UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| (Mark one) | |
| ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Fiscal Year Ended December 31, 2014
OR
| ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _________________to
Commission File Number: 000-53266
Monster Arts, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 27-1548306 | |
| (State or Other Jurisdiction | (I.R.S. Employer | |
| of Incorporation or Organization) | Identification No.) |
| 3565 South Las Vegas Blvd, #120, Las Vegas, NV | 89109 | |
| (Address of principal executive offices) | (Zip Code) |
(725) 222-8281
(Registrant’s telephone number, including area code)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No ☐ Not Applicable
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ Yes ☒ No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. Approximately $8,786,209 on June 30, 2014.
As of September 24, 2015, there were 838,736,347 shares of common stock, par value $0.001 per share, of the registrant outstanding.
INDEX
| TITLE | ||
| ITEM 1. | Business | 4 |
| ITEM 2. | Properties | 13 |
| ITEM 3. | Legal Proceedings | 13 |
| ITEM 4. | Submission of Matters to a Vote of Security Holders | 13 |
| ITEM 5. | Market for Common Equity and Related Stockholder Matters | 13 |
| ITEM 7. | Management’s Discussion and Analysis of Financial Condition | 15 |
| ITEM 8. | Financial Statement and Supplementary Data | 19 |
| ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 19 |
| ITEM 9A. | Controls and Procedures | 20 |
| ITEM 10. | Directors, Executive Officers and Corporate Governance | 21 |
| ITEM 11. | Executive Compensation | 24 |
| ITEM 12. | Security Ownership of Certain Beneficial Owners Management and Related Stockholder Matters | 25 |
| ITEM 13. | Certain Relationships and Related Transactions and Director Independence | 26 |
| ITEM 14. | Principal Accounting Fees and Services | 28 |
| ITEM 15. | Exhibits, Financial Statement Schedules | 29 |
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FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may", "could", "estimate", "intend", "continue", "believe", "expect" or "anticipate" or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:
| ● | inability to raise additional financing for working capital and product development; | |
| ● | inability to identify internet marketing approaches; | |
| ● | deterioration in general or regional economic, market and political conditions; | |
| ● | the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain; | |
| ● | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; | |
| ● | changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; | |
| ● | inability to efficiently manage our operations; | |
| ● | inability to achieve future operating results; | |
| ● | our ability to recruit and hire key employees; | |
| ● | the inability of management to effectively implement our strategies and business plans; and | |
| ● | the other risks and uncertainties detailed in this report. |
In this form 10-K references to "Monster Arts Inc.", MONSTER OFFERS, "the Company", "we", "us", and "our" refer to Monster Arts Inc.
AVAILABLE INFORMATION
We file annual, quarterly and special reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC's website at www.sec.gov. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at Monster Arts, Inc., 806 East Avenida Pico, Suite I-288, San Clemente, CA 92673.
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PART I
On May 2, 2013, Monster Arts, Inc. (the “Company”) amended its articles of incorporation to change its name from Monster Offers to Monster Arts, Inc. The Company was incorporated under the laws of the State of Nevada, as Tropical PC Acquisition Corporation on February 23, 2007 ("Inception"). On December 11, 2007, the Company amended its Articles of Incorporation changing its name from Tropical PC Acquisition Corporation to Monster Offers. On November 9, 2012 the Company executed a share exchange agreement with Ad Shark, Inc., a privately-held California corporation incorporated April 12, 2011. As a result of the share exchange agreement, Ad Shark, Inc. became a wholly owned subsidiary of the Company. In February of 2014, Ad Shark, Inc. was dissolved as a California corporation. The Company organizes advertising sales efforts by constructing media and advertising delivery systems for Smartphone and Tablet application developers including the delivery of mobile banners, mobile video, mobile text messaging, and mobile email advertising.
On March 4, 2013, the Company entered into a Master Purchase Agreement with Iconosys, Inc., a private California corporation whom shares a common officer with the Company, whereby the Company acquired a 10% interest in Iconosys, Inc. (Referenced in Note 9).
On August 8, 2013, the Company approved the execution of an asset purchase agreement with Iconosys, Inc., a private California corporation which shares an officer with the Company, for the rights to domain names, web site content and trademark assignments of Travel America Visitor Guide (“TAVG”) which is a division of Iconosys.
On April 25, 2014, the Company entered into a subscription agreement to buy 53,000 shares of common stock of Candor Homes Corporation, (“CH, Inc.”) for $10,000 which represents 53% of the equity interest in CH, Inc. As of December 31, 2014, there has been no activity with CH, Inc. and the Company has recorded accounts payable to related party balance of $10,000. The only two directors of CH, Inc. are our chief executive officer, Wayne Irving II and his sister Tisha Lawton. CH, Inc. is activity analyzing potential land investments in Central Iowa where new homes could be built . This is ongoing and continues to be exploratory with no further advancement to report for YE 2014 due to limited resources at this time.
On August 28, 2014, our Board of Directors and majority shareholders, approved a reverse stock split upon receipt of all necessary regulatory approvals and the passage of all necessary waiting periods. The reverse split would reduce the number of outstanding shares of our common stock at a ratio of 200 to 1 but have no effect on the number of authorized shares of Common Stock or Preferred Stock.
Our Business
The Company has historically been focused on building safety oriented tracking and data collection software for a number of industries, including family safety, health and wellness, culinary, brain/memory training, among others. The evolution of the Company’s technologies and expertise have given rise to a suite of softwares, software development kits, graphical user interfaces, and mobile platform technologies, inclusive of both web-based mobile internet development and smartphone/tablet computing app development, and involving many of the embedded technologies and/or processing or data consumption features that are local to the device; these features relying partly, if at all, on an internet connection to support data archiving, data tracking, historical gps data storage, google mapping, and other Internet dependent services.
Over time, the Company’s business and expertise has evolved and grown beyond smartphone and tablet computing, and migrated into the development of next generation tracking softwares that run on devices controlled by the very same smart device platform technologies that the company has been developing over the past few years for itself and its clients. By way of example, devices that are remotely controlled and or monitored have become the focus of the Company. The devices might include small appliances, security systems, hvac systems, and drones or unmanned aerial or vehicles.
In particular, the Company is developing a proprietary Drone Tracking Control System (DTCS), which will enable drone operators and/ pilots to participate in a comprehensive navigational tracking and monitoring system; they would receive a unique flight number, and their aircraft location (as well as the location of any applicable remote control operational devices) would be tracked as part of a monitoring system that would be utilized by, and visible to, local, state, and national air traffic authorities, as well as the US military, law enforcement and first responders.
Indeed, recent incidents such as the recent landing of a gyrocopter on the lawn of our US Capitol have only served to increase public fear relating to the possible misuses of drones and ultralight aircraft, and heightened the urgency of public calls for a national tracking system … one that would be similar to, but more robust than, those systems in use today by the FAA’s radars and air traffic controllers, where the data would be pooled, no fly zones could be established and light-weight commercial and private unmanned and manned aerial vehicles could participate in an national tracking system for the safety of all, including the safety of the cargo that may be in transit or used in the operation in these devices.
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The Company’s existing technologies, which have already been developed to track multiple parties across a broad spectrum of smart devices, are now being adapted and modified, adding a secured web interface, and will be designed to be run from the cloud of servers remotely located in secure facilities across the country, and as previously noted, will document the movements and pinpoint the locations of those smaller aerial vehicles that are currently not trackable through ordinary radar and/or otherwise addressed by the FAA’s current tracking systems. This next-generation smart tracking system is presently being presented to state and local governments, and the Company is intending to continue to traverse the country, educating city councils, state senators, mayors, and US legislators, among others.
In addition to the above-described software tracking system, the Company is utilizing its own resources and expertise, as well as working in tandem with partners and advisors, to develop a next generation, unmanned aerial vehicle, the Aviation M Drone™, which would serve as the model testing subject for the DTCS.
The Company has also been an innovative software developer for mobile devices, smart TVs, and set top boxes running iOS, Android, Windows and other platforms. In addition, the company is also involved in the travel industry through its online and mobile platform for consumers and paying members of Travel America Visitor Guide (TAVG).
We utilize proprietary technology that we have developed, acquired, and/or licensed to deploy our products and services.
Our primary services include the development of Smartphone and tablet apps for clients and ourselves. We sell and arrange to sell ours and our clients’ apps developed through the online and mobile marketplaces Google Play, iTunes, Amazon AppStore, and Barnes & Noble Online Marketplace. The sales of our innovative apps are subject to a commission fee charged by the online partners mentioned above in the preceding sentence. From time to time, we may choose to partner with a client at a reduced rate to earn potentially longer term residual revenues.
On August 8, 2013, the Company approved the execution of an asset purchase agreement with Iconosys, Inc., a private California corporation, which shares an officer with the Company, for the rights to domain names, web site content and trademark assignments of Travel America Visitor Guide (or “TAVG”), a division of Iconosys. Founded in 2011, Travel America Visitor Guide, has a multitude of paying business members on some form of recurring subscription-based account, where the paying members pay a monthly, semi-annual, or annual fee for the right to be listed on the TAVG website -- www.travelamericavisitorguide.com. Travel America Visitor Guide also offers discounted and brokered printing and design consulting services to its clients/members. Travel America Visitor Guide's intent is to emulate the successful business model of AAA or Good Sam's Club, where by consumers become card members and are offered discounts from the subscribing member businesses.
Marketing Strategy
App Development Sales: Monster Arts utilizes lead generation techniques, search engine optimization, outbound cold calling, and word of mouth referrals to provide a constant flow of projects for its developers. Monster Arts also offers in-house app development services to its TAVG membership base.
App Retail Sales: Monster Arts generates sales by cross promoting its more popular apps with newer product releases, and encourages its existing app user customers to download additional apps that Monster Arts has built through the use of Instant Messaging, SMS Marketing, Email Marketing, and In-App banner advertising. Monster Arts also focuses on creating a continuous flow of fresh media coverage and promotional communications for its apps and, more generally, for the Company itself in order to increase the number of page views to its sites and to its app sale locations in the online marketplaces.
Software Development
We utilize the services of outsourced contractors for the development of our software technologies. We also utilize the services of technology consultants to assist in the development of our strategic product development roadmap, and in the ongoing management of all software development outsourced contractors. As the Company continues to grow, we may hire direct employees so as to fill various internal technology management, development, testing and quality control roles, on an as needed basis.
Competition
The App Development, Mobile Marketing, and Travel Industry Directory Services industries are highly competitive in nature. Management also believes that the ability to provide innovative consumer and business solutions that fulfill unmet industry needs is an important competitive advantage for any business operating in this industry. There are a number of companies active in specific aspects of one or more of the above-referenced business areas.
Government Regulation
We are subject to federal, state and local laws and regulations affecting our business. Although the Company plans on obtaining all required federal and state permits, licenses, and bonds to operate its facilities, there can be no assurance that the Company's operations and overall profitability will not be subject to more restrictive regulation or increased taxation by federal, state, or local agencies. New laws and regulations may restrict specific Internet activities, and existing laws and regulations may be applied to Internet activities, either of which circumstances could increase our costs of doing business over the Internet and adversely affect the demand for our advertising services. In the United States, federal and state laws already apply or may be applied in the future to areas of our business focus, including children's privacy, copyrights, taxation, user privacy, search engines, Internet tracking technologies, direct marketing, data security, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets, export of encryption technology, acceptable content and quality of goods and services.
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Employees
We currently have one full time employee, Wayne Irving II, our Chairman, Chief Executive Officer, Chief Financial Officer and Secretary. Our officer also performs many of the Company’s supervisory and administrative roles. We utilize additional independent contractors and temporary labor on a part-time/as needed basis.
In August of 2014, the Company appointed Tisha Lawton as the Secretary, Treasurer and Chief Financial Officer of the Company. Ms. Lawton is a sibling of our Chief Executive Officer, Wayne Irving II. Tisha Lawton resigned as Secretary, Treasure and Chief Financial Officer of the Company in December of 2014. Wayne Irving II assumed her title as Chief Financial Officer.
Monster Arts, Inc. Funding Requirements
We do not currently have sufficient capital to fully develop our business plan. Management anticipates that the Company will be required to raise up to $2,500,000 to fully fund and execute its corporate strategies.
In March, 2014, the company entered into an up to $5M preferred equity investment agreement with Los Angeles, CA-based, Premier Venture Partners, LLC. (PVP). The Company is in the process of filing an S-1 with the SEC in accordance with the funding agreement between the Company and PVP. As of September 30, 2015, Monster Arts is under the impression, providing appropriate legal review, that the access to the preferred equity line has reached its point of maturation and will be available as needed.
The use of proceeds will be as follows:
| Description | Estimated Amount ($) | |||
| Complete the development of DTCS platform (Phase I) | $ | 300,000 | ||
| Complete the design/development of 1st Generation Aviation M Drone | $ | 250,000 | ||
| Employ/Train Business Development/Government Affairs Personnel | $ | 200,000 | ||
| Hire Chief Operating Officer | $ | 150,000 | ||
| Upgrade/Maintenance of existing Revenue Generating Projects | $ | 150,000 | ||
| Travel Expenses for National Tour of City/State/National Government Road Show(yearly) | $ | 75,000 | ||
| Technologies/Hardware Needs (Servers, Testing Equipment, Laboratory Equipment) | $ | 250,000 | ||
| Laboratory Mechanical Engineering Staff | $ | 150,000 | ||
| Integration/Licensing/Support Expense (No Fly Zone, DroneRegistry) | $ | 100,000 | ||
| Tradeshow Expenses | $ | 150,000 | ||
| Working Capital to cover general and administrative expenses up to product launch | $ | 250,000 | ||
| Inventory Capital Phase I deliverables | $ | 400,000 | ||
| International Travel and commissions expenses | $ | 75,000 | ||
Patent, Trademark, License and Franchise Restrictions and Contractual Obligations and Concessions
In May of 2013, Monster Arts filed for a provisionary patent titled "Hand Wave or Hand Signal Over Front-Facing Smart Device Camera to Trigger Software Commands. With exception to this filing and the filing a trademark application for the name “Monster Offers,” in 2012, we have no current plans for any registrations such as patents, other trademarks, copyrights, franchises, concessions, royalty agreements or labor contracts. We will assess the need for any copyright, trademark or patent applications on an ongoing basis.
The Company believes that there are multitude of patents that will be filed on behalf of the Company and at the Company’s benefit. Once issued, these patents will then be potentially licensable, which in turn raises the prospect that that Company may be able to collect revenues/royalties from third party licensees or sub-licensees of the Company’s proprietary intellectual property and related technology.
Research and Development Activities and Costs
We incurred research and development costs of $0 and $11,473 for the years ended December 31, 2014 and 2013. If the Company is successful in raising additional capital, it plans to spend approximately $250,000 over the next year or two on research and development in order to complete their prototype unmanned aerial vehicle, the Aviation M Drone™.
Compliance with Environmental Laws
We are not aware of any environmental laws that have been enacted, nor are we aware of any such laws being contemplated for the future, that impact issues specific to our business. In our industry, environmental laws are anticipated to apply directly to the owners and operators of companies. They do not apply to companies or individuals providing consulting services, unless they have been engaged to consult on environmental matters. We are not planning to provide environmental consulting services.
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Item 1A. Risk Factors.
Risk Factors Relating to Our Company
Risks Relating To Our Company
1. WE ARE A DEVELOPMENT STAGE COMPANY AND HAVE HISTORY OF LOSSES SINCE OUR INCEPTION. IF WE CANNOT REVERSE OUR LOSSES, WE WILL HAVE TO DISCONTINUE OPERATIONS.
In our auditor's report for fiscal years ended December 31, 2014 and 2013, our auditors expressed substantial doubt as to our ability to continue as a going concern. We anticipate incurring losses in the foreseeable future. We do not have an established source of revenue sufficient to cover our operating costs. Our ability to continue as a going concern is dependent upon our ability to successfully compete, operate profitably and/or raise additional capital through other means. If we are unable to reverse our losses, we will have to discontinue operations.
2. THE LIMITED PUBLIC TRADING MARKET MAY CAUSE VOLATILITY IN OUR STOCK PRICE.
The quotation of our common stock on the OTC-QB does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus and will be subject to significant volatility. Sales of substantial amounts of our common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock.
3. SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK, AS THE FUTURE SALE OF A SUBSTANTIAL AMOUNT OF OUTSTANDING STOCK IN THE PUBLIC MARKETPLACE COULD REDUCE THE PRICE OF OUR COMMON STOCK.
We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock for sale will have on the market price prevailing from time to time. Sales of shares of our common stock in the public market covered under an effective registration statement, or the perception that those sales may occur, could cause the trading price of our common stock to decrease or to be lower than it might be in the absence of those sales or perceptions.
4. WE DO NOT EXPECT TO GENERATE SIGNIFICANT CASH FLOW FROM OPERATIONS FOR THE FORESEEABLE FUTURE. WE WILL NEED TO RAISE CAPITAL IN THE FUTURE BY SELLING MORE COMMON STOCK AND IF WE ARE ABLE TO DO SO, YOUR OWNERSHIP OF THE COMPANY'S COMMON STOCK MAY BE DILUTED.
Although we have started to generate revenues from customer activities, we do not expect to generate significant cash flow from operations for the foreseeable future. Consequently, we will be required to raise additional capital by selling additional shares of common stock. There can be no assurance that we will be able to do so but if we are successful in doing so, your ownership of the Company's common stock may be diluted which might depress the market price of our common stock.
5. OUR HISTORY OF LOSSES IS EXPECTED TO CONTINUE AND WE WILL NEED TO OBTAIN ADDITIONAL CAPITAL FINANCING IN THE FUTURE.
We have a history of losses and expect to generate losses until such a time when we can become profitable in the distribution of our planned products. As of the date of this filing, we cannot provide an estimate of the amount of time it will take to become profitable.
We will be required to seek additional financing in the future to respond to increased expenses or shortfalls in anticipated revenues, accelerate product development, respond to competitive pressures, develop new or enhanced products, or take advantage of unanticipated acquisition opportunities. The Company anticipates obtaining the required funding through equity investment in the company. We cannot be certain we will be able to find such additional financing on reasonable terms, or at all. If we are unable to obtain additional financing when needed, we could be required to modify our business plan in accordance with the extent of available financing made available to our Company. If we obtain the anticipated amount of financing through the offering of our equity securities, this will result in substantial dilution to our existing shareholders, and should be considered a serious risk of investment.
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6. WE EXPECT OUR OPERATING EXPENSES TO INCREASE AND MAY AFFECT PROFIT MARGINS AND THE MARKET VALUE OF OUR COMMON STOCK.
Upon obtaining additional capital, we expect to significantly increase our operating expenses to expand our marketing operations, and increase our level of capital expenditures to further develop and maintain our proprietary software systems. Such increases in operating expense levels and capital expenditures may adversely affect operating results and profit margins which may significantly affect the market value of common stock. There can be no assurance that we will, one day, achieve profitability or generate sufficient profits from operations in the future.
7. CURRENT ECONOMIC CONDITIONS MAY PREVENT US FROM GENERATING REVENUE.
Our ability to generate or sustain revenues is dependent on a number of factors relating to discretionary consumer spending. These include economic conditions and consumer perceptions of such conditions by consumers, employment, the rate of change in employment, the level of consumers' disposable income and income available for discretionary expenditure, business conditions, interest rates, consumer debt and asset values, availability of credit and levels of taxation for the economy as a whole and in regional and local markets where our Company operates.
8. WE MAY NOT BE ABLE TO COMPETE WITH OTHER DAILY DEAL COMPANIES, SOME OF WHOM HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO.
The Internet industry is dominated by large, well-financed firms. We do not have the resources to compete with larger providers of these similar services at this time. With the minimal resources we have available, we may experience great difficulties in building a customer base. Competition by existing and future competitors could result in our inability to secure any new customers. This competition from other entities with greater resources and reputations may result in our failure to maintain or expand our business as we may never be able to successfully execute our business plan. Further, Monster Arts Inc. Offers cannot be assured that it will be able to compete successfully against present or future competitors or that the competitive pressure it may face will not force it to cease operations.
9. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO ENHANCE ITS PRODUCTS OR SERVICES, OR DEVELOP OTHER PRODUCTS OR SERVICES.
If we are unable to achieve profitability in the future, recruit sufficient personnel or raise money in the future, our ability to develop our services would be adversely affected. Our inability to develop our services or develop new services, in view of rapidly changing technology, changing customer demands and competitive pressures, would have a material adverse effect upon our business, operating results and financial condition.
10. RAPID TECHNOLOGICAL ADVANCES COULD RENDER OUR EXISTING PROPRIETARY TECHNOLOGIES OBSOLETE.
The Internet and online commerce industries are characterized by rapid technological change, changing market conditions and customer demands, and the emergence of new industry standards and practices that could render our existing web site and proprietary technology obsolete. Our future success will substantially depend on our ability to enhance our existing services, develop new services and proprietary technology and respond to technological advances in a timely and cost-effective manner. The development of other proprietary technology entails significant technical and business risk. There can be no assurance that we will be successful in developing and using new technologies or adapt our proprietary technology and systems to meet emerging industry standards and customer requirements. If we are unable, for technical, legal, financial, or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, or if our new products and electronic commerce services do not achieve market acceptance, our business, prospects, results of operations and financial condition would be materially adversely affected.
11. INTERNET COMMERCE SECURITY THREATS COULD POSE A RISK TO OUR ONLINE SALES AND OVERALL FINANCIAL PERFORMANCE.
A significant barrier to online commerce is the secure transmission of confidential information over public networks. We and our partners rely on encryption and authentication technology to provide the security and authentication necessary to effect secure transmission of confidential information. There can be no assurance that advances in computer capabilities; new discoveries in the field of cryptography or other developments will not result in a compromise or breach of the algorithms used by us and our partners to protect consumer's transaction data. If any such compromise of security were to occur, it could have a materially adverse effect on our business, prospects, financial condition and results of operations. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and the privacy of users may also hinder the growth of online services generally, especially as a means of conducting commercial transactions. To the extent that our activities, our partners or third-party contractors involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. There can be no assurance that our security measures will not prevent security breaches or that failure to prevent such security breaches will not have a materially adverse effect on our business, prospects, financial condition and results of operations.
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12. OMITTED
13. RISK OF CAPACITY CONSTRAINTS; RELIANCE ON INTERNALLY DEVELOPED SYSTEMS; SYSTEM DEVELOPMENT RISKS.
A key element of our strategy is to generate a high volume of traffic on, and use of, our services across our websites and network infrastructure and systems. Accordingly, the satisfactory performance, reliability and availability of our software systems, transaction-processing systems and network infrastructure are critical to our reputation and our ability to attract and retain customers, as well as maintain adequate customer service levels. Our revenues depend on the number of visitors to our site, number of people who sign up for our services, and the on-going usage of our products. Any systems interruptions that result in the unavailability of our software systems or network infrastructure, or reduced order placements would reduce the volume of sign ups and the attractiveness of our product and service offerings. We may experience periodic systems interruptions from time to time. Any substantial increase in the volume of traffic on our software systems or network infrastructure will require us to expand and upgrade further our technology, transaction-processing systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our web site or timely expand and upgrade our systems and infrastructure to accommodate such increases. We will use a combination of industry supplied software and internally developed software and systems for our search engine, distribution network, and substantially all aspects of transaction processing, including order management, cash and credit card processing, and accounting and financial systems. Any substantial disruptions or delays in any of our systems would have a materially adverse effect on our business, prospects, financial condition, results of operations and cash flows.
14. STORAGE OF PERSONAL INFORMATION ABOUT OUR CUSTOMERS COULD POSE A SECURITY THREAT.
Our policy is not to willfully disclose any individually identifiable information about any user to a third party without the user's consent. Despite this policy, however, if third persons were able to penetrate our network security or otherwise misappropriate our users' personal information or credit card information, we could be subject to liability. These could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims. They could also include claims for other misuses of personal information, such as for unauthorized marketing purposes. These claims could result in litigation. In addition, the Federal Trade Commission and other states have been investigating certain Internet companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the use of personal information are introduced or if they chose to investigate our privacy practices.
15. OMITTED
16. WE MAY NOT BE ABLE TO FIND SUITABLE EMPLOYEES.
The Company currently relies heavily upon the services and expertise of Wayne Irving II, our chief executive officer and chief financial officer. In order to implement the aggressive business plan of the Company, management recognizes that additional programmers, graphic artists and clerical staff will be required.
No assurances can be given that the Company will be able to find suitable employees that can support the above needs of the Company or that these employees can be hired on terms favorable to the Company.
17. THERE EXISTS UNCERTAINTY WITH REGARDS TO OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY.
Our prospects for success may depend, in part, on our ability to obtain commercially valuable patents, trademarks and copyrights to protect our intellectual property, specifically our software programs. The degree of future protection for our technologies or potential products is uncertain. There are numerous costs, risks and uncertainties that the Company faces with respect to obtaining and maintaining patents and other proprietary rights. The Company may not be able to obtain meaningful patent protection for its future developments. To date, the Company does not have any pending patent or trademark applications with the U.S. Patent and Trademark Office or any agency with regard to the above-referenced intellectual property assets.
In connection with the trademarks, there can be no assurance that such trademarks will provide the Company with significant competitive advantages, or that challenges will not be instituted against the validity or enforceability of any trademarks sublicensed to the Company or, if instituted, that such challenges will not be successful. To date, there have been no interruptions in our business as the result of any claim of infringement. However, no assurance can be given that the Company will not be adversely affected by the assertion of intellectual property rights belonging to others. The cost of litigation to uphold the validity of a trademark and prevent infringement can be very substantial and may prove to be beyond our financial means even if the Company could otherwise prevail in such litigation. Furthermore, there can be no assurance that others will not independently develop similar designs or technologies, duplicate our designs and technologies or design around aspects of our technology, or that the designs and technologies will not be found to infringe on the patents, trademarks or other rights owned by third parties. The effects of any such assertions could include requiring the Company to alter existing trademarks or products, withdraw existing products, including the products delaying or preventing the introduction of products or forcing the Company to pay damages if the products have been introduced.
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18. INTELLECTUAL PROPERTY LITIGATION MAY BE NECESSARY AND AN UNFAVORABLE OUTCOME COULD HURT THE COMPANY.
We may become party to patent litigation or proceedings at the U.S. Patent and Trademark Office or at a foreign patent office to determine whether it can market its future products without infringing patent rights of others. Interference proceedings in the U.S. Patent Office or opposition proceedings in a foreign patent office may be necessary to establish which party was the first to design such intellectual property. The cost of any patent litigation or similar proceeding could be substantial and may absorb significant management time and effort. If an infringement suit against us is resolved unfavorably, we may be enjoined from manufacturing or selling certain of its products or services without a license from an adverse third party. We may not be able to obtain such a license on commercially acceptable terms, or at all.
19. WE MAY BE LIABLE FOR CONTENT IN THE ADVERTISEMENTS WE DELIVER FOR OUR CLIENTS RESULTING IN UNANTICIPATED LEGAL COSTS.
We may be liable to third parties for content in the advertising we deliver if the artwork, text or other content involved violates copyrights, trademarks or other third-party intellectual property rights or if the content is defamatory. Although substantially all of our contracts include both warranties from our advertisers that they have the right to use and license any copyrights, trademarks or other intellectual property included in an advertisement and indemnities from our advertisers in the event of a breach of such warranties, a third party may still file a claim against us. Any claims by third parties against us could be time-consuming, could result in costly litigation and adverse judgments. Such expenses would increase our costs of doing business and reduce our net income per share. In addition, we may find it necessary to limit our exposure to such risks by accepting fewer or more restricted advertisements leading to loss of revenue.
20. IF WE ENGAGE IN ACQUISITIONS, WE MAY EXPERIENCE SIGNIFICANT COSTS AND DIFFICULTY ASSIMILATING THE OPERATIONS OR PERSONNEL OF THE ACQUIRED COMPANIES, WHICH COULD THREATEN OUR FUTURE GROWTH.
If we make any acquisitions, we could have difficulty assimilating the operations, technologies and products acquired or integrating or retaining personnel of acquired companies. In addition, acquisitions may involve entering markets in which we have no or limited direct prior experience. The occurrence of any one or more of these factors could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition, pursuing acquisition opportunities could divert our management's attention from our ongoing business operations and result in decreased operating performance. Moreover, our profitability may suffer because of acquisition-related costs or amortization of acquired goodwill and other intangible assets. Furthermore, we may have to incur debt or issue equity securities in future acquisitions. The issuance of equity securities would dilute our existing stockholders.
21. BECAUSE WE ARE NOT SUBJECT TO COMPLIANCE WITH RULES REQUIRING THE ADOPTION OF CERTAIN CORPORATE GOVERNANCE MEASURES, OUR STOCKHOLDERS HAVE LIMITED PROTECTION AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
We do not currently have independent audit or compensation committees. As a result, our director(s) have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
22. COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE, AND OUR MANAGEMENT'S INEXPERIENCE WITH SUCH REGULATIONS WILL RESULT IN ADDITIONAL EXPENSES AND CREATES A RISK OF NON-COMPLIANCE.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. Management's inexperience may cause us to fall out of compliance with applicable regulatory requirements, which could lead to enforcement action against us and a negative impact on our stock price.
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Additional Risks Relating to Our Common Stock
23. THE MARKET PRICE FOR OUR STOCK MAY BE VOLATILE.
The market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:
| ● | liquidity of the market for the shares; | |
| ● | actual or anticipated fluctuations in our quarterly operating results; | |
| ● | changes in financial estimates by securities research analysts; | |
| ● | conditions in the markets in which we compete; | |
| ● | changes in the economic performance or market valuations of other "Daily Deal" companies; | |
| ● | announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments; | |
| ● | addition or departure of key personnel; | |
| ● | intellectual property litigation; | |
| ● | our dividend policy; and | |
| ● | general economic conditions. |
In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our stock.
24. SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK, AS THE FUTURE SALE OF A SUBSTANTIAL AMOUNT OF OUTSTANDING STOCK IN THE PUBLIC MARKETPLACE COULD REDUCE THE PRICE OF OUR COMMON STOCK.
We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock for sale will have on the market price prevailing from time to time. Sales of shares of our common stock in the public market covered under an effective registration statement, or the perception that those sales may occur, could cause the trading price of our common stock to decrease or to be lower than it might be in the absence of those sales or perceptions.
25. WE MAY, IN THE FUTURE, ISSUE ADDITIONAL COMMON SHARES, WHICH WOULD REDUCE INVESTORS' PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
On July 19, 2013, the Company amended its articles of incorporation to increase its authorized shares from 75,000,000 to 750,000,000 of which 730,000,000 were designated as common stock and 20,000,000 were designated as preferred stock. The shares have a par value of $0.001. In August of 2014, the Company amended is articles of incorporation to increase the number of authorized common shares from 730,000,000 to 5,000,000,000 with a par value of $0.001.
The future issuance of common stock may result in substantial dilution in the percentage of our outstanding common stock held by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
26. OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK," AND THEREBY BE SUBJECT TO ADDITIONAL SALE AND TRADING REGULATIONS THAT MAY MAKE IT MORE DIFFICULT TO SELL.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.
For any transaction involving a penny stock, unless exempt, the rules require:
a) that a broker or dealer approve a person's account for transactions in penny stocks; and
b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person; and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our Common shares and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
27. WE DO NOT FORESEE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE AND, AS A RESULT, OUR INVESTORS' SOLE SOURCE OF GAIN, IF ANY, WILL DEPEND ON CAPITAL APPRECIATION, IF ANY.
We have never paid cash dividends on our common stock and we do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be investors' sole source of gain for the foreseeable future. Moreover, investors may not be able to resell their shares of the Company at or above the price they paid for them.
28. UNLESS AN ACTIVE TRADING MARKET DEVELOPS FOR OUR SECURITIES, YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
Although, we are a reporting company and our common shares are quoted on the OTCQB (owned and operated by the Nasdaq Stock Market, Inc.) and on the OTC MARKETS Exchange under the symbol "APPZ", the trading market for our common stock can vary significantly from day-to-day, and a more active trading market may never develop or, if it does develop, may not be maintained. Failure to develop or maintain an active trading market will have a generally negative effect on the price of our common stock, and you may be unable to sell your common stock or any attempted sale of such common stock may have the effect of lowering the market price and therefore your investment could be a partial or complete loss.
29. SINCE OUR COMMON STOCK IS THINLY TRADED IT IS MORE SUSCEPTIBLE TO EXTREME RISES OR DECLINES IN PRICE, AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PRICE PAID.
Since our common stock is thinly traded its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including:
| ● | the trading volume of our shares; | |
| ● | the number of securities analysts, market-makers and brokers following our stock; | |
| ● | changes in, or failure to achieve, financial estimates by securities analysts; | |
| ● | new products or services introduced or announced by us or our competitors; | |
| ● | actual or anticipated variations in quarterly operating results; | |
| ● | conditions or trends in our business industries; | |
| ● | announcements by us of significant contracts, acquisitions, strategic | |
| ● | partnerships, joint ventures of capital commitments; | |
| ● | additions or departures of key personnel; | |
| ● | sales of our common stock; and | |
| ● | general stock market price and volume fluctuations of publicly-traded and particularly microcap, companies. |
You may have difficulty reselling shares of our common stock, either at or above the price you paid, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, securities class action litigation has often been initiated following periods of volatility in the market price of a company's securities. A securities class action suit against us could result in substantial legal fees, potential liabilities and the diversion of management's attention and resources from our business. Moreover, and as noted below, our shares are currently traded on the OTCQB and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to manipulation by market-makers, short-sellers and option traders.
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30. TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED THEREBY MAKING IT MORE DIFFICULT FOR YOU TO RESELL ANY SHARES YOU MAY OWN.
Our common stock is quoted on the OTCQB (owned and operated by the Nasdaq Stock Market, Inc.). The OTCQB is not an exchange and, because trading of securities on the OTCQB is often more sporadic than the trading of securities listed on a national exchange or on the Nasdaq National Market, you may have difficulty reselling any of the shares of our common stock that you may own.
Item 1B. Unresolved Staff Comments.
Not applicable.
Our offices are currently located at 3565 South Las Vegas Blvd, Suite 120, Las Vegas, NV 89109. Our telephone number is (725) 222-8281. Management believes that its current facilities are adequate for its needs through the next twelve months, and that, should it be needed, suitable additional space will be available to accommodate expansion of the Company's operations on commercially reasonable terms, although there can be no assurance in this regard. This and other office/work space is provided to us at no charge by Wayne Irving II, who will not seek reimbursement.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.
Item 4. Submission of Matters to a Vote of Security Holders.
On November 9, 2012, the Company, Monster Offers Acquisition Corporation, a Nevada corporation ("Merger Sub") and Ad Shark, Inc., a privately-held California corporation (“Ad Shark”), entered into an Acquisition Agreement and Plan of Merger (collectively the "Agreement") pursuant to which the Company, through its wholly-owned subsidiary, Merger Sub, acquired Ad Shark in exchange for 27,939,705 shares of the Company's unregistered restricted common stock (the “Merger Shares”), which were issued to the holders of Ad Shark based on their pro-rata ownership (the “Merger”).
On August 28, 2014, the Board of Directors and majority shareholders of Monster Arts Inc., approved a reverse stock split of one for two hundred (1:200) of the Company's total issued and outstanding shares of common stock. The reverse stock split went effective with FINRA on January 16, 2015 which makes it a subsequent event in this Form 10-K filing. The Company has not made any adjustments to its financial statement regarding the reverse stock split in this filing. The reverse stock split can be further referenced in our Form 8-K filing on January 16, 2015.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
Monster Arts Inc. Common Stock, $0.001 par value, is traded on the OTCQB under the symbol: APPZ. The stock was first cleared for quotation on the OTCBQ on October 23, 2008. The following table sets forth the high and low intra-day prices per share of our common stock for the periods indicated, which information was provided by the OTC Markets. The quotations set forth below reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.
| High* | Low* | |||||||
| Fourth Quarter Ended December 31, 2014 | $ | 0.0002 | $ | 0.0001 | ||||
| Third Quarter Ended September 30, 2014 | $ | 0.0014 | $ | 0.0001 | ||||
| Second Quarter Ended June 30, 2014 | $ | 0.0037 | $ | 0.0011 | ||||
| First Quarter Ended March 31, 2014 | $ | 0.0060 | $ | 0.0025 | ||||
| Fourth Quarter Ended December 31, 2013 | $ | 0.20 | $ | 0.002 | ||||
| Third Quarter Ended September 30, 2013 | $ | 0.28 | $ | 0.10 | ||||
| Second Quarter Ended June 30, 2013 | $ | 0.75 | $ | 0.16 | ||||
| First Quarter Ended March 31, 2013 | $ | 1.83 | $ | 0.33 | ||||
| * | On August 28, 2014, the Board of Directors and majority shareholders of Monster Arts Inc., approved a reverse stock split of one for two hundred (1:200) of the Company's total issued and outstanding shares of common stock. The reverse stock split went effective with FINRA on January 16, 2015 which makes it a subsequent event in this Form 10-K filing. The Company has not made any adjustments to its financial statement or to the stock price information provided herein Item 5, regarding the reverse stock split as the reverse stock split went effective subsequent to the reporting date of this Form 10-K, December 31, 2014. The reverse stock split can be further referenced in our Form 8-K filing on January 16, 2015. |
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(b) Holders of Common Stock
As of December 31, 2014, there were approximately 267 holders of record of our common stock and 2,202,007,174 shares issued and outstanding. As of September 24, 2015, there were approximately 270 holders of record of our common stock and 838,736,347 shares issued and outstanding. These figures take into effect our 300:1 reverse stock split that took place on April 9, 2011. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of our common stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies. There is no trading market for the shares of our preferred stock.
(c) Holders of Preferred Stock
As of December 31, 2014, there was 1 holder of record of our preferred stock and 20,000,000 shares issued and outstanding. There has been no changed in our preferred stock issued and outstanding as of the date of this filing. Each share of preferred stock can be converted to common stock at a rate of 1 to 1.
(d) Dividends
We have not paid or declared any dividends on our common stock, nor do we anticipate paying any cash dividends or other distributions on our common stock in the foreseeable future. Any future dividends will be declared at the discretion of our board of directors and will depend, among other things, on our earnings, if any, our financial requirements for future operations and growth, and other facts as our board of directors may then deem appropriate.
(e) Securities Authorized for Issuance under Equity Compensation Plans
Stock Options
On March 14, 2011, as part of the Strategic Alliance and Licensing agreement, the Company entered into a consulting agreement with SSL5, providing stock options and a seat on the Monster Offers board of directors to develop ongoing product strategy and development services. In accordance with the terms of the agreement, the consulting company is entitled to purchase a total of 6,667 (post-split) unregistered restricted shares of the Company over the term of the agreement of two years. Upon the completion of each 6-month period, a total of 1,667 shares (post-split) will become vested and available for purchase by the Consultant. The price of these shares will be at $0.3 (post-split) per share, or par value. In the event that the Company is sold or merged with another company, all remaining unvested shares will become fully vested immediately prior to any such transaction.
The following summarizes pricing and term information for options issued that are outstanding as of December 31, 2014 and 2013:
| Year ended December 31, 2014 | Year ended December 31, 2013 | |||||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||||
| Average | Aggregate | Average | Aggregate | |||||||||||||||||||||
| Number of | Exercise | Intrinsic | Number of | Exercise | Intrinsic | |||||||||||||||||||
| Stock Options | Options | Price | Value | Options | Price | Value | ||||||||||||||||||
| Balance at beginning of year | - | - | - | 6,667 | $ | .30 | - | |||||||||||||||||
| Granted | - | - | - | - | - | - | ||||||||||||||||||
| Exercised | - | - | - | - | - | - | ||||||||||||||||||
| Forfeited | - | - | - | (6,667 | ) | - | - | |||||||||||||||||
| Balance at end of year | - | - | - | - | - | - | ||||||||||||||||||
| Options exercisable at end of year | - | - | - | - | - | - | ||||||||||||||||||
| Weighted average fair value of | ||||||||||||||||||||||||
| options granted during year | - | - | - | - | - | - | ||||||||||||||||||
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The fair value of the options was based on the Black Scholes Model using the following assumptions:
| 2014 | 2013 | |||||||
| Exercise price: | $ | - | $ | 0.30 | ||||
| Market price at date of grant: | $ | - | $ | 1.00 | ||||
| Volatility: | n/a | % | 229%-311 | % | ||||
| Expected dividend rate: | n/a | % | 0 | % | ||||
| Risk-free interest rate: | n/a | % | 0.15%-0.23 | % | ||||
The following activity occurred under the Company’s plans:
| December 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Weighted-average grant date fair value of options granted | $ | - | $ | - | ||||
| Aggregate intrinsic value of options exercise | N/A | N/A | ||||||
| Fair value of options recognized as expense | $ | - | $ | - | ||||
(f) Recent Sales of Unregistered Securities
In the year ended December 31, 2013, the Company issued 26,136,087 common shares of which 861,751 shares were for $454,300 cash ($278,425 received in 2012), 7,355,667 shares were to consultants for services, 14,775,358 shares were for the reduction of $128,083 in convertible debt and $82 of accrued interest, and 3,143,311 shares were for the conversion of 13,767,684 shares of Ad Shark. The shares to consultants were valued at the closing stock price on the date of the executed agreement. This resulted in a consulting expense of $814,275 being recorded for the year ended December 31, 2013. The uncompleted portions of the consulting contracts for future services were recorded as prepaid expenses (See Note 4 for further details). At December 31, 2013, the Company recorded $139,995 in prepaid expenses pursuant to future consulting services to be performed in 2014 pursuant to contract obligations. Of the 7,355,667 shares issued to consultants, 323,833 shares were incorrectly issued and later returned and cancelled.
In the year ended December 31, 2014, the Company issued 2,152,805,559 common shares of which 477,381,748 shares were issued to Asher Enterprises, Inc. for the conversion of $250,710 of principle and $5,900 of accrued interest, 58,637,933 shares were issued to Premier Venture Partners, LLC pursuant to the court ordered settlement, 590,000,000 shares were issued to IBC Funds, LLC for the conversion of $81,000 of convertible debt, 40,608,172 shares to WHC Capital, LLC for the conversion of $17,084 in convertible debt, 233,000,000 shares to JMJ Financial for the conversion of $13,980 of convertible debt, 113,700,000 shares to Beaufort Capital for the conversion of $1,137 of convertible debt, 200,667,134 shares were issued to LG Capital, LLC for the conversion of $15,445 of convertible debt, 24,998,879 shares were issued to Ad Shark, Inc. shareholders for the conversion of their Ad Shark, Inc. shares at a ratio of 4.38 Ad Shark shares to Monster Arts Inc. shares, 350,000,000 shares were issued to our chief executive officer, Wayne Irving, for the reduction of $87,500 in accrued payroll liability, and 63,811,693 shares were to consultants for services rendered to the Company. The Company valued the 413,811,693 shares to consultants at the closing share price on the date of issuance which resulted in the Company recording a non-cash consulting expense of $244,847.
From January 1, 2015 through the date of this filing, the Company issued 827,826,153 post reverse stock split shares of common stock of which 827,626,153 shares were for the reduction of $75,992 in principle convertible debt and $4,674 in accrued interest and 200,000 shares were for services valued at $4,000.
(f) Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the years ended December 31, 2014 or 2013.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
We are currently focused on advancing an innovative approach to managing GPS technologies along with its significant experience in developing GPS and other smart location technologies into its apps for itself and its clients. Currently Monster arts is investing funds for development, graphic design, app design, app development, .net development, and other technologies, along with administrative and management support for the creation of a nationwide tracking system that is to run on smart device controlled aerial appliances, like drones for example.
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The Company is innovative software developer for mobile devices, smart TV, and set top boxes running iOS, Android, Windows and other platforms. The company is also involved in the travel industry through its online and mobile platform for consumers and paying members of Travel America Visitor Guide (TAVG), (Further described in Note 6).
We utilize proprietary technology that we have developed, acquired, and/or licensed to deploy our products and services.
Our primary services include the development of Smartphone and tablet apps for clients and ourselves. We sell and arrange to sell ours and our clients apps developed thru the online and mobile marketplaces Google Play, iTunes, Amazon AppStore, and Barnes & Noble Online Marketplace. The sales of our innovative apps are subject to a commission fee charged by the online partners mentioned above. From time to time, we partner with a client at a reduced rate to earn potentially longer term residual revenues for ourselves.
Going Concern
In our auditor's report for the fiscal years ended December 31, 2014 and 2013, our auditors expressed substantial doubt as to our ability to continue as a going concern. We anticipate incurring losses in the foreseeable future. We do not have an established source of revenue sufficient to cover our operating costs. Our ability to continue as a going concern is dependent upon our ability to successfully compete, operate profitably and/or raise additional capital through other means. If we are unable to reverse our losses, we will have to discontinue operations.
Results of Operations for the year ended December 31, 2014 compared to the year ended December 31, 2013
Revenues
We generated $156,603 in revenues for the year ended December 31, 2014 compared to $51,397 for the year ended December 31, 2013, an increase of $105,206. Monster generates revenues through a few revenue streams. One of which is through its exclusive partner to Max Apps for the purpose of developing and sharing in revenues of developed apps sold under the Max Apps brand. Another revenue stream is our Travel America Visitor Guide (TAVG) network which sells one year memberships. The Company also generates revenue through app development consulting services. The Company executed an app development consulting service agreement with Mind Solutions, Inc. which is noted in the footnotes to our financial statements.
Cost of Revenues
The Company had cost of revenues of $101,449 for the year ended December 31, 2014 compared to $4,838 for the year ended December 31, 2013, an increase of $96,611. Our cost of revenues include TAVG direct mailing costs such as printing, postage, graphic design, programming costs, app development costs, and administrative labor to; print, fold, stuff, deliver, pickup, process, input the data in the TAVG network. Other cost of revenues pertain to our Apps sold on markets (ie: Google Play, iTunes, Amazon, etc) which have to be maintained and updated when a new operating system and or appstore updates or interfaces require the graphic design/app development/tech support labor to do so. Monster Arts uses independent contractors both locally and internationally to process most of the workings for TAVG and the other apps that we develop and sell to the public.
Selling, general and administrative expense.
For the year ended December 31, 2014, selling, general and administrative expenses were $202,183 compared to $179,858 for the year ended December 31, 2013, an increase of $22,325. For the years ended December 31, 2014 and 2013 general and administrative expenses consisted of the following:
| 2014 | 2013 | |||||||
| Auto | $ | 3,152 | $ | 2,549 | ||||
| Bank Fees | 6,169 | 3,041 | ||||||
| Office supplies | 26,072 | 11,854 | ||||||
| Travel | 28,520 | 21,394 | ||||||
| Payroll Tax | 14,100 | 18,295 | ||||||
| Other | 151,752 | 122,725 | ||||||
| $ | 229,765 | $ | 179,858 | |||||
Consulting Expense
For the year ended December 31, 2014, consulting expense decreased to $774,984 as compared to $993,343 from the prior year, primarily as a result of a the less expense related to stock being issued to consultants for services rendered to the Company.
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Wages
For the year ended December 31, 2014, we had wages of $155,837 compared to $177,642 from the prior year which was a decrease of $21,805. Wages decreased due to the Company having less administrative duties necessary. The Company has an employee compensation agreement with Wayne Irving, its CEO and CFO, which is described in Note 9 in our footnotes to our financial statements filed herein.
Marketing & Promotions
For the year ended December 31, 2014, marketing and promotions expense amounted to $25,156 as compared to $5,000 from the prior year. The increase was due to the Company improving its online presence.
Depreciation
For the year ended December 31, 2014, depreciation expense amounted to $460 as compared to $470 for the year ended December 31, 2013.
Professional Services
For the year ended December 31, 2014, professional fees increased to $142,925 as compared to $91,855 from the prior year. Professional fees increased primarily due to additional operations and built in legal fees for convertible note financing.
Other Income and Expenses
For the year ended December 31, 2014, other expense netted to $449,323 as compared to $831,235 for the year ended December 31, 2013.
Interest expense
For the year ended December 31, 2014, interest expense increased to $1,029,050 as compared to $270,120 for the year ended December 31, 2013, an increase of $758,930. The increase was due to additional interest expense incurred from the discount on the issuances of convertible promissory notes.
Derivative interest expense.
For the year ended December 31, 2014, derivative interest expense was $1,842,184 as compared to $3,947,092 for the year ended December 31, 2013, a decrease of $2,104,908. The decrease was due to the Black Scholes Method calculation used to compute the derivative liability regarding the outstanding convertible notes payable.
Interest income
For the year ended December 31, 2014, interest income was $15,934 as compared to $9,643 for the year ended December 31, 2013, an increase of $6,291. The increase is due to the accrued interest receivable on the outstanding loan receivable to relate party balance.
Gain/(Loss) on derivative adjustment
For the year ended December 31, 2014, gain on derivative adjustment was $2,405,977 as compared to $3,372,238 for the year ended December 31, 2013, a decrease of $966,261. The decrease was due to the Black Scholes Method calculation used to compute the derivative liability regarding the outstanding convertible notes payable.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash. The following table provides certain selected balance sheet comparisons between December 31, 2014 and December 31, 2013:
| December 31, | December 31, | $ | % | |||||||||||||
| 2014 | 2013 | Change | Change | |||||||||||||
| Working Capital | $ | (1,981,800 | ) | $ | (995,029 | ) | $ | (986,771 | ) | (99.2 | %) | |||||
| Cash | 16,116 | 46,234 | (30,118 | ) | (65.1 | %) | ||||||||||
| Total current assets | 381,014 | 496,512 | (115,498 | ) | (23.3 | %) | ||||||||||
| Total assets | 382,633 | 502,972 | (120,339 | ) | (23.9 | %) | ||||||||||
| Accounts payable and accrued liabilities | 53,834 | 67,586 | (13,752 | ) | (20.3 | %) | ||||||||||
| Notes payable and accrued interest | 639,517 | 217,723 | 421,794 | Over 100 | % | |||||||||||
| Total current liabilities | 2,362,814 | 1,491,541 | 871,273 | 58.4 | % | |||||||||||
| Total liabilities | $ | 2,362,814 | $ | 1,491,541 | $ | 871,273 | 58.4 | % | ||||||||
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At December 31, 2014 our working capital decreased as compared to December 31, 2013 primarily as a result of an increase in derivative liability of $569,320 which was calculated using the Black Scholes Model based on our outstanding convertible notes payable.
Operating activities
Net cash used for continuing operating activities during fiscal 2014 was $956,105. Non-cash items totaling approximately $739,609 contributing to the net cash used in continuing operating activities for fiscal 2014 include:
| ● | $906,525 in discount on convertible notes payable | |
| ● | $569,320 in gain on derivative adjustment | |
| ● | $244,847 in stock issued for consulting services | |
| ● | $127,900 in convertible note issued for consulting services | |
| ● | $460 in depreciation | |
| ● | $4,173 in decrease in accounts receivable | |
| ● | $11,138 in increase of interest on notes receivable | |
| ● | $5,589 increase in loan receivable to related party | |
| ● | $16,350 in deferred revenues | |
| ● | $13,252 decrease in accounts payable | |
| ● | $28,273 decrease in accounts payable to related parties | |
| ● | $55,748 increase in accrued interest |
Net cash used for continuing operating activities during fiscal 2013 was $524,612. Non-cash items totaling approximately $1,708,232 contributing to the net cash used in continuing operating activities for fiscal 2013 include:
| ● | $3,050 in available-for-sale securities | |
| ● | $255,230 in discount on convertible notes payable | |
| ● | $574,854 in gain on derivative adjustment | |
| ● | $298,745 pursuant to the Master Purchase Agreement with Iconosys | |
| ● | $998,568 in stock issued for services | |
| ● | $44,974 in depreciation | |
| ● | $6,737 in accrued interest receivable | |
| ● | $18,356 in loan receivable to related parties | |
| ● | $18,359 in deferred revenues from members agreements with TAVG | |
| ● | $54,218 in accounts payable and accrued expenses | |
| ● | $42,358in accounts payable and accrued expenses to related parties | |
| ● | $9,847 in accrued interest from outstanding notes and loans payable |
Investing activities
Net cash used in investing activities was $0 for both fiscal 2014and 2013.
Financing activities
Net cash provided by financing activities was $925,987 during fiscal 2014 as compared to $388,026 for fiscal 2013. During the fiscal 2014 period we collected $1,010,023 in proceeds from convertible notes, made payments of $14,521 against officer loans, made payments of $17,370 in payments against note payable and $52,145 in payments against notes payable to a related party.
Net cash provided by financing activities was $388,026 during fiscal 2013. During the fiscal 2013 period we collected $175,875 in proceeds from the sale of our common stock, $286,865 in proceeds from convertible notes, $18,165 in proceeds from loans from officer, $10,161 in proceeds from notes payable, made payments of $102,270 against officer loans, and made payments of $770 in payments against note payable to a related party.
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Future Financing
We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuance of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any of additional sales of our equity securities or arrange for debt or other financing to fund our exploration and development activities.
Summary of any product research and development that we will perform for the term of our plan of operation.
If the Company is successful in raising capital, it plans to spend approximately $250,000 over the next year on research and development costs associated with the completion of a nationwide tracking system that is to run on smart device controlled aerial appliances, like drones for example.
Expected purchase or sale of property and significant equipment
We do not anticipate the purchase or sale of any property or significant equipment; as such items are not required by us at this time.
Significant changes in the number of employees
As of December 31, 2014, we have one full-time employee which is Wayne Irving, our Chief Executive Officer and Chief Financial Officer. We are dependent upon our officer for our future business development. As our operations expand we anticipate the need to hire additional employees, consultants and professionals; however, the exact number is not quantifiable at this time.
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 or operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
Revenue Recognition: In accordance with ASC 605 and SEC Staff Accounting Bulletin 104, fee revenue is recognized in the period that the Company's advertiser customer generates a sale or other agreed-upon action on the Company's affiliate marketing networks or as a result of the Company's services, provided that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. All transactional services revenues are recognized on a gross basis in accordance with the provisions of ASC Subtopic 605-45, due to the fact that the Company is the primary obligor, and bears all credit risk to its customer, and publisher expenses that are directly related to a revenue-generating event are recorded as a component of commission paid-related party.
Recent Pronouncements
We have examined all other recent accounting pronouncements and believe that none of them will have a material impact on the financial statements of our company.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
Our financial statements are contained in this filing, starting on page F-1.
Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure.
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
On January 20, 2014, the Company accepted the resignation of Patrick Rodgers, CPA, P.A. (“Rodgers”) from his engagement to be the independent certifying accountant for the Company.
Effective March 6, 2014, the Public Company Accounting Oversight Board ("PCAOB") revoked the registration of Patrick Rodgers, CPA, PA. due to Rogers’ violations of PCAOB rules and auditing standards in auditing the financial statements and PCAOB rules and quality control standards with respect to Rogers’ clients; the Registrant was not one of the clients for which Rogers was sanctioned. You can find a copy of the order at http://pcaobus.org/Enforcement/Decisions/Documents/2014_Rodgers.pdf
Other than an explanatory paragraph included in Rodgers’ audit report for the Company's fiscal year ended December 31, 2012 relating to the uncertainty of the Company's ability to continue as a going concern, the audit report of Rodgers on the Company's financial statements for the last fiscal year ended December 31, 2012 through January 20, 2014, did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company's 2012 fiscal year and through the date of this Current Report on Form 10-K there were no disagreements with Rodgers on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Rodgers, would have caused Rodgers to make reference to the subject matter of the disagreements in connection with their report, and (2) there were no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
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On January 20, 2014, the Company’s Board of Directors approved the engagement of Terry L. Johnson, CPA, as the Company's independent accountant effective immediately to audit the Company’s financial statements and to perform reviews of interim financial statements. During the fiscal years ended December 31, 2012 and 2011 through January 20, 2014 neither the Company nor anyone acting on its behalf consulted with Terry L. Johnson, CPA regarding (i) either the application of any accounting principles to a specific completed or contemplated transaction of the Company, or the type of audit opinion that might be rendered by Terry L. Johnson, CPA on the Company's financial statements; or (ii) any matter that was either the subject of a disagreement with Rodgers or a reportable event with respect to Rodgers. The Registrant provided Patrick Rodgers, CPA, PA with an exhibit 16.1 letter to sign but the firm refused to sign the letter.
The report of Terry L. Johnson, CPA on our financial statements for the fiscal year ended December 31, 2013 and 2012 did not contain an adverse opinion or disclaimer of opinion, nor were they modified as to uncertainty, audit scope or accounting principles, other than to state that there is substantial doubt as to our ability to continue as a going concern. During our fiscal years ended December 31, 2013 and 2012, there were no disagreements between us and Terry L. Johnson, CPA, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Terry L. Johnson, CPA, would have caused Terry L. Johnson, CPA to make reference thereto in their reports on our audited financial statements.
Effective April 27, 2015, the Company dismissed Terry L. Johnson, CPA ("Johnson") as it's independent registered public accounting firm. The Company has engaged K. Brice Toussaint CPA ("Toussaint") as its principal independent registered public accounting firm effective April 29, 2015. The decision to change its principal independent registered public accounting firm has been approved by the Company’s board of directors.
The reports of Johnson on the Company's financial statements for fiscal years ended December 31, 2013 and December 31, 2012 (which included the balance sheet as of December 31, 2013 and the statement of operations, cash flows and stockholders' equity as of December 31, 2013, for the past fiscal year, did not contain an adverse opinion or a disclaimer of opinion, nor qualified or modified as to uncertainty, audit scope or accounting principles, other than to state that there is substantial doubt as to the ability of the Company to continue as a going concern. During the Company’s fiscal year ended December 31, 2014, and during the subsequent period through to the date of Johnson's dismissal, there were no disagreements between the Company and Johnson, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Johnson, would have caused Johnson to make reference thereto in its report on the Company’s audited financial statements.
The Company has provided Johnson with a copy of this Current Report on Form 8-K and requested that Johnson furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether or not Johnson agrees with the statements made in this Current Report on Form 8-K with respect to Johnson and, if not, stating the aspects with which they do not agree. The letter is attached hereto as Exhibit 16.1.
In connection with the Company’s appointment of Toussaint as the Company’s principal registered accounting firm at this time, the Company has not consulted Toussaint on any matter relating to the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit opinion that might be rendered on the Company’s financial statements during the two most recent fiscal years (December 31, 2013 and December 31, 2012) and subsequent interim period through the date of engagement. Toussaint will be auditing the Company's financial statements for fiscal year ended December 31, 2014 and reviewing the Company's financial statements for quarterly period ended March 31, 2015. Management of the Company anticipates that these financial statements together with the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q, respectively, will be filed shortly.
Item 9A(T). Controls and Procedures.
(a) Evaluation of disclosure controls and procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on his evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
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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 in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2014 our internal control over financial reporting is effective based on these criteria.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with our evaluation that occurred during our last fiscal quarter (our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Director, Executive Officer and Corporate Governance.
The following table sets forth certain information regarding our current director and executive officer. Our executive officers serve one-year terms. Set forth below are the names, ages and present principal occupations or employment, and material occupations, positions, offices or employments for the past five years of our current director and executive officer.
| Name | Age | Position & Offices Held | ||
| Wayne Irving II | 44 | Chief Executive Officer |
All directors hold office until the next annual meeting of stockholders of the Company and until their successors have been elected and qualified. Directors currently receive no fees for services provided in that capacity. The officers of the Company are elected annually and serve at the discretion of the Board of Directors.
Set forth below is a brief description of the background and business experience of our sole officer/director.
Biography of Wayne Irving, Director, Chairman, CEO, and Secretary
Mr. Irving is a pioneer in mobile communications technology. He is responsible for the recent development of certain new safety and lifestyle-related mobile applications for Smartphones, tablet computers and other Smart handheld devices. He is considered an innovator with respect to mobile marketing and advertising. In addition, he maintains a high visibility with the general public and is recognized as a leading authority in the areas of mobile app design and mobile marketing through his frequent public appearances, both at industry conferences and at charitable fundraising events with non-profit organizations and other causes relating to curbing the practices of TWD (texting while driving), as well through his continued media exposure in print, Internet, and on radio and television.
The following provides a summary of Wayne Irving II’s recent and past work experience:
Iconosys, Inc. (November 2009 - Present) -- Mr. Irving is a co-founder of Iconosys and currently holds the positions of director, Chairman, CEO and CFO with the same company. Iconosys develops apps and technologies for iOS and Android OS Smartphones tablet computers and other Smart handheld devices, is a member of the National Organization for Youth Safety (NOYS) and the maker of the widely used and well publicized DriveReply™, SMSW!sh™, Trick or Tracker®, Zombie Slasher®, Word Bully®, Latchkey Kid™, Guards Up™, My Receipt Manager™, Tax Deduction Tracker™, and My Max Speed™ Smartphone apps, and is developing technologies and technology-driven products for its clients with a goal toward designing apps that enrich, enhance, and ultimately make safer and more convenient, our day-to-day lives.
In 2010, Mr. Irving founded the outreach organization Text Kills®, making 2 cross country trips in a 36 foot, wrapped RV, spreading the word about the life threatening dangers from texting while driving. Since 2010, it is estimated that more than 100,000 persons have taken the pledge by signing the Text Kills bus, at more than 400 stops and events where Text Kills demonstrates and shares facts with teens, young adults, and the employees of corporations that hire Text Kills to present and share their insight and expertise in this area. Text Kills has presented at many events for Sempra Energy, Coca-Cola Bottling Company, and other organizations. The original founder of Mothers Against Drunk Drivers sits on Text Kills advisory board.
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Showerpros.com, Inc. (August 2004 – January 2008) -- Mr. Irving started Showerpros.com in the summer of 2004 as a temporary departure from the Internet and financial markets. From 2004 through July 2007, Showerpros completed more than 800 bathroom and kitchen remodels in Orange County, CA and more than 2,000 total residential and commercial projects, including engaging in all facets of general contracting as a CA-licensed General Contractor. In August 2006, Showerpros was awarded and completed a 660 Kitchen Remodel projects in Las Vegas, NV, where apartments were being converted to condominiums. In the wake of the housing industry/remodeling industry's well chronicled collapsed in the middle of 2007, Mr. Irving left this business and re-entered the hi-tech and clean-tech worlds.
Agilon Products Group, Inc. (November 2001 – July 2002) -- In 2001, Agilon was formed as a business consulting project by Mr. Irving to explore opportunities in alternate industries such as biotechnology. This company's stated mission was to utilize lessons-learned by Mr. Irving in running Internet and hi-tech companies in guiding the business strategies of new start-up and entrepreneur-led consulting clients. In March of 2002, Mr. Irving arranged for the sale and financing of PrimeGen Biotech Corporation, a stem-cell research startup, to an investment group headed by Mr. Thomas Yuen, former CEO of SRS Labs and COO of AST Computer Company.
Solutions Media, Inc. (August 1998 – August 2000) -- Mr. Irving was Chairman and CEO of Solutions Media, a convergence technology company focused initially on developing solutions for interactive television and "smarter" devices. As the company evolved, special attention began to be paid to the media distribution methods that devices utilized in delivering content to the user. Spinrecords.com was Solutions Media's flagship product. Early investors in Solutions Media included NY-based NetGain, Goldman Sachs, and others. Solutions Media further offered technology and consulting-based solutions to a number of companies. In January of 2000, Mr. Irving negotiated and engaged ING Barrings to for an Initial Public Offering and bridge financing.
Cyber Office Technologies, Inc. (1997 – 1998) -- Mr. Irving was Information Security Manager of Cyber Office Technologies, a venture of DuPont, and in this capacity supported the development of a mid-level accounting software package, similar to Peachtree accounting.
Echolink Interactive (1996 – 1997) -- Mr. Irving was a Microsoft Certified Systems Administrator consulting with regard to help desk solutions for a 40-employee firm that managed approximately 100 web development clients.
United States Marine Corps (April 1991 – April 1996) -- Mr. Irving was a Marine Sergeant. While serving as Maintenance Management Chief, 1st Marine Regiment, 1st Marine Division, Mr. Irving managed and taught classes on the usage of several systems including Maintenance Management Systems and Publications Management Systems. In addition, in his position of authority in the S-4 office for 3rd Battalion, 1st Marines, as well as later for the Headquarters for 1st Marine Regiment, Wayne was responsible for writing and managing policies under the Commanding Officer's signature. Mr. Irving was meritoriously promoted 3 times and decorated 5 times for outstanding leadership in his field during his 5 years as a US Marine. Mr. Irving served our country during the first Gulf War, in addition to his service as part of 3rd Battalion, 1st Marines that were sent to Compton, CA, during the LA Riots of 1991.
Education:
Mr. Irving studied mathematics and general educational subjects at Mira Costa College in Oceanside, CA (1994-1996) and later studied computer science and pre-medical subjects while attending University of San Diego (1996-1998), where he was also President of Alpha Epsilon Delta (the university's pre-medical student fraternity). Since, Mr. Irving has taken nearly all the required classes toward a bachelor’s degree in Accounting from University of Phoenix.
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 officer and director, 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 officer and director, we believe that as of the date of this report they were not current in their 16(a) reports.
Board of Directors
Our board of directors currently consists of only one member, Mr. Wayne Irving II.
Audit Committee
The Company does not presently have an Audit Committee. The Board sits as the Audit Committee. No qualified financial expert has been hired because the company is too small to afford such expense.
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Committees and Procedures
| 1. | The registrant has no standing audit, nominating and compensation committees of the Board of Directors, or committees performing similar functions. The Board acts itself in lieu of committees due to its small size. |
| 2. | The view of the board of directors is that it is appropriate for the registrant not to have such a committee because its directors participate in the consideration of director nominees and the board and the Company are small. |
| 3. | The members of the Board who acts as nominating committee is not independent, pursuant to the definition of independence of a national securities exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 78f(a). |
| 4. | The nominating committee has no policy with regard to the consideration of any director candidates recommended by security holders, but the committee will consider director candidates recommended by security holders. |
| 5. | The basis for the view of the Board that it is appropriate for the registrant not to have such a policy is that there is no need to adopt a policy for a small company. |
| 6. | The nominating committee will consider candidates recommended by security holders, and by security holders in submitting such recommendations. |
| 7. | There are no specific, minimum qualifications that the nominating committee believes must be met by a nominee recommended by security holders except to find anyone willing to serve with a clean background. |
| 8. | The nominating committee's process for identifying and evaluation of nominees for director, including nominees recommended by security holders, is to find qualified persons willing to serve with a clean backgrounds. There are no differences in the manner in which the nominating committee evaluates nominees for director based on whether the nominee is recommended by a security holder, or found by the board. |
Code of Ethics
In December 2008 we adopted a Code of Business Conduct and Ethics which applies to our officers, directors, employees and consultants. This Code outlines the broad principles of ethical business conduct we adopted, covering subject areas such as:
| ● | compliance with applicable laws and regulations. | |
| ● | handling of books and records. | |
| ● | public disclosure reporting. | |
| ● | insider trading. | |
| ● | discrimination and harassment. | |
| ● | health and safety. | |
| ● | conflicts of interest. | |
| ● | competition and fair dealing; and | |
| ● | protection of company assets. |
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. We 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.
Nevada Anti-Takeover Law and Charter and By-law Provisions
The anti-takeover provisions of Sections 78.411 through 78.445 of the Nevada Corporation Law apply to Monster Arts, Inc Section 78.438 of the Nevada law prohibits the Company from merging with or selling more than 5% of our assets or stock to any shareholder who owns or owned more than 10% of any stock or any entity related to a 10% shareholder for three years after the date on which the shareholder acquired the Monster Arts, Inc., unless the transaction is approved by Monster Arts, Inc.'s Board of Directors. The provisions also prohibit the Company from completing any of the transactions described in the preceding sentence with a 10% shareholder who has held the shares more than three years and its related entities unless the transaction is approved by our Board of Directors or a majority of our shares, other than shares owned by that 10% shareholder or any related entity. These provisions could delay, defer or prevent a change in control of Monster Arts, Inc.
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Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during fiscal 2012.
Item 11. Executive Compensation
The following table sets forth certain compensation information for: (i) each person who served as the chief executive officer of our company at any time during the last two years, regardless of compensation level, and (ii) each of our other executive officers, other than the chief executive officer, serving as an executive officer at any time during 2013 and 2012. The foregoing persons are collectively referred to herein as the "Named Executive Officers." Compensation information is shown for fiscal years 2013 and 2012.
Monster Arts, Inc. Summary Compensation Table
| Stock | Other Compen- | |||||||||||||||||||||||||
| Principal | Years | Salary | Bonus | Awards | sation | Total | ||||||||||||||||||||
| Name | Position | Ending | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||
| Wayne Irving II (1) | CEO, CFO | 2014 2013 | 88,500 92,924 | - - | 107,500 40,000 | - - | 196,000 132,924 | |||||||||||||||||||
| Brandon M. Graham (2) | Former CFO | 2014 | - | - | - | - | - | |||||||||||||||||||
| 2013 | - | - | - | - | - | |||||||||||||||||||||
| Tisha Lawton (3) | Former CFO | 2014 | 8,000 | - | 9,500 | - | 17,500 | |||||||||||||||||||
| Note: | (1) Wayne Irving II was appointed as an Officer and Director of the Company on May 15, 2012. |
| On April 2, 2014, the Company issued 20,000,000 preferred shares to our chief executive officer, Wayne Irving. The preferred shares were valued at par $0.001 which resulted in an expense of $20,000. |
| On June 15, 2014, the Company entered into a debt settlement agreement with its chief executive officer, Wayne Irving, whereby the Company issued 100,000,000 shares of common stock for the reduction of $25,000 in accrued payroll liability. |
| On July 30, 2014, the Board of Directors of the Company authorized and approved the execution of a settlement agreement with the Company’s chief executive officer, Wayne Irving II, whereby the Company will issue 250,000,000 restricted common shares in return for the reduction in $62,500 in accrued liabilities payable to Mr. Irving pursuant to an employment agreement. |
| (2) Brandon M. Graham was appointed as the Company’s Chief Financial Officer on March 15, 2013. Mr Graham resigned as CFO on December 21, 2013. |
| (3) In August of 2014, the Company appointed Tisha Lawton as the Secretary, Treasurer and Chief Financial Officer of the Company. Ms. Lawton is a sibling of our Chief Executive Officer, Wayne Irving II. Tisha Lawton resigned as Secretary, Treasure and Chief Financial Officer of the Company in December of 2014. Wayne Irving II assumed her title as Chief Financial Officer. |
| On July 11, 2014, the Company issued 5,000,000 common shares to Tisha Lawton for services rendered to the Company. The shares were valued at the closing stock price of $.0019 which resulted in a valuation of $9,500. |
We do not maintain key-man life insurance for our executive officer/director. We do not have any long-term compensation plans, stock option plans or employment agreements with our executive officer/director.
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How Mr. Irvings compensation is determined
On August 1, 2011, the Company’s wholly owned subsidiary, Ad Shark, entered into an employment agreement with its President Wayne Irving. The term of employment shall be three (3) years, commencing on the August 1, 2011 and terminating on July 31, 2014, or at a later mutually agreeable date. Salary compensation is to be paid at the rate of $88,500 annually, payable on a monthly basis. On the anniversary of employment, this rate will increase 5% annually. At December 31, 2013 and 2012, the Company had accrued wages of $155,706 and $127,219, respectively which are included in accounts payable and accrued expenses balance. In the year ended December 31, 2013 and 2012, the Company made cash payments to Wayne Irving totaling $64,437 and $0.
Stock Option Grants
We did not grant any stock options to the executive officer or director from inception through fiscal years end December 31, 2014 and 2013.
Outstanding Equity Awards at 2014 and 2013 Fiscal Year-End
We did not have any outstanding equity awards as of December 31, 2014 and 2013 to Company executives.
Stock Options Exercises for Fiscal 2014 and 2013
There were no options exercised by our named executive officer in fiscal year 2014 and 2013.
Potential Payments Upon Termination or Change in Control
We have not entered into any compensatory plans or arrangements with respect to our named executive officer, which would in any way result in payments to such officer because of his resignation, retirement, or other termination of employment with us or our subsidiaries, or any change in control of, or a change in his responsibilities following a change in control.
Director Compensation
Our sole director, Wayne Irving II, was not paid any compensation during the fiscal year ending December 31, 2014 and 2013 for services relating to his duties as a member of the Board of Directors. The Company does not pay nor have a compensation plan with regards to services related to being a member of the Board of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the beneficial ownership of our common stock as of the date of this annual report on Form 10-K, which account for the 200:1 reverse split effective January 16, 2015 by (i) each Named Executive Officer, (ii) each member of our Board of Directors, (iii) each person deemed to be the beneficial owner of more than five percent (5%) of any class of our common stock, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, each person named in the following table is assumed to have sole voting power and investment power with respect to all shares of our common stock listed as owned by such person.
| Name and Address of Beneficial Owner | Number of Preferred Shares Beneficially Owned | Percentage of Outstanding Shares of Preferred Stock (1) | Number of Common Shares Beneficially Owned | Percentage of Outstanding Shares of Common Stock (2) | ||||||||||||
| Wayne Irving II (3) | 20,000,000 | 100.0 | % | 13,761,660 | 1.6 | % | ||||||||||
| IBC Funds, LLC | - | - | 79,000,000 | 5.24 | % | |||||||||||
| Atlas Long-Term Growth Fund, LLC | - | - | 68,350,757 | 8.1 | % | |||||||||||
| All Directors and Officers as a Group | 20,000,000 | 100.0 | % | 13,761,660 | 1.6 | % | ||||||||||
| (1) | Percent of Class is based on 20,000,000 preferred shares issued and outstanding as of September 24, 2015. | |
| (2) | Percent of Class is based on 838,736,347 post reverse stock split common shares issued and outstanding as of September 24, 2015, (See Note 13 - Subsequent Events, included in our financial statements included herein.) | |
| (3) | Unless otherwise indicated, the address for each of these stockholders is c/o Monster Arts Inc., at 806 East Avenida Pico, Suite I-288, San Clemente, CA 92673. |
We are not aware of any arrangements that may result in "changes in control" as that term is defined by the provisions of Item 403(c) of Regulation S-B.
We believe that all persons named have full voting and investment power with respect to the shares indicated, unless otherwise noted in the table. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
25
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Issuance of Preferred Stock
The Company has 20,000,000 Series A preferred shares issued and outstanding as of December 31, 2014 which were issued to the Company’s chief executive officer, Wayne Irving II, for services rendered.
Debt Settlement Agreement Chief Executive Officer
On June 15, 2014, the Company entered into a debt settlement agreement with its chief executive officer, Wayne Irving, whereby the Company issued 100,000,000 shares of common stock for the reduction of $25,000 in accrued payroll liability.
On July 30, 2014, the Board of Directors of the Company authorized and approved the execution of a settlement agreement with the Company’s chief executive officer, Wayne Irving II, whereby the Company will issue 250,000,000 restricted common shares in return for the reduction in $62,500 in accrued liabilities payable to Mr. Irving pursuant to an employment agreement.
Appointment of Chief Financial Officer
In August of 2014, the Company appointed Tisha Lawton as the Secretary, Treasurer and Chief Financial Officer of the Company. Ms. Lawton is a sibling of our Chief Executive Officer, Wayne Irving II. Tisha Lawton resigned as Secretary, Treasure and Chief Financial Officer of the Company in December of 2014. Wayne Irving II assumed her title as Chief Financial Officer.
Equity interest in Candor Homes Corporation
On April 25, 2014, the Company entered into a subscription agreement to buy 53,000 shares of common stock of Candor Homes Corporation, (“CH, Inc.”) for $10,000 which represents 53% of the equity interest in CH, Inc. As of December 31, 2014, there has been no activity with CH, Inc. and the Company has recorded accounts payable to related party balance of $10,000. The only two directors of CH, Inc. are our chief executive officer, Wayne Irving II and his sister. CH, Inc. is activity analyzing potential land investments in Central Iowa where new homes could be built. As of December 31, 2014, there are no assets, liabilities or activity in CH, Inc.
Asset Purchase Agreement with Iconosys for TAVG
The Company approved the execution of certain asset purchase and domain name, web site content and trademark assignment agreement dated August 8, 2013 with Iconosys, Inc., a private California corporation which shares an officer with the Company. See footnote 6 for additional details.
Management Service Agreement with Iconosys
On July 16, 2013, the Company executed a management service agreement with a subdivision of Iconosys called Text Kills. Iconosys shares an officer with the Company. The Company will provide service and management support for Text Kills events which includes but is not limited to raising awareness, public education campaigns, and managing the Text Kills tour bus. In the years ended December 31, 2014 and 2013 the Company recognized $1,750 and $5,387 of commission revenues from related parties relating to Text Kills.
Notes Payable to Related Parties
In 2012, the Company had certain debts paid directly by Iconosys, a private California corporation which shares an officer with the Company. The amounts paid on behalf of the Company totaled $13,250 as of December 31, 2014 and December 31, 2013. They were recorded as a note payable to related party. The note payable has terms of 0% interest and is payable on demand.
Pursuant to the asset purchase agreement with Iconosys executed on August 8, 2013, further described in Note 6, the Company issued a promissory note to Iconosys in the amount of $45,000, due August 7, 2014, with annum interest of 4% for the purchase of TAVG (see Note 6). As of December 31, 2014, the note to Iconosys has a balance of $2,244.
At December 31, 2014 and December 31, 2013, the Company had notes payable to related parties balance of $15,494 and $57,480.
26
Loan receivable to related party
The Company’s subsidiary, Ad Shark Inc., has a $300,000 line of credit agreement with Iconosys. The line of credit agreement has terms of 4%, payable on demand. Iconosys is a private California corporation which shares an officer with the Company. Mr. Irving was appointed CFO in May of 2012 and then appointed CEO in late 2012. Iconosys was at one time the parent company to Ad Shark, Inc. At December 31, 2014 and December 31, 2013, the total loan receivable balance advanced to Iconosys is $284,943 and $290,532, respectively. At December 31, 2014 and December 31, 2013, the accrued interest receivable to related party balance was $26,715 and $15,577, respectively.
Employment Agreement with Chief Executive Officer, Wayne Irving
On August 1, 2011, the Company’s wholly owned subsidiary, Ad Shark, entered into an employment agreement with its President Wayne Irving. The term of employment shall be three (3) years, commencing on the August 1, 2011 and terminating on July 31, 2014, or at a later mutually agreeable date. Salary compensation is to be paid at the rate of $88,500 annually, payable on a monthly basis. On the anniversary of employment, this rate will increase 5% annually. Monster Arts, Inc. absorbed the employment agreement when Ad Shark was dissolved in early 2014. As of December 31, 2014 and December 31, 2013, the Company had accrued wages owed to Wayne Irving II in the amounts of $46,800 and $155,706.
Employment Agreement with Chief Financial Officer, Tisha Lawton
In August of 2014, the Company appointed Tisha Lawton as the Secretary, Treasurer and Chief Financial Officer of the Company. The Company will pay Mrs. Lawton a yearly salary of $10,000. As additional compensation, Mrs Lawton will be paid 5,000,000 shares of restricted common stock per calendar quarter or the equivalent of $12,000, whichever is less. In the year ended December 31, 2014, the Company issued 5,000,000 common shares to Mrs. Lawton. In December of 2014, Mrs. Lawton resigned as the Secretary, Treasurer and Chief Financial Officer of the Company. Her employment agreement was cancelled in December of 2014.
Loan from Officer
The Company was loaned money by Wayne Irving, the chief executive officer of the Company, with 0% interest and payable on demand. At December 31, 2014 and 2013 the loan from officer balance was $2,500 and $17,021.
Master Purchase Agreement with Iconosys
On March 4, 2013, the Company and Iconosys, a privately held corporation, which shares an officer with the Company, entered into a Master Purchase Agreements in order for the Company to purchase, and for Iconosys to sell, certain intellectual property assets, including, without limitation, domain names, trademarks, smart phone apps. In addition, the Company received 15,046,078 shares of Iconosys common stock, $0.001 par value, as consideration for the cancellation of $295,862 in advances to Iconosys and $2,884 in accrued interest receivable. The Iconosys stock received accounts for approximately 10% of the 150,460,781 shares of Iconosys issued and outstanding as of December 31, 2014. Since this agreement was between related parties, being the two company’s share an officer, the Company did not record an asset for the excess consideration received but recorded the debit to additional paid in capital.
Ad Shark Acquisition
The Chairman, Chief Executive Officer and Chief Financial Officer of Monster Offers is Wayne Irving II; Mr. Irving has been an officer and director of the Company since May 15, 2012. On November 9, 2012, Monster Offers entered into an Acquisition Agreement and Plan of Merger to acquire Ad Shark. At the time of this transaction, Wayne Irving II was also the Chief Executive Officer and a director of Ad Shark. He is also the Chief Executive Officer, Director and majority shareholder of Iconosys, Inc. (“Iconosys”), which owned Ad Shark prior to Iconosys’ spinoff (the “Spinoff”) of its shareholdings in Ad Shark to its shareholders. Subsequent to the Spinoff, Ad Shark merged with Monster Offers (the “Merger”). As a result of the Merger, Mr. Irving became the director, Chairman, Chief Executive Officer and Chief Financial Officer of the Company, which was the surviving entity of the Merger, and remains the largest shareholder of the Company. As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full force and effect a three-year Employment Agreement between Ad Shark and Mr. Irving which was entered into on August 1, 2012.
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full force and effect and to honor an ISO (Independent Sales Organization) Agreement between Ad Shark and Iconosys for the duration of the agreement, which terminates in June, 2013. At the time that subject agreement was entered into by the parties, Wayne Irving II was a principal executive officer and director for both Ad Shark and Iconosys. This Agreement allows Ad Shark to receive compensation from Iconosys in exchange for services rendered by Ad Shark in connection with its acting as Iconosys’ Independent Sales Organization. Under the terms of this Agreement, at the time of the Merger, Iconosys currently had an obligation to pay Ad Shark approximately $75,000.
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full and effect and to honor the Engagement Agreement dated March 19, 2011 between the Law Office of Brandon S. Chabner, a Professional Corporation, and Ad Shark. Brandon S. Chabner, Esq., is a director and corporate officer of Iconosys and 5%-plus shareholder of Monster Offers. The above-referenced Engagement Agreement provides for the provision of discounted cash rate legal services in exchange for equity-based compensation.
27
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full and effect and to honor a Line of Credit Agreement dated June 19, 2012 (the “LOC Agreement”) between Ad Shark, as “Lender,”, and Iconosys, as “Borrower.” This is a $300,000 revolving line of credit, pursuant to which, as of the effective time of the Merger, Iconosys has an obligation to repay Ad Shark approximately $271,000 in borrowings. This represents funds borrowed by Iconosys from Ad Shark on various dates during the period June 19, 2012 through October 9, 2012. Monster Offers agreed to assume Ad Shark’s rights and obligations under the LOC Agreement as an integral part of this Merger. As of the Effective Time of the Merger, Monster Offers also owed Iconosys approximately $75,000 in repayments of monies previously borrowed by Monster Offers from Iconosys, and which obligation, as agreed to by Monster Offers and Ad Shark in the Merger Agreement, may be offset by Iconosys against Iconosys’ repayment obligations to Monster Offers under the LOC Agreement.
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full effect two separate Consulting Agreements, each dated June 1, 2012, between Ad Shark and Paul Gain, a former officer and director of Monster Offers, and between Ad Shark and Paul West. Under each of these Consulting Agreements, Ad Shark paid grants of Common Stock of Five Million (5,000,000) and One Million Five Hundred Thousand (1,500,000) of restricted Ad Shark shares to Mr. Gain and Mr. West, respectively, for past consulting services rendered to Ad Shark. As part of these Consulting Agreements, each of Messrs. Gain and West entered into a Confidentially Agreement pursuant to which (i) they each agreed to keep Ad Shark proprietary information confidential, and (ii) for a period of twelve (12) months immediately following the termination of their applicable Consulting Agreement, they each agreed not to solicit Ad Shark employees or independent contractors.
Item 14. Principal Accountant Fees and Services.
Effective April 27, 2015, the Company dismissed Terry L. Johnson, CPA ("Johnson") as it's independent registered public accounting firm. The Company has engaged K. Brice Toussaint CPA ("Toussaint") as its principal independent registered public accounting firm effective April 29, 2015. The decision to change its principal independent registered public accounting firm has been approved by the Company’s board of directors. The Company engaged Toussaint to re-audit the financial statements for the year ended December 31, 2014 and 2013 because the prior year auditor, Terry L. Johnson, had his license revoked by the PCAOB.
Terry L. Johnson, CPA, (“Johnson”), served as our principle independent public auditor for the years ending December 31, 2013 and 2012. The Company engaged Johnson to audit the financial statements for the year ending December 31, 2013 as well as the prior year ending December 31, 2012 because the prior year auditor, Patrick Rodger, CPA, PA had his license revoked by the PCAOB in early 2014.
Patrick Rodgers CPA, PA served as our principal independent public accountants for the fiscal year ending December 31, 2012. On January 20, 2014, the Company accepted the resignation of Patrick Rodgers, CPA, P.A. (“Rodgers”) from his engagement to be the independent certifying accountant for the Company.
| For Year Ended December 31, | For Year Ended December 31, | |||||||
| 2014 | 2013 | |||||||
| Audit Fees (1) | $ | 26,000 | $ | 31,000 | ||||
| Audit-Related Fees | $ | 2,000 | $ | 2,000 | ||||
| Tax Fees | - | - | ||||||
| All Other Fees | - | - | ||||||
Total fees paid or accrued to our principal auditors
(1) Audit Fees include fees billed and expected to be billed for services performed to comply with Generally Accepted Auditing Standards (GAAS), including the recurring audit of the Company's financial statements for such period included in this Annual Report on Form 10-K and for the reviews of the quarterly financial statements included in the Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission.
Audit Committee Policies and Procedures
We do not have an audit committee; therefore our directors pre-approve all services to be provided to us by our independent auditor. This process involves obtaining (i) a written description of the proposed services, (ii) the confirmation of our Chief Financial Officer that the services are compatible with maintaining specific principles relating to independence, and (iii) confirmation from our securities counsel that the services are not among those that our independent auditors have been prohibited from performing under SEC rules. Our sole director then makes a determination to approve or disapprove the engagement of Terry L. Johnson, CPA for the proposed services. In the fiscal year ending December 31, 2014, all fees paid to K. Brice Toussaint CPA were unanimously pre-approved in accordance with this policy. In the fiscal year ending December 31, 2013, all fees paid to Terry L. Johnson, CPA were unanimously pre-approved in accordance with this policy.
28
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following information required under this item is filed as part of this report:
(a) Exhibit Index
| Incorporated by reference | ||||||
| Exhibit | Exhibit Description | Filed herewith | Form | Period Ending | Exhibit | Filing Date |
| 3.1 | Articles of Incorporation | SB-2 | 3.1 | 01/15/08 | ||
| 3.2 | By-laws as currently in effect | SB-2 | 3.2 | 01/15/08 | ||
| 3.2 | Amended Articles of Incorporation | SB-2 | 3.3 | 01/12/12 | ||
| 10.1 | Asset Exchange Agreement by and between Monster Offers and Prime Mover Global, LLC, dated August 5, 2010 |
8-K |
10.1 | 09/02/10 | ||
| 10.2 | Share Lock-Up Agreement with Scott J. Gerardi, dated August 6, 2010 | 8-K | 10.2 | 09/02/10 | ||
| 10.3 | Share Lock-Up Agreement with Powerhouse Development, dated August 6, 2010 | 8-K | 10.3 | 09/02/10 | ||
| 10.4 | Share Lock-Up Agreement with Paul Gain, dated August 6, 2010 | 8-K | 10.4 | 09/02/10 | ||
| 10.5 | Share Lock-Up Agreement with Jonathan W. Marshall, dated August 6, 2010 | 8-K | 10.5 | 09/02/10 | ||
| 10.6 | Investor and Public Relations Agreement between Monster Offers and Emerging Growth Research, LLC, date November 10, 2010 | 8-K | 10.9 | 11/19/10 | ||
| 10.7 | Exchange and Hold Harmless Agreement with Scott J. Gerardi dated November 19, 2010 | X | 8-K | 10.7 | 11/24/10 | |
| 10.8 | Drawdown Equity Financing Agreement between Monster Offers and Auctus Private Equity Fund, LLC, dated December 23, 2010. | 8-K | 10.6 | 01/03/11 | ||
| 10.9 | Registration Rights Agreement between Monster Offers and Auctus Private Equity Fund, LLC, dated December 23, 2010. | 8-K | 10.7 | 01/03/11 | ||
| 10.10 | Consulting Agreement with Christina R. Hansen, dated January 21, 2011 | S-8 | 10.1 | 01/27/11 | ||
| 10.11 | Investor and Public Relations Agreement between Monster OFFERS and Equititrend Advisors, LLC, dated January 21, 2011 | 8-K | 10.11 | 02/03/11 | ||
| 10.12 | Strategic Alliance and Licensing Agreement between Monster OFFERS and SSL5, dated March 14, 2011 | 8-K | 10.12 | 03/16/11 | ||
| 23.1 | Consent letter from DeJoya Griffith, LLC | X | ||||
| 31.1 | Certification of President and Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act | X | 8-K | 99.1 | 09/30/11 | |
| 32.1 | Certification of President and Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act | X | 8-K | 99.2 | 09/30/11 | |
| Consulting Agreement with Jeffrey Weiss, dated April 9, 2012 | 8-K | 04/30/12 | ||||
| Consulting Agreement with Cleverson Schmidt, dated April 23, 2012 | 8-K | 6/28/12 | ||||
| Acquisition and Plan of Merger Agreement with AdShark, dated 11/9/12 (+ Articles of Merger) | 8-K | 11/13/12 | ||||
| Consulting Agreement between AdShark and Paul West, dated 6/1/12 | 8-K | 11/13/12 | ||||
| Line of Credit Agreement between AdShark and Iconosys, dated 6/19/12 | 8-K | 11/13/12 | ||||
| Engagement Agreement between AdShark and The Law Office of Brandon S. Chabner, dated 3/19/11 | 8-K | 11/13/12 | ||||
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Monster Arts, Inc. | ||
|
Registrant | ||
| October 21, 2015 | By: | /s/ Wayne Irving II |
| Wayne
Irving II
Chief Executive Officer Chief Financial Officer | ||
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders Monster Arts, Inc.:
I have audited the accompanying balance sheets of Monster Arts, Inc. (the “Company”) as of December 31, 2014 and December 31, 2013 and the related statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. I was not engaged to perform an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Monster Arts, Inc. as of December 31, 2014 and December 31, 2013, and the results of its operations and cash flows the years ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operations the past three years. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ K.Brice Toussaint
K.Brice Toussaint CPA
Dallas, TX
September 24, 2015
| F-1 |
| MONSTER ARTS, INC. | |||
| (Formerly MONSTER OFFERS) | |||
| (A Development Stage Company) | |||
| BALANCE SHEETS |
| December 31, | December 31, | |||||||
| Assets: | 2014 | 2013 | ||||||
| Current Assets | ||||||||
| Cash | $ | 16,116 | $ | 46,234 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $1,250 | - | 4,173 | ||||||
| Loan receivable to related party | 284,943 | 290,532 | ||||||
| Interest receivable to related party | 26,715 | 15,577 | ||||||
| Prepaid expenses | 53,240 | 139,996 | ||||||
| Total Current Assets | 381,014 | 496,512 | ||||||
| Fixed Assets | ||||||||
| Property and equipment, net | - | 460 | ||||||
| Total Fixed Assets | - | 460 | ||||||
| Other Assets | ||||||||
| Available-for-sale securities | 1,619 | 6,000 | ||||||
| Total Other Assets | 1,619 | 6,000 | ||||||
| Total Assets | $ | 382,633 | $ | 502,972 | ||||
| Liabilities and Stockholders' Equity: | ||||||||
| Current Liabilities | ||||||||
| Accounts payable & accrued expenses | $ | 53,834 | $ | 67,586 | ||||
| Accounts payable & accrued expenses to related parties | 68,156 | 165,913 | ||||||
| Accrued interest | 67,907 | 11,659 | ||||||
| Deferred revenues | 34,709 | 18,359 | ||||||
| Loan from officer | 2,500 | 17,021 | ||||||
| Notes payable | - | 10,161 | ||||||
| Notes payable to related party | 15,494 | 57,480 | ||||||
| Convertible notes payable, net of discounts of $339,934 and $113,361 | 556,116 | 148,584 | ||||||
| Derivative Liability | 1,564,098 | 994,778 | ||||||
| Total Liabilities | 2,362,814 | 1,491,541 | ||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $.001 par value 80,000,000 shares authorized, 0 shares issued and outstanding, respectively | 20,000 | - | ||||||
| Series A preferred stock, $.001 par value 10,000,000 shares authorized, 0 shares issued and outstanding, respectively | - | - | ||||||
| Common stock, $0.001 par value 5,000,000,000 shares authorized, 2,182,007,174 and 29,201,615 shares issued and outstanding, respectively | 2,182,007 | 29,202 | ||||||
| Additional paid in capital | 5,144,377 | 6,126,501 | ||||||
| Stock subscription payable | - | 488,613 | ||||||
| Accumulated Comprehensive Gain / (Loss) | (1,966 | ) | (4,000 | ) | ||||
| Deficit accumulated during the development stage | (9,324,599 | ) | (7,628,885 | ) | ||||
| Total stockholders' equity (deficit) | (1,980,181 | ) | (988,569 | ) | ||||
| Total Liabilities and Stockholders' Equity | $ | 382,633 | $ | 502,972 | ||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
| MONSTER ARTS, INC. | |||
| (Formerly MONSTER OFFERS) | |||
| (A Development Stage Company) | |||
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Commissions | $ | - | $ | 13,750 | ||||
| License revenues | 16,485 | 18,163 | ||||||
| Services | 96,523 | 14,097 | ||||||
| Services- related party | 8,700 | 5,387 | ||||||
| Other revenues | 34,895 | - | ||||||
| 156,603 | 51,397 | |||||||
| Cost of revenues | 101,449 | 4,838 | ||||||
| Gross Profit | 55,154 | 46,559 | ||||||
| Operating expenses: | ||||||||
| General and administration | 202,183 | 179,858 | ||||||
| Consulting | 774,984 | 993,343 | ||||||
| Wages | 155,837 | 177,642 | ||||||
| Marketing and promotions | 25,156 | 5,000 | ||||||
| Depreciation | 460 | 470 | ||||||
| Professional fess | 142,925 | 91,855 | ||||||
| Total operating expenses | 1,301,545 | 1,448,168 | ||||||
| Income (Loss) from operations | (1,246,391 | ) | (1,401,609 | ) | ||||
| Other income and (expenses): | ||||||||
| Interest expense | (1,029,050 | ) | (270,120 | ) | ||||
| Interest expense- derivative | (1,842,184 | ) | (3,947,092 | ) | ||||
| Interest income | 15,934 | 9,643 | ||||||
| Gain/(Loss) on derivative adjustment | 2,405,977 | 3,372,238 | ||||||
| Debt forgiveness | - | 4,096 | ||||||
| Total other income and (expenses) | (449,323 | ) | (831,235 | ) | ||||
| Net loss before taxes | $ | (1,695,714 | ) | $ | (2,232,844 | ) | ||
| Tax provisions | - | - | ||||||
| Net loss after taxes | $ | (1,695,714 | ) | $ | (2,232,844 | ) | ||
| Other Comprehensive Income: | ||||||||
| Unrealized loss/(gain) on available-for-sale securities | (2,034 | ) | 4,000 | |||||
| Other Comprehensive Income (Loss) | $ | (1,693,680 | ) | $ | (2,236,844 | ) | ||
| Basic & diluted loss per share | $ | (0.00 | ) | (0.31 | ) | |||
| Weighted average shares outstanding | 1,630,676,984 | 7,102,414 | ||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
| MONSTER ARTS, INC. | ||||||||||
| (Formerly MONSTER OFFERS) | ||||||||||
| (A Development Stage Company) | ||||||||||
| STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) |
| Additional | Common | Common | Other | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in | Stock | Stock | Comprehensive | Accumulated | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Payable | Income (Loss) | Deficit | Total | |||||||||||||||||||||||||||||||
| Contributed Capital, February 2007 | - | $ | - | - | $ | - | $ | 400 | $ | - | $ | - | $ | - | $ | - | $ | 400 | ||||||||||||||||||||||
| Founder shares issued for services | - | - | 56,250 | 56 | 11,194 | - | - | - | - | 11,250 | ||||||||||||||||||||||||||||||
| Contributed Capital | - | - | - | - | 585 | - | - | - | - | 585 | ||||||||||||||||||||||||||||||
| Tropical PC spin off shares | - | - | 4,050 | 4 | (4 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||
| Shares returned to Company | - | - | (3,000 | ) | (3 | ) | 3 | - | - | - | - | - | ||||||||||||||||||||||||||||
| Shares issued pursuant to offer | - | - | 37,500 | 38 | 33,712 | - | - | - | - | 33,750 | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (6,595 | ) | (6,595 | ) | ||||||||||||||||||||||||||||
| Balance December 31, 2007 | - | - | 94,800 | 95 | 45,890 | - | - | - | (6,595 | ) | 39,390 | |||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (41,556 | ) | (41,556 | ) | |||||||||||||||||||||||||||||
| Balance December 31, 2008 | - | - | 94,800 | 95 | 45,890 | - | - | - | (48,151 | ) | (2,166 | ) | ||||||||||||||||||||||||||||
| Private placement | 67,500 | 67 | 13,432 | (1,000 | ) | - | - | - | 12,499 | |||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | 8,741 | 8,741 | ||||||||||||||||||||||||||||||
| Balance December 31, 2009 | - | - | 162,300 | 162 | 59,322 | (1,000 | ) | - | - | (39,410 | ) | 19,074 | ||||||||||||||||||||||||||||
| Cancellation of unearned shares | - | - | (5,000 | ) | (5 | ) | (995 | ) | 1,000 | - | - | - | - | |||||||||||||||||||||||||||
| Shares issued for cash | - | - | 40,000 | 40 | 7,960 | (8,000 | ) | - | - | - | - | |||||||||||||||||||||||||||||
| Shares issued for services | - | - | 3,662 | 4 | 462,833 | (400 | ) | - | - | - | 462,437 | |||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (494,195 | ) | (494,195 | ) | |||||||||||||||||||||||||||||
| Balance December 31, 2010 | - | - | 200,962 | 201 | 529,120 | (8,400 | ) | - | - | (533,605 | ) | (12,684 | ) | |||||||||||||||||||||||||||
| Shares issued for services | - | - | 2,000 | 2 | 155,998 | - | 750 | - | - | 156,750 | ||||||||||||||||||||||||||||||
| Shares issued for license | - | - | - | - | - | - | 450,000 | - | - | 450,000 | ||||||||||||||||||||||||||||||
| Issuance of stock options for services | - | - | - | - | 14,302 | - | - | - | - | 14,302 | ||||||||||||||||||||||||||||||
| Shares issued as part of strategic | ||||||||||||||||||||||||||||||||||||||||
| Alliance | - | - | - | - | - | - | 35,825 | - | - | 35,825 | ||||||||||||||||||||||||||||||
| Shares issued for conversion of | - | |||||||||||||||||||||||||||||||||||||||
| notes payable | - | - | 16,296 | 16 | 202,776 | - | - | - | - | 202,792 | ||||||||||||||||||||||||||||||
| Sale of stock at 3% discount | - | - | 1,309 | 1 | 13,190 | - | - | - | 13,191 | |||||||||||||||||||||||||||||||
| Financing fees incurred on sale of | - | |||||||||||||||||||||||||||||||||||||||
| Stock | - | - | - | - | (5,000 | ) | - | - | - | - | (5,000 | ) | ||||||||||||||||||||||||||||
| Write off of stock receivable | - | - | - | - | - | 8,400 | - | - | - | 8,400 | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (998,876 | ) | (998,876 | ) | ||||||||||||||||||||||||||||
| Balance December 31, 2011 | - | - | 220,567 | 220 | 910,386 | - | 486,575 | - | (1,532,481 | ) | (135,300 | ) | ||||||||||||||||||||||||||||
| Shares issued for debt settlement | - | - | 2,732,156 | 2,732 | 2,948,110 | - | - | - | - | 2,950,842 | ||||||||||||||||||||||||||||||
| Shares issued as part of strategic | ||||||||||||||||||||||||||||||||||||||||
| Alliance | - | - | 834 | 1 | 35,824 | - | (35,825 | ) | - | - | - | |||||||||||||||||||||||||||||
| Stock options for services | - | - | - | - | 134,291 | - | - | - | - | 134,291 | ||||||||||||||||||||||||||||||
| Shares issued for services | - | - | 430,000 | 430 | 226,710 | - | 31,274 | - | - | 258,414 | ||||||||||||||||||||||||||||||
| Stock subscription payable | - | - | - | - | - | - | 278,425 | - | - | 278,425 | ||||||||||||||||||||||||||||||
| Shares issued for note extension | - | - | 5,000 | 5 | 14,995 | - | - | - | - | 15,000 | ||||||||||||||||||||||||||||||
| Stock split adjustment | - | - | 803 | 1 | - | - | - | - | - | 1 | ||||||||||||||||||||||||||||||
| Effect from share exchange agreement | ||||||||||||||||||||||||||||||||||||||||
| with Ad Shark, Inc. | - | - | - | - | 662,598 | - | 27,940 | - | (435,854 | ) | 254,684 | |||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (3,427,706 | ) | (3,427,706 | ) | ||||||||||||||||||||||||||||
| Balance December 31, 2012 | - | - | 3,389,360 | 3,389 | 4,932,914 | - | 788,389 | - | (5,396,041 | ) | 328,651 | |||||||||||||||||||||||||||||
| Shares issued for cash | - | - | 861,751 | 862 | 446,438 | - | (271,425 | ) | - | - | 175,875 | |||||||||||||||||||||||||||||
| Shares issued for services | - | - | 7,355,667 | 7,356 | 1,019,413 | - | (28,201 | ) | - | 998,568 | ||||||||||||||||||||||||||||||
| Cancellation of shares | - | - | (323,832 | ) | (323 | ) | (91,969 | ) | - | - | - | - | (92,292 | ) | ||||||||||||||||||||||||||
| Shares issued for conversion of | - | |||||||||||||||||||||||||||||||||||||||
| convertible debt | - | - | 14,775,358 | 14,775 | 118,450 | - | - | - | - | 133,225 | ||||||||||||||||||||||||||||||
| Stock subscription payable | - | - | - | - | - | - | 1,940 | - | - | 1,940 | ||||||||||||||||||||||||||||||
| Stock issued from converted | ||||||||||||||||||||||||||||||||||||||||
| Ad Shark, Inc. shareholders | - | - | 3,143,311 | 3,143 | - | - | (3,143 | ) | - | - | - | |||||||||||||||||||||||||||||
| Master Purchase Agreement with | ||||||||||||||||||||||||||||||||||||||||
| Iconosys (Note 11) | - | - | - | - | (298,745 | ) | - | - | - | - | (298,745 | ) | ||||||||||||||||||||||||||||
| Asset purchase of TAVG | - | - | - | - | - | - | 1,053 | - | - | 1,053 | ||||||||||||||||||||||||||||||
| Gain on available for sale securities | - | - | - | - | - | - | - | (4,000 | ) | - | (4,000 | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (2,232,844 | ) | (2,232,844 | ) | ||||||||||||||||||||||||||||
| Balance December 31, 2013 | - | - | 29,201,615 | 29,202 | 6,126,501 | - | 488,613 | (4,000 | ) | (7,628,885 | ) | (988,569 | ) | |||||||||||||||||||||||||||
| Preferred shares issued for services | 20,000,000 | 20,000 | - | - | - | - | - | - | - | 20,000 | ||||||||||||||||||||||||||||||
| Common shares issued for services | - | - | 413,811,693 | 413,811 | (188,964 | ) | - | - | - | - | 224,847 | |||||||||||||||||||||||||||||
| Shares issued for conversion of | ||||||||||||||||||||||||||||||||||||||||
| convertible debt | - | - | 1,713,994,987 | 1,713,995 | (1,256,774 | ) | - | - | - | - | 457,221 | |||||||||||||||||||||||||||||
| Stock issued from converted | ||||||||||||||||||||||||||||||||||||||||
| Ad Shark, Inc. shareholders | - | - | 24,998,879 | 24,999 | - | - | (24,999 | ) | - | - | - | |||||||||||||||||||||||||||||
| Write off stock payable for services | - | - | - | - | 463,614 | - | (463,614 | ) | - | - | - | |||||||||||||||||||||||||||||
| Loss on available for sale securities | - | - | - | - | - | - | - | 2,034 | - | 2,034 | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (1,695,714 | ) | (1,695,714 | ) | ||||||||||||||||||||||||||||
| Balance December 31, 2014 | 20,000,000 | $ | 20,000 | 2,182,007,174 | $ | 2,182,007 | $ | 5,144,377 | $ | - | $ | - | $ | (1,966 | ) | $ | (9,324,599 | ) | $ | (1,980,181 | ) | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
| MONSTER ARTS, INC. | ||||
| (Formerly MONSTER OFFERS) | ||||
| (A Development Stage Company) | ||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss for the period | $ | (1,695,714 | ) | $ | (2,232,844 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Available-for-sale securities revenues | - | (3,050 | ) | |||||
| Debt discount | 906,525 | 255,230 | ||||||
| (Gain)/loss on change in derivative adjustment | (569,320 | ) | 574,854 | |||||
| Stock for services expense | 244,847 | 998,568 | ||||||
| Convertible note issued for consulting services | 127,900 | - | ||||||
| Master purchase agreement | - | (298,745 | ) | |||||
| Depreciation and amortization | 460 | 44,974 | ||||||
| Changes in Operated Assets and Liabilities: | ||||||||
| (Increase) decrease in accounts receivable | 4,173 | - | ||||||
| Increase in interest receivable | (11,138 | ) | (6,737 | ) | ||||
| Increase (decrease) in loan receivable to related party | 5,589 | 18,356 | ||||||
| Increase in deferred revenues | 16,350 | 18,359 | ||||||
| Increase (decrease) in accounts payable and accrued expenses | (13,252 | ) | 54,218 | |||||
| Increase (decrease) in accounts payable to related parties | (28,273 | ) | 42,358 | |||||
| Increase (decrease) in accrued interest | 55,748 | 9,847 | ||||||
| Net cash (used) in operating activities | (956,105 | ) | (524,612 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of stock | - | 168,875 | ||||||
| Stock subscription payable | - | 7,000 | ||||||
| Proceeds from officer loan | - | 18,165 | ||||||
| Payments on officer loan | (14,521 | ) | (102,270 | ) | ||||
| Proceeds from convertible notes | 1,010,023 | 286,865 | ||||||
| Payments on convertible notes | - | - | ||||||
| Proceeds from notes payable | - | 10,161 | ||||||
| Payments on notes payable | (17,370 | ) | - | |||||
| Proceeds from notes payable to related party | - | (770 | ) | |||||
| Payments on notes payable to related party | (52,145 | ) | - | |||||
| Contributed Capital | - | - | ||||||
| Net Cash Provided by Financing Activities | 925,987 | 388,026 | ||||||
| Net (Decrease) Increase in Cash | (30,118 | ) | (136,586 | ) | ||||
| Cash at Beginning of Period | 46,234 | 182,820 | ||||||
| Cash (Overdraft) at End of Period | $ | 16,116 | $ | 46,234 | ||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Income Taxes Paid | $ | - | $ | - | ||||
| Interest Paid | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Stock issued for conversion of convertible notes payable | $ | 455,693 | $ | 128,165 | ||||
| Stock issued for debt settlement | $ | 87,500 | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
(A Development Stage Company)
Notes to Financial Statements
December 31, 2014 and December 31, 2013
NOTE 1 – ORGANIZATION & BUSINESS DESCRIPTION
On May 2, 2013, Monster Arts, Inc. (the “Company”) amended its articles of incorporation to change its name from Monster Offers to Monster Arts, Inc. The Company was incorporated under the laws of the State of Nevada, as Tropical PC Acquisition Corporation on February 23, 2007 ("Inception"). On December 11, 2007, the Company amended its Articles of Incorporation changing its name from Tropical PC Acquisition Corporation to Monster Offers. On November 9, 2012 the Company executed a share exchange agreement with Ad Shark, Inc., a privately-held California corporation incorporated April 12, 2011. As a result of the share exchange agreement, Ad Shark, Inc. became a wholly owned subsidiary of the Company. In February of 2014, Ad Shark, Inc. was dissolved as a California corporation. The Company organizes advertising sales efforts by constructing media and advertising delivery systems for Smartphone and Tablet application developers including the delivery of mobile banners, mobile video, mobile text messaging, and mobile email advertising.
On March 4, 2013, the Company entered into a Master Purchase Agreement with Iconosys, Inc., a private California corporation whom shares a common officer with the Company, whereby the Company acquired a 10% interest in Iconosys, Inc. (Referenced in Note 9).
On August 8, 2013, the Company approved the execution of an asset purchase agreement with Iconosys, Inc., a private California corporation which shares an officer with the Company, for the rights to domain names, web site content and trademark assignments of Travel America Visitor Guide (“TAVG”) which is a division of Iconosys.
On April 25, 2014, the Company entered into a subscription agreement to buy 53,000 shares of common stock of Candor Homes Corporation, (“CH, Inc.”) for $10,000 which represents 53% of the equity interest in CH, Inc. As of December 31, 2014, there has been no activity with CH, Inc. and the Company has recorded accounts payable to related party balance of $10,000. The only two directors of CH, Inc. are our chief executive officer, Wayne Irving II and his sister Tisha Lawton. CH, Inc. is activity analyzing potential land investments in Central Iowa where new homes could be built.
On August 28, 2014, our Board of Directors and majority shareholders, approved a reverse stock split upon receipt of all necessary regulatory approvals and the passage of all necessary waiting periods. The reverse split would reduce the number of outstanding shares of our common stock at a ratio of 200 to 1 but have no effect on the number of authorized shares of Common Stock or Preferred Stock.
Authorized Shares
On July 19, 2013, the Company amended its articles of incorporation to increase its authorized shares from 75,000,000 to 750,000,000 of which 730,000,000 were designated as common stock and 20,000,000 were designated as preferred stock. The shares have a par value of $0.001. In August of 2014, the Company amended is articles of incorporation to increase the number of authorized common shares from 730,000,000 to 5,000,000,000 with a par value of $0.001.
NOTE 2 - GOING CONCERN
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Since inception (February 23, 2007) through December 31, 2014, the Company incurred an accumulated deficit during development stage of approximately $9,324,599. The Company's ability to continue as a going concern is contingent upon its ability to achieve and maintain profitable operations and its ability to raise additional capital as required.
Management plans to raise equity capital to finance the operating and capital requirements of the Company, and also plans to pursue acquisition opportunities of other revenue-generating companies that provide complementary capabilities to that of the Company. Amounts raised will be used for further development of the Company's products and services, to provide financing for marketing and promotion, to secure additional property and equipment, and for other working capital purposes. While the Company is devoting its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
| F-6 |
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
These financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
Principles of consolidation
The accompanying consolidated financial statements include all of the accounts of the Company and Candor Homes Corporation as of December 31, 2014 and December 31, 2013.
The Company has an equity interest in the following entities;
● 51% of Candor Homes Corporation
The Company has accounted for the non-controlling interest using GAAP accounting standards. All intercompany balances and transactions have been eliminated.
Development Stage Company
The Company is currently a development stage enterprise reporting under the provisions of FASB ASC Topic 915, Development Stage Entity. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Reclassification
On April 9, 2012, the Company executed a 300 to 1 reverse stock split, which was retrospectively applied to our financial statements.
On August 28, 2014, the Board of Directors and majority shareholders of Monster Arts Inc., approved a reverse stock split of one for 200 hundred (1:200) of the Company's total issued and outstanding shares of common stock. The reverse stock split was effective on January 16, 2015 based upon the filing of appropriate documentation with FINRA. The Company did not record any effects of the reverse stock split in the financial statements presented herein as the effective date was subsequent to reporting date, December 31, 2014. See Subsequent Events footnote for additional disclosure.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2014 and December 31, 2013, there are no cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported 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 from those estimates.
Revenue Recognition
In accordance with ASC 605 and SEC Staff Accounting Bulletin 104, fee revenue is recognized in the period that the Company's advertiser customer generates a sale or other agreed-upon action on the Company's affiliate marketing networks or as a result of the Company's other services, provided that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. All transactional services revenues are recognized on a gross basis in accordance with the provisions of ASC Subtopic 605-45, due to the fact that the Company is the primary obligor, and bears all credit risk to its customer, and publisher expenses that are directly related to a revenue-generating event are recorded as a component of commission paid.
Earnings per Share
Historical net (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of securities or other contracts to issue common stock that were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity.
Accounts receivable
Accounts receivable are stated at the amount management expects to collect from balances outstanding at year end. Management provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance. As of December 31, 2014 and December 31, 2013, we have $1,250 and 5,423, respectively, in accounts receivable and $1,250 charged to allowance for doubtful accounts.
| F-7 |
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which consist of computer equipment, which is 3 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for equipment betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income or expense. The Company will periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of equipment and website development costs or whether the remaining balance of equipment should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the equipment in measuring their recoverability.
Website Development Costs
The Company recognizes the costs associated with developing a website in accordance with FASB ASC 350-50 “Website Development Costs”. Accordingly costs associated with the website consist primarily of website development costs paid to a third party. These capitalized costs are amortized based on their estimated useful life over two years upon the website becoming operational. Internal costs related to the development of website content will be charged to operations as incurred.
Fair Value of Financial Instruments
The carrying amounts of the financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate fair value due to the short maturities of these financial instruments. The notes payable are also considered financial instruments whose carrying amounts approximate fair values.
Intangible assets
The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “Intangibles - Goodwill and Other” to determine the method of amortization of its intangible assets. The Company’s intangible assets are capitalized at historical cost and are amortized over their useful lives. The Company amortizes its license of SSL5 intellectual property using the straight-line method over an estimated useful life of 10 years.
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 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.
ASC 505, "Compensation-Stock Compensation", establishes standards for the accounting for transactions in which an entity exchanges its equity instruments to non-employees for goods or services. Under this transition method, stock compensation expense includes compensation expense for all stock-based compensation awards granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of ASC 505.
Income Taxes
The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
Recent Accounting Pronouncements
Company management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
| F-8 |
NOTE 4 – AVAILABLE FOR SALE SECURITIES
On November 1, 2013, the Company executed a joint venture agreement (JVA) with Intelligent Living, Inc. (“ILIV”). You can read the full agreement in the registrant’s SEC Form 8-K filing on November 5, 2013. The Company will provide ILIV comprehensive and end-to-end turnkey business function through its development of smartphone and tablet apps. The Company’s revenue sharing will be 35% of gross payments from app sales from Google Play and 50% of gross payments from app sales through Amazon, Nook, iTunes, and others. The Company will be paid in the form of stock by ILIV which is a publically traded company trading on the OTCQB under the symbol “ILIV”. The Company will be issued 10,000,000 shares of ILIV upon execution of the JVA. The Company will also be issued 4,000,000 shares of ILIV in quarterly installments over a period of 2 years from the date of the agreement. The Company was issued the initial 10,000,000 shares of ILIV upon closing of the agreement which were valued at the closing price of ILIV stock on November 1, 2013, which resulted in the Company recording an available-for-sale securities asset of $10,000.
Pursuant to the consulting agreement with Mind Solutions, Inc. (referenced in Note 9 herein), in the year ended December 31, 2014, the Company received 50,000,000 shares of Mind Solutions, Inc. common stock. In the year ended December 31, 2014, the Company sold 47,855,085 shares of Mind Solutions, Inc. stock of which the Company received net proceeds of $34,895. As of December 31, 2014, the Company holds 2,144,915 shares of Mind Solutions, Inc. and 6,593,500 shares of ILIV which based on the closing share prices resulted in the Company recording an available-for-sale securities balance of $1,619 and $6,000.
NOTE 5 – FIXED ASSETS
Property and equipment consists of the following at December 31, 2014 and December 31, 2013:
| December 31, 2014 | December 31, 2013 | |||||||
| Property and equipment, net | $ | 2,364 | $ | 2,364 | ||||
| Less: accumulated depreciation | 2,364 | 1,904 | ||||||
| Property and equipment, net | $ | - | $ | 460 | ||||
The Company acquired the property and equipment through the share exchange agreement with Ad Shark, Inc. on November 9, 2012. Therefore the Company only recognized depreciation on the equipment after the share exchange date. Depreciation expense for the years ended December 31, 2014 and 2013 was $460.
NOTE 6 – ASSET PURCHASE AGREEMENT WITH ICONOSYS (TAVG)
On August 8, 2013, the Company approved the execution of an asset purchase agreement with Iconosys, Inc., a private California corporation which shares an officer with the Company for the rights to domain names, web site content and trademark assignments of Travel America Visitor Guide (“TAVG”) which is a division of Iconosys. Iconosys shall sell, convey, transfer and assign to the Company and the Company shall purchase all right, title and interest in and to the assets of Iconosys as follows: (i) the Iconosys trademarks (the "Trademarks"); (ii) the Iconosys domain name (the "Domain Name") together with all associated service marks, copyrights, trade names and other intellectual property associated with the Domain Name; (iii) the Iconsys web site content (the "Web Site"), together with all associated intellectual property rights to the Web Site.
In accordance with the terms and provisions of the Asset Purchase Agreement, the Company shall pay to Iconosys a purchase price of $250,000 as follows: (i) $50,000 of the Purchase Price shall be paid in cash with a cash payment of $5,000 and $45,000 to be satisfied with the issuance of a promissory note dated August 8, 2013, due August 7, 2014, and with annum interest of 4%. The remaining $200,000 of the purchase price shall be paid in stock through a stock purchase agreement dated August 8, 2013 whereby the Company will issue Iconosys 1,052,632 common shares with a fair market price of $.0.19 (based on the closing trading price of the Company's shares of common stock on the OTCQB as of August 8, 2013. As of December 31, 2014, the Company has a note payable balance of $2,244 balance of $0 pursuant to the note with Iconosys.
Deferred Revenues
In the year ended December 31, 2014 and 2013, the Company recognized $41,845 and $14,097 in services income relating to the TAVG asset. As of December 31, 2014 and 2013 the Company recorded deferred revenues of $34,709 and $18,359 relating to TAVG membership sales. The Company recognizes revenues over each member’s respective one year subscription term.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
Asher Enterprises, Inc.
On April 11, 2013, the Company entered into a Convertible Note Agreement with Asher Enterprises Inc. for a $42,500 convertible note payable with interest of 8% per annum, unsecured, and due January 14, 2014. The note is convertible into common shares of the Company at a conversion rate of 55% of the market price, calculated as the average of the three lowest trading prices in the previous 10 days leading up to the date of conversion. The entire principle balance of $42,500 was converted into 5,606,783 common shares of the Company. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On May 13, 2013, the Company entered into a Convertible Note Agreement with Asher Enterprises Inc. for a $63,000 convertible note payable with interest of 8% per annum, unsecured, and due February 17, 2014. The note is convertible into common shares of the Company at a conversion rate of 55% of the market price, calculated as the average of the three lowest trading prices in the previous 10 days leading up to the date of conversion. The entire principle balance of $63,000 was converted into 38,283,516 common shares of the Company.
| F-9 |
On June 14, 2013, the Company entered into a Convertible Note Agreement with Asher Enterprises Inc. for a $37,500 convertible note payable with interest of 8% per annum, unsecured, and due March 18, 2014. The note is convertible into common shares of the Company at a conversion rate of 55% of the market price, calculated as the average of the three lowest trading prices in the previous 10 days leading up to the date of conversion. The entire principle balance of $37,500 was converted into 25,333,333 common shares of the Company. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On July 10, 2013, the Company, entered into a Securities Purchase Agreement whereby the Company sold a Convertible Promissory Note to Asher Enterprises, Inc., a Delaware corporation, in the original principal amount of $37,500, and accruing interest at eight percent (8%) per annum. The Note is convertible into the Company’s common stock at a conversion price equal to fifty-five percent (55%) of the then-prevailing market price, beginning one hundred eighty (180) days from the date of the Note’s issuance. As of December 31, 2014, the entire principle balance of $37,500 was converted into 34,210,025 shares of common stock in the Company. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On September 12, 2013, the Company, entered into a Securities Purchase Agreement whereby the Company sold a Convertible Promissory Note to Asher Enterprises, Inc., a Delaware corporation, in the original principal amount of $32,500, and accruing interest at eight percent (8%) per annum. The Note is convertible into the Company’s common stock at a conversion price equal to fifty-five percent (55%) of the then-prevailing market price, beginning one hundred eighty (180) days from the date of the Note’s issuance. As of December 31, 2014, the entire principle balance of $32,500 was converted into 43,779,046 shares of common stock in the Company. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On December 23, 2013, the Company, entered into a Securities Purchase Agreement whereby the Company sold a Convertible Promissory Note to Asher Enterprises, Inc., a Delaware corporation, in the original principal amount of $60,000, and accruing interest at eight percent (8%) per annum. The Note is convertible into the Company’s common stock at a conversion price equal to fifty-five percent (55%) of the then-prevailing market price, beginning one hundred eighty (180) days from the date of the Note’s issuance. As of December 31, 2014, the entire principle balance of $60,000 was converted into 110,567,623 shares of common stock. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On February 14, 2014, the Company, entered into a Securities Purchase Agreement whereby the Company sold a Convertible Promissory Note to Asher Enterprises, Inc., a Delaware corporation, in the original principal amount of $22,500, and accruing interest at eight percent (8%) per annum. The Note is convertible into the Company’s common stock at a conversion price equal to fifty-five percent (55%) of the then-prevailing market price, beginning one hundred eighty (180) days from the date of the Note’s issuance. As of December 31, 2014, Asher has converted $22,200 of principle debt into 192,975,045 shares of common stock, leaving a balance remaining on the convertible note of $300. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
In the year ended December 31, 2014, Asher converted $250,710 of convertible debt and $5,900 of accrued interest into 477,381,748 common shares of the Company. In the year ended December 31, 2013, Asher Enterprises converted $44,490 of convertible notes payable into 7,265,116 common shares. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
Premier Venture Partners, LLC (“Premier”)
On October 24, 2013, the Company entered into a court ordered settlement with Premier Venture Partners, LLC in the amount of $63,063. Premier Venture Partners, LLC purchased bona fide accounts payable vendor accounts of the Company in the amount of $63,063 which pursuant to the courts judgment will be settled in the form of common stock of the Company. Premier’s entitled to receive the number of common shares equal to a number, “with an aggregate value equity to (i) the sum of the claim amount plus a 10% settlement fee and plaintiff’s reasonable attorney fees and expense, (ii) divided by the lower of the following: (1) fifty percent of the closing bid price for the trading day immediately preceding the order date or (2) fifty percent of the arithmetic average of the individual daily VWAPs for any five trading days within the calculation period”.
The sum of the claim amount plus a 10% settlement fee and plaintiff’s reasonable attorney fees and expenses were calculated as follows:
| Claim amount | $ | 63,063 | ||
| 10% settlement fee | 6,306 | |||
| Attorney fees | 5,770 | |||
| Total | $ | 75,139 |
Management calculates the conversion price to be $0.00114 using fifty percent of the arithmetic average of the individual daily VWAPs for any five trading days within the calculation period. Accordingly, Premier is entitled to receive 65,911,456 common shares of the Company as part of the settlement. In the year ended December 31, 2014, the Company issued 48,637,933 common shares to Premier pursuant to the court ordered settlement. As of December 31, 2014, the Company issued 58,637,933 shares of common stock to Premier to settle the court ordered liability, leaving a $0 balance owed. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
| F-10 |
Dennis Pieczarka
On May 22, 2013 the Company executed a convertible debenture agreement with Dennis Pieczarka for a $2,500 convertible note payable with interest of 9% per annum, unsecured and due on May 22, 2014. The holder has the right to convert the principle plus interest into common shares of the Company at a conversion rate of $0.15 per share.
Christopher Thompson
On April 1, 2013, the Company entered into a Securities Purchase Agreement with Christopher Thompson for a $10,000 convertible note payable due interest at 9% per annum, unsecured, and due April 1, 2014. The note is convertible into common shares of the Company at a conversion rate of $.10per share. On May 27, 2014, Christopher Thompson assigned his $10,000 note with accrued interest of $1,025 to WHC Capital, LLC leaving a $0 balance remaining on this note.
On May 1, 2014, the Company entered into a Securities Purchase Agreement and convertible promissory note with Christopher Thompson in the amount of $15,000. The convertible promissory note has interest at 9.9% per annum, unsecured, and due May 1, 2015. The convertible note’s principle and accrued interest may at any time be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the ten days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
On July 1, 2014, the Company entered into a convertible promissory note with Christopher Thompson in the amount of $15,000. The convertible promissory note has interest at 9.9% per annum, unsecured, and due July 1, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the ten days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
On August 1, 2014, the Company entered into a convertible promissory note with Christopher Thompson in the amount of $30,000. The convertible promissory note has interest at 9.9% per annum, unsecured, and due February 1, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the ten days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
On September 29, 2014, the Company entered into a convertible promissory note with Christopher Thompson in the amount of $30,000. The convertible promissory note has interest at 9.9% per annum, unsecured, and due March 29, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the ten days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
James Ault
On July 1, 2013, the Company entered into a Securities Purchase Agreement and convertible note payable with James Ault in the amount of $2,565. The note payable bears interest at 9% per annum, unsecured, and due July 1, 2014. The note is convertible into common shares of the Company at a conversion rate of $.095 per share.
Charles Knoop
On July 9, 2013, the Company entered into a Securities Purchase Agreement with Charles Knoop for a $1,000 note payable due interest at 9% per annum, unsecured, and due July 9, 2014. The note is convertible into common shares of the Company at a conversion rate of $.095 per share.
LG Capital Funding
On March 7, 2014, the Company entered into a convertible promissory note with LG Capital Funding, LLC for an amount of $32,000 with 8% per annum and a maturity date of March 7, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the fifteen days prior to conversion. As of December 31, 2014, there has been $15,445 of principle converted into 200,667,134 shares of common stock on this note leaving a balance of $16,555. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On June 16, 2014, the Company entered into a convertible promissory note with LG Capital Funding, LLC for an amount of $42,000 with 8% per annum and a maturity date of June 16, 2015. The convertible note’s principle and accrued interest be converted into shares of the Company’s stock at a conversion rate equal to 55% of the lowest closing bid price in the fifteen days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
| F-11 |
JMJ Financial
On March 15, 2014, the Company entered into a convertible promissory note with JMJ Financial for up to $500,000 with interest of 12% per annum. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the twenty-five days prior to conversion. In March of 2014, the Company received $30,000 with $7,333 of original issue discount. In June of 2014, the Company received an additional $30,000 with $7,333 of original issue discount. In September of 2014, the Company received an additional $30,000 with $7,333 of original issue discount. As of December 31, 2014, the Company has received $90,000 cash and recorded $22,000 of original issue discount pursuant to this convertible promissory note with JMJ Financial. As of December 31, 2014, JMJ Financial has converted $13,980 of principle into 233,000,000 common shares resulting in a balance of $98,020. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
IBC Funds, LLC
On April 24, 2014, IBC Funds, LLC, a Nevada limited liability company, acquired by assignment, debts owed by Monster Arts, Inc. to fourteen (14) creditors in the amount of $208,321. Likewise, on April 24, 2014, IBC Funds and Monster Arts, Inc. executed that certain Settlement Agreement and Stipulation, whereby Monster Arts, Inc. agreed to settle the debt of $208,321, and to pay the debt by the issuance of shares pursuant to Section 3(a)(10) of the Securities Act, which provides that the issuance of shares are exempt from the registration requirement of Section 5 of the Securities Act. In relevant part, Section 3(a)(10) of the Securities Act provides an exemption from the registration requirement for securities: (i) which are issued in exchange for a bona fide claim, (ii) where the terms of the issuance and exchange are found by a court to be fair to those receiving shares, (iii) notice of the hearing is provided to those to receive shares and they are afforded the opportunity to be heard, (iv) the issuer must advise the court prior to its hearing that it intends to rely on the exemption provided in Section 3(a)(10) of the Securities Act, and (v) there cannot be any impediments to the appearance of interested parties at the hearing.
On April 25, 2014, in a court proceeding styled IBC Funds, LLC, a Nevada limited Liability Company, Plaintiff vs. Monster Arts, Inc., a Nevada corporation, Defendant, bearing Civil Action in the Circuit Court in the Twelfth Judicial Circuit in and for Sarasota County, Florida, after due notice, the court entered an order approving the Settlement Agreement and Stipulation. In satisfaction of the debt, we agreed to issue shares of our common stock in one or more tranches to IBC Funds in the manner contemplated in the Settlement Agreement and Stipulation at a conversion price of 50% discount to market as calculated as the lowest closing trading price in the 15 (15) days prior to a conversion notice. In accordance with the terms of the Settlement Agreement and Stipulation, the court was advised of our intention to rely upon the exception to registration set forth in Section 3(a)(l0) of the Securities Act to support the issuance of the shares.
As set forth in the order, the court found that the terms and conditions of the exchange were fair to Monster Arts, Inc. and IBC Funds within the meaning of Section 3(a)(10) of the Securities Act, and that the exchange of the debt for our securities was not made under Title 11 of the United States Code.
As of December 31, 2014, as permitted by the court order and the Settlement Agreement and Stipulation, the Company has issued 590,000,000 shares to IBC LLC for the conversion of $137,000, leaving a balance of $71,071. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
WHC Capital, LLC
On May 27, 2014, Christopher Thompson assigned his $10,000 convertible note payable with accrued interest of $1,025 to WHC Capital, LLC. The original convertible note payable and securities purchase agreement is dated April 1, 2013,in the amount of $10,000 with interest of 9% per annum, unsecured, and due April 1, 2014. As of December 31, 2014, there has been $10,000 of principle and $1,051 of accrued interest converted into 22,325,475 shares of our common stock, leaving a balance of $0 on the this note. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On April 30, 2014, the Company entered into a convertible promissory note with WHC Capital, LLC in the amount of $22,000 , with interest of 12% per annum, unsecured, and due April 30, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 55% of the lowest closing bid price in the fifteen days prior to conversion. As of December 31, 2014, there has been $6,033 of principle converted into 18,282,697 shares of our common stock, leaving a balance of $15,967. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On July 11, 2014, the Company entered into a Securities Exchange and Settlement Agreement (SE&S) with WHC Capital, LLC (WHC, LLC), whereby WHC, LLC purchased $5,161 of note payables debt due to Jennifer Salwender pursuant to an Assignment of Debt Agreement. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 55% of the lowest closing bid price in the fifteen days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
Jennifer Salwender
On May 15, 2014, the Company entered into a convertible promissory note with Jennifer Salwender in the amount of $20,000 with 9.9% interest per annum and a maturity date of May 15, 2015. The convertible note’s principle and accrued interest may be converted into common shares of the Company’s after 180 days from the issuance date at a discount of 40% off the lowest closing traded price during the prior 10 trading days to a notice of conversion. As of December 31, 2014, there has been no debt converted on this note.
| F-12 |
On June 14, 2014, the Company entered into a convertible promissory note with Jennifer Salwender in the amount of $20,000 with 9.9% interest per annum and a maturity date of June 14, 2015. The convertible note’s principle and accrued interest may be converted into common shares of the Company’s after 180 days from the issuance date at a discount of 40% off the lowest closing traded price during the prior 10 trading days to a notice of conversion. As of December 31, 2014, there has been no debt converted on this note.
ADAR BAYS, LLC
On May 2, 2014, the Company entered into a convertible promissory note with ADAR BAYS, LLC in an amount of $30,000 with 8% per annum and a maturity date of May 2, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 50% of the lowest closing bid price in the fifteen days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
Brent Denlinger
On April 16, 2014, the Company entered into a convertible promissory note with Brent Denlinger in an amount of $15,000 with 9.9% per annum and a maturity date of April 16, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the ten days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
KBM Worldwide, Inc.
On June 13, 2014, the Company entered into a convertible promissory note with KBM Worldwide, Inc. in an amount of $63,000 with 8% per annum and a maturity date of March 17, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 55% of the lowest closing bid price in the ten days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
Jessie Redmayne
On April 4, 2014, the Company entered into a convertible promissory note with Jessie Redmayne in an amount of $5,000 with 9.9% per annum and a maturity date of April 4, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the ten days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
Anubis Capital Partners
On April 1, 2014, the Company executed a convertible promissory note with Anubis Capital Partners in the amount of $127,900 with interest of 10% per annum and a maturity date of April 1, 2015. The convertible promissory note was executed in return for consulting services provided to the Company. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 50% of the lowest closing bid price in the twenty days prior to conversion. On June 27, 2014, Anubis Capital Partners entered into a purchase and assumption agreement with Beaufort Capital Partners, LLC whereby Anubis Capital Partners assigned a $63,950 of their note balance to Beaufort Capital Partners, LLC. As of December 31, 2014, Anubis Capital Partners has a balance on this note of $63,950.
On October 1, 2014, the Company executed a convertible promissory note with Anubis Capital Partners in the amount of $83,950 with interest of 8% per annum and a maturity date of October 1, 2015. The convertible promissory note was executed in return for three (3) months of consulting services provided to the Company. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 50% of the lowest closing bid price in the twenty days prior to conversion. There has been no conversion or payments against this note, leaving a balance of $83,950.
Beaufort Capital Partners, LLC
On June 27, 2014, the Company entered into a convertible promissory note with Beaufort Capital Partners LLC in the amount of $75,000, includes $25,000 of original issue discount, with 12% interest per annum and a maturity date of December 27, 2014. The convertible note’s principle and accrued interest may be converted into common shares of the Company’s after the maturity date at a discount of 50% off the lowest traded price during the prior 20 trading days to a notice of conversion. As of December 31, 2014, Beaufort has converted $1,137 of debt on this note into 113,700,000 shares of common stock, leaving a balance $73,863. The shares were issued free of any restrictions as permitted by Section 3(a)(10) of the Securities Act.
On June 27, 2014, Beaufort Capital Partners, LLC (“Beaufort”) entered into a purchase and assumption agreement whereby Beaufort would purchase a portion of a convertible promissory note originally issued to Anubis Capital Partners on April 1, 2014 in the amount of $127,900 with interest of 10% per annum and a maturity date of April 1, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 50% of the lowest closing bid price in the twenty days prior to conversion.
| F-13 |
Sojourn Investments, LP
On July 14, 2014, the Company entered into a Debt Purchase Agreement with Sojourn Investments, LP whereby the Company issued a convertible promissory note in the amount of $37,500 which included $12,500 of original issue discount and due on June 14, 2015. The convertible note has interest of 12% per annum and is convertible into common shares of the Company at a conversion rate of 50% off the lowest trading market price for 20 days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
On November 15, 2014, the Company entered into a convertible promissory note with Sojourn Investments, LP in the amount of $7,500 which included $1,500 of original issue discount and due on November 15, 2015. The convertible note has interest of 12% per annum and is convertible into common shares of the Company at a conversion rate of 50% off the lowest trading market price for 20 days prior to conversion. As of December 31, 2014, there has been no debt converted on this note.
Ambrosial Consulting Group
On October 15, 2014, the Company executed a convertible promissory note with Ambrosial Consulting Group in the amount of $67,250 with interest of 8% per annum and a maturity date of October 15, 2015. The convertible promissory note was executed in return for six (6) months of consulting services to be provided to the Company. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 50% of the lowest closing bid price in the twenty (20) days prior to conversion. As of December 31, 2014, there have been no conversions and the note has a balance of $67,250.
The following table summarizes the total outstanding principle on convertible notes payable:
| December 31, 2014 | December 31, 2013 | |||||||
| Convertible Notes Payable- Asher Enterprises, Inc. | $ | 300 | $ | 228,510 | ||||
| Convertible Notes Payable - Tangier Investors, LLP | - | - | ||||||
| Convertible Note Payable- Premier Venture Partners LLC | - | 17,370 | ||||||
| Convertible Note Payable- Dennis Pieczarka | 2,500 | 2,500 | ||||||
| Convertible Note payable - Christopher Thompson | 90,000 | 10,000 | ||||||
| Convertible Note payable - James Ault | 2,565 | 2,565 | ||||||
| Convertible Note payable - Charles Knoop | 1,000 | 1,000 | ||||||
| Convertible Note payable - LG Capital Funding | 58,555 | - | ||||||
| Convertible Note payable - JMJ Financial | 98,020 | - | ||||||
| Convertible Note payable - IBC Funds, LLC | 71,071 | - | ||||||
| Convertible Note payable - WHC Capital, LLC | 21,077 | - | ||||||
| Convertible Note payable - ADAR BAYS, LLC | 30,000 | - | ||||||
| Convertible Note payable - Brent Delinger | 15,000 | - | ||||||
| Convertible Note payable - Jessie Redmayne | 5,000 | - | ||||||
| Convertible Note payable - Jennifer Salwender | 40,000 | - | ||||||
| Convertible Note payable - Anibus Capital Partners | 147,900 | - | ||||||
| Convertible Note payable - Beaufort Capital Partners, LLC | 137,812 | - | ||||||
| Convertible Note payable - KBM Worldwide | 63,000 | - | ||||||
| Convertible Note payable - Sojourn Investments, LP | 45,000 | - | ||||||
| Convertible Note payable - Ambrosial Consulting Group | 67,250 | |||||||
| Less: Debt discount | (339,934 | ) | (113,361 | ) | ||||
| Total Convertible Notes Payable, net of discounts | $ | 556,116 | $ | 148,584 | ||||
Debt Discount
In the years ended December 31, 2014 and 2014, the Company recorded interest expense pertaining to debt discount on our convertible note in the amounts of $906,525 and $255,230. As of December 31, 2014 and 2013, the Company has a debt discount balance in the amounts of $339,934 and $113,361.
Accrued Interest
As of December 31, 2014 and 2013, the Company has an accrued interest balance pertaining to its outstanding liabilities in the amounts $67,907 and $11,695, respectively.
| F-14 |
Derivative liability
The conversion feature included in our outstanding convertible promissory notes constitute a derivative and have been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt on the accompany balance sheet. The Company calculates the derivative liability using the Black Scholes Model which takes into consideration the stock price on the grant date, exercise price with discount to market conversion rate, stock volatility, expected life of the note, risk-free rate, annual rate of quarterly dividends, call option value and put option value.
As of December 31, 2014 and December 31, 2013, the Company had $1,564,098 and $994,778 in derivative liability pertaining to the outstanding convertible notes.
The following is the range of variables used in revaluing the derivative liabilities at December 31, 2014 and December 31, 2013:
| December 31, 2014 | December 31, 2013 | |||||||
| Annual dividend yield | 0 | 0 | ||||||
| Expected life (years) of | 0.01 – .95 | 0.01 – .90 | ||||||
| Risk-free interest rate | 10 | % | 10 | % | ||||
| Expected volatility | 563.9 | % | 373.4 | % | ||||
NOTE 8 - STOCKHOLDERS' DEFICIT
Reverse Stock Split (See Note 13 – Subsequent Events)
On August 28, 2014, the Board of Directors and majority shareholders of Monster Arts Inc., approved a reverse stock split of one for two hundred (1:200) of the Company's total issued and outstanding shares of common stock. The reverse stock split went effective with FINRA on January 16, 2015 which makes it a subsequent event in this Form 10-K filing. The Company has not made any adjustments to its financial statement regarding the reverse stock split in this filing. The reverse stock split can be further referenced in our Form 8-K filing on January 16, 2015.
Authorized Common Stock
On July 19, 2013, the Company amended its articles of incorporation to increase its authorized shares from 75,000,000 to 750,000,000 of which 730,000,000 were designated as common stock and 20,000,000 were designated as preferred stock. The shares have a par value of $0.001. In August of 2014, the Company amended is articles of incorporation to increase the number of authorized common shares from 730,000,000 to 5,000,000,000 with a par value of $0.001.
Authorized Preferred Stock
The Company has designated 20,000,000 preferred shares as Series A Preferred Stock, par value $0.001. Each share of Series A Preferred Stock can vote equal to 100 shares of common stock and can be converted to common stock at a rate of 1 to 1.
Issuance of Preferred Stock
The Company has 20,000,000 Series A preferred shares issued and outstanding as of December 31, 2014 all of which were issued to the Company’s chief executive officer, Wayne Irving II, for services rendered. The preferred shares were valued at par $0.001 which resulted in recording compensation expense of $20,000.
Issuance of Common Stock
In the year ended December 31, 2013, the Company issued 26,136,087 common shares of which 861,751 shares were for $454,300 cash ($278,425 received in 2012), 7,355,667 shares were to consultants for services, 14,775,358 shares were for the reduction of $128,083 in convertible debt and $82 of accrued interest, and 3,143,311 shares were for the conversion of 13,767,684 shares of Ad Shark. The shares to consultants were valued at the closing stock price on the date of the executed agreement. This resulted in a consulting expense of $814,275 being recorded for the year ended December 31, 2013. The uncompleted portions of the consulting contracts for future services were recorded as prepaid expenses (See Note 4 for further details). At December 31, 2013, the Company recorded $139,996 in prepaid expenses pursuant to future consulting services to be performed in 2014 pursuant to contract obligations. Of the 7,355,667 shares issued to consultants, 323,833 shares were incorrectly issued and later returned and cancelled.
In the year ended December 31, 2014, the Company issued 2,152,805,559 common shares of which 477,381,748 shares were issued to Asher Enterprises, Inc. for the conversion of $250,710 of principle and $5,900 of accrued interest, 58,637,933 shares were issued to Premier Venture Partners, LLC pursuant to the court ordered settlement, 590,000,000 shares were issued to IBC Funds, LLC for the conversion of $81,000 of convertible debt, 40,608,172 shares to WHC Capital, LLC for the conversion of $17,084 in convertible debt, 233,000,000 shares to JMJ Financial for the conversion of $13,980 of convertible debt, 113,700,000 shares to Beaufort Capital for the conversion of $1,137 of convertible debt, 200,667,134 shares were issued to LG Capital, LLC for the conversion of $15,445 of convertible debt, 24,998,879 shares were issued to Ad Shark, Inc. shareholders for the conversion of their Ad Shark, Inc. shares at a ratio of 4.38 Ad Shark shares to Monster Arts Inc. shares, 350,000,000 shares were issued to our chief executive officer, Wayne Irving, for the reduction of $87,500 in accrued payroll liability, and 63,811,693 shares were to consultants for services rendered to the Company. The Company valued the 413,811,693 shares to consultants at the closing share price on the date of issuance which resulted in the Company recording a non-cash consulting expense of $244,847.
| F-15 |
NOTE 9 – CONTINGENCY AGREEMENTS
Master Purchase Agreement with Iconosys
On March 4, 2013, the Company and Iconosys, a privately held corporation, which shares an officer with the Company, entered into a Master Purchase Agreements in order for the Company to purchase, and for Iconosys to sell, certain intellectual property assets, including, without limitation, domain names, trademarks, smart phone apps. In addition, the Company received 15,046,078 shares of Iconosys common stock, $0.001 par value, as consideration for the cancellation of $295,862 in advances to Iconosys and $2,884 in accrued interest receivable. The Iconosys stock received accounts for approximately 10% of the 150,460,781 shares of Iconosys issued and outstanding as of December 31, 2014.
Management Service Agreement with Iconosys
On July 16, 2013, the Company executed a management service agreement with a subdivision of Iconosys called Text Kills. Iconosys shares an officer with the Company. The Company will provide service and management support for Text Kills events which includes but is not limited to raising awareness, public education campaigns, and managing the Text Kills tour bus. In the years ended December 31, 2014 and 2013 the Company recognized $250 and $5,387 in commission revenues from related parties relating to Text Kills.
Joint Venture agreement with Intelligent Living Inc.
On November 1, 2013, the Company executed a joint venture agreement with Intelligent Living, Inc. (“ILIV”). You can read the full agreement in the registrant’s SEC Form 8-K filing on November 5, 2013. The Company will provide ILIV comprehensive and end-to-end turnkey business function through its development of smartphone and tablet apps. The Company’s revenue sharing will be 35% of gross payments from app sales from Google Play and 50% of gross payments from app sales through Amazon, Nook, iTunes, and others. The Company will be paid in the form of stock by ILIV which is a publically traded company trading on the OTCQB under the symbol “ILIV”. The Company will be paid 36,600,000 common shares of ILIV in quarterly installments over a period of 2 years from the date of the agreement. The Company has been paid an initial 10,000,000 common shares upon closing of the agreement which were valued at the closing price of ILIV stock on November 1, 2013 which was $0.001. This resulted in the Company recording an available-for-sale securities asset of $10,000. The available-for-sale securities asset was revalued at December 31, 2014 using the closing price of ILIV of $0.0006 per share which resulted in the Company recording an unrealized gain on available-for-sale securities of $2,034.
Employment Agreement with Chief Executive Officer, Wayne Irving
On August 1, 2011, the Company’s wholly owned subsidiary, Ad Shark, entered into an employment agreement with its President Wayne Irving. The term of employment shall be three (3) years, commencing on the August 1, 2011 and terminating on July 31, 2014, or at a later mutually agreeable date. Salary compensation is to be paid at the rate of $88,500 annually, payable on a monthly basis. On the anniversary of employment, this rate will increase 5% annually. Monster Arts, Inc. absorbed the employment agreement when Ad Shark was dissolved in early 2014. As of December 31, 2014 and December 31, 2013, the Company had accrued wages of $46,800 and $155,706, respectively which are included in accounts payable and accrued expenses to related party balance. In the year ended December 31, 2014, the Company entered into a debt settlement agreement with its chief executive officer, Wayne Irving, whereby the Company issued 350,000,000 shares of common stock for the reduction of $87,500 in accrued payroll liability.
NOTE 12 – RELATED PARTY TRANSACTIONS
Issuance of Preferred Stock
The Company has 20,000,000 Series A preferred shares issued and outstanding as of December 31, 2014 which were issued to the Company’s chief executive officer, Wayne Irving II, for services rendered.
Debt Settlement Agreement Chief Executive Officer
On June 15, 2014, the Company entered into a debt settlement agreement with its chief executive officer, Wayne Irving, whereby the Company issued 100,000,000 shares of common stock for the reduction of $25,000 in accrued payroll liability.
On July 30, 2014, the Board of Directors of the Company authorized and approved the execution of a settlement agreement with the Company’s chief executive officer, Wayne Irving II, whereby the Company will issue 250,000,000 restricted common shares in return for the reduction in $62,500 in accrued liabilities payable to Mr. Irving pursuant to an employment agreement.
| F-16 |
Appointment of Chief Financial Officer
In August of 2014, the Company appointed Tisha Lawton as the Secretary, Treasurer and Chief Financial Officer of the Company. Ms. Lawton is a sibling of our Chief Executive Officer, Wayne Irving II. Tisha Lawton resigned as Secretary, Treasure and Chief Financial Officer of the Company in December of 2014. Wayne Irving II assumed her title as Chief Financial Officer.
Equity interest in Candor Homes Corporation
On April 25, 2014, the Company entered into a subscription agreement to buy 53,000 shares of common stock of Candor Homes Corporation, (“CH, Inc.”) for $10,000 which represents 53% of the equity interest in CH, Inc. As of December 31, 2014, there has been no activity with CH, Inc. and the Company has recorded accounts payable to related party balance of $10,000. The only two directors of CH, Inc. are our chief executive officer, Wayne Irving II and his sister. CH, Inc. is activity analyzing potential land investments in Central Iowa where new homes could be built. As of December 31, 2014, there are no assets, liabilities or activity in CH, Inc.
Asset Purchase Agreement with Iconosys for TAVG
The Company approved the execution of certain asset purchase and domain name, web site content and trademark assignment agreement dated August 8, 2013 with Iconosys, Inc., a private California corporation which shares an officer with the Company. See footnote 6 for additional details.
Management Service Agreement with Iconosys
On July 16, 2013, the Company executed a management service agreement with a subdivision of Iconosys called Text Kills. Iconosys shares an officer with the Company. The Company will provide service and management support for Text Kills events which includes but is not limited to raising awareness, public education campaigns, and managing the Text Kills tour bus. In the years ended December 31, 2014 and 2013 the Company recognized $1,750 and $5,387 of commission revenues from related parties relating to Text Kills.
Notes Payable to Related Parties
In 2012, the Company had certain debts paid directly by Iconosys, a private California corporation which shares an officer with the Company. The amounts paid on behalf of the Company totaled $13,250 as of December 31, 2014 and December 31, 2013. They were recorded as a note payable to related party. The note payable has terms of 0% interest and is payable on demand.
Pursuant to the asset purchase agreement with Iconosys executed on August 8, 2013, further described in Note 6, the Company issued a promissory note to Iconosys in the amount of $45,000, due August 7, 2014, with annum interest of 4% for the purchase of TAVG (see Note 6). As of December 31, 2014, the note to Iconosys has a balance of $2,244.
At December 31, 2014 and December 31, 2013, the Company had notes payable to related parties balance of $15,494 and $57,480.
Loan receivable to related party
The Company’s subsidiary, Ad Shark Inc., has a $300,000 line of credit agreement with Iconosys. The line of credit agreement has terms of 4%, payable on demand. Iconosys is a private California corporation which shares an officer with the Company. Mr. Irving was appointed CFO in May of 2012 and then appointed CEO in late 2012. Iconosys was at one time the parent company to Ad Shark, Inc. At December 31, 2014 and December 31, 2013, the total loan receivable balance advanced to Iconosys is $284,943 and $290,532, respectively. At December 31, 2014 and December 31, 2013, the accrued interest receivable to related party balance was $26,715 and $15,577, respectively.
Employment Agreement with Chief Executive Officer, Wayne Irving
On August 1, 2011, the Company’s wholly owned subsidiary, Ad Shark, entered into an employment agreement with its President Wayne Irving. The term of employment shall be three (3) years, commencing on the August 1, 2011 and terminating on July 31, 2014, or at a later mutually agreeable date. Salary compensation is to be paid at the rate of $88,500 annually, payable on a monthly basis. On the anniversary of employment, this rate will increase 5% annually. Monster Arts, Inc. absorbed the employment agreement when Ad Shark was dissolved in early 2014. As of December 31, 2014 and December 31, 2013, the Company had accrued wages owed to Wayne Irving II in the amounts of $46,800 and $155,706.
Employment Agreement with Chief Financial Officer, Tisha Lawton
In August of 2014, the Company appointed Tisha Lawton as the Secretary, Treasurer and Chief Financial Officer of the Company. The Company will pay Mrs. Lawton a yearly salary of $10,000. As additional compensation, Mrs Lawton will be paid 5,000,000 shares of restricted common stock per calendar quarter or the equivalent of $12,000, whichever is less. In the year ended December 31, 2014, the Company issued 5,000,000 common shares to Mrs. Lawton. In December of 2014, Mrs. Lawton resigned as the Secretary, Treasurer and Chief Financial Officer of the Company. Her employment agreement was cancelled in December of 2014.
| F-17 |
Loan from Officer
The Company was loaned money by Wayne Irving, the chief executive officer of the Company, with 0% interest and payable on demand. At December 31, 2014 and 2013 the loan from officer balance was $2,500 and $17,021.
Master Purchase Agreement with Iconosys
On March 4, 2013, the Company and Iconosys, a privately held corporation, which shares an officer with the Company, entered into a Master Purchase Agreements in order for the Company to purchase, and for Iconosys to sell, certain intellectual property assets, including, without limitation, domain names, trademarks, smart phone apps. In addition, the Company received 15,046,078 shares of Iconosys common stock, $0.001 par value, as consideration for the cancellation of $295,862 in advances to Iconosys and $2,884 in accrued interest receivable. The Iconosys stock received accounts for approximately 10% of the 150,460,781 shares of Iconosys issued and outstanding as of December 31, 2014.
Ad Shark Acquisition
The Chairman, Chief Executive Officer and Chief Financial Officer of Monster Offers is Wayne Irving II; Mr. Irving has been an officer and director of the Company since May 15, 2012. On November 9, 2012, Monster Offers entered into an Acquisition Agreement and Plan of Merger to acquire Ad Shark. At the time of this transaction, Wayne Irving II was also the Chief Executive Officer and a director of Ad Shark. He is also the Chief Executive Officer, Director and majority shareholder of Iconosys, Inc. (“Iconosys”), which owned Ad Shark prior to Iconosys’ spinoff (the “Spinoff”) of its shareholdings in Ad Shark to its shareholders. Subsequent to the Spinoff, Ad Shark merged with Monster Offers (the “Merger”). As a result of the Merger, Mr. Irving became the director, Chairman, Chief Executive Officer and Chief Financial Officer of the Company, which was the surviving entity of the Merger, and remains the largest shareholder of the Company. As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full force and effect a three-year Employment Agreement between Ad Shark and Mr. Irving which was entered into on August 1, 2012.
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full force and effect and to honor an ISO (Independent Sales Organization) Agreement between Ad Shark and Iconosys for the duration of the agreement, which terminates in June, 2013. At the time that subject agreement was entered into by the parties, Wayne Irving II was a principal executive officer and director for both Ad Shark and Iconosys. This Agreement allows Ad Shark to receive compensation from Iconosys in exchange for services rendered by Ad Shark in connection with its acting as Iconosys’ Independent Sales Organization. Under the terms of this Agreement, at the time of the Merger, Iconosys currently had an obligation to pay Ad Shark approximately $75,000.
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full and effect and to honor the Engagement Agreement dated March 19, 2011 between the Law Office of Brandon S. Chabner, a Professional Corporation, and Ad Shark. Brandon S. Chabner, Esq., is a director and corporate officer of Iconosys and 5%-plus shareholder of Monster Offers. The above-referenced Engagement Agreement provides for the provision of discounted cash rate legal services in exchange for equity-based compensation.
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full and effect and to honor a Line of Credit Agreement dated June 19, 2012 (the “LOC Agreement”) between Ad Shark, as “Lender,”, and Iconosys, as “Borrower.” This is a $300,000 revolving line of credit, pursuant to which, as of the effective time of the Merger, Iconosys has an obligation to repay Ad Shark approximately $271,000 in borrowings. This represents funds borrowed by Iconosys from Ad Shark on various dates during the period June 19, 2012 through October 9, 2012. Monster Offers agreed to assume Ad Shark’s rights and obligations under the LOC Agreement as an integral part of this Merger. As of the Effective Time of the Merger, Monster Offers also owed Iconosys approximately $75,000 in repayments of monies previously borrowed by Monster Offers from Iconosys, and which obligation, as agreed to by Monster Offers and Ad Shark in the Merger Agreement, may be offset by Iconosys against Iconosys’ repayment obligations to Monster Offers under the LOC Agreement.
As a condition of the Merger between Monster Offers and Ad Shark, Monster Offers agreed to keep in full effect two separate Consulting Agreements, each dated June 1, 2012, between Ad Shark and Paul Gain, a former officer and director of Monster Offers, and between Ad Shark and Paul West. Under each of these Consulting Agreements, Ad Shark paid grants of Common Stock of Five Million (5,000,000) and One Million Five Hundred Thousand (1,500,000) of restricted Ad Shark shares to Mr. Gain and Mr. West, respectively, for past consulting services rendered to Ad Shark. As part of these Consulting Agreements, each of Messrs. Gain and West entered into a Confidentially Agreement pursuant to which (i) they each agreed to keep Ad Shark proprietary information confidential, and (ii) for a period of twelve (12) months immediately following the termination of their applicable Consulting Agreement, they each agreed not to solicit Ad Shark employees or independent contractors.
| F-18 |
NOTE 13 - SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that other than mentioned below no other material subsequent events exist.
| 1. | On August 28, 2014, the Board of Directors and majority shareholders of Monster Arts Inc., approved a reverse stock split of one for 200 hundred (1:200) of the Company's total issued and outstanding shares of common stock. The Stock Split was effected on January 16, 2015 based upon the filing of appropriate documentation with FINRA. The Stock Split decreased the Company's total issued and outstanding shares of common stock from approximately 2,182,007,174 shares to 10,910,194 shares of common stock. |
| 2. | From January 1, 2015 through the date of this filing, the Company issued 827,826,153 post reverse stock split shares of common stock of which 827,626,153 shares were for the reduction of $75,992 in principle convertible debt and $4,674 in accrued interest and 200,000 shares were for services valued at $4,000. |
| 3. | On March 12, 2015, the Company entered into the Equity Purchase Agreement with Premier Venture. Pursuant to the terms and provisions of the Equity Purchase Agreement, for a period of thirty-six (36) months commencing on the date of effectiveness of the Registration Statement. Premier Venture shall commit to purchase up to $5,000,000 of the Company's common stock, $.001 par value (the "Shares"), pursuant to Puts (as defined below) covering the Registrable Securities (as defined below). The Purchase Price for the Shares for each Put shall be the put amount multiplied by seventy percent (70%) of the lowest individual daily VWAP of the Shares during the pricing period less six hundred dollars ($600.00). The maximum number of Shares that the Company shall be entitled to Put to Premier Venture per any applicable Put Notice (the “Put Amount”) shall not exceed the lesser of (i) 200% of the average daily trading volume of Company’s common stock on the five trading days prior to the date the Put Notice is received by Premier Venture; and (ii) 120% of the highest put amount on any put notice delivered under the Equity Purchase Agreement (the amount shall never be less than 1,000,000 shares). Notwithstanding the preceding sentence, the Put Amount cannot exceed 4.99% of the outstanding shares of the Company. |
| 4. | On March 12, 2015, the Company entered into the Registration Rights Agreement with Premier Venture. Pursuant to the terms and provisions of the Registration Rights Agreement, the Company is obligated to file a registration statement (the "Registration Statement") with the Securities and Exchange Commission to cover the Registrable Securities within thirty (30) days from the date of execution of the Registration Rights Agreement. The Company must use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the Securities and Exchange Commission. |
| 5. | On March 13, 2015, Carebourn Capital, L.P. entered into a purchase and assignment agreement with Brent Denlinger, holder of a $15,000 convertible promissory note with the Company, to purchase and assign the note in full which included accrued interest of $1,554. The original note bears interest of 9.9% per annum and has a maturity date of April 16, 2015. The convertible note’s principle and accrued interest may be converted into shares of the Company’s stock at a conversion rate equal to 60% of the lowest closing bid price in the ten days prior to conversion. |
| 6. | On March 19, 2015 the Company entered into a securities purchase agreement and convertible promissory note with Carebourn Capital, L.P., a Delaware limited partnership, for the sum of $41,500. The Company received $35,000 cash with the remaining $6,500 being classified as original issue discount. The note bears interest of 12% per annum, matures on December 19, 2015 and may be converted into shares of the Company at a conversion rate of 50% multiplied by average of the lowest three (3) trading prices ten (10) trading days prior to the conversion date. |
| 7. | On April 1, 2015, the Company issued a replacement convertible promissory note to Darling Capital, LLC in the amount of $33,000 plus accrued interest of $3,119. Darling Capital, LLC purchased a portion of a convertible promissory note dated April 1, 2014 issued to Anibus Capital Partners in the original amount of $127,900. The replacement convertible promissory note bears interest of 10% per annum and is due on July 12, 2015. |
| F-19 |
NOTE 14 – RESTATED FINANCIAL STATEMENTS
The Company has restated its consolidated balance sheet as of December 31, 2013, its consolidated statement of operations for the year ended December 31, 2013 and its consolidated statement of cash flows for the year ended December 31, 2013 for the following;
| 1. | Recalculation of derivative liability and debt discount relating to the Company’s outstanding convertible debentures. |
The following are previously recorded and restated balances as of December 31, 2013, for the year ended December 31, 2013.
| MONSTER ARTS, INC. | |||||
| (Formerly MONSTER OFFERS) | |||||
| (A Development Stage Company) | |||||
| CONSOLIDATED BALANCE SHEETS |
| December 31, 2013 | ||||||||||||
| Originally | ||||||||||||
| Reported | Restated | Difference | ||||||||||
| Cash | $ | 46,234 | $ | 46,234 | $ | - | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $1,250 | 4,173 | 4,173 | - | |||||||||
| Loan receivable to related party | 290,532 | 290,532 | - | |||||||||
| Interest receivable to related party | 15,577 | 15,577 | - | |||||||||
| Prepaid expenses | 139,996 | 139,996 | - | |||||||||
| Total Current Assets | 496,512 | 496,512 | - | |||||||||
| Fixed Assets | ||||||||||||
| Property and equipment, net | 460 | 460 | - | |||||||||
| Total Fixed Assets | 460 | 460 | - | |||||||||
| Other Assets | ||||||||||||
| Available-for-sale securities | 6,000 | 6,000 | - | |||||||||
| Total Other Assets | 6,000 | 6,000 | - | |||||||||
| Total Assets | $ | 502,972 | $ | 502,972 | $ | - | ||||||
| Liabilities and Stockholders' Equity: | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable & accrued expenses | $ | 67,586 | $ | 67,586 | $ | - | ||||||
| Accounts payable & accrued expenses to related parties | 169,577 | 165,913 | 3,664 | |||||||||
| Accrued interest | 11,659 | 11,659 | - | |||||||||
| Deferred revenues | 18,359 | 18,359 | - | |||||||||
| Loan from officer | 17,021 | 17,021 | - | |||||||||
| Notes payable | 10,161 | 10,161 | - | |||||||||
| Notes payable to related party | 57,480 | 57,480 | - | |||||||||
| Convertible notes payable, net of discounts | 261,945 | 148,584 | 113,361 | |||||||||
| Derivative Liability | 21,876,947 | 994,778 | 20,882,169 | |||||||||
| Total Liabilities | 22,490,735 | 1,491,541 | 20,999,194 | |||||||||
| Stockholders' Equity: | ||||||||||||
| Common stock, $0.001 par value 5,000,000,000 shares authorized, 2,182,007,174 and 29,201,615 shares issued and outstanding, respectively | 29,202 | 29,202 | - | |||||||||
| Additional paid in capital | 6,121,441 | 6,126,501 | (5,060 | ) | ||||||||
| Stock subscription payable | 493,673 | 488,613 | 5,060 | |||||||||
| Accumulated Comprehensive Gain / (Loss) | (4,000 | ) | (4,000 | ) | - | |||||||
| Deficit accumulated during the development stage | (28,628,079 | ) | (7,628,885 | ) | (20,999,194 | ) | ||||||
| Total stockholders' equity (deficit) | (21,987,763 | ) | (988,569 | ) | (20,999,194 | ) | ||||||
| Total Liabilities and Stockholders' Equity | $ | 502,972 | $ | 502,972 | $ | - | ||||||
The accompanying notes are an integral part of these financial statements.
| F-20 |
MONSTER ARTS, INC.
(Formerly MONSTER OFFERS)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Year ended | ||||||||||||
| December 31, 2013 | ||||||||||||
| Originally | ||||||||||||
| Reported | Restated | Difference | ||||||||||
| Commissions | $ | 13,750 | $ | 13,750 | $ | - | ||||||
| Commissions- related parties | 11,470 | - | 11,470 | |||||||||
| License revenues | - | 18,163 | (18,163 | ) | ||||||||
| Services | 1,961 | 14,097 | (12,136 | ) | ||||||||
| Services- related party | 5,387 | 5,387 | - | |||||||||
| Other revenues | - | - | - | |||||||||
| 32,568 | 51,397 | (18,829 | ) | |||||||||
| Cost of services | 12,627 | 4,838 | 7,789 | |||||||||
| Gross Profit | 19,941 | 46,559 | (26,618 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administration | 80,399 | 1,090,191 | (1,009,792 | ) | ||||||||
| Consulting | 991,122 | 192,635 | 798,487 | |||||||||
| Wages | 177,642 | 68,017 | 109,625 | |||||||||
| Marketing and promotions | 17,097 | 5,000 | 12,097 | |||||||||
| Depreciation and amortization | 44,974 | 470 | 44,504 | |||||||||
| Professional fess | 121,519 | 91,855 | 29,664 | |||||||||
| Total operating expenses | 1,432,753 | 1,448,168 | (15,415 | ) | ||||||||
| Income (Loss) from operations | (1,412,812 | ) | (1,401,609 | ) | (11,203 | ) | ||||||
| Other income and (expenses): | - | |||||||||||
| Interest expense | (14,950 | ) | (270,120 | ) | 255,170 | |||||||
| Interest expense- derivative | (21,876,947 | ) | (3,947,092 | ) | (17,929,855 | ) | ||||||
| Interest income | 9,643 | 9,643 | - | |||||||||
| Gain/(Loss) on derivative adjustment | - | 3,372,238 | (3,372,238 | ) | ||||||||
| Loss on debt settlement | - | - | - | |||||||||
| Debt forgiveness | 4,096 | 4,096 | - | |||||||||
| Refund on expenses | - | - | - | |||||||||
| Impairment expense | - | - | - | |||||||||
| Total other income and (expenses) | (21,878,158 | ) | (831,235 | ) | (21,046,923 | ) | ||||||
| Net loss before taxes | $ | (23,290,970 | ) | $ | (2,232,844 | ) | $ | (21,058,126 | ) | |||
| - | ||||||||||||
| Tax provisions | - | - | - | |||||||||
| Net loss after taxes | $ | (23,290,970 | ) | $ | (2,232,844 | ) | $ | (21,058,126 | ) | |||
| Other Comprehensive Income: | ||||||||||||
| Unrealized loss/(gain) on available-for-sale securities | 4,000 | 4,000 | - | |||||||||
| Other Comprehensive Income (Loss) | $ | (23,294,970 | ) | $ | (2,236,844 | ) | $ | (21,058,126 | ) | |||
| Basic & diluted loss per share | $ | (3.28 | ) | (0.31 | ) | $ | (3 | ) | ||||
| Weighted average shares outstanding | 7,102,414 | 7,102,414 | - | |||||||||
The accompanying notes are an integral part of these financial statements.
| F-21 |
PRIMCO MANAGEMENT INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||||||
| December 31, 2013 | ||||||||||||
| Originally | ||||||||||||
| Reported | Restated | Difference | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net Loss for the period | $ | (23,290,970 | ) | $ | (2,232,844 | ) | $ | (21,058,126 | ) | |||
| Adjustments to reconcile net loss to net cash | ||||||||||||
| provided by operating activities: | ||||||||||||
| Impairment loss | - | - | - | |||||||||
| License revenues- non cash | - | - | - | |||||||||
| Available-for-sale securities revenues | (3,050 | ) | (3,050 | ) | - | |||||||
| Debt discount | - | 255,230 | (255,230 | ) | ||||||||
| Non-cash compensation | - | - | - | |||||||||
| Forgiveness of debt | - | - | - | |||||||||
| Financing fees | - | - | - | |||||||||
| (Gain)/loss on change in derivative adjustment | 21,876,947 | 574,854 | 21,302,093 | |||||||||
| Stock for services expense | 998,568 | 998,568 | - | |||||||||
| Stock options for services | - | - | - | |||||||||
| Stock for note extension | - | - | - | |||||||||
| Convertible note issued for consulting services | - | - | - | |||||||||
| Bad debt | - | - | - | |||||||||
| Loss on debt settlement | - | - | - | |||||||||
| Strategic alliance costs | - | - | - | |||||||||
| Effect from share exchange | - | - | - | |||||||||
| Master purchase agreement | (298,745 | ) | (298,745 | ) | - | |||||||
| Depreciation and amortization | 44,974 | 44,974 | - | |||||||||
| Changes in Operated Assets and Liabilities: | ||||||||||||
| (Increase) decrease in prepaids | - | - | - | |||||||||
| (Increase) decrease in accounts receivable | - | - | - | |||||||||
| Increase in interest receivable | (6,737 | ) | (6,737 | ) | - | |||||||
| Increase (decrease) in loan receivable to related party | 18,356 | 18,356 | - | |||||||||
| Increase in deferred revenues | 18,359 | 18,359 | - | |||||||||
| Increase (decrease) in accounts payable and accrued expenses | 65,480 | 54,217 | 11,263 | |||||||||
| Increase in accounts payable to related parties | 42,358 | 42,358 | - | |||||||||
| Increase (decrease) in accrued interest | 9,847 | 9,847 | - | |||||||||
| Net cash (used) in operating activities | (524,613 | ) | (524,613 | ) | - | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from sale of stock | 168,875 | 168,875 | - | |||||||||
| Stock subscription payable | 7,000 | 7,000 | - | |||||||||
| Proceeds from officer loan | 18,165 | 18,165 | - | |||||||||
| Payments on officer loan | (102,270 | ) | (102,270 | ) | - | |||||||
| Proceeds from convertible notes | 286,865 | 286,865 | - | |||||||||
| Payments on convertible notes | - | - | - | |||||||||
| Proceeds from notes payable | 10,161 | 10,161 | - | |||||||||
| Payments on notes payable | - | - | - | |||||||||
| Proceeds from notes payable to related party | (770 | ) | (770 | ) | - | |||||||
| Payments on notes payable to related party | - | - | - | |||||||||
| Contributed Capital | - | - | - | |||||||||
| Net Cash Provided by Financing Activities | 388,026 | 388,026 | - | |||||||||
| Net (Decrease) Increase in Cash | (136,586 | ) | (136,586 | ) | - | |||||||
| Cash at Beginning of Period | 182,820 | 182,820 | - | |||||||||
| Cash at End of Period | $ | 46,234 | $ | 46,234 | $ | - | ||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||||||
| Income Taxes Paid | - | - | - | |||||||||
| Interest Paid | - | - | - | |||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Stock issued for purchase of license | - | - | - | |||||||||
| Stock issued for conversion of convertible notes payable | 128,165 | 128,165 | - | |||||||||
| Stock issued for debt settlement | - | - | - | |||||||||
| Increase in prepaid stock compensation | - | - | - | |||||||||
The accompanying notes are an integral part of these financial statements.
F-22