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[August 14, 2014]
ROWL, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with our financial statements as of, and for the quarterly periods ended, June 30, 2014 and 2013 and the related notes included therein. References to the "Company," "we," "our," or "us" in this section refers to Rowl, Inc.
Forward-Looking Statements Certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, without limitation, statements concerning the Company's future financial position and results of operations, planned expenditures, business strategy and other plans for future operations, the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future demand and industry conditions. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Generally, the words "anticipate," "believe," "estimate," "expect," "may" and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in this Quarterly Report on Form 10-Q, the specific risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, and those described from time to time in our future reports filed with the Securities and Exchange Commission.
The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company's condensed financial statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2013.
Overview We were formed as Awesome Living, Inc. in Nevada in July 2010 as a wholly owned subsidiary of uKarma Corporation, a Nevada corporation ("uKarma"). uKarma developed and marketed proprietary branded personal health and wellness products, including a proprietary branded fitness DVD series (Xflowsion). On August 9, 2010, the assets of uKarma's operating health and wellness business, including its Xflowsion DVD series, and its liabilities were transferred into Awesome Living, Inc. pursuant to a Contribution Agreement. uKarma subsequently changed its name to Innolog Holdings Corporation ("Innolog"), and issued 10,700,000 shares of Awesome Living, Inc. common stock to our management. This, along with other subsequent issuances of our common stock, significantly reduced Innolog's percentage ownership of our common stock. The Contribution Agreement anticipated a pro-rata spin-off of the Awesome Living, Inc. common stock owned by uKarma to uKarma's shareholders of record as of August 12, 2010. We intend to complete the spin-off as soon as practicable.
Following the transfer of our assets into Awesome Living, Inc., we made a decision to change the focus of our business from personal health and wellness products to developing a location-based social networking and mobile advertising platform. On July 23, 2014 and June 20, 2011, we changed our name from Awesome Living, Inc. to Rowl, Inc and OverNear, Inc., respectively, to better reflect our new business, and operate with a focus on developing a location-based social networking and mobile advertising platform. To date, we have generated no revenues from our planned social networking and mobile advertising service. Our limited history of operations makes prediction of future operating results difficult, and we believe that period-to-period comparisons of our operating results should not be relied on as predictive of our future results.
Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.
13 The following accounting policies, which are also described in Note 1 to our financial statements, are critical to aid the reader in fully understanding and evaluating this discussion and analysis: Software Development Costs - Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customers and revenues are generated. Amortization is computed as the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product. As of June 30, 2014 and December 31, 2013, the Company had capitalized software development costs of $710,200 for the development of a location-based social networking mobile application.
Net Loss Per Share - The Company applies FASB ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive.
Stock Based Compensation - The Company applies FASB ASC 718, "Stock Compensation," when recording stock based compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes-Merton option valuation model. Generally, all options granted expire ten years from the date of grant. Stock based compensation expense in the amount of $168,325 and $240,556 was incurred for the three and six months ended June 30, 2014, and $74,025 and $148,050 for the corresponding period in 2013.
The Company accounts for stock issued to non-employees in accordance with the provisions of FASB ASC 505-50 "Equity Based Payments to Non-Employees". FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).
New Accounting Pronouncements - In June 2014, the Financial Accounting Standards Board issued guidance related to financial statement presentation for development stage enterprises. The standard removes the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the standard eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The standard is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein, with early adoption permitted. As a result, the Company adopted this standard as of June 30, 2014 and eliminated since inception information from our financial statement.
Results of Continuing Operations Following are the results of the Company's operations for the three and six months ended June 30, 2014 and 2013.
Comparison of Three Months Ended June 30, 2014 and 2013 Selling, General and Administrative (SGA) expenses - During the second quarter of 2014, our total SGA expenses were $825,511, while total SGA expenses during the second quarter of 2013 were $598,250, representing an increase of approximately 38%. The increase in SGA costs is primarily attributable to approximately $234,000 in increased salaries and wages, recruitment, and equity compensation expenses. These expenses increased due to addition of new employees due to increased activities in the launch of our application.
Research and development - During the second quarter of 2014, our research and development expenses were $169,756 due to research and development activities related to software development. There were no research and development activities during corresponding period in 2013.
Net Loss- We had a net loss of $575,883 during the second quarter of 2013 compared to a net loss of $990,731 during the second quarter of 2014 due to the various research and development and selling, general and administrative expenses increase as described above.
Comparison of Six Months Ended June 30, 2014 and 2013 Selling, General and Administrative (SGA) expenses - During the first six months of 2014, our total SGA expenses were $1,530,009 while total SGA expenses during the first six months of 2013 were $989,674, representing an increase of approximately 55%. The increase in SGA costs is primarily attributable to approximately $534,000 in increased salaries and wages, recruitment, equity compensation, consulting, travel, and marketing expenses. These expenses increased due to addition of new employees and increased activities in the launch of our application.
Research and development - During the first six months of 2014, our research and development expenses were $299,286 due to research and development activities related to software development. There were no research and development activities during corresponding period in 2013.
Net Loss- We had a net loss of $1,825,138 during the first six months of 2014 compared to a net loss of $1,036,813 during the first six months of 2013 due to the various research and development and selling, general and administrative expenses increase as described above.
14 Liquidity and Capital Resources Cash Flows from Operating Activities Net cash used in operating activities was $1,555,555 for the six months ended June 30, 2014 while net cash used in operating activities was $788,399 for the six months ended June 30, 2013. The increase in cash used in operating activities is due primarily to fees related to services provided by consultants and new employees.
Cash Flows from Investing Activities Net cash used in investing activities was $13,155 for the six months ended June 30, 2014 while net cash used in investing activities was $181,409 for the six months ended June 30, 2013. The decrease in cash used in investing activities is primarily due to costs capitalized for software development in 2013.
Cash Flows from Financing Activities Net cash provided by financing activities was $3,221,000 for the six months ended June 30, 2014 compared to $967,500 provided during the six months ended June 30, 2013. This increase was due to increase in proceeds from the issuance of our securities in private placement offerings.
CAPITAL RESOURCES As of June 30, 2014, we had positive working capital of $1,947,250. Subsequent to June 30, 2014, we raised an additional $25,000 from the continued sale of our equity securities in private placements. There is no guarantee that we will be able to meet current working capital needs if we do not receive additional infusions of cash through loans, stock sales, revenues, or other sources. We expect to incur substantial losses over the next year.
As of June 30, 2014, we had cash of $1,824,822 and received $150,000 from our subscription receivable in July 2014. We have obtained additional capital through an equity financing and intend to continue raising capital through debt or equity financings.
We plan to engage outside contractors and consultants who are willing to be paid in stock rather than cash or a combination of stock and cash. Expenses incurred that cannot be paid in stock, such as audit and accounting fees, will be paid in cash. There are no assurances that we will be able to meet our capital requirements through year-end or that our capital requirements will not increase. If we are unable to raise necessary capital to meet our capital requirements, we may not be able to successfully develop and market our location-based social networking and mobile advertising service.
Our financial statements were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, we expect operating costs to continue to exceed funds generated from operations. As a result, we expect to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital.
Our management is actively seeking financing to continue the development of our location-based mobile platform and, once the platform is developed, to launch it. Our ability to continue as a going concern is dependent on our ability to arrange for the financing to meet these goals and on the success of our future operations. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. The report from our independent registered public accounting firm relating to the year ended December 31, 2013 states that there is substantial doubt about our ability to continue as a going concern.
Public Offering On February 14, 2014, the SEC issued a notice of effectiveness of the Registration Statement filed by the Company to sell 10,000,000 shares of common stock at a public offering price of $0.50 per share.
15 CONTRACTUAL OBLIGATIONS We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.
The following table summarizes our total and by period contractual obligations as of June 30, 2014: Less than Contractual Obligations Total 1 year 1-3 Years Legal Settlement $ 31,250 $ 31,250 $ - Employment Agreements $ 752,000 $ 500,000 $ 252,000 Office Lease $ 45,500 $ 45,500 $ -
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