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APPZ > SEC Filings for APPZ > Form 10-K on 15-Apr-2014All Recent SEC Filings

Show all filings for MONSTER ARTS INC.

Form 10-K for MONSTER ARTS INC.


15-Apr-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 9).

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, 2013 & 2012, 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, 2013 compared to the year ended December 31, 2012

We generated $32,568 in revenues for the year ended December 31, 2013 compared to $79,333 for the year ended December 31, 2012, a decrease of $46,765.

Selling, general and administrative expense. For the year ended December 31, 2013, selling, general and administrative expenses decreased to $80,399 from $101,264, approximately 20.6%. For the year ended December 31, 2013 and 2012 general and administrative expenses consisted of the following:

                         2013         2012

Auto                  $  2,252     $   2,549
Bank Fees               10,151         3,041
Office supplies         22,604        11,854
Travel                  24,016        21,394
Computer & Internet        611         4,295
Other                   20,765        58,131
                      $ 80,399     $ 101,264

For the year ended December 31, 2013, consulting expense increased to $991,122 as compared to $325,768 from the prior year, primarily as a result of a the expense related to stock being issued to consultants for services rendered to the Company.

For the year ended December 31, 2013, we had wages of $177,642 compared to $55,456 from the prior year. Employee compensation increased primarily due to employment agreement with Wayne Irving.

For the year ended December 31, 2013, marketing and promotions expense amounted to $17,097 as compared to $4,370 from the prior year. The increase was due to the Company improving its online presence.

For the year ended December 31, 2013, depreciation and amortization expense amounted to $44,974 as compared to $7,805 for the year ended December 31, 2012.

For the year ended December 31, 2013, professional fee expense decreased to $121,519 as compared to $212,731 from the prior year. Professional fee expense decreased primarily due to decrease in legal fees. The Company had high legal fees in 2012 due to the merger with Ad Shark, Inc.

For the year ended December 31, 2013, Other income and expense which includes interest expense, derivative interest expense, interest income, financing expense, and debt forgiveness amounted to $21,878,158 as compared to $2,736,308 for the year ended December 31, 2012.

Interest expense. For the year ended December 31, 2013, interest expense increased to $14,950 as compared to $5,160 for the year ended December 31, 2012.
The increase was due to additional interest expense incurred from the outstanding notes payable.

Derivative interest expense. For the year ended December 31, 2013, derivative interest expense increased to $21,876,947 as compared to $0 for the year ended December 31, 2012. The increase 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, 2013 and December 31, 2012:

                                       December 31,       December 31,         $               %
                                           2013               2012           Change         Change

Working Capital                     $      (21,994,223)    $   342,149   $   22,336,372   (Over 100%)
Cash                                            46,234         182,820          136,586   (Over 100%)
Total current assets                           496,512         694,274          197,762       (28.4%)
Total assets                                   502,972         739,708          236,736       (32.0%)
Accounts payable and accrued
liabilities                                     67,586          70,219            2,633        (3.7%)
Notes payable and accrued
interest                                       341,245          53,562         287,683      Over 100%
Total current liabilities                   22,490,735         352,125       22,138,610     Over 100%
Total liabilities                           22,490,735         352,125       22,138.610     Over 100%

At December 31, 2013 our working capital decreased as compared to December 31, 2012 primarily as a result of an increase in derivative liability of $21,994,223 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 2013 was $524,613 as compared to $213,797 for fiscal 2012. Non-cash items totaling approximately $22,766,357 contributing to the net cash used in continuing operating activities for fiscal 2013 include:

$3,050 in available-for-sale securities
$21,876,947 in derivative interest expense
$998,568 in stock issued for consulting services
$298,745 pursuant to the Master Purchase Agreement with Iconosys
$260,905 in stock options for services
$44,974 in depreciation
$6,737 in accrued interest receivable
$18,356 in loan receivable from Iconosys
$18,359 in deferred revenues from members agreements with TAVG
$65,480 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

Net cash used for continuing operating activities during fiscal 2012 was $213,797 for fiscal 2012. Non-cash items totaling approximately $3,154,977 contributing to the net cash used in continuing operating activities for fiscal 2012 include:

$100,000 in impairment expense
$33,333 in license revenues- noncash
$31,148 in financing fees from convertible notes payable
$258,414 in stock issued for consulting services
$134,291 in stock options for services
$15,000 in stock issued for note extension
$1,250 in bad debt
$15,000 in discount on notes payable
$2,700,000 from debt conversion related
$35,825 in strategic alliance expense related to strategic alliance with SSL5
$7,805 in depreciation and amortization
$62,129 in accounts payable and accrued expenses

Investing activities

Net cash used in investing activities was $0 for both fiscal 2012and 2011.

Financing activities

Net cash provided by financing activities was $388,027 during fiscal 2013 as compared to $392,800 for fiscal 2012. During the fiscal 2013 period we collected $168,875 in cash from the sale of our common stock in 2012, $18,165 in proceeds from officer loans, $102,269 in payments against officer loan, $286,865 in proceeds from convertible notes, $10,161 in proceeds from notes payable, and $770 in payments against notes payable to a related party.

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 the EEG headset.

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, 2013, we have three employees. We are dependent upon our officers and directors 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.

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