ITEM 1. BUSINESS
Business Development and Summary
We were originally incorporated in the State of Nevada on March 29, 2006, under the name “White Dental Supply, Inc.” We were authorized to issue 100,000,000 shares of its $0.001 par value common stock and 100,000,000 shares of its $0.001 par value preferred stock. On January 7, 2013, our Board of Directors authorized, and a majority of the stockholders ratified, by written consent, resolutions to change our corporate name to PITOOEY!, Inc. and to increase the number of shares we are authorized to issue to 400,000,000 shares of $0.001 par value common stock and 100,000,000 shares of $0.001 par value preferred stock. The name change and increase in authorized capital became effective with the State of Nevada on February 7, 2013. On July 29, 2015, the Company changed their name to Raadr, Inc. The name change was effective with the State of Nevada on July 29, 2015.
On July 25, 2012, we entered into and closed an Intellectual Property Assignment Agreement (“Barr Agreement”) with Mr. Sebastian Barr, an individual (“Barr”). In accordance with the Barr Agreement, we acquired certain patents, prototypes and technical information from Barr (“Barr Assets”), pertaining to child safety devices. In exchange for the Barr Assets, we agreed to pay Barr an aggregate of $42,500.
1. An initial payment of $10,000 paid to Sunbeam Packing Services, LLC upon execution of the Barr Agreement;
2. $24,500 paid to Barr upon execution of the Barr Agreement;
3. The balance of $8,000 was to be paid in two installments: $4,000 upon the first anniversary date of the Barr Agreement and $4,000 upon the second anniversary date of the Barr Agreement. The Company has since decided not to complete the purchase of this intellectual property and has not yet decided to make payments against this Note. The Company does not own this intellectual property and is delinquent on payment of this Note.
On December 24, 2012, we entered into and closed an Intellectual Property Assignment Agreement (“COS Agreement”) with Choice One Solutions, Inc., a Nevada corporation (“COS”). In accordance with the COS Agreement, we acquired research and development expenses related to certain information, ideas, know-how, concepts, techniques, systems, processes, procedures, methods and Internet domain addresses involving or relating to social media marketing. In exchange for the COS Assets, we agreed to pay COS an aggregate of $5,000 in cash.
On December 24, 2012, we entered into and closed an Intellectual Property Assignment Agreement (“MC Agreement”) with Mobile Caviar, LLC, an Arizona limited liability corporation (“MC”). In accordance with the MC Agreement, we acquired research and development expenses related to certain information, ideas, know-how, concepts, techniques, systems, processes, procedures, methods and Internet domain addresses involving or relating to mobile media marketing. In exchange for the MC Assets, we agreed to pay MC an aggregate of $5,000 in cash.
On December 24, 2012, we entered into and closed an Intellectual Property Assignment Agreement (“LCC Agreement”) with Lynn Cole Capital Corp., an Arizona corporation (“LCC”). In accordance with the LCC Agreement, we acquired research and development expenses related to certain rights, title and interest in and to all intellectual property related to the text messaging platform called “PITOOEY! TM” In exchange for the LCC Assets, we agreed to pay LCC an aggregate of $5,000 in cash.
On December 27, 2012, we formed a wholly owned subsidiary, Choice One Mobile, Inc. (“COM”), under the laws of the State of Nevada to execute our mobile and social media marketing and advertising strategies.
On December 27, 2012, we formed a wholly owned subsidiary, PITOOEY! Mobile, Inc. (“PM”), under the laws of the State of Nevada. PM was formed to hold all intellectual property related to our PITOOEY! TM iPhone® app, including patents, trademarks, software and trade processes.
On February 6, 2013, we formed a wholly owned subsidiary, Rockstar Digital, Inc. (“Rockstar”), under the laws of the State of Nevada. Rockstar will specialize in internet branding through social media marketing, mobile marketing and iPhone ® app development Company. On October 31, 2013, in concert with the Rockstar settlement agreement (see Footnote 13 - Agreements) the Company terminated operations in Rockstar and relinquished ownership to its employees.
Our administrative office is located at 2432 West Peoria Ave , Suite 1346, Phoenix, AZ 85029
Our fiscal year end is December 31.
Business of Issuer
Principal Services and Principal Markets
RAADR
As the digital world of the 21st Century continues to evolve, parents, guardians, and children are faced with challenges and threats not just in the real world, but in the omnipresent realm of Social Media as well. Raadr, Inc., makers of the proprietary technology application RAADR© have developed a web based tool that provides families with peace of mind when it comes to knowing that children are safe from bullying and predatory behavior unfortunately so prevalent today.
By customizing their own unique monitoring and alert settings, parents and guardians can be alerted when their children’s Facebook, Twitter, Instagram and other pertinent social media platforms under scrutiny become posted with inappropriate language. By utilizing customized keywords chosen by the user that are added to an already existing database, parents and guardians can carry a sense of assuredness that the youth they love and are responsible for are safe and acting in a fun, yet appropriate manner.
No parent or guardian has the time or resources to be in constant surveillance of all the Social Media platforms in which their children might be active. Nor do most children want intense scrutiny of their updates and postings, despite the best intentions. You want to trust your children, while at the same time knowing that you are protecting them.
RAADR© gives families the ability to protect their image, combat erroneous postings and for individuals safeguard their children from online bullying.
Raadr, Inc. makers of the proprietary technology application RAADR© is a software development and mobile application developer formed in late 2012. The Company’s core competency is focused on building and acquiring apps and other products, services and companies to build a nationwide network of related businesses that are positioned to serve the mobile app development needs of small businesses and individuals.
This summary serves as a basic overview to the functions and features the RAADR platform currently has and will have in the near future. Many of these can be viewed in whole or in part at: www.raadr.com.
-- Social Media Monitoring -
First and foremost, RAADR assists parents in the monitoring of what their children are posting online. There are such a large number of social media platforms these days that it is too much for any parent to keep up with and more importantly, spot the potential dangers or issues in what a child is posting online. Also, most parents only hear about certain social networks long after their children have already been using them for a while. Everyone has heard of Facebook, Instagram, Twitter, Snapchat, etc. but few parents know sites like Phhoto, YouNow, and Periscope, exist much less why they might want to be monitoring them. With RAADR, keeping up-to-date with all of these and more is as simple as clicks of a button.
One of the commonly asked questions is, How will I know what my child’s account name is so I can track it? That’s a big part of what we want RAADR to help parents with. Rather than needing to know every account name, we really just need your child’s name to get started. The more information a parent is able to provide, the faster and easier it will be to find new profiles on other social media sites. For example, if a parent adds a child’s name, Instagram username, and zip code, we will have a much easier time looking for whether or not their child also has a Facebook, Twitter, SnapChat, etc.
-- Facial Recognition -
This is where our facial recognition software comes into play as well. Many children are constantly uploading pictures of themselves and their friends. This allows us to start to track where else the children might be posting pictures of themselves. Facial recognition comes into play even more so for scenarios where children might try and create accounts with an alias. Regardless, they still use their own pictures making it easy to track and notify parents when a new account is registered and using their children’s pictures.
There are multiple other applications for facial recognition online but one of the others we focus on is, notifying parents when their child’s picture might appear with malicious or harmful words. Children often post pictures of other peers as a form of online bullying or other unfortunate intent. These can be seen and identified to be brought to the parents attention without parents needing to constantly search various websites, most of which they’ll never even hear of.
-- Other Features -
In addition to the social media and facial recognition aspects, parents will be able to see private messages with the use of the extension, view browser history, get real time alerts as RAADR finds potential problems, and much more. These are just the beginning and the system can be modified to fit a number of different verticals.
As of July 1st 2015 the RAADR software is live online at www.raadr.com
The launch of the RAADR application on IOS and ANDROID is scheduled for late September 2015.
We have discontinued offering services through our wholly owned subsidiaries PITOOEY MOBILE INC. and CHOICE ONE MOBILE INC.
We compete with companies of all sizes in a variety of geographies that offer solutions that compete with single elements of our platform, such as mobile advertising networks, mobile ad serving and ad routing providers, mobile website and content creators, mobile payment providers, aggregators, providers of mobile publishing and application development, SMS aggregators or providers of mobile analytics. We compete at times with interactive and traditional advertising agencies that perform mobile marketing and advertising as part of their services to their customers.
Significantly all of our current and potential traditional competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may be able to secure experienced and talented employees, fulfill customer orders more efficiently and adopt more aggressive pricing policies than we can. Many of these current and potential competitors can devote substantially more resources to advertising, marketing and attracting experienced talent than we can. In addition, larger, more well-established and financed entities may acquire, invest in or form joint ventures with our competitors.
Effect of Existing or Probable Governmental Regulations
We are subject to federal, state and foreign laws regarding privacy and the protection of the information that we collect regarding our users. We currently collect certain personally identifiable information regarding our customers, including the unique device identifiers (UDIDs) of our customers’ smartphones and tablets, and expect in the future to collect additional personally identifiable information regarding our customers. Any concerns about our practices with regard to the collection, use, disclosure, or security of personal information or other privacy related matters, even if unfounded, could damage our reputation and operating results. We post our privacy policy and our terms of service on our corporate website. In these policies, we describe our practices concerning the use, transmission and disclosure of the information that we collect regarding our users. Any failure by us to comply with our posted privacy policy, terms of service or privacy related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the interpretation of data protection laws, and their application to the mobile industry is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to adequately protect our users’ privacy and data could result in a loss of user confidence in our services and ultimately in a loss of users, which could adversely affect our business.
In the area of information security and data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities.
Intellectual property
Our intellectual property is an essential element of our business. We use a combination of trademark, copyright, trade secret and other intellectual property laws, confidentiality agreements and license agreements to protect our intellectual property. Our employees and independent contractors are required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assigning to us any ownership that they may claim in those works. Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own or license. Unauthorized use of our intellectual property by third parties, including piracy, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.
As of the date of this annual report, we submitted seven trademark applications and have been issued one provisional patent by the US Patent and Trademark Office. These applications have been researched, written and filed to protect our core intellectual property and brand identity. Upon issuance, our trademarks and patents will continue to provide barriers to entry and fortify our foundational business construct. In addition, we will continue our forward-looking strategy resulting in additional patent and trademark filings and applications with the U.S.P.T.O. with the goal of protecting our intellectual property and technical processes through the development of our business model. Our U.S.P.T.O strategies provide what we hope will be a level of risk mitigation and a protection of value for our shareholders now and in the future.
From time to time, we may encounter disputes over rights and obligations concerning intellectual property. If we do not prevail in these disputes, we may lose some or all of our intellectual property protection, be enjoined from further sales or distribution of our applications or other services determined to infringe the rights of others, and/or be forced to pay substantial royalties to a third party, any of which would have a material adverse effect on our business, financial condition and results of operations.
Number of total employees and number of full time employees
As of March 31, 2014, we had five employees. We have never experienced any employment-related work stoppages and consider relations with our employees to be good. We believe that our future success depends in part on our continued ability to hire, assimilate and retain qualified personnel.
Reports to Security Holders
1.
We will furnish our shareholders with audited annual financial reports certified by our independent accountants.
2.
We are a reporting issuer with the Securities and Exchange Commission. We file periodic reports, which are required in accordance with Section 15(d) of the Securities Act of 1933, with the Securities and Exchange Commission to maintain the fully reporting status.
3.
The public may read and copy any materials Raadr, Inc. files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings will be available on the SEC Internet site, located at http://www.sec.gov.
ITEM 1A.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Raadr, Inc. uses office space at 2432 West Peoria Ave., Suite 1346, Phoenix, Arizona 85029. There are currently no proposed programs for the renovation, improvement or development of the facilities we currently use.
Our management does not currently have policies regarding the acquisition or sale of real estate assets primarily for possible capital gain or primarily for income. We do not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Our officers and directors have not been convicted in a criminal proceeding, exclusive of traffic violations.
Our officers and directors have not been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities.
Our officers and directors have not been convicted of violating a federal or state securities or commodities law.
On March 18, 2013, the Company received a lawsuit brought by a former employee who claimed wrongful discharge and requesting payment of $282,692 in base salary and payment for 3,975,000 shares of the Company’s common stock that he was awarded a part of his employment agreement. The Company is attempting to recover these shares based on its determination that the employee was terminated for cause. On December 23, 2013, the company commenced litigation against the claimant for defamation, intentional interference with prospective business relations, misappropriation of trade secrets, civil conspiracy, and seeking an injunction against harassment. The claimant responded to the complaint by filing a motion to dismiss dated March 17, 2014. Although the claimant has made no formal, legal claims against the company, it is anticipated that he may make one or more of his previously-threatened claims as a counterclaim in the case. To the extent the claims are based on his previous allegations, the company views them as frivolous and unsupported and, therefore, has made no accrual provisions for potential losses.
On October 31, 2013, the Company entered into a settlement agreement with certain former employees to assume responsibility for certain payroll taxes of Rockstar Digital, Inc. (“Rockstar”) and assign its ownership of its Mobile Application and Transition Services intellectual property rights to Rockstar. In addition, the Company agreed to not assert a claim against certain computer equipment (cost of $28,307) in use at Rockstar. The Company has accrued $30,000 as a contingent liability for payroll taxes potentially owed at December 31, 2013,
There are no other pending legal proceedings against us.
No director, officer, significant employee or consultant of the Company has had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
As of December 31, 2014, no substantial public market in our common stock has yet developed and there can be no assurance that a meaningful trading market will subsequently develop. We make no representation about the value of our common stock.
Holders
As of August 31, 2015, we have 134,096,923 shares of $0.001 par value common stock issued and outstanding held by 107 shareholders of record. Our transfer agent is Manhattan Transfer Registrar Company, 57 Eastwood Road, Miller Place, NY 11764, phone (800) 786-0362.
Dividends
The payment of dividends is subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid or declared any dividends upon our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements do not anticipate paying any dividends upon our common stock in the foreseeable future.
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:
·
our financial condition;
·
earnings;
·
need for funds;
·
capital requirements;
·
prior claims of preferred stock to the extent issued and outstanding; and
·
other factors, including any applicable laws.
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the year ended December 31, 2014.
Recent Sales of Unregistered Securities
During the year ended December 31, 2014, we sold 92,500 shares of Common Stock at $0.40 per share for total gross proceeds of $37,000. There were no commissions or discounts, the offering was not underwritten and was offered only to accredited investors. The shares bear a restrictive transfer legend. These transactions involved no general solicitation and involved only accredited purchasers. Each purchaser was given the opportunity to ask questions of us and was able to examine all publicly available information filed with the SEC. Thus, we believe that these sales are exempt from registration under Section 4(2) and Regulation D, Rule 506 of the Securities Act of 1933, as amended.
In May and June 2014, the Company sold 146,125 shares of the Company’s Series B Convertible Preferred ("Series B") for $121,900. In July and August 2014, the Company sold 75,000 shares of the Series B for $60,000. On October 22, 2014 the Company sold 66,250 shares of Series B for $53,000. On October 24, 2014 the Company sold 31,250 shares of Series B for $25,000. There were no commissions or discounts, the offering was not underwritten and was offered only to accredited investors. When the designation is filed and the certificates are issued, the shares will bear a restrictive transfer legend. These transactions involved no general solicitation and involved only accredited purchasers. Each purchaser was given the opportunity to ask questions of us and was able to examine all publicly available information filed with the SEC. Thus, we believe that these sales are exempt from registration under Section 4(2) and Regulation D, Rule 506 of the Securities Act of 1933, as amended.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
Forward-Looking Statements
The statements contained in all parts of this document that are not historical facts are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those relating to the following: the Company's ability to secure necessary financing; expected growth; future operating expenses; future margins; fluctuations in interest rates; ability to continue to grow and implement growth, and regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
When used in this document, the words "anticipate," "estimate," "expect," "may," "plans," "project," and similar expressions are intended to be among the statements that identify forward-looking statements. Raadr, Inc.’s results may differ significantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to the Company’s dependence on its ability to attract and retain skilled managers and other personnel; the uncertainty of the Company's ability to manage and continue its growth and implement its business strategy; its vulnerability to general economic conditions; accuracy of accounting and other estimates; the Company's future financial and operating results, cash needs and demand for services; and the Company's ability to maintain and comply with permits and licenses; as well as other risk factors described in this Annual Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected.
Management’s Discussion and Analysis
Overview
We were originally incorporated in the State of Nevada on March 29, 2006, under the name “White Dental Supply, Inc.” We were authorized to issue 100,000,000 shares of its $0.001 par value common stock and 100,000,000 shares of its $0.001 par value preferred stock. On January 7, 2013, our Board of Directors authorized, and a majority of the stockholders ratified, by written consent, resolutions to change our corporate name to PITOOEY!, Inc. and to increase the number of shares we are authorized to issue to 400,000,000 shares of $0.001 par value common stock and 100,000,000 shares of $0.001 par value preferred stock. The name change and increase in authorized capital became effective with the State of Nevada on February 7, 2013.
On December 24, 2012, we entered into and closed an Intellectual Property Assignment Agreement (“COS Agreement”) with Choice One Solutions, Inc., a Nevada corporation (“COS”). In accordance with the COS Agreement, we acquired research and development expenses related to certain information, ideas, know-how, concepts, techniques, systems, processes, procedures, methods and Internet domain addresses involving or relating to social media marketing. In exchange for the COS Assets, we agreed to pay COS an aggregate of $5,000 in cash.
On December 24, 2012, we entered into and closed an Intellectual Property Assignment Agreement (“MC Agreement”) with Mobile Caviar, LLC, an Arizona limited liability corporation (“MC”). In accordance with the MC Agreement, we acquired research and development expenses related to certain information, ideas, know-how, concepts, techniques, systems, processes, procedures, methods and Internet domain addresses involving or relating to mobile media marketing. In exchange for the MC Assets, we agreed to pay MC an aggregate of $5,000 in cash.
On December 24, 2012, we entered into and closed an Intellectual Property Assignment Agreement (“LCC Agreement”) with Lynn Cole Capital Corp., an Arizona corporation (“LCC”). In accordance with the LCC Agreement, we acquired research and development expenses related to certain rights, title and interest in and to all intellectual property related to the text messaging platform called “PITOOEY! TM” In exchange for the LCC Assets, we agreed to pay LCC an aggregate of $5,000 in cash.
On December 27, 2012, we formed a wholly owned subsidiary, Choice One Mobile, Inc. (“COM”), under the laws of the State of Nevada to execute our mobile and social media marketing and advertising strategies.
On December 27, 2012, we formed a wholly owned subsidiary, PITOOEY! Mobile, Inc. (“PM”), under the laws of the State of Nevada. PM was formed to hold all intellectual property related to our PITOOEY! TM iPhone ® app, including patents, trademarks, software and trade processes.
On February 6, 2013, we formed a wholly owned subsidiary, Rockstar Digital, Inc. (“Rockstar”), under the laws of the State of Nevada. Rockstar will specialize in internet branding through social media marketing, mobile marketing and iPhone ® app development Company . On October 31, 2013, in concert with the Rockstar settlement agreement (see Footnote 13 - Agreements) the Company terminated operations in Rockstar and relinquished ownership to its employees.
We ceased being a shell company as defined in SEC Rule during the last quarter of 2013. Therefore, the one year waiting period for use of Rule 144 to sell restricted shares will commence with the filing of this 10-K.
Results of Operations for the years ended December 31, 2014 and 2013
Due to the recent addition of new business operations and service lines, comparisons of operating results between the years ended December 31, 2014 and 2013 may not be materially reflective of our continuing and future operations.
Revenue
During the year ended December 31, 2014, revenues were $82,055, a decrease of $245,896 or 75.0% from the prior comparable year of $327,951. The decrease in revenues related to shutting down our sales floor and discontinuing our social media marketing services that were sold through our wholly owned subsidiary Choice One Mobile. The Company and its board were all in favor of just focusing on launching our featured product which is raadr.com. The decrease in cost of revenues and gross profit was primarily due to the decrease in revenues.
Costs and Operating Expenses
During the year ended December 31, 2014, operating expenses were $1,499,504, a decrease of $2,114,859 or 58.5% from the prior comparable year of $3,614,363. The decrease in revenues related to the reduction of operations due to the limited capital available.
Executive Compensation. Executive compensation paid to officers and directors of the Company was $94,834 during the year ended December 31, 2014 compared to $351,218 during the year ended December 31, 2013, a decrease of $256,384 or 79.4%. The decrease related to executive officers added in 2013 and terminated in early 2014 due to the limited amount of capital on hand.
General and Administrative. In the normal course of our operations, the Company incurs various expenses, including, but not limited to, utilities, office supplies, travel, employee benefits, rent, postage and shipping expenses. General and administrative expenses during the year ended December 31, 2014 were $234,796 compared to $$553,135 during the year ended December 31, 2013, a decrease of $318,339 or 57.6%. The decrease was primarily due to the reduction of employees and overhead due to limited operations in 2014 due to cash flow constraints.
Professional Fees. Professional fees typically consist of research and development expenses related to our PITOOEY! TM app, technology related to our Mobile Caviar SM services and various other mobile technology service offerings, in legal and other professional fees, marketing and shareholder services and non cash costs associated with stock and warrant issuances. Professional fees during the year ended December 31, 2014 were $897,981 compared to $1,262,409 during the year ended December 31, 2013, a decrease of $364,458 or 28.9%. The decrease during 2014 primarily related to limited cash available for development of additional products. In addition, during 2014 we relied primarily upon issuances of common stock and other equity instruments to pay for professional development and shareholder services.
Interest Expense. During the year ended December 31, 2014 interest expense was $528,816 compared to $118,748 during the year ended December 31, 2013, an increase of $410,068 or 266.2%. The increase in interest expense related to the amortization of discounts on notes payable issued in 2013 and 2014.
We expect to continue to incur net losses for the foreseeable future and cannot assure you when, if ever, we will be able to mitigate our losses or begin to achieve profitability. Our management believes that expansion of our operations and continued global economic uncertainty are likely to continue to adversely affect our operating results and will lead to net losses for at least the next 12 months of operations.
Liquidity and Capital Resources
Operating activities. Net cash used in operating activities was $671,680 for the year ended December 31, 2014, as compared to $1,784,416 used in operating activities for the same period in 2013. The decrease in net loss year-over-year is mainly attributable to increased expenditures in 2013 related to our entry into the digital media marketing space and development of our PITOOEY! TM app. During 2014, we had limited capital available and thus decrease the size of our operations to accommodate such.
Investing activities. Net cash provided by investing activities for the year ended December 31, 2014 totaled $75,000 as compared to cash used of $72,082 for the comparable period in ended December 31, 2013. In 2014, we received proceeds from a note receivable. In 2013, the cash was used to purchase furniture and computer equipment.
Financing activities. Net cash provided by financing activities for the year ended December 31, 2014 was $497,140, as compared to $1,580,423 for the comparable period ended December 31, 2013. During 2014, we funded operations through an increase in notes and sales of common and preferred stock. During the year ended December 31, 2013, we obtained significant financing in an effort to expand our operations and pursue new business opportunities. To that end, we obtained financing in the form of promissory notes totaling $1,120,836. In addition, we held a private offering of our Series A Preferred Stock which netted $511,000 and private offerings of our common stock which netted $228,000.
As of December 31, 2013, we had $46,192 of cash on hand. We expect to require significant capital to continue to fund research and development activities related to development of our products. Without sufficient cash flow from operations we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months. We will require additional cash resources due to changed business conditions, implementation of our strategy to successfully expand our operations. If our own financial resources and then current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.
We only recently began to venture into the mobile and social media marketing space. We are experiencing significant changes to our corporate and operational structures and have been expanding our base of employees. Over the next 12 months, we expect the number of full- and part-time employees to fluctuate substantially, though we are unable to predict the amount of such fluctuations.
There are no known trends, events or uncertainties that have had or that are reasonably expected to have a material impact on our revenues from continuing operations.
Management will continue to incur development costs in connection with normal development of its applications.
We currently do not own any significant plant or equipment that we would seek to sell in the near future.
We have not paid for expenses on behalf of our directors. Additionally, we believe that this fact shall not materially change.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable as we are currently considered a smaller reporting company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents (pages to) form part of the report on the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Raadr, Inc.:
We have audited the accompanying consolidated balance sheets of Raadr, Inc. (formerly Pitooey!, Inc.) (the "Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years 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 audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in all material respects, the financial position of Raadr, Inc., as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States of America.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 Company's internal control over financial reporting. Accordingly, we express no such opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ B F Borgers CPA PC
B F Borgers CPA PC
Lakewood, Colorado
September 4, 2015
Raadr, Inc.
(formerly PITOOEY!, INC.)
Consolidated Balance Sheets
See accompanying notes to the consolidated financial statements.
Raadr, Inc.
(formerly PITOOEY!, INC.)
Consolidated Statements of Operations
See accompanying notes to the consolidated financial statements.
Raadr, Inc.
(formerly PITOOEY!, INC.)
Consolidated Statement of Stockholders' Deficit
See accompanying notes to the consolidated financial statements.
Raadr, Inc.
(formerly PITOOEY!, INC.)
Consolidated Statements of Cash Flows
See accompanying notes to the consolidated financial statements.
Raadr, Inc.
(formerly PITOOEY!, INC.)
Notes to the Consolidated Financial Statements
Note 1 - History and Organization
Organization
The Company was organized March 29, 2006 (Date of Inception) under the laws of the State of Nevada, as White Dental Supply, Inc. On December 27, 2012, the Company formed two wholly owned subsidiaries, Choice One Mobile, Inc. and PITOOEY! Mobile, Inc., under the laws of the State of Nevada. On January 7, 2013, the Board of Directors of the Company authorized and a majority of the stockholders of the Company ratified, by written consent, resolutions to change the name of the Company to PITOOEY!, Inc. The name change was effective with the State of Nevada February 7, 2013. On February 6, 2013, the Company formed a wholly owned subsidiary, Rockstar Digital, Inc., under the laws of the State of Nevada. On October 31, 2013, the Company, as part of its settlement agreement with the employees of Rockstar Digital (See Note 5), ceased operations of its wholly owned subsidiary, Rockstar Digital, Inc. On July 29, 2015, the Company changed their name to Raadr, Inc. The name change was effective with the State of Nevada on July 29, 2015.
Business
The Company is a complete digital marketing agency offering an array of products and services that will enhance communication between our clients and their target audience. Through our unique service packages, we offer businesses a comprehensive set of tools that focuses on engaging with the rapidly growing number of social and mobile-centric consumers.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of $5,751,537 as of December 31, 2014, a net loss of $1,977,652 and cash used from operations of $671,380 during the year ended December 31, 2014.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Subsequent to December 31, 2014 the Company received $50,000 in capital from sales of common stock and issuances of convertible notes payable. The Company is significantly dependent upon its ability, and will continue to attempt, to secure equity and/or additional debt financing. The Company is attempting to conduct private placements of its preferred and common stock to raise proceeds to finance its plan of operation. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might arise from this uncertainty.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Raadr, Inc., Choice One Mobile, Inc., PITOOEY! Mobile, Inc. and Rockstar Digital, Inc. All significant intercompany balances and transactions have been eliminated. Raadr, Inc., Choice One Mobile, Inc., PITOOEY! Mobile, Inc. and Rockstar Digital, Inc. will be collectively referred herein to as the “Company”.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Risks and Uncertainties
The Company has a limited operating history and has not generated substantial revenues from our planned principal operations. Further, the Company currently has no sales and limited marketing and/or distribution capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our current and future products. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote to sales and marketing.
The Company is also subject to new innovations in product design and function. Significant technical changes can have an adverse effect on product lives in the technology industry. Design and development of new products are important elements to achieve and maintain profitability in the Company’s industry segment.
The Company is subject to federal, state and local environmental laws and regulations. The Company currently does not anticipate non-compliance with such laws and does not believe that regulations will have a material impact on the Company’s financial position, results of operations, or liquidity. Management believes that its operations comply, in all material respects, with applicable federal, state, and local environmental laws and regulations. The Company's future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, the Company's products must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, the Company may not be able to adapt new or enhanced products to emerging industry standards, and the Company's new products may not be favorably received. Nor may we have the capital resources to further the development of existing and/or new ones. Further, the Company's industry is characterized by rapid changes in technology and customer demands. As a result, the Company's products may quickly become obsolete and unmarketable.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Accounts Receivable
Accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis, Management evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
Subscriptions Receivable
Once the Company receives a firm commitment from an investor to provide either a loan or an equity investment the Company records that commitment as a subscription receivable and a credit to the related liability or equity account. Subscription receivables for stock purchases are carried in the equity section. Subscription for Debentures are carried as Notes Receivable - current. Commitments are evidenced by signed Note or Stock Subscription agreements.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:
Computer equipment
3 years
Furniture and Equipment
5 years
The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment as December 31, 2014 and 2013. During the years ended December 31, 2014 and 2013, the Company recorded losses on assets disposed of $8,598 and $28,307 related to assets either sold or disposed of.
Revenue Recognition
The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is probable.
Sales related to long-term contracts for services (such as programming, website development and maintenance) extending over several years are accounted for under the percentage-of-completion method of accounting. Sales and earnings under these contracts are recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method based budgeted milestones or tasks as designated per each contract. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.
For all other sales of product or services the Company recognizes revenues based on the terms of the customer agreement. The customer agreement takes the form of either a contract or a customer purchase order and each provides information with respect to the product or service being sold and the sales price. If the customer agreement does not have specific delivery or customer acceptance terms, revenue is recognized on the date of the customer agreement, invoice or purchase order.
Merchant Reserves
The Company processes sales through a third-party credit card merchant processor. A percentage of all sales is deducted and held by the merchant in a reserve account in the event of chargeback, refunds or customer voids. As of December 31, 2014 and 2013, there was $0 and $0 held in the merchant reserve account, respectively.
Cost of Revenue
The Company’s cost of revenue primarily consists of credit card processing fees, direct labor installation costs and client-specific dedicated Internet service costs.
Stock-based Compensation
The Company records stock-based compensation in accordance with the guidance in Accounting Standards Codification ("ASC") Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
Advertising and Marketing Costs
The Company expenses all costs of advertising as incurred. During the years ended December 31, 2014 and 2013, advertising and marketing costs were $52,168 and $366,541, respectively.
Application Development Costs
The Company continues to evaluate the treatment of costs related to the development of apps not yet publicly launched and are in the pre-revenue stage. Such costs will be capitalized to comply with GAAP and ASC 985-10, which addresses the capitalization of the costs of computer software to be sold, leased, or otherwise marketed as a separate product or a part of a product or process, whether internally developed and produced or purchased. ASC 985-10 calls for the capitalization of costs for creating, researching, and developing any such product.
Loss per Common Share
Net loss per share is provided in accordance with ASC Subtopic 260-10. The Company presents basic loss per share (“EPS”) and diluted EPS on the face of statements of operations. Basic EPS is computed by dividing reported losses by the weighted average shares outstanding. Except where the result would be anti-dilutive to income from continuing operations, diluted earnings per share has been computed assuming the conversion of the convertible long-term debt and the elimination of the related interest expense, and the exercise of stock warrants. Loss per common share has been computed using the weighted average number of common shares outstanding during the years ended December 31, 2014 and 2013. Dilutive loss per share for the years ended December 31, 2014 and 2013 excludes all potential dilutive common shares as their effect is anti-dilutive.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability.
The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
As of December 31, 2014 the derivative liability is considered a level 2 item; see Note 4. The Company did not have any level 3 instruments as of December 31, 2014 and 2013.
The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.
Income Taxes
The Company follows ASC 740-10-25 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
Comparative Financial Information
Certain reclassifications have been made to the 2013 financial statements to confirm to the 2014 presentation.
Recent Pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-15, "Presentation of Financial Statements-Going Concern", which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. Management is still in the process of assessing the impact of ASU 2014-15 on the Company’s consolidated financial statements.
On September 10, 2014, the FASB issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, consolidation removes all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. For the first annual period beginning after December 15, 2014, the presentation and disclosure requirements in Topic 915 will no longer be required for the public business entities. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted. The Company has adopted the amendment.
Note 3 - Financial Statement Elements
Note Receivable
Notes receivable consist of receivables for commitments to invest. The Company had one Debenture purchase in the amount of $75,000 which had been committed to but not paid for as of December 31, 2013. This note was non-interest bearing, and was received in full during the year ended December 31, 2014.
Fixed Assets
Fixed assets as of December 31, 2014 and 2013 consisted of:
Depreciation expenses for the years ended December 31, 2014 and 2013 was $11,955 and $14,148, respectively. The Company distributed assets totaling $28,307 to employees of Rockstar Digital as part of its shutdown of that entity during the year ended December 31, 2013. See Note 5 for additional discussion regarding this agreement.
Accrued Liabilities
Accrued liabilities as of December 31, 2014 and 2013 consisted of:
Note 4 - Notes Payable
Notes payable consisted of the following at:
Convertible Promissory Notes
At various time during the year ended December 31, 2013, the Company issued convertible promissory notes to third parties which bear interest rates of 8% per annum. These notes along with their accrued interest are due and payable in full on their respective maturity dates, which range from May 2014 through July 2014. The notes are convertible into shares of the Company’s par value common stock after six months at a variable conversion price calculated as 58% of the average of the lowest three trading prices during the ten trading days prior to the conversion date. As a result, a discount of 42% of the face value of the note was attributed to the beneficial conversion feature of the note, which was amortized over the expected life of the note. During the years ended December 31, 2014 and 2013, $16,430 and $28,720, respectively, of the original discount of $45,150 has been amortized and recorded as interest expense, leaving a balance of $0 and $16,430, respectively, as of December 31, 2014 and 2013, respectively, related to the beneficial conversion feature of these notes. As of December 31, 2014, the remaining principal balance of these notes of $32,500 is past-due and considered in default.
In December 2014, the Company issued a convertible promissory note to a third party in the principal amount of $55,000. The note bears interest at 10%, is due in December 2015, and is convertible any time after issuance at a variable conversion price calculated as the lower of $0.30 or 55% of the lowest trading price in the 20 days prior to conversion. Based on the requirements of ASC 815, we determined that a derivative liability was triggered upon issuance due to the variable conversion price. Using the Black-Scholes pricing model, we calculated the derivative liability upon issuance and recorded the fair market value of the derivative liability as a discount to the convertible promissory note. When a derivative liability associated with a convertible note is in excess of the face value of the convertible note, the excess of fair value of derivative is charged to the statement of operations. The derivative liability is required to be revalued at each conversion event and at each reporting period.
During the year ended December 31, 2014, the range of inputs used to calculate the derivative liability were as follows:
Based on these valuations, the derivative was recorded at its initial value of $68,802. The note was fully discounted at issuance due to the associated derivative liability, and the excess of $18,802 was immediately expensed as a loss on the fair value of the derivative liability. Remaining discount on the convertible note to be accreted over the life of the note using the straight line method is $52,137 as of December 31, 2014. During the year ended December 31, 2014, interest expense from accretion of the discount and net loss on the fair value of the derivative, including the day one charge noted above, was $2,863 and $17,105, respectively.
Interest expense related to these convertible promissory notes was $3,286 and $16,379, respectively, for the years ended December 31, 2014 and 2013. The 2013 amount included a penalty of approximately $13,000 related to the prepayment of one of the notes.
Debentures with Warrants
At various times through the years ended December 31, 2014 and 2013, the Company has issued debentures with attached warrants. These debentures contain interest rates ranging from 8% to 20% and mature at various times from July 2014through July 2015. Interest expense related to these debentures for the years ended December 31, 2014 and 2013 was $40,750 and $8,348, respectively.
The warrants issued with these debentures contain an exercise price of $0.50 per share and expire three years from the date of issuance. Based on a valuation of the warrants using the Black-Sholes method, discounts of $76,452 and $275,499 were attributed to the warrants during the years ended December 31, 2014 and 2013, respectively. See Note 8 for inputs used in the valuation. These discounts are being amortized over the respective twelve month maturity periods of the debentures using the straight line method due to the limited amortization period. During the years ended December 31, 2014 and 2013, $221,410 and $57,743, respectively, was amortized and recorded as interest expense, leaving balances of $68,990 and $217,756, respectively, in discounts related to the attached warrants as of December 31, 2014 and 2013.
Notes Issued Under an Investment Agreement
On April 29, 2013, the Company entered into an Investment Agreement, in which an investor agreed to purchase debentures up to a total principal amount of $1,100,000. This commitment was increased to $2,000,000 based on an agreement modification entered into on December 2, 2013. Each debenture will accrue interest on the unpaid principal of each individual debenture at the rate of 8% per year from the date each debenture is issued until paid. Maturity dates of the debentures issued range from April 2014 through May 2015. As such, a majority of these notes are in default as of December 31, 2014. As of December 31, 2014 and 2013, the principle balance owed on these debentures was $532,431 and $443,431, respectively, plus accrued interest. During the years ended December 31, 2014 and 2013, a total of $41,419 and $16,432 has been recorded as interest expense. In connection with the April 29, 2013 Agreement and as modified by the December 2, 2013 Agreement, the Company also agreed to issue and sell to the investor, from time to time and subject to certain terms and conditions set forth in the Agreement, up to $25,000,000 of the Company’ common stock. As of the date of these financial statements, no shares of common stock have been issued pursuant to the Agreement.
Promissory Notes
On July 25, 2012, the Company entered into an Intellectual Property Assignment Agreement. (See Note 9 to the financial statements for details concerning the Agreement). In accordance with the terms and conditions contained therein, the Company has agreed to pay the Seller $8,000 in two installments:
1. The first payment of $4,000 was due July 25, 2013, the first anniversary date of the Agreement, and is considered a current note payable.
2. The second and final payment of $4,000 was due July 25, 2014, the second anniversary date of the Agreement and is considered a current note payable.
The Company has since decided not to complete the purchase of this intellectual property and has not yet decided to make payments against this Note. The Company does not own this intellectual property and is delinquent on payment of this Note.
During the year ended December 31, 2013, the Company issued a $50,000 promissory note bearing interest at 10% and due on May 31, 2014. The note is payable in monthly payments of principal and interest. As of December 31, 2014, the remaining principal balance of $10,606 is past due and in default.
Debentures with Warrants Issued to Related Parties
At various times through the years ended December 31, 2014 and 2013, the Company has issued debentures with attached warrants to several related parties. These debentures bear interest at 8% and mature at various times from July 2014 through February 2015. Interest expense related to these debentures for the years ended December 31, 2014 and 2013 was $6,189 and $241, respectively.
The warrants issued with these debentures contain an exercise price of $0.50 per share and expire three years from the date of issuance. Based on a valuation of the warrants using the Black-Sholes method, discounts of $2,010 and $105,055, respectively, were attributed to the warrants during the years ended December 31, 2014 and 2013. See Note 8 for inputs used in the valuation. These discounts are being amortized over the respective twelve month maturity periods of the debentures using the straight line method due to the limited amortization period. During the years ended December 31, 2014 and 2013, a total of $78,552 and $3,573, respectively, has been amortized and recorded as interest expense, leaving a balance of $27,812 and $101,482, respectively, in discounts related to the attached warrants as of December 31, 2014 and 2013.
Demand Notes Issued to Related Parties
The Company has various notes outstanding to related parties totaling $111,759 and $126,326 as of December 31, 2014 and 2013, respectively. These notes are due on demand and have no stated interest rate. As these were initially expected to be repaid quickly, no interest was recorded during the year ended December 31, 2013. As they have not yet been repaid, the Company began imputing interest on these notes at 8% during the year ended December 31, 2014. Total interest expense imputed on these notes during the year ended December 31, 2014 was $11,176, which has been recorded to additional paid-in capital.
Note 5 - Commitments and Contingencies
Operating Leases
Office Facility Lease - The Company previously leased its office facility under an operating lease agreement that was to expire May 31, 2016. On August 29, 2014, the Company and lessor of this lease, upon mutual agreement, terminated the lease, with no additional obligation. On September 1, 2014, the Company entered into a new lease with another lessor for office space, in another physical location, expiring September 30, 2015. The Company recognizes rent expense on a straight-line basis over the lease period.
Equipment Lease - The Company leases two pieces of equipment under an operating lease that expires April 28, 2016. The Company recognizes rent expense on a straight-line basis over the lease period.
Rent expense was $40,984 and $86,573, respectively, for the years ended December 31, 2014 and 2013.
The Company’s minimum payments under non-cancelable operating leases for equipment and office space having initial terms in excess of one year are as follows at December 31, 2014:
Legal
On March 18, 2013, the Company received a lawsuit brought by a former employee who claimed wrongful discharge and requesting payment of $282,692 in base salary and payment for 3,975,000 shares of the Company’s common stock that he was awarded as part of his employment agreement. The Company is attempting to recover these shares based on its determination that the employee was terminated for cause. On December 23, 2013, the Company commenced litigation against the claimant for defamation, intentional interference with prospective business relations, misappropriation of trade secrets, civil conspiracy, and seeking an injunction against harassment. The claimant responded to the complaint by filing a motion to dismiss dated March 17, 2014. Although the claimant has made no formal, legal claims against the Company, it is anticipated that he may make one or more of his previously-threatened claims as a counterclaim in the case. To the extent the claims are based on his previous allegations, the Company views them as frivolous and unsupported and, therefore, has made no accrual provisions for potential losses.
On February 6, 2013, we formed a wholly owned subsidiary, Rockstar Digital, Inc. (“Rockstar”), under the laws of the State of Nevada. Rockstar was organized to specialize in internet branding through social media marketing, mobile marketing and iPhone ® app development Company. On October 31, 2013, the Company entered into a settlement agreement with certain former employees to assume responsibility for certain payroll taxes of Rockstar Digital, Inc. (“Rockstar”) and assign its ownership of Mobile Application and Transition Services intellectual property rights to Rockstar. In addition, the Company agreed to not assert a claim against certain computer equipment (cost of $28,307) in use at Rockstar. The Company agreed to assume liability for any payroll taxes owed on payroll paid by the Company on behalf of Rockstar’s employees. The Company estimated this liability at $30,000 which they have recorded in accrued liabilities at December 31, 2014 and 2013.
On July 29, 2014, a default judgment was issued against the company in Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida. This judgment stems from a legal filing by a consulting firm, with which the Company entered into an agreement for consulting services, on February 20, 2013. On September 25, 2013, the Company cancelled the agreement because it determined that services had not been provided by consulting firm, as promised per the agreed-upon contract terms. In November 2014, we entered into a settlement agreement whereby the Company shall pay the plaintiff $13,246, in monthly installments of $1,472. In addition, the Company issued options to purchase 100,000 shares of the Company's common stock at an exercise price of $1.75 expiring in two years. The Company valued the options at $21,424 using the Black-Sholes model.
Note 6 - Income Taxes
For the years ended December 31, 2014 and 2013, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2014 and 2013, the Company had approximately $5.2 and $3.7 million of federal and state net operating losses, respectively. The federal net operating loss carryforwards, if not utilized, will begin to expire in 2027. The state net operating loss carryforwards, have started to expire.
The components of the Company’s deferred tax asset are as follows:
In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 2014 and 2013, and recorded a full valuation allowance.
The components of the Company's income taxes were:
The Company has identified the United States Federal tax returns as its “major” tax jurisdiction. The United States Federal return years 2010 through 2014 are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations. The Company is subject to examination by State authorities for the years ended 2010 through 2014 and currently does not have any ongoing tax examinations.
Note 7 - Stockholders’ Deficit
Authorized Shares
January 7, 2013, the Board of Directors authorized and a majority of the stockholders of the Company ratified, by written consent, a resolution to increase the authorized number of shares of the Company to 400,000,000 shares of $0.001 par value common stock and 100,000,000 shares of $0.001 par value preferred stock (of which 20,000,000 have been designated as Series A Preferred Stock and 80,000,000 shares of preferred stock available for the Company to assign or designate such provisions or preferences as may be assigned by the Board of Directors). The increase in authorized capital became effective with the State of Nevada on February 7, 2013.
Series A Preferred Stock
On January 3, 2013, the Company filed a Certificate of Designation with the State of Nevada to designate up to 20,000,000 shares of preferred stock as “Series A.” The Series A holds no voting rights, but is automatically convertible into shares of the Company’s common stock immediately upon the effectiveness of a Certificate of Change filed by the Company to increase the number of shares of common stock the Company would become authorized to issue.
From January 1, 2013 through March 31, 2013, the Company sold 1,277,500 shares of its Series A Preferred Stock for total proceeds of $511,000.
On February 7, 2013, in connection with the effective date of the Company’s Certificate of Change to increase the authorized capital of the Company, all shares of the Company’s Series A Preferred Stock were authorized to be automatically converted into common shares. Between March 27, 2013 and June 11, 2013, 2,235,000 shares of the Company’s preferred stock were converted into common stock.
Series B Preferred Stock
In May and June 2014, the Company sold 146,125 shares of the Company’s Series B Convertible Preferred ("Series B") for $121,900. In July and August 2014, the Company sold 75,000 shares of the Series B for $60,000. On October 22, 2014 the Company sold 66,250 shares of Series B for $53,000. On October 24, 2014 the Company sold 31,250 shares of Series B for $25,000.
As of the date of these consolidated financial statements the designations for the Series B have not been filed with the State and thus they are reflected as a liability on the accompanying balance sheet at December 31, 2014. The rights and preferences are not valid until the designations are filed. Once approved, the holders are expected to receive warrants to purchase two shares of common stock at $0.50 per share. In addition, each share of Series B converted the holder would receive two shares of common stock.
Common Stock
On April 4, 2013, the Company issued 30,000 shares of its common stock to two individuals for advertising and marketing services rendered, valued at $12,000. The value of these shares was expensed to advertising and marketing expense in 2013.
On June 11, 2013, the Company issued 340,000 shares of its common stock to various employees of the Company, as incentive compensation valued at $204,000. The value of these shares was expensed to salary expense in 2013.
From April 1, 2013 to December 31, 2013, the Company sold 621,000 shares of its common stock for aggregate cash proceeds of $228,007. As of December 31, 2013, 282,500 shares of common stock were subscribed and paid for, but not yet issued; resultantly, the Company recorded $283 as common stock owed but not issued. During the year ended December 31, 2014, 252,500 of these shares that had been previously paid for were issued. As of December 31, 2014, the Company still had the obligation to issue 31,000 shares of common stock. Additionally, as of December 31, 2013, 51,000 shares for proceeds of $20,400 were subscribed but not paid for. In January 2014, the Company received $20,400 as payment for these shares.
On October 20, 2013, the Company issued 300,000 shares of its common stock to one entity, in exchange for prepaid application development services valued at $240,000. The services are to be performed for a period of 3 months from the date of issuance. The Company recorded Professional Fees expense in the amount of $240,000 related to the common stock issued for prepaid services.
In March 2014, the Company sold 92,500 shares of common stock, at $0.40 per share, to four investors for $37,000.
On August 20, 2014, the Company issued 600,000 shares of restricted common stock for consulting services. These shares were valued at $450,000, which cost was expensed as Professional Development Consulting in May and June 2014 when the shares were authorized.
Note 8 - Warrants
A summary of warrant activity follows:
During the years ended December 31, 2014 and 2013, the Company issued a total of 1,000,000 and 1,100,000, respectively, to third party consultants in connection with consulting agreements. These warrants contained exercise prices ranging from $0.09 to $1.75 per share and expire two to three years from the date of issuance. Based on a valuation of the warrants using the Black-Sholes method, the warrants were valued at $629,175 and $645,854, respectively. The Company recorded compensation expense related to the warrants of $161,617 and $645,854 during the years ended December 31, 2014 and 2013, respectively. See Note 9 for additional discussion regarding the agreements for warrants issued in connection with consulting agreements.
During the years ended December 31, 2014 and 2013, the Company issued a total of 170,000 and 780,000 warrants in connection with the issuance of debentures, respectively. These warrants contained an exercise price of $0.50 per share and expire three years from the date of issuance. Based on a valuation of the warrants using the Black-Sholes method, discounts of $78,462 and $380,554, respectively, were attributed to the warrants being given in return for loans during the years ended December 31, 2014 and 2013, which are being amortized over the respective twelve month maturity periods of the underlying debentures. See Note 4 for additional discussion regarding warrants issued in connection with debenture issuances.
During the year ended December 31, 2014, the range of inputs used to calculate the value of the warrants were as follows:
Note 9 - Agreements
On July 25, 2012, the Company entered into and closed an Intellectual Property Assignment Agreement (“July IP Agreement”) by and between the Company and Mr. Sebastian Barr, an individual (“Seller”). In accordance with the July IP Agreement, the Company acquired certain patents, prototypes and technical information the Seller (“Assets”), pertaining to child safety devices. In exchange for the Assets, the Company agreed to pay the Seller an aggregate of $42,500, pursuant to the following schedule:
1.
An initial payment of $10,000 paid to Sunbeam Packing Services, LLC upon execution of the July IP Agreement;
2.
$24,500 paid to the Seller upon execution of the July IP Agreement;
3.
The balance of $8,000 was to be paid in two installments: $4,000 upon the first anniversary date of the July IP Agreement and $4,000 upon the second anniversary date of the July IP Agreement.
The Company has since decided not to complete the purchase of this intellectual property and has not yet decided to make payments against this Note. The Company does not own this intellectual property and is delinquent on payment of this Note.
On February 24, 2013, the Company entered into a contract with a third party consulting firm. As compensation, the Company paid an initial fee of $4,750 for services rendered and was obligated to pay $3,000 per month for the next 11 months thereafter. In addition, the Company issued warrants to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $1.75 per share, which expire on February 24, 2015. See Note 5 for settlement and issuance of additional warrants to this consultant.
On February 26, 2013, the Company entered into a Letter of Agreement with a third party consulting firm. In exchange for certain consulting services, the Company is obligated to pay a total of $42,500, of which $30,000 was prepaid for services to be rendered and balance of $12,500 will be due upon completion of such services to be rendered. As additional compensation, the Company issued warrants to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $1.30 per share, which expire on February 26, 2015. This agreement was terminated in 2013 with no additional amount due, however, the warrants remain outstanding.
On June 24, 2013, the Company issued 250,000 shares of its common stock to one entity, in exchange for prepaid advertising and marketing services valued at $100,000. The services were to be performed for a period of six (6) months from the date of issuance. The Company recorded Prepaid Stock Compensation in the amount of $100,000 related to the common stock issued for prepaid services. On December 18, 2013, the Company reached an agreement with this entity that resulted in cancelation of all shares previously issued. Consequently, as of December 31, 2013, the Company had reversed all previous accrued entries to Prepaid Stock Compensation, professional expense and equity.
On July 8, 2013, the Company issued 1,000,000 shares of its common stock to one entity, in exchange for prepaid advertising and marketing services valued at $400,000. The services were to be performed for a period of six (6) months from the date of issuance. The Company recorded Prepaid Stock Compensation in the amount of $400,000 related to the common stock issued for prepaid services. On December 18, 2013, the Company reached an agreement with this entity that resulted in cancelation of all shares previously issued. Consequently, as of December 31, 2013, the Company had reversed all previous accrued entries to Prepaid Stock Compensation, professional expense and equity.
On October 20, 2013, the Company entered into a Letter of Agreement with a third party consulting firm. In exchange for certain consulting services, the Company is obligated to pay a total of $42,500, of which $30,000 was prepaid for services to be rendered and balance of $12,500 will be due upon completion of such services to be rendered. As additional compensation, the Company issued 300,000 shares of the Company’s common stock. The agreement was terminated with no additional amount due.
On February 28, 2014 and effective March 3, 2014, the Company entered into an agreement with a consultant to design and develop the Company’s Legal 420 mobile app the purpose of which is to create share information regarding the current changes in the medical marijuana marketplace. Compensation for this project is comprised of $25,000 in cash and issuance of 300,000 shares of the Company’s common stock. This agreement was terminated by mutual agreement between both parties on December 1, 2014.
On April 17, 2014 and effective May 1, 2014, the Company entered into an agreement with a consultant to design and develop the Company’s RAADR mobile app, the purpose of which is to provide customers a mobile application system to allow monitoring of various forms of social media. Compensation for this project is comprised of $25,000 in cash and issuance of 300,000 shares of the Company’s common stock. This agreement was terminated by mutual agreement between both parties on October 1, 2014. In connection with the termination of the agreement the consultant refunded $10,000 to Company; and 300,000 shares of the Company’s common stock was forfeited.
On June 19, 2014, sole board member, Jacob DiMartino, authorized paperwork for the transfer of 10,000,000 shares of his personal Company stock (OTC: PTOO) to CEO, Richard M. Hybner, effective immediately, in accordance with the terms of Mr. Hybner’s Employment Agreement and Amended and Restated Employment Agreement, dated May 2, 2014 and June 26, 2014, respectively.
On July 29, 2014 (the “Effective date”), the Company entered into an agreement with cmdR Consulting, to develop the Company’s RAADR mobile app, the purpose of which is to develop a subscriber-like mobile application to allow the monitoring of a variety of forms of social mention in social media. Contractual details call for an initial payment of $40,000, an additional payment of $30,000 in December, 2014 and five monthly payments of $10,000 commencing in January, 2015. In addition, stock options of up to 1,000,000 shares, with a strike price of $0.09, were granted for achieving certain milestones including an expected launch date in Fall 2014, with pre-registration to begin early September, 2014. In addition, a user-based bonus of $0.20 per user will be paid if the platform exceeds 330,000 users by December 31, 2014. Due to cash flow restrictions and the likely hood of the deliverables being provided, the contract was cancelled subsequent to December 31, 2014.
On October 21, 2014, the Company entered into a marketing agreement with a corporation to provide brand recognition, public relations, investor relations, and marketing services on behalf of the Company. Payment is in cash, beginning with $18,000 upon signing and then $9,500 per bi-weekly period through the end of December, 2014, for total payments of $75,000. The contract was cancelled mutually in January 2015.
Note 10 - Related Party Transactions
Since the inception of the Company, the founding shareholder, who is a shareholder, officer and director of the Company, donated cash to the Company in the aggregate amount of $42,850. This amount has been donated to the Company and is not expected to be repaid and is considered additional paid-in capital.
On December 27, 2012, the Company entered into a professional service agreement with the Company’s CEO for use of client services staff, administrative support and office space and equipment, for which the Company paid a retainer of $30,000. The retainer will be expensed at the sole discretion of the service firm and all ongoing expenses will be billed to the Company as incurred. As of December 31, 2013 and December 31, 2012, the balance in prepaid expenses was $200 and $30,000. Expenses reimbursed totaled $140,285 which was comprised of payroll expense ($34,175), rent ($39,500), advertising and marketing ($5,000) and consulting ($61,610). This agreement was terminated as of December 31, 2013.
As of December 31, 2014 and 2013, amounts included within accrued liabilities related to payroll due to Jacob DiMartino, our Chief Executive Officer, were $78,167 and $22,000, respectively.
See also Note 8 for notes payable to related parties.
Note 11 - Subsequent Events
In March 2015, the Company issued a total of 30,000,000 shares of common stock in connection with three consulting contracts, 10 million shares each, related to capital raising, strategic partnerships, etc. The Company is still determining the accounting impact of this transaction. Under the agreements, the consultants have non-dilutive clauses which require a true up at the end of the contract based upon the percent of the initial issuance. The Company is currently determining the impact of the issuance.
In March 2015, the Company extended a $20,000 convertible note payable to June 30, 2015. Under the terms of the new agreement, the Company issued at various dates 160,000 shares of common stock. As long as the note is in default, the Company has the obligation to issue additional shares. The Company is still determining the accounting impact of this transaction.
In April 2015, the Company received $20,000 in proceeds from the sale of 250,000 shares of common stock. As of the date of this filing the shares haven't been issued.
In June 2015, the Company received $20,000 in proceeds from convertible notes payable. The notes are convertible at a minimum of $40,000 in common stock based upon the closing stock price on the date of conversion. In addition, the notes incur interest at 12% per annum and is due June 1, 2016. The Company is still determining the accounting impact of this transaction.
In July 2015, the Company received $10,000 in proceeds from the sale of 250,000 shares of common stock. As of the date of this filing the shares haven't been issued.
Subsequent to year end, the Company issued 150,000 shares of common stock in connection with the settlement with a former customer. The Company is still determining the accounting impact of this transaction.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A
ITEM 9A (T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under supervision and with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of December 31, 2014, because of the material weakness in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that required information to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that required information to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of December 31, 2014, our internal control over financial reporting was not effective and that material weaknesses in ICFR existed as more fully described below.
As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of December 31, 2014. The weaknesses were initially identified during the year ended December 31, 2013 :
1)
Lack of an independent audit committee or audit committee financial expert, and no independent directors. We do not have any members of the Board who are independent directors and we do not have an audit committee. These factors may be counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management;
2)
Management did not identify accounting issues and implement appropriate solutions for several technical accounting issues.
3)
Bank reconciliations were not reviewed or approved and responsibilities were not adequately segregated in the area of cash receipts and cash disbursements;
4)
Journal entries were not reviewed or approved before being entered into the general ledger;
5)
The Company had not effectively implemented comprehensive entity-level internal controls;
6)
The Company did not adequately segregate duties within the accounting department due to an insufficient number of staff;
7)
Management failed to implement and monitor appropriate safeguards in relation to fixed assets and cash;
8)
The Company does not have policies and procedures in place to ensure timely recording of its transactions in accordance with generally accepted accounting principles;
9)
The Company does not have proper oversight over management and employees.
Management's Remediation Initiatives
As of December 31, 2014, management assessed the effectiveness of our internal control over financial reporting. Based on that evaluation, it was concluded that during the period covered by this report, the internal controls and procedures were not effective due to deficiencies that existed in the design or operation of our internal controls over financial reporting. However, management believes these weaknesses did not have an effect on our financial results. During the course of their evaluation, we did not discover any fraud involving management or any other personnel who play a significant role in our disclosure controls and procedures or internal controls over financial reporting.
Due to a lack of financial and personnel resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until, if ever, we acquire sufficient financing and staff. We will implement further controls as circumstances, cash flow, and working capital permits. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in our Annual Report on Form 10-K for the period ended December 31, 2014, fairly presents our financial position, results of operations, and cash flows for the periods covered, as identified, in all material respects.
Management believes that the material weaknesses set forth above were the result of the scale of our operations and intrinsic to our small size. Management also believes that these weaknesses did not have an effect on our financial results.
We are committed to improving our financial organization. As part of this commitment, we will, as soon as funds are available to the Company (1) appoint outside directors to our board of directors sufficient to form an audit committee and who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; (2) create a position to segregate duties consistent with control objectives and to increase our personnel resources. We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary, and as funds allow.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control over Financial Reporting
During the period covered by this report, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Corporation's registered public accounting firm pursuant to temporary rules of the SEC that permit the Corporation to provide only the 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 that occurred during our most recent fiscal year ended December 31, 2014, that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Management has determined that the Company’s business operations are sufficient for the Company to cease to be a shell company as defined in Rule 12b-2 of the United States Securities Exchange Act of 1934, as amended.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company's Directors are elected by the stockholders to a term of one (1) year and serve until their successors are elected and qualified. The officers are appointed by the Board of Directors to a term of one (1) year and serves until his/her successor is duly elected and qualified, or until he/she is removed from office. The Board of Directors has no nominating, auditing, or compensation committees.
The name and age of our director and executive officer and his position is as follows:
Jacob DiMartino, Chief Executive Officer and Director, In 1998, at the age of 18, Jacob DiMartino began his career with Phase 2 Solutions, a start-up company based in Scottsdale, Arizona. Joining the company as an inside sales rep, he quickly advanced to Sales Manager within his first 90 days. In 2000, he was promoted to Director of Project Management. With this promotion, Jacob was responsible for the company’s largest account; and he earned several awards and achievements during his tenure with the company, including “Employee of the Year,” “Salesman of the Year,” and “Mentor of the Year.” The latter being awarded by employee votes to the manager who motivated and continually inspired others.
In 2004, Jacob moved to Los Angeles to explore his life-long interest in the world of entertainment. There, he worked on several popular television series: Law and Order SVU, Cold Case, Alias, Gilmore Girls, and was also featured in the movie, Mr. and Mrs. Smith.
Returning to Arizona in 2011, Jacob founded Choice One Solutions, a social media services agency. In only 18 months, he guided the company to $1.2 million in annual sales. Expanding his career, Jacob was appointed CEO of the Company in 2012 and was instrumental in taking the company public. He continues to guide the development of the Company’s flagship product, the PITOOEY! mobile app. As of the second quarter of 2015 Jacob serves as the CEO of the Company
Jacob decided in early 2015, that Company should change its name to RAADR , INC and pursue the social monitoring space . His mission now is to help parents and loved ones prevent "cyber bullying " or harassment online
Jacob is very passionate about helping parents protect their kids online and looks to make some very big moves in the software space with his www.raadr.com software .
Family Relationships
There are no family relationships among any of our officers or directors.
Involvement on Certain Material Legal Proceedings during the Last Five Years
No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations.
No bankruptcy petitions have been filed by or against any business or property of any director, officer, significant employee or consultant of the Company nor has any bankruptcy petition been filed against a partnership or business association where these persons were general partners or executive officers.
No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities.
No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law.
Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by Nevada law.
Limitation of Liability of Directors
Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. The Company have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.
Audit Committee and Financial Expert
The Company does not have an Audit Committee. The Company’s directors perform some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditor’s independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.
The Company has no financial expert. The Company believes the cost related to retaining a financial expert at this time is prohibitive. Further, because of its start-up operations, The Company believes the services of a financial expert are not warranted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, believe that as of the date of this filing they were all current in their filings.
Code of Ethics
A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:
1.
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
2.
Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer;
3.
Compliance with applicable governmental laws, rules and regulations;
4.
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
5.
Accountability for adherence to the code.
The Company has not adopted a corporate code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
The Company’s decision to not adopt such a code of ethics results from our having a small management for the Company. The Company believes that the limited interaction which occurs having such a small management structure for the Company eliminates the current need for such a code, in that violations of such a code would be reported to the party generating the violation.
Corporate Governance
Nominating Committee
The Company does not have a Nominating Committee or Nominating Committee Charter. The Company’s directors perform the functions associated with a Nominating Committee. The Company has elected not to have a Nominating Committee in that the Company is a development stage company.
Director Nomination Procedures
Nominees for Directors are identified and suggested by the members of the Board or management using their business networks. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates and does not intend to in the near future. In selecting a nominee for director, the Board or management considers the following criteria:
1.
Whether the nominee has the personal attributes for successful service on the Board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to our affairs;
2.
Whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations;
3.
Whether the nominee, by virtue of particular experience, technical expertise or specialized skills or contacts relevant to our current or future business, will add specific value as a Board member; and
4.
Whether there are any other factors related to the ability and willingness of a new nominee to serve, or an existing Board member to continue his service.
The Board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for Board membership. Rather, the Board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion and make a determination regarding whether a candidate should be recommended to the stockholders for election as a Director. During 2012, The Company received no recommendation for Directors from our stockholders.
We will consider for inclusion in our nominations of new Board of Directors nominees proposed by stockholders who have held at least 1% of our outstanding voting securities for at least one year. Board candidates referred by such stockholders will be considered on the same basis as Board candidates referred from other sources. Any stockholder who wishes to recommend for our consideration a prospective nominee to serve on the Board of Directors may do so by giving the candidate’s name and qualifications in writing to our Secretary at the following address: 15685 N. Cave Creek Rd., Suite 101, Phoenix, AZ 85032.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the last completed fiscal years ended December 31, 2014 and 2013 the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years and months, to the Chief Executive Officer and, to the extent applicable, each of the three other most highly compensated executive officers of the Company in all capacities in which they served:
(1) Jacob DiMartino has been president and a director since May 12, 2014 and chief executive officer from December 24, 2012 to May 12, 2014 and since January 18, 2015. Actual cash payments totaled $65,560 in 2013 and $51,832 in 2014. As of December 31, 2014 and 2013, amounts payable included within accrued liabilities were $78,167 and $22,000, respectively.
(2) Actual cash payments totaled $53,624 in 2013. Deparini resigned as CFO and Director on January 31, 2014.
(3) Actual cash payments totaled $36,923. Hybner resigned as CEO on January 17, 2015.
Directors' Compensation
The Company’s directors are not entitled to receive compensation for services rendered to it, or for each meeting attended except for reimbursement of out-of-pocket expenses. The Company has no formal or informal arrangements or agreements to compensate its directors for services provided as directors of the company.
Employment Contracts and Officers' Compensation
The Company has no employment or other agreement for services with any of its officers, directors or employees. Since its incorporation, The Company has paid a total of $16,254 in executive compensation expense to its executive officers for services rendered in the form of our common stock in lieu of cash. Any future compensation to be paid will be determined by our Board of Directors, and an employment agreement is expected to be executed. The Company does not currently have plans to pay any compensation until such time as it is cash flow positive.
Stock Option Plan and Other Long-term Incentive Plan
The Company currently does not have existing or proposed option/SAR grants.
Liability and Indemnification of Officers and Directors
Under our Articles of Incorporation, our directors are not liable for monetary damages for breach of fiduciary duty, except in connection with:
·
A breach of a director ’ s duty of loyalty to us or our stockholders;
·
Acts or omissions not in good faith or which involve intentional misconduct, fraud or a knowing violation of law;
·
A transaction from which a director received an improper benefit; or
·
An act or omission for which the liability of a director is expressly provided under Nevada law.
Our Articles of Incorporation and Bylaws require us to indemnify our officers and directors and other persons against expenses, judgments, fines and amounts incurred or paid in settlement in connection with civil or criminal claims, actions, suits or proceedings against such persons by reason of serving or having served as officers, directors, or in other capacities, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, in a criminal action or proceeding, if he had no reasonable cause to believe that his/her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of no contest or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to our best interests or that he or she had reasonable cause to believe his or her conduct was unlawful. Indemnification as provided in our Bylaws will be made only as authorized in a specific case and upon a determination that the person met the applicable standards of conduct. Insofar as the limitation of, or indemnification for, liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, or persons controlling us pursuant to the foregoing, or otherwise, The Company has been advised that, in the opinion of the SEC, such limitation or indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Director Independence
The Company currently does not have any independent directors, as the term “independent” is defined in Section 803A of the NYSE Amex LLC Company Guide. Since the Over the Counter Quotation Board (“OTCQB”) does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the rules of the New York Stock Exchange (“NYSE”) and American Stock Exchange (“Amex”).
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of the date of this annual report with respect to the beneficial ownership of the Company’s common stock by all persons known by the Company to be beneficial owners of more than 5% of any such outstanding classes, and by each director and executive officer, and by all officers and directors as a group. Unless otherwise specified, the named beneficial owner has, to our knowledge, either sole or majority voting and investment power.
Security Ownership of Certain Beneficial Owners and Management
Notes:
1. The address for the Executive Officers and Board of Directors of the Corporation is: 2432 West Peoria Ave, Suite 1346, Phoenix, AZ 85029.
2. As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security).
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
On December 27, 2012, the Company entered into a professional service agreement with an entity materially owned and controlled by Jacob DiMartino, our CEO, for use of client services staff, administrative support and office space and equipment, for which it paid a retainer of $30,000. The retainer will be expensed at the sole discretion of the service firm and all ongoing expenses will be billed to us as incurred. During the year ended December 31, 2012, the Company did not recognize any expenses related to this agreement. During the year ended December 31, 2013 the Company recognized $140,285 in expenses. This agreement was terminated as of December 31, 2013.
Promoters and Certain Control Persons
The Company did not have any promoters at any time since its inception.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees billed to us by our independent auditors for the years ended December 31, 2014 and 2013 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
* Expenses related to former auditor.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as part of this report
1.
The financial statements listed in the "Index to Financial Statements" are filed as part of this report.
2.
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
(b) Exhibits required by Item 601 of Regulation S-K
The information required by this Item is set forth on the exhibit index that follows the signature page of this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
Raadr, Inc.
(formerly PITOOEY!, INC.)
(Registrant)
By: /s/ Jacob DiMartino
Jacob DiMartino, CEO
In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated:
Signature
Title
Date
/s/ Jacob DiMartino
Chief Executive Officer,
September 15, 2015
Jacob DiMartino
Chief Financial Officer
EXHIBIT INDEX
(1) Incorporated by reference to the Registration Statement on Form SB-2, previously filed with the SEC on August 3, 2007.