Note Amendment dated July 25, 2012 (incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed with the SEC on July 31, 2012).
10.13
Web Site Asset Purchase Agreement dated May 17, 2013 between Lakefield Media Holding AG, Flawsome XLerator GmBH and Pediatrix Inc. (incorporated by reference to Exhibit 10.49 to the registrant’s annual report on Form 10-K for the fiscal year ended February 28, 2013 filed with the SEC on June 28, 2013).
10.14
Consulting Agreement dated May 29, 2013 with Flawsome XLerator GmBH (incorporated by reference to Exhibit 10.50 to the registrant’s annual report on Form 10-K for the fiscal year ended February 28, 2013 filed with the SEC on June 28, 2013).
10.15
Form of Private Placement Subscription Agreement including Form of Promissory Note (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on September 26, 2013).
10.16
Form of Promissory Note Amendment dated August 31, 2013 (incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed with the SEC on September 26, 2013).
10.17
Form of Promissory Note Amendment dated August 31, 2013 (incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed with the SEC on September 26, 2013).
10.18
Form of Private Placement Subscription Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on December 2, 2013).
10.19
Form of Warrant Certificate (incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed with SEC on December 2, 2013).
10.20
Form of subscription agreement with promissory note attached (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on February 18, 2014).
10.21
Form of subscription agreement with promissory note attached (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on April 4, 2014).
10.22
Form of subscription agreement with promissory note attached (incorporated by reference to Exhibit 10.23 to the registrant’s quarterly report on Form 10-Q for the fiscal quarter ended May 31, 2014, filed with the SEC on July 21, 2014).
10.23
Form of subscription agreement with promissory note attached (incorporated by reference to Exhibit 10.23 to the registrant’s quarterly report on Form 10-Q for the fiscal quarter ended August 31, 2014, filed with the SEC on October 14, 2014).
10.24
Debt Settlement Agreement dated March 10, 2015 by and between Quint Media Inc., Leone Group, LLC, American Capital Ventures, Inc., Georgia Georgopoulos, Catherin Cozias and Trels Investments, Ltd. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on March 16, 2015).
21.1*
Subsidiaries of Quint Media Inc.
31.1*
Certification of Principal Executive Officer and 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
101.CAL*
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*
XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE*
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
* Filed herewith.
+ Management contract or other compensatory plan, contract or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
QUINT MEDIA INC.
Dated: May 29, 2015 By: /s/ Constantin Dietrich
Constantin Dietrich
President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Constantin Dietrich
President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director (principal executive officer, principal financial officer and principal accounting officer)
May 29, 2015
Constantin Dietrich
QUINT MEDIA, INC.
February 28, 2015 and 2014
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of:
Quint Media, Inc.
We have audited the accompanying balance sheet of Quint Media, Inc. as of February 28, 2015 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quint Media, Inc. as of February 28, 2015 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company had a net loss and net cash used in operations of $423,421 and $181,148, respectively for the year ended February 28, 2015. The Company has a working capital deficit, accumulated deficit and stockholders’ deficit of $1,044,259, $3,748,088 and $1,044,259, respectively, at February 28, 2015. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
Boca Raton, Florida
May 28, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Quint Media, Inc.
(formerly PediatRx Inc.)
(A Development Stage Company)
Miami, Florida
We have audited the accompanying balance sheet of Quint Media, Inc. (formerly PediatRx Inc.) (a development stage company) (the “Company”) as of February 28, 2014 and the related statement of operations, stockholders’ equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 28, 2014 and the related results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas
June 12, 2014
QUINT MEDIA, INC.
BALANCE SHEETS
See accompanying notes to financial statements.
QUINT MEDIA, INC.
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements.
QUINT MEDIA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED FEBRUARY 28, 2015 and 2014
See accompanying notes to financial statements.
QUINT MEDIA, INC.
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Quint Media Inc. (formerly PediatRx Inc.) (the “Company”, “Quint”, “we” , “us” or “our”) was incorporated under the laws of the State of Nevada on March 18, 2005. From the date of its acquisition of Granisol® (granisetron #C1) oral solution, on July 23, 2010, until early fiscal year 2014, Quint engaged in the pharmaceutical business. During the fiscal year ending February 28, 2014, Quint decided to divest itself of the balance of its pharmaceutical assets and engage in the digital media business, which encompasses social discovery aspects of the internet, primarily through an engagement website with mobile and tablet applications.
Effective August 7, 2013, Quint affected a three-for-one forward stock split of its authorized, and issued and outstanding shares of common stock. Authorized common stock increased from 150,000,000 shares of common stock to 450,000,000 shares of common stock, and issued and outstanding capital increased from 20,836,000 shares of common stock to 62,508,000 shares of common stock. All share and per share data in the accompanying financial statements have been retroactively restated to reflect the effect of the forward split.
NOTE 2 - BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements for Quint Media Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”).
Going concern
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, the Company had a loss from continuing operations of $532,870 and $565,922 for the years ended February 28, 2015 and 2014, respectively, and net cash used in operations of $181,148 and $372,227 for the years ended February 28, 2015 and 2014, respectively. Additionally, the Company had an accumulated deficit, a stockholders’ deficit and a working capital deficit of $3,748,088, $1,044,259 and $1,044,259, respectively, at February 28. 2015, and minimal revenue for the year ended February 28, 2015. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are not currently adequate to continue operating and maintaining its business strategy for the fiscal year ending February 28, 2015.
The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
As of February 28, 2015, the Company was in the process of transitioning to its new operating business and expects to incur operating losses for the next twelve months as it moves forward. This new operating business encompasses entrance into the social discovery aspects of the internet; primarily development of an engagement website with mobile and tablet application. The Company may also seek merger or acquisition candidates.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 2 - BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America 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 reporting period. Actual results could differ from these estimates. Significant estimates during the year ended February 28, 2015 and 2014 include the valuation of deferred tax assets and assumptions used in assessing impairment of long-term assets.
Fair value of financial instruments and fair value measurements
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
● Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
● Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
● Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, short-term notes payable, accounts payable, and accrued liabilities, approximate their fair market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of February 28, 2015 and 2014.
ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term highly liquid investments purchased with original maturities of three months or less. There were no cash equivalents at February 28, 2015 and 2014.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company wrote-off the remaining approximately $200,000 in Granisol product rights during the year ended February 28, 2014. The impairment is presented in discontinued operations.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 2 - BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. For all revenue sources discussed below, in accordance ASC 605-45 “Principal Agent Considerations”, the Company recognizes revenue net of amounts retained by third party entities. The Company’s specific revenue recognition policies are as follows:
The Company recognizes revenues from the placement of banner ads on its websites upon placement of the banner and when collection is reasonably assured.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.
Income taxes
Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. As of February 28, 2015 and 2014, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.
Basic and diluted earnings per share
Pursuant to ASC 260-10-45, basic earnings per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s income (loss) subject to anti-dilution limitations.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 2 - BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic and diluted earnings per share (continued)
Potentially dilutive common shares consist of common stock issuable for stock warrants (using the treasury stock method). These common stock equivalents may be dilutive in the future. All potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:
Recent accounting pronouncements
The Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to date information and all references to development stage.
Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - WEBSITE AND WEBSITE DEVELOPMENT COSTS
Websites acquired and website development costs were being amortized on a straight-line method over the estimated useful life of 5 years. In November 2014, the Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment as of November 30, 2014 and the Company calculated that the estimated undiscounted cash flows were less than the carrying amount of the intangible asset. Based on the Company’s analysis, the Company recognized an impairment loss of $279,040 for the year ended February 28, 2015 which reduced the value of intangible assets acquired to $0. The Company did not record any impairment charge on website and website development costs during the year ended February 28, 2014. For the years ended February 28, 2015 and 2014, amortization expense related to these costs amounted to $52,320 and $17,440, respectively.
NOTE 4 - SHORT-TERM NOTES PAYABLE
The Company entered into an amendment of a previously amended unsecured promissory note originally dated June 15, 2009 in the principal amount of $50,000. Effective September 1, 2013, the maturity date of the note was extended from December 31, 2012 until June 30, 2014 and the interest rate on the outstanding principal balance was decreased from twelve percent per annum to seven percent per annum. All other terms of the promissory note remain the same. In addition, as of February 28, 2014, the Company entered into an amendment of a previously amended unsecured promissory note originally dated May 6, 2011 in the principal amount of $250,000. Effective September 1, 2013, the maturity date of this note was been extended from December 31, 2012 until June 30, 2014 and the interest rate on the outstanding principal balance was decreased from 12% per annum to 7% per annum. All other terms of the promissory note remain the same.
The Company determined that concessions granted in the form of extensions of the due dates and reductions in interest rates on these above mentioned promissory notes are considered debt modifications as defined under Accounting Standards Codification 470-60, “Troubled Debt Restructurings by Debtors”.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 4 - SHORT-TERM NOTES PAYABLE (continued)
On March 31, 2014, the Company accepted a subscription from one non-US investor and issued a promissory note in the amount of $75,000. The promissory note is payable in full at maturity on March 31, 2015, and the principal amount or such portion thereof as shall remain outstanding from time to time accrues simple interest, calculated monthly, at a rate of 7% per annum commencing on the date of the promissory note.
On July 15, 2014, the Company accepted a subscription from one non-US investor and issued a promissory note in the amount of $100,000. The promissory note is payable in full at maturity on March 31, 2015, and the principal amount or such portion thereof as shall remain outstanding from time to time accrues simple interest, calculated monthly, at a rate of 7% per annum commencing on the date of the promissory note.
Accrued interest on promissory notes payable totaled $117,007 and $76,330 at February 28, 2015 and 2014, respectively, and is included in accounts payable and accrued liabilities on the accompanying balance sheets.
At February 28, 2015 and 2014, short-term notes payables consisted of the following:
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 4 - SHORT-TERM NOTES PAYABLE (continued)
In March 2015, all short-term notes and all accrued interest were settled by the issuance the Company’s common stock (See Note 10 - Subsequent Events).
NOTE 5 - STOCKHOLDERS’ DEFICIT
On November 25, 2013, the Company sold 375,000 units of our securities at a price of $0.20 per unit for gross proceeds of $75,000. Each unit consists of one share of common stock and one non-transferable common stock purchase warrant, with each common stock purchase warrant entitling the holder to acquire one additional share of our common stock at a price of $0.50 per share for a period of 60 months.
Warrant activities for the years ended February 28, 2015 and 2014 are summarized as follows:
Stock Option Plan
Effective February 18, 2011, the Board of Directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of the Company by offering opportunities to directors, key employees, officers, independent contractors and consultants of the company to acquire and maintain stock ownership in the company in order to give these persons the opportunity to participate in the company’s growth and success, and to encourage them to remain in the service of the company. A total of 6,000,000 shares of our common stock are available for issuance and during the twelve-month period after the first anniversary of the adoption of the 2011 stock option plan by the Board of Directors. During each twelve-month period thereafter, the Board of Directors is authorized to increase the number of shares issuable by up to 1,500,000 shares.
NOTE 6 - INCOME TAXES
The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets at February 28, 2015 and 2014 consist of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income. The net operating loss carryforward was approximately $2,374,000 at February 28, 2015. The Company provided a valuation allowance equal to the deferred income tax asset for the years ended February 28, 2015 and 2014 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The decrease in the allowance was $226,000 in fiscal 2015. The potential tax benefit arising from the loss carryforward will expire in 2035. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future in accordance with Section 382 of the Internal Revenue Code. If necessary, the deferred tax assets will be reduced by any carryforward that expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance. The Company’s 2012, 2013 and 2014 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 6 - INCOME TAXES (continued)
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended February 28, 2015 and 2014 were as follows:
The Company’s approximate net deferred tax asset as of February 28, 2015 and 2014 was as follows:
NOTE 7 - RELATED PARTY TRANSACTIONS
On May 17, 2013, the Company entered into a definitive Web Site Asset Purchase Agreement (the “Agreement”) with Lakefield Media Holding AG and its wholly-owned subsidiary, Flawsome XLerator GmbH (“Flawsome”). Constantin Dietrich, our current president and director of our company, is the founder and Chief Executive Officer of Lakefield Media Holding AG, which wholly-owns Flawsome. Pursuant to the Agreement, the Company acquired the internet domain name “Slickx.com”, the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure for $50,000. This transaction was completed on May 21, 2013.
On May 29, 2013 the Company entered into a consulting agreement with Flawsome, whereby Flawsome agreed to provide certain services, including general management, product management, requirements engineering, quality management, project management, design creation, development team lead, deployment management, content management, reporting services, web development, mobile development, basic content creation, server hosting and monitoring and update services. The agreement expired December 31, 2013, but is continuing on a month-to-month basis. During the year ended February 28, 2015 and 2014, respectively, the Company capitalized $0 and $298,800 in web development costs contracted through Flawsome related to the “Exley.com” website and expensed $12,870 and $52,093 in website management expenses. As of February 28, 2015 and 2014, the Company owed $182,900 and $196,500 to Flawsome, respectively.
As of February 28, 2015 and 2014, respectively, the Company owed $15,000 and $30,000 for consulting services to a director and $75,123 and $70,500 to a Company whose shareholder is a director of the Company. Additionally, the Company owed $31,920 and $7,588 to an officer for expenses paid on behalf of the Company as of February 28, 2015 and 2014, respectively. The payables do not bear interest.
NOTE 8 - DISCONTINUED OPERATIONS
During the period ended February 28, 2014, the Company’s management elected to discontinue the operations of its pharmaceutical business, divest itself of the balance of its pharmaceutical assets and engage in the digital media business. As such, all assets, liabilities and expenses of the pharmaceutical business have been presented as discontinued operations in the financial statements.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 8 - DISCONTINUED OPERATIONS (continued)
A summary of those assets and liabilities as of February 28, 2015 and 2014 and revenues and expenses for the years ended February 28, 2015 and 2014 are as follows:
Certain terms with prior customers allowed the return of product within a certain period of the product’s expiration date. As such, upon shipment of product an estimate for returns was recorded. During the year ended February 28, 2015, the Company’s management deemed the remaining product return liabilities to be expired and no remaining liability exists. Accordingly, during the year ended February 28, 2015, the Company recognized a gain of $109,449 from the expiration of product return liabilities.
NOTE 9 - CONCENTRATIONS
Concentration of credit risk
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through February 28, 2015. There were no balances in excess of FDIC insured levels as of February 28, 2015 and 2014.
Concentration of funding
During the years ended February 28, 2015 and 2014, all short-term notes payable were received from one investor.
NOTE 10 - SUBSEQUENT EVENTS
On March 10, 2015, the Company entered into a debt settlement agreement (the “Debt Settlement Agreement”) with Leone Group, LLC (“Leone”), American Capital Ventures, Inc. (“ACV”), Georgia Georgopoulos, Catherine Cozias and Trels Investments, Ltd. (“Trels” and collectively with Leone, ACV, Ms. Georgopoulos and Ms. Cozias, the “Holders”). Pursuant to the Debt Settlement Agreement, the Company and the Holders agreed to settle all of the outstanding debt owed under certain promissory notes and accounts payable, to Leone, ACV, Ms. Georgopoulos, Ms. Cozias and Trels, and the Holders agreed to convert their respective portions of the debt into shares of restricted common stock of the Company at $0.003 per share. The Company agreed to issue an aggregate of 346,319,970 shares of common stock in settlement of outstanding short-term notes payable with aggregate principal amounts of $625,000, accrued interest payable of $118,205 and accounts payable - related parties of $295,754, as follows:
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE10 - SUBSEQUENT EVENTS (continued)
a. 142,193,090 shares to Leone, in settlement of $234,375 in principal and $44,327 of accrued and unpaid interest pursuant to certain promissory notes, and $147,877 of accounts payable by the Company;
b. 142,193,090 shares to ACV in settlement of $234,375 in principal and $44,327 of accrued and unpaid interest pursuant to a promissory note, and $147,877 of accounts payable by the Company;
c. 21,225,001 shares to Ms. Georgopoulos, in settlement of $53,548 in principal and $10,127 of accrued and unpaid interest pursuant to a promissory note;
d. 21,225,001 shares to Ms. Cozias, in settlement of $53,548 in principal and $10,127 of accrued and unpaid interest pursuant to a promissory note; and
e. 19,483,788 shares to Trels, in settlement of $49,154 in principal and $9,297 of accrued and unpaid interest pursuant to a promissory note.
Pursuant to the terms of the Debt Settlement Agreement, at any time before the Company’s entrance into a definitive agreement for the effectuation of a merger or acquisition that results in a change of control of the Company, the Holders shall have a first right of refusal, subject to the terms of the Debt Settlement Agreement, to participate in any future financing sought by the Company, on a pro rata basis, with the maximum funding amount of each future financing for each respective party being in proportion to that respective party’s total ownership percentage of the Company at that time, which shall only be triggered after a total of $50,000 in the aggregate in funding is obtained by the Company subsequent to the effective date of the Debt Settlement Agreement.
If the Company, at any time before the Company’s entrance into a definitive agreement for the effectuation of a merger or acquisition that results in a change of control of the Company, issues common stock at a price per share below $0.003 (the “Settlement Price”), or issues a security convertible at a conversion price per share below the Settlement Price, taking into account any applicable adjustments for a consolidation, recapitalization or reorganization of the Company (the “Lower Issuance Price”), the Holders shall have the right to receive additional shares of the Company’s common stock, without additional payment, such that the effective Settlement Price pursuant to the Debt Settlement Agreement would be equal to the Lower Issuance Price.
In connection with this debt settlement, the Company recorded debt settlement expense of $173,160.
Additionally, remaining liabilities of $9,207 due to the Company’s CEO and a Company controlled by him was forgiven by him in March 2015.