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APPZ > SEC Filings for APPZ > Form 10-Q on 19-Nov-2013All Recent SEC Filings

Show all filings for MONSTER ARTS INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MONSTER ARTS INC.


19-Nov-2013

Quarterly Report


Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

The Company from time to time may make written or oral "forward-looking statements" including statements contained in this report and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements of the Company's plans, objectives, expectations, estimates and intentions, which are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, in addition to others not listed, could cause the Company's actual results to differ materially from those expressed in forward looking statements: the strength of the domestic and local economies in which the Company conducts operations, the impact of current uncertainties in global economic conditions and the ongoing financial crisis affecting the domestic and foreign banking system and financial markets, including the impact on the Company's suppliers and customers, changes in client needs and consumer spending habits, the impact of competition and technological change on the Company, the Company's ability to manage its growth effectively, including its ability to successfully integrate any business which it might acquire, and currency fluctuations. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Overview of Current Operations

On May 2, 2013, the Company amended its articles of incorporation to change its name from Monster Offers to Monster Arts, Inc. Monster Arts, Inc. (the "Company") was incorporated in the State of Nevada on February 23, 2007, under the name Tropical PC Acquisition Company. On December 11, 2007, the Company amended its Articles of Incorporation changing its name from Tropical PC Acquisition Inc., to Monster Offers. The Company was originally incorporated as a wholly owned subsidiary of Tropical PC, Inc., a Nevada corporation. Tropical PC was incorporated September 22, 2004.

On November 9, 2012, the Monster Offers, Monster Offers Acquisition Corporation, a Nevada corporation and Ad Shark, Inc., a privately-held California corporation ("Ad Shark"), entered into a Acquisition Agreement and Plan of Merger pursuant to which the Company, through its wholly-owned subsidiary, Merger Sub, acquired Ad Shark in exchange for approximately 27,939,705 shares of the Company's unregistered restricted common stock, which were issued to the holders of Ad Shark stock based on their pro-rata ownership.

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.

Amendment to Articles of Incorporation- Name Change

On May 16, 2013, we filed an information statement pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended (the "Information Statement"). The company's board of directors and shareholders holding a majority of its outstanding voting capital stock approved an amendment to the articles of incorporation (the "Amendment") to change the Company's name from "Monster Offers" to "Monster Arts" (the "Name Change"). On May 2, 2013, the Company obtained the approval of the Name Change and the Amendment by written consent of the stockholders that are the record owners of 21,377,597 shares of common stock, which represents an aggregate of approximately 65.72% of the voting power as of May 2, 2013.

The Company's board of directors believes that the amendment to the Articles of Incorporation to change the name from "Monster Offers" to "Monster Arts Inc." is necessary in light of the proposed future business operations of the Company. The Board of Directors believes that the current name defines and limits the Company to an area which is involving less and less the substantial business operations of the Company. Those business operations pertain to daily deal aggregation, which involves collecting daily deals from multiple sites in local communities across the U.S. and Canada. The Company focuses on providing innovation and utility for daily deal consumers and providers by collecting and publishing thousands of daily deals and allowing consumers to organize these deals by geography or product categories, or to personalize the results using keyword search. The Company will continue these operations but intends to expand its operations.

The Board of Directors, therefore, believes that the name "Monster Arts Inc." will better reflect the evolution of the Company's future business operations including, but not limited to, growing the Company outside the daily deals space utilizing the core competencies of analytics and research that the Company has garnered during the prior years, including expertise in software and smartphone app development. As of the date of this Quarterly Report, the Company has pending several agreements and/or negotiations with entertainment related firms to build out smartphone applications for their catalogs and/or catalogs for the purpose of promoting and enhancing the offerings and brands for clients.

Material Agreements

Convertible Debentures

On April 1, 2013, the Company entered into a Securities Purchase Agreement with Christopher Thompson for a $10,000 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 $.10/share. As the conversion rate is fixed and below the market price of the Company's stock at June 30, 2013, the Company calculated a derivative expense of $27,483 at June 30, 2013 using the Black Scholes Model.

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. As the conversion rate is floating in nature, the Company calculated a derivative expense of $112,016 at June 30, 2013 using the Black Scholes Model.

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. As the conversion rate is floating in nature, the Company calculated a derivative expense of $212,766 at June 30, 2013 using the Black Scholes Model.

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. As the conversion rate is fixed and below the market price of the Company's stock at June 30, 2013, the Company calculated a derivative expense of $27,483 at June 30, 2013 using the Black Scholes Model.

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. As the conversion rate is floating in nature, the Company calculated a derivative expense of $256,584 at June 30, 2013 using the Black Scholes Model.

On June 26, 2013, the Company entered into a Securities Purchase Agreement with Michael Lace for a $2,800 note payable due interest at 9% per annum, unsecured, and due June 26, 2014. The note is convertible into common shares of the Company at a conversion rate of $.05/share. As the conversion rate is fixed and below the market price of the Company's stock at June 30, 2013, the Company calculated a derivative expense of $10,169 at June 30, 2013 using the Black Scholes Model.

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.

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.

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/share.

On August 8, 2013, the Company entered into a Securities Purchase Agreement with Balamurugan Shanmugam for a $5,000 note payable due interest at 9% per annum, unsecured, and due August 8, 2014. The note is convertible into common shares of the Company at a conversion rate of $.10/share. On September 26, 2013, Balamurugan exercised his right to convert his $5,000 of convertible debt and $60 of accrued interest into 50,604 common shares.

Asset Purchase Agreement

The Board of Directors of the Company approved the execution of certain asset purchase and domain name, web site content and trademark assignment agreement dated August 8, 2013 (the "Asset Purchase Agreement") with Iconosys, Inc., a private California corporation ("Iconosys"). In accordance with the terms and provisions of the Asset Purchase Agreement, 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 further accordance with the terms and provisions of the Asset Purchase Agreement, the Company shall pay to Iconsys 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 to be paid within five days of closing and the balance of the $45,000 to be paid pursuant to the terms and provisions of that certain promissory note described below; and (ii) $200,000 of the Purchase Price shall be paid in the form of the issuance to Iconosys of 1,052,632 shares of the Company's restricted common stock at a per share price of $0.19 per share (which per share price was based on the closing trading price of the Company's shares of common stock on the OTC Bulletin Board as of August 8, 2013.

Iconosys is a leading developer of innovative mobile and stationary telecommunication applications and technologies. It develops safety, security, and privacy-oriented technologies for modern-age personal devices and platforms.
As a leader in the mobile communications market, Iconosys develops its technologies into retail grade Smart Device and web applications (apps) that promote an enhanced user experience. Iconosys has developed nearly 500 Smart Device retail grade apps since 2009.

Iconosys develops both client-side and server-side applications that are not only unique trendsetters, but also designed to serve the time-sensitive, constantly evolving needs of today's and tomorrow's consumers. Iconosys and its client-side app development team are specialists in developing solutions for Android, iPhone, BlackBerry, Palm, Windows, Chrome, Windows Phone/Windows Mobile and Symbian platforms. Iconosys cultivates compelling competitive advantages in three primary areas of its business focus: research and development; hands-on client services; and mobile marketing strategies.

In conjunction with the Asset Purchase Agreement, on August 8, 2013, the Board of Directors approved the execution of that certain promissory note dated August 8, 2013 in the principal amount of $45,000 issued to Iconosys (the "Note"). Interest accrues on the Note at a rate of 4% per annum with a maturity date of August 7, 2014.

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, and smart phone apps, and 15,046,078 shares of Iconosys common stock, $0.001 par value, in consideration for the Company's cancellation of $295,862 in advances to Iconosys and $2,884 in accrued interest receivable. The Company valued the 15,046,078 shares received from Iconosys at the fair market value of $0.10 which was calculated from the average stock price paid by cash investors. This resulted in valuing the stock received at $1,504,608. The stock received accounts for approximately 10% of the 150,460,781 shares of Iconosys issued and outstanding as of March 31, 2013. Since this agreement was between related parties, the Company did not record an asset for the excess consideration received but recorded the debit to additional paid in capital.

Asset Purchase Agreement with Iconosys for 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. 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 OTC Bulletin Board as of August 8, 2013.

Being Iconosys is a related party to the Company, it was management's decision to not record an intangible asset related to the asset purchase. As of September 30, 2013, the Company has not yet issued the 1,052,632 shares and has recorded them as a stock payable.

Our Current Business

Monster Arts, Inc. is a daily deal aggregator, collecting daily deals from multiple sites in local communities across the U.S. and Canada. Focused on providing innovation and utility for daily deal consumers and providers, the company collects and publishes thousands of daily deals and allows consumers to organize these deals by geography or product categories, or to personalize the results using keyword search.

We utilize proprietary technology that we have developed, acquired, and/or licensed to deploy our products and services.

Our primary services include the aggregation and promotion of daily deals to consumers via our primary website; www.monsteroffers.com which provides search capabilities for users to quickly find Daily Deals based on filtering algorithms, zip code, predictive text search by city, and by user preferences.

The Company earns fees from data reporting services, traffic generation, and from our affiliate partners via marketing services including the online promotion of its affiliate partners daily deals through its website www.monsteroffers.com, selling of industry data and analysis reports, and executing internet and social marketing campaigns for customers. Our affiliate program partners are also offered search result placement and other benefits including the ability to participate in early release or beta programs for new innovations that the Company offers.

Current and potential customers include media and content publishers, advertisers, direct marketers, and advertising agencies seeking to increase brand impressions, sales, and customer contact through online marketing initiatives. Our customers also utilize our products and services to analyze the competitive landscape within their target markets. All transactional services revenues are recognized on a gross basis.

Ad Shark's Business

Ad Shark organizes advertising sales efforts by constructing media and advertising delivery systems for Smartphone and Tablet app developers. Ad Shark's corporate mission is to capitalize on the growth of the mobile marketing industry, which some analysts have estimated to be increasing at an annual rate of about 100% per year.

Ad Shark's approach to integrating traditional internet advertising with optimized media and cutting edge ad delivery methods, all tailored specifically for the applicable Smart Device, OS or screen resolution platform, puts the company in an ideal position to compete for engagements involving advertising campaigns for mobile marketing services and products. At present, Ad Shark has more than 2,000 clients. For more on Ad Shark, Inc., see Ad Shark's website:
http://www.adshark.mobi. (The information on Ad Shark's website is for reference purposes only, and is not meant or intended to be included as description of Ad Shark in this Quarterly Report.)

Ad Shark, acts as the servicing vehicle for mobile communication advertising services sold to commercial clients. Ad Shark is developing a series of advertising accessories to establish a platform position in mobile marketing for the company with specific families of mobile devices.

In addition, Ad Shark serves as the marketing and sales support arm for Travel America Visitor Guide ("TAVG") directories, which is currently operated as a division of Iconosys and is gaining visibility and traction as a preferred mode of business advertising for smaller-to-mid-sized businesses throughout the U.S. With the Ad Shark opportunity, the Company sees itself as being in an excellent position to take advantage of the mobile marketing industry, which is projected to grow over the next 3 years. Management believes this growth will come primarily from Internet-enabled Smartphones.

Results of Operations for the Three Month Periods Ended September 30, 2013 and September 30, 2012

Revenues

During the three month period ended September 30, 2013, the Company generated $17,142 in revenues as compared to $5,750 for the three month period ended September 30, 2012. The revenue generated during the three month period ended September 30, 2013 consisted of: (i) $12,773 (2012: $0) in commission revenues to related parties; (ii) $4,369 (2012: $0) in services; and (iii) $-0- (2012:
$5,750) in commission revenues. There can be no assurances that the Company can be profitable or that the Company will not incur operating losses in the future.

Operating Expenses

For the three month period ended September 30, 2013, the Company incurred operating expenses of $476,016 as compared to operating expenses of $185,837 incurred during the three month period ended September 30, 2012. Operating expenses for the three month period ended September 30, 2013 consisted of the following: (i) $326,274 (2012: $30,269) in general and administration; (ii) $69,651 (2012: $147,718) in consulting; (iii) $46,926 (2012: $1,150) in wages;
(iv) $6,011 (2012: $-0-) in marketing and promotions; (v) $11,609 (2012: $-0-) in depreciation and amortization; and (vi) $15,545 (2012: $6,700) in professional fees.

Consulting expenses decreased by $78,067 to $69,651 from $147,718 for the three months ended September 30, 2013 and 2012, respectively, primarily due to the issuance of stock for consulting services.

Salaries and wages increased by $45,776 to $46,926 from $1,150 for the three months ended September 30, 2013 and 2012, respectively, primarily due to the Company's merger with Ad Shark and taking over the payroll of Ad Sharks officers and directors.

Professional fees increased by $8,845, to $15,545 from $6,700 for the three months ended September 30, 2013 and 2012, respectively, primarily due to increased legal fees due to the asset purchase agreement with Iconosys.

Therefore, during the three month period ended September 30, 2013, the Company incurred a loss from operations of $458,874 as compared to a loss from operations of $180,087 during the three month period ended September 30, 2012.

During the three month period ended September 30, 2013, the Company further incurred: (i) interest expense- derivative of $417,623 (2012: $0); (ii) interest income of $2,267 (2012: $-0-); (iii) interest expense of $-0- (2012: $1,045).

As a result of the above, the Company incurred a net loss of $874,230 ($0.13 per share) and of $181,132 ($0.06 per share) for the three month periods ended September 30, 2013 and 2012, respectively.

Results of Operations for the Nine Month Periods Ended September 30, 2013 and September 30, 2012

Revenues

During the nine month period ended September 30, 2013, the Company generated $37,592 in revenues as compared to $78,168 for the nine month period ended September 30, 2012. The revenue generated during the nine month period ended September 30, 2013 consisted of: (i) $13,750 (2012: $36,250) in commission revenues; (ii) $12,773 (2012: $-0-) in commission revenues to related parties,
(iii) $7,869 (2012: $8,585) in services; (iv) $3,200 (2012: $-0-) in services to related parties; and (v) $-0- (2012: $33,333) in license revenues. There can be no assurances that the Company can be profitable or that the Company will not incur operating losses in the future.

Operating Expenses

For the nine month period ended September 30, 2013, the Company incurred operating expenses of $1,065,257 as compared to operating expenses of $506,355 incurred during the nine month period ended September 30, 2012. Operating expenses for the nine month period ended September 30, 2013 consisted of the following: (i) $385,924 (2012: $200,956) in general and administration; (ii) $384,335 (2012: $261,588) in consulting; (iii) $147,494 (2012: $20,806) in salaries; (iv) $12,097 (2012: $-0-) in marketing and promotions; (v) $34,827
(2012: $-0-) in depreciation and amortization; and (vi) $100,580 (2012: $23,005)
in professional fees.

Consulting expenses increased by 122,747, to $384,335 from $261,588 for the nine months ended September 30, 2013 and 2012, respectively, primarily due to the issuance of stock for consulting services.

Salaries and wages increased by $126,688 to $147,494 from $20,806 for the nine months ended September 30, 2013 and 2012, respectively, primarily due to the Company's merger with Ad Shark and taking over the payroll of Ad Sharks officers and directors.

Professional fees increased by $77,575, to $100,580 from $23,005 for the nine months ended September 30, 2013 and 2012, respectively, primarily due to increased accounting and legal fees with the year end audit and merger with Ad Shark.

Therefore, during the nine month period ended September 30, 2013, the Company incurred a loss from operations of $1,065,257 as compared to a loss from operations of $506,355 during the nine month period ended September 30, 2012.

During the nine month period ended September 30, 2013, the Company further incurred: (i) interest expense of $4,520 (2012: $63,635); (ii) interest income of $7,443 (2012: $-0-); (iii) financing expense of $-0- (2012: $16,148); (iv) derivative interest expense of $1,039,558 (2012: $-0-); and (v) loss on debt settlement of $-0- (2012: $2,514,865).

As a result of the above, the Company incurred a net loss of $2,064,300 ($0.38 per share) and of $3,022,835 ($1.61 per share) for the nine month periods ended September 30, 2013 and 2012, respectively.

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 September 30, 2013 and December 31, 2012:



                                         September 30,  December 31,         $             %
                                             2013           2012          Change        Change
Working Capital (deficit)                    (871,162)        342,236     (1,213,398) (Over 100%)
Cash                                             3,346        182,820       (179,474)     (98.2%)
Total Current Assets                           772,197        694,274          77,923       11.2%
Total Assets                                   782,804        739,708          43,096        5.8%
Accounts payable and accrued liabilities       279,856        197,113          82,743       42.0%
Loan from officer                               13,421        101,125        (87,704)     (86.7%)
Notes payable to related party                  58,250         13,250          45,000   Over 100%
Convertible notes payable                      229,065         38,500         190,565   Over 100%
Total current liabilities                    1,643,359        352,038       1,291,321   Over 100%
Total liabilities                            1,643,359        352,038       1,291,321   Over 100%

At September30, 2013, our working capital deficit decreased when compared to December 31, 2012, primarily as a result of a decrease of $165,758 in loan receivable to related party which was a result of the Master Purchase Agreement with Iconosys, increase of $383,493 in prepaids from stock issued to consultants for future services, and an increase of $1,039,558 in derivative liability from the convertible notes issued.

Operating activities

Net cash used for continuing operating activities during the nine months ended September 30, 2013 was $510,114. Non-cash items totaled approximately $1,554,186 which included the following:

$1,039,558 of derivative expense from the issuance of convertible notes payable . . .

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