ITEM 1. DESCRIPTION OF BUSINESS Back to
Formation and year of organization
We were incorporated on May 26, 2010, in the State of Delaware. Our authorized capital consists of 500,000,000 shares of our common stock (the “Common Shares”) with a par value of $0.0001 per common share. Our principal executive offices are currently located at the following address: 40 Wall Street, 28th Floor, New York, NY 10005. Our telephone number is + (917) 522-8399. Our website is http://www.progamingcorp.com
Recent Corporate Developments
On December 31, 2012, the board of directors of the Company accepted the resignation of Asher Zwebner as CFO of the Company. Mr. Zwebner informed the Company that the reason for his resignation was to permit him to pursue new business opportunities. Mr. Zwebner had no disagreements with the Company's operations, policies or practices.
On November 26, 2012, Mr. Erez Zino, a founder and principal shareholder of the Company was appointed to the Company's board of directors. Mr. Zino was appointed as the Chief Executive Officer of the Registrant on July 5, 2012, as reported in the registrant's Form 8-K dated July 11, 2012. On November 26, 2012, the Company accepted the resignation of Mr. Tamir Levinas as a director. Mr. Levinas previously resigned as the Company's CEO on May 3, 2012.
On July 5, 2012, Mr. Erez Zino, a founder and principal shareholder of the Company, was appointed as the Chief Executive Officer. During the past five years, Mr. Zino has been the owner and managing director of Ozicom Communication Ltd., a private company that provides internet marketing support. Mr. Zino is a trained computer programmer and specializes in internet marketing.
On May 3, 2012, Mr. Tamir Levinas, the Company's Chief Executive Officer, resigned from his position as CEO due to a contractual commitment made in connection with the sale of another company with which Mr. Levinas is involved. Mr. Levinas's resignation was not the result of any disagreement with the Company relating to the Company’s operations, policies, or practices. Mr. Levinas will continue to serve as a member of the Company's Board of Directors.
On March 1, 2012, we filed a Certificate of Amendment of our Certificate of Incorporation effecting a forward stock split of the Company’s issued and outstanding shares of Common Stock at a ratio of ten-to-one (the “Forward Split”). The Certificate of Amendment provides that each ten (10) outstanding shares of the Company's Common Stock, par value $0.0001 per share, will be split and converted, automatically, without further action, into ten (10) shares of Common Stock. The Forward Split has been reflected in this Annual Report on Form 10-K.
In April 2011, we raised $40,000 and issued 400,000 shares of our common stock to two non-US investors. These transactions did not involve any underwriters, underwriting discounts or commissions, nor any public offering. We believe these transactions were exempt from registration pursuant to Regulation S of the Securities Act of 1933 (the "Securities Act").
Recent Business Developments
On February 18, 2013, the Company entered into a Joint Venture Agreement ("JV Agreement") with Zenetek LLC, a company organized under the laws of the State of Delaware, is a wholly-owned subsidiary of Anything Technologies Media (OTC: EXMT), with offices located in Vietnam. Pursuant to the terms of the JV Agreement, Zenetek shall represent the Registrant in China, Singapore, Taiwan, Vietnam, Hong Kong and Indonesia (the "Territories") during the initial 12 month term to: facilitate the Registrant's ability to enter into JV agreements and/or other transactions with third parties within the Territories to generate revenues for the Registrant "state-of-the-art" multiplayer puzzle game platform, implementing the platform into major social media networks within the Territories; and negotiating JV transactions with gaming companies within the Territories using the Company's Generic patented GER system.
The JV Agreement further provides that in order for Zenetek to retain its representation rights on an exclusive basis, Zenetek must prepare and present an operating business plan satisfactory to the Registrant, which shall include potential JV partners. In consideration for the representation and distribution services being provided by Zenetek in the SE Asian Territories, the parties have agreed that net revenues generated from any JV Transaction shall be distributed thirty-five (35%) percent to the Registrant and sixty-five (65%) percent to Zenetek.
In addition, Zenetek has agreed to assume responsibility for all marketing and related costs and expenses as well as all engineering costs. Furthermore, to the extent that Zenetek shall utilize the services of Registrant's engineering and/or other personnel in fulfilling its obligations under this Agreement, such personnel costs shall be billed by the Registrant and paid for by Zenetek under separate subcontracting agreements.
On April 2, 2012, we filed with the U.S. Patent Office a provisional application for a patent for the game event record technology underlying our proprietary multiplayer online gaming and reward-processing platform.
In furtherance of the Company's long term strategy in both the U.S and worldwide, the Company has been negotiating with third parties to allow them to offer games of skill on our platform as part of their services. In August 2012, the Company entered into a licensing agreement with Inhouse Interactive LTD, a company engaged in the business of creating innovative and interactive media, including online games, using a wide range of media and unique technologies, granting Inhouse rights to upload a flash game, utilizing the Company's platform technology in Israel.
Starting April 1, 2012, the Company had completed it's initial Research and Development stage and began concentrating all efforts in marketing activities. Additional developments may incur following the success of the marketing activities.
On July 10, 2011, we executed a license agreement with GT-SAT International S.A.R.L ("GT-SAT"), a corporation organized under the laws of Luxemburg. Such license agreement granted GT-SAT a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Europe, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Luxembourg, Belgium, and Holland. In consideration of such license, GT-SAT made an upfront, non refundable, payment of $90,000 and has agreed to pay us royalties on future revenues. On December 26, 2011 GT-SAT has terminated the license agreement. The stated reason for termination was the economic situation in Europe.
On July 1, 2011, we executed a license agreement with Yanir Levin Ltd., an Israeli corporation. Such license agreement granted the licensee a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Asia, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Israel. In consideration of the license granted to the licensee, the licensee made an upfront, non refundable, payment of $29,000 and has agreed to pay us royalties on future revenues.
Business of Issuer
We are engaged in the development of an online gaming platform and intend to enter into licensing agreements with online game service providers in the United States in order to allow them to offer games of skill on our platform as part of their member services.
The Online Gaming Market
We are currently focusing our marketing efforts on two complementary niche markets: the online gaming market and the online advertizing market.
The online gaming market is the market for games played over the internet. Online games can range from simple text-based games to games incorporating complex graphics and virtual worlds populated by many players simultaneously. Online games include single-player online games and multiplayer online games. Multiplayer online games appeal to online gaming communities, for whom online gaming is a form of social activity.
The online advertizing market is the market for online advertizing campaigns designed to increase the traffic volume of websites. We believe that our proprietary platform will enable advertisers to increase the effectiveness of such campaigns by offering material rewards to winners of online gaming tournaments.
The Market Opportunity
The online gaming market is one of the fastest growing global markets today. According to the CNBC.com article entitled “Rivals Square Off in $15 Billion Online Gaming Market” dated March 26, 2010, the online gaming market is currently estimated to be worth $15 billion. With regard to North America, according to a report by BBC News dated March 24, 2009, the findings of analysts Screen Digest suggested that the multiplayer online gaming market in Europe and North America had grown by 22% and was worth $1.4 billion.
According to a press release issued on July 10, 2009 by comScore, Inc. (NASDAQ: SCOR), a leader in measuring the digital world, there were 87 million U.S. visitors at online game websites in May 2009, an increase of 22 percent from the prior year. comScore noted a significant increase in the size of its audience during the past year as consumers increasingly opted for cheaper entertainment alternatives, driven in part by the reality of economic challenges. According to comScore, Yahoo! Games ranked No. 1 in the online gaming category with 19.4 million visitors, representing a 6-percent increase over the past year, followed by EA Online with 18 million visitors (up 34 percent), Nickelodeon Casual Games with 14.8 million visitors, and WildTangent Network with 13.8 million visitors (up 16 percent).
Edward Hunter, comScore director of gaming solutions, concluded that “Online gaming continues to be one of the top gaining categories over the past year growing at ten times the rate of the total U.S. Internet population and reaching nearly one out of every two Internet users.” He added that “the growth in the category is occurring not only at the top gaming destination sites, but also through viral distribution platforms, including widgets and applications. In fact, some online gaming companies that distributed their games across sites are reaching as many people as the top online gaming sites.” (source: comScore, Inc. July 10, 2009 press release).
Similarly, in 2009, 21.3 million PC Game full-game digital downloads were purchased in the United States (source: the website of NPD Group).
Today, a gamer wishing to play online must purchase a client account from a game service provider and then he can either play online with friends connected to a private game server or subscribe to a commercial game server and play with other subscribers. The leading business model for the online gaming market that we are aware of is "pay per access," whereby a gamer pays the online game service provider a fee (typically a monthly fee) for the right to access the game service provider’s online games.
Our Software Product
We have developed a proprietary online gaming platform which will enable gamers to play games of skill against each other (either one-to-one or many-to-many), with the winner collecting prize money, or any other prize. All games, scores and statistics will be maintained within the server only. The system’s billing method is proprietary and configured to commercial billing systems.
We have designed our online gaming platform to allow online game service providers to protect novice gamers from entering games with high stakes by restricting such gamers to low entry amount games with players of their own level. Our online gaming platform is capable of creating a statistical gamer rank data file on each participating gamer and, based on rank, will allow him to enter games up to his maximum allowed amount. The software we have developed has the ability to detect if any gamer tries to abuse the level system by opening an account with a new name by ranking him according to his actual game performance.
In addition, our online gaming platform is based on a model that is not dependent on user self-reporting. Unlike other systems that depend on self-reporting by users, our technology includes a reliable accounting mechanism; is easy to implement on third party servers and billing systems; is highly secured (no middleware); and is capable of operation in a variety of game billing scenarios (DM, TDM, CTF, etc.).
Our software product enables a business model that combines traditional online gaming (“pay per access”) with the potential for monetary reward for the winner. Each player who has an account with a game service provider that licenses our platform will be able to pay for the right to compete in games of skill with other players, with the winner of the game to receive his money back plus his competitor’s payments. We completed the development of the prototype of our software product during the third quarter of 2011, and we intend to continue investing in its improvement as necessary.
In March 2012 we completed the development of a Flash based online game that is integrated with our proprietary platform. We intend to leverage this game to market our technology for use in web advertising campaigns.
We also intend to further license our online gaming platform to online game service providers worldwide. To date, we have licensed distribution rights for our online gaming platform to two (2), entities one in Europe and one in Israel; however, the European entity has terminated its license agreement.
Target Market
We currently target two markets
The first market is the online gaming market and the online game service providers in this market. There are hundreds of such game service providers in the United States alone. We intend to offer our online gaming platform to the leading online game service providers as well as to niche providers to enable these game service providers to enhance the gaming experience that they offer their customers, thereby generating additional revenues.
The second market is the internet advertizing market. Currently considerable sums of money are expanded by business entities in order to increase the traffic on their websites. We believe that our proprietary technology has the potential to add a whole new dimension to the capabilities of web marketing and advertizing companies to succeed in this task.
Pricing Model
We plan to enter into licensing agreements with online game service providers, as well as website owners, for the use of our online gaming platform to offer games of skill as part of their services. Our proposed business model is to charge both one-time license fees for the right to license our software, as well as royalties linked to usage, as measured by the number of games of skill played on our online gaming platform (in the case of online gaming). For example, a player wishing to compete with other players in games of skill on the platform will be required to make a per game payment to the game server based on the player’s level of performance and experience.
Our Competition
While there are a minority of online game service providers that offer gamers the opportunity to play competitive games with a potential for the winners to earn financial rewards, these games service providers do not offer independent, credible results determination, but rather rely on the users self-reporting their game results. The game service providers then act as mediators in the event of a dispute between users. (See, for example, the website of gamebattles.com and the website of VirginGaming.com).
To our knowledge, there are no other online gaming platforms that allow the kind of competitive online gaming that is capable of being offered by our online gaming platform, namely, an online gaming platform that can provide independent and objective results determination without the need for any self-reporting.
However, we anticipate that our business model may be replicated or adapted by our competitors over time.
Competitive Advantages
Our business model and technology have three main competitive advantage compared with existing online gaming offerings:
 Our business model is based on the successful and operating business model employed by the online gambling industry, even though our platform will be designed to host rings of paying members who stand to win rewards in online games of skill such as chess or checker games.
 The “reward for winning” model that we intend to follow offers an adrenalin rush to experienced online players looking for new thrills.
 Our system and technology will operate independently from user feedback, and all the reports and scores will be generated from the server itself, thus removing the possibility of fraud by or disputes between users.
Sources and Availability of Products and Supplies
There are no constraints on the sources or availability of products and supplies related to our business. We will be developing our online gaming platform, and we will license our online gaming platform to online game service providers.
Dependence on One or a Few Major Customers
The nature of our product offering does not mandate any dependence on one or a few major customers, as we expect that our platform will be used by online game service providers and “rings” of online players.
Patent, Trademark, License & Franchise Restrictions and Contractual Obligations & Concessions
We have not entered into any revenue share agreements or other contracts that have given, or could give rise to, obligations or concessions. We have developed an online gaming platform and intend to protect our online gaming platform on the basis of applicable copyright, trade secrecy, trademark and trade name laws. We have researched the availability of the trademark “ProGaming Platforms,” and we did not locate any trademark registrations with the USPTO that included the term “ProGaming Platforms.” We may also affect a “new method of business” type of patent, although we anticipate that our business model may be replicated or adapted by our competitors over time. Beyond the current version of our online gaming platform and our trade name, we do not hold any other intellectual property.
Existing or Probable Government Regulations
Generally, in the U.S., games of skill are distinguished at law from games of chance by the predominant role of skill in determining the outcome of the game. Thus, while wagering on games of chance is prohibited by the laws of the United States and practically all U.S. states, in most U.S. states, a participant in a game of skill is permitted to wager on his own performance in a game of skill. Our business model is directed toward the legal online gaming market, and our software product is intended to facilitate the entirely legal activity of wagering on games of skill by the participants in such games of skill. Nevertheless, there can be no assurance that state regulators will not choose to interpret applicable state anti-gambling statutes to restrict the use of our proposed online gaming platform even when used for the wagering on games of skill. Whether a particular use of our online gaming platform would run afoul of a state’s internet gambling statute is a determination that can differ from state to state. We believe that the use of our online gaming platform to offer games of skill is not gambling under U.S. federal law nor under the laws of a majority of states. Nevertheless, should a particular state or the federal government change or interpret its laws to restrict the use of our online gaming platform, we may no longer be able to offer our software product in such locality or at all. We plan to include in our licensing agreements with game service providers a provision precluding the offering of games of skill for a cash reward in those states which prohibit the wagering on one’s own performance in a game of skill.
Research and Development Activities and Costs
During calendar year 2011 and to date, we have engaged in extensive research and development ("R&D") activities designed to improve the performance of our software platform and to extend its capabilities to meet the needs of today's online gaming market. The majority of R&D expenses incurred during this period were for software development designed to improve our original platform and to create a "type 2" product, which will serve the online advertising industry. These efforts were carried out mainly through retaining the services of independent third party programmers. We intend to continue with such R&D efforts throughout 2013 based on the specific requirements of potential clients and strategic partners.
Costs and Effects of Compliance with Environmental Laws and Regulations
We are not in a business that involves the use of materials in a manufacturing stage where such materials are likely to result in the violation of any existing environmental rules and/or regulations. Further, we do not own any real property that could lead to liability as a landowner. Therefore, we do not anticipate that there will be any substantial costs associated with the compliance with environmental laws and regulations.
Employees
We have no full-time employees. Our officers and Directors provide service to us on an as-needed basis. Currently our research and development efforts are carried out mainly by our CTO and third party outsourced developers. When we commence full operations, we will need to hire support staff as well as software developers.
ITEM 1A.
ITEM 1A. RISK FACTORS
Back to Table of Contents Risks Relating to Our Lack of Operating History
Our business is at an early stage of development and we may not develop an online gaming platform that can be commercialized.
The success of our business is dependent on our ability to develop successfully our online gaming platform, and to secure licensing agreements with existing online game service providers in the United States. Our ability to achieve these goals is unproven, and the lack of operating history makes it difficult to validate our business plan. In addition, the success of our business plan is dependent upon acceptance of our platform by the online gaming community. Should the target market not be as responsive as we anticipate, we will not have in place alternate services or products that we can offer to ensure our continuing as a going concern .
Management believes that it currently has sufficient funds to continue our planned activities at least through the first half of 2013. We also expect to continue to incur operating losses in future periods. These losses will occur because we do not yet have significant revenues to offset the expenses associated with the development and marketing of our online platform. We cannot guarantee that we will ever be successful in generating significant revenues in the future. We recognize that if we are unable to generate significant revenues, we will not be able to earn profits or continue operations.
We have a history of operating losses and we may not achieve future revenues or operating profits.
We have a history of operating losses and we anticipate generating losses until we are able to generate significant revenues. We do not anticipate generating significant revenues before the second half of 2013. Therefore, we may be unable to continue operations in the future as a going concern. No adjustment has been made in the accompanying financial statements to the amounts and classification of assets and liabilities which could result should we be unable to continue as a going concern. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.
We have a going concern note indicating the possibility that we may not be able to continue to operate.
Our financial statement, as of December 31, 2012 include a going concern note, which raises a substantial doubt about the Company’s ability to continue as a going concern. As a result, we may face difficulty in obtaining additional necessary funding. There can be no assurance that we will ever achieve any revenues or profitability. The revenue and income potential of our proposed business and operations are unproven, and the lack of operating history makes it difficult to evaluate the future prospects of our business.
We have a limited operating history on which investors may evaluate our operations and prospects for profitable operations.
We were incorporated on May 26, 2010. We currently have two agreements, of which one was canceled, with online game service providers, but these agreements have not generated any significant revenues. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any significant operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
Our business plan may be unsuccessful.
The success of our business plan is dependent on our ability to develop successfully our online gaming platform and to secure licensing agreements with existing online game service providers in the United States. Our ability to develop software for this market is unproven, and the lack of operating history makes it difficult to validate our business plan. In addition, the success of our business plan is dependent upon acceptance of our platform by the online gaming community. Should the target market not be as responsive as we anticipate, we will not have in place alternate services or products that we can offer to ensure our continuing as a going concern .
Our officers have no experience in operating an online gaming platform.
Since our officers and directors have no experience in operating an online gaming platform, they may make inexperienced or uninformed decisions regarding the development of software for this market, the operation of our business, or the marketing of our platform, which could harm our business and result in our having to suspend or cease operations, which could cause investors to lose their entire investment.
Risks Relating to Our Business
Our executive officers and directors have significant voting power and may take actions that may be different than actions sought by our other stockholders.
Our officers and directors own approximately
18.44% of the outstanding shares of our common stock. These stockholders will be able to exercise significant influence over all matters requiring stockholder approval. This influence over our affairs might be adverse to the interest of our other stockholders. In addition, this concentration of ownership could delay or prevent a change in control and might have an adverse effect on the market price of our common stock.
Our officers and directors are located in Israel and our assets may also be held from time to time outside of the United States.
Since all of our officers and directors are located in Israel, any attempt to enforce liabilities upon such individuals under the U.S. securities and bankruptcy laws may be difficult.
In accordance with the Israeli Law on Enforcement of Foreign Judgments, 5718-1958, and subject to certain time limitations (the application to enforce the judgment must be made within five years of the date of judgment or such other period as might be agreed between Israel and the United States), an Israeli court may declare a foreign civil judgment enforceable if it finds that:
 the judgment was rendered by a court which was, according to the laws of the State in which the court is located, competent to render the judgment;
 the judgment may no longer be appealed;
 the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not contrary to public policy; and
 the judgment is executory in the State in which it was given.
An Israeli court will not declare a foreign judgment enforceable if:
 the judgment was obtained by fraud;
 there is a finding of lack of due process;
 the judgment was rendered by a court not competent to render it according to the laws of private international law in Israel;
 the judgment is in conflict with another judgment that was given in the same matter between the same parties and that is still valid; or
 the time the action was instituted in the foreign court, a suit in the same matter and between the same parties was pending before a court or tribunal in Israel.
Furthermore, Israeli courts may not adjudicate a claim based on a violation of U.S. securities laws if the court determines that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear such a claim, it may determine that Israeli law, not U.S. law, is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact, which can be a time-consuming and costly process.
Our assets may also be held from time to time outside of the United States. Since our Directors and executive officers are foreign citizens and do not reside in the United States, it may be difficult for courts in the United States to obtain jurisdiction over our foreign assets or persons, and as a result, it may be difficult or impossible for you to enforce judgments rendered against us or our Directors or executive officers in United States courts. Thus, investing in us may pose a greater risk because should any situation arise in the future in which you would have a cause of action against these persons or against us, you may face potential difficulties in bringing lawsuits or, if successful, in collecting judgments against these persons or against the Company.
We may not be able to raise the required capital to conduct our operations and develop and commercialize our product.
We were incorporated on May 26, 2010. We have completed development of our online gaming platform and have entered into two agreements with online game service providers (although one agreement has been terminated), but we have not generated any significant revenues. Although we have commenced the marketing of our online gaming platform, we may not be able to execute our business plan. If we do not generate any significant revenues during our first years of operations, we may require additional financing in order to establish profitable operations. Such additional financing, if required, may not be forthcoming. Even if additional financing is available, it may not be available on terms we find favorable. Failure to secure any needed additional financing may have a serious effect on our company's ability to survive. At this time, there are no anticipated additional sources of funds in place.
If we continue to suffer losses, investors may not receive any return on their investment and may lose their entire investment. Our prospects must be considered speculative in light of the risks, expenses, and difficulties frequently encountered by companies in their early stages of development, particularly in light of the uncertainties relating to the new, competitive and rapidly evolving markets in which we anticipate we will operate. To attempt to address these risks, we must, among other things, further develop our technology and product, successfully implement our development, marketing and commercialization strategies, respond to competitive developments, and attract, retain, and motivate qualified personnel. A substantial risk is involved in investing in us because, as an early stage company we have fewer resources than an established company, our management may be more likely to make mistakes at such an early stage, and we may be more vulnerable operationally and financially to any mistakes that may be made as well as to external factors beyond our control.
We expect to continue to incur operating losses in future periods. These losses will occur because we do not yet have any significant revenues to offset the expenses associated with the development and promotion of our platform. We cannot guarantee that we will ever be successful in generating significant revenues in the future. We recognize that if we are unable to generate significant revenues, we will not be able to earn profits or continue operations.
Our lack of business diversification could result in the loss of your investment if revenues from our primary product decrease.
Currently, our business is focused on the development and marketing of an online gaming platform. We do not have any other lines of business or other sources of revenue if we are unable to successfully implement our business plan. Our lack of business diversification could cause you to lose all or some of your investment if we are unable to generate revenues by the operation of the gaming platform since we do not have any other lines of business or alternative revenue sources.
We need to retain key personnel to support our activities and ongoing operations, and a loss of certain key personnel could significantly hinder our ability to move forward with our business plan.
The development, promotion, and operation of our online gaming platform will continue to place a significant strain on our limited personnel, management, and other resources. Our future success depends upon the continued services of our executive officers and other needed key employees and contractors who have critical industry experience and relationships that we will rely on to implement our business plan. The loss of the services of any of our officers or the lack of availability of other skilled personnel would negatively impact our ability to market and sell our product, which could adversely affect our financial results and impair our growth.
Since our officers and Directors may work or consult for other companies, their other activities could slow down our operations.
Our officers and directors are not required to work exclusively for us and do not devote all of their time to our operations. Presently, our officers and directors allocate only a portion of their time to the operation of our business. Since our officers and directors are currently employed full-time elsewhere, they are each able to commit to us only up to 20-25 hours a week. Therefore, it is possible that their pursuit of other activities may slow our operations and reduce our financial results because of the slow-down in operations.
The commercialization of our online gaming platform will be delayed if third parties fail to enter into licensing agreements with us.
We intend to enter into licensing agreements with existing online game service providers to host our platform, and therefore will be dependent on those third parties to make our platform available to online gamers. We have entered into two licensing agreements with existing online game service providers, and one of them has been terminated. We may not be successful in selecting additional suitable online game service providers or in negotiating any agreements with them. If we are unable to enter into additional relationships with existing online game service providers on acceptable commercial terms, we may not be able to commercialize our software product, and our revenue may decrease and our business may fail.
We depend on market acceptance of our online gaming platform. If our platform does not gain market acceptance, our ability to compete will be adversely affected.
Our success will depend in large part on our ability successfully to market our online gaming platform to third party online game service providers. Although we intend to highlight the distinction between our software, which is based on a model of “competition for reward,” from our competitors’ model of “pay per access,” no assurances can be given that we will be able successfully to promote our platform or achieve acceptance from the online gaming community. Moreover, failure successfully to commercialize our platform to third party online game service providers on a timely and cost-effective basis will have a material adverse effect on our ability to compete in our targeted market.
We are a small company with limited resources compared to some of our current and potential competitors and we may not be able to compete effectively and increase market share.
Most of our current and potential competitors have longer operating histories, significantly greater resources, and name recognition, and a larger base of customers than we have. As a result, these competitors have greater credibility with our potential customers. They also may be able to adopt more aggressive licensing policies and devote greater resources to the development, promotion, and sale of their products and services than we can to ours.
Failure to meet customers’ expectations or deliver expected performance could result in losses and negative publicity, which would harm our business.
If our online gaming platform fails to perform in the manner expected by our licensees, then our revenues may be delayed or lost due to adverse customer reaction. In addition, negative publicity about us and our software product could adversely affect our ability to attract or retain licensees. Furthermore, disappointed customers may initiate claims for damages against our licensees and us, regardless of our responsibility for their disappointment.
Risks Relating to Technology and Intellectual Property
We may lose licensees if we experience system failures that significantly disrupt the availability and quality of our online gaming platform.
The operation of our online gaming platform will depend on our ability to avoid and mitigate any interruptions in service or reduced capacity for customers. Interruptions in service or performance problems, for whatever reason, could undermine confidence in our platform and cause us to lose licensees or make it more difficult to attract new ones.
The online gaming market is subject to rapid technological change.
Our business is in an emerging market that is characterized by rapid changes in customer requirements, frequent introductions of new and enhanced products and services, and continuing and rapid technological advancement. To compete successfully in software development for the online gaming market, we must continue to design, develop and sell new and enhanced products and services that provide increasingly higher levels of performance and reliability at lower cost. These new and enhanced products and services must take advantage of technological advancements and changes, and respond to new customer requirements. Our success in designing, developing, and selling such products and services will depend on a variety of factors, including:
 Identifying and responding to market demand for new products and services;
 Keeping abreast of technological changes;
 Timely developing and implementing new product/service offerings and features;
 Maintaining quality of performance;
 Providing cost-effective service and support; and
 Promoting our products and services and expanding our market share.
If we are unable, due to resource constraints or technological or other reasons, to develop and introduce new or enhanced products and services in a timely manner, if such new or enhanced products and services do not achieve sufficient market acceptance, or if such new product and service introductions decrease demand for existing products/services, our operating results would decline and our business would not grow.
If a third party asserts that we infringe upon its proprietary rights, we could be required to redesign our product, pay significant royalties, or enter into license agreements.
Although presently we are not aware of any such claims, a third party may assert that our online gaming platform violates its intellectual property rights. As the number of online gaming platforms in our market increases, we believe that infringement claims will become more common. Any claims against us, regardless of their merit, could:
 Be expensive and time-consuming to defend;
 Result in negative publicity;
 Force us to stop operating our platform;
 Divert management’s attention and our other resources; or
 Require us to enter into royalty or licensing agreements in order to obtain the right to operate our platform, which right may not be available on terms acceptable to us, if at all.
In addition, we believe that any successful challenge to our use of a trademark or domain name could substantially diminish our ability to conduct business in a particular market or jurisdiction and thus could decrease our revenues and/or result in losses to our business.
Our online gaming platform will employ proprietary technology, which will be difficult to protect.
Our success and ability to compete are dependent to a significant degree on our proprietary technology. We intend to rely on a combination of patent, trade secret, copyright and trademark laws, together with non-disclosure agreements and technological measures to establish and protect proprietary rights in our online gaming platform. We cannot assure investors that these efforts will provide meaningful protection for our technology because:
 some foreign countries may not protect our proprietary rights as fully as do the laws of the United States;
 if a competitor were to infringe on our proprietary rights, enforcing our rights may be time consuming and costly, diverting management’s attention and our resources;
 measures like entering into non-disclosure and non-competition agreements afford only limited protection;
 unauthorized and/or unidentifiable parties may attempt to copy aspects of our products and develop similar software or to obtain and use information that we regard as proprietary; and
 our competitors may be able to design around our intellectual property rights or independently develop products that are substantially equivalent or superior to our products.
Regulatory Risks
We face risks related to compliance with corporate governance laws and financial reporting standards.
The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, have materially increased the legal and financial compliance costs of small companies and have made some activities more time-consuming and more burdensome.
We may not have effective internal controls.
In connection with Section 404 of the Sarbanes-Oxley Act of 2002, we need to assess the adequacy of our internal control, remedy any weaknesses that may be identified, validate that controls are functioning as documented and implement a continuous reporting and improvement process for internal controls. We may discover deficiencies that require us to improve our procedures, processes and systems in order to ensure that our internal controls are adequate and effective and that we are in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. If the deficiencies are not adequately addressed, or if we are unable to complete all of our testing and any remediation in time for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the SEC rules under it, we would be unable to conclude that our internal controls over financial reporting are designed and operating effectively, which could adversely affect investor confidence in our internal controls over financial reporting.
Our online gaming platform may be subject to government regulation, and failure to comply with applicable regulations could result in fines, suspensions, seizure actions, injunctions and criminal prosecutions.
Although our software product is directed toward the online gaming market and not the online gambling market, there can be no assurance that state regulators will not choose to interpret applicable state anti-gambling statutes to restrict the use of our proposed online gaming platform. Generally, wagering on skill-based games by the participants in such games is excluded from federal prohibitions against online gambling, as well as the prohibitions found in a majority of state laws. Nevertheless, whether a particular use of our online gaming platform would run afoul of a state’s internet gambling statute is a determination that can differ from state to state. We believe that the use of our online gaming platform to offer games of skill is not gambling under U.S. federal law nor the laws of a majority of states. However, should a particular state or the federal government interpret or change its laws to restrict the use of our online gaming platform, we may no longer be able to offer our software product in such locality or at all, which could have a material adverse effect on our business and operating results.
Future regulation of online gaming could restrict our business, prevent us or our licensees from operating our platform, and/or increase our cost of doing business.
The laws, regulations, or rulings that specifically address the online gaming industry are subject to change. We are unable to predict the impact, if any, that future legislation, judicial precedents, or regulations relating to online gaming may have on our business, financial condition, and results of operations. The increasing growth in popularity of the online gaming market heightens the risk that the United States Government will seek to increase the regulation of such market, which could have a material adverse effect on our business, financial condition, and operating results.
Risks Relating to Operating in Israel
We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel.
Our principal executive offices and our officers and Directors are located in Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and could make it more difficult for us to raise capital. Since September 2000, terrorist violence in Israel has increased significantly and negotiations between Israel and Palestinian representatives have not achieved a peaceful resolution of the conflict. The establishment in 2006 of a government in Gaza by representatives of the Hamas militant group has created additional unrest and uncertainty in the region.
Further, Israel is currently engaged in an armed conflict with Hamas, which until Operation Cast Lead in January 2009 had involved thousands of missile strikes and had disrupted most day-to-day civilian activity in southern Israel. The missile attacks by Hamas did not target Tel Aviv, the location of our principal executive offices; however, any armed conflict, terrorist activity or political instability in the region may negatively affect business conditions and could significantly harm our results of operations.
ITEM 1B.
ITEM 1B.
UNRESOLVED STAFF COMMENTS Back to Table of Contents
None.
ITEM 2.
ITEM 2. PROPERTIES
Back to Table of Contents Our Principal Executive Offices
We do not own any real property. We currently maintain our corporate office at 60 Mazeh Street, Apartment 12, Tel Aviv, 65789, Israel. This space has been provided to us by one of our Directors and we do not pay monthly rent for use of this space. This space is sufficient until we complete the development of our platform.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Back to Table of Contents
We know of no material, active or pending legal proceedings against our Company, nor of any proceedings that a governmental authority is contemplating against us. We know of no material proceedings to which any of our Directors, officers, affiliates, owner of record or beneficially of more than 5 percent of our voting securities or security holders is an adverse party or has a material interest adverse to our interest.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Back to Table of Contents
Not Applicable
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTER Back to
Market Information
Our Common Shares are traded on the over-the-counter market and quoted on the OTCQB under the symbol “PPTF.” On March 25, 2012, the closing price for our shares of common stock as reported on the OTCQB was $0.03. The high and the low bid prices for our shares of common stock are based on inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. The table below sets forth the range of high and low bid information for our shares of common shares as quoted on the OTCQB for each of the quarters during the fiscal year ended December 31, 2012, 2011 and 2010. This information has been adjusted to reflect the 10-for-1 forward stock split that was effective March 2, 2012. The company's common equity was not traded in any public trading market during 2010.
Holders of our Common Shares
As of March 29, 2013, there were 51 registered stockholders holding 52,197,055 common shares.
Dividends
Since our inception, we have not declared nor paid any cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain any earnings in order to finance our operations. Our Board of Directors will determine future declarations and payments of dividends, if any, in light of the then-current conditions it deems relevant and in accordance with applicable corporate law.
Securities Authorized for Issuance under Equity Compensation Plans
We have no existing equity compensation plan.
Recent Sales of Unregistered Securities; Use of Proceeds from Sale of Registered Securities
During fiscal year 2010, the Company issued a total of 30,000,000 restricted shares as follows:
On June 7, 2010, the Company issued 15,250,000 shares of its common stock to individuals who are Directors and officers of the company for $153 subscriptions receivable.
On June 7, 2010, the Company issued 14,750,000 shares of its common stock to individuals who are founders of the company for $147 subscriptions receivable.
During fiscal year 2011, the Company issued a total of 1,797,055 restricted shares as follows:
In April 2011, the Company sold 150,000 restricted shares to Guy Levinson and 250,000 restricted shares to Shlomo Sharbat, both are non-US private investor, for $40,000.
During fiscal year 2012, the Company issued a total of 1,797,055 restricted shares as follows:
On March 18, 2012, the Company issued 25,000 restricted shares of common stock in consideration for financial advisory services provided to the Company. The shares were valued at $7,950 based on the closing price of the Company's common stock on the date of issuance.
On March 13, 2012, the Company issued 30,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $7,500 based on the closing price of the Company's common stock on the date of issuance.
On May 6, 2012, the Company issued 15,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $5,250 based on the closing price of the Company's common stock on the date of issuance.
On July 2, September 3 and September 19, 2012, the Company issued a total of 498,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $82,170 based on the closing price of the Company's common stock on the date of issuance.
On December 29, 2012, the Company issued 1,229,055 restricted shares of common stock in consideration for share exchange between the company and Gefen Biomed Investments, a publicly traded company. The shares were valued at $190,504 based on the closing price of the Company's common stock on the date of issuance.
The Company believes that the issuances and sale of the restricted shares were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. All recipients of restricted shares either received adequate information about the Company or had access, through employment, relation and/or business relationships with the Company to such information.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
During the fourth quarter of the fiscal year ended December 31, 2012, neither we nor any “affiliated purchaser,” as that term is defined in Rule 10b-18(a)(3) under the Exchange Act, repurchased any of our common stock or other securities.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA Back to Table of Contents
None.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION Back to Table of Contents
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our historical results of operations during the periods presented and our financial condition. This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes to consolidated financial statements, and contains forward-looking statements that involve risks and uncertainties. See section entitled “Forward-Looking Statements” above.
EXECUTIVE OVERVIEW
We are a development stage company with limited operations and no significant revenues from our business operations. There is substantial doubt that we can continue as an on-going business for the next twelve months. We do not anticipate that we will generate significant revenues until we enter into licensing agreements with additional online gaming servers, or web advertisers, to permit them to offer games of skill on our platform as part of their member services, or as part of their advertising campaign. Accordingly, we must raise cash from sources other than our operations in order to implement our marketing plan.
In our management’s opinion, there is a potential demand for our technology which will enable online game service providers, and websites engaged in marketing efforts designed to increase traffic, to provide a platform offering financial rewards to winners of online competitive games of skill.
On July 10, 2011, we executed a license agreement with GT-SAT International S.A.R.L ("GT-SAT"), a corporation organized under the laws of Luxemburg. Such license agreement granted GT-SAT a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Europe, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Luxembourg, Belgium, and Holland. In consideration of such license, GT-SAT made an upfront, non refundable, payment of $90,000 and has agreed to pay us royalties on future revenues. On December 26, 2011, GT-SAT terminated this agreement. The stated reason for termination was the economic situation in Europe.
On July 1, 2011, we executed a license agreement with Yanir Levin Ltd., an Israeli corporation. Such license agreement granted the licensee a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Asia, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Israel. In consideration of the license granted to the licensee, the licensee made an upfront, non refundable, payment of $29,000 and has agreed to pay us royalties on future revenues.
In April 2011, we raised $40,000 and issued 400,000 shares of our common stock to two non-US investors. These transactions did not involve any underwriters, underwriting discounts or commissions, nor any public offering. We believe these transactions were exempt from registration pursuant to Regulation S of the Securities Act.
We believe that we have sufficient cash on hand to allow us to market our online gaming platform to potential clients and remain in business through the first half of 2012. If after that we are unable to generate significant revenues for any reason, or if we are unable to make a reasonable profit, we may have to suspend or cease operations. At the present time, we have not made any arrangements to raise additional cash. Other than as described in this paragraph, we have no financing plans at this time.
Over the next twelve months, we plan to license our online gaming platform to third party licensees to permit them to offer games of skill on our platform as part of their member services. We initially intend to focus on the following activities:
 Securing licensing agreements with online game service providers in the United States who, as part of the services offered by such online game service providers, will offer their member players the opportunity to utilize our online gaming platform to play games of skill.
 Advertising our online gaming platform online on gamers’ portals, blogs and forums with a view to achieving maximum exposure to the online gaming community.
 Hosting annual public relations events to raise awareness of our online gaming platform and the opportunity it offers to online game service providers to expand their business.
In order to carry out this plan and remain in business during the next twelve month period, we require total cash resources of at least $180,000. We currently do not have such liquidity. We plan to raise additional funds through private offering of our common stock or debt instruments. If we are unable to raise such funds we will have to revise our plan of operations.
Marketing/Advertising Strategy
In addition to advertising our online gaming platform on gamers’ portals, blogs and forums with a view to achieving maximum exposure to the online gaming community, we currently plan to market our technology and services through a select sales and marketing strategy whereby we identify key potential online game service providers that meet our licensee profile, and then contact such prospects directly. We also plan to attend industry trade shows around the world to generate new prospects, and respond to referrals from online game service providers and other industry participants. We will seek licensees with an established brand, a robust subscriber base, and sufficient resources and commitment to successfully market games of skill offered on our platform.
Results of Operations during the year ended December 31, 2012 as compared to the year ended December 31, 2011
During 2012, we generated revenues of $5,816 compared to revenues of $92,908. The significant decrease in revenues was due to the loss of major customers. Our research and development expenses decreased to $29,007 during 2012 compared to $50,026 during the same period in the prior year. Our general and administrative expenses during 2012 were $276,448 as compared to $104,685 during 2011. The significant increase was mainly due to increased non-cash compensation. We incurred a net loss of $349,145 during 2012 compared to a net loss of $70,599 in 2011.
Purchase or Sale of Equipment
Other than the purchase of access servers, work stations and relevant literature, we do not expect to purchase or sell any plant or significant equipment.
Liquidity and Capital Resources
Our balance sheet as of December 31, 2012 reflects assets of $200,149 consisting of cash and cash equivalents of $21,392, restricted cash of $4,034 and $174,234 in investment in trading securities. As of December 31, 2011, we had total assets of $115,817 principally consisting of $110,847 in cash and cash equivalents and restricted cash of $3,940.
As of December 31, 2012, we had total current liabilities of $123,059 consisting of $31,941 in accounts payable, $52,090 due to related parties, $33,228 due to convertible note holders and $5,800 in deferred revenues. As of December 31, 2012, we had $14,476 in long-term deferred revenues. As of December 31, 2011, we had total current liabilities of $83,732 consisting principally of $24,640 in accounts payable, $33,000 due to related parties and $5,800 in deferred revenues. As of December 31, 2012 and 2011, we had $14,476 and $20,292, respectively in long-term deferred revenues.
We had positive working capital of $76,601 as of December 31, 2012 compared to positive working capital of $51,576 at December 31, 2011. Such working capital has been sufficient to sustain our operations to date. Our total liabilities as of December 31, 2012 were $137,535 compared to $83,732 at December 31, 2011.
During 2012, we used $175,755 in our operating activities. This resulted from a net loss of $349,145, increase in accounts payable of $12,164, decrease in deferred revenues of $5,816 offset principally by $16,270 in unrealized trading loss, $28,365 in amortization expenses related to debt discount and $102,870 related to non-cash compensation.
During 2011, operating activities provided $2,926. This was principally due to a net loss of $70,599, increase in other assets offset principally by an increase in accounts payable of $22,796, increase in related party paybles of $20,292 and increase in deferred revenues.
During the year ended December 31, 2012, we did not have any investing activities as compared to inmaterial investing activities during 2011.
During the year ended December 31, 2012, we financed our negative cash flow from operations through the issuance of convertible debt in the amount of $86,300 and cash on hand. During the year 2011, our financing activities provided us with $40,000 through the issuance of restricted shares.
The current economic situation leads us to the conclusion that additional such license agreements are not likely during the upcoming months. We may generate some revenues in 2013; however any such revenues, are not expected to be material. If we disregard the aforementioned license agreements, our cash burn rate during 2012 was approximately $14,800 per month. Our operational expenses during 2013 are expected to decrease compare to 2012, and we therefore expect the cash burn rate to decrease respectively to approximately $10,000 per month. Based on such burn rate, we don't have sufficient liquidity throughout 2013.
Our ability to create sufficient working capital to sustain us over the next twelve month period, and beyond, is dependent on our entering into additional licensing agreement and on our success in issuing additional debt or equity, or entering into strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Going Concern Consideration
There is substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures with respect to this matter.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
Revenue Recognition
The Company is in the development stage and has yet to realize revenues from operations. Once the Company has commenced operations, it will recognize revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.
Loss per Common Share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding as of December 31, 2012 and 2011.
Estimates
The financial statements are prepared on the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of December 31, 2012 and 2011, and expenses for the year ended December 31, 2012 and 2011, and the period from inception to December 31, 2012. Actual results could differ from those estimates made by management.
Fair value measurements:
As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Other inputs that are observable, directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.
Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Fair Value Measurements at December 31, 2011
Quoted Prices in Active
Significant Other
Significant
Markets for Identical Assets
Observable Inputs
Unobservable Inputs
Gains
Total
(Level 1)
(Level 2)
(Level 3)
(Losses)
Investment in Trading Securities $
-
$
- $
-
$
-
$
-
Total assets at fair value $
-
$
- $
-
$
-
$
-
In determining fair value, the Company utilizes valuation techniques in its assessment that maximize the use of observable inputs and minimize the use of unobservable inputs.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Back to
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Back to
PROGAMING PLATFORM CORP.
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Financial Statements:
Balance Sheets as of December 31, 2012 and December 31, 2011
Statements of Operations for the Years Ended December 31, 2012 and December 31, 2011, and Period from Inception (May 26, 2010) to December 31,
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2012 and December 31, 2011, and Period from Inception (May 26, 2010) to December 31, 2012
Statements of Cash Flows for the Years Ended December 31, 2012 and December 31, 2011, and Period from Inception (May 26, 2010) to December 31,
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Back to Table of Contents
To the Board of Directors
Progaming Platforms Corp.
Tel Aviv, Israel
We have audited the accompanying balance sheet of Progaming Platforms Corp. as of December 31, 2012 and the related statements of operations, 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. The financial statements of Progaming Platforms Corp. as of December 31, 2011, were audited by other auditors whose report dated March 29, 2012 expressed an unqualified opinion on those statements.
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 misstatement. 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 Progaming Platforms Corp. as of December 31, 2012 and the results of its operations and cash flows for the period described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 29, 2013
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Back to Table of Contents
To the Board of Directors and
Stockholders of Progaming Platforms Corp.
We have audited the accompanying balance sheets of PROGAMING PLATFORMS CORP. as of December 31, 2011 and 2010, and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the year then ended and for the periods from inception date through December 31, 2010 and 2011. PROGAMING PLATFORMS CORP.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits. We were not engaged to examine management’s assertion about the effectiveness of PROGAMING PLATFORMS CORP.’s internal control over financial reporting as of December 31, 2011 included in the accompanying Form 10-K Report and, accordingly, we do not express an opinion thereon.
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 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of PROGAMING PLATFORMS CORP. as of December 31, 2011 and 2010 and the results of its operations and its cash flows for the year then ended and for the periods from inception date through December 31, 2010 and 2011 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. As discussed in Note 2 to the financial statements, the Company has not established sufficient sources of revenue to cover its operating costs and expenses. As such, it has incurred an operating loss since inception. Further, as of December 31, 2011 the cash resources of the Company were insufficient to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 2 to the consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Yarel + Partners
Tel-Aviv, Israel
March 29, 2012
PROGAMING PLATFORMS CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Back to Table of Contents
(1) Summary of Significant Accounting Policies
Basis of Presentation and Organization
ProGaming Platforms Corp. (“ProGaming Platforms” or the “Company”) is a Delaware corporation in the development stage and has not commenced operations. The Company was incorporated under the laws of the State of Delaware on May 26, 2010. The business plan of the Company is to engage in the development of an online gaming platform and to enter into licensing agreements with game servers in the United States in order to allow them to offer games of skill on our platform as part of their member services.
The accompanying financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. As of December 31, 2012 and 2011, we had cash and cash equivalents of $21,392 and $110,847, respectively.
Restricted cash
Cash and cash items which are restricted as to withdrawal or usage. Restricted cash includes legally restricted deposits held as compensating balances against credit cards. As of December 31, 2012 and 2011, we had restricted cash of $4,034 and $3,940, respectively.
Revenue Recognition
The Company recognizes revenue from licensing its software to customers for contractually defined periods of time. The Company recognizes revenue ratably over the term of the contract in accordance with ASC 605 (1) when the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) delivery has occurred or services have been provided, and (4) collectability is assured.
Loss per Common Share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding as of December 31, 2012 and 2011.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange. As of December 31, 2012 and 2011, the carrying value of accounts payable and accrued liabilities approximated fair value due to the short-term nature and maturity of these instruments.
Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets. The annual depreciation rates are as follows:
%
Computers and electronic equipment
Deferred Offering Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable. As of December 31, 2012, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets was required.
Estimates
The financial statements are prepared on the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of December 31, 2012 and 2011, and expenses for the year ended December 31, 2012,and the periods from inception to December 31, 2012. Actual results could differ from those estimates made by management.
Fair value measurements:
As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Other inputs that are observable, directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.
Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques in its assessment that maximize the use of observable inputs and minimize the use of unobservable inputs.
The following table presents the Company’s financial assets and liabilities that are carried at fair value, classified according to the three categories described above:
Fair Value Measurements at December 31, 2011
Quoted Prices in Active
Significant Other
Significant
Markets for Identical Assets
Observable Inputs
Unobservable Inputs
Gains
Total
(Level 1)
(Level 2)
(Level 3)
(Losses)
Investment in Trading Securities $
-
$
- $
-
$
-
$
-
Total assets at fair value $
-
$
- $
-
$
-
$
-
Impact of recently issued accounting standards:
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income” in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
(2) Development Stage Activities and Going Concern
The Company is currently in the development stage, and has limited operations. The business plan of the Company is to engage in the development of an online gaming platform. Our short-term strategy is to market this platform as a means of enhancing traffic at websites. Our long term strategy is to enter into licensing agreements with game servers in the U.S and worldwide to allow them to offer games of skill on our platform as part of their services. In August 2012, the Company entered into a licensing agreement with Inhouse Interactive LTD, a company engaged in the business of creating innovative and interactive media, including online games, using a wide range of media and unique technologies, granting Inhouse rights to upload a flash game, utilizing the Company's platform technology in Israel.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating loss since inception. Further, as of December 31, 2012, the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
(3) Common Stock
On June 7, 2010, the Company issued 15,250,000 shares of its common stock to individuals who are Directors and officers of the company for $153 subscriptions receivable.
On June 7, 2010, the Company issued 14,750,000 shares of its common stock to individuals who are founders of the company for $147 subscriptions receivable.
On December 21, 2010, the Company issued 20,000,000 shares of its common stock to various individuals, for $100,000 in cash. Such funds were raised through public offering, in accordance with the terms and conditions of the Registration Statement.
In April 2011, the Company sold 150,000 restricted shares to Guy Levinson and 250,000 restricted shares to Shlomo Sharbat, both are non-US private investor, for $40,000.
On March 18, 2012, the Company issued 25,000 restricted shares of common stock in consideration for financial advisory services provided to the Company. The shares were valued at $7,950 based on the closing price of the Company's common stock on the date of issuance.
On March 13, 2012, the Company issued 30,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $7,500 based on the closing price of the Company's common stock on the date of issuance.
On May 6, 2012, the Company issued 15,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $5,250 based on the closing price of the Company's common stock on the date of issuance.
On July 2, September 3 and September 19, 2012, the Company issued a total of 498,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $82,170 based on the closing price of the Company's common stock on the date of issuance.
On December 29, 2012, the Company issued 1,229,055 restricted shares of common stock in consideration for share exchange between the company and Gefen Biomed Investments, a publicly traded company. The shares were valued at $190,504 based on the closing price of the Company's common stock on the date of issuance.
Share based payment transactions were accounted for in accordance with the requirements of ASC 505-50 Equity Based Payments to Non Employees. Paragraph 505-50-30-6 establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company measured share-based payment transactions at the fair value of the shares issued at date of grant, the Company believes that the value of the shares is more reliably measurable.
On March 1, 2012, the Company filed a Certificate of Amendment to its Certificate of Incorporation effecting a forward stock split of the Company’s issued and outstanding shares of Common Stock at a ratio of ten-to-one (the “Forward Split”). The Certificate of Amendment provides that each outstanding share of the Company's Common Stock, par value $0.0001 per share, will be split and converted, automatically, without further action, into ten (10) shares of Common Stock of $0.00001 par value per share. The Forward Split has been reflected in the Company's financial statements for year ended December 31, 2012 and 2011.
(4) Revenue Recognition
On July 1 2011 and on July 10, 2011, the Company signed license agreements with two separate corporations in Israel and Luxemburg (the "Licensees"). Subject to the terms and condition of each agreement the Company granted each Licensee a license to use the Company's proprietary online gaming platform in certain parts of the world. Each license is, in general, non-exclusive, except for certain countries specified within each agreement. The agreements grant each Licensee the right to develop and operate websites offering online games based on the Company's proprietary technology for a period of 5 years as of the respective agreement's effective date. In the event that by the eighteenth-month anniversary of the each agreement's effective date the respective Licensee fails to have at least one active website in each of the countries that comprise the exclusive territory of the agreement, the Company shall be entitled to either terminate exclusivity for these countries or terminate the entire agreement. In consideration of these agreements, and of support services to be provided by the Company through the license period, the Licensees have paid the Company non-refundable, one-time license fees totaling $119,000. In addition to such license fees, once each Licensee realizes revenues at a certain level specified in its respective agreement from its use of the Company's platform, it shall pay the Company a royalty in the amount of 50% of gross revenues realized from its use of this platform.
On December 26, 2011, the corporation from Luxemburg announced the termination of the agreement due to the economic situation in Europe. As a result, the entire license fee in the amount of $90,000 was recognized immediately as revenues.
As of December 31, 2012 and 2011, the Company recognized a total sum of $5,816 and $92,908, respectively, in revenues out of the total $119,000 license fees paid for both of the aforementioned agreements. The contract in the amount of $90,000 was canceled by the client; therefore we recognized the whole sum as revenues according to the terms of the agreement. The second contract grants the client licenses for a period of 5 years, accordingly, $5,816 were recorded as revenues in 2012; the remaining sum of $20,276 was deferred on the Company's balance sheet, $5,800 as current and $14,476 as long term liabilities, and is expected to be recognized over the remaining period of the agreements.
As of December 31, 2012 and 2011, no royalties have been paid by or recognized in connection with the aforementioned agreements.
One of the aforementioned Licensees is beneficially owned by an individual who holds 25,000 shares of the Company's common stock.
(5) Income Taxes
The provision (benefit) for income taxes for the year ended December 31, 2012 and 2011, was as follows (assuming a 35% effective tax rate):
Current tax provision:
Federal-
Taxable income $ -
$ -
Total current tax provision $ -
$ -
Deferred tax provision
Federal-
Loss carryforwards $ 95,284
$ 24,710
Change in valuation allowance
(95,284)
(24,710)
$ -
$ -
The Company had deferred income tax assets as of December 31, 2012 and 2011, as follows:
Loss carryforwards $ 95,284
$ 24,710
Less- Valuation allowance
(95,284)
(24,710)
Total net deferred tax assets $ -
$ -
The Company provided a valuation allowance equal to the deferred income tax assets for the year ended December 31, 2012 and 2011, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
As of December 31, 2012 and 2011, the Company had approximately $272,240 and $70,600, respectively, in tax loss carryforwards that can be utilized in future periods to reduce taxable income, and expire by the year 2030.
The Company did not identify any material uncertain tax positions that will be filed. The Company did not recognize any interest or penalties for unrecognized tax benefits during the year ended December 31, 2012 and 2011.
The Company will file income tax returns in the United States. All tax years are closed by expiration of the statute of limitations. The year ended December 31, 2012 and 2011.
(6) Related Party Transactions
During 2012, the company received a total of $86,300 as convertible notes from six shareholders. The notes bear interest at the rate of 15% per annum and having a maturity date of 12 months. The notes are convertible into common stock par value $0.001 per share. The Company recorded interest expense on the amount of $4,863 during 2012 and $28,365 in amortization of debt discount during 2012.
As described in Note 3, on June 7, 2010, the Company issued 15,250,000 shares of its common stock to Directors and officers for $153 subscriptions receivable.
(7) Investments
Investments in Trading Securities as of December 31, 2012 and 2011 are summarized below:
Cost Basis
Unrealized Gains
Unrealized Losses
Fair Value
December 31, 2012 Trading Securities $ 190,504
$ -
$ 16,270
$ 174,234
December 31, 2011 Trading Securities
-
-
-
-
The shares owned by the Company of Gefen Biomed Investments, a publicly traded company, represent approximately 4.9% of the issued and outstanding shares of common stock of Gefen as of December 31, 2012.
(8) Subsequent Events
On February 18, 2013, the Company entered into a Joint Venture Agreement ("JV Agreement") with Zenetek LLC, a company organized under the laws of the State of Delaware, is a wholly-owned subsidiary of Anything Technologies Media (OTC: EXMT), with offices located in Vietnam. Pursuant to the terms of the JV Agreement, Zenetek shall represent the Registrant in China, Singapore, Taiwan, Vietnam, Hong Kong and Indonesia (the "Territories") during the initial 12 month term to: facilitate the Registrant's ability to enter into JV agreements and/or other transactions with third parties within the Territories to generate revenues for the Registrant "state-of-the-art" multiplayer puzzle game platform, implementing the platform into major social media networks within the Territories; and negotiating JV transactions with gaming companies within the Territories using the Company's Generic patented GER system.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Back to Table of Contents
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES Back to
Evaluation of Disclosure Controls and Procedures
As of December 31, 2012, the Company's chief executive officer/chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer/chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the fiscal year 2012.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of those internal controls. As defined by the SEC, internal control over financial reporting is a process designed by our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, we have concluded that our internal control over financial reporting had material weaknesses including lack of sufficient internal accounting personnel in order to ensure complete documentation of complex transactions and adequate financial reporting during the year ended December 31, 2012. Management has identified corrective actions for the weakness and has begun implementation during the first quarter of 2013.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION Back to Table of Contents
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE Back to Table of Contents
Our Directors hold office until the next annual general meeting of the stockholders or until their successors are elected and qualified. Our officers are appointed by our Board of Directors and hold office until the earlier of their death, retirement, resignation, or removal.
Our officers and Directors and their ages and positions are as follows:
Name
Age
Title
Erez Zino
CEO, CFO and Director
Boaz Lowenstein
CTO and Secretary
Erez Zino, 40, has been our CEO since May 2012 and became our acting CFO in January 2013. He is a founder and principal shareholder of the Registrant. During the past five years, Mr. Zino has been the owner and managing director of Ozicom Communication Ltd., a private company that provides internet marketing support. Mr. Zino is a trained computer programmer and specializes in internet marketing.
Boaz Lowenstein, 38, has been our Chief Technical Officer and a Director since we were incorporated on May 26, 2010. Since 1999, Mr. Lowenstein has been a Unix manager at Internet Gold (Nasdaq: IGLD), and since 2007 he has been a computing infrastructure and ISP services manager at its affiliate, 012 Smile Communications Ltd. He has over a decade of experience in large scale system management and development. From 1998 to 2001, Mr. Lowenstein studied computer science at the Open University of Israel. Mr. Lowenstein is not an officer or Director of any other reporting company. Mr. Lowenstein devotes approximately 20-25 hours per week to our affairs. The Board has concluded that Mr. Lowenstein should serve as director of the Company because of his technical know-how and his experience in system management and development.
Committees of the Board of Directors
We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of our Board of Directors. As such, our entire Board of Directors acts as our audit committee.
Audit Committee Financial Expert
Our Board of Directors does not currently have any member who qualifies as an audit committee financial expert. We believe that the cost related to retaining such a financial expert at this time is prohibitive. Further, because we are in the start-up stage of our business operations, we believe the services of an audit committee financial expert are not warranted at this time.
Involvement in Legal Proceedings
None of our Directors, nominee for Directors, or officers has appeared as a party during the past ten years in any legal proceedings that may bear on his ability or integrity to serve as a Director or officer of the Company.
Board Leadership Structure
The Company has chosen to combine the principal executive officer and Board chairman positions. The Company believes that this Board leadership structure is the most appropriate for the Company for the following reasons. First, the Company is a development stage company and at this early stage it is more efficient to have the leadership of the Board in the same hands as the principal executive officer of the Company. The challenges faced by the Company at this stage - obtaining financing and performing research and development activities - are most efficiently dealt with by having one person intimately familiar with both the operational aspects as well as the strategic aspects of the Company’s business. Second, Mr. Levinas is uniquely suited to fulfill both positions of responsibility because he possesses management experience, technical experience, and experience with start-up companies.
Code of Ethics
We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers; however, we are considering whether to implement such a code in 2012.
Potential Conflict 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 Board of Directors. Thus, there is a potential conflict of interest in that our Directors have the authority to determine issues concerning management compensation, in essence their own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or Directors.
Board’s Role in Risk Oversight
The Board assesses on an ongoing basis the risks faced by the Company. These risks include financial, technological, competitive, and operational risks. The Board dedicates time at each of its meetings to review and consider the relevant risks faced by the Company at that time. In addition, since the Company does not have an Audit Committee, the Board is also responsible for the assessment and oversight of the Company’s financial risk exposures.
Section 16(a) Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the Registrant's directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Registrant's Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Registrant pursuant to Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the Registrant was informed that its officers and directors and ten percent (10%) shareholders have not filed reports required to be filed under Section 16(a).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION Back to Table of Contents
The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our chief executive officer and other executive officers with annual compensation exceeding $100,000 during the fiscal years ending December 31, 2012, 2011 and 2010.
(1) Mr. Zino became our CEO in July 2012 and acting CFO in January 2013.
(2) Mr. Lowenstein has been our Chief Technical Officer and a Director since May 26, 2010.
Option/SAR Grants
We do not currently have a stock option plan. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or any Director since our inception; accordingly, no stock options have been granted or exercised by any of the officers or Directors since we were founded.
Long-Term Incentive Plans and Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any Director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of the officers or Directors or employees or consultants since we were founded.
Compensation of Directors
There are no current arrangements pursuant to which Directors are or will be compensated in the future for any services provided as a Director.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
Effective as of February 1, 2011, we entered into employment agreements with our three officers. Each of these employment agreements was for an initial term of 12 months and automatically renews each year for an additional 12-month period; however, either party may terminate the consulting agreement by providing one month’s notice. In consideration of each officer’s consulting services, pursuant to the consulting agreements, the Company shall pay each officer an amount of One Thousand U.S. Dollars (US$1,000) per month. Each officer will also be entitled to stock based compensation in accordance with a stock option plan to be adopted by the Company in the future.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Back to Table of Contents
The following table sets forth information regarding the beneficial ownership of our common stock as of March 29, 2013. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our common stock; each of our directors; each of our executive officers; and our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.
(1) Applicable percentage ownership is based on 52,197,055 shares of common stock outstanding as of March 29, 2013. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 29, 2013 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS INDEPENDENCE Back to Table of Contents
During the last two fiscal years the Company had the following related party transactions:
During 2012, the Company issued six convertible notes for a total of $86,300 to six shareholders who are considered related parties. The notes bear interest at the rate of 15% per annum and having a maturity date of 12 months. The notes are convertible into common stock par value $0.001 per share. The Company recorded interest expense on the amount of $4,863 during 2012.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Back to
Independent Public Accountants
The Registrant's Board of Directors has appointed M&K CPAS, PLLC (“MK") as independent public accountant for the fiscal year ended December 31, 2012. The Company's financial statements for the year ended December 31, 2011 were audited by Yarel & Partners, CPAs ("Yarel").
Principal Accounting Fees
The following table presents the fees for professional audit services rendered by
MK and Yarel for the audit of the Registrant's annual financial statements for the years ended December 31, 2012 and 2011, and fees billed for other services rendered by McConnell & Jones, LLP during those periods.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Back to
(a) The following documents are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
SIGNATURES
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 date indicated.