Discount Coupons Corporation (the “Company”) provides web-based advertising and promotion services to the business and consumer community through various websites. Revenue is generated from the sale of discount coupons from its merchant clients to customers registering on the website to receive offers via e-mail. The Company operates globally via the Internet. The Company also manages other daily deal websites for a percentage of revenue.
The Company is a Florida corporation and was organized in August, 2010. Through December, 2013, the Company has been primarily engaged in developing its website and a base of merchant voucher offerings for consumer consumption, recruiting personnel, raising capital, and identifying similar companies for acquisition.
The Company is a new enterprise in the development stage as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915,
Development Stage Entities
. This stage is characterized by significant expenditures for the design and development of the Company’s offerings. Once the Company’s planned principal operations commence, its focus will be on marketing vouchers to the general public through direct marketing and third-party partnerships and affiliations.
The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Since inception, the Company has primarily devoted its efforts to the development and implementation of its web-based business. Operations have been funded through the private placement of equity securities and debt financing. These successful funding efforts have allowed the Company to reach its current state of development despite incurring losses typical with an emerging technology company. At
December 31, 2013 and 2012, the Company had $5,172 and $84,187 in cash, respectively, and $753,711 and $650,117 in negative working capital, respectively. Additionally,
for the years ended December 31, 2013 and 2012, the Company incurred net losses of $5,017,789 and $1,670,375, respectively.
Management anticipates incurring additional losses prior to reaching a positive operating cash flow and intends to finance its operations through additional notes payable and equity funding. Significant additional funding is needed. The Company is in the process of raising capital but there are no assurances such funding will be available.
If adequate funding cannot be obtained, the Company may be unable to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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3.
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Summary of significant accounting policies
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Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the related disclosures. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant accounting estimates include accounting for stock based compensation and the valuation and impairment of intangible assets and goodwill.
Restatement
The Company has restated its financial statements for the years ended December 31, 2012 and 2011 (see Note 14).
Cash and Cash Equivalents
The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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3.
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Summary of significant accounting policies (continued)
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Computer Equipment and Software
Computer equipment and software are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of 3 to 5 years.
Long-Lived Assets
In accordance with FASB ASC Topic 360
“Property, Plant, and Equipment,”
the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. There were no impairment charges during the years ended December 31, 2013 and 2012.
Valuation of Investments in Securities at Fair Value – Definition and Hierarchy
In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1
– Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access.
Level 2
- Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.
Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases,
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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3.
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Summary of significant accounting policies (continued)
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Valuation of Investments in Securities at Fair Value – Definition and Hierarchy (continued)
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular instruments. Changes in assumptions or in market conditions could significantly affect the estimates. The carrying amount of our financial assets and liabilities approximates fair value.
Revenue Recognition
We recognize revenue when a coupon is purchased from our on-line site. We estimate customer refunds based on historical data over time and reduce revenue by these estimated refunds. Sales of coupons are recognized at the time of the sale for the face value of the coupon less the amount due the merchant.
For coupons purchased from sites under a management agreement, we receive a percentage of the net revenue (face value of the coupon less the amount due the merchant). This percentage ranges from 100% to 75%, depending on the terms negotiated with the owner of the site under management.
For consulting agreements, revenue is recognized in the period services are performed and collectability is reasonably assured. Revenue is reduced by estimated customer refunds.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740
“Income Taxes,”
which requires accounting for deferred income taxes under the asset and liability method. Deferred income tax asset and liabilities are computed for the differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.
The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Advertising and promotion expense was $10,680 and $16,935 for the years ended December 31, 2013 and 2012, respectively.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
3. Summary of significant accounting policies (continued)
Receivables and Credit Policies
The Company’s accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from invoice date. Accounts receivable are stated at the amount billed to the customer, less management’s best estimate of an allowance for doubtful accounts and an estimate for sales returns. No interest is applied to past due accounts. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoice.
Loss Per Common Share
The Company complies with the accounting and disclosure requirements of FASB ASC 260,
“Earnings Per Share.”
Basic earnings per common share ("EPS") calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. The Company’s common stock equivalents are as follows:
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For the years ended
December 31,
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|
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2013
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|
|
2012
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Common shares indexed to stock options
|
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6,083,746
|
|
|
|
4,090,746
|
|
|
Common shares indexed to warrants
|
|
|
2,441,840
|
|
|
|
992,740
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|
|
Common shares indexed to convertible instruments
|
|
|
616,000
|
|
|
|
412,500
|
|
|
|
|
|
9,141,586
|
|
|
|
5,495,986
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|
Stock-Based Compensation
The Company complies with FASB ASC Topic 718
“Compensation – Stock Compensation,”
which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions and requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). No compensation costs are recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments is estimated using option-pricing models adjusted for the unique characteristics of those instruments. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. The Company recorded compensation expense of $291,120 and $533,756 during the years ended December 31, 2013 and 2012. In addition, the Company recognized $610,000 in compensation expense for direct stock grants to employees during the year ended December 31, 2013.
Nonemployee Awards
The fair value of equity instruments issued to a nonemployee is measured by using the stock price and other measurement assumptions as of the earlier date when either: (i) a commitment for performance by the nonemployee has been reached; or (ii) the counterparty’s performance is complete. Expenses related to nonemployee awards are generally recognized in the same period as the Company incurs the related liability for goods and services received. The Company recorded compensation expense related to consulting and other professional services of $687,297 and $301,382 during the years ended December 31, 2013 and 2012, respectively. The Company recognized $2,396,000 and $103,550 in compensation expense for stock issued to non-employees during the years ended December 31, 2013 and 2012, respectively, for consulting and other professional services. Additionally, stock valued at $664,998 was issued for future services.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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3.
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Summary of significant accounting policies (continued)
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Recently issued Accounting Pronouncements
The Company does not believe that any recently issued or proposed accounting pronouncements not yet adopted will have a material impact on the financial statements.
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4.
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Equipment and intangible assets
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Computer equipment and intangible assets, net, consisted of the following at December 31, 2013 and 2012:
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December 31,
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December 31,
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2013
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|
|
2012
|
|
|
|
|
|
|
|
|
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Office equipment
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$
|
896
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|
$
|
896
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|
Purchased mailing lists and trademarks
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34,000
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|
|
|
-
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|
Software
|
|
|
36,254
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|
|
|
36,254
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|
|
|
|
|
71,150
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|
|
|
37,150
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|
Less: accumulated depreciation and amortization
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|
(39,329
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)
|
|
|
(23,419
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)
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|
|
|
$
|
31,821
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|
|
$
|
13,731
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|
Depreciation and amortization expense was $15,910 and $12,384 for the years ended December 31, 2013 and 2012, respectively.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Cloops, Inc.
On August 1, 2013, the Company completed its acquisition of the operations of Cloops, Inc. (“Cloops”), which is
a provider of Daily Deals in the greater Los Angeles and South Florida markets. The Company issued 310,000 shares of its common stock in exchange for Cloops’ assets, which include mailing lists, merchant contacts, domain names, and other intangibles, and the assumption of certain liabilities.
Deal-A-Day LLC
On September 6, 2013, the Company completed its acquisition of the operations of Deal-A-Day LLC (“Deal-A-Day”), which operates ValleyBestDeals.com and is concentrated on the Southern California market. The Company issued 135,000 shares of its common stock in exchange for Deal-A-Day’s assets, which include mailing lists, merchant contacts, domain names, and other intangibles. No liabilities were assumed in the transaction.
HC Consulting, LLC
On September 27, 2013, the Company completed its acquisition of the operations of HC Consulting, LLC (“HC Consulting”), which provides a whitelabel solution for entrepreneurs to build an independent Daily Deal company plus ongoing consulting services for those users of its technology platform. The Company issued 255,000 shares of its common stock in exchange for HC Consulting’s assets, which include cash, mailing lists, merchant contacts, domain names, and other intangibles, and the assumption of certain liabilities.
The Company has determined that the acquisition of the net assets of the above entities constituted a business combination as defined by FASB ASC Topic 805,
Business Combinations
. Accordingly, the assets acquired were recorded at their fair values. Fair values were determined based on the requirements of FASB ASC Topic 820,
Fair Value Measurements
. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The measurement period ends as soon the Company receives the information it needs about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable. However, the measurement period is not to exceed one year from the acquisition date. In addition, the tax treatment is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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5.
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Business Combinations (continued)
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The results of operations for Cloops, Inc., Deal-A-Day LLC and HC Consulting, LLC are included in the Statements of Operations from the date of acquisition. In connection with these transactions, the consideration paid, the assets acquired, and the liabilities assumed were recorded at fair value on the date of acquisition, as summarized in the following table.
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Cloops, Inc.
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Deal-A-Day LLC
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HC Consulting,
LLC
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Fair value of total consideration paid:
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|
|
|
|
|
|
|
|
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Common stock issued upon closing
(1)
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|
$
|
186,000
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|
|
$
|
81,000
|
|
|
$
|
153,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of identifiable assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
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|
Intangible assets (mailing lists)
|
|
|
27,500
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|
|
|
6,500
|
|
|
|
-
|
|
|
Cash
|
|
|
-
|
|
|
|
-
|
|
|
|
45,233
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|
|
Total assets acquired
|
|
|
27,500
|
|
|
|
6,500
|
|
|
|
45,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
|
|
|
|
|
|
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Merchant payables
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|
6,777
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|
|
|
-
|
|
|
|
-
|
|
|
Unredeemed coupons
|
|
|
3,856
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|
|
|
-
|
|
|
|
-
|
|
|
Other liabilities
|
|
|
16,367
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|
|
|
-
|
|
|
|
6,474
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|
|
Total liabilities assumed
|
|
|
27,000
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|
|
|
-
|
|
|
|
6,474
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired
|
|
|
500
|
|
|
|
6,500
|
|
|
|
38,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill resulting from transaction
|
|
$
|
185,500
|
|
|
$
|
74,500
|
|
|
$
|
114,241
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|
(1) The common stock issued to HC Consulting was valued at $0.60 per share. This value was based on common stock sales around the acquisition date.
Goodwill of $185,500, $74,500, and $114,241 for Cloops, Inc., Deal-A-Day LLC, and HC Consulting LLC, respectively, was recorded after adjusting for the fair value of net identifiable assets acquired. The goodwill from the acquisition represents the inherent long-term value anticipated from the synergies and business opportunities expected to be achieved as a result of the transaction. The intangible assets are being amortized over its estimated life, currently expected to be three years.
The unaudited pro forma information as if the above acquisitions had occurred on January 1, 2013 is as follows. The pro forma information is not indicative of results that would have occurred or which may occur in the future:
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REVENUE
|
|
$
|
276,681
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|
|
|
|
|
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|
NET LOSS
|
|
$
|
(4,917,728
|
)
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
|
|
$
|
(0.32
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)
|
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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6.
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Convertible bridge loans
|
During the years ended December 31, 2013 and 2012, the Company issued $176,750 and $206,250, respectively, face value convertible bridge loans to investors (“Bridge Loans”). Of the aggregate $383,000 in Bridge Loans, $11,250 were loans from related parties. The Bridge Loans accrue interest at the rate of 10% per annum and have a maturity date of August 31, 2013. The debt holders have the option to convert the Bridge Loans into common stock at a fixed conversion price of $0.50 per share. In connection with each Bridge Loans, the Company issued common stock purchase warrants to acquire 2 shares of its $0.00001 par value common stock for each $1.00 of principal amount loaned the Company at an exercise price of $0.50 per share.
The Company evaluated the terms and conditions of the Bridge Loans and warrants under the guidance of ASC 815,
Derivatives and Hedging
. The conversion feature met the definition of conventional convertible for purposes of applying the conventional convertible exemption. The definition of conventional contemplates a limitation on the number of shares issuable under the arrangement. The instruments were convertible into a fixed number of shares and there were no down round protection features contained in the contracts. Additionally, the warrants did not contain any provisions or features that would preclude equity classification and may be settled with unregistered shares.
The following tables reflect the allocation of the purchase on the financing dates:
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|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
$206,250
|
|
|
$
176,750
|
|
|
|
|
|
Convertible Bridge Loans
|
|
Face Value
|
|
|
Face Value
|
|
|
Totals
|
|
|
Proceeds
|
|
$
|
206,250
|
|
|
$
|
176,750
|
|
|
$
|
383,000
|
|
|
Paid-in capital (warrants)
|
|
|
(90,893
|
)
|
|
|
(77,149
|
)
|
|
|
(168,042
|
)
|
|
Carrying value
|
|
$
|
115,357
|
|
|
$
|
99,601
|
|
|
$
|
214,958
|
|
Interest expense on the bridge loans for the years ended December 31, 2013 and 2012 amounted to $179,187 and $2,510, respectively, including amortization of debt discount on the Bridge Loans of $154,169 and $13,973Z^, respectively. As of December 31, 2013, the debt discount was fully amortized.
Convertible bridge loans consisted of the following as of December 31, 2013 and 2012:
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|
For the years ended
|
|
|
Convertible Bridge Loans
|
December 31, 2013
|
|
December 31, 2012
|
|
|
Principal
|
|
$
|
119,000
|
|
|
$
|
206,250
|
|
|
Unamortized discount
|
|
|
-
|
|
|
|
(77,020
|
)
|
|
Carrying value
|
|
$
|
119,000
|
|
|
$
|
129,230
|
|
Conversion of Bridge Loans
On August 31, 2013 (the maturity date), Bridge Loan holders with an aggregate principal balance of $262,000 agreed to sign amendments which modified the conversion option from $0.50 per share to a conversion option in which the principal balance of $262,000 would be convertible into 602,596 shares of common stock. This amounted to a conversion price of approximately $0.43 per share. Additionally, the bridge loan holders agreed to forgive accrued interest amounting to $16,167. In accordance with ASC 470-50-40-10, a test was performed to see if the modification resulted in a 10% change in cash flows. It did not. As a result, modification accounting was not required. The $262,000 in principal was converted into 602,596 shares of common stock on August 31, 2013.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
|
6.
|
Convertible bridge loans (continued):
|
Extension of Bridge Loans
The remaining principal balance of $121,000 was still outstanding as of the maturity date. The holders of these Bridge Loans agreed to sign amendments which extended the maturity date of their Bridge Loans and reduced the conversion price on the Bridge Loans. These amendments gave rise to an extinguishment because the difference in cash flows was greater than 10%. As a result, the Company recorded a loss on extinguishment of debt in the amount of $111,209.
As of December 31, 2013 the outstanding principal balance of the remaining convertible Bridge Loans amounted to $119,000. Accrued interest related to these loans amounted to $11,361 as of December 31, 2013. As of December 31, 2013, $10,000 of the outstanding loans was from a related party.
Between September 27, 2010 and July 21, 2011, the Company issued notes payable to third party investors with an aggregate face value of $447,500 (“Investor Loans”). Of the aggregate $447,500 in Investor Loans, $88,333 were loans from related parties.
The notes have a common maturity date of August 31, 2013, payable at face value plus accrued interest at maturity. The notes accrue interest at the rate of 7% per annum.
Interest on these notes was calculated using an imputed interest rate of 7.51% and 12.63%. Interest expense on the Investor Loans for the years ended December 31, 2013 and 2012 amounted to $84,684 and $120,719, respectively, including amortization of discount of $59,337 and $89,308, respectively. As of December 31, 2013, the debt discount was fully amortized.
Investor loans consisted of the following as of December 31, 2013 and 2012:
|
|
For the years ended
|
|
|
Long-Term Debt
|
December 31,2013
|
|
December 31,2012
|
|
|
Principal
|
|
$
|
190,000
|
|
|
$
|
447,500
|
|
|
Unamortized discount
|
|
|
-
|
|
|
|
(59,337
|
)
|
|
Carrying value
|
|
$
|
190,000
|
|
|
$
|
388,163
|
|
Modification and conversion of investor loans
On August 31, 2013 (the maturity date), holders of investor loans with an aggregate principal balance of $247,500 agreed to sign amendments which added a conversion option to the contracts which provided that the principal balance of $247,500 would be convertible into 569,252 shares of common stock. This amounted to a conversion price of approximately $0.43 per share. Additionally, the holders agreed to forgive accrued interest amounting to $60,252. Under ASC 470-50-40-10, when a modification or an exchange of debt instruments adds a substantive conversion option, extinguishment accounting is required. As a result, the Company recorded a loss on extinguishment of debt amounting to $116,176 (the difference between the reacquisition price of $393,250 and the net carrying amount of $277,074). The $247,502 in principal was converted into 569,252 shares of common stock on August 31, 2013.
Extension of investor loans
The remaining principal balance of $200,000 was still outstanding as of the maturity date. The holders of these Investor Loans agreed to sign amendments which extended the maturity date of their notes and added a conversion option to the notes. These amendments gave rise to an extinguishment because of the addition of a conversion option. As a result, the Company recorded a loss on extinguishment of debt in the amount of $435,574.
As of December 31, 2013 the outstanding principal balance of the remaining convertible investor loans amounted to $190,000. Accrued interest related to these loans amounted to $30,136 as of December 31, 2013.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Income tax benefit resulting from applying statutory rates in jurisdictions in which we are taxed (Federal and State of Florida) differs from the income tax provision (benefit) in our financial statements. The following table reflects the reconciliation for the years ended December 31, 2013 and 2012:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Benefit at federal and statutory rate
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
|
Change in valuation allowance
|
|
|
34
|
|
|
|
34
|
|
|
Effective tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
Deferred income taxes arise from temporary differences in the recognition of certain items for income tax and financial reporting purposes. The approximate tax effects of significant temporary differences which comprise the deferred tax assets and liabilities are as follows:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
702,260
|
|
|
$
|
326,741
|
|
|
Property and equipment
|
|
|
96
|
|
|
|
77
|
|
|
Intangible assets
|
|
|
11,392
|
|
|
|
6,792
|
|
|
Compensation arising from share-based payment
|
|
|
2,008,920
|
|
|
|
542,637
|
|
|
Accrued liabilities
|
|
|
13,156
|
|
|
|
-
|
|
|
Less: Valuation allowance
|
|
|
(2,735,824
|
)
|
|
|
(876,247
|
)
|
|
Net deferred tax asset (liability)
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2013, we have approximately $1,895,000 in net operating loss carry forward that, subject to limitation, may be available in future tax years to offset taxable income. The net operating loss carry forwards expire through 2033. The principal differences between the accumulated deficit and the above net operating loss results from the depreciation of equipment, amortization of intangible assets, stock based compensation, and accrued liabilities.
The amount of income taxes and related income tax positions taken are subject to audits by federal and state tax authorities. As of December 31, 2013, the Company's most recently filed income tax return dates are as of December 31, 2012, and generally three years of income tax returns commencing with that date are subject to audit by these authorities. Although all returns remain open until either expiration of the net operating loss (20yrs) or 3 years after the use of a net operating loss. Our estimate of the potential outcome of any uncertain tax positions is subject to management's assessment of relevant risks, facts, and circumstances existing at that time, pursuant to ASC 740,
Income Taxes
. ASC 740 requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company's policy is to record a liability for the difference between the benefit recognized and measured pursuant to ASC 740 and tax position taken or expected to be taken on the tax return. Then, to the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties as a component of income tax expense. During the periods reported, management of the Company has concluded that no significant tax position requires recognition under ASC 740.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
9. Capital and treasury stock
During the year ended December 31, 2012, the Company sold 775,463 shares of stock for approximately $0.38 per share or $294,200. Also during the year ended December 31, 2012, the Company issued 272,500 shares of stock to consultants in exchange for services, which were valued at $0.38 per share or $103,550.
During the year ended December 31, 2013, the Company sold 475,832 shares of common stock, of which 5,000 was sold for $0.20 per share and the remaining 470,832 shares were sold for $0.60 per share.
During the year ended December 31, 2013, the Company issued 52,632 shares of stock in lieu of a sales refund in the amount of $20,000. Additionally, during the year, the Company issued 8,030,000 shares of common stock in exchange for services of which 3,050,000 shares were issued to employees and 4,980,000 shares were issued to consultants. Of the 8,030,000 shares of common stock issued for services, 4,530,000, which were issued in June of 2013, were valued at $0.20 per share on and the remaining 3,500,000 shares, which were issued in August 2013, were valued at $0.60 per share or $3,006,000.
During 2013, the Company issued 700,000 shares of stock for asset acquisitions, which were valued at $0.60 per share or $420,000.
During 2013, the Company issued 1,171,848 shares of common stock in exchange for the conversion of loans with a $509,502 face value.
The Company valued the above issuances for services and other transactions at the price common shares were being sold for cash. Because of the limited trading history of its shares, the Company believed that the cash sales represented the fair value of its common shares.
The Company has two active stock option plans, (the “2011 Plan”) and (the “2012 Plan”). A total of 4,324,408 shares have been reserved for issuance under these plans. The Company authorized 1,354,408 shares of common stock to be reserved under the 2011 Plan (adopted on July 18, 2011) and authorized 3,000,000 shares of common stock to be reserved for issuance under the 2012 Plan (adopted on June 29, 2012).
During the fourth quarter of 2011, the Company granted 1,191,966 options under the 2011 Plan. Of these 1,191,966 options, 66,220 options were exercised in2011. As of December 31, 2013, the remaining 1,125,746 options have yet to be exercised and expire on September 30, 2021.
During the years ended December 31, 2013 and 2012, the Company granted 1,993,000 and 2,965,000 options, respectively, under the 2012 Plan. Of the 1,993,000 options issued in 2013, 593,000 were granted to employees and 1,400,000 were granted to non-employees. Of the 2,965,000 options granted in 2012, 1,895,000 were granted to employees and 1,070,000 were granted to non-employees. None were exercised through December 31, 2013. The options expire on June 28, 2022. As of December 31, 2013, 6,083,746 options were outstanding. Since the total number of options issued under the 2012 Plan (4,958,000 options) exceeded the number of options authorized under the 2012 Plan (3,000,000) by 1,958,000, the Board approved the authorization of the additional shares issued.
The Company accounts for its stock option awards under FASB ASC Topic 718
“Compensation—Stock compensation.”
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for each grant: risk free interest rate between 0.72% and 0.97%, no dividend yield, expected terms between 3.5 and 5 years and volatility of 100%. The expected term of stock option awards granted is generally based on the “simplified” method for “plain vanilla” options discussed in SEC Staff Accounting Bulletin (“SAB”) No. 107, as amended by SAB No. 110. The expected volatility is derived from historical volatility of a similar Company whose stock is traded on the OTCBB for a period that matches the expected term of the option. We based the risk-free interest rate that we use in our option pricing valuation model on the implied yield in effect at the time of the option grant on constant maturity US Treasury issues with equivalent remaining terms. Options vest on the date granted and can be exercised over a period of seven to ten years.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
|
10.
|
Stock options (continued)
|
At December 31, 2013, 6,083,746 options were exercisable at a weighted average price of approximately $0.27.
The following is a summary of all option activity through December 31, 2013:
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
Options
|
|
|
Average
|
|
|
Term
|
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2011
|
|
|
1,125,746
|
|
|
$
|
0.08
|
|
|
|
7.8
|
|
|
Granted in 2012
|
|
|
2,965,000
|
|
|
|
0.38
|
|
|
|
8.8
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2012
|
|
|
4,090,746
|
|
|
|
0.30
|
|
|
|
8.5
|
|
|
Granted in 2013
|
|
|
1,993,000
|
|
|
|
0.20
|
|
|
|
6.9
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31 2013
|
|
|
6,083,746
|
|
|
$
|
0.27
|
|
|
|
8.0
|
|
|
Exercisable at December 31, 2013
|
|
|
6,083,746
|
|
|
$
|
0.27
|
|
|
|
8.0
|
|
|
Options Outstanding and Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
at
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercise
|
|
|
December 31,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Price
|
|
|
2013
|
|
|
Life
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.08
|
|
|
|
1,125,746
|
|
|
|
7.8
|
|
|
|
0.08
|
|
|
$
|
0.20
|
|
|
|
1,993,000
|
|
|
|
6.9
|
|
|
|
0.20
|
|
|
$
|
0.38
|
|
|
|
2,965,000
|
|
|
|
8.8
|
|
|
|
0.38
|
|
|
|
|
|
|
|
6,083,746
|
|
|
|
8.0
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were exercised during the year ended December 31, 2013 or the year ended December 31, 2012. Cash flows resulting from excess tax benefits are classified as part of cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions of exercised options in excess of the deferred tax asset attributable to the compensation cost for such options.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
During the year ended December 31, 2012, the Company issued 412,500 warrants in conjunction with short-term notes described in Note 6. Additionally, the Company issued 580,240 warrants to two existing shareholders during the year ended December 31, 2012. During the year ended December 31, 2013, the Company issued 359,100 warrants in conjunction with short-term notes described in Note 6 and 1,090,000 warrants to six existing shareholders and one note holder during the year ended December 31, 2013. The following is a summary of warrant activity through December 31, 2013:
|
Warrants Outstanding and Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
at
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercise
|
|
|
December 31,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Price
|
|
|
2013
|
|
|
Life
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.50
|
|
|
|
1,861,600
|
|
|
|
6.8
|
|
|
$
|
0.50
|
|
|
$
|
0.38
|
|
|
|
580,240
|
|
|
|
9.0
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
2,441,840
|
|
|
|
7.3
|
|
|
$
|
0.47
|
|
No warrants were exercised during the year ended December 31, 2013 or the year ended December 31, 2012. Cash flows resulting from excess tax benefits are classified as part of cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions of exercised options in excess of the deferred tax asset attributable to the compensation cost for such options.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
|
12.
|
Related-party transactions
|
During year ended December 31, 2012 the Company had the following transactions with related parties:
- issued 90,000 shares of its $0.00001 par value common stock to relatives of the Company’s President for services rendered on behalf of the Company. These shares were valued at $34,200.
- paid $47,400 in lease payments for a residence for the Company’s Chairman and Chief Executive Officer; and
- borrowed $1,250 from the Company’s Chief Operating Officer.
During year ended December 31, 2013 the Company had the following transactions with related parties:
- issued 3,815,000 shares of its $0.00001 par value common stock to certain related parties for services rendered to the Company. These shares were valued at $843,000. Of the 3,815,000 shares issued, 350,000 shares were issued to the Company’s CEO, 1,700,000 shares were issued to the Company’s President, 1,000,000 shares were issued to the Company’s former CEO, 500,000 shares were issued to the Company’s COO, 50,000 shares were issued to an employee, 50,000 shares were issued to a relative of the President, and 165,000 shares were issued to a board member.
- paid $35,550 in lease payments for a temporary residence for the Company’s Chairman and Chief Executive Officer and $19,200 in lease payments for a residence for the Company’s president.
- reimbursed the Company’s former CEO for $10,400 in lease payments for a temporary residence; and
- borrowed $10,000 from a relative of the Company’s CEO.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
13. Commitments and contingencies
Operating Leases – Future Minimum Lease Payments
The Company leases a residence (“Residence 1”) for an employee under an agreement that is classified as an operating lease. This lease was assumed by the employee/tenant effective October 1, 2013, although the Company is still liable under the lease if the employee/tenant does not pay the rent as required.
Rental expense related to Residence 1 was $35,550 and $47,400 for the year ended December 31, 2013 and 2012, respectively.
The Company leases a residence (“Residence 2”) under an agreement that is classified as an operating lease. This lease was assumed by the employee/tenant effective September 1, 2013, although the Company is still liable under the lease if the employee tenant does not pay the rent as required.
Rental expense related to Residence 2 was $19,200 for the year ended December 31, 2013.
The Company leases office space under an agreement that is classified as an operating lease which expires in 2014. The future minimum lease payments required under this lease are as follows (which include required estimated common area maintenance and utility charges):
|
For the years ended December 31,
|
|
|
2014
|
|
$
|
33,460
|
|
14. Restatement of previously issued financial statements
The Company has made adjustments to its consolidated financial statements for the years ended December 31, 2012, December 31, 2011 and December 31, 2010 due to various adjustments arising from the re-audit of the Company’s financial statements from inception (August 16, 2010) through December 31, 2012.
On March 11, 2014, the Company received notification from the SEC that the Company’s then current auditing firm had been suspended from auditing public companies due to an adverse opinion received from the PCAOB. Accordingly, the Company immediately engaged the firm of Kingery & Crouse, P.A
(“K & C”) on March 21, 2014 and began the 2013 audit. As part of the stipulations made by the SEC in their correspondence, the Company was required to have a re-audit of any comparative period issued with its current year annual report on Form 10-K. As part of their engagement, K & C requested all work papers from the prior auditor but received deficient information. This resulted in a need to re-audit multiple prior periods. The re-audit of the financial statements from inception (August 16, 2010) through December 31, 2012 resulted in multiple adjustments related to the valuation of common stock issued, stock-based compensation and the classification of certain expenses (e.g. rent payments).
The comparative periods presented in the current year annual report on Form 10-K are the (i) balance sheet as of December 31, 2012, (ii) the statement of operations for the year ended December 31, 2012 and (iii) the statement of cash flows for the year ended December 31, 2012. The affects of the restatement for these periods are summarized below.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
14. Restatement of previously issued financial statements (continued):
The following table presents the balance sheet as previously reported, restatement adjustments and the balance sheet as restated at December 31, 2012:
|
|
|
Previously
Reported
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
84,187
|
|
|
$
|
—
|
|
|
$
|
84,187
|
|
|
Deposits and prepaids
|
|
|
11,389
|
|
|
|
—
|
|
|
|
11,389
|
|
|
Total current assets
|
|
|
95,576
|
|
|
|
—
|
|
|
|
95,576
|
|
|
Property and intangible assets, net of accumulated depreciation
|
|
|
13,731
|
|
|
|
—
|
|
|
|
13,731
|
|
|
Total assets
|
|
$
|
109,307
|
|
|
$
|
—
|
|
|
$
|
109,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
119,239
|
|
|
$
|
—
|
|
|
$
|
119,239
|
|
|
Accrued liabilities
|
|
|
109,061
|
|
|
|
—
|
|
|
|
109,061
|
|
|
Notes payable, net of discount
(1)
|
|
|
422,646
|
|
|
|
(34,483
|
)
|
|
|
388,163
|
|
|
Convertible bridge loans, less related discount
(2)
|
|
|
199,471
|
|
|
|
(70,241
|
)
|
|
|
129,230
|
|
|
Total current liabilities
|
|
|
850,417
|
|
|
|
(104,724
|
)
|
|
|
745,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 2,000,000 shares authorized, no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.00001 par value, 30,000,000 shares authorized, 10,994,823 shares issued and outstanding at December 31, 2012
(3)
|
|
|
109
|
|
|
|
2
|
|
|
|
111
|
|
|
Additional paid-in capital
(3)
|
|
|
1,083,585
|
|
|
|
1,198,505
|
|
|
|
2,282,090
|
|
|
Deficit accumulated during the development stage
(3)
|
|
|
(1,824,804
|
)
|
|
|
(1,093,783
|
)
|
|
|
(2,918,587
|
)
|
|
Total stockholders’ deficiency
|
|
|
(741,110
|
)
|
|
|
104,724
|
|
|
|
(636,386
|
)
|
|
Total liabilities and stockholders’ deficiency
|
|
$
|
109,307
|
|
|
$
|
—
|
|
|
$
|
109,307
|
|
|
|
(1) Common stock was issued in connection with the notes payable issued in 2011 resulting in a debt discount. The common stock was originally valued at approximately $0.53 per share resulting in a total discount of $33,224. However, it was determined that the proper value was $0.38 per share resulting in a revised discount of $155,936. The revised value of $0.38 per share was based on stock sales during 2012. The restatement adjustment relates to the correction in amortization related to the debt discount.
|
|
|
(2) Warrants were issued in connection with the convertible bridge loans in 2012 resulting in a debt discount. The warrants were originally assigned an aggregate fair value of $8,106 based on a fair value range per share between $0.017 and $0.025. It was determined the inputs used in the fair value calculations were not correct. After revaluing the warrants, the revised aggregate fair value was $90,893 based on a fair value range per share between $0.29 and $0.30.
|
|
|
(3)
The restatement adjustment to common stock at par value, to additional paid-in capital and to deficit accumulated during the development stage relates to the revaluation of options, warrants and stock issued in exchange for services. The revaluation of options, warrants and stock issued in exchange for services is described in detail below.
|
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
14. Restatement of previously issued financial statements (continued):
The following table presents the statement of operations as previously reported, restatement adjustments and the statement of operations as restated for the year ended December 31, 2012:
|
|
|
Previously
Reported
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
117,733
|
|
|
$
|
—
|
|
|
|
117,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
(4,000
|
)
|
|
|
—
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
113,733
|
|
|
|
—
|
|
|
|
113,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
(1)
|
|
|
2,340
|
|
|
|
28,083
|
|
|
|
30,423
|
|
|
Professional fees
(2)
|
|
|
264,045
|
|
|
|
150,349
|
|
|
|
414,394
|
|
|
Selling
(2)
|
|
|
214,901
|
|
|
|
439,809
|
|
|
|
654,710
|
|
|
General and administrative
(2)
|
|
|
660,198
|
|
|
|
(112,720
|
)
|
|
|
547,478
|
|
|
TOTAL EXPENSES
|
|
|
1,141,484
|
|
|
|
505,521
|
|
|
|
1,647,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET OPERATING LOSS
|
|
|
(1,027,751
|
)
|
|
|
505,521
|
|
|
|
(1,533,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
(3)
|
|
|
(72,620
|
)
|
|
|
(64,483
|
)
|
|
|
(137,103
|
)
|
|
TOTAL OTHER EXPENSE
|
|
|
(72,620
|
)
|
|
|
(64,483
|
)
|
|
|
(137,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,100,371
|
)
|
|
$
|
(570,004
|
)
|
|
$
|
(1,670,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per weighted share, basic and fully diluted
|
|
$
|
(0.10
|
)
|
|
$
|
—
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and fully diluted
|
|
|
10,721,012
|
|
|
|
—
|
|
|
|
10,721,012
|
|
|
|
(1) Payments related to research and development were reclassified from general and administrative to research and development.
|
|
|
(2) The restatement adjustments to professional fees, selling expenses and general and administrative expenses relate to the revaluation of options, warrants and stock issued in exchange for services which is described in more detail below.
|
|
|
(3) The restatement adjustments to interest expense relates to the revaluation of options, warrants and stock issued in exchange for services which is described in more detail below.
|
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
14. Restatement of previously issued financial statements (continued):
The following table presents the statement of cash flows as previously reported, restatement adjustments and the statement of cash flows as restated for the year ended December 31, 2012:
|
|
|
Previously
Reported
|
|
|
Restatement
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,100,371
|
)
|
|
$
|
(570,040
|
)
|
|
$
|
(1,670,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to reconcile net loss to net cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,384
|
|
|
|
—
|
|
|
|
12,384
|
|
|
Stock-based compensation
(1)
|
|
|
411,366
|
|
|
|
423,772
|
|
|
|
835,138
|
|
|
Stock, options and warrants issued for services
(1)
|
|
|
21,800
|
|
|
|
81,750
|
|
|
|
103,550
|
|
|
Interest expense
(1)
|
|
|
38,601
|
|
|
|
64,484
|
|
|
|
103,085
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,050
|
|
|
|
—
|
|
|
|
5,050
|
|
|
Deposits and prepaid expenses
|
|
|
(3,489
|
)
|
|
|
—
|
|
|
|
(3,489
|
)
|
|
Accounts payable and accrued expenses
|
|
|
143,396
|
|
|
|
|
|
|
|
143,343
|
|
|
Net cash used for operating activities
|
|
|
(471,263
|
)
|
|
|
|
|
|
|
(471,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of common stock
|
|
|
294,200
|
|
|
|
—
|
|
|
|
294,200
|
|
|
Net pro
ceeds from borrowings on notes payable
|
|
|
206,250
|
|
|
|
—
|
|
|
|
206,250
|
|
|
Net cash used for financing activities
|
|
|
500,450
|
|
|
|
—
|
|
|
|
500,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
29,187
|
|
|
|
|
|
|
|
29,187
|
|
|
Cash, beginning of period
|
|
|
55,000
|
|
|
|
—
|
|
|
|
55,000
|
|
|
Cash, end of period
|
|
$
|
84,187
|
|
|
$
|
—
|
|
|
$
|
84,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1) The restatement to the cash flow statements arises from the revaluation of options, warrants and stock issued for services which is described below.
|
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
14. Restatement of previously issued financial statements (continued):
The following table presents the consolidated statement of stockholders’ deficit as previously reported, restatement adjustments and the consolidated statement of cash flows as restated for the year ended December 31, 2012:
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional Paid-In Capital
|
|
|
Deficit Accumulated During Development Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012, as previously reported
|
|
|
10,994,823
|
|
|
$
|
109
|
|
|
$
|
1,083,585
|
|
|
$
|
(1,824,804
|
)
|
|
$
|
(741,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement adjustments
(1)
|
|
|
—
|
|
|
|
2
|
|
|
|
1,198,505
|
|
|
|
(1,093,783
|
)
|
|
|
104,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012, as restated
|
|
|
10,994,823
|
|
|
$
|
111
|
|
|
$
|
2,282,090
|
|
|
$
|
(2,918,587
|
)
|
|
$
|
(636,386
|
)
|
|
|
(1) The restatement adjustments to the statement of stockholders’ equity relates to the revaluation of options, warrants and stock issued for services which is described below.
|
|
|
Revaluation of Options, Warrants and Stock issued for Services
|
Stock issued for services
During 2011, stock issued for services was originally valued at $0.08 per share resulting in an aggregate fair value of $3,448. The stock was revalued at $0.38 per share to be consistent with stock sales during 2011 resulting in an aggregate fair value of $107,735. The difference in fair value before and after the revaluation amounted to $104,287. Stock issued for services during 2012 was originally valued at $0.08 per share resulting in an aggregate fair value of $21,800. The stock was revalued at $0.38 per share to be consistent with stock sales during 2012 resulting in an aggregate fair value of $103,550. The difference in fair value before and after the revaluation amounted to $81,750.
Warrants
Warrants which were issued in 2012 were originally assigned an aggregate fair value of $8,106 based on a fair value range per warrant between $0.017 and $0.025. It was determined the inputs used in the fair value calculations were not correct. After revaluing the warrants, the revised aggregate fair value was $90,893 based on a fair value range per warrant between $0.29 and $0.30. The difference in fair value before and after the revaluation amounted to $82,787. The difference in inputs related to the fair value calculation is detailed in the following table:
|
|
|
Original Inputs
|
|
|
Revised Inputs
|
|
|
Underlying price
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
Strike price
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
Range of contractual term to expiration
|
|
0.70 – 0.99 Years
|
|
|
6.70 – 6.99 Years
|
|
|
Volatilities
|
|
|
40
|
%
|
|
|
100
|
%
|
|
Risk-free rates
|
|
|
0.13% - 0.18
|
%
|
|
|
1.01% - 1.24
|
%
|
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
14. Restatement of previously issued financial statements (continued):
Stock Options
Stock options issued in 2011 were originally assigned an aggregate fair value of $55,837 based on a fair value per option of $0.3102. It was determined the inputs used in the fair value calculations were not correct. After revaluing the options, the revised aggregate fair value was $439,034 based on a fair value per option of $2.44. The difference in fair value before and after the revaluation amounted to $383,197. Stock options issued in 2012 were originally assigned an aggregate fair value of $411,366 based on a fair value per option of $0.1387. It was determined the inputs used in the fair value calculations were not correct. After revaluing the options, the revised aggregate fair value was $835,138 based on a fair value per option of $0.2817. The difference in fair value before and after the revaluation amounted to $423,772. The difference in inputs related to the fair value calculation is detailed in the following tables:
|
|
|
2011 Options
|
|
|
|
|
Original Inputs
|
|
|
Revised Inputs
|
|
|
Underlying price
|
|
$
|
0.37
|
|
|
$
|
0.38
|
|
|
Exercise price
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
Expected term
|
|
10 Years
|
|
|
4.92 Years
|
|
|
Volatilities
|
|
|
40
|
%
|
|
|
100
|
%
|
|
Risk-free rates
|
|
|
1.80
|
%
|
|
|
0.97
|
%
|
|
|
|
2012 Options
|
|
|
|
|
Original Inputs
|
|
|
Revised Inputs
|
|
|
Underlying price
|
|
$
|
0.31
|
|
|
$
|
0.38
|
|
|
Exercise price
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
Expected term
|
|
10 Years
|
|
|
5 Years
|
|
|
Volatilities
|
|
|
40
|
%
|
|
|
100
|
%
|
|
Risk-free rates
|
|
|
0.72
|
%
|
|
|
0.72
|
%
|
Common stock issued in connection with note purchase agreement
During 2011, stock issued in connection with a note purchase agreement was originally valued at approximately $0.53 per share resulting in an aggregate fair value of $33,226. The stock was revalued at $0.38 per share to be consistent with stock sales during 2011 resulting in an aggregate fair value of $155,938. The difference in fair value before and after the revaluation amounted to $122,712.
Summary
The aggregate change in fair value before and after the revaluations amounted to $1,198,505 which is the direct restatement adjustment to additional paid-in capital. The restatement adjustment to deficit accumulated during development stage amounted to $1,093,783. The difference between the adjustments to additional paid-in capital and deficit accumulated during development stage amounted to $104,772, which is directly related to debt discount arising from common stock issued in connection with the note purchase agreement.
DISCOUNT COUPONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
15. Subsequent events
Board Resolutions
On January 17, 2014 and January 24, 2014, respectively, the Company’s shareholders (by majority vote) and Board of Directors (by unanimous vote) approved an increase to the Company’s authorized shares of Common Stock, $.00001 par value ("Common Stock") from 30,000,000 Common Stock Shares to 50,000,000 Common Stock Shares. The Amendment to the Certificate of Incorporation was approved by the State of Florida on March 6, 2014 to effectuate the increase in Common Stock (the “Increase).
On June 24, 2014, the Board of Directors approved the issuance of 8,750,000 options exercisable at $0.01 on a cashless exercise. The options were issued to various officers and employees in satisfaction of accrued payroll and compensation totaling $301,154.
Acquisition of Go Charleston Deals, LLC
On March 31, 2014, the Company acquired the net assets of Go Charleston Deals, LLC, a Daily Deal site focusing on merchants and clients in the Charleston, South Carolina market. The Company is required to pay the following consideration to Go Charleston Deals, LLC; (a) a $50,000 convertible note; and (b) common stock consideration based on certain gross billing levels.
Acquisition of All Deals Local, LLC
On March 31, 2014, the Company acquired the net assets of All Deals Local, LLC, a Daily Deal site focusing on merchants and clients in the Three Village/Port Jefferson area of Long Island, New York. The Company is required to pay the following consideration to All Deals Local, LLC; (a) a $50,000 convertible note; (b) 50,000 common stock shares and (c) other common stock consideration based on certain gross billing levels.
Acquisition of Half Price San Diego, Inc
On July 7, 2014, the Company entered into a Purchase Agreement to acquire the operational assets of Half Price San Diego, LLC, ("
http://halfpricesandiego.com
"), a daily deal site that was first to enter the deal space with its focus on merchants and clients in the San Diego, California market.
Acquisition of Conejo Deals Inc.
On July 1, 2014, the Company entered into a Purchase Agreement to acquire the operational assets of Conejo Deals Inc., a daily deal site focusing on merchants and clients in the Los Angeles, California market. The Company is required to pay the following consideration to Conejo Deals Inc.; (a) $750,000, (b) $500,000 convertible note; (c) 100,000 common stock shares and (d) other common stock consideration based on certain gross billing levels.
Shares issued subsequent to balance sheet date
Between January 1, 2014 and July 25, 2014, the Company issued an additional 5,279,812 shares. Of the 5,279,812 shares issued, (i) 1,709,540 shares were issued for the conversion of notes payable, (ii) 297,000 shares were issued in connection with the issuance of notes payable, (iii) 3,210,772 shares were issued in exchange for services, (iv) 12,500 shares were issued via a subscription agreement, and (v) 50,000 shares were issued in connection with a business combination
