ITEM 1. BUSINESS
Our Corporate History and Background
We were incorporated as iSoft International, Inc. on March 9, 2011, in the State of Nevada. Effective March 14, 2013, under the laws of Nevada, we amended our Articles of Incorporation to change our name from “iSoft International, Inc.” to “The Pulse Network, Inc.” From inception until we completed our reverse acquisition of The Pulse Network, the principal business of the Company was the development and operation of online games for social networking websites. Prior to March 29, 2013 we had never had any revenues and had a limited operating history.
Reverse Acquisition of The Pulse Network
On March 29, 2013, the Pulse Network, Inc., formerly known as iSoft International Inc., a Nevada corporation (the “Company”), entered into a Share Exchange Agreement, dated March 29, 2013 (the “Share Exchange Agreement”), by and among the Company, The Pulse Network, Inc., a Massachusetts corporation (“The Pulse Network”), and the holders of common stock of The Pulse Network. The holders of the common stock of The Pulse Network consisted of Stephen Saber, Nicholas Saber and John Saber.
Under the terms and conditions of the Share Exchange Agreement, the Company sold 75,000,000 shares of common stock, 1,000 shares of Series A Preferred Stock and 15,000,000 shares of Series B Preferred Stock of the Company in consideration for all the issued and outstanding shares in The Pulse Network. Each share of Series A Preferred Stock is convertible into one share of common stock of the Company and requires the consent of the majority of the holders of Series A Preferred Stock to change the composition of the board of directors or President and Chief Executive Officer of the Company, change the Articles of Incorporation or Bylaws of the Company, or engage in merger, sale of assets, share exchange or other reorganization of the Company. Each share of Series B Preferred Stock is convertible into 5 shares of common stock and equal to 100 votes of common stock of the Company. The effect of the issuance is that The Pulse Network shareholders now hold approximately 90.9% of the issued and outstanding shares of common stock of the Company.
Stephen Saber, the Company’s Chief Executive Officer and Chairman of the Board of Directors, is the holder of 31,005,000 shares of common stock of the Company, 414 shares of Series A Preferred Stock of the Company (convertible into 414 shares of common stock) and 6,201,000 shares of Series B Preferred Stock of the Company (convertible into 31,005,000 shares of common stock). Stephen Saber, therefore, controls 62,010,414 shares, or 37.5%, of the outstanding common stock of the Company, on a fully diluted basis.
Nicholas Saber, the Company’s President, Secretary, Treasurer, as well as being a Director, is the holder of 21,997,500 shares of common stock of the Company, 293 shares of Series A Preferred Stock of the Company (convertible into 293 shares of common stock) and 4,399,500 shares of Series B Preferred Stock of the Company (convertible into 21,997,500 shares of common stock). Nicholas Saber, therefore, controls 43,995,293 shares, or 26.6%, of the outstanding common stock of the Company, on a fully diluted basis.
John Saber, the Company’s Chief Information Officer, as well as being a Director, is the holder of 21,997,500 shares of common stock of the Company, 293 shares of Series A Preferred Stock of the Company (convertible into 293 shares of common stock) and 4,399,500 shares of Series B Preferred Stock of the Company (convertible into 21,997,500 shares of common stock). John Saber, therefore, controls 43,995,293 shares, or 26.6%, of the outstanding common stock of the Company, on a fully diluted basis.
Stephen Saber, Nicholas Saber and John Saber are brothers.
As a result of the share exchange with Stephen Saber, Nicholas Saber and John Saber, The Pulse Network is now a wholly-owned subsidiary of the Company. Articles of Exchange were filed with the Commonwealth of Massachusetts, effective March 29, 2013.
The share exchange transaction with The Pulse Network was treated as a reverse acquisition, with The Pulse Network as the acquiror and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this Form 10-K to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of The Pulse Network.
Organization & Subsidiaries
We have one operating subsidiary, The Pulse Network, Inc., a Massachusetts corporation.
Overview of The Pulse Network
Through our wholly owned subsidiary, The Pulse Network was incorporated on December 24, 2008, in Massachusetts. The business of The Pulse Network was originally developed at Exgenex, Inc., a New York corporation (“Exgenex”), formed in April 2002. Exgenex changed its name to “CrossTech Group, Inc.” (“CrossTech New York”) in February 2008. On December 24, 2008, The Pulse Network was formed in Massachusetts under the name of “CrossTech Group, Inc.”, merged (as the surviving corporation) with CrossTech New York on December 31, 2009, and changed its name to “The Pulse Network Inc.” on June 2, 2011.
The business of The Pulse Network is now the principal business of the Company. The Pulse Network provides a cloud-based platform focused on content marketing and event solutions. The Pulse Network helps clients ranging from Fortune 500 companies, to small and mid-size companies, boost awareness, drive lead generation, and enhance client engagement. With over 20 years of experience delivering online and offline marketing programs, state of the art video production studio, and a highly skilled team, The Pulse Network has become the partner of choice for numerous B2B and B2C brands.
The Pulse Network was established in June 1994 and currently operates from offices located at 437 Turnpike Street, Canton, Massachusetts 02021. The Pulse Network’s website is www.thepulsenetwork.com.
On January 31, 2014, The Pulse Network launched a cloud-based comprehensive content marketing platform which empowers corporate marketers and event groups in their campaign efforts. The platform solution addresses the challenges consumers face when seeking information and content surrounding a company well as the corporate content marketing problems that businesses face in trying to ensure that their content is seen by the right audience.
The new platform incorporates flat design, an enhanced layout, new icons and more typography, all of which can be translated to any language, significantly benefiting The Pulse Network’s international clients. In addition to the new design, the platform is highly organized for both event marketers and content marketers and combines the registration technology with asset creation, curation, distribution, and management to be used by all types of businesses and consumers. By bringing all of the modules together under one platform, The Pulse Network is releasing a completely unique and powerful tool that will be used for hundreds of global programs on six continents. The fully integrated platform is comprised of three chief features: Event Management, Online Broadcast, and Content Marketing Tools.
Event Management
The Pulse Network's event management solution is a global, end-to-end tool for event groups all over the world. This solution allows event groups to store all data related to each individual tradeshow or conference they organize. The platform allows event groups to manage and house their lead database, communicate with customers, and perform registration services both online and onsite. Event groups can seamlessly execute events using the platform from the beginning stages through post-conference campaigns by leveraging the tools of the platform, bringing events to life year round. This solution helps event groups increase verification rates, increase attendance, and improve attendee satisfaction.
Created by the team that developed the Exgenex (a company formerly operated by Nicholas Saber, Stephen Saber, and John Saber) registration system, The Pulse Network’s event management solution was built from the ground up. The single platform approach allows a client to run their entire suite of events, both domestic and international, produced in English or foreign languages in the same master database.
In addition The Pulse Network’s capabilities include full event management support - including show production, a comprehensive speaker management system, with the ability to manage complete speaker processing through the system, from call for papers, to ranking proposals and managing sessions, and Continuing Education Unit (CEU) session tracking and reporting, with full scheduling / tracking of CEU credits, online access for attendees, and email updates.
For lead management, The Pulse Network offers HostMyLeads.com, along with extensive event marketing and mobile capabilities, including lead retrieval, session surveys, product locator, exhibitor layout, and reporting. Since 1994, The Pulse Network team has been providing event technologies, registration and lead generation services to businesses, event organizers and associations of all sizes. Today these solutions include web services and lead management programs to help clients engage with their community across all channels - online, mobile or face to face.
The Pulse Network’s Event Database Solutions include a comprehensive multi-channel SaaS platform for marketing support, registration, housing, management reporting, lead retrieval, online production, event websites, and CEU tracking, along with services for marketing and event management used at events worldwide ranging in size from 50 to 200,000 participants.
Online Broadcast
The new webinar player released with the cloud-based platform is a one-of-a-kind, highly interactive solution. This player will change how businesses run webinars. Viewers can participate in polls, ask questions, chat directly with whomever is running the webinar, and view visual assets as needed. For businesses running the webinar, the data which is collected in the platform is very valuable - from the questions viewers ask, to the length of time they spend on the webinar including specific entry and exit points, the data created using this tool will give users unique insight into their audience and sales prospects.
Content Marketing Tools
The content marketing tools which support the cloud-based platform include a content curation tool, syndication and distribution tools, social sharing, newsletter creation, analytics and reporting, and prospect management among many others. These tools benefit corporate marketers by simplifying processes for sharing content related to products and service, communicating with consumers and implementing lead nurturing campaigns.
The Pulse Network’s content curation tool is a one-click option that allows anyone across the web to tag an article for use in a content marketing effort. With the loading of a simple plug-in on any browser, customers can allow anyone connected to the organization to click, categorize, and tag an article for use on a digital publication, in a newsletter, or for social sharing and engagement.
The Pulse Network’s newsletter creation tool creates a newsletter with 5 simple clicks. No longer does a marketer need to wait for a developer or HTML programmer to program an email newsletter for distribution. Simply choose the content from the content library (content that was curated or loaded into the platform) and in an instant a newsletter has been created and is ready for distribution.
Pulse Networking Events and Conferences
The Pulse Network believes that it has grown to be a leader in producing engaging events related to inbound and content marketing including the Inbound Marketing Summit, which attracted more than 1,000 attendees to Boston.
Early Customer Engagement Platform
On June 9, 2014 The Pulse Network announced the release of its Cloud-Based Integrated Platform for Early Customer Engagement. The Pulse Network’s platform helps clients create a digital publication, original video centric content, curate content, and build a powerful content marketing program. No longer do clients have to outsource content marketing, The Pulse Network’s platform can now do it for them. They can create entire Newsletters with just a few clicks, pulling content elements from multiple sources, delivering fresh content each week. With TPNI's new tool, delivering content has never been easier.
The Pulse Network’s platform now consists of four modules: Content Marketing, Digital Publication, Webcast Production, and Event Management. These allow clients to engage their current and prospective customers with relevant content and consistent touch points through seamless experiences.
The Pulse Network’s Content Marketing Platform provides newsletters for outreach and engagement, a one touch curation tool for curation by multiple authors with the click of a button, and easy and personalized engagements through email, SMS, and social channels.
The Pulse Network’s Digital Publication Platform Creator develops digital publications for clients helping generate new prospects with content and programs, increases brand awareness through thought leadership, and nurture prospects into leads through consistent quality engagement.
The Pulse Network’s Video Webcast Production Platform engages the audience with live video production, increasing participation with live polls and chats, while tailoring the event with real-time analytics.
The Pulse Network’s Event Management Platform creates interactive customer experiences through registration and online engagement, increases registration counts through engagement and social sharing, and increases verification counts through connecting with the audience.
Intellectual Property
We rely on a combination of trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our brand names, product designs and marks. We do not own patents.
Government Regulation and Approvals
We are not aware of any governmental regulations or approvals required for any of our products.
Employees
As of the date hereof, we have 21 employees who work full-time.
Our Executive Offices
Our executive offices are located at 437 Turnpike Street, Canton, Massachusetts 02021.
ITEM 1A.
ITEM 1A. RISK FACTORS
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
ITEM 2.
ITEM 2. PROPERTIES
Our executive offices are currently located at 437 Turnpike Street, Canton, Massachusetts 02021.
We operate our business from approximately 8,350 square feet of leased space, 50% of which is beneficially owned by Stephen Saber and Nicholas Saber, two of our officers and directors. The Company leases its office space under a non-cancelable lease agreement with this related party which expires July 15, 2014.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings and we are not aware of any pending or potential legal actions.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION
Since May 3, 2012, our shares of common stock have been quoted on the OTC Bulletin Board and the OTCQB tier of OTC Markets. Since April 12, 2013, our shares of common stock were quoted under the stock symbol “TPNI,” and from May 3, 2012 until April 11, 2013, our shares of common stock were quoted under the stock symbol “ISNN.” The following table shows the reported high and low closing bid prices per share for our common stock based on information provided by the OTCQB. The over-the-counter market quotations set forth for our common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
TRANSFER AGENT
Our transfer agent is Empire Stock Transfer of Henderson, Nevada. Their address is 1859 Whitney Mesa Dr., Henderson, Nevada 89014 and their telephone number is (702) 818-5898.
HOLDERS
As of March 31, 2014, the end of the Registrant’s most recently completed fiscal year, there were 90,700,000 shares of common stock, par value $0.001 per share, held by approximately 19 holders of record; 1,000 shares of Series A Preferred Stock, par value $0.001 per share (convertible into 1,000 shares of common stock) held by 3 holders of record; and 15,000,000 shares of Series B Preferred Stock, par value $0.001 per share (convertible into 75,000,000 shares of common stock) held by 3 holders of record.
DIVIDENDS
Historically, we have not paid any dividends to the holders of our common stock and we do not expect to pay any such dividends in the foreseeable future as we expect to retain our future earnings for use in the operation and expansion of our business.
RECENT SALES OF UNREGISTERED SECURITIES
On June 5, 2013, the Company issued 400,000 shares of its common stock in a private placement in exchange for cash proceeds of $80,000. Please see footnote 12 - Stockholders’ equity.
On August 19, 2013 the Company issued 300,000 shares of its common stock in a private placement in exchange for cash proceeds of $60,000. Please see footnote 12 - Stockholders’ equity.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
Effective March 29, 2013, the Company adopted the 2013 Stock Option Plan which provides for the grant of options to acquire shares of common stock of the Company. Stock options granted under this Plan that qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), are referred to in this Plan as “Incentive Stock Options.” Incentive Stock Options and stock options that do not qualify under Section 422 of the Code (“Non-Qualified Stock Options”) granted under this Plan are referred to collectively as “Options.”
This Plan shall be administered initially by the Board of Directors of the Company (the “Board”), except that the Board may, in its discretion, establish a committee composed of two (2) or more members of the Board or two (2) or more other persons to administer the Plan, which committee (the “Committee”) may be an executive, compensation or other committee, including a separate committee especially created for this purpose.
Incentive Stock Options may be granted to any individual who, at the time the Option is granted, is an employee of the Company or any Related Corporation.
The Plan Administrator is authorized to grant Options to acquire up to a total of fifteen million (15,000,000) shares of the Company’s authorized but unissued, or reacquired, Common Stock.
PURCHASES OF EQUITY SECURITIES BY THE REGISTRANT AND AFFILIATED PURCHASERS
We did not purchase any of our shares of common stock or other securities during the year ended March 31, 2014.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition for the fiscal years ended March 31, 2014, and 2013, should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Annual Report on Form 10-K. References in this section to “we,” “us,” “our” or “The Pulse Network” are to the consolidated business of The Pulse Network. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Critical Accounting Policies and Estimates
The Company’s financial statements have been prepared in accordance with U.S. GAAP. In connection with the preparation of the financial statements, the company is required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. It based assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews accounting policies, assumptions, estimates and judgments to ensure that the financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from assumptions and estimates, and such differences could be material.
Results of operations for 2014 compared to 2013.
Revenues and Cost of Revenues
During 2014 and 2013 the Company generated revenues from 3 primary business segments, being:
Revenues earned from usage of the Pulse Network Platform for management and support of client events or conferences.
Revenues earned from sponsors and attendees for conferences hosted by the Company.
Revenues earned from providing ongoing development and support for client content and digital marketing programs.
Total revenues for 2014 decreased by 10.5% to $3,362,811 from $3,757,471 in 2013. The decrease is mainly attributed to reduction in revenue earned from usage of the Pulse Network Platform for management and support of client events or conferences. Revenues earned from providing ongoing developing support for client content and digital marketing programs increased 46.7% in 2014 to 1,175,153 from $801,227 in 2013. This was a result of new clients and increase in volume of business with existing clients.
Cost of revenues for 2014 decreased by 33.4% to $930,161 from $1,396,421 in 2013. The decrease for 2014 is mainly attributable to the reduction of materials, freight, and travel costs related to the management and support of client events and conferences business segment noted above. The Company also had a decrease in food and beverage and decorator expenses related to hosted conferences.
For 2014 gross profit increased 3.0% to $2,432,650, from $2,361,050 in 2013.
Selling and Marketing
Selling and Marketing expenses for 2014 increased by 20.2% to $548,129 this was up from $456,115 for 2013. The increase in selling and marketing expenses is attributable to additional sales employees, stock-based compensation expense, and increase in meals and entertainment expenses from sales related travel for new business development.
General and Administrative
General and administrative expenses for 2014 decreased by 14.0% to $2,688,656 down from the amount $3,127,651 for 2013. The decrease in general and administrative expenses is attributable to a decrease in officer payroll, marketing payroll, executive payroll, payroll benefits, and computer expenses.
Net Loss Attributable to the Company
The net loss attributable to the Company for 2014 was $998,990 compared to $1,280,422 for 2013 as a result of the various fluctuations in revenues and operating expenses as described above.
Liquidity and Capital Resources
As of March 31, 2014, the Company’s total current assets were $322,956 and total current liabilities were $2,945,103 resulting in a working capital deficit of $2,622,147. On March 31, 2014, we had an accumulated deficit of $4,059,512.
For the fiscal year ended March 31, 2014 the Company’s accrued payroll balance increased $639,792 as a result of two officers deferring receipt of a substantial portion of their contractual compensation in order to help provide cash for operations. In addition the Company was able to obtain additional operating capital from proceeds from issuance of common stock of $140,000, proceeds from issuance of convertible notes for $115,404, and proceeds from a note payable - stockholders of $108,522.
Cash and cash equivalents on March 31, 2014 were $118,215, an increase of $86,545 from March 31, 2013.
Operating activities used cash of $32,325 in the fiscal year ended March 31, 2014 compared to $942,784 used during the fiscal year ended March 31, 2013.
The company’s investing activity for March 31, 2014 consisted of a video editing station purchased for $4,595 and a phone switch for $3,693 financed through a capital lease agreement.
Financing activities provided cash of $123,465 during the year ended 31, 2014, compared to $963,727 during the year ended March 31, 2013. Financing activities during fiscal 2014 include proceeds from issuance of common stock of $140,000, proceeds from issuance of convertible notes of $115,404, proceeds from a note payable - stockholders of $108,522, and $20,000 advance from a secured bank line partially offset by repayment of note payable - other $20,000, repayment of advances from stockholders $60,088, repayment of long-term debt $116,667, repayment of capital leases $18,899 and repayment of note payable related party $24,808.
Off-Balance Sheet Arrangements
As of March 31, 2014, the Company had no off balance sheet arrangements that have had or that would be expected to be reasonably likely to have a future material effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Outlook
The Company believes that its future success will depend upon its ability to enhance and grow its business. The Company’s current anticipated levels of revenues and cash flow are subject to many uncertainties and cannot be assured. In order to have sufficient cash to meet anticipated requirements for the next twelve months, the Company requires additional financing. The inability to generate sufficient cash from operations or to obtain required additional funds could require the Company to curtail its operations. There can be no assurance that acceptable financing to fund ongoing operations can be obtained on suitable terms, if at all. If the Company is unable to obtain the financing necessary to support its operations, it may be unable to continue as a going concern. In that event, the Company may be forced to cease operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
THE PULSE NETWORK, INC.
Index to Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Board of Directors
The Pulse Network, Inc.
437 Turnpike St
Canton, Massachusetts 02021
We have audited the accompanying consolidated balance sheets of The Pulse Network, Inc. and subsidiaries (the Company) as of March 31, 2014 and 2013 and the related consolidated statements of operations, stockholders’ equity (deficiency) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. An audit includes 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Pulse Network, Inc. and subsidiaries as of March 31, 2014 and 2013 and the results of their operations, changes in stockholders’ deficiency and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced recurring losses, has an accumulated deficit of $4,059,512, has a working capital deficit of $2,622,147 and will need additional working capital to accomplish its intended purpose and to service its debt, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Stowe & Degon LLC
Westborough, Massachusetts
June 30, 2014
THE PULSE NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2014 and MARCH 31, 2013
The accompanying notes are an integral part of these consolidated financial statements
THE PULSE NETWORK, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED MARCH 31, 2014 AND 2013
The accompanying notes are an integral part of these consolidated financial statements
THE PULSE NETWORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2014 AND 2013
The accompanying notes are an integral part of these consolidated financial statements
THE PULSE NETWORK, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 2014 AND 2013
The accompanying notes are an integral part of these consolidated financial statements
THE PULSE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014 and 2013
1. ORGANIZATION AND NATURE OF BUSINESS
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited resources and operating history. As shown in the accompanying financial statements, as of March 31, 2014 the Company has an accumulated deficit of $4,059,512 and has negative working capital of $2,622,147. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The Pulse Network, Inc. (the “Company”) was founded in 2002 as Exgenex, Inc., a New York Corporation. In 2008, the Company incorporated in Massachusetts under the name Crosstech Group, Inc. In 2011 the Company changed its name to The Pulse Network, Inc. The Company provides a cloud-based platform focused on content marketing and event solutions.
Pulse Network Management LLC (PNM) is a wholly owned subsidiary of The Pulse Network Inc. PNM’s sole function is leasing employees to the Company. The entire workforce of the Company is leased from PNM.
The Pulse Network, Inc., a Massachusetts corporation, also the beneficial owner of The Pulse Network Management, LLC, a Massachusetts limited liability company. The Pulse Network Management, LLC reports all employee and payroll related expenses for The Pulse Network, Inc., a Massachusetts corporation.
Reverse Acquisition of The Pulse Network
On March 29, 2013, the Pulse Network, Inc., formerly known as iSoft International Inc., a Nevada corporation (the “Company”), entered into a Share Exchange Agreement, dated March 29, 2013 (the “Share Exchange Agreement”), by and among the Company, The Pulse Network, Inc., a Massachusetts corporation (“The Pulse Network”), and the holders of common stock of The Pulse Network. The holders of the common stock of The Pulse Network consisted of Stephen Saber, Nicholas Saber and John Saber.
Under the terms and conditions of the Share Exchange Agreement, the Company sold 75,000,000 shares of common stock, 1,000 shares of Series A Preferred Stock and 15,000,000 shares of Series B Preferred Stock of the Company in consideration for all the issued and outstanding shares in The Pulse Network. Each share of Series A Preferred Stock is convertible into one share of common stock of the Company and requires the consent of the majority of the holders of Series A Preferred Stock to change the composition of the board of directors or President and Chief Executive Officer of the Company, change the Articles of Incorporation or Bylaws of the Company, or engage in merger, sale of assets, share exchange or other reorganization of the Company. Each share of Series B Preferred Stock is convertible into 5 shares of common stock and equal to 100 votes of common stock of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.
Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation
Cash - The Company maintains its cash balances in one financial institution. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. Bank deposits at times may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Accounts Receivable - Accounts receivable represent balances due from customers. Credit risk associated with these balances is evaluated by management relative to financial condition and past payment experience. Balances that remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts.
Property and Equipment - Property and equipment is stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Repairs and maintenance costs are expensed as incurred.
Impairment of Long-Lived Assets - Long-lived assets, such as property, equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated future undiscounted net cash flows of the related asset or group of assets over their remaining lives. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent of other groups of assets. The impairment of long-lived assets requires judgments and estimates. If circumstances change, such estimates could also change.
Concentrations of Sales to Certain Customers - During 2014 the Company had sales to two customers A and B that accounted for approximately 24.5% of total revenue during 2014. Accounts receivable from two customers C and D accounted for approximately 39.5% of total accounts receivable at March 31, 2014.
Revenue Recognition - The Company’s revenue consists principally of event platform revenue derived from management of customer events and recognized at the conclusion of the event; event sponsor revenue derived from sponsors of events hosted by the Company and recognized at the conclusion of the event; and content marketing platform and other revenue are derived from providing ongoing solutions related to customer website content and are recognized as services are provided over the life of the contract.
Deferred Revenue - Deferred revenue consists of billings or payments received for future events in advance of revenue recognition. The Company recognizes these billings and payments as revenue when the revenue recognition criteria are met.
Income Taxes - An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carry forwards (“NOLs”). If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
Through March 31, 2013, the Company had elected to be treated as an S Corporation for federal and state income tax purposes whereby its income or losses are passed through to its stockholders. Accordingly, there is no provision for federal income taxes in these financial statements. The Company is liable in Massachusetts for state corporate taxes based upon tangible assets.
The Company recognizes in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company did not have any unrecognized tax benefits or accrued interest and penalties during the years ended March 31, 2014 and 2013 and does not anticipate having any unrecognized tax benefits over the next twelve months. The Company is subject to audit by the IRS for tax periods commencing January 1, 2010.
Stock Based Compensation - The Company follows the authoritative guidance for accounting for stock-based compensation. This guidance requires that new, modified and unvested share-based payment transactions with employees, such as grants of stock options and stock, be recognized in the financial statements based upon their fair value at the grant date and recognized as compensation expense over their vesting periods. The Company also follows the guidance for equity instruments issued to consultants.
3. PROPERTYAND EQUIPMENT
Property and equipment at March 31, 2014 and 2013 consists of the following:
4. RELATED PARTY TRANSACTIONS
Advances from stockholders at March 31, 2014 and 2013 consists of non-interest bearing advances of $244,637 and $354,317, respectively from Stephen J. Saber and $0 and $72,566, respectively from Nicholas Saber with no stated repayment terms.
Note payable related party at March 31, 2014 and 2013 consists of a loan from John C. Saber, the father of the three majority stockholders. Under the terms of the loan agreement, dated January 23, 2013, the Company borrowed $50,000 repayable in twenty-four monthly principal and interest installments of $2,150. The note bears interest at 3.042% per annum and matures in January 2015.
Related party loan at March 31, 2014 consists of a loans previously due to Stephen Saber in the amount of $111,500 and Nicholas C. Saber in the amount of $10,000 totaling $122,158 which were transferred to CrossTech Partners, LLC. Stephen, Nicholas and John Saber own 100% of Crosstech Partners, LLC.. The loan bears interest at 6.5% and matures with all unpaid principal and interest due on September 3, 2015.
Note payable - Stockholders consists of a note dated September 3, 2013 under the terms of which the Company borrowed $110,100 from Saber Insurance Trust, of which the three majority stockholders are primary beneficiaries. The loan terms state repayment of the loan is to be made in full by June 1, 2014 including interest at 8.6% per annum. The Company received net proceeds of $103,000 reflecting a discount in the amount of $7,100 representing the interest to be earned over the term of the note. The discount is being amortized through a charge to interest expense using the interest method. During the year ended March 31, 2014, $4,733 of the discount has been amortized through a charge to interest expense.
Due to affiliates at March 31, 2013 consist of $66,340 due to Saber Realty for advances during the year with no stated repayment terms, $25,000 due from a partnership in which the stockholders of the Company have a controlling interest. These amounts were repaid during the year ended March 31, 2014.
The Company leases its office space under a non-cancelable lease agreement with a related party which expires July 15, 2014. Future minimum rent payments under this agreement are $11,763 for the year ending March 31, 2015. Total rent expense, including common area, maintenance, taxes, insurance and utilities, was $110,934 and $110,791 for the years ended March 31, 2014 and 2013, respectively.
On February 4, 2014, the Company entered into a new non-cancelable 10 year lease agreement with a related party (32.5% of which is beneficially owned by Stephen Saber and Nicholas Saber, two of our officers and directors) with a commencement date of May 1, 2014. The new space is located at 10 Oceana Way, Norwood, Massachusetts and has approximately 10,000 square feet of leased space. Future minimum rent payments under this agreement are $100,000 for the year ending March 31, 2015. For each of the years ending March 31, 2016 through 2024, the minimum rent payment will be $120,000 and $20,000 for the year ending March 31, 2025.
5. ACCRUED COMPENSATION
Accrued compensation at March 31, 2014 and 2013 includes $787,510 and $222,097, respectively, of amounts due to the three officers and directors payable under the terms of their employment agreements. These officers have elected to defer receipt of these amounts until the Company is in a better liquidity position.
6. DEFERRED COMPENSATION
In September 2004 the Company entered into a deferred compensation arrangement with a former stockholder. Under the terms of the arrangement, beginning in January 2005, the former stockholder receives semi-monthly payments of $4,167 through December 2024. The amount included on the Company’s balance sheets at March 31, 2014 and 2013 represents the net present value of the remaining payments calculated using a discount rate of 5%. The amount of deferred compensation expected to be paid within twelve months of the balance sheet date is classified as a current liability with the remainder classified as non-current. Future maturities of this obligation are as follows:
7. NOTE PAYABLE - BANK
Note payable - bank consists of a revolving line of credit with Boston Private Bank & Trust Company. Under the terms of the agreement the Company may borrow up to $150,000 and interest accrues at the bank’s base rate plus 1% (4.5% at March 31, 2014) of the outstanding balance. This loan agreement expires on September 30, 2014.
8. LONG-TERM DEBT
Long-term debt consists of a term note with Boston Private Bank & Trust. The note bears interest at 5% per annum and requires monthly payments of $9,722 plus accrued interest. The note matures on February 8, 2016. Future minimum annual payments under the note are $116,667 in 2015 and $106,945 in 2016.
9. CONVERTIBLE NOTE PAYABLE
On December 13, 2013 the Company issued a convertible promissory note. The Purchaser of the note has advanced the Company $52,500 in principle net of $2,500 of expense incurred by the purchaser. The principle and unpaid interest accrues at 10% per annum and is due and payable 12 months from the date of issuance. The note is convertible beginning 90 days from issuance at a 37.5% discount to the Volume Weighted Average Price (VWAP) of the common stock for the 10 trading days immediately prior to the conversion date, or the VWAP on the issuance date. The Company has determined there is a beneficial conversion feature of $31,500 as of December 31, 2013 based on the intrinsic value of the beneficial conversion feature as calculated using the VWAP on the issuance date of the note. The value of the beneficial conversion feature has been recorded as a discount to the note on the balance sheet at December 31, 2013 and will be amortized using the interest method through the earliest conversion date. The convertible note payable amount recorded on the Company’s balance sheet includes accrued interest on this note of $1,251 at March 31, 2014.
On February 6, 2014 the Company entered into a convertible promissory note agreement with a maximum borrowing limit in the amount of $335,000. The purchaser of the note has advanced the Company $60,000 net of a 10% original issue discount upon closing of this note. The full principle amount of $66,667 at March 31, 2014 and any unpaid interest is due in full on February 6, 2016. Under the terms of the note no interest is due if the note is paid within 180 days of. If the Company does not repay the note within 180 days, a one-time interest charge of 12% shall be applied to the principle sum. The note is convertible from receipt of first payment at a conversion price lesser of $.09 or 60% of the average two lowest closing prices in the 25 trading days previous to the conversion. Upon issuance of the note the Company determined there was a beneficial conversion feature with an intrinsic value of $59,659. The note is convertible as of the effective date of the agreement and therefore the entire discount related to the beneficial conversion feature has been charged to interest expense as of March 31, 2014. The convertible note payable amount recorded on the Company’s balance sheet includes accrued interest on this note of $1,167 and is net of the unamortized portion of the $6,667 original issue discount of $6,181.
10. INCOME TAXES
The Company had federal NOL carry forwards of $955,673, resulting in a deferred tax asset of $375,388, as of March 31, 2014. The NOL is available to offset future taxable income and begins to expire in 2034. Under Section 382 of the Internal Revenue Code, the NOL may be limited as a result of a change in control. At March 31, 2014 the Company established valuation allowances equal to the full amount of the net deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods. At March 31, 2013 the Company did not have any deferred tax assets or liabilities recorded in its financial statements due to its subchapter S tax status.
For the years ended March 31, 2014 and 2013, no amounts have been recognized for uncertain tax positions and no amounts have been recognized related to interest or penalties related to uncertain tax positions. The Company has determined that it is not reasonably likely for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
11. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital leases expiring in various years through 2018. The net book value of assets held under capital leases at March 31, 2014 and 2013 is $43,325 and $56,791, respectively. The annual repayments of capital lease obligations at March 31, 2014 are as follows:
12. STOCKHOLDERS’ EQUITY
Series A and series B convertible preferred stock have the same voting, dividend and liquidation rights as holders of common stock. Holders of series A and series B convertible preferred stock may convert their preferred shares into 1 and 5 shares, respectively of common stock.
On June 5, 2013 the Company issued 400,000 shares of its common stock in a private placement in exchange for cash proceeds of $80,000. On August 5, 2013, in connection with the exchange, the Company issued common stock warrants for purchase at an exercise price of $.30. The Warrants vest immediately and have a three year term, expiring on August 5, 2016. The relative fair value of the Warrants is $31,840.
On August 19, 2013 the Company issued 300,000 shares of its common stock in a private placement in exchange for cash proceeds of $60,000. On August 19, 2013, in connection with the exchange, the Company issued common stock warrants for purchase at an exercise price of $.30. The Warrants vests immediately and have a three year term, expiring on August 19, 2016. The relative fair value of the Warrants is $23,704.
13. STOCK OPTION GRANTS
On March 29, 2013, the Board of Directors of the Company approved and adopted the terms and provisions of a 2013 Stock Option Plan for the Company. An aggregate of 15,000,000 shares of the Company’s common stock are initially reserved for issuance upon exercise of nonqualified and/or incentive stock options which may be granted under the 2013 Stock Option Plan.
On August 12, 2013 the Company granted options to purchase 4,135,000 shares of its common stock to its employees. These options have a 10-year term and were granted with an exercise price of $0.17. The option shares vest quarterly over four years beginning April 3, 2014, As of March 31, 2014, no options had vested. All vested options are exercisable, in full or in part, at any time after vesting, until three months post termination of employment. The Company has recorded the stock-based compensation expense attributable to options of $58,579 during the year ended March 31, 2014. As of March 31, 2014, there is $173,624 unrecognized compensation cost related to non-vested stock options which will be recognized through August 2017.
The fair value of the stock option granted for the year ended March 31, 2014 was calculated with the following assumptions:
The following table summarizes the Company’s stock option activity during the year ended March 31, 2014:
The following table summarizes information about stock options that are vested or expected to vest at March 31, 2014:
There are no options with any intrinsic value at March 31, 2014. The weighted-average remaining contractual life for options exercisable at March 31, 2014 is 9.38 years. There were no options exercised and no actual tax benefit realized from stock option exercised during the year ended March 31, 2014.
14. CLIENT FUNDS PASS THRU LIABILITY
The Company collects and receives funds from attendees who register for our clients’ upcoming events. Per the terms of the contracts, the Company remits the balance of funds collected to its clients at 30 and 45 days post event. The Company client funds pass thru liability at March 31, 2014 and 2013 is $397,559 and $221,582, respectively.
15. COMMITMENTS AND CONTINGENCIES
Employment agreements - On April 1, 2013 the Company entered into employment agreements with three of its executive stockholders. Each of these agreements has a five year term beginning April 1, 2013 and ending on April 1, 2018. Unless otherwise terminated each of these agreements shall annually extend for one additional year beginning on the second anniversary date of each agreement. Compensation under these agreements is as follows.
Stephen Saber, chief executive officer of the Company is to receive an annual base salary of $350,000 and a monthly bonus equal to 1.5% of all monthly net revenues of the Company. The bonus is to be paid within fifteen days of the end of each month. If the executive is terminated other than for cause, the executive is entitled to an amount equal to the executive’s annual base salary in effect at the time of termination.
Nicholas Saber, president of the Company is to receive an annual base salary of $275,000 and a monthly bonus equal to 1.5% of all monthly net revenues of the Company. The bonus is to be paid within fifteen days of the end of each month. If the executive is terminated other than for cause, the executive is entitled to an amount equal to the executive’s annual base salary in effect at the time of termination.
John Saber, chief information officer of the Company is to receive an annual base salary of $225,000 and a monthly bonus equal to 1.5% of all monthly net revenues of the Company. The bonus is to be paid within fifteen days of the end of each month. If the executive is terminated other than for cause, the executive is entitled to an amount equal to the executive’s annual base salary in effect at the time of termination.
16. SUBSEQUENT EVENTS
On April 15, 2014, Company borrowed $250,000 in principle at an interest rate of 26%. The note requires the Company to repay the loan with principal and interest payments of $1,676 with all unpaid principal and interest due in full on September 15, 2014.
On April 29, 2014, Company issued an interest free convertible debenture. The Purchaser of the debenture has advanced the Company $175,000 in principle due three years from issuance. At any time the Purchaser may convert the amount outstanding at a conversion price for each share of Common Stock equal to 65% of the second lowest closing bid price of Common Stock for the 20 trading days immediately preceding the date of conversion of the debenture.
On May 15, 2014, Company borrowed $100,000 at an interest rate of 10.75% from John C. Saber, father of the majority stockholders. The terms of the loan require the Company to repay the loan with monthly principal and interest payments of $4,614 through May 15, 2016.
Management of the Company has evaluated subsequent events through the date these financial statements were issued and determined there are no other subsequent events that require disclosure.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Two items noted in the prior year remain material weaknesses, (i) the Company does not have a functioning audit committee and does not have any independent directors on its board of directors resulting in ineffectual oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties consistent with control objectives.
The following items were noted during the audit of the year ended March 31, 2014:
The Company failed to inform the administrator of its flexible spending account benefit plan that the three officers of the Company had not made any contributions to the plan and were therefore not entitled to receive any reimbursement benefits from the plan. As a result these officers improperly received $13,982 in reimbursement benefits from the plan. An audit adjustment to record the amounts improperly paid to the officers as a reduction to the balances of notes payable to them is reflected in the financial statements.
Two officers loaned proceeds from amounts borrowed from their individual 401(k) plan accounts to the Company. Payments made by the Company directly to the Company’s 401(k) plan administrator to repay the participant loans on behalf of the two officers were improperly charged to accrued payroll rather than as a reduction to the notes payable to these two officers. An audit adjustment totaling $33,135 was recorded to properly reflect these payments as a reduction to the balances of the notes payable to these officers. The improper accounting for these payments is a direct result of one of the officers involve specifically requesting they be accounted for improperly which is a clear indication of management override of controls and lack of independent oversight.
The Company had not properly recorded the discounts and related amortization related to two convertible debt instruments issued during fiscal 2014. Audit adjustments to increase interest expense by a total of $91,345; increase additional paid-in capital by $43,467 and record the related discount of the debt were recorded to correct the applicable balances.
DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as of March 31, 2014.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
As of March 31, 2014, management assessed the effectiveness of our internal control over financial reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s President, who is also our principal accounting officer and principal financial officer, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America and includes those policies and procedures that:
· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
· Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.
In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework. Based on that evaluation, completed by Stephen Saber, our Chief Executive Officer, who is our principal executive officer, and also our principal accounting officer and principal financial officer, Mr. Saber concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below.
This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:
Two items noted in the prior year remain material weaknesses, (i) the Company does not have a functioning audit committee and does not have any independent directors on its board of directors resulting in ineffectual oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties consistent with control objectives.
The following items were noted during the audit of the year ended March 31, 2014:
The Company failed to inform the administrator of its flexible spending account benefit plan that the three officers of the Company had not made any contributions to the plan and were therefore not entitled to receive and reimbursement benefits from the plan. As a result these officers improperly received $13,982 in reimbursement benefits from the plan. An audit adjustment to record the amounts improperly paid to the officers as a reduction to the balances of notes payable to them is reflected in the financial statements.
Two officers loaned proceeds from amounts borrowed from their individual 401(k) plan accounts to the Company. Payments made by the Company directly to the Company’s 401(k) plan administrator to repay the participant loans on behalf of the two officers were improperly charged to accrued payroll rather than as a reduction to the notes payable to these two officers. An audit adjustment totaling $33,135 was recorded to properly reflect these payments as a reduction to the balances of the notes payable to these officers. The improper accounting for these payments is a direct result of one of the officers involve specifically requesting they be accounted for improperly which is a clear indication of management override of controls and lack of independent oversight.
The Company had not properly recorded the discounts and related amortization related to two convertible debt instruments issued during fiscal 2014. Audit adjustments to increase interest expense by a total of $91,345; increase additional paid-in capital by $43,467 and record the related discount of the debt were recorded to correct the applicable balances.
The aforementioned material weaknesses were identified by our President in connection with the review of our financial statements as of March 31, 2014.
Management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year ended March 31, 2014 that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
On April 28, 2014, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Peak One Opportunity Fund, L.P., a Delaware limited partnership (the “Purchaser”). On April 28, 2014, after the satisfaction of certain closing conditions, the Company offered and sold to the Purchaser for aggregate proceeds of $175,000, a Debenture (the “Debenture”) for a principal amount of $175,000. On April 29, 2014, the Purchaser of the debenture has advanced the Company $175,000 in principle due three years from issuance. At any time the Purchaser may convert the amount outstanding at a conversion price for each share of Common Stock equal to 65% of the second lowest closing bid price of Common Stock for the 20 trading days immediately preceding the date of conversion of the debenture.
On May 15, 2014, Company borrowed $100,000 at an interest rate of 10.75% from John C. Saber, father of the majority stockholders. The terms of the loan require the Company to repay the loan with monthly principal and interest payments of $4,614 through May 15, 2016.
On June 27, 2014, each of Stephen Saber, Nicholas Saber and John Saber agreed with the Company to amend their respective employment agreements to reduce their respective salaries with the Company. Stephen Saber agreed to reduce his salary from $350,000 per year to $250,000 per year. Nicholas Saber agreed to reduce his salary from $275,000 per year to $200,000 per year. John Saber agreed to reduce his salary from $225,000 per year to $200,000 per year. The salary reductions are effective retroactively to January 1, 2014. Additionally, the amendments to each of the three employment agreements removed (i) an automatic increase the base salaries 7% on April 1 of each year and (ii) compensation of a cash bonus equal to 1.5% of all monthly net revenues of the Company.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names, ages, and positions of our executive officers and directors as of March 31, 2014:
The directors named above will serve until the next annual meeting of the stockholders or until their respective resignation or removal from office. Thereafter, directors are anticipated to be elected for one-year terms at the annual stockholders’ meeting. Officers will hold their positions at the pleasure of the Board of Directors, absent any employment agreement, of which none currently exists or is contemplated.
Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.
Stephen Saber
Chief Executive Officer and Chairman of the Board of Directors
Stephen Saber has served as our Chief Executive Officer and Chairman of the Board of Directors, since March 29, 2013. Mr. Saber has served as the Chief Executive Officer and Director of The Pulse Network since its formation in June 2011. From June 1994 until June 2011, Mr. Saber was President of CrossTech Partners and CEO of New Marketing Labs, which merged with The Pulse Network in June 2011. Earlier in his career, he was a managing director at Cambridge Technology Partners (CTP) - one of the fastest growing public IT Services companies. CTP became the leading IT consulting and systems integration firm focused on the deployment of client-server based business applications for Fortune 500 clients. Over the past five years, Mr. Saber has played an advisory role in several major merger and acquisition transactions ranging from $30 million to $450 million in Digital Media and IT. He has also guest lectured in the entrepreneurship program at Babson College. Mr. Saber received his M.B.A. from Harvard Business School and B.A. in Computer Science and Psychology from Harvard University. Mr. Saber’s knowledge of and career at the Pulse Networks led to our conclusion that he should serve as a director in light of our business and structure.
Nicholas Saber
President, Secretary, Treasurer and Director
Nicholas Saber has served as our President, Secretary, and a Director, since March 29, 2013. Mr. Saber has served and President and Director of The Pulse Network since its formation in June 2011. From June 1994 until June 2011, Mr. Saber served as President of CrossTech Media, LLC, managing over 30 events in the technology space, and Chief Operating Officer at Exgenex, a predecessor corporation to The Pulse Network. At CrossTech, Mr. Saber was involved with managing four acquisitions over the past five years. Earlier in his career, Mr. Saber was a management consultant at Coopers and Lybrand, where he sold and managed IT Systems, IS projects, and business reengineering projects for Fortune 1000 companies. Mr. Saber holds a bachelor’s degree in Business from Babson College. Mr. Saber’s knowledge of and career at the Pulse Networks led to our conclusion that he should serve as a director in light of our business and structure.
John Saber
Chief Information Officer and Director
John Saber has served as our Chief Information Officer and a Director, since March 29, 2013. Mr. Saber has served and Chief Information Officer, Vice President of Research and Design, and Director of The Pulse Network since its formation in June 2011. From June 1994 until June 2011, Mr. Saber served as the Vice President for CrossTech Partners, responsible for the design and development of the software-as-a-service platform. Prior to CrossTech Partners, Mr. Saber served as a management consultant for Coopers & Lybrand where he managed projects at Genzyme, AllAmerica Financial, HP, and Fidelity. Mr. Saber has also served as the Director of Systems for McBer & Company (a subsidiary of the Hay Group). Mr. Saber received his Bachelors of Science in MIS and Quantitative Methods, and an MBA with an MIS concentration from Babson College. Mr. Saber’s knowledge of and career at the Pulse Networks led to our conclusion that he should serve as a director in light of our business and structure.
TERM OF OFFICE
All directors hold office until the next annual meeting of the stockholders of the Company and until their successors have been duly elected and qualified. The Company’s Bylaws provide that the Board of Directors will consist of no less than three members. Officers are elected by and serve at the discretion of the Board of Directors.
DIRECTOR INDEPENDENCE
Our board of directors is currently composed of three members, none of whom qualifies as an independent director in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our board of directors has not made a subjective determination as to each director that no relationships exist which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our board of directors made these determinations, our board of directors would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.
CERTAIN LEGAL PROCEEDINGS
No director, nominee for director, or executive officer of the Company has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past ten years.
SIGNIFICANT EMPLOYEES AND CONSULTANTS
Other than our officers and directors, we currently have no other significant employees.
AUDIT COMMITTEE AND CONFLICTS OF INTEREST
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. The Board of Directors has not established an audit committee and does not have an audit committee financial expert, nor has the Board of Directors established a nominating committee. The Board is of the opinion that such committees are not necessary since the Company is an early exploration stage company and has only two directors, and to date, such directors have been performing the functions of such committees. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.
There are no family relationships among our directors or officers. Other than as described above, we are not aware of any other conflicts of interest with any of our executive officers or directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater-than-ten percent stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file. Based on our review of filings made on the SEC website, and the fact of us not receiving certain forms or written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended March 31, 2014, our executive officers, directors and greater-than-ten percent stockholders complied with all Section 16(a) filing requirements.
CODE OF ETHICS
The Company has not adopted a code of ethics that applies to its principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth certain information about compensation paid, earned or accrued for services by our executive officers (collectively, the “Named Executive Officers”) in the fiscal years ended March 31, 2014 and 2013:
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding each element of compensation that we paid or awarded to our named executive officers for fiscal years ended March 31, 2014 and 2013.
Summary Compensation Table
(1) Appointed Chief Executive Officer and Chairman of the Board of Directors on March 29, 2013.
(2) Appointed President, Secretary, Treasurer and Director on March 29, 2013.
(3) Appointed Chief Information Officer and Director on March 29, 2013.
There has been no cash payment paid to the executive officers for services rendered in all capacities to us for the fiscal period ended March 31, 2013 and through the date of filing of this Form 10-K. There has been no compensation awarded to, earned by, or paid to the executive officers by any person for services rendered in all capacities to us for the fiscal period ended March 31, 2013 and through the date of filing of this Form 10-K.
EMPLOYMENT AGREEMENTS
In connection with the Company’s March 29, 2013 share exchange with The Pulse Network, the Company entered into five-year employment agreements with its three officers and directors: Stephen Saber, Nicholas Saber and John Saber.
The individual employment agreements, dated March 29, 2013, provide for an initial annual base salary, commencing April 1, 2013, of $350,000 for Stephen Saber, $275,000 for Nicholas Saber and $225,000 John Saber. Each salary will increase by 7% on April 1 of each year, beginning in 2014, based on the salary due in the year prior to each such 7% increase. The agreements also provide for (i) a bonus of cash compensation equal to 1.5% of all monthly net revenues of the Company and The Pulse Network, (ii) the Company to pay for executive’s costs related to executive’s reasonable monthly cell phone and other mobile Internet costs, home office Internet costs, (iii) the Company to pay for executive’s car and commuting costs, not to exceed $1,100 per month, and club membership costs, payable not later than 10 days after the end of each month, and (iv) a severance payment for each executive equal to his then current annual base salary rate upon the termination of the executive’s employment by the Company without cause or by the executive for good reason or in the event of a change in control. The employment agreements also entitle the executives to participate in our employee benefit programs and provide for other customary benefits. In addition, each employment agreement provides compensation pursuant periodic grants of stock options thereafter as recommended by our board of directors (no options have been granted to any executive as of the date of this Form 10-K). Finally, the employment agreements prohibit the executives from engaging in certain activities which compete with the Company, seek to recruit its employees or disclose any of its trade secrets or otherwise confidential information.
Effective January 1, 2014, an amendment was approved to the existing employment agreements with its three officers and directors: Stephen Saber, Nicholas Saber and John Saber.
The amendment to the individual agreements provide for an initial base salary, commencing January 1, 2014, of $250,000 for Stephen Saber, $200,000 for Nicholas Saber, and $200,000 for John Saber. The amendment has removed the provision to automatically increase the officers’ base salaries 7% on April 1 of each year. The amendment also removed providing bonus cash compensation equal to 1.5% of all monthly net revenues of the Company.
DIRECTOR COMPENSATION
The following table sets forth director compensation as of March 31, 2014:
(1) Appointed Chief Executive Officer and Chairman of the Board of Directors on March 29, 2013.
(2) Appointed President, Secretary, Treasurer and Director on March 29, 2013.
(3) Appointed Chief Information Officer and Director on March 29, 2013.
We have not compensated our directors for their service on our Board of Directors since our inception. There are no arrangements pursuant to which directors will be compensated in the future for any services provided as a director.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table lists, as of March 31, 2014, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 3,650,000 shares of our common stock issued and outstanding as of March 31, 2014. We do not have any outstanding warrant, options or other securities exercisable for or convertible into shares of our common stock.
*Unless otherwise noted, the address of each person or entity listed is, c/o The Pulse Network, Inc., 437 Turnpike Street, Canton, Massachusetts 02021.
(1) As of March 31, 2014, we had 165,001,000 shares of common stock outstanding. 1,000 of such shares are reserved for issuance for the conversion of 1,000 shares of Series A Preferred Stock into 1,000 shares of common stock, and 75,000,000 shares are reserved for issuance for the conversion of 15,000,000 shares Series B Preferred Stock into 75,000,000 shares of common stock.
(2) Appointed Chief Executive Officer and Chairman of the Board of Directors on March 29, 2013.
(3) Of the 62,010,414 shares of common stock referenced, 31,005,000 shares are reserved for issuance upon the conversion at any time upon the discretion of Stephen Saber from 6,201,000 shares of Series B Preferred Stock currently held by him, and 414 shares are reserved for issuance upon the conversion at any time upon the discretion of Stephen Saber from 414 shares of Series A Preferred Stock currently held by him.
(4) Appointed President, Secretary, Treasurer and a Director on March 29, 2013.
(5) Of the 43,995,293 shares of common stock referenced, 21,997,500 shares are reserved for issuance upon the conversion at any time upon the discretion of Nicholas Saber from 4,399,500 shares of Series B Preferred Stock currently held by him, and 293 shares are reserved for issuance upon the conversion at any time upon the discretion of Stephen Saber from 293 shares of Series A Preferred Stock currently held by him.
(6) Appointed Chief Information Officer and a Director on March 29, 2013.
(7) Of the 43,995,293 shares of common stock referenced, 21,997,500 shares are reserved for issuance upon the conversion at any time upon the discretion of John Saber from 4,399,500 shares of Series B Preferred Stock currently held by him, and 293 shares are reserved for issuance upon the conversion at any time upon the discretion of John Saber from 293 shares of Series A Preferred Stock currently held by him.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 29, 2013, the Company, entered into a Share Exchange Agreement, dated March 29, 2013 (the “Share Exchange Agreement”), by and among the Company, The Pulse Network, and the holders of common stock of The Pulse Network. The holders of the common stock of The Pulse Network consisted of Stephen Saber, Nicholas Saber and John Saber.
Under the terms and conditions of the Share Exchange Agreement, the Company sold 75,000,000 shares of common stock, 1,000 shares of Series A Preferred Stock and 15,000,000 shares of Series B Preferred Stock of the Company in consideration for all the issued and outstanding shares in The Pulse Network. Each share of Series A Preferred Stock is convertible into one share of common stock of the Company and requires the consent of the majority of the holders of Series A Preferred Stock to change the composition of the board of directors or President and Chief Executive Officer of the Company, change the Articles of Incorporation or Bylaws of the Company, or engage in merger, sale of assets, share exchange or other reorganization of the Company. Each share of Series B Preferred Stock is convertible into 5 shares of common stock and equal to 100 votes of common stock of the Company. The effect of the issuance is that The Pulse Network shareholders now hold approximately 90.9% of the issued and outstanding shares of common stock of the Company.
Stephen Saber, the Company’s Chief Executive Officer and Chairman of the Board of Directors, is the holder of 31,005,000 shares of common stock of the Company, 414 shares of Series A Preferred Stock (convertible into 414 shares of common stock) of the Company and 6,201,000 shares of Series B Preferred Stock of the Company (convertible into 31,005,000 shares of common stock). Stephen Saber, therefore, controls 62,010,414 shares, or 37.5%, of the outstanding common stock of the Company, on a fully diluted basis.
Nicholas Saber, the Company’s President, Secretary, Treasurer, as well as being a new Director, is the holder of 21,997,500 shares of common stock of the Company, 293 shares of Series A Preferred Stock (convertible into 293 shares of common stock) of the Company and 4,399,500 shares of Series B Preferred Stock of the Company (convertible into 21,997,500 shares of common stock). Nicholas Saber, therefore, controls 43,995,293 shares, or 26.6%, of the outstanding common stock of the Company, on a fully diluted basis.
John Saber, the Company’s Chief Information Officer, as well as being a new Director, is the holder of 21,997,500 shares of common stock of the Company, 293 shares of Series A Preferred Stock (convertible into 293 shares of common stock) of the Company and 4,399,500 shares of Series B Preferred Stock of the Company (convertible into 21,997,500 shares of common stock). John Saber, therefore, controls 43,995,293 shares, or 26.6%, of the outstanding common stock of the Company, on a fully diluted basis.
Stephen Saber, Nicholas Saber and John Saber are brothers.
As a result of the share exchange with Stephen Saber, Nicholas Saber and John Saber, The Pulse Network is now a wholly-owned subsidiary of the Company. Articles of Exchange were filed with the Commonwealth of Massachusetts, effective March 29, 2013.
We operate from leased space, 50% of which is beneficially owned by Stephen Saber and Nicholas Saber, two of our officers and directors. The Company leases its office space under a non-cancelable lease agreement with a related party which expires July 15, 2015. Future minimum rent payment under this agreement are $47,052 for the year ending March 31, 2014, and $11,763 for the year ending March 31, 2015. Total rent expense, including common area, maintenance, taxes, insurance and utilities, was $110,934 and $110,791 for the years ended March 31, 2014 and 2013, respectively.
On February 4, 2014, the Company entered into a new non-cancelable 10 year lease agreement with a related party (32.5% of which is beneficially owned by Stephen Saber and Nicholas Saber, two of our officers and directors) with a commencement date of May 1, 2014. The new space is located at 10 Oceana Way, Norwood, Massachusetts 02062 and has approximately 10,000 square feet of leased space. Future minimum rent payment under this agreement are $10,000 for the year ending March 31, 2014, and $100,000 for the year ending March 31, 2015. For each of the years ending March 31, 2016 through 2024, the minimum rent payment will be $120,000 and $20,000 for the year ending March 31, 2025.
Stephen Saber, Nicholas Saber, and John Saber are owners of Crosstech Partners, LLC - a technology consulting company. For the year ending March 31, 2014, the Company had a loan of $122,158 due to CrossTech Partners, LLC. The loan bears interest at 6.5% and is due in one balloon payment of $133,908 on September 3, 2015.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
For the year ended March 31, 2014 and 2013, the total fees charged to the company for audit services, including quarterly reviews were $109,903 and $69,108, for audit-related services were $0 and $0 and for tax services and other services were $0 and $0, respectively.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The following Exhibits, as required by Item 601 of Regulation SK, are attached or incorporated by reference, as stated below.
* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) Filed and incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-174443), as filed with the Securities and Exchange Commission on May 24, 2011.
(2) Filed and incorporated by reference to the Company’s Current Report on Form 8-K (File No. 000-54741), as filed with the Securities and Exchange Commission on March 29, 2013.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE PULSE NETWORK, INC.
(Name of Registrant)
Date: June 30, 2014
By:
/s/ Stephen Saber
Name: Stephen Saber
Title: Chief Executive Officer (principal executive officer, principal financial officer and principal accounting officer)
EXHIBIT INDEX
* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) Filed and incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-174443), as filed with the Securities and Exchange Commission on May 24, 2011.
(2) Filed and incorporated by reference to the Company’s Current Report on Form 8-K (File No. 000-54741), as filed with the Securities and Exchange Commission on March 29, 2013.